ASIC v Fast Access Finance [2015] FCA 1055

This case concerned a business which arranged for the sale of diamonds to customers and their re-sale back to the business to conceal its true nature which was the provision of credit in return for a customer paying twice that in return.

The court found that the application, sales and purchase contracts satisfied the statutory definition of “contract” for the purposes of a credit contract under the National Credit Code and as such, the owner of the business engaged in credit activity without a credit licence, contrary to section 29 of the Credit Protection Act. The court noted that the statutory scheme is a little more complicated, noting:

The effect of the Transitional Act is that:

  1. 1.from 1 July 2010 until 31 December 2010 a person was prohibited from engaging in credit activity unless that person was registered or held a licence;
  2. 2.from 1 January 2011 until 30 June 2011, a person was prohibited from engaging in credit activity unless that person was registered and had applied for a licence or held such a licence; and
  3. 3.since 1 July 2011 a person has been prohibited from engaging in credit activity unless that person holds a licence.

Although not necessary, the court also found the arrangements to be a sham on the basis that neither side intended that the sales agreements should create the relationship of vendor and purchaser of diamonds and said:

I have not found it necessary to rely on the concept of pretence or sham. In my view the definition of the word “contract” in s 204 of the Code makes such reliance unnecessary. Were the relevant contract the Sales Agreement, or a combination of the Sales Agreement and the Purchase Agreement, the general law of contract may have compelled reliance on that concept in order to avoid the need to give effect to the express contractual terms. However inclusion of the preliminary arrangements in the s 204 Contract avoids that problem. The true nature of the arrangements and contracts between the parties is exposed, at least for the purposes of the Credit Protection Act and the Code. That exposure demonstrates that the parties’ true purpose and intention was to satisfy [the borrower’s] need for cash, and [the lender’s] desire to profit from meeting such need. The provisions for the sale and resale of diamonds added nothing to the transaction.

The court found that the sham transactions were done to conceal the true nature of the transactions from those enforcing the 48% interest rate cap in Qld. The court found that the business well understood the transactions which were being undertaken by each of its entities and was also aware that the entities had not applied for or held a licence. The court found that the business was knowingly concerned in the each transaction. The court indicated it was prepared to grant orders under section 180 of the Credit Protection Act to prevent the business from profiting from the customer or to compensate the customer for loss suffered. ASIC submitted that the court should order the customer to be refunded the difference between what they received and what they paid, in effect meaning that each customer would then have received an interest free loan. The court noted that this went beyond the law, which requires only that the court prevent the credit provider from profiting from the customer.

The court said:

Each customer has had the benefit of the advance or advances. He or she should pay the price for it, to the extent that the law allows. In this case, any orders pursuant to s 180 should ensure that no customer has paid, or will pay more than the sum of the amount paid to that customer plus interest at the maximum rate permitted by law. There is no evidence indicating the rates at which other borrowers were lending, nor as to their lending policies. Nonetheless, I am willing to infer that it is more probable than not that each customer could have borrowed elsewhere at the maximum lawful interest rate.

The court ordered customers to be paid compensation on this basis plus interest at 5% from the date their final instalment to the date of judgment.

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