CREDIT LAW CONFERENCE 2013
Credit intermediaries and agency
National Australia Bank
CREDIT INTERMEDIARIES AND AGENCY
“That the concept of agency may properly extend to canvassers and those seeking to
bring business to another party should not be controversial.”
Tonto Home Loans Australia Pty Ltd v. Tavares  NSWCA 389 at 178 per Allsop P
1. I am informed by a National Australia Bank analyst that, currently, between 40 and 45%
of all mortgage loans in Australia are brokered. So, the conduct of credit intermediaries
and third party responsibility for that conduct is significant to the Australian mortgage
2. Despite the prescriptive nature of the National Consumer Credit Protection Act 2009
(NCCP), there is cause to consider the common law rules relating to agency to assist in
delimiting a licensee’s common law and statutory obligations. This paper will review
when the common law and relevant legislation characterises credit intermediaries to be
the agents of borrowers or of lenders and discuss some consequences.
3. Credit intermediaries are not characterised by their ability to enter into contracts on
behalf of their principals. A more material issue is whether those principals are bound
by the acts of the credit intermediaries or imputed with the knowledge of the credit
THE NATURE OF AGENCY
Consent, authority and a fiduciary relationship
4. A principal/agent relationship is characterised by:
- the mutual consent of the parties to create the relationship.
The parties will be taken to have consented if they agree to what amounts to a
prinicipal/agency relationship. This is so even if the parties do not recognise that
their relationship is one of agency or they disclaim an agency relationship. The
consent may be express or implied from the words or conduct of the parties
(Permanent Mortgages Pty Ltd v. Van Den Bergh  WASC 10 at 279).
The element of consent may include a “necessary degree of control *by the principal
of the agent] requisite for the purpose of the role” (see Tonto Home Loans Australia
Pty Ltd v. Tavares  NSWCA 389 at 177 per Allsop P);
- the principal granting authority to the agent to act on the principal’s behalf.
That authority may be express or implied from a particular situation or from the
conduct of the parties (see Bowstead and Reynolds on Agency (P Watts and FMB
ed, Sweet and Maxwell, London 2010 ) (Bowstead on Agency) at 2-
032; see Garnac Grain Co. Inc v. HMF Faure & Fairclough Ltd  AC 1130; Field v
Shoalhaven Transport Pty Ltd  3 NSWR 96 at 103; Fabry v. Commissioner of
Taxation  FCA 1431 at , ).
Also, by its representations or conduct, a principal may hold out a third party as its
agent. If a person relies on those representations or that conduct, the principal is
bound by the third party’s acts as if the third party was actually authorised to act on
the principal’s behalf (Freeman and Lockyer v. Buckhurst Park Properties (Mangal)
Ltd  2 QB 480 at 503 per Diplock LJ).
A person may be an agent where he or she acts on a principal’s behalf, but has no
authority and no power to affect the principal’s legal relations with third parties
(Bowstead on Agency at 1-019). So, intermediaries, retained as independent
contractors to introduce parties to contract with one another, can be characterised
The scope of an agent’s authority is ascertained by applying ordinary principles of
construction including the proper implications from the words used, usage of trade
and the course of business between the parties (Freeman and Lockyer v. Buckhurst
Park Properties (Mangal) Ltd  2 QB 480 at 502 per Diplock LJ); and
- the agent owing fiduciary obligations to his or her principal; the nature of the
relationship requires the agent to act in the best interests of the principal (Bowstead
on Agency at 1-001).
An agent has fiduciary obligations even if the agent cannot affect his or her
principal’s relations with third parties (see Tonto Home Loans Australia Pty Ltd v.
Tavares  NSWCA 389 at 177-178 per Allsop P).
Acts binding the principal
5. An agent acting within the scope of his or her actual or apparent authority binds and
entitles the principal (Bowstead on Agency at 8-002). An agent’s authority extends to all
acts which are necessary or ordinarily incidental to the exercise of the agent’s express
authority (Perpetual Trustees Australia Ltd v. Schmidt and anor  VSC 67 at 159).
6. A principal is not bound by an act of his agent, which is outside the scope of the agent’s
implied or apparent authority, unless the principal ratifies the act (Bowstead on Agency
7. An act of an agent, within the scope of his or her actual or apparent authority, can bind a
principal even though the agent acts fraudulently and in furtherance of its own interests.
However, the agent’s actual authority can be negated if the agent is acting in fraud of its
principal (Kwei Tek Chao v. British Traders and Suppliers Ltd  2 QB 459).
8. An agent’s intent can be attributed to his or her principal. With respect to torts, a
principal is liable for the torts of an agent committed within the scope of the agent’s
actual or apparent authority even if the requisite intent (say, to commit fraud) is not
held by the principal (GE Dal Pont Law of Agency, 2nd
ed, Lexis Nexis Butterworths,
Sydney 2008 (Dal Pont)at [22.63] citing Permanent Trustee Australia Co Ltd v. FAI
General Insurance Co Ltd  NSWCA 20 at  per Handley JA; and Igloo Homes Pty
Ltd v. Sammut Constructions Pty Ltd  NSWCA 280 at  per Ipp JA).
Also, see Colonial Mutual Life Assurance Society Ltd v. Producers and Citizens
Cooperative Co. of Australia Ltd (1931) 46 CLR 41, in which an insurance company was
found to be liable for defamatory statements made by an insurance agent.
9. Generally, criminal liability results from personal fault, so an agent’s intent with respect
to committing a crime is not attributed ordinarily to his or her principal (Tesco
Supermarkets Ltd v. Nattrass  AC 153 at 179 per Lord Morris). However, statute
may attribute an agent’s intent to his or her principal (for example, see section 84(1)
Competition and Consumer Act 2010 with respect to the intent attributed to a principal
with respect to certain cartel conduct by an agent).
10. Each of the National Consumer Credit Protection Act 2009 (NCCP) (sections 324 and
325), the National Consumer Credit Code (NCC) (section 199(1)), the ASIC Act (section
12GH(2)) and the Competition and Consumer Act 2010 (CCA) (sections 84(2) and 84(4))
deem that the act of an agent, within the agent’s actual or apparent authority, is the act
of the principal for the purposes of the relevant law.
11. Under Part 2-3, Division 4 of the NCCP, the holder of an Australian Credit Licence (ACL)
(a licensee) is responsible, as between the licensee and a client, for the conduct of its
- that relates to a credit activity; and
- on which a third person (a client) could reasonably expected to rely; and
- on which the client relied in good faith,
whether or not the conduct is within the authority granted to the representative
(sections 74 and 75; section 5(1) “within the authority” definition NCCP).
If a licensee is responsible for its representative’s conduct under the Division, the client
has the same remedies against the licensee as it has against the representative (section
78(1) NCCP). However, the Division does not impose criminal responsibility or, apart
from the Division, civil liability on a licensee that would not be imposed otherwise on the
licensee (section 78(3) NCCP).
