An old loan catches up with the guarantor
In 2006, Jonah’s brother, Lance entered into a loan agreement with No Fuss Loans. Jonah signed the loan agreement as guarantor. The total amount of the loan was just under $12,000, repayable over two years. The loan was secured by a motorbike owned by Lance.
When the loan fell into arrears No Fuss Loans obtained a court judgment against both Lance and Jonah and at a later date repossessed and sold the motorbike. The sale proceeds were applied to the outstanding loan balance. Lance then moved to Australia and Jonah said he heard nothing from No Fuss Loans until 2013 when he tried to get credit through a broker who contacted No Fuss Loans as a possible source of funds. It was only then that Jonah and his partner discovered No Fuss Loans was seeking repayment of the 2006 debt.
One week later No Fuss Loan’s repossession agents tried to repossess Jonah’s current motor vehicle without warning or a pre- possession notice (PPN). The vehicle was not repossessed and a further attempt was also unsuccessful when Jonah asked the agents to leave the premises and drove the vehicle away. Jonah and No Fuss Loans were unable to reach any agreement on terms for repayment of the outstanding loan.
The complaint
Jonah raised a number of issues about the loan that FSCL was unable to investigate. Jonah said:
- he did not remember signing the loan agreement in 2006
- NFL did not communicate with him as guarantor
- further costs had been added to the loan after the sale of the motorbike and,
- interest had been charged at the wrong rate.
FSCL is unable to consider matters already considered by a Court or anything that happened before 1 April 2010.
However Jonah complained that No Fuss Loans did not hold a security interest in his present vehicle, and even if it did, he had received no advance notice of No Fuss Loan’s intention to repossess the vehicle which was not a security “at risk.”
No Fuss Loan’s position
No Fuss Loans said it was legally entitled to recover the full amount of the outstanding debt from Jonah which was more than $11,000 and had been trying to locate him for a number of years.
The loan agreement Lance and Jonah signed in 2006 contained an All Present and After Acquired Property clause (APAAP) giving No Fuss Loans the right to security over property held by a debtor or guarantor at the time of signing the loan agreement and property acquired at a later date.
No Fuss Loans said it did not need to issue a pre-possession notice prior to the (attempted) repossession of Jonah’s vehicle because it believed the property was security at risk. It pointed to breaches to the loan agreement and the fact that Jonah had been untraceable for so long. In addition Jonah had asked the agents to leave the premises and had driven off in the vehicle.
No Fuss Loans was prepared to consider the debt completely repaid if Jonah would pay $7,500 in a lump sum. This was a substantial reduction of the total amount outstanding.
FSCL’s findings and recommendation
The Personal Property Securities Act 1999 makes specific provision for APAAP clauses. In the case of consumer goods, which include motor vehicles, a debtor or guarantor must specifically ‘appropriate’ such goods to the loan. In other words, the debtor or guarantor must agree for the goods to be security for the loan. Therefore, in this case, before No Fuss Loans could take enforcement action in respect of Jonah’s vehicle, we had to be convinced that appropriation had occurred.
Clearly Jonah had not himself appropriated the vehicle to the loan. However, when Jonah signed the loan agreement he did provide No Fuss Loans with a power of attorney (POA) to act on his behalf to protect No Fuss Loan’s security interest.
We found the terms of the POA were ambiguous. The POA did not refer to appropriation and it was not clear that its terms were wide enough to permit No Fuss Loans to unilaterally appropriate consumer goods. Even if we took a broader view of the POA’s terms, and accepted the terms were sufficient to permit No Fuss Loans to unilaterally appropriate goods on behalf of Jonah as Attorney, we were not convinced that No Fuss Loans had actually carried out the act of appropriation. No Fuss Loans registered a financing statement over the vehicle on the PPSR but that alone did not amount to appropriation.
No Fuss Loans had not issued a pre-possession notice before it attempted to repossess Jonah’s vehicle. We were not convinced by No Fuss Loan’s argument that the vehicle was security at risk. No Fuss Loans would need to have formed the view that the vehicle was going to be removed or concealed before it sent its agents to repossess it. There was no evidence of this. No Fuss Loans pointed to breaches to the loan agreement and difficulties in tracing Jonah, but these were not legitimate grounds to consider the vehicle security at risk.
We concluded that the attempted repossession action was unlawful. In addition, we were not satisfied that No Fuss Loans had in fact appropriated the vehicle. It followed that No Fuss Loans had no right to repossess it. However, the outstanding debt was a legitimate one and it was reasonable to expect No Fuss Loans to take some enforcement action. We were satisfied that No Fuss Loan’s offer to reduce the debt to $7,500 was a reasonable one and recommended that Jonah should agree to pay $2,500 as a lump sum with the balance being repaid over 250 weeks without additional interest being accrued. No Fuss Loans accepted the recommendation but Jonah decided to pursue other avenues.
