IN THE COUNTY COURT OF VICTORIA
AT Melbourne
COMMERCIAL DIVISION	Revised
Not Restricted
Suitable for Publication	
Banking and Finance List
Case No. CI-19-06060

Commercial Funds Pty Ltd	Plaintiff	
		
v		
		
Hadrian Nicholas Fraval and Halina Henrietta Fraval	Defendants	

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JUDGE:	Judge Woodward 	
WHERE HELD:	Melbourne	
DATE OF HEARING:	26 August 2020	
DATE OF RULING:	13 November 2020	
CASE MAY BE CITED AS:	Commercial Funds Pty Ltd v Fraval	
MEDIUM NEUTRAL CITATION:	[2020] VCC 1787 		

REASONS FOR RULING
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Subject:		BANKING AND FINANCE

Catchwords: 	Application for summary judgment – application of the National Credit Code (“Code”) – construction of memorandum of common provisions including definition of “guarantor” – whether a guarantor who is primarily liable is a “debtor” within the meaning of the Code – definitions of “debtor” under the Code – purpose of lending for the purposes of the Code – statutory unconscionability – whether higher rate of interest is a penalty – application of the “no penalty rule”

Legislation Cited:	Transfer of Land Act (1958) (Vic) s78, National Credit Code at Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) (“Code”) ss3, 4, 5, 7, 13, 204 and 209, Australian Securities and Investments Commission Act 2001 (Cth) ss12CA and 12CB

Cases Cited:	Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158, Commonwealth Bank of Australia v Jackson (1992) V Conv R 54-447, Wren Close Nominees Pty Ltd v McCulloch [2002] VSC 138, Equititrust v SLJM [2010] NSWSC 1059, Jams 2 Pty Ltd & Ors v Stubbings (No 3) [2019] VSC 150, Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 357, Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 1026, Jams 2 Pty Ltd v Stubbings [2020] VSCA 200, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, Linkenholt Pty Ltd v Quirk [2000] VSC 168, Haynes v St George Bank a Division of Westpac Banking Corporation; Haynes v Westpac banking Corporation [2018] SASCFC 51, ASIC v Kobelt (2019) 368 ALR 1, PSAL Ltd v Kellas-Sharpe & Ors [2012] QSC 31, Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233, Oxygen Funding Solutions Pty Ltd v Dick-Telfar [2020] NSWSC 582, Stoyanova v Equity-One Mortgage Fund Ltd [2016] VSC 414, Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	Mr C Salpigtidis	Summer Lawyers	
			
For the Defendant	Mr D Robertson QC
Ms R Campbell	Katherine Moorhouse Perks	

HIS HONOUR:
Parties, summary and outcome
1	In this proceeding, the plaintiff (“Commercial”) seeks to recover possession of a property at 479 Ringwood Warrandyte Road, Warrandyte South (“Warrandyte Property”), pursuant to s78 of the Transfer of Land Act 1958 (Vic) (“TLA”).The second defendant (“Mrs Fraval”) is the sole registered proprietor of the Warrandyte Property. The first defendant (“Mr Fraval”) (Mrs Fraval’s late husband) died on 7 August 2019.
2	At the hearing on 26 August 2020, I heard two applications. The first in time was by Mrs Fraval seeking leave to file and serve a rejoinder and reply to defence to counterclaim. Relevantly, the rejoinder sought to develop Mrs Fraval’s defence based on the National Credit Code at Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) (“Code”), relied on in her amended defence and counterclaim. The second application was Commercial’s summons dated 29 July 2020 for summary judgment. 
3	Although Mrs Fraval’s application would be redundant if I acceded to Commercial’s application for summary judgment, I heard submissions on Mrs Fraval’s application first and treated the summary judgment application as if all the arguments raised on the pleadings (including the proposed rejoinder and reply to defence to counterclaim) were available to the parties. In particular, I heard full argument on all aspects of Mrs Fraval’s defence based on the Code.
4	For the reasons below, I am satisfied that Mrs Fraval’s defence based on the Code is hopeless and bound to fail. Further, despite misgivings about the present state of the law on penalties as discussed below, I am satisfied that her other defences have no real prospects of success on the law as I am presently bound to apply it. I will therefore give summary judgment for Commercial and order that it have possession of the Warrandyte Property. I will further order that Mrs Fraval’s amended defence and counterclaim are dismissed. It follows that it is unnecessary for me to rule on Mrs Fraval’s application for leave to file a rejoinder and reply to defence to counterclaim.
5	Unless the parties are able to bring to my attention any matter supporting a different order on costs, I will also order that Mrs Fraval pay Commercial’s costs of and incidental to the proceeding on the standard basis, to be taxed in default of agreement.
Applications and evidence
6	Mrs Fraval’s application is supported by an affidavit sworn by her solicitor Katherine Moorhouse Perks, of Black Rock, Victoria (“Ms Moorhouse Perks”). In her affidavit, Ms Moorhouse Perks exhibits correspondence with Commercial’s solicitors Summer Lawyers in relation to securing Commercial’s consent to Mrs Fraval’s proposed rejoinder and reply to defence to counterclaim. That consent was not forthcoming. Ms Moohouse Perks has not sworn a further affidavit in relation to Commercial’s application for summary judgment, or otherwise.
7	Commercial’s application for summary judgment is supported by an affidavit of Paul William Stone sworn on 24 July 2020 (“Stone affidavit”). On 25 August 2020, Mr Stone swore a further short affidavit deposing that on 14 August 2020, the sale of the Lake Bolac Hotel completed, and Commercial discharged its mortgage over that property. He certified that as a result of the sale of the hotel, Mrs Fraval “owes the Lender the sum of $572,945.77 as at 25 August 2020 excluding legal and receiver costs and expenses relating to these proceedings”.
8	On 21 August 2020, Mrs Fraval swore an affidavit in opposition to the summary judgment application (“Fraval affidavit”). In that affidavit, Mrs Fraval deposes at some length to the circumstances in which she came to sign the facility and security documents for the loan from Commercial described below. To the extent presently relevant, these are summarised in the factual background section of my reasons. Having read the Fraval affidavit before the hearing, I became concerned that it raised a number of matters that seemed to be relevant to a possible Garcia defence, or claims for unconscionability that had elements similar to those that might be raised as part of a Garcia defence.
9	I raised these concerns at the commencement of the hearing with senior counsel for Mrs Fraval, Mr Robertson QC, because it seemed to me that this had the potential to create difficulties for Ms Moorhouse Perks in continuing to act for Mrs Fraval in this proceeding. In particular, it was clear on the material that Ms Moorhouse Perks had advised Mrs Fraval in relation to the execution of the facility and security documents. Thus, any questions about Mrs Fraval’s understanding of the documents would necessarily involve evidence about what Ms Moorhouse Perks had advised at the time of signing.
10	In response, Mr Robertson explained that the matters raised in paragraphs 16 to 20 of Mrs Fraval’s affidavit go to the reasons why she entered into the transaction. That is, she did so because her husband asked her to, and because of the particular circumstances which he was concerned about and her concerns about him. Mrs Fraval says that she did not have any financial advice but it is plain that she did have legal advice. Mr Robertson said that the unconscionability case is not put on the basis of a lack of understanding of the legal effect of the transaction. Rather, it is put on the basis that it was an improvident transaction, where Mrs Fraval did not have independent financial advice which would have conceivably gone to the question of whether the loan was likely to be repaid.
11	I said to Mr Robertson that I still had some concerns about the prospect that Ms Moorhouse Perks may need to be called to give evidence at any future trial of the proceeding. But given that Mrs Fraval was also represented by senior and junior counsel, I was content to leave the issue to counsel and Ms Moorhouse Perks to consider in relation to the future conduct of the proceeding.
Issues
12	Mrs Fraval raises three defences  in response to Commercial’s claim for recovery of possession of the Warrandyte Property, as follows:
•	the loan agreement is a credit contract within the meaning of the Code and, accordingly, it is unenforceable by reason of s39 of the Consumer Credit (Victoria) Act 1995 in that the annual percentage rate exceeds 48% per annum and is unjust within the meaning of s76 of the Code;
•	the loan agreement was unconscionable within the meaning of ss12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”); and
•	the provisions of the loan agreement concerning the payment of interest at the rate of 10% per month constitute a penalty.
Factual background
Background to the loan
13	Mrs Fraval deposes that she and Mr Fraval married in 1974 and migrated from England to Australia in 1985. In 1993, Mr Fraval sponsored his older brother Sachlan Fraval to come to Australia and work with Mr Fraval and their father. Sachlan Fraval became a co-director of Rofin with Mr Fraval on 17 February 1994. Sachlan Fraval ceased to act as a director of Rofin in 2012. At the time of the transactions the subject of this proceeding, Mr Fraval was Rofin’s sole director and secretary. Mr and Mrs Fraval purchased the Warrandyte property in January 2000 and it has been Mrs Fraval’s “sole domestic residence since 2009”. 
14	On 28 February 2019, Homesec on behalf of Commercial received an email from a finance broker, Malcolm Murphy of Arbitrans Accounting, giving particulars of an application for finance. The email named Mr Fraval as “Applicant 1”, the Warrandyte Property as “Security Property” (with a value of $3.2 million) and “Extra Security Property” as 2127 Glenelg Highway, Lake Bolac, described as “Hotel being purchased”. The loan amount was $325,000 for a two-month term. The email under the heading “What will the funds be used for? (Please note that our loans are only for business purposes)” states “Purchase hotel”. Finally, it shows the that the “Business Details” include “Company Name” as “Rofin Australia Consortium Pty Ltd atf QLV Unit Trust” (“Rofin”).
15	On 8 and 14 March 2019, Mr Murphy forwarded to Homesec on behalf of Commercial, Commercial’s “Conditional Approval (Letter of Offer)” to Rofin as borrower and Mr and Mrs Fraval as “Guarantor/Mortgagor”, signed as accepted by Mr Fravel (on his own behalf and as the sole director of Rofin) and by Mrs Fravel (“Letter of Offer”). It largely repeats the details of the loan as set out in the email, except that it names Rofin as “Borrower”, Mr and Mrs Fraval as “Guarantor/Mortgagor” and shows the total loan advance as $378,000 (“loan”), comprising the net settlement funds of $325,000, plus a loan establishment fee of $22,760 and prepaid interest (two months) of $30,240. It shows the interest rate as “Lower Rate 4% per month (Rate payable if no default)” and “Higher Rate 10% per month (Rate payable if default)”.  Notably, the loan purpose is stated as "Business use”.
16	Mrs Fraval deposes that Mr Fraval came home in the evening of 14 March 2019 and handed Mrs Fraval the Letter of Offer. In her affidavit, Mrs Fraval explains at some length how she came to sign the Letter of Offer, her concern for Mr Fraval’s health and his insistence that “all would be well”. She said that she “felt that it would cause massive upset between us, and damage to his already declining health, if I didn’t sign”. She said that she had never met nor spoken to Mr Murphy from Arbitrans Accounting and that she had never been a director, shareholder or involved in the management of Rofin.