A licensee cannot purport to contract out of the effect of the Division (sections 78(5),
Where it is necessary to establish the state of mind of an entity in any proceedings
under the NCCP or the ASIC Act relating to that entity’s conduct, the state of mind will
be taken to have been established if an agent of that entity, that engaged in the relevant
conduct on the entity’s behalf within the actual or apparent scope of the agent’s
authority, had that state of mind (sections 324(3) and 325(3) NCCP, sections 12GH(1)
and 12GH(3) ASIC Act).
Also, note that a contract term that limits an entity’s vicarious liability for its agents may
be an example of an unfair contract term for the purposes of the unfair contract terms
prohibitions in the ASIC Act (section 12BH(1)(i) ASIC Act).
12. The NCCP defines a “representative” to include the licensee’s credit representatives and
any person who acts on behalf of the licensee (section 5(1)). A credit representative is a
third party the licensee authorises to engage in credit activities on the licensee’s behalf
(section 64(1) NCCP).
13. Compare the reference in the “representatives” definition to persons who act on a
licensee’s behalf with the reference to an entity’s liability for the acts of its agents under
The Explanatory Memorandum to the National Consumer Credit Protection Act (NCCP
Explanatory Memorandum) does not explain the nature of a person that “acts on behalf
of a licensee” or why that term is used in the NCCP definition of “representatives”
instead of “agent”. It may be that the term “acting on behalf of a licensee” is intended
to connote relationships broader than agency. In any case, it is inevitable that the term
is intended to cover a licensee’s agents at common law. So, assuming the other indicia
of agency are present (consent; fiduciary obligation), it is likely that person who “acts on
behalf of a licensee” would be the licensee’s “agent” at common law insofar that those
acts involve engaging in credit activities.
Knowledge imputed to a principal
14. The law may impute to a principal knowledge relating to the subject matter of the
agency which the agent acquires while acting within the scope of his authority. It is
presumed that an agent will inform his or principal of all information material to the
subject matter of the agency (Dal Pont at [22.49]; NIML Ltd v. MAN Financial Australia
Ltd  VSCA 128 at  per Nettle JA).
The scope of the agent’s authority will determine what information is material (El Ajou v.
Dollar Land Holdings plc  2 All ER 685 at 702-4 per Hoffman LJ). An agent will have
a more extensive duty to communicate if the scope of his or her agency is wider (Dal
Pont at [22.55]).
15. Notice given to an agent is effective as notice to the principal if the agent receives it
within the scope of his or her actual or apparent authority, unless the person claiming
the principal has that notice knew that the agent intended to conceal the notice from
the principal (Bowstead on Agency at 8-204).
16. There are some limitations on the presumption:
“To affect the principal with notice, *1+ the agent’s knowledge must have been
derived in the particular transaction in hand; or  be shewn to have been in that
transaction present to his mind; and further,  it must have been knowledge of
something material to the particular transaction; and  something which it was the
agent’s duty to communicate to his principal ..” (Wyllie v. Pollen 46 ER 767 at 770 per
Lord Westbury LC).
17. Knowledge acquired by a person prior to that person becoming an agent in the relevant
capacity or after termination of the agent’s authority will not be attributed to a principal
(see Dal Pont at [22.60]; see Micarone v. Perpetual Trustees Australia Ltd  SASC
265 with respect to pre-acquired information).
18. Knowledge is not attributed to the principal where it is acquired by an agent who is
defrauding the principal in the same transaction (Bowstead on Agency at 8-208). A court
may infer that a third party knew that the agent would not pass the information on to
the principal where the third party is a party to the fraud of the principal by the agent
(Dal Pont at [22.56] citing Kennedy v. Green 40 ER 266).
19. A principal cannot deny liability if it would not have dealt with a third party or would
have dealt with a third party on different terms, if the agent had disclosed information
the agent collected within the scope of the agent’s actual or apparent authority (Dal
Pont at [22.50]; Tobin v. Melrose  SASR 139 at 146 per Ligertwood J).
Also, see Deaves v. CML Fire and General Insurance Co. Ltd (1979) 143 CLR 24 in which
the High Court found that an insurer could not deny an insured’s claim on an insurance
policy for misstatement where the insurer’s agent completed a proposal form
incorrectly. The insurer was attributed with the agent’s knowledge of the correct
According to Dal Pont, the reverse will apply: if an insured arranges insurance through
his/her broker, non-disclosure of material facts, known only to the broker, will affect the
insured and give the insurer good ground for avoiding the contract (Dal Pont at [22.52];
Blackburn, Low & Co. v Vigors (1887) 12 App Cas 531 at 539 per Lord Watson).
20. The NCC reflects the common law rule imputing an agent’s knowledge to his or her
principal: for NCC purposes, a credit provider is not taken to know or have reason to
believe something because the credit provider’s agent does so, unless the knowledge or
reason to believe that thing is acquired by the agent acting in that capacity and in
connection with the transaction concerned (section 199(4) NCC).
21. Paragraph 8.325 of the explanatory memorandum to the NCCP (NCCP Explanatory
Memorandum) notes that section 199 of the NCC restates the general law that the
conduct of a credit provider’s agent acting within his or her actual or apparent authority
will be imputed to the credit provider.
The NCCP Explanatory Memorandum recites that section 199 limits this general law
principle by providing that the credit provider will not be taken to know (or have reason
to know) where the agent’s belief was not acquired in his or her agency capacity and in
connection with the relevant transaction. However, the drafting of section 199 appears
to be consistent with the limitations on the presumption at paragraph 16 above.
THE NATURE OF CREDIT INTERMEDIARIES
22. For the purposes of this paper, I will categorise credit intermediaries as finance brokers,
mortgage managers or referrers.
23. A typical finance broker assists his or her customer to apply for credit and to
intermediate between the customer and the lender with respect to settling and
reviewing credit facilities. The NCCP defines “credit assistance” a broker typically
undertakes (section 8 NCCP); for example, suggesting that a customer obtain particular
credit or remain in a particular credit contract.
24. Finance broking services benefit customers by:
- disseminating product information to assist customers to choose finance products
that meet their requirements and objectives;
- giving customers access to a broader range of lenders; and
- facilitating dealings between customers and lenders.
25. It was typical for finance brokers to contract directly with lenders to submit loan
applications to the lenders on behalf of the broker’s customers. In consideration of
settling loans consequent to loan applications submitted by a finance broker, a lender
paid commissions to the broker.
26. The finance broker market has seen the rise and dominance of the mortgage
aggregation model. Mortgage aggregators contract with a number of lenders to form a
panel of lenders to whom the aggregator may submit loan applications. A mortgage
aggregator contracts with finance brokers to enable those brokers to originate loan
applications to the aggregator’s panel lenders.
