The broker was a school friend of the borrower. They had not seen each other for 20 years but rekindled their friendship a year before the loan. The borrower was a truck driver prior to which he had worked in his father’s sand and cement business.
The broker told the borrower he needed money for a development and convinced the borrower to borrow it for him. He promised the borrower $20,000 in return. When the documents were to be signed he told the borrower not to read them and told him where to sign.
On the day of the advance the broker arranged for the funds to be paid to a third party.
The borrower’s defences were:
- The funds were not advanced to him;
- The loan was regulated by the Consumer Credit Code and the interest rate exceeded the maximum under the Code;
- The loan was unjust within the meaning of the Contracts Review Act.
Ground 1: The funds were not advanced to him
The evidence proved that the cheque directions were signed by the borrower. Accordingly, the Court found the funds were advanced to the borrower.
Ground 2: The loan was regulated by the Consumer Credit Code
Even though the friend was using the funds for a property development, the judge held that was not the purpose of the borrower in obtaining the funds. Rather the borrower had provided the funds to his friend and received no property in return. Therefore, the loan was a personal loan to a friend and therefore for personal purposes. The Judge summarised the case law that lead him to this conclusion:
What is clear from all these cases is that an investment ordinarily involves the acquiring of property of some sort to receive income or profit as a result of that acquisition.
The borrower had signed a Code declaration. However, s11(3) of the Code says that the declaration is ineffective if the person who procured it (in this case, the broker) knew the loan was not for business or investment purposes.
The lender’s ignorance of the person of the loan was irrelevant and the loan was found to be Code regulated. As a result the interest rate was reduced to 48%, the maximum allowable under the Code.
Ground 3: The loan was unjust under the Contracts Review Act
The Judge found the loan was not unjust pursuant to the Contracts Review Act because the borrower knew he was borrowing money to lend to the broker and further he was offered $20,000 to do so. Further, the Judge noted:
The borrower’s blind faith in the broker whom he trusted simply because he had never done the wrong thing to him at school, was something for which the borrower has to take responsibility and cannot be brought home to the lender.