Schedule 1—Amendment of the Defence Service Homes Act 1918

1 Subsection 4(1)

Insert:

Consumer Credit Codes commencing day means the earliest day on which any of the Consumer Credit Codes of the States or Territories comes into force.

court means a court of summary jurisdiction.

guarantee includes indemnity (other than one arising under a contract of insurance).

guarantor means a person who has given or gives a guarantee to the Bank in relation to a subsidised advance.

mortgage includes:

(a) any interest in, or power over, property securing obligations of a borrower or guarantor; and

(b) the Bank’s title to land or goods that are subject to a sale by instalments.

mortgagor means a person who has given or gives a mortgage to the Bank in relation to a subsidised advance.

other portfolio agreement has the same meaning as in the agreement.

portfolio contract of sale has the same meaning as in the agreement.

portfolio mortgage has the same meaning as in the agreement.

portfolio supplementary agreement has the same meaning as in the agreement.

subsidised advance contract means an agreement for the provision of a subsidised advance whether or not the Commonwealth has terminated the subsidy in respect of the advance.

subsidised advance loan account has the same meaning as in the agreement.

supplementary agreement means an agreement between the Commonwealth and the Bank, whether or not set out in a Schedule to this Act, that:

(a) amends the agreement; and

(b) is expressed to be a supplementary agreement to the agreement;

as varied and in force from time to time.

2 Subsection 4(1) (definition of agreement)

Repeal the definition, substitute:

agreement means the agreement between the Commonwealth and the Bank made on 9 November 1988, a copy of which is set out in Schedule 1, as varied by a supplementary agreement or otherwise, and as in force from time to time.

3 After section 4C

Insert:

4D Exclusion of Consumer Credit Codes in relation to subsidised advances

(1) Except as provided by Part IIIA and section 35A, this Act does not exclude or limit the concurrent operation of the Consumer Credit Codes of the States and Territories.

(2) Nothing in subsection 23A(2) or section 23H is intended to make matters referred to in that subsection or section subject to the Consumer Credit Codes of the States and Territories.

4 After Part III

Insert:

Part IIIA—Unjust transactions

23A Power to reopen unjust transactions

(1) Subject to this Part, if a court is satisfied, on the application of a borrower, mortgagor or guarantor, that, in the circumstances relating to the relevant contract, mortgage or guarantee, at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or the change was unjust, the court may re-open the transaction that gave rise to the contract, mortgage, guarantee or change.

(2) This section does not apply to, or to a change in:

(a) the annual percentage rate or rates of interest under a contract or mortgage or the method of calculating any such rate or rates of interest or of calculating any amount of interest under the contract or mortgage; or

(b) an establishment fee or charge, or other fee or charge, in respect of which an application may be made under section 23F.

23B Matters to be considered by court

(1) In determining whether a term of a particular contract, mortgage or guarantee in relation to a subsidised advance is unjust in the circumstances relating to it at the time it was entered into or changed, a court is, subject to subsection (2), to have regard to the public interest (including the public interest in the continued provision of assistance to eligible persons by means of subsidised advances by the Bank) and to all the circumstances of the case and may have regard to the following:

(a) the consequences of compliance, or non-compliance, with all or any of the provisions of the contract, mortgage or guarantee;

(b) the relative bargaining power of the parties;

(c) whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation;

(d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change;

(e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee;

(f) whether or not any mortgagor (other than the borrower) or guarantor, or a person who represented that mortgagor or guarantor, was reasonably able to protect the interests of that mortgagor or guarantor because of his or her age or physical or mental condition;

(g) whether or not the mortgagor who was the borrower, or a person who represented that mortgagor, was reasonably able to protect the interests of that mortgagor because of his or her physical or mental condition;

(h) the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed;

(i) whether or not, and if so when, independent legal or other expert advice was obtained by the borrower, mortgagor or guarantor;

(j) the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the borrower, mortgagor or guarantor and whether or not the borrower, mortgagor or guarantor understood those provisions and their effect;

(k) whether the Bank or any other person exerted or used unfair pressure, undue influence or unfair tactics on the borrower, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics;

(l) whether the Bank took measures to ensure that the borrower, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures;

(m) whether the terms of the transaction or the conduct of the Bank is justified in the light of the risks undertaken by the Bank;

(n) the terms of other comparable transactions involving persons other than the Bank who provide credit;

(o) any other relevant matter.