Panel lenders pay commissions to the aggregator in consideration of credit made
available consequent to loan applications originated by brokers contracted to the
aggregator. In turn, the aggregators “expense” off a portion of the commissions paid by
lenders as commission payments to the broker that originated the relevant loan
27. A typical aggregator/lender agreement will provide that:
- the aggregator and its brokers are not the general agents of the lenders, though it is
typical for the aggregator to be appointed as the lender’s limited agent to identify
applicants in accordance with lender procedures;
- the lender will consider applications only from brokers that the lender accredits;
- the aggregator must originate applications to a lender according to the lender’s
procedures notified to the aggregator from time to time;
- the lender is obliged to pay commissions to the aggregator only. The aggregator is
responsible for any payments the aggregator owes brokers; and
- the aggregator is responsible for the conduct of the brokers with whom the
28. A typical aggregator/broker agreement will provide that:
- the brokers are not the general agents of the aggregator, other than as the
aggregator’s limited agent to identify applicants in accordance with lender
- the broker must comply with the panel lender agreements to which the aggregator is
- the aggregator is obliged to pay commissions to the broker only. The broker is
responsible for any payments the broker owes its loan consultant contractors or
- the broker is responsible for the conduct of the loan consultants with whom the
29. Mortgage aggregation services benefit brokers by:
- giving brokers access to a broader panel of lenders;
- reducing broker back office costs related to managing lender relationships and
administering commission payments;
- giving brokers access to better commission structures arising out of the aggregator’s
“purchasing power” with panel lenders; and
- giving brokers access to services like customer relationship systems, training,
mentoring and assistance with compliance.
Mortgage aggregator arrangements benefit lenders by reducing the lenders’ costs of
managing lender/broker relationships and commission payments.
30. A typical mortgage manager distributes finance products manufactured by a loan
programme promoter, often under white labelling arrangements allowing the mortgage
manager to badge the loan products with the mortgage manager’s name.
31. A mortgage manager:
- contracts with the loan programme lender or its agent (usually the programme
manager or loan servicer) or both to distribute the loan programme’s products;
- originates loans funded by the loan programme in relation to which the mortgage
- undertakes services like income verification, collecting credit bureau reports and
arranging valuations to support loan applications it originates; and
- may deal with insurers to arrange lenders mortgage or title insurance policies
relating to loans it originates.
Some mortgage managers hold delegated authorities allowing them to underwrite
32. After a loan is funded, a mortgage manager will perform loan management services like
dealing with enquiries from borrowers and following up customers in default on behalf
of the loan programme lender.
33. A typical mortgage management agreement disclaims any principal/agent relationship
between the loan programme lender or its agent or both and the mortgage manager.
34. A typical referrer exploits a personal relationship with a customer to introduce that
customer to a broker or a mortgage manager for credit assistance or to a lender to
35. The referral may be at the referrer’s suggestion or at the customer’s request. In
consideration of the referral, the referrer is paid a fee or, in some cases, a fee and
ongoing commission by the Referral Recipient if the referral leads to the referred
customer obtaining credit.
36. A typical referrer agreement disclaims any principal/agent relationship between the
referrer and the entities to whom it may refer customers.
CREDIT INTERMEDIARIES AS AGENTS
37. The NCCP Explanatory Memorandum refers to a licensee who appoints a credit
representative as the principal (paragraph 2.162). At another point, the explanatory
memorandum refers to credit representatives as “credit agents” (for example,
paragraph 2.171). In the light of licensees appointing credit representatives to act on
the licensee’s behalf (see section 64(1) NCCP), credit representatives are likely to be
characterised as the agents of their licensees.
38. Otherwise, the NCCP Explanatory Memorandum at paragraph 2.164 states that:
“For the avoidance of doubt it is expressly stated in this explanatory memorandum
that the Credit Bill does not seek to set out prescriptive rules to, for example, the
• a broker is always only the agent of the consumer;
• a broker can be the agent of the lender or the agent of a lenders mortgage
• a person cannot be an agent for more than one party involved in a transaction;
So, it is appropriate to review the common law approach to characterising relationships
between credit intermediaries, borrowers and lenders.
39. The Sydney Morning Herald of 3 June 2013 reported on lo doc loan abuse claims by
Denise Brailey of the Banking & Finance Consumers Support Association Inc. The SMH’s
Michael West reported Ms Brailey’s claim to ASIC that she had “the last bits of a jigsaw
puzzle which would prove that mortgage brokers were acting as agents of the banks in
foisting loans on customers who could not afford them”.
40. Ms Brailey’s interest in completing the jigsaw puzzle would have been to impute broker
knowledge to the banks thereby rendering the banks responsible for what she perceived
to be broker misconduct.
41. Later in the article, Philip Field, the Financial Ombudsman, was reported as stating that
“the banks, in some individual cases, may be responsible for flawed low-doc loans, but
mostly – and critically in a legal sense – the mortgage brokers ... had acted as the agents
of the customers rather than the bank.”
Whether or not a finance broker is the lender’s agent in any case is a question which
must be determined on the facts of the particular case (Esanda Finance Corporation Ltd
v. Spence Financial Group Pty Ltd  WASC 177 at 65). However, there is a strong
body of authority that supports Philip’s assertion.
42. In Con-Stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia)
Ltd (1986) 160 CLR 226, a case involving an insurance broker, the Full High Court stated
“under the general principles of the law of agency, a broker is the agent of the
assured, not the insurer … There will be rare circumstances in which a broker may
also be an agent of the insurer, but the courts will not readily infer such a
relationship because a broker so placed faces a clear conflict of interest between his
duty to the assured on the one hand and to the insurer on the other.”
43. The Courts accept that the role of a finance broker is analagous to that of an insurance
broker and that, prima facie, finance brokers are the agents of their customers (Morlend
Finance Corporation (Vic) Pty Ltd v. Westendorp and ors  2 VR 284 per Fullagar J at
308; Custom Credit Corporation Ltd v. Lynch  2 VR 469 at 486 per Marks J; Esanda
Finance Corporation Ltd v. Spence Financial Group Pty Ltd  WASC 177; Dal Pont at
44. This will be the case even if the broker:
- approached a finance company to make credit available to the broker’s customer
(Octopon Pty Ltd v. Esanda Finance Corporation Ltd (unreported, NSW Supreme
Court , 3 February 1989); Steele-Smith v Liberty Financial Pty Ltd  NSWSC 398);
- arranged for execution of documents prepared by the lender (Octopon;
- received commission from the lender for business introduced to the lender
(Westendorp ; Lynch; Spence);
- held finance application documents on the lender's letterhead that were completed
by the applicant at the broker’s offices (Branwhite v Worcester Works Finance Ltd
 1 AC 552 at 573 per Lord Morris; at 578-9 per Lord Upjohn; Perpetual Trustees
Australia Ltd v. Schmidt and anor  VSC 67; Spence);
- asked an applicant for financial information of the kind ordinarily required by a
financier to process and approve an application for finance;
- promoted the close relationship the broker had, and the amount of business the
broker did, with the lender;
- was the only channel of communication between the lender and the applicant
- was required to comply with a lender’s accreditation criteria;
- was required to undertake training given by the lender;
- was subject to some control by the lender with respect to the manner in which the
broker submitted applications to the lender;
- was subject to the lender’s directions with respect to advertising or promotional
material relating to the lender’s products; or
- was required to perform services as directed by a lender (Perpetual Trustees
Australia Ltd v. Schmidt and anor  VSC 67).