Loan documentation
17	After receiving the Letter of Offer signed as accepted by Mr and Mrs Fraval, Commercial’s solicitors, Summer Lawyers, drew up the facility and security documents and sent these for execution by Rofin and Mr and Mrs Fraval. The evidence is that the suite of documents was sent by Summer Lawyers on around 18 March to Mr Greg Lay of Balfe & Webb, the solicitor for Rofin and Mr Fraval, and also to Ms Moorhouse Perks, solicitor, who had been retained to advise Mrs Fraval. The suite of documents, which were signed over the next few days, comprised the following:
•	a form of Mortgage naming Rofin as mortgagor and Commercial as mortgagee, over certificate of title volume 06726 folio 041, being the hotel property at 2127 Glenelg Highway, Lake Bolac Vic 3351, incorporating the Summer Lawyers Memorandum of Common Provisions AA3394 (“MCP”), signed by Mr Fraval as Rofin’s sole director and secretary and dated 20 March 2019;
•	a form of Mortgage naming Mr and Mrs Fravel as mortgagor and Commercial as mortgagee, over certificate of title volume 11136 folio 878, being the Warrandyte Property, also incorporating the MCP, signed by Mr and Mrs Fraval and dated 20 March 2019 (“Warrandyte Mortgage”);
•	a document headed “Schedule A1” and described in the footnote as follows: “This is Schedule A to [the MCP] and shall be interpreted as though all of the provisions set out in the [MCP] are set out at length in this Schedule”, signed by Mr Fraval (on his own behalf and as director and secretary of Rofin) and Mrs Fraval and undated (“MCP Schedule A”);
•	a document headed “Schedule B1” and described in the footnote as follows: “This is Schedule B to [the MCP] and shall be interpreted as though all of the provisions set out in the [MCP] are set out at length in this Schedule” signed by Mr Fraval (on his own behalf and as director and secretary of Rofin) and Mrs Fraval and undated;
•	cheque directions, showing that the loan of $378,000 was to be paid as to $22,760 for the establishment fee and $30,240 for retained interest to the “Lender” and $325,000 to the “Borrower”, signed by Mr Fraval as sole director and secretary of Rofin and undated;
•	a document headed “Authority & Direction”, naming Rofin as “Borrower” and Mr and Mrs Fraval as “Guarantor(s)” giving authority (among other things) for Summer Lawyers as agents for Commercial to “disburse the relevant loan funds…as per the written direction provided by me”, signed by Mr Fraval (on his own behalf and as director and secretary of Rofin) and Mrs Fraval and undated;
•	a document headed “Schedule D Debtor’s Advice Declaration”, by which Mr Fraval as “Company Officer” of Rofin, declared (in effect) that he understood the terms and financial effect of the mortgage and had obtained legal advice, signed by Mr Fraval as director and secretary of Rofin and dated 19 March 2019;
•	a document headed “Schedule F Guarantor’s Advice Declaration” naming Mrs Fraval as “Guarantor”, signed by Mrs Fraval and undated;
•	a document headed “Schedule G Australian Legal Practitioners Certificate” signed by Ms Moorhouse Perks and dated 18 March 2019;
•	versions of the above two documents signed by Mr Fraval and his solicitor;
•	various identity verification forms, statements and certified copies of passports and driver licences of Mr and Mrs Fraval and powers of attorney signed by each of Rofin and Mr and Mrs Fraval appointing Summer Lawyers as attorney to sign documents and do things to perfect the mortgage or, after an event of default, do anything in relation to the mortgaged property. 
18	Every document signed by Mrs Fraval as listed above was witnessed by Ms Moorhouse Perks. It is not clear from the documents or contemporaneous emails whether every document in the full suite of documents listed above was sent to Ms Moorhouse Perks, including those that her client Mrs Fraval was not required to sign. However, this is the effect of the Stone affidavit (at [23]) and Mrs Fravel has not deposed otherwise (at [18]-[20]). As noted above, Ms Moorhouse Perks has sworn an affidavit in relation to the rejoinder application, but not dealing with any aspect of her involvement in the signing of the facility and security documents. I therefore accept Mr Stone’s evidence on this issue.
19	In her affidavit, Mrs Fraval describes the circumstances of her signing the facility and security documents as follows:
“On 18 March 2019 I was telephoned by [Mr Fraval] who asked me to drive down from Warrandyte South to Black Rock to meet Katherine Moorhouse Perks and sign documents in her presence. I did that the same day.
On the day that I signed the loan document [Mr Fraval] told me that it was a short-term loan and would be paid out in two months. On that day, Sachlan said to me that he was just about to obtain funds from another source. I understood the documents related to a project of Sachlan’s at Lake Bolac for which he had sought [Mr Fraval’s] support. My understanding was limited to conversations I had overheard between [Mr Fraval] and his brothers Sachlan and Maxwell and I did not have a detailed understanding of the project.
On 18 March 2019 I signed the documents labelled in the Statement of Claim as the Mortgage, Schedule A and Schedule B because [Mr Fraval] asked me to do so and I wanted to support him. I had no involvement in negotiating those documents. I did not receive any financial advice before signing those documents on 18 March 2019 nor was I given any information or have any knowledge about the financial position of [Rofin] at that time.
I did not obtain any benefit from signing those documents or from the transaction to which they relate.”
20	Returning to the documents, putting the formal definitions to one side for the moment, these uniformly and frequently label Rofin as “Borrower” and Mrs Fraval as “Guarantor 2” or “Guarantor 2/Mortgagor”.
21	The Guarantor’s Advice Declaration signed by Mrs Fraval and witnessed by Ms Moorhouse Perks relevantly stated:
“I am the Guarantor having agreed to guarantee the performance of the Debtor pursuant to the Mortgage HEREBY ACKNOWLEDGE that: – 
1.	I understand the terms of the Guarantee referred to in the Mortgage (Guarantee) and my liability both financial and legal thereunder.
2	The Guarantee has been freely and voluntarily executed by me and without undue influence or pressure from any third party.
3.	I have had the opportunity of obtaining and did obtain legal advice from an Independent Australian Legal Practitioner prior to executing the Guarantee as to the legal effect of the Guarantee and my obligations under it.
…
5.	I have considered and understand the provisions of the Guarantee will have a financial impact upon me if the Guarantee is enforced by the Lender.”
22	By the Australian Legal Practitioners Certificate, Ms Moorhouse Perks, relevantly certified as follows:
“2.	I have explained to the signatory the nature and effect of the Guarantee to be executed by him/her and each of its terms and the legal effect of the Guarantee and its terms.
3.	The signatory has told me that he/she had:
(a)	read and understood the effect of the Guarantee and its terms; and
(b)	understood the financial risks to him/her of signing the Guarantee.
4.	That the signatory told me that he/she signed the Guarantee of his/her own free will.
5.	That following the steps in paragraphs 1 to 4 above, the Guarantee was then signed by the signatory in my presence and witnessed by me.”
23	As noted above, this certificate is dated 18 March 2019. It is not entirely clear from the evidence how the certificate came to predate the Warrandyte Mortgage by two days. However, neither party seeks to make anything of this fact and contemporaneous emails suggest that it is likely to be because some of the documents had to be re-signed and re-dated on 19 and 20 March 2019. Based on the dating of the certificate and the Fraval affidavit, it seems likely (and I accept) that Mrs Fraval attended the offices of Ms Moorhouse Perks on 18 March 2019 and Ms Moorhouse Perks went through the documents with Mrs Fraval on that day.
24	I note that in an email dated 19 March 2019 from Ms Moorhouse Perks to Mr Lay of Balfe & Webb (with the salutation “Dear Greg, Sachlan and Hadrian” [Mr Fraval]), Ms Moorhouse Perks states that “three different law firms in Victoria have been separately occupied for up to an hour each signing off on the Lender’s documents”. This at least suggests that Ms Moorhouse Perks spent “up to an hour” with Mrs Fraval in relation to the signing of the documents. Further, in the absence of evidence to the contrary, I assume that the explanations and statements referred to in the certificate were given and made by each of Ms Moorhouse Perks and Mrs Fraval at that time, as certified by Ms Moorhouse Perks.
The MCP terms
25	Typically, the provisions of the MCP are lengthy and complex. They relevantly include the following:
1.	Interpretation
1.1	Definitions
In the Mortgage, unless the context otherwise requires:
…
“Australian Legal Practitioner’s Certificate (Guarantor)” means a certificate completed by an Australian legal practitioner in the form and to the effect of Schedule G;
…
“Borrower” means the Person named in Schedule A as the Borrower;
…
“Debtor” means the Borrower and/or the Mortgagor as the case may be:
(a)	where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor.
(b)	where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several;
…
“Guarantor” means the Person or Persons named in Schedule A as the guarantor [sic] and being the Person that has provided a Guarantee to the Lender;
“Mortgage” means this mortgage and includes any amendment, extension or variation of it;
…
“Mortgagor” means the person named in Schedule A as the Mortgagor;
…
“Obligation” means all obligations, covenants, conditions, stipulations, warranties, guarantees, undertakings, assurances and agreements (whether present or future and whether express or implied) arising under or imposed by this Mortgage or by operation of Legislation or law as a result of the grant by the Mortgagor of this Mortgage;
…
“Principal Amount” means the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage…;
…
“Schedule A” means the schedule to this Memorandum marked “Schedule A” which forms part of this Mortgage;
“Secured Money” means the aggregate of all monies which the Debtor is, or any time may become, actually or contingently liable to pay to the Lender…”
2.	Creation of security in the Mortgaged Property
2.1	The Mortgagor hereby grants to the Lender a mortgage of the Mortgaged property to secure:
(a)	the payment (including the punctual payment) of the Secured Money or any part thereof; and
(b)	the performance, including the punctual performance, of all the Obligations.
…
2.3	The Mortgagor agrees that it is granting this Mortgage and that it agrees to perform all of the Obligations for valuable consideration received by it and/or by the Borrower from the Lender with the Mortgagor’s knowledge and consent including by the advance of the Principal Amount.
…
3.	Debtor’s covenants to pay and perform Obligations
3.1	The Debtor covenants that the Debtor:
(a)	shall pay the Secured Money (or any part thereof) to the Lender…
(b)	shall perform, observe and comply with all of the Obligations at all times and at its own cost.
[The balance of clause 3 of the MCP includes numerous further provisions imposing various payment and related financial obligations on “the Debtor”]
…
5.	The payment of Interest and Fees
…
5.2	The Debtor shall pay Interest to the Lender on the Date for the Payment of Interest.
5.3	The Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period.
5.4	The Lender may notify the Debtor that a Lower Interest Amount is to be paid for any Interest Period and upon the Lender giving that notice the Interest to be paid for that Interest Period shall be the Lower Interest Amount.
…
5.8	Any Interest not paid by the Debtor to the Lender by the Date for Payment of interest shall be capitalised immediately upon the Interest not being paid and the amount of unpaid Interest she be Outstanding Interest and form part of the Secured Money.
…
5.11	If the Specified Interest Regime applicable to this Mortgage is Interest Regime A [see Schedule A]…and, the Debtor fails to pay interest on the Date for Payment of Interest, then…the Debtor shall be liable to pay interest on the Outstanding Interest at the Higher Interest Rate compounding monthly on the Date for the Payment of interest until the Outstanding Interest is paid in full…
8.	Debtor’s Representations and Warranties
…
8.10	The Debtor has fully disclosed to the Lender, in writing, all facts and matters material to:
(a)	the advance by the Lender to the Borrower of the Principal Amount in accordance with this Mortgage;
(b)	the giving by the Mortgagor of this Mortgage to the Lender; and
(c)	the ability of the Debtor to at all times comply with the Obligations.
…
24.	Lender’s Certificate (prima facie evidence)
24.1	The Lender may rely on the Lender’s Certificate as conclusive evidence and as binding on the Debtor in any proceeding by the Lender against the Debtor whether in a Court or a Tribunal or before any Government Authority.
24.2	A Lender’s Certificate is conclusive evidence of any matter stated in it unless the Debtor establishes in a Court or Tribunal of before any Government Authority (as the case may be) that any information in the Lender’s certificate [sic] is incorrect.
