Consumer Credit Code applies to vendor terms contracts
The position that the Consumer Credit Code (“Code”) applies to vendor terms contracts was set out in Geeveekay Pty Ltd and Ors v Director of Consumer Affairs Victoria  VSC 50.
The case discusses the issue of whether terms contracts for the sale of land constituted a ‘credit contract’ under the Code. The Court considered contracts entered into by Geeveekay Pty Ltd (“Geeveekay”), which purchased properties using funds loaned to them by a bank. The funds were obtained at a lower rate and secured with a mortgage over the property. They then sold the properties at a higher price together with a higher interest rate. In this particular case, Geeveekay purchased the property for $54,400 at an interest rate of 5.72%p.a. and then onsold the property using a terms contract for $82,280 at an interest rate of 14.9%p.a.
The point of contention in this case was whether the contract between the parties constituted a ‘credit contract’ within Section 5 of the Code. The Court was required to discuss the meaning of ‘incurs a deferred debt’ under the definition of ‘credit’ in Section 4(1)(b) of the Code. In this case, the Court ruled that the contract was subject to the Code as the purchaser’s obligation to pay a future debt came within the concept of ‘incurs a deferred debt’ in the definition of credit in Section 4(1)(b) of the Code. The Courts reasoned that the purchaser, by agreeing to pay installments of the price and interest to Geeveekay, had a ‘definite present obligation to make an unavoidable payment of money in the future in an ascertained or ascertainable amount to another person’.
Compliance with the Uniform Credit Code
Mason Sier Turnbull’s Corporate Advisory Team recently published an article outlining the changes to the consumer credit laws. Depending on the specific nature and circumstances, if you or your business enter into similar contracts as seen in Geeveekay, there may be compliance requirements under the new Uniform Credit Code. You must ensure that you and/or your business has complied with the ASIC registration and licensing requirements.
Author: Daimon Goto