45. The NSW Court of Appeal decision in Tonto Home Loans Australia Pty Ltd v. Tavares
 NSWCA 389 illustrates the reticence of courts to find that a broker, or an
intermediary in the nature of a broker, is a lender’s agent.
46. The judgment related to loans made to three separate sets of Streetwise Group
investors. The Streetwise Group used high pressure tactics to entice the investors to
invest in property development joint ventures Streetwise promoted.
47. Each of the investors leveraged their investments with loans funded by either the Origin
or First Mac residential loan programmes. The loans were originated by Tonto Home
Loans (Tonto). Tonto did not have a retail presence; it relied on mortgage brokers to
introduce applicants to it.
48. A Streetwise Group company (Streetwise Loans) introduced each of the
investors/borrowers to Tonto under an introducer agreement between Streetwise Loans
and Tonto. Streetwise Loans did not introduce clients to other lenders.
49. Under the introducer agreement, Tonto agreed:
- that Streetwise Loans would:
conduct the loan interview, discuss loan options and determine a suitable
product for a customer. Tonto relied on Streetwise Loans to determine whether
customers were eligible for lo doc loans;
advise the customer of the loan approval process and provide the customer with
assist the customer with preparing the loan application; and
obtain supporting documentation;
- not to contact borrowers until after the loan had settled;
- to brand loan application forms and loan approval letters with “Streetwise”;
- that Streetwise Loans could use Tonto’s processing system to make enquiries
relating to Streetwise Loans introduced loans applications; and
- to answer phone calls from Streetwise Loans clients in the name of Streetwise.
Also, Streetwise Loans:
- was required to “endeavour” to introduce loans to Tonto;
- could recommend valuers for the Tonto panel; and
- undertook not to encourage borrowers to repay a loan early or to refinance a loan.
50. Tonto underwrote each of the loans and, in so doing, failed to comply with certain of the
51. In each instance, the investors signed a loan application in blank which a Streetwise
Loans officer completed with inflated income and asset particulars. Tonto was not
actually aware that Streetwise Loans falsified the loan applications.
52. The Streetwise Group collapsed; the borrowers’ investments were worthless. The
lenders sought to enforce the securities they held over the borrowers’ homes. The
borrowers defended the recovery actions and sought to have their loans and mortgages
set aside claiming, amongst other things, that the loans were tainted by the lender’s
53. It was accepted that Tonto Home Loans was the agent of the lenders. The borrowers
claimed that Streetwise Loans was Tonto’s agent and, thus, an agent of the lenders.
54. At first instance, the NSW Supreme Court found Streetwise Loans to be Tonto’s and the
lenders’ agent due to the particular arrangements in place between Tonto and
55. The Court of Appeal overturned the primary judge’s finding on the agency point
- the Court could not ascertain a consensual agreement between Tonto and
Streetwise Loans under which Streetwise Loans was to act as Tonto’s agent (at 192
per Allsop P); and
- the primary judge’s approach failed to place the introduction deed in its commercial
context: an agreement between two entities each of which had its own business.
One was to endeavour to introduce business from its own customer base for the
mutual commercial advantage of both (at 193 per Allsop P). The Court rejected the
organisational or enterprise structure of a relevant business and activity as a key
factor in determining agency (at 192 and 194 per Allsop P).
56. The Court considered the following matters militated against a prinicipal/agent
relationship between Tonto and Streetwise Loans:
- the Streetwise Group had its own customers on whose behalf and in whose interests
Streetwise Loans was obliged to act carefully and in good faith;
- the obligation to “endeavour” to introduce loans did not require Streetwise Loans to
sacrifice the interests of its customers if another funder or programme was more
attractive; nor did it require Streetwise Loans to sacrifice its own interests if it could
obtain higher commission elsewhere;
- Streetwise Loans had no authority to bind Tonto to accept any loan;
- the obligation to endeavour to introduce loans to Tonto were not obligations on
Streetwise Loans to act in Tonto’s best interests;
- Streetwise Loans did not hold itself out to customers as acting for Tonto or the
lenders. On the contrary, for at least one of the loans under the Court’s review,
Streetwise Loans held itself out to be the lender; and
- the introducer agreement did not purport to regulate how Streetwise Loans
conducted its business prior to introducing a loan to Tonto.
57. Despite the prima facie assumption that a finance broker is his or her customer’s agent,
that assumption can be negated if the surrounding circumstances of a parties’
relationship indicates that the true nature of their relationship is one of principal and
agent. This is the case even if the agreement between the parties disclaims a
58. In Permanent Mortgages Pty Ltd v. Van Den Bergh  WASC 10, the Supreme Court
of Western Australia found that a mortgage aggregator was the agent of a particular
59. The mortgage aggregator, Financial Analysis of Australia Pty Ltd (FASA), entered into a
Correspondent Originator Agreement with La Trobe Home Loans of Australia Pty Ltd (La
Trobe). FASA had accredited Curia, a Medfin Australia Pty Ltd broker, to “represent”
FASA. Curia brokered a La Trobe programme lo doc loan that the defendant claimed to
be affected by the broker’s unconscionable conduct. It was accepted that La Trobe was
the agent of Permanent Mortgages Pty Ltd, the La Trobe programme lender of record.
60. The Correspondent Originator Agreement disclaimed a principal/agency relationship
between La Trobe and FASA. However:
- under the agreement, La Trobe appointed FASA to act on its behalf for the purpose
of negotiating, or for the purpose of being an intermediary to obtain, loans to be
provided by La Trobe to borrowers; and
- the agreement negatived the possibility of FASA acting as the agent of a borrower or
a potential borrower.
61. The Court rejected La Trobe’s argument that the reference to “negotiating” was to FASA
negotiating on a borrower’s behalf, as the nature of FASA’s obligations in the remainder
of the agreement were inconsistent with FASA having any autonomy to represent the
borrower’s interests in the borrower’s dealings with La Trobe (at 290).
62. Those obligations were:
- to originate approved mortgages in accordance with La Trobe lending guidelines;
- to act in accordance with La Trobe’s instructions or, in the absence of those
instructions, to act in the manner which FASA reasonably considered to be in La
Trobe’s best interests. This obligation precluded FASA from recommending to a
borrower or potential borrower that it would not be in the borrower’s best interests
to proceed with a La Trobe loan or to proceed with a different lender or to bargain
on the borrower’s behalf for a better deal;
- to inform La Trobe of any difficulties relating to a borrower or potential borrower
whether or not that disclosure was in the borrower’s interests;
- to provide La Trobe with written reports on FASA’s activities under the agreement
and to keep proper records and make them available for La Trobe’s inspection;
- not to delegate its authority from La Trobe;
- to provide details of persons FASA engaged to promote La Trobe products and to
ensure that they were suitable to La Trobe for that purpose;
- to undertake enquiries, relating to prospective borrowers, of a kind which a prudent
lender would consider to be appropriate in the circumstances. FASA’s disclosure
obligations continued after La Trobe approved a loan up to the time the loan was
- to maintain the confidentiality of any information relating to La Trobe’s affairs or
business that was not in the public domain. This prevented FASA from using
information about La Trobe’s business to achieve a better deal for a borrower or
63. Also, the Court found that the interplay of La Trobe’s right to appoint other
correspondents and La Trobe’s obligation not to directly market or approach customers
referred through FASA, amounted to a promise by La Trobe to prevent its other
correspondents from approaching the customers FASA referred. That indicated that:
- FASA was to be the sole representative of La Trobe with respect to borrowers or
potential borrowers FASA referred to La Trobe, thereby cementing the efficacy of
the fee arrangements between La Trobe and FASA; and
- the parties did not intend to stand in an adverse commercial relationship with each
other with respect to borrowers or potential borrowers FASA referred to La Trobe.