…
28.	Guarantee
28.1	The provisions of this clause 28 apply when a person executes this Memorandum as a Guarantor.
28.2	The Guarantor hereby covenants, represents and acknowledges to the Lender that each of the matters in clause 28.3 below, are true and correct, and, as appropriate, will remain true and correct at all times…
28.3	The Guarantor:
(a)	enters into this Guarantee because it has a desire that the Lender advance the Principal Amounts to the Borrower under this Mortgage;
(b)	enters into this Guarantee freely and voluntarily;
(c)	has read and understood all of the provisions of this Mortgage and this Guarantee;
…
(e)	has made independent enquiries of legal, financial and other advisors as to:
(i)	the obligations [sic] created or imposed by this Guarantee;
(ii)	the Obligations imposed by this Mortgage upon the Debtor;
(iii)	the legal and financial position of the Debtor and the ability of the Debtor to:
(aa)	pay the Secured Money; and/or
(bb)	meet the Obligations under this Mortgage;
…
(g)	acknowledges that before giving the Guarantee the Guarantor:
…
(vi)	was aware that the Lender relied on and will continue to rely upon the warranties, acknowledgements and representations made by the Guarantor to the Lender as to the Lender:
(aa)	agreeing to advance the Principal Amount to the Borrower;
…
28.5	The Guarantor agrees to guarantee to the Lender and indemnify the Lender as to:
(a)	the payment by the Debtor of the Secured Money (or any part thereof) in accordance with the terms of this Mortgage;
(b)	the performance and compliance by the Debtor with all of the Obligations.
…
28.15	The Guarantor agrees that a Lender’s Certificate applies to the obligations of the Guarantor under this Guarantee and that clauses 24.1 and 24.2 apply as if the reference therein to “the Debtor” was a reference to “the Guarantor”.
…
28.19	In further support of the guarantee and indemnity herein the Guarantor shall, if requested by the Lender, provide to the Lender a mortgage, charge or other appropriate security, in registrable form, over any property of the Guarantor in favour of the Lender and the Guarantor shall do all things necessary to enable any such mortgage, charge or other appropriate security to be registered in favour of the Lender.
28.20	If the Guarantor is required to provide a written mortgage, charge or other appropriate security in registrable form, then the terms of this Memorandum [that is, the MCP] shall apply to that mortgage, charge or other appropriate security.
28.21	The Guarantor shall provide to the Lender, at the time the Guarantor executes this Mortgage, each of the following:
(a)	a duly completed Guarantor’s Advice Declaration; and
(b)	a duly completed Australian Legal Practitioner’s Certificate (Guarantor).
…”
26	To complete the picture provided by the suite of documents and having regard to the definitions above, it is important to note that in the MCP Schedule A:
•	“Borrower 1” is Rofin;
•	“Guarantor 1” is Mr Fraval;
•	“Guarantor 2” is Mrs Fraval; and
•	“Mortgagor(s)” is “Borrower(s) and Guarantor(s)”.
27	Thus, there can be no doubt that Rofin is the “Borrower” and Mrs Fraval is a “Guarantor”, within the meaning of those terms as defined in the MCP. Further, each of Rofin and Mrs Fraval is a “Mortgagor” under those definitions.
Advance of funds and failure to repay
28	The undisputed evidence is that the $378,000 was advanced on 22 March 2019. After deducting the establishment fee and prepaid interest, there was a balance of $325,000 available to the borrower Rofin. Most of this ($303,547.72) was paid by Summer Lawyers on behalf of Commercial to Taits Legal, the lawyers for Better Aged Care Options Pty Ltd, the vendor of the Lake Bolac Hotel. The rest was divided among various amounts payable for rates and stamp duty and $6,023.17 paid to Rofin directly. Thus, all of $378,000 advanced by Commercial (apart from the $6,023.17 paid directly to Rofin), was applied to the purchase of the Lake Bolac hotel, or associated interest and financing costs. None of the funds were advanced to Mrs Fraval.
29	It is also not in dispute that Rofin failed to repay the debt to Commercial on the due date and this led to an event of default by Mr and Mrs Fraval under the Warrandyte Mortgage. On 11 November 2019, Commercial, by its solicitors, served a combined Notice of Default and Demand on Mr and Mrs Fraval requiring them to pay the balance then owing to Commercial ($491,400) within 31 days of the Notice. Mrs Fraval admits in her Amended Defence and Counterclaim that the defendants have “not paid the alleged amount [of] $491,400 and/or the Secured Money…or any part thereof to” Commercial.  She also admits that she is in possession of the Warrandyte Property.
Principles to be applied
30	Commercial’s application for summary judgment on its claim and Mrs Fraval’s counterclaim is brought under rr22.03 and 22.16 of the County Court Civil Procedure Rules 2018 and ss 61, 62 and 63 of the Civil Procedure Act 2010 (Vic) (“CPA”). Commercial also seeks an order that it recover possession of the Warrandyte Property. Both parties rely on the test as stated by the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, as follows:
“Upon the present state of authority:
a)	the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b)	the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c)	it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;…”
31	Mrs Fraval also relies on the principle that a defence need not have a probability of succeeding and its prospects will not be fanciful or unreal even if they are less than 50%. The power ought to be exercised consistently with the overarching purpose of the CPA and having regard to the fact that, if granted, it will deprive Mrs Fraval of the opportunity of pursuing her amended defence and counterclaim. These matters are not in doubt.
32	On the particular issue of a claim for possession, Mr Salpigtidis, counsel for Commercial, submits that in Commonwealth Bank of Australia v Jackson Tadgell J held, in respect of a claim to possession pursuant to s78 of the TLA that:
“…It merely needed to allege in the statement of claim and prove upon an application for summary judgment the execution of the mortgages, the advances, default by the failure of the mortgagors to pay anything under the mortgages, and that the defendant as mortgagors were in possession.”
33	The CBA v Jackson decision was followed by Justice Beach in Wren Close Nominees Pty Ltd v McCulloch. In that case, His Honour held:
“A mortgagee exercising the power given to it by s. 78(1) of the Transfer of Land Act is not required to give any notice to a mortgagor of its intention to take possession of the mortgaged properties, nor is it required to give particulars of the mortgagor's default before it does so. See Commonwealth Bank of Australia v. Jackson & Anor.
If the mortgagee establishes upon an application for summary judgment the execution of the mortgage, the advance to the mortgagor, default under the mortgage and that the mortgagor is in possession of the mortgaged property, it is entitled to an order for possession.”
34	Accordingly, in order to obtain possession of a property pursuant to s78 of the TLA, a party must establish:
•	the execution of the mortgage;
•	the advance;
•	the defaults under the mortgage; and
•	that the mortgagor is in possession of the mortgaged property.
35	Mrs Fraval does not oppose summary judgment by arguing against the principles discussed in these authorities. Nor does she submit that the four prerequisites to an order for possession pursuant to s78 of the TLA listed above are not established. Rather, she seeks to defend Commercial’s claim on the three bases set out above.
36	I will deal with each of these in turn. In advancing her arguments, Mrs Fraval refers compendiously to “the loan agreement”. I take this to be a reference to the term as defined in her amended defence and counterclaim at paragraph 4, where she admits that on or about 20 March 2019, Commercial, Rofin and Mr and Mrs Fraval “made an agreement in writing (‘the loan agreement’)”. The particulars to this paragraph are as follows:
“The loan agreement was wholly in writing and consisted of the MCP, Schedule A and Schedule B. The agreement to provide a loan to [Rofin] and [Mr and Mrs Fraval] in the amount of $378,000 is to be found in the definition of “Principal Amount” and “Debtor” in clause 1.1 of the MCP and in Schedule A and in the Mortgage.”
37	At paragraph 5 of her amended defence and counterclaim, Mrs Fraval pleads that: “In the loan agreement, the ‘Debtor’ was defined as [Rofin] and [Mr and Mrs Fraval]”.
Is the loan agreement subject to the Code?
Code provisions
38	The relevant provision of the Code are as follows:
“3	Meaning of credit and amount of credit
(1)	For the purposes of this Code, credit is provided if under a contract:
(a)	payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b)	one person (the debtor) incurs a deferred debt to another (the credit provider).
4	Meaning of credit contract
For the purposes of this Code, a credit contract is a contract made under which credit is or may be provided, being the provision of credit to which this Code applies
5.	Provision of credit to which this Code applies
(1)	This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into: 
(a)	the debtor is a natural person or a strata corporation; and 
(b)	the credit is provided or intended to be provided wholly or predominantly: 
(i)	for personal, domestic or household purposes; or 
(ii)	to purchase, renovate or improve residential property for investment purposes; or 
(iii)	to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and 
(c)	a charge is or may be made for providing the credit; and 
(d)	the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
7	Mortgages to which this Code applies 
(1)	This Code applies to a mortgage if: 
(a)	it secures obligations under a credit contract or a related guarantee; and 
(b)	the mortgagor is a natural person or a strata corporation. 
(2)	If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee. 
(3)	The regulations may exclude, from the application of all or any provisions of this Code, a mortgage of a class specified in the regulations.
13		Presumptions relating to application of Code
(1)	In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
(2)	It is presumed for the purposes of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose):
(a)	for personal, domestic or household purposes;
…
if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established.

204	Principal definitions
(1)	In this Code:
…
debtor means a person (other than a guarantor) who is liable to pay (or to repay) credit, and includes a prospective debtor.
209	Provisions relating to defined terms and gender and number
…
(2)	Definitions in or applicable to this Code apply except so far as the context or subject matter otherwise indicates or requires.”
Obstacles to application of the Code
39	There are two potential obstacles to Mrs Fraval’s argument that the loan agreement is subject to the Code. First, that she is not a “debtor” within the meaning of the Code, with the result that the loan agreement was not the provision of credit to which the Code applies. And, second, that the credit provided under the loan agreement was not provided or intended to be provided wholly or predominantly for personal, domestic or household purposes or to purchase, renovate or improve residential property for investment purposes (or to refinance credit given for that latter purpose).
Was Mrs Fraval a debtor within the meaning of the Code?
Mrs Fraval’s primary submissions
40	Counsel for Mrs Fraval submit that she is a “debtor” within the meaning of the Code. They argued that, under the loan agreement, Commercial agreed to provide a loan to Rofin and to Mr and Mrs Fraval and that the loan agreement expressly defined her as a “Debtor” within the meaning of the loan agreement. They add that, “further and critically, [Mrs Fraval] incurred a deferred debt by entering into the loan agreement which is at the heart of the definition of credit in section 3 of the Code”.
41	There are several overlapping aspects to the submissions for Mrs Fraval on this issue, as advanced in both written submissions and supplemented in oral argument, as follows:
•	it is common ground on the pleadings that Mrs Fraval is principally liable as a debtor under the loan agreement;
•	Mrs Fraval is expressly defined to be a “debtor” in the loan agreement; 
•	Commercial erroneously seeks to focus on which entity the funds were advanced to rather than which parties incurred the deferred debt;
•	the guarantee provisions in clause 28 of the MCP are not part of the contract between the parties because the MCP was not executed by Mrs Fraval;
•	even if the guarantee provisions of the MCP are part of the contract between the parties, they do not detract from the character of Mrs Fraval as a debtor for the purposes of the Code;
•	the definition of debtor in s3 of the Code is paramount in this case and the definition in s204 of the Code does not apply; and
•	even if the definition in s204 does apply, Mrs Fraval is not a party to the loan agreement only in the capacity as guarantor as contemplated by s204; she is also a debtor.
42	It is not in dispute that, typically for transactions of this kind, the MCP imposes primary liability for the repayment of the loan and interest on both the “Borrower” (within the meaning of the MCP) and the “Guarantors” (likewise within the meaning of the MCP). It does this by creating the composite defined term “Debtor”, which encompasses both the “Borrower” and the “Mortgagor”, noting that the latter term (in this case) includes Mrs Fraval in her capacity as a “Guarantor”, within the meaning of the MCP. The MCP then imposes various obligations on the “Debtor”, most notably the covenant to “pay the Secured Money (or any part thereof) to the Lender…in accordance with the terms of this Mortgage” under clause 3.1, and to pay the interest under clause 5.2.
43	Clearly, adopting the composite definition of “Debtor” in the MCP does not by itself constitute Mrs Fraval as a “debtor” within the meaning of the Code. Indeed, I agree with the submission by Mr Salpigtidis, that it is immaterial and I reject the submissions by counsel for Mrs Fraval to the contrary. As noted above, counsel for Mrs Fraval further submitted (in effect) that, because Mrs Fraval was primarily liable to Commercial under the terms of the MCP, she incurred a “deferred debt” to Commercial, thus engaging s3(1)(b) of the Code. They argued that the fact that the funds were in fact advanced to Rofin did not detract from the application of that provision to her liability, as it was constituted under Warrandyte Mortgage.
