The Law Handbook 2024
422 Section 5: Managing your money Conversely, the NCC does not apply if the credit is provided wholly or predominantly for business, or for investments other than residential property investment (s 5(3) NCC). This poses important questions: 1 What percentage of credit must be for a Code purpose to qualify the transaction as being wholly or predominantly for a Code purpose? This question is answered in the NCC (s 5(4)). Credit will be provided wholly or predominantly for business, domestic or household purposes if: a more than half of the credit is intended to be used for a Code purpose; or b where the credit is intended to be used to obtain goods and services for more than one purpose, the goods are intended to be mostly used for a Code purpose. 2 Whose purpose? The law here is unsettled. Courts have applied at least two different tests for determining the purpose for which credit is provided under a credit contract. One test is concerned with the substance of the transaction; that is, the way the credit provided under the credit contract was ultimately used (see Linkenholt Pty Ltd v Quirk [2000] VSC 166 at [98], [121]; Jonsson v Arkway Pty Ltd [2003] NSWSC 815; Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611 at [47]). The other test looks objectively at the intention of the credit provider, and asks what a reasonable person in the shoes of the credit provider would have understood to be the predominant purpose for which the credit was provided (see Rafiqi v Wacai Investments Pty Ltd [1998] ASC 1550–024, Brabazon DCJ; Park Avenue Nominees Pty Ltd v Boon (on behalf of Weir) [2001] NSWSC 700; Taylor & Taylor v Third Szable Holdings Pty Ltd [2001] VCAT 1841 at [59]– [64]); Commonwealth Bank of Australia v Stephens [2017] VSC 385). This test involves taking into account the information communicated by the consumer to the credit provider prior to and at the time the credit contract was entered into. 3 What is the effect of a declaration that the credit is for a non-Code purpose? Sometimes a credit provider will ask a consumer to sign a declaration that the credit sought is to be provided for a non-Code purpose, such as a Business Purpose Declaration. Signing a declaration creates a presumption that the credit contract and the credit provided under it, is not covered by the NCC (s 13(2)). However, unlike under the Old Code, this presumption is not conclusive under the NCC. For contracts entered into on or after 1 July 2010, the declaration must be substantially in the form prescribed by regulation 68 of the NCCP Regulations (otherwise it will be ineffective), and must contain a warning that the protection of the NCC may be lost as a result of signing the declaration. The declaration will not be effective if, at the time the declaration was made, the credit provider, or a person prescribed by the NCCP Regulations, knew or had reason to believe (or would have done if they had made reasonable enquiries) that the credit would in fact be applied wholly or predominantly for a Code purpose (s 13(3) NCCP Regulations). Because regulation 67 of the NCCP Regulations defines a prescribed person broadly, the knowledge of most people ordinarily involved in arranging a business purpose declaration will be relevant in deciding whether a business purpose declaration is effective. If a declaration is found to be ineffective under the NCC (s 13(3)), the credit will be taken to have been provided for a Code purpose. This exception protects debtors, who might otherwise be tricked into signing away their right to protection under the NCC. This is a significant improvement on the Old Code and should help to address Code- avoidance mechanisms. For contracts entered into before 1 July 2010, section 13 of the NCC does not apply. Instead, section 11 of the Old Code applies in effect (item 3 sch 1 Transitional Act). Charge for providing credit The NCC applies only if there is a charge (e.g. interest or certain fees) for providing the credit. This requirement has been construed broadly by the courts. For example, in Australian Securities & Investments Commission v BHF Solutions Pty Ltd [2022] FCAFC 108, the Full Court of the Federal Court held that a charge for services related to the provision of credit (e.g. under a related services contract) was ‘a charge made for providing credit’. The court found that legislation must be looked at in a way that: looks to the substance of the credit arrangements rather than their contractual form and ensures that
RkJQdWJsaXNoZXIy MTkzMzM0