64. The Court found that FASA was La Trobe’s agent. So, due to the linked agency
relationships between Curia (the broker), FASA, La Trobe and Permanent Mortgages,
Permanent Mortgages was affected by the broker’s unconscionable conduct relating
to the loan.
65. Conclusion on brokers:
- whether or not a broker is the agent of a lender is a question which must be
determined on the facts of the particular case;
- however, there is considerable judicial support for characterising a broker as the
agent of his or her customer;
- to preserve the character of a broker’s relationship as his or her customer’s agent,
lenders should take care to ensure that their arrangements with brokers or
mortgage aggregators do not require the broker/aggregator to:
act in the lender’s interests generally in a manner inconsistent with acting in the
customer’s best interests (for example, by taking steps to withstand churning or
to deal with a customer in a manner that is persuasive of the customer
maintaining facilities with the lender);
promote the lender’s products;
originate loans in accordance with the lender’s lending procedures;
undertake enquiries of the customer on the lender’s behalf; or
report information relating to the customer from time to time after loan
66. There is a body of modern judicial opinion on whether or not a mortgage manager is the
agent of the lender to whom the mortgage manager supplies services.
67. In Micarone v. Perpetual Trustees Australia Ltd  SASC 265, the full court of the
Supreme Court of South Australia considered whether loans made out of the PUMA loan
programme should be set aside for unconscionability or undue influence due to the
actual or constructive notice Perpetual Trustees Australia Ltd (Perpetual), the loan
programme’s lender of record, had about the borrowers’ financial situation.
68. The plaintiffs claimed that:
- IF&I, a mortgage manager contracted to Perpetual and PUMA Management Ltd
(PUMA), the PUMA loan programme manager, was Perpetual’s agent;
- the mortgage manager’s knowledge of the borrower’s situation should be imputed
It was accepted that PUMA was Perpetual’s agent.
69. The Court referred to the mortgage manager having “similar” mortgage origination
arrangements with Bank of Melbourne (BOM) and R&I Bank. Those arrangements were
more likely to be introducer agreements.
70. The mortgage manager brokered the borrowers’ application to refinance their existing
loans to each of BOM and R&I Bank; each Bank rejected the application on the grounds
of the borrowers’ incapacity to service the loans.
71. Then, the mortgage manager submitted an application to PUMA without disclosing the
rejection of the earlier applications. The mortgage manager was aware of the
borrowers’ financial position and their difficulties with servicing their existing loans.
72. The Court noted that the Mortgage Origination Deed (MOD), into which IF&I and PUMA
had entered, disclaimed any principal/agent relationship between them. The MOD
appointed IF&I to submit applications on behalf of borrowers, to lenders for whom
PUMA acted. However, IF&I was not bound to offer potential borrowers to PUMA first.
IF&I did not receive a fee from PUMA for finding borrowers. It could charge a
procuration fee to the successful borrowers directly.
73. It appeared that the PUMA loan programme guidelines required IF&I to give warranties
as to the enquiries of the borrowers and the suitability of an application. However,
PUMA did the underwriting of the loan and arranged lender’s mortgage insurance cover.
74. Once PUMA approved an application, IF&I was responsible to arrange settlement of the
approved loan; giving all necessary instructions to solicitors IF&I retained. After the loan
settled, the MOD required IF&I to manage the loan: directing the borrower to make
payments; maintaining records of the mortgage; advising of defaults; enforcing the
terms of the mortgage; and generally reporting to PUMA.
75. The Court found that IF&I was not PUMA’s agent to find loans; rather it was an
independent contractor which could, if it chose, refer an application to PUMA (at 631).
Rather, IF&I acted as the agent of the borrowers, as IF&I had been approached by
finance brokers, acting for the borrowers, to find a lender to refinance the borrowers’
loans (at 630).
76. Once PUMA approved a loan application IF&I submitted, IF&I was PUMA’s agent to
settle and manage the loan. However, the knowledge that IF&I held preceding that date
was not knowledge IF&I acquired whilst acting as PUMA’s agent. It was not to be
imputed to PUMA or Perpetual (at 638; citing Taylor v. Yorkshire Insurance Co Ltd (1913)
2 IR 1 at 20-21; Jessett Properties Ltd v. UDC Finance Ltd  1 NZLR 138 at 143; and
El Ajou v. Dollar Land Holdings PLC  2 All ER 685 at 703-4 per Hoffman LJ).
77. In Bartle and ors v. GE Custodians and ors  1 NZLR 802, the High Court of New
Zealand considered whether a mortgage manager, Tasman Mortgages Ltd (Tasman), was
the agent of GE Custodians (GE) the lender of record of no doc loans made to the
78. The Bartles entered into contracts for the loans, secured over their home, to invest in
property developments promoted by the Blue Chip Group of companies (Blue Chip). The
Blue Chip Group collapsed; the Bartles’ investments were worthless.
79. The Bartles’ loans were originated by Tasman consequent to a referral by Blue Chip. At
all relevant times, Tasman was a member of the Blue Chip Group.
80. The Bartles were retired, but someone changed their loan applications to state they
were “self employed”. The Bartles received legal advice on the loan arrangements from
a solicitor to whom they were referred by Blue Chip.
81. GE had no actual knowledge of the arrangements between Blue Chip and the Bartles or
that the Bartles had insufficient income to support repayment of the loans. Tasman had
82. Tasman entered into a Mortgage Origination and Servicing Agreement (MOSA) with
Australian Mortgage Securities (NZ) Ltd (AMS) to originate and manage loans GE funded.
The MOSA disclaimed any prinicipal/agent relationship between Tasman and AMS.
83. The Bartles signed a (no doc) Declaration of Financial Position form that described the
amount, the term and the monthly repayments for the loan AMS had approved. The
form recommended that the Bartles obtain independent legal and financial advice prior
to obtaining the loan. It recorded the Bartles as being “self-employed investors”.