Commercial’s submissions
44	Mr Salpigtidis argued that this ignored the substance of the transaction, which was that the “one person” incurring the debt in the sense described in s3(1)(b) of the Code, was the “Borrower” within the meaning of the MCP, namely Rofin. In support of this argument, he relied on a series of decisions involving loan arrangements similar to those in this case. Mr Salpigtidis first referred to Equititrust v SLJM (“Equititrust”) in which Gzell J held as follows:
“It was submitted that as security providers Mr and Mrs Hakim were under a direct liability to repay the loan.
Clause 4.2 of the credit facility deed provides that the borrower and each security provider acknowledge that the security is charged with payment of the money secured.
But that does not create a direct liability to repay the loan. It is an acknowledgment that if a liability arises it is secured against the security provider’s property.
The liability of Mr and Mrs Hakim is defined in the deed of guarantee and indemnity. They and HI-TEK were the guarantor. Clause 3.1 provided:
“The Guarantor unconditionally guarantees to the Lender the punctual performance and observance by the Borrower of all the covenants, terms, conditions and other provisions of the Security, including without limitation, the payment of the Money Secured by the Borrower at the time or times and in the manner provided for in the Secured Agreement and/or the Security and undertakes to pay the Money Secured to the Lender on demand.”
That liability is typically that of a guarantor.
The same can be said of the other provisions with respect to security providers in the credit facility deed upon which Mr and Mrs Hakim relied.”
45	Gzell J further held that:
“I find that Mr and Mrs Hakim were not debtors within the meaning of the Consumer Credit Code with respect to the provision of credit and the credit contract into which they entered on 12 December 2007.
The Consumer Credit Code, s 6(1) contains a number of cumulative elements for the operation of the Code. The first is that the debtor is a natural person ordinarily resident in the jurisdiction or a strata corporation formed in the jurisdiction.
Since the debtor was SLJM and it is not a natural person nor is it a strata corporation, the Code does not apply to this transaction and it is unnecessary to consider the other elements and, in particular, whether the credit was provided wholly or predominantly for personal, domestic or household purposes.”
46	Mr Salpigtidis next relied on the recent decision of Robson J in Jams 2 Pty Ltd & Ors v Stubbings (No 3), (“Jams 2”), noting first that his Honour referred to Devon v Thirteenth Kaysan Pty Ltd (Davies J) and (on application for leave to appeal) Devon v Thirteenth Kaysan Pty Ltd (Middleton J). This case (together “Devon”), like both Jams 2 and the present case, involved a loan to a company, with a guarantee and mortgage given as security for the loan. Devon first came before Justice Davies on an application for summary dismissal. Her Honour held that it was clear that the mortgage in that case was given as security for the loan, whereas s7(1) and (2) of the Code required that the applicant show that the Code applied to the loan agreement, not to the mortgage. And as the loan agreement was with the borrowing company, the Code did not apply (s5(1)(a) of the Code). 
47	Justice Middleton came to the same conclusions on the application for leave to appeal from Justice Davies’ summary dismissal. His Honour held: 
“As to the application of the Code, it is a requirement that the loan be made to a natural person (or strata corporation). The trial judge’s analysis was correct: the mortgage agreement itself was not a “credit contract” (either in its terms or operation). And the mortgage was clearly given as security. The actual loan or credit contract (if not a sham) was clearly not made to a natural person.”
48	In Jams 2, Justice Robson also found:
“The plaintiffs also refer to Equititrust Ltd v SLJM, where Gzell J of the Supreme Court of New South Wales held that guarantors of a loan to a corporation were not debtors within the meaning of the Code.
As stated above, the mortgage provides that it also operated as a loan agreement between the plaintiffs and Mr Stubbings. In my opinion, when construed in the light of the other loan and security documents executed as part of the package of loan documents, it is, and would be construed as no more than a guarantee. In my opinion, the mortgage given by Mr Stubbings is not governed by the Code.
I find that the guarantee and mortgage given as security by Mr Stubbings were not governed by the Code.”
Mrs Fraval’s submission in reply
49	In both their written and oral submissions, counsel for Mrs Fraval argued that the cases relied on by Commercial above are clearly distinguishable from the present case. In relation to Equititrust, they observed that there was a credit facility deed providing for a loan to the company and a separate guarantee by the natural persons. Gzell J held that the clause of the credit facility deed pursuant to which each security provider acknowledged that the security is charged with payment of the money secured “does not create a direct liability to repay the loan”. Counsel argued that the obligations described by Gzell J are “quite different from a primary obligation to pay an amount in the future”, thus giving rise to the incurring of a deferred debt.
50	In relation to Devon, counsel for Mrs Fraval likewise argued that the courts there were dealing with a loan agreement with the borrower company and a separate and distinct guarantee given by the natural persons involved. In those circumstances, it was clear that the deferred debt for the purpose of the Code was incurred by the borrower company, not by the guarantors, with the result that the Code was not engaged.
51	Turning finally to Jams 2, counsel for Mrs Fraval said that was a case where the guarantors were again only guarantors and no deferred debt was incurred. They cite the finding by Robson J that there was “no doubt … that the loan was made to [the company] and that the mortgage was given solely as security for the guarantee provided by [an individual]”.
52	Mr Robertson in oral submissions also referred to the clause in the loan offer document in Jams 2 to the effect that, in the event of any inconsistency between the loan agreement and the mortgage, the provisions of the loan offer would prevail. He noted that, in this case, the loan approval document (being the Letter of Offer) “says precisely the opposite”, pointing to the provision of the Letter of Offer that: “In the event of an inconsistency between this offer and the formal legal documentation, the legal documentation will prevail to the extent of any inconsistency”.
53	Against that background, Mr Robertson argued that, regardless of what the Letter of Offer provided, the facility documents that the parties actually signed in this case “widen the liability which is sought to be imposed on the natural persons”. Mr Robertson submitted:
“They create the natural persons as debtors, and the debtors are the ones according to the instrument not only to whom the principal amount is advanced, but also are the persons who are primarily liable because they are the ones who have to repay, who have to pay, who have to pay the principal amount on the due date.  They are the ones who have incurred the deferred debt by having executed that instrument.”
54	Mr Robertson further submitted that in Jams 2, there was no analysis of whether the natural person had incurred a deferred debt within the meaning of the Code. He said that here, that analysis leads to the conclusion that the second defendant did incur a deferred debt within the meaning of s3(1)(b) of the Code with the consequence that the Code applies to that credit and to the contract credit under which it was provided. In part, that analysis includes Mr Robertson’s submissions to the effect that Mrs Fraval was not in fact a guarantor within the meaning of the MCP. I discuss those submissions below, in the context of the definition of “debtor” in s204 of the Code.
Analysis on the s3(1)(b) issue
55	In my view, Jams 2 has much in common with the present case and provides useful guidance as to how I should approach the question of the application of the Code to the loan agreement. In Jams 2, Robson J described the structure of the loan facility as follows: 
“The plaintiffs lent money to Victorian Boat Clinic Pty Ltd (‘VBC’) of which the defendant, Jeffrey William Stubbings (‘Mr Stubbings’), was sole director and shareholder. VBC was a shell company with no assets. The loan was guaranteed by Mr Stubbings, who also gave mortgages in support of the guarantee over two existing properties he owned and over a third property acquired with the loan moneys by Mr Stubbings. VBC defaulted on the loan and the plaintiffs have sought to enforce the guarantee and execute on the mortgages.”
56	One potentially significant distinction to the present case was that in Jams 2, Robson J found that Mr Stubbings was in substance the borrower: “He was the recipient of the moneys and the person to whom the lenders looked for repayment”. That might be seen as a material factor supporting an argument that the Code applied in Jams 2, given that the borrower was in truth the individual, not the shell company. In contrast, in this case, it is not in dispute that Rofin was the true recipient of the funds advanced by Commercial and that those funds were used by Rofin (a trading entity) for the purchase and operation of the Lake Bolac Hotel, not by Mrs Fraval. 
57	Relevantly for present purposes, Robson J also noted that: 
•	the facility documents included “an indenture note dated 30 September 2015 between VBC as borrower and Mr Stubbings as the guarantor”;
•	the mortgage that Mr Stubbings signed was a pro-forma mortgage and under notes to the mortgage, it is stated that: “This mortgage also operates as a loan agreement. The relevant Interest, Instalment, Advance, and Due Date panel must be completed”. These parts of the document were duly completed;
•	the mortgage also provided that: “Provided the interest is paid on time the Mortgagor shall for the term of the mortgage pay to the Mortgagees calendar monthly interest…”;
•	pursuant to the terms of the mortgage, Mr Stubbings covenanted to repay the plaintiffs the principal sum together with interest on 30 September 2016. Mr Stubbings further covenanted that, so long as the principal sum remained unpaid, he would pay the plaintiffs interest by way of monthly instalments in advance in the sum of $8,825.00 at the lower rate and $15,002.50 at the higher rate, commencing on 30 September 2015.
•	provision was made under the mortgage for the mortgagor to repay the whole of the advance at any time upon giving one month’s notice;
•	clause 1.2 of the Memorandum of Common Provisions provided that the “Mortgagor promises to pay all the Secured Money to the Mortgagee to the extent it has not already been paid on the Due Date”;
•	under clause 4.2 of the memorandum, there are provisions that apply when any person is named as guarantor in the Titles Office Form. There then follow clauses prescribing the obligations of the guarantor to make payment and the like. Under the mortgage executed by Mr Stubbings, he was not identified as a guarantor on the Titles Office Form; and
•	there is no reference on the mortgage to the loan between the plaintiffs and VBC;
58	Despite the provisions referred to above that appeared to impose a primary liability on Mr Stubbings to pay both the principal and interest, his Honour held that:
“There is no doubt, however, that the loan was made to VBC and that the mortgage was given solely as security for the guarantee provided by Mr Stubbings. There is no suggestion that the loan was a sham and was in fact made to Mr Stubbings. All but approximately $6,000 of the loan moneys were expended to or for the benefit of Mr Stubbings in the purchase of the Fingal property and the discharge of the loans he owed to the CBA.”
59	His Honour concluded his findings on the application of the Code with the paragraphs cited by Mr Salpigtidis, as set out above. His Honour then went on to consider at length Mr Stubbings’ defence that the loan, mortgage and guarantee were procured by unconscionable conduct, ultimately finding that this defence should be upheld. However, the plaintiffs later successfully appealed his Honour’s judgment on unconscionability, as discussed in detail below (Jams 2 Pty Ltd v Stubbings (“Jams 2 Appeal”)). The Court of Appeal was not called upon to consider the question of the application of the Code, but did observe as follows: 
“As to the defence based on breaches of the Code, the trial judge concluded that the Code did not apply — because the loan was to the company and not to Stubbings personally, whose only role was as a guarantor providing a mortgage to secure the loan to the company. In the course of his reasons for denying the Code defence, the judge stated that there was ‘no doubt’ that the loan was made to the company and that there was ‘no suggestion that the loan was a sham and was in fact made to Mr Stubbings’. This was notwithstanding that all but approximately $6,000 of the loan moneys were expended to or for the benefit of Stubbings in the purchase of the Fingal property and the discharge of the Commonwealth Bank mortgages over the two Narre Warren properties.”
60	In my view, the asserted differences between the structure of the loan facility in this case and those under consideration in each of Equititrust, Devon and Jams 2 (and most particularly the latter) is more apparent than real. Indeed, on the facts of Jams 2 (and notably the fact that the funds were for use by Mr Stubbings, not VBC), the case for a finding that the Code applied is arguably stronger.
