The Supreme Court of Victoria has recently ruled that
vendor's terms contracts breach consumer protection laws
under the Consumer Credit Code (the Code). In Geeveekay v
Director of Consumer Affairs  VSC 50, the court
considered terms contracts entered into by Geeveekay & Ors
(the Appellants) who operate a business called the Great
Australian Dream Providers. They are in the practice of buying
properties with funds loaned to them by a bank at a discounted
rate of interest secured by a mortgage over the property, then
selling the properties at a higher price and a significantly
higher interest rate. This practice is known as 'mortgage
wrapping' or 'vendor's terms contracts'.
The case concerned the question of whether the terms
contract for the sale of land constituted a 'credit
contract' under the Code. The Code regulates the provision
of consumer credit throughout Australia. The Director of
Consumer Affairs is responsible for the administration of the
Code in Victoria.
The Director examined the contract between the Appellants
and a purchaser, Ms Rand, who bought a property from the
Appellants for $82,280 at an interest rate of 14.9% per annum
with monthly instalments of $915.51 for 30 years. The
Appellants had earlier purchased the property for $54,400 using
funds from a bank loan at an interest rate of 5.72% per annum
with monthly instalments of $317 for 30 years.
The Director held that the Code applied to the terms
contract as it included the provision of credit by the seller
to the buyer. The Director was also of the view that the
Appellants had failed to comply with certain requirements of
the Code. The Victorian Civil and Administrative Tribunal
On appeal in the Supreme Court of Victoria the Appellants
submitted that VCAT did not characterise the contract
correctly. They argued that it did not provide credit but
rather was a terms contract for the sale of land to which Ms
Rand would receive title once all instalments were paid
(projected to be 2032).
The case turned on whether the terms of the contract between
the parties was a 'credit contract' within section 5 of
the Code. This depended entirely on the meaning of 'incurs
deferred debt' under the definition of 'credit' in
section 4(1)(b) of the Code. The Court held that Ms Rand, by
agreeing to pay instalments of the price and interest to the
Appellants every month for 30 years, had a 'definite
present obligation to make an unavoidable payment of money in
the future in an ascertained or ascertainable amount to another
person'. As such, Ms Rand's obligation fit within the
description of incurring deferred debt under section 4(1)(b) of
The Court also held that the terms contract between the
parties was a credit contract on the basis of Ms Rand's
assumption of the Appellant's mortgage and loan
obligations. As between those parties, the assumption of those
obligations also fit within the description of deferred
In this case, the Appellant's terms contract was
subject to the Code. The contract did not comply with the Code
as it was not a validly constructed credit contract. Whilst it
is debateable as to whether all terms contracts are currently
covered by the Code, comments made in this case were broad
reaching and suggest that the Code will apply.
Amendments to the Code are currently being considered by
Consumer Affairs Victoria and are expected to be considered by
Parliament in the near future. It is likely that vendors terms
contracts will need to conform to the Code and be valid credit
contracts. We will keep you informed of any future updates.
From a practical point of view, until the Code is amended,
the use of a terms contract of sale should be avoided.
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.
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