84. The primary judge found that:
- although there may be no general agency relationship between two parties, a
specific or limited agency may arise through one party entrusting another to
undertake specific tasks on his or her behalf ;
- the mere fact that a task has been entrusted to another is not sufficient to create an
agency relationship. The court will examine the circumstances to determine
whether there is an agreement that a person will represent another in some respect
or carry out an act on the other’s behalf;
- where little discretion is conferred on the alleged agent, there may a pointing away
from a relationship as independent contractor and towards a finding of agency;
- Tasman was solely responsible for the conduct of its employees and contractors;
- Tasman would not issue promotional material without the prior consent of AMS and
- the Bartles acknowledged in writing that Tasman was neither the agent of GE or of
- Tasman’s primary role was to originate loans and mortgages, in the course of which
Tasman gathered prescribed information from applicants to support applications
submitted to AMS for approval. Once AMS approved a loan, Tasman’s role was over
until the loan was funded. Then, Tasman managed mortgages for AMS and
exercised GE’s powers under the mortgages on GE’s behalf;
- the fact that the GE Operations Manual set criteria for mortgage managers preparing
applications for approval recognised the commercial reality that a broker must have
a reasonable degree of specificity about the lender’s requirements in order to
present loan applications which will have the best prospects of lender acceptance. In
carrying out its role, the broker was acting independently and not carrying out
functions on the lender’s behalf or purporting to represent the lender; and
- this was the case even though some provisions in the Operations Manual required
Tasman to exercise judgment; like imposing responsibility on Tasman to determine
whether any information provided warranted further inquiry and to report any
adverse circumstances relating to an application.
85. The primary judge found that Tasman was not the agent of GE or AMS; Tasman was
an independent contractor. Its function was that of a non-exclusive originator of
loan applications which it then submitted to AMS for approval. Those findings were
- the terms of the MOSA and the Operations Manual;
- the absence of any evidence that Tasman was held out as an agent;
- the absence of any conduct by Tasman that might be interpreted as that of an agent;
- the fact that Tasman had no ability to approve loans or bind GE or AMS in any way;
- the express acknowledgments by the Bartles that Tasman was not acting as an
86. The primary judge’s findings on Tasman’s agency were overturned on appeal. In
Bartle v. GE Custodians  NZCA 174, the NZ Court of Appeal found that GE had
outsourced all aspects of loan origination, implementation, management and recovery
to Tasman, other than loan underwriting (at  per Arnold J). The NZ Court of
Appeal placed particular emphasis on Tasman’s responsibility for arranging lender’s
mortgage insurance for the loans it originated (at  per Arnold J; at  per
William Young P). In doing so, it was clear Tasman acted on GE’s behalf. Tasman
“carried out credit assessment functions which might more commonly be the
responsibility of an employee of a lender. In that sense, its functions were closely
integrated into this aspect of GE’s lending business” (at  per William Young P).
87. On further appeal, the Supreme Court of New Zealand did not consider whether
Tasman was GE’s agent.
88. In Perpetual Trustees Australia Ltd v. Schmidt  VSC 67, the Supreme Court of
Victoria considered another claim relating to a property investment scam. Schmidt, a
retiree and pensioner, was induced by Maddocks, a self styled financial adviser, to
borrow money on the security of Schmidt’s home to invest in a property syndicate.
The investments were a sham and Schmidt lost $200,000.
89. Maddocks arranged for Schmidt to apply for a loan through Medallion Finance
Concepts Pty Ltd (Medallion), a finance broker. Medallion had loan introduction
arrangements with Violet Home Loans Pty Ltd (VHL). VHL was party to a Mortgage
Origination Agreement (MOA) with Macquarie Securitisation Ltd (MSL), the PUMA
loan programme trust manager and Perpetual Trustees Australia Ltd (Perpetual), the
PUMA loan programme lender of record, to originate and manage loans funded by the
PUMA programme. MSL underwrote the loan applications VHL originated.
90. Schmidt defended Perpetual’s action to recover the loan on grounds including that
VHL was Perpetual’s agent; that Medallion was VHL’s agent; that VHL or Medallion or
both had acted unconscionably in procuring the loan; and that Perpetual was
responsible for VHL’s and Medallion’s conduct.
91. Perpetual denied that VHL was its agent and, by implication, that Medallion was its
92. VHL relied on finance brokers to attract customers. VHL had several sources of funds,
including the PUMA programme, for the loans it originated.
93. Schmidt dealt exclusively with Maddocks to arrange his loan. He did not deal with any
of Medallion, VHL, MSL or Perpetual. Maddocks completed a loan application with
false information regarding Schmidt’s occupation and income. Schmidt signed the
forms without reading them.
94. The primary judge found that Medallion was not VHL’s agent relying on the Victorian
Court of Appeal’s decision in Westendorp. Medallion merely initiated Schmidt’s
application, processed that application and submitted it to VHL. Medallion did not
take any further part in processing the application or managing Schmidt’s loan. The
fact that VHL had accredited and trained Medallion did not indicate a principal/agent
relationship between them.
95. Perpetual did not give VHL actual authority to act on its behalf. The MOA disclaimed
a principal/agent relationship between Perpetual and VHL.
96. The primary judge considered whether VHL had apparent authority to act on
Perpetual’s behalf. He considered that, arguably, Perpetual had held out VHL as its
agent by referring to VHL’s status as a mortgage manager in the loan terms.
97. However, the judge found that VHL could not be characterised as having been
clothed with apparent authority to act on Perpetual’s behalf as Schmidt did not rely
on any representations by Perpetual. Schmidt knew no details about his loan; he
relied solely on Maddocks. He did not read the loan contract and did not rely on the
loan contract as conveying that VHL acted on Perpetual’s behalf. VHL made no
representations to Schmidt about its relationship with Perpetual (at 140).
98. The judge did find that VHL held implied authority from Perpetual (at 156). This was
the case despite:
- the MOA disclaiming a principal/agent relationship; or
- VHL having a number of sources for funding loans it originated; a person can be the
agent of separate principals for separate transactions.
99. The judge considered the following features indicated a principal/agent relationship
between Perpetual and VHL:
- VHL’s origination and processing of Schmidt’s application was to Perpetual’s benefit;
- the loan contract recited that VHL was authorised to exercise all of Perpetual’s
powers, rights and functions under the contract on Perpetual’s behalf;
- the MOA required VHL to comply with Perpetual’s directions. The PUMA fund
parameters dictated in precise terms the manner in which VHL was to deal with
Perpetual’s borrowers; and
- once the borrower entered into the loan contract, VHL handled all aspects of
managing the loan for Perpetual .
100. VHL failed to interview Schmidt as required by PUMA programme parameters.
Schmidt’s loan did not meet the PUMA programme criteria. Perpetual argued that, if
VHL was Perpetual’s agent, VHL acted outside its authority by failing to act within
101. However, the judge found that the parameters were a series of promises by VHL as
to the manner in which VHL would exercise its authority, not a limitation on VHL’s
authority from Perpetual. (Also, see Tonto Home Loans at 212-213 per Allsop P).
102. Perpetual was liable for VHL’s conduct relating to originating the loan. Perpetual had
a claim in contract against VHL for breaching the parameters.