61	The suite of documents executed by Rofin and Mr and Mrs Fraval in this case are pro-forma documents structured to cover a range of different lending arrangements. In some cases, there will be a single borrower and mortgagor, and in others (such as the present) there will be a borrower, who is also a mortgagor, and other security providers. The documents are structured so that those other security providers are made liable as guarantors for the borrower, with their mortgage supporting the guarantee.  
62	This is no more apparent than from the definition of “Debtor” in the MCP itself, where it provides (emphasis added) that “Debtor” means “the Borrower and/or Mortgagor as the case may be:
•	“where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor”;
•	“where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several”. 
63	More fundamentally, however, the suite of documents clearly recognise that there is a “Borrower”, a “Guarantor” and a “Mortgagor”, all as defined in the MCP. And there can be no doubt having regard to the clear terms of MCP Schedule A, that the “Borrower” is Rofin, that Mr and Mrs Fraval are each a “Guarantor” and that all three are also a “Mortgagor”. In my view, the definition of “Debtor” (and the obligations imposed under the MCP by the use of that defined term) does not alter the status of Mrs Fraval as a “Guarantor” and “Morgagor” – the terms are not mutually exclusive. On the contrary, as explained above, “Debtor” is clearly a composite definition designed to ensure that the payment obligations imposed on all parties to the MCP, operate as a primary liability.
64	To my mind (paraphrasing Robson J in Jams 2), when construed in the light of the package of loan documents as a whole, it is clear that there are relevantly two discrete liabilities, one incurred by Rofin as “Borrower” and one incurred by Mrs Fraval’s as “Guarantor”. I am satisfied that the reasoning at least in Jams 2 can therefore be applied, even though there is not a discrete loan agreement between Commercial and Rofin and a separate guarantee document executed by Mrs Fraval. Those are matters of form and not substance. Applying that reasoning (again paraphrasing Robson J), there is no doubt that the loan was made to Rofin and that the Warrandyte Mortgage was given solely as security for the guarantee provided by Mr and Mrs Fraval. 
65	On the other hand, I agree with Mr Robertson that Justice Robson in Jams 2 did not analyse whether the natural person, despite being a guarantor, can nevertheless be described as a person who “incurs a deferred debt to another” within the meaning of s3(1)(b) of the Code. Despite his finding that Mr Stubbings was in substance the borrower and the ultimate recipient of the funds, his Honour did not discuss whether this fact, coupled with Mr Stubbings’ primary liability under the terms of the mortgage, engaged s3(1)(b) of the Code. On the contrary, his Honour appeared to assume that once the immediate recipient of the loan funds was shown to be neither a natural person nor a strata corporation, the Code was excluded by reason of s5(1)(a) of the Code.
66	I also accept that the nature of the primary liability created under the MCP by operation of the definition of “Debtor” in the MCP, is more comprehensive than in Jams 2. That is arguably a ground for distinguishing the facts in Jams 2 from this case.
67	Having regard to these matters, if the application of s 3(1)(b) was the only pre-requisite to a finding that the Code applied, I would be inclined to agree with counsel for Mrs Fraval that this was not an issue that should be determined against their client on an application for summary judgment. But s3(1)(b) is not the only pre-requisite. Mrs Fraval must still contend with the application of the definition of “debtor” in s204 of the Code and the second obstacle referred to above relating to purpose. For completeness, I should add that I would respectfully agree with Robson J’s conclusions in Jams 2 on this issue and would apply them to the facts of this case. I am merely not satisfied that the contrary argument has no real prospects of success.
Analysis on the s204 issue
68	As noted above, s204 of the Code provides (emphasis added) that “debtor means a person (other than a guarantor) who is liable to pay (or to repay) credit, and includes a prospective debtor”. On its face, this would appear to preclude Mrs Fraval (a guarantor) from arguing that she is a debtor within the meaning of the Code. Counsel for Mrs Fraval advanced four arguments against this conclusion, summarised above. I will deal with each of these in turn.
69	Counsels’ first argument derives from clause 28.1 of the MCP (set out above), which relevantly provides that the provisions of clause 28 apply “when a person executes this Memorandum as a Guarantor”. They submitted that clause 28 does not apply because the MCP was not executed by anyone. They say that the footnote to MCP Schedule A (that is, footnote 1, referenced by the title “Schedule A1”) does not assist the plaintiff. This reads: “1This is Schedule A to [the MCP] and shall be interpreted as though all of the provisions set out in the [MCP] are set out at length in this Schedule”. Counsel argues that the suggestion that execution of the MCP Schedule A constitutes execution for the purposes of clause 28 is “simply not right”. Clause 28.1, they argued, contemplates execution of the MCP document itself as an independent instrument.
70	In my view, this argument is misconceived. The footnote to MCP Schedule A clearly and explicitly adopts all of the provisions of the MCP. By signing MCP Schedule A as “Guarantor 2”, Mrs Fraval therefore effectively “signed” all of the provisions of the MCP as Guarantor, including clause 28. To the extent necessary, this fact is reinforced by the “Guarantor’s Advice Declaration” at Schedule F (also signed by Mrs Fraval), the “Australian Legal Practitioners Certificate” signed by Ms Moorhouse Perks at Schedule G and the cross-referencing in the MCP to Schedule A, including in the definitions of “Guarantor”, “Memorandum” and “Schedule A”.
71	This is the approach taken in countless mortgages executed in this State where those mortgages adopt a form of mortgage Memorandum of Common Provisions lodged with the Registrar of Titles pursuant to s91A of the Transfer of Land Act 1958 (Vic). In this case, like in those countless other cases, the Mortgage executed by Mrs Fraval references the MCP (document reference AA3394) and the provisions of the MCP are thus deemed to be set out in full in the Mortgage. In this case, the MCP in turn incorporates MCP Schedule A, which itself incorporates all of the terms of the MCP. It defies principles of construction, common practice and, indeed, common sense, to suggest that clause 28 of the MCP is not engaged unless Mrs Fraval signs the MCP instrument independently of the MCP Schedule A.
72	Next, counsel for Mrs Fraval relied on clause 28.5 to submit that the guarantee provision is circular and superfluous and so should be disregarded. They said this is because it provides in effect that the “Guarantor agrees to guarantee to the Lender and indemnify the Lender as to…the payment by the Debtor of the Secured Money”. Thus, in the case of a party that is a “Debtor” within the meaning of the MCP, it is an obligation to guarantee what is an existing obligation of the “Debtor”. They argued that clause 28 may have some application where someone is a guarantor and not also a “Debtor”, but that is not the case here.
73	Counsel also pointed to other provisions of clause 28 as confirming that the clause is not engaged in relation to Mrs Fraval. For example, clause 28.19, which gives the Lender the power to request a mortgage or other security to further support the guarantee. They argued that this could not be intended to apply to Mrs Fraval, because she is already a “Mortgagor” within the meaning of the MCP and, being a “Mortgagor”, she is also a “Debtor”. According to counsel for Mrs Fraval, these provisions establish that clause 28 was not intended to apply to Mrs Fraval, and she is therefore not a “Guarantor” under the MCP or for the purposes of the definition of “debtor” in s204 of the Code.
74	Again, this argument must be rejected. As discussed above, the definition of “Debtor” in clause 1.1 of the MCP commences “the Borrower and/or the Mortgagor as the case may be” (emphasis added). I also note that clause 1.1 of the MCP commences: “In this Mortgage, unless the context otherwise requires”. Turning then to clause 28, clause 28.3 commences: “The Guarantor…enters into this Guarantee because it has a desire that the Lender advance the Principal Amount to the Borrower under this Mortgage” (emphasis added).
75	The principles of construction, at least in so far as they are to be applied to a commercial contract of the kind constituted by the MCP, are well established. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Unless a contrary intention is indicated, the court is entitled to approach the task of giving a commercial contract a businesslike interpretation, on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
76	Applying these principles, I am satisfied that clause 28.5 should be construed as providing that each “Guarantor” guarantees the obligations of each other, “Debtor” which, in this case, is Rofin as a Borrower and Mortgagor and Mrs Fraval as a Mortgagor. Beginning with the designation of Mrs Fraval as “Guarantor 2” in MCP Schedule A, the entire scheme of the Warrandyte Mortgage (incorporating, among other things, the MCP and MCP Schedule A) is to constitute Mr and Mrs Fraval as guarantors of Rofin’s liabilities. To read clause 28 as not applying to Mrs Fraval simply because she is encompassed within the composite definition of “Debtor”, flies in the face of that scheme and produces commercial nonsense when regard is had to the Warrandyte Mortgage as a whole. 
77	Clause 28.19 does not advance the argument. As Mr Salpigtidis submitted, all that has happened here is that Mr and Mrs Fraval have provided the Warrandyte Mortgage in support of their guarantee as part of the original package of security documents. There is thus no occasion for Commercial to request further support pursuant to clause 28.19, at least in respect of the Warrandyte Property. Again, the suggestion that a provision of this kind evinces an intention that clause 28 would not apply to Mrs Fraval cannot be sustained in the face of the Warrandyte Mortgage (incorporating the MCP) read as a whole. 
78	Third, counsel for Mrs Fraval argued that ss209(2) and 3 of the Code together effectively displace the definition of “debtor” in s204. Section 209(2) provides that: “Definitions in or applicable to this Code apply except so far as the context or subject matter otherwise indicates or requires”. In oral submissions, Mr Robertson submitted that this excepting provision has particular force “because debtor is separately defined…in s3 in the primary provision”. Mr Robertson described the definition in s3 as the “primary definition of debtor…which is absolutely fundamental to the way in which the Code operates, because it’s at the heart of the concept of credit contract”. He continued:
“So we say that in the present context s204 does not override the primary meaning of debtor here [in s3], which is just someone who has incurred a deferred debt. That's quite different from someone who is separate from the incurring of the deferred debt and who, whether in the same instrument or in a different instrument, guarantees the payment of that deferred debt.”
79	In my judgment, this argument fails, both as a matter of statutory interpretation and logic. It assumes that, by defining the term “debtor” in s3 and also including a definition of the term in s204, the legislature intended to set up two alternative (and inconsistent) definitions. There is no warrant to read the Code in that way, and it would be perverse to ascribe such an intention to the legislature in the absence of express words. Although not directly apposite, the rule of statutory construction that the same meaning should be attributed to words that appear in different parts of an Act unless there is reason to do otherwise, would at least by analogy support that conclusion. In any event, it is trite that the provisions should be read harmoniously where such a reading is available.
80	To my mind, the term “debtor” as used in s3 of the Code is primarily deployed to inform the meaning and concept of “credit”, rather than posit a self-contained definition of the term. In any event, on no view does it constitute an alternative to the definition in s204. On the contrary, the two are complimentary. The term “debtor” in s3(1)(b) (and, indeed, throughout the Code) can mean both a person who incurs a deferred debt, and at the same time mean a person other than a guarantor. In other words, reading the provisions together, a “debtor” for the purposes of the Code is a person who incurs a deferred debt other than in their capacity as a guarantor. 
81	Finally, counsel for Mrs Fraval argued that even if the definition in s204 does apply, Mrs Fraval is not a party to the loan agreement only in the capacity as guarantor as contemplated by s204; she is also a debtor. This argument essentially then circles back to counsels’ submissions that under the terms of the MCP, Mrs Fraval has incurred a deferred debt and thus engaged s3(1)(b) of the Code. Implicit in this argument is that s204 only operates to exclude a person who is a party to the credit contract only as a guarantor, and not if they are both a guarantor and a debtor within the meaning of the Code.
82	This is in substance only a slight variation on the third argument above, and the same response applies. Indeed, the argument itself highlights the flaw in the third argument. The inclusion of the words “(other than a guarantor)” in the definition of debtor in s204, clearly implies that a guarantor would otherwise be caught by the definition. That is, the legislature contemplated that a guarantor does generally incur a deferred debt, and thus would be caught by term as used in s3(1)(b), in the absence of the exclusion in s204.
