Australia: Section 76 National Credit Code - reopening unjust transactions - when is a loan unjust in Queensland?

In the recent decision of the Queensland Court of Appeal in Barker v GE Mortgage Solutions Limited, the lender was successful in opposing the borrower's attempts to reopen a 2007 loan secured by a residential mortgage.

Section 76 of the National Credit Code (Cth) gives the court power to reopen unjust consumer transactions involving a loan, mortgage or guarantee. The section lists a number of factors relevant to the exercise of the court's discretion.

The facts

In Barker, the loan was a 'low doc' loan for $259,250 advanced in 2007 and secured by a residential mortgage. The loan was not for business purposes.

The borrower sought the loan for the purpose of refinancing an existing loan and to pay out other debts.

The borrower alleged that, after she had signed the credit application, the broker, without her knowledge, had completed the financial details of the loan application by incorrectly inserting her income as $120,000 per annum, which was contrary to the financial documents she had given the broker.

The borrower also alleged that at the time of her credit application she had disclosed to the broker that she was in receipt of Centrelink benefits: however this was not disclosed to the lender.

The borrower was able to make loan repayments for approximately 18 months before she sought hardship relief.

The crux of the borrower's case was that the loan and mortgage should be reopened because the transaction was unjust.

Central to the borrower's argument was that the broker had misstated her income and financial position and that at the time of the loan application she did not have capacity to repay the loan.

The broker

As a threshold issue, the Court of Appeal applied earlier authorities that have held generally, but subject to the terms of the relevant contract, that brokers are not the agent of the lender.

On the facts, it did not matter that the broker had received a commission or introduction fee from the lender.

The Court of Appeal also observed that the credit application signed by the borrower contained an acknowledgment that the broker was not the agent of the lender and that the broker acted independently of the lender.

Section 76

Despite the loan having been advanced prior to the commencement of the National Credit Code, it was a 'carried over instrument' under the National Credit Code and the Court considered that it had the power to re-open the transaction under the new regulatory regime.

Section 76(2) sets out grounds (a) to (p) for considering whether a transaction is unjust. Significantly, (p) is 'any other relevant factor'.

The Court of Appeal made the following comments about the application of section 76:

  • 'the definition of "unjust" in section 76 is not an exclusive one.'
  • 'In considering whether a term of a credit contract or mortgage is unjust, the court is to consider the circumstances relating to the credit contract or mortgage at the time it was entered into.'
  • 'The court may consider the matters listed in section 76(2)(a) to (p) and is to have regard to the public interest in all the circumstances of the case.'
  • '[A] lender's failure to make an inquiry... is a circumstance that might be taken into account in making a determination as to whether a term of a loan contract or mortgage was unjust.'
  • 'Circumstances not reasonably foreseen when the contract was entered into are not to be taken into account.'

Factors relied on by the borrower

Inability to afford the loan

The borrower asserted that she was unable to afford the loan provided by the lender. However, the Court of Appeal confirmed that 'the fact that a party cannot afford a loan has been held to be insufficient on its own to result in a finding that the loan contract is unjust'.

Inequality in bargaining power

The borrower also contended that there was an inequality in bargaining between the parties.

The Court of Appeal, in applying West v AGC (Advances) Ltd (1986) NSWLR 610 said 'mere procedural factors such as inequality of bargaining power without more, such as the lender abusing or taking advantage of that power, is unlikely to be a sufficient basis for a finding that a contract is unjust'.

The borrower had asserted that the lender's mortgage provisions were non-negotiable and oppressive. On the facts, the Court of Appeal said there was nothing to suggest that they were other than common and standard type provisions.

The broker's alleged conduct

Based on its finding regarding the agency of the broker, the Court of Appeal said that there was no basis for reopening the loan transaction based on any misrepresentation or misconduct by the broker concerning the borrower's income. Any misrepresentation or misconduct by the broker could not be attributed to the lender.

What did the lender know or ought to have doubted?

The borrower alleged that the lender knew, or had reasons to suspect, that the borrower would not be able to meet her financial obligations under the loan agreement. Alternatively, she said that the lender failed to make reasonable enquiries that would have uncovered reasons for doubting her capacity to repay.

Although the loan was a 'low doc' loan, the lender did seek various financial details in the application form, which were provided by the borrower. This included the borrower's income, which the borrower claimed was incorrectly stated as $120,000 by the broker. It was noted by the Court, however, that the loan application contained various declarations by the borrower concerning the accuracy of the information provided.

On the facts, the Court held there was nothing in the material before it to indicate that the lender knew at the relevant time that the borrower could not pay in accordance with the terms of the loan contract or not without substantial hardship.

While the loan application documents revealed some outstanding debts at the time the loan contract and mortgage were entered into, an explanation was offered in the documentation provided by the broker for the borrower's credit issues, which were not put in issue by the borrower. There was nothing to cause the lender to doubt the explanation provided and the debts referred to did not alone demonstrate an inability to meet the loan payments.

The Court did not specifically rule on the question of what would have constituted a reasonable enquiry beyond seeking the declarations from the borrower, but found that the borrower could not succeed on this point because she had failed to put evidence before the Court of her true financial position at the time of the loan application. In addition, the fact that she had made repayments for 18 months pointed to a conclusion that there was nothing for the lender to discover by making further enquiries.


Many lenders will have, in their existing portfolio, loans that were advanced prior to the commencement of National Consumer Credit Protection Act 2009 (Cth), in times when low doc loans were common, even among code-regulated transactions. Other lenders continue to advance low doc loans in their commercial portfolios.

These lenders can take a degree of comfort from this decision in that the Queensland Court of Appeal has indicated that it will not hold such loans to be automatically unjust and, in the absence of the lender taking unfair advantage of the borrower, will hold borrowers to the declarations in their loan application forms.

It is noted, however, that at the time of the Barker loan the provisions of Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (responsible lending conduct) were not in force and did not apply to the loan. Division 3 of Chapter 3 Part 3-2 of that Act, provides, for example, that before a credit contract is entered into, a credit provider is obliged to make an assessment as to the unsuitability of the credit contract (see sections 128, 129, 130, 131 and 132).

Based on this change in the law, lenders in the consumer or residential investment environment must comply with the responsible lending conduct provisions in relation to their lending decisions.

Additionally, even in commercial lending, it remains good industry practice to make inquiries to independently verify the borrower's statements regarding their income, particularly where the loan application form is received through a broker (especially if the broker has a close connection with the lender).

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.