103. In Michalopoulos v. Perpetual Trustees Victoria Ltd  NSWSC 1450 the plaintiffs
claimed that, by way of attribution, their lender was aware of false information in
their loan application to a mortgage manager and responsible for the mortgage
manager’s unconscionable conduct in originating their loan.
104. The Mortgage Group was contracted to Interstar Wholesale Finance Pty Ltd
(Interstar), a loan programme servicer, to market and promote loan products
Interstar manufactured. Interstar was the agent of Perpetual Trustees Victoria Ltd
(Perpetual), the loan programme lender of record.
105. The mortgage manager could carry out credit checks on applicants and was required
to give Interstar all information that came to the mortgage manager’s attention and
that might be relevant to Interstar underwriting an application. After a loan was
settled, the mortgage manager continued to liaise with the borrower, to answer
borrower enquiries, and to manage and service loans in accordance with Interstar’s
106. White J found that the plaintiffs did not appoint the mortgage manager to act for
them in submitting their loan application to Interstar. The mortgage manager was
required to disclose all information coming to its attention which might be relevant
to Interstar’s decision whether or not to approve an application; that information
could be adverse to the borrower’s interests. Neither was the mortgage manager
acting as an independent contractor to submit loan applications to Interstar; without
Interstar’s approval it could not delegate its functions.
107. White J found that the mortgage manager was Interstar’s agent; the mortgage
manager’s acts and omissions were attributed to Interstar and the loan programme
lender (at ).
His Honour’s reasoning was adopted by Rein J in Tran v. Perpetual Trustees Victoria
Ltd  NSWSC 1560 with respect to loan management matters undertaken by
another Interstar mortgage manager (at paragraphs 42-45).
108. Conclusion on mortgage managers:
- whether or not a mortgage manager is the agent of the loan programme lender of
record or that lender’s agent is a question which must be determined on the facts of
the particular case;
- it is typical for the mortgage manager’s arrangements to require the mortgage
manager to perform lending administration duties (both before and after loan
settlement) that would have to be performed by the lender otherwise.
A mortgage manager is likely to discharge those duties under specific authority
granted by the lender, observable from mortgage manager conduct or recited in
loan terms and conditions. It is likely that a mortgage manager would be taken to
have a fiduciary obligation to the lender to act in the lender’s best interests in
performing those services.
So, typically, a mortgage manager will be the agent of the lender for whom it
originates and manages loans; the lender will be responsible for the mortgage
manager’s conduct relating to those services. It is inevitable that a mortgage
manager will be the lender’s agent where the lender has delegated an underwriting
authority to the mortgage manager.
The lender will not be responsible for the mortgage manager’s conduct in supplying
other services (for example, property investment services) to the customer outside
the scope of the authority granted by the lender;
- if a mortgage manager brokers loans as well and a customer approaches the
mortgage manager to broker a loan for the customer, the mortgage manager may be
the customer’s agent, rather than the lender’s agent, at least for the purpose of
arranging the customer’s loan, even if the mortgage manager will manage the loan;
- it may be possible for a lender to reduce the risk of liability for mortgage manager
conduct during loan origination by structuring origination arrangements:
in a manner that delinks origination from post-settlement management services;
that is, the lender could consider applications from finance brokers only; or
with a mortgage manager much in the manner of the arrangements Tonto Home
Loans had with Streetwise Loans, but the arrangements would have to allow to
mortgage manager to:
^ act in its own interests; and
^ not regulate how the mortgage manager conducts its business prior to
introducing a loan to the lender.
Referrer as agent
109. Merely facilitating a transaction will not result in a referrer being characterised as
the agent of his/her referred customer or the entity to whom the referral is made.
For the referrer to be an agent, he/she would have to be vested with some authority
to represent the putative principal for the purpose of soliciting business with the
principal (per Dal Pont at [2.23] citing NMFM Property Pty Ltd v. Citibank Ltd (No. 10)
 FCA 1558 at 544-562 per Lindgren J).
110. Also, some guidance can be taken from point of sale finance cases like:
- Custom Credit Corporation v. Lynch  2 VR 469, in which the Court of Appeal of
Victoria found that, in completing and witnessing a finance application, a merchant
(Mr Cheap, a purveyor of caravans) was acting on its own behalf to advance the sale
of a caravan and on the respondent’s behalf (perhaps also on its own behalf) to
enable the respondent to obtain finance; and
- Mercantile Credit Co. Ltd v. Hamblin  2 QB 242 at 269 per Pearson LJ:
“In a typical hire-purchase transaction the dealer is a party in his own right,
selling his car to the finance company, and he is acting primarily on his own
behalf and not as general agent for either of the other two parties.”
111. Referrers may owe some duty akin to a fiduciary duty to a customer they refer:
“Even canvassing agents usually have authority to make and receive
communications on behalf of their principals and can be expected to act
loyally in exercising those powers” (Bowstead at 6-037 and see Mercantile
Credit Co. Ltd v. Hamblin  2 QB 242 at 269 per Pearson LJ).
112. Conclusion on referrers:
- whether or not a referrer is the agent of the loan programme lender of record or
that lender’s agent is a question which must be determined on the facts of the
- it is more likely that a referrer will be an independent contractor acting on its own
behalf, as a customer, and the entity (the Referral Recipient) to which a customer is
referred, will not grant authority to the referrer to affect the customer’s or the
Referral Recipient’s relations with each other. Nor would a referrer be expected to
act in the best interests of the customer or a Referral Recipient;
- despite that, a referrer may have a duty to the customer to convey information
about a customer when the customer requests it to do so; and
- also, a referrer may have contractual duties to the Referral Recipient relating to the
form in which a referral is made and to avoid engaging in credit activities in the
course of making a referral.
DUTIES OF AGENTS
113. At common law an agent:
- must act in good faith towards his or her principal; not making a profit out of his
or her trust; and not act for his or her personal benefit or the benefit of a third
person without his principal’s informed consent (Bowstead on Agency at 6-038;
Bristol and West Building Society v. Mothew  1 Ch. 1 at 18 per Millet J);
- who is appointed by contract is bound to act in accordance with the terms of
that contract and not exceed his authority (Bowstead on Agency at 6-002);
- must exercise such skill, care and diligence in the performance of his undertaking
as is usual or necessary in or for the ordinary conduct of the profession or
business in which he is employed, or is reasonably necessary for the proper
performance of the duties undertaken by him (Bowstead on Agency at 6-015). If
the agent holds himself out as having special skills, the standard of care may be
higher (Bowstead on Agency at 6-020; Duchess of Argyll v. Beuselink  2
Lloyd’s Rep. 172 at 183-4).
The agent’s standard of care may be limited to using due diligence or best
endeavours to achieve the result required (Bowstead on Agency at 1-016);
- is bound to obey all lawful and reasonable instructions of his or her principal in
relation to the manner in which the agent carries out his or her duties (Bowstead
on Agency at 6-008);
- should carry out his obligations with reasonable dispatch. What is reasonable
will depend on all the circumstances of the case (Bowstead on Agency at 6-012;
Woodhouse A.C. Israel Cocoa Ltd S.A. v. Nigerian Produce Marketing Co. 