83	In my judgment, any argument that Mrs Fraval is either not a guarantor under the terms of the MCP or that she is otherwise not excluded from the definition of “debtor” in the Code, has no real prospects of success. 
What was the purpose of the provision of credit?
84	The second obstacle to any finding that the Code applies to Mrs Fraval concerns the purpose for the provision of credit under s4 of the Code. Relevantly, a contract is a credit contract governed by the Code only if “the credit is provided or intended to be provided wholly or predominantly…for personal, domestic or household purposes”. 
Mrs Fraval’s submissions
85	On this issue, counsel for Mrs Fraval began their initial written submissions by observing that Commercial has the burden of proof on the question of the purpose of the credit. Second, they submitted that Commercial’s position that the purpose was the purchase of the Lake Bolac Hotel business, is premised on the proposition that the only purpose that is relevant is that of the party who received the credit. Counsel continued:
“However, section s5(3) of the Code makes clear the section is concerned not with the party who received the credit but the debtor, that is the party who is liable to pay for the credit. It is clear that [Mrs Fraval] is a debtor. It may be the case that the purposes of the debtors differed, however, insofar as the second defendant is concerned, she alleges that the sole purpose for which the credit was to be used was to confer a benefit on her husband, the first defendant, in circumstances in which she had no interest in the borrower company.”
86	The first thing to note is that this argument is premised on Mrs Fraval being a debtor within the meaning of the Code. This premise is essential to the argument, because Mrs Fraval’s alleged purpose for which the credit was to be used is otherwise irrelevant. For the reasons above, I have already found against Mrs Fraval on that issue. However, I will assume it her favour for the purpose of the analysis that follows. 
87	In their later written submissions, counsel for Mrs Fraval developed the argument by submitting that:
“Purpose cannot simply be determined by looking only to what is stated in the loan application or by looking to what the credit provider intended the loan to be used for as this would be at odds with the purpose of the Code as ameliorating, consumer protection legislation which should be strictly construed in favour of the consumer. The second defendant alleges and will lead evidence at trial that her sole purpose was to confer a benefit on her husband. The issue requires a full hearing to be determined.”
88	In oral submissions, Mr Robertson did not add substantively to these written submissions, except by seeking to distinguish or deflect the authorities relied on by Mr Salpigtidis, as noted below. He did confirm that he was not aware of any authorities discussing the approach he was advancing, namely, where a number of different debtors (within the meaning of s3(1)(b) of the Code) had incurred deferred debts and had different purposes for doing so. He continued:
We say that in the absence of authority one must look at what is the purpose of credit. That's what the s5(1) [of the Code] is talking about, the purpose for which credit is provided. So what is the purpose for which credit is provided? Credit is provided to the second defendant in this case, that is, the purpose for which she has incurred this deferred debt.  What is her purpose? We say her purpose is to provide a benefit to her husband
89	Later in oral argument, Mr Robertson accepted that the authorities made clear that any questions of subjective motive were irrelevant to determining a Code purpose. He submitted that here, the objective purpose could nevertheless be ascertained from the fact that the provision of credit was to someone who was not gaining any benefit from the credit and was not receiving the funds in question. In those circumstances, he argued, the conclusion ought to be that the provision of credit was for a personal purpose. He added (in m view, inconsistently with his acceptance that subjective motives were irrelevant) that this is what Mrs Fraval’s affidavit indicates, and this can be tested at trial if it comes to it. He concluded on this topic by observing that, in any event, Commercial has not discharged its burden of showing the opposite.
Commercial’s submissions
90	Mr Salpigtidis’ written submissions in reply on this issue are supported by clear authority and are plainly correct. He commences his written submissions with the unexceptional proposition that the Code only applies to contracts in which the credit is provided or intended to be for the purposes set out in s5(1)(b) of the Code. He asserts that there is no evidence that the purpose of the funds was for a Code purpose. Rather, the evidence establishes that the funds were advanced to Rofin for the purpose of buying the Lake Bolac Hotel business and its freehold – both non-Code purposes.
91	In relation to the argument that Mrs Fraval entered into the loan agreement for the sole purpose of providing a benefit to the first defendant, her late husband, Mr Salpigtidis submitted that this is misconceived. Mrs Fraval did not provide to her late husband any credit as defined in the Code. She did not receive any “credit” from Commercial to provide to her husband. Mr Salpigtidis argued that Mrs Fraval is conflating a benefit bestowed by her to late husband (which he denies) with the purpose or intended purpose of the credit from Commercial to the “Borrower”, namely, Rofin. He adds that if Mrs Fraval bestowed any benefit, it was upon Rofin and not upon her late husband. It was Rofin that used the credit to purchase the Lake Bolac Hotel and the associated land.
92	The authorities cited by Mr Salpigtidis in support of his submissions commence with Linkenholt Pty Ltd v Quirk (“Linkenholt”) in which Gillard J said:
“In my opinion, it is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its  performance.”
93	Counsel for Mrs Fraval sought to distinguish Linkenholt on the basis that, in that case, the transaction simply involved the substitution of a new agreement for an existing obligation to re-pay money which had been lent for business purposes: the Court held that the purpose remained the same. However, in my view, the argument for a Code purpose was stronger on the facts in Linkenholt than in the present case. As the defendant argued in that case, the re-financing was to discharge the original personal guarantee and thus the credit was provided for personal purposes. In any case, I am satisfied that the difference in the nature of the transaction in no way diminishes the force of his Honour’s finding in the passage above.
94	Further, the test has been discussed and preferred in numerous later authorities. Most recently in Haynes v St George Bank a Division of Westpac Banking Corporation; Haynes v Westpac banking Corporation, Kourakis CJ held (citations omitted):
The intention of the debtor is not determinative. As Gillard J observed in Linkenholt Pty Ltd v Quirk ‘the substance of the transaction in the context of its performance’ must be considered.
I would, with respect, adopt the approach taken in Shakespeare Haney Securities Limited v Crawford:
‘An approach to the construction of s 6(1)(b) which considers the substance of the subject transaction and requires an objective assessment would, in my view, be preferable to one which looks to the actual intention of either the borrower or the lender. Plainly, “the purpose” for which credit is provided or intended to be provided has nothing to do with the lender’s general commercial purposes: the reference is to the use to which the credit is to be put. In the great majority of transactions there would be no difficulty in determining the relevant purpose by reference to the terms of the application for credit and of the approval. If the borrower requests credit for a stated purpose and the lender approves the request and makes the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested.
The focus of s6(1)(b) is on the provision of credit rather than on the obtaining of credit. That is inconsistent with a construction which looks to the debtor’s state of mind. Also, one would think that if the legislature had in mind that, in determining the purpose for which credit was provided, the debtor’s intention was the governing consideration, s6(1)(b) would have been worded along these lines:
‘The debtor intended to apply the credit wholly or predominantly for personal, domestic or household purposes.’”
95	The other members of the Full Court of South Australia agreed with the Chief Justice as, with respect, do I.
Analysis on purpose
96	I agree with Mr Salpigtidis that the relevant credit under the credit contract within the meaning of the Code was the advance to Rofin for the purpose of purchasing the Lake Bolac Hotel site and business. Contracts for the purchase of the hotel land and the business were provided to Commercial before any advance was made, and this purpose was made clear throughout the offer correspondence and the transaction documents. And it is not in dispute that it is the purpose for which the funds advanced by Commercial were in fact applied. This is not a case where the true purpose was something other than that which was described in the documents. The stated purpose and the ultimate application of the funds were fully aligned. Applying the test in Linkenholt and looking at the substance of the transaction and its performance, there can be no real doubt that the relevant purpose of the advance under the loan agreement was the purchase of the Lake Bolac Hotel.
97	Further, even if Mrs Fraval could be characterised as a debtor for the purposes of the Code, in my view, this can have no bearing on the objective purpose as determined in the manner directed by the authorities. Mrs Fraval’s personal and subjective motivation for signing the documents may well have been her desire to support her late husband. But that in no way alters the objective fact that the funds advanced were at all times intended to be used for, and were in fact applied to, the non-Code purpose of the purchase of the Lake Bolac Hotel business and land.
98	I note for completeness that if, as counsel for Mrs Fraval contend, Commercial bears the onus of establishing a non-Code purpose under s13(1) of the Code, I am satisfied that any such onus is comfortably discharged. I say “any such onus”, because it is not entirely clear to me whether, on the facts of this case, the onus is reversed by operation of s13(2) of the Code. Mr Salpigtidis did not make any submissions to this effect, but it seems to me at least arguable that the correspondence and Letter of Offer preceding the execution of the formal facility documents, constituted a declaration for the purposes of s13(2).
Is the loan agreement unconscionable?
Law and principles
99	On the issues of unconscionability advanced by counsel for Mrs Fraval, I have had the considerable advantage of relying on the definitive analysis of the applicable law and principles in the very recent judgment of the Court of Appeal (comprising Beach, Kyrou and Hargrave JJA) in the Jams 2 Appeal. I have taken the liberty of relying heavily on that analysis in these reasons as, in my judgment, there is nothing I can usefully add and it is unnecessary for me to search beyond those reasons for additional support for the principles applicable to the issues before me.
100	The applicable provisions of the ASIC Act are set out at length in the Jams 2 Appeal. In summary:
•	s12CB(1) relevantly provides that: “A person must not, in trade or commerce in connection with…the supply of…financial services to a person…engage in conduct that is, in all the circumstances, unconscionable”;
•	s12CB(4) confirms that it is the intention of Parliament that (among other things) the section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct;
•	s12CC(1) has a long list of matters that the court may have regard to for the purposes of section 12CB, including:
o	the relative strengths of the bargaining position of the parties;
o	whether the person receiving the service was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier;
o	whether the person receiving the service was able to understand the documents;
o	whether any undue influence or pressure was exerted or unfair tactics used;
o	whether the supplier of the services was willing to negotiate terms of the contract and what those terms comprised; and
o	whether the parties acted in good faith.
101	Similarly, the principles to be applied are comprehensively discussed by the Court of Appeal in the Jams 2 Appeal. Relevantly for present purposes, the Court of Appeal held as follows (most citations omitted):
•	unconscionable conduct under s12CB(1) of the ASIC Act is not limited by the unwritten law, a clear reference to the equitable doctrine of unconscionable conduct;
•	that does not mean that the equitable doctrine ceases to have any relevance as, although the statutory conception of unconscionability is more broad-ranging than the equitable principles, the equitable principles still have a significant part to play in ascribing meaning to the term “unconscionable” under s12CB(1);
•	like equity, s12CB of the ASIC Act requires a focus on “all the circumstances” of the case;
•	there have been many decisions which have grappled with the content of the various statutory prohibitions against unconscionable conduct, and whether they set a “lower bar” than unconscionable conduct in equity;
•	the most recent pronouncements by the High Court are to be found in Kobelt;
•	putting aside the differing views in Kobelt as to the facts of the case, the issue of principle as to the content of the statutory standard to be applied in assessing whether conduct is, in all the circumstances, unconscionable within the meaning of s12CB(1) of the ASIC Act, is that stated by Gageler, Nettle, Gordon and Edelman JJ in Kobelt;  
•	that standard is a normative one involving the evaluation of whether the conduct in question is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience;
•	a court should only take the serious step of denouncing conduct as unconscionable when it is satisfied that the conduct is offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society;
•	the evaluation exercise is informed by the non-exhaustive list of factors in s12CC;
•	the effect of Kobelt is that the previously accepted arcane terminology of “moral obloquy” should no longer be used;
•	but the standard should still be understood as requiring an evaluative judgment as to the morality of the allegedly unconscionable behaviour;
•	it remains important to note the statement of the Court of Appeal in Schmidt that little is to be gained by a close factual analysis of the myriad of cases that have considered whether particular conduct was unconscionable;
•	similarly, it is not of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset-based lending;
•	rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable;
•	that is not to say, however, that the fact that a loan involves asset-based lending is irrelevant to the inquiry as to whether, in all the circumstances of the case the lending was unconscionable; and
•	this is because, of its very nature, asset-based lending carries with it the structural risk that the focus on the loan to security value ratio may overwhelm other relevant circumstances known to the lender which may demonstrate that the borrower is under a special disadvantage or it is otherwise unconscientious to lend on the terms of a particular loan.  
Mrs Fraval’s submissions
102	The written submissions of counsel for Mrs Fraval on this issue focus on the interest rate imposed under the loan agreement. They argued that “the interest rate was extortionate in that it was out of all proportion to the costs of funds in the financial market as it was in March 2019 and the risk being taken by the plaintiff in making the loan where security worth $1,280,000 was being taken in relation to a principal amount of $378,000”. At paragraph 24 of Mrs Fraval’s amended defence and counterclaim, Mrs Fraval asserts nine alternative calculations of that interest rate, ranging from 48% to 139% per annum.
103	In oral submissions for Mrs Fraval, Mr Robertson was at pains to emphasise that Mrs Fraval was not intending to put any argument that there was any lack of understanding on her part as to the amount of the interest rates or the legal effect of the transaction. He said that:
“This is not a lack of understanding case…It's put on the basis that it was an improvident transaction.  It's put on the basis that the interest rates are enormous, especially having regard to the nature of the security, and that so far as the statute at least is concerned, the question of understanding of the transaction is merely one of the matters which the court takes into account.
…
Now, what [the Fraval affidavit] says is that she didn't have independent financial advice, and that is something which would have conceivably gone to the question of whether or not this loan was likely to be repaid, and if so, what the risks were from the point of view of the company, and the company's resources. One can only speculate about what sorts of matters a financial advisor would go into in that kind of context.  That's one of the factors which a court would consider, we would submit, in relation to unconscionability.”
104	Mr Robertson accepted that the present formulation for unconscionable conduct under the ASIC Act is whether the transaction is outside the acceptable norms of commercial behaviour.  He continued:
“And here, we say that the transaction was improvident…It's improvident because here is someone who gets no benefit from a transaction, she's not a commercial guarantor in the sense of someone who takes a fee for guaranteeing a party's obligations. She is doing it for family reasons, as she's deposed. She's doing it because her husband has asked her to.  Because she doesn't want to upset him in the circumstances in which she finds herself. None of that goes to whether or not she understands what she's doing, it goes to motivation, but it does, in a case like this where it's common ground it's her home, she is entering into a transaction which, absent financial advice about the likelihood of the principal debtor on one view of it, on our opponent's view of it, the principal debtor's prospects for repayment, that's the very matter that financial advice should go to. 
Of course, if there is a default there's a risk. The question fundamentally in relation to financial advice is whether there's likely to be a default, and there was no financial advice. In the Stubbings case, where on appeal the Court of Appeal held there was no unconscionability, there was financial advice.”
…
[W]hat we say is that where a transaction is one where someone obtains no benefit, has only risk, is not assisted by independent financial advice so as to be able to weigh up that risk, where the terms are, and we'll come to this, extortionate, then that transaction is outside the acceptable norms of commercial behaviour.  That's a short summary of it.”
105	Thus, there were essentially two aspects of the transaction that counsel for Mrs Fraval argued gave rise to unconscionability in contravention of s12CB of the ASIC Act. First, the “extortionate” interest rate and, second, that it was an improvident transaction and Commercial should have ensured that Mrs Fraval was given financial advice before entering into the transaction. Had it done so, Mrs Fraval could have assessed Rofin’s capacity to repay the advance. I will deal with these in turn.
Extortionate interest rate
106	On the interest rate, Mr Robertson in oral submissions sought to rely on the decision at first instance in PSAL Ltd v Kellas-Sharpe & Ors (“Kellas-Sharpe”). In that case, the interest rate was structured in the same way as the present case, with a “standard rate” per month, but while the borrower was not in default, the lender would accept interest at a “concessional rate”. However, here the “standard rate” is 10%, whereas in Kellas-Sharpe it was 7.5%. The “concessional rate” was the same, that is, 4%.
107	The finding of Applegarth J at first instance on the unconscionability issue was not challenged (or discussed) on appeal (Kellas-Sharpe v PSAL Ltd (“Kellas-Sharpe Appeal”)), beyond the Court of Appeal’s helpful summary of Applegarth J’s finding as follows (at [23]): 
“However, the learned judge did find that PSAL’s conduct had been unconscionable in terms of s 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) and s 51AC of the Trade Practices Act 1974 (Cth) (“TPA”) in continuing to charge the rate of 7.5 per cent per month capitalised monthly, for an extenuated period when, by mid-2010, the loan had ceased to be a short term one. In his Honour’s view “To continue to capitalise interest at such a rate for a period of months and years is irreconcilable with what is right and reasonable”.
108	Mr Robertson noted that the 7.5% per month rate in that case, capitalised monthly, was held to be unconscionable in the circumstances of the case, in part “because its continuation beyond a short-term was in itself an unconscionable thing”. He submitted that the interest was charged upon the secured money and the secured money is defined to include interest, “so we're very much in the same category of cases”.
109	Mr Robertson also referred to the recent decision of Adamson J in the Supreme Court of New South Wales in Oxygen Funding Solutions Pty Ltd v Dick-Telfar (“Oxygen Funding”). That case involved lending on almost identical terms to the present case because (like this case) the lending was arranged by HomeSec Business Finance Pty Ltd. The facts otherwise differed from the present case in various respects, but relevantly for present purposes the borrower argued that both the “lower” interest rate of 4% and the “higher” interest rate of 10% were unconscionable. The decision was relied on by Mr Salpigtidis for Commercial. 
110	Her Honour held as follows (emphasis added):
“Mr Levet contended that both the ‘lower’ interest rate of 4% and the ‘higher’ interest rate of 10% were unconscionable. Mr Edney submitted that, although the interest rates were high, it was not open to me to accept Mr Levet’s submission. He relied on [the Kellas-Sharpe Appeal] as summarising the authorities for this proposition.
It is plain that interest rates of 4% per month and, a fortiori 10% per month will result in outstanding interest exceeding the principal within a relatively short period. Such rates will be attractive only to the naïve, the ill-advised or the desperate. It was not suggested that the defendants fell into either of the first two categories. The rates are such that any prospect of refinancing the debt with a reputable lender, such as a bank, is likely to quickly disappear. One only has to compare the “lower” rate of 4% per month (48% per annum) which applied for the loan from the plaintiffs with the rate of 4.7% per annum offered by the ANZ to appreciate the uplift applied by lenders such as the plaintiffs on monies advanced by them. Loans on the terms advanced by the plaintiffs have such a high risk of default that it is almost inevitable that any property secured will have to be sold and that any equity held by the borrowers will be extinguished by the passage of time, consumed at a voracious pace by the interest.
However, courts have consistently held that, as long as the provisions for the lower and higher rates of interest are drafted in such a way as to make clear that the lower rate is payable by way of a discount, or reward, for timely payment and the higher rate is the rate otherwise applicable, the rate does not amount to a penalty and the lender’s conduct is not unconscionable. Thus, it is irrelevant that 10% cannot possibly be a genuine pre-estimate of the plaintiffs’ loss if the payment at 4% is not made on time since this is not the test. While trial judges and intermediate courts have railed against the consequences of this distinction, which is to immunise the result of a drafting device from scrutiny on the basis of equitable principles relating to penalties and unconscionability, it has been said, time and again, that the principle is too well established to be disturbed other than at the highest level, by the High Court or by Parliament: Kellas-Sharpe [Appeal] at [2]-[4] (Margaret McMurdo P), [32]-[49] (Gotterson JA) and [57]-[60] (Fryberg J).
Accordingly, the question is not whether the interest rates are unconscionable in any moral sense, but whether the law regards them as being unconscionable. In these circumstances, I accept Mr Edney’s submission that it is not open to me to find that the interest rates charged by the plaintiffs were unconscionable within the meaning of s 12CA of the ASIC Act.”
111	Mr Robertson submitted that her Honour’s findings on unconscionability in the paragraphs above do not go beyond the equitable doctrines relating to penalties. He said that her Honour addresses the unconscionability question in the context of the penalty doctrine, “so the Oxygen case doesn’t go beyond the equitable doctrine of penalties”. He added that the amount of the interest is extortionate and, on a proper view, the Oxygen Funding case does not say otherwise.
Improvident transaction
112	Turning to the second aspect of the submissions of counsel for Mrs Fraval on unconscionability (namely, the “improvident transaction” aspect), they drew heavily on the principles in Amadio. In oral submissions, Mr Robertson argued that the question for the court when considering unconscionability in equity, is whether the transaction was unconscionable because of, in part, its consequence or effect. The fact that a transaction is highly improvident is relevant to the question of whether unconscionable advantage has been taken of the guarantor's situation. He added that Commercial’s failure to ensure that Mrs Fraval was given independent financial advice “goes into the calculus of unconscionability”, as does the fact that she did not receive a direct benefit and that the security which she provided is her home.
Commercial’s submissions
113	In his primary written submissions on the unconscionability issue, Mr Salpigtidis emphasised that a factor in determining a special disability is whether a person obtained independent legal advice, and the quality of that advice, citing Anthony v Vaclav. He argued that Mrs Fraval ignores the fact that she obtained independent legal advice from Ms Moorhouse Perks and that Mr Fraval and Rofin obtained advice from different legal practitioners. He said it is not suggested that Mrs Fraval did not understand the documents or that Commercial engaged in any predatory conduct. It is not suggested that there was undue influence by her late husband.
114	Mr Salpigtidis noted that in Paciocco v Australian and New Zealand Banking Group Ltd, the Full Court of the Federal Court concluded in respect of the argument based on the size of the fees, that s12CB of the ASIC Act “does not transform the Court into a price regulator”. He argued that any reliance on the interest rate being unconscionable within the meaning of s12CA of the ASIC Act is not open, relying on the passages from Oxygen Funding set out above.
115	In his written submissions in reply, Mr Salpigtidis cited extensively from the decision in the Jams 2 Appeal, handed down less than a week earlier. Using the language of the Court of Appeal in that decision, he submitted that there was no evidence from Mrs Fraval that demonstrates Commercial’s conduct was “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”. He noted that Commercial insisted that Mrs Fraval obtain independent legal advice, which she did. He submitted that it is not against societal norms for a person to guarantee a company’s borrowings and nor is it against societal norms for a wife to guarantee the borrowings of her husband’s company when she has no direct interest in it.
116	Mr Salpigtidis argued that where a wife guarantees the borrowings of her husband’s company:
“[A] lender can protect itself by insisting that the wife obtain independent legal advice to that of her husband or the borrower Company. In this case that is exactly what has happened. There is no allegation that the husband was the agent of the lender so that the lender is infected by whatever representations the husband made to the wife to execute the security documents. On the contrary, the lender insisted that the wife obtain independent legal advice. Just as Mr Stubbings in Jams 2.”
117	In oral submissions, Mr Salpigtidis relevantly added that:
•	this was meant to be a two-month loan, which on Mrs Fraval’s evidence was to be repaid by her brother-in-law Sachlan Fraval from funds from another source, which he was “just about to obtain”;
•	he relied on the finding in Oxygen Funding to argue that it was not open to me to find that the interest rates charged by Commercial were unconscionable within the meaning of s 12CA of the ASIC Act;
•	he relied on the decision in the Jams 2 Appeal, including where the Court took into account the fact that Mr Stubbings obtained independent legal and accounting advice and that the lender’s representative was entitled to rely on the certificates;
•	in the Jams 2 Appeal, the court found that those certificates had the effect of negating the allegation that the lender was fixed with knowledge of Mr Stubbings’ personal and financial circumstances;
•	in the present case, the same submission can be made. Commercial is entitled to rely on the certificate of Ms Moorhouse Perks and also the declaration given by Mrs Fraval;
•	there was no evidence of why Mrs Fraval did not query with her husband or brother-in-law how the loan was going to be paid out in two months, and more importantly there is nothing on this issue that goes to the conduct of Commercial;
•	on the issue of capitalisation of interest and the finding of unconscionability in Kellas-Sharpe at first instance, the MCP at clause 5.8 does provide for capitalisation;
•	but unconscionability looks to conduct not to what the terms of the MCP allow, and the Dobbs certificate relied on by Commercial establishes that it is not seeking capitalised interest – Mr Stone’s evidence is that Commercial is seeking only 10% per month simple interest; and
•	the Dobbs certificate constitutes a waiver of any claim to capitalised interest, because the certificate is conclusive evidence of what is owing under the Mortgage.
Analysis on unconscionability
118	In my judgment, having regard to the findings in Oxygen Funding, particularly considered in light of the test since articulated in the Jams 2 Appeal, Mrs Fraval’s defence based on unconscionability has no real prospects of success.
119	I do not agree with Mr Robertson’s argument to the effect that, in making the findings in Oxygen Funding set out above, Adamson J conflated unconscionability with the equitable principles relating to penalties. In my view, her Honour’s reference to the question of whether the interest rate reflects a genuine pre-estimate of the plaintiff’s loss, while relevant to the penalty issue, also invokes the matters in s12CC of the ASIC Act. In particular, the question of whether the conditions (in this case the interest rate) were “reasonably necessary for the protection” of the lender (s12CC(1)(c)).
120	In any event, it seems to me that equitable principles relevant to penalties can properly inform the unconscionability analysis, as part of the more synthesised approach which takes into account all of the facts relevant to the impugned conduct, as discussed in the Jams 2 Appeal. But there are more compelling facts that to my mind are sufficient to answer the unconscionability claim, regardless of the application of the reasoning in Oxygen Funding. These are essentially those relied on by Mr Salpigtidis, namely:
•	the independent legal advice – Mr Robertson eschewed any suggestion that Mrs Fraval did not understand the effect of the MCP and other facility documents, including the interest rates applicable;
•	importantly, when considering Commercial’s compliance with acceptable norms of commercial behaviour, it was Commercial that insisted that Mrs Fraval be given that independent legal advice and obtain the “Schedule G Australian Legal Practitioners Certificate” from by Ms Moorhouse Perks;
•	the fact that it was a short term (two month) loan, made in circumstances where Mrs Fraval had been given assurances by her husband and brother-in-law that funds would soon be available to repay the loan in full;
•	again, looking at Commercial’s compliance with acceptable norms of commercial behaviour, there is no evidence that Commercial was in any way associated with the giving of these assurances to Mrs Fraval;
•	unlike the position in Jams 2, there is no suggestion in this case that this was pure asset-backed lending – among other things, the funds were used to purchase a trading business, and the loan application documents referred to repayment being sourced from “cashflow”;
•	thus, the lending in this case is lacking a number of the potential hallmarks of unconscionability discussed in Jams 2 that, according to the Court of Appeal, were still not enough to support a finding of unconscionability on the part of the lender in Jams 2;
•	although no financial advice was provided to Mrs Fraval about the capacity of the Lake Bolac Hotel to meet repayments, it is difficult to see how this would have altered the outcome, given that Mrs Fraval was apparently relying on assurances that Sachlan Fraval would soon come into funds to be used for repayment;
•	accordingly, while I accept that the borrower in Jams 2 was given independent financial advice, the circumstances in this case are distinguishable; and
•	in any event, it is far from clear that the provision of the financial advice in Jams 2 was material to the Court of Appeal’s rejection of the unconscionability defence in that case. 
121	On the capitalisation of interest and the application of the decision in Kellas-Sharpe at first instance, I agree with Mr Salpigtidis that unconscionability looks to conduct, not what the relevant loan agreement may allow. In this case, Commercial has confirmed by its Dobbs certificate that it is not pursuing any claim for capitalised interest. I note that in Kellas-Sharpe at first instance, the relief fashioned by Applegarth J consequent on his finding of unconscionability, was to achieve this result. That is, he made orders in substance precluding the lender from claiming capitalised interest, while allowing it to maintain its claim for simple interest at the higher rate of 7.5% per month.
122	Having regard to the facts summarised above and the reasoning in the Jams 2 Appeal, I am satisfied that there is no basis for a finding that Commercial’s conduct “is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”. Short term high interest lending of the kind occurring in this case is commonplace – despite the difficulties it can cause, as adverted to by Adamson J in Oxygen Funding. Further, in this case, there is no evidence of any of the factors listed in s12CC of the ASIC Act that are sometimes encountered in lending of this kind, including undue influence, pressure or unfair tactics on the part of Commercial (or anyone acting on its behalf) or lack of good faith. 
123	On the issues of the relative strength of bargaining positions and understanding of the transaction, to my mind these are more than adequately addressed by Commercial’s insistence on the independent legal advice from Ms Moorhouse Perks. Indeed, the provision of that independent legal advice in this case is arguably a complete answer to the entire defence based on unconscionability. But even if it is not, when it is combined with the other factors listed above, in my judgment, the matters relied on by Mrs Fraval fall a long way short of allowing me to “take the serious step” of denouncing Commercial’s conduct as unconscionable, or of otherwise allowing the defence to proceed.
Do the interest provisions of the loan agreement constitute a penalty?
Mrs Fraval’s submissions
124	In their written submissions, counsel for Mrs Fraval argued that, although the Queensland Court of Appeal in the Kellas-Sharpe Appeal held that there is no penalty where it is agreed to charge a certain rate of interest on condition that if payment is made punctually, the rate will be reduced, “this approach is anomalous and can only be attributed to the elevation of form over substance”. In support of the proposition, they relied upon Stoyanova v Equity-One Mortgage Fund Ltd (“Stoyanova”) a decision of Riordan J. They refer (as did Riordan J) to what the High Court said in Andrews v Australia and New Zealand Banking Group Ltd (“Andrews v ANZ”) in relation to penalties, namely, that a court should look to substance rather than form. They noted that the Kellas-Sharpe Appeal decision was decided without the benefit of argument based on the more recent decision of Andrews v ANZ.
125	In oral submissions, Mr Robertson did not add substantively to the written submissions summarised above. He confirmed that the effect of the authorities referred to was that, in form, the interest rate provision is not a penalty but, in substance, it is a penalty. He accepted that the court in the Kellas-Sharpe Appeal did refer in footnote 10 to the decision in Andrews v ANZ. However, it confirms that it was handed down after argument had concluded. Mr Robertson essentially argued that I should allow the matter to go to trial on this issue, for essentially the same reasons as Riordan J in Stoyanova.  He argued that the Court of Appeal of this state could readily take the view that the Queensland Court of Appeal was wrong and had failed properly to take into account the High Court's view in ANZ v Andrews.
Commercial’s submissions 
126	In his written submissions, Mr Salpigtidis argued that the “higher” rate of interest is not dependant on a breach. It is the agreed rate between the parties and is not charged only upon default. This does not constitute a penalty. He submitted that it is well settled that such a reservation of the higher rate as the interest rate which is reduced for punctual payment and no event of default (known generally as the “No Penalty Rule”) is not a penalty.  What Mrs Fraval has lost is the benefit of the discount for prompt payment.
Analysis on penalty
127	The current state of the relevant law on the No Penalty Rule is thoroughly examined by Riordan J in Stoyanova. I would respectfully adopt, without repeating, his Honour’s analysis. His Honour concludes his analysis as follows:
From the above discussion, the following short propositions can be concluded:
(a)	The No Penalty Rule is anomalous and can only be attributed to the elevation of form over substance.
(b)	In Andrews v Australia and New Zealand Banking Group Ltd, the High Court, generally with respect to the application of the rule of penalties, has adopted the approach that a court should look to substance rather than form.
(c)	The No Penalty Rule is well established; and a judge at first instance would not be…at liberty to reconsider the application of the rule.
Although I consider that, on the current state of authorities, the plaintiffs’ claim – that the higher interest rate clauses in the facility agreements with Equity-One are penalties – must fail at trial, I do not propose to dismiss the claim for the following reasons:
(a)	The High Court has not ‘affirmed [the No Penalty Rule] after a deliberate examination’ and there must be some prospect that the High Court will reconsider the rule.
(b)	If the plaintiffs were to attempt to take the issue to the High Court for determination in this case, appellate courts may benefit from evidence, full argument and reasons in the trial division.
(c)	The plaintiffs’ claims with respect to the monthly default fee clause constituting a penalty will proceed and, in my opinion, determination of the issue of the application of the rule with respect to higher interest rate clauses will not require the expenditure of substantial further costs.
(d)	Consideration of whether the monthly default fee clauses constitute a penalty may require consideration of the effect of the additional interest payable under the higher interest rate clause, consequent on the same default.
(e)	The summary dismissal of the claim with respect to the higher interest rate clauses will require any appeal to be filed prior to the determination of the balance of the action.  This is likely to lead to fragmentation of the claims and delays in the finalisation of the proceeding.”
128	For the reasons given by his Honour in the passage above, I have significant reservations about the future of the No Penalty Rule. Further, I would respectfully join with those other trial judges and intermediate courts that have railed against the consequences of the rule, as noted by Adamson J in the passage from Oxygen Funding earlier in these reasons. However, I also agree with the observation by Riordan J that a judge at first instance (and, I would add, particularly a Judge of this court) is not at liberty to reconsider the application of the rule. But I would respectfully disagree with his Honour that I should nevertheless allow the issue to go to trial, on the facts of this case.
129	Despite Mr Robertson’s submissions when I put this to him in the course of oral submissions, I am not persuaded that an appellate court in this case will benefit from further evidence or argument. In my view, the facts necessary to enliven (and, indeed, determine) the issue are adequately advanced in the affidavit material, and the legal issues were fully argued. Given the views I have expressed on the other defences advanced by Mrs Fraval, in my judgment, particularly having regard to the overarching purpose under the CPA, the appropriate course is to bring this proceeding to an end now, before any further time and costs are spent. 
130	If Mrs Fraval is advised to appeal this ruling, and the Court of Appeal takes a contrary view to that expressed in the Kellas-Sharpe Appeal on this issue, the Court of Appeal would, with the greatest respect, then have the option of remitting that much narrower issue for determination by this court or, should it so determine, itself assess the extent of any penalty. In making this observation, I do not of course exclude the possibility that the Court of Appeal may also take a different view on the other defences advanced by Mrs Fraval. I am merely seeking to explain my reasons for taking a different approach to that of Riordan J in Stoyanova.
Conclusions and orders
131	In my view, the defences advanced by Mrs Fraval and her counterclaim have no real prospects within the meaning of ss61, 62 and 63 of the CPA as discussed in Lysaght. Indeed, in the case of the defences based on the application of the Code, I would go so far as to say that they are hopeless and bound to fail, under the arguably more stringent test essayed in General Steel.
132	Further, I am not persuaded that this is a case where I should exercise my discretion to allow it to proceed to trial under s64 of the CPA, despite Mrs Fraval having no real prospect of success. On the contrary, for the reasons discussed above, if there are issues in this proceeding that might usefully be the subject of examination in the Court of Appeal, the time to bring this proceeding to an end is now, so that can occur sooner and at less cost.
133	As foreshadowed above, I will therefore give summary judgment for Commercial and order that it have possession of the Warrandyte Property. I will further order that Mrs Fraval’s amended defence and counterclaim are dismissed. It follows that it is unnecessary for me to rule on Mrs Fraval’s application for leave to file a rejoinder and reply to defence to counterclaim.
134	Unless the parties are able to bring to my attention any matter supporting a different order on costs, I will also order that Mrs Fraval pay Commercial’s costs of and incidental to the proceeding on the standard basis, to be taxed in default of agreement.
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Certificate

135	I certify that these 64 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 13 November 2020

136	Dated: 13 November 2020

Claire Findlay
Associate to his Honour Judge Woodward