(2) In determining whether a term of a particular contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, a court:

(a) is to have regard to:

(i) the fact that the Bank and the Commonwealth have entered into an agreement for the provision by the Bank of subsidised advances; and

(ii) the fact that the Bank is required to provide a subsidised advance if the requirements of this Act and the agreement are satisfied; and

(iii) the fact that the interest rates applicable to subsidised advances and loans secured by specified portfolio assets are determined under this Act; and

(iv) the fact that, in some circumstances, the Bank would not provide advances to an eligible person if the making of the advance were assessed on ordinary commercial lending criteria instead of the criteria set out in this Act or the agreement; but

(b) is not to have regard to:

(i) any inequality in bargaining power between the Corporation or the Bank, and the borrower, that arose because the borrower was able to obtain a subsidised advance from the Corporation or Bank and not from another financial institution; or

(ii) the borrower’s age.

(3) For the purposes of paragraph (1)(f) or (g), a person is taken to have represented a mortgagor or guarantor if the person represented the mortgagor or guarantor, or assisted the mortgagor or guarantor to a significant degree, in the negotiations process before, or at, the time the mortgage or guarantee was entered into or changed.

23C Unforeseen circumstances

In determining whether a contract, mortgage or guarantee in relation to a subsidised advance is unjust, a court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract, mortgage or guarantee was entered into or changed.

23D Conduct

In determining whether to grant relief in respect of a contract, mortgage or guarantee that it finds to be unjust, a court may have regard to the conduct of the parties to the proceedings in relation to the contract, mortgage or guarantee since it was entered into or changed.

23E Orders on reopening of transactions

If a court reopens a transaction under section 23A, it may do any one or more of the following, despite any settlement of accounts or any agreement purporting to close previous dealings and create a new obligation:

(a) reopen an account already taken between the parties;

(b) relieve the borrower and any guarantor from payment of any amount in excess of the amount that the court, having regard to the risk involved and all other circumstances, considers to be reasonably payable;

(c) set aside either wholly or in part, or revise or alter, an agreement made or mortgage or guarantee given in connection with the transaction;

(d) order that the Bank take any steps that are necessary to discharge the mortgage;

(e) give judgment for, or make an order in favour of, a party of any amount that, having regard to the relief (if any) that the court thinks fit to grant, is justly due to that party under the contract, mortgage or guarantee;

(f) give judgment or make an order against a person for delivery of goods to which the contract, mortgage or guarantee relates and which are in the person’s possession;

(g) make ancillary or consequential orders.

23F A court may review unconscionable fees and charges

(1) Subject to this Part, if a court is satisfied on the application of a borrower, mortgagor or guarantor that:

(a) an establishment fee or charge in respect of the relevant contract, mortgage or guarantee; or

(b) a fee or charge payable on early termination of the relevant contract, mortgage or guarantee; or

(c) a fee or charge for a prepayment of an amount under the relevant contract, mortgage or guarantee;

is unconscionable, the court may annul or reduce the fee or charge and may make ancillary or consequential orders.

(2) In determining whether an establishment fee or charge is unconscionable, the court is to have regard to whether the amount of the fee or charge is equal to the Bank’s reasonable costs of determining an application for credit and the initial administrative costs of providing the credit or is equal to the Bank’s average reasonable costs of those things in respect of that class of contract.

(3) For the purposes of this section, a fee or charge payable on early termination of, or a prepayment of an amount under, the relevant contract, mortgage or guarantee is unconscionable if, and only if, it appears to the court that it exceeds a reasonable estimate of the Bank’s loss arising from the early termination or prepayment, including the Bank’s average reasonable administrative costs in respect of such a termination or prepayment.

23G Time limit

(1) An application under section 23A may not be brought more than 2 years after the relevant contract, mortgage or guarantee is rescinded or discharged or the Bank writes off the relevant debt, whichever occurs first.

(2) An application under section 23F may not be brought more than 2 years after the relevant fee or charge is charged under the contract, mortgage or guarantee or the Bank writes off the relevant debt, whichever occurs first.

23H Exceptions

(1) This Part does not apply to:

(a) a change to a contract, mortgage or guarantee if the change was made by, or as a result of, the enactment of this Part, section 35A, any other Act or an amendment of the agreement; or

(b) a contract, mortgage or guarantee under which the borrower, mortgagor or guarantor is not an individual; or

(c) a contract under which the borrower is borrowing for a purpose that is not wholly or predominantly a personal, domestic or household purpose; or

(d) a mortgage or guarantee that secures or guarantees obligations under a contract:

(i) under which the borrower is not an individual; or

(ii) under which the borrower is borrowing for a purpose that is not wholly or predominantly a personal, domestic or household purpose; or

(e) a contract, mortgage or guarantee that was entered into before the commencement of this paragraph.

(2) For the purposes of this section:

(a) investment by a borrower is not a personal, domestic or household purpose; and

(b) the predominant purpose for which an individual is borrowing is:

(i) the purpose for which more than one-half of the amount borrowed is intended to be used; or

(ii) if the amount borrowed is intended to be used to obtain goods, services or rights in relation to, or interests in, real property for use for different purposes—the purpose for which the goods, services, rights or interests are intended to be most used.

23J Legal and financial assistance

(1) A person who has made, or proposes to make, an application under section 23A or 23F may apply to the Attorney-General for a grant of assistance under this section in respect of the application.

(2) If such an application for assistance is made, the Attorney-General, or an officer of the Australian Public Service authorised in writing by the Attorney-General, may, if he or she is satisfied that it would involve hardship to the applicant to refuse the application for assistance and that, in all the circumstances, it is reasonable that the application for assistance should be granted, authorise the grant by the Commonwealth to the person, either unconditionally or subject to any conditions that the Attorney-General or officer determines, of such legal or financial assistance in relation to the application under section 23A or 23F, as the case may be, as the Attorney-General or officer determines.

23K Jurisdiction of courts

The courts of summary jurisdiction of the States are invested with federal jurisdiction, and (subject to the Constitution) jurisdiction is conferred on the courts of summary jurisdiction of the Territories, with respect to matters arising under this Part.

23L Definition

In this Part:

unjust includes unconscionable, harsh or oppressive.

5 After section 35

Insert:

35A Modifications of agreement and other instruments

(1) Despite clause 8.1 of the agreement and anything contained in any subsidised advance contract or in any portfolio mortgage, portfolio contract of sale, portfolio supplementary agreement or other portfolio agreement:

(a) a subsidised advance or an amount owed to the Bank under a loan secured by a specified portfolio asset is repayable in equal monthly instalments comprising principal and interest; and

(b) interest on each subsidised advance and each amount owed under a loan secured by a specified portfolio asset is to be:

(i) charged in arrears; and

(ii) calculated by applying the applicable annual percentage rate divided by 365 to the outstanding daily balance of the subsidised advance loan account; and

(c) if the Commonwealth terminates the interest subsidy in respect of a subsidised advance contract:

(i) the Bank may terminate the contract and any associated portfolio mortgage, portfolio contract of sale, portfolio supplementary agreement or other portfolio agreement; and

(ii) if the Bank does so, it is entitled to demand repayment of, and recover by action in any court or under the mortgage, the principal and interest and any other money owing under the contract, mortgage or agreement.

(2) Clause 1.1 of the agreement has effect as if the definition of “Rest Day” were omitted and the following definition were substituted:

Rest Day: means, in respect of a Specified Portfolio Asset or a Subsidised Advance, the fifth day of each month on which principal and accrued interest will be due and payable in respect of the relevant Subsidised Advance Loan Account.

(3) Any reference to a rest day in any mortgage relating to a subsidised advance, or in any portfolio mortgage, portfolio contract of sale, portfolio supplementary agreement or other portfolio agreement, is taken to be a reference to a rest day as defined by subsection (2).

(4) The agreement has effect as if Part B of Schedule D were omitted.

6 Section 45

Add at the end:

(2) Subsection (1) does not apply to any agreement made between the Commonwealth and the Bank within 3 months after the day on which the Veterans’ Affairs Legislation Amendment Act (No. 1) 1996 receives the Royal Assent that amends, or otherwise affects, the operation of clause 8.1 or 11 of the agreement.

7 Commencement, transitional and saving provisions

(1) Item 5 commences on the day (the effective day) that is the latest of the following days:

(a) the day on which this Act receives the Royal Assent;

(b) the Consumer Credit Codes commencing day;

(c) 1 September 1996.

(2) The Bank is taken to have been entitled to, at all times before the commencement of this item, and must after that commencement and before the effective day, calculate and charge interest in respect of subsidised advances, and amounts owed under loans secured by specified portfolio assets, in the manner prescribed by the agreement despite anything in the Consumer Credit Codes of any of the States and Territories.

(3) The Bank and the Commonwealth are to try, so far as possible, to arrange for a notice to be given to each borrower, mortgagor or guarantor explaining the effect, on and after the effective day, of subsections 35A(1) to (3) of the Defence Service Homes Act 1918.

(4) Expressions used in this section that are defined by subsection 4(1) of the Defence Service Homes Act 1918 have the same meanings as in that subsection.