AC 741 at 772). If an agent cannot, or will not, carry out his orders when
instructed or within a reasonable time, he must inform the principal (Bowstead
on Agency at 6-012; Youell v. Bland Welch & Co Ltd (No. 2) *1990+ 2 Lloyd’s Rep.
- must keep his principal informed about matters which are of concern to the
principal (Bowstead on Agency at [6-019]; Premium Real Estate Ltd v. Stevens
 2 NZLR 384). The agent is under a duty to disclose to his or her principal
information gained by the agent in the course of, and which is material to, a
transaction in which the agent is employed on the principal’s behalf (Sargent v.
ASL Developments Ltd (1974) 131 CLR 634 at 658-9 per Mason J); and
- with respect to professional agents, must take reasonable care to keep himself or
herself up to date with current developments in their profession (Bowstead on
Agency at 6-017; Park v. Hammond (1815-16) VI Taunt. 495).
114. Compare the common law duties of an agent with an Australian Credit Licence
holder’s general conduct obligations are set out in section 47 of the NCCP. Those
- doing all things necessary to ensure that the credit activities authorised by the
licence are engaged in efficiently, honestly and fairly;
- having in place adequate arrangements to ensure that clients are not
disadvantaged by any conflict of interest that may arise wholly or partly in
relation to credit activities engaged in by the licensee. This obligation does not
require an ACL holder to avoid conflicts of interests that might disadvantage a
customer; though that event may indicate that the ACL holder has not put
arrangements in place or that any arrangements are inadequate (compare with
ASIC commentary at RG 205.79 ff).
Assuming that the obligation implies a duty to avoid conflicts of interest that
disadvantage a customer, that duty colours an agent’s common law duties to act
in his or her principal’s best interests. Disclosure will not be enough to absolve
an agent from the consequences of acting in conflict of interest, relating to
regulated credit activities; the agent must also ensure that the conflict will not
disadvantage the customer;
- maintaining competence to engage in the credit activities authorised by the
- having available adequate resources (including financial, technological and
human resources) to engage in the credit activities authorised by the licence and
to carry out supervisory arrangements.
Also, credit assistance is a financial service for the purposes of the ASIC Act (see the
interplay of the financial product and financial services definitions in sections 12BAA and
12BAB). The ASIC Act implies warranties into contracts for the supply of financial
- the services will be supplied due care and skill; and
- if the consumer makes known the purposes for which he or she requires the services
or the result he or she desires the services to achieve, that the services will be
reasonably fit for purpose or are of such a nature and quality that might reasonably
be expected to achieve that result, except if the circumstances show that the
consumer does not rely , or that it is unreasonable for the consumer to rely, on the
person’s skill or judgment (section 12ED(1) and (2)).
115. An agent is only entitled to remuneration for his services as agent if either the
express or implied terms of the agency contract, if any, so provide.
116. Where the contract contains express terms providing for remuneration to be paid,
the agent cannot normally claim remuneration other than in accordance with those
terms. In the absence of express terms, the right to claim any remuneration, and the
amount and terms of such remuneration, may be implied.
117. Compare with section 114 NCCP with respect to quotes. If a broker wishes to charge
a customer directly for credit assistance relating to regulated credit, the broker must
give the customer a quote setting out the nature of the credit assistance and the
maximum amount the broker may charge. The quote must be in writing and must
be signed by the customer (section 114(1), section 114(2)). The broker cannot
charge the customer more than the maximum amount quoted (section 114(3)).
118. The actual authority of an agent is terminated:
- by agreement between the principal and the agent;
- if given for a particular transaction, by the completion of that transaction;
- if given for a limited period, by the expiration of that period, or in any case after
the elapsing of a period which is reasonable in all the circumstances;
- by the happening of any event upon the happening of which it is agreed between
the principal and the agent that the authority shall terminate or upon the
happening of which the agent should reasonably infer that the principal does not
or would not wish the authority to continue;
- by the death, mental incapacity or (in some situations) insolvency of the principal
or the agent; or where the principal or the agent is a body corporate, by its
- by notice of revocation or renunciation given, whether or not in breach of
contract, by the principal to the agent (Bowstead on Agency at 10-002).
119. Compare with the NCCP provisions relating to a licensee terminating its
authorisation of a credit representative. That authorisation is taken not to have
effect, and is taken to cease automatically, if the credit representative is affected by
any of the events set out in section 64(5) NCCP: including not being a member of an
approved EDR scheme; being subject to a banning order; or being convicted of
“serious fraud” within the previous 10 years (section 64(4)).
ACL HOLDER DUTIES UNDER THE NCCP
120. An Australian Credit Licence (ACL) holder is responsible for the conduct of its
representatives relating to engaging in credit activities (see paragraph 11; also see
ASIC commentary at RG 205.86 ff).
121. Also, the NCCP requires an ACL holder to:
- do all things necessary to ensure that the credit activities authorised by the licence
are engaged in efficiently, honestly and fairly (section 47(1)(a)).
In ASIC v. Camelot Derivatives Pty Ltd (in liquidation)  FCA 414, the Federal
Court (at 70 per Foster J) accepted the following submissions from ASIC relating to
the requirement for an Australian Financial Services Licence holder to do all things
necessary to ensure that the financial services covered by an AFSL are provided
“efficiently, honestly and fairly”:
(a) the words “efficiently, honestly and fairly” must be read as a compendious
indication meaning a person who goes about their duties efficiently having
regard to the dictates of honesty and fairness, honestly having regard to the
dictates of efficiency and fairness, and fairly having regard to the dictates of
efficiency and honesty: Story v National Companies and Securities
Commission (1988) 13 NSWLR 661 at 672;
(b) the words “efficiently, honestly and fairly” connote a requirement of
competence in providing advice and in complying with relevant statutory
obligations: Re Hres and Australian Securities and Investments Commission
 AATA 707; (2008) 105 ALD 124 at . They also connote an element
not just of even handedness in dealing with clients but a less readily defined
concept of sound ethical values and judgment in matters relevant to a client’s
affairs: Re Hres and Australian Securities and Investments Commission 
AATA 707; (2008) 105 ALD 124 at ;
(c) the word “efficient” refers to a person who performs his duties efficiently,
meaning the person is adequate in performance, produces the desired effect,
is capable, competent and adequate: Story v National Companies and
Securities Commission (1988) 13 NSWLR 661 at 672. Inefficiency may be
established by demonstrating that the performance of a licensee’s functions
falls short of the reasonable standard of performance by a dealer that the
public is entitled to expect: Story v National Companies and Securities
Commission (1988) 13 NSWLR 661 at 679;
(d) it is not necessary to establish dishonesty in the criminal sense: R J Elrington
Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at
110. The word “honestly” may comprehend conduct which is not criminal but
which is morally wrong in the commercial sense: R J Elrington Nominees Pty
Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at 110; and
(e) the word “honestly” when used in conjunction with the word “fairly” tends to
give the flavour of a person who not only is not dishonest, but also a person
who is ethically sound: Story v National Companies and Securities