National Credit Code

Presumption of Credit Code – Bank of QLD v Dutta [2010] NSWSC 574

Section 13 of the National Credit Code (“Credit Code”) creates a presumption for the application of the Credit Code. However the question then becomes, does the Credit Code still apply when a borrower fraudulently acquires funds from a lender, and uses the funds for a Credit Code purpose?

In the aforementioned case, the Supreme Court of New South Wales was faced with answering this question.

Dutta (“Borrower”) requested from Bank of Queensland (“Lender”) funds for a business purpose, however the Borrower later used those funds for what was noted to be for a personal, domestic or household purpose. The Borrower ultimately argued that the Credit Code applied with respect to their credit contract.

The Lender argued that the Borrower signed two business proposal declarations, and although they were not executed properly, they still showed an intention by the Borrower to use the monies for a non Credit Code purpose.

In this case the Court stated that the Credit Code creates the presumption that credit contracts are contracts to which the Credit Code applies and the onus is on the Lender to rebut the presumption by satisfying the Court that the funds were predominately used for a non Credit Code purpose.

The Court further stated that the test is not what the credit provider thought at the time the funds were lent, but more so, what the funds were actually used for by the debtor.

In light of this, the Court found that the deception by the Borrower was irrelevant. Moreover, the Court stated that the Credit Code affords protection to the Lender, and if the Lender does not take advantage of the protections therein, they then run the risk that the presumption will apply.

The Lender could not prove that the funds were used for a non Credit Code purpose and therefore it did apply. The Court was satisfied in this instance that the funds were used for a personal, domestic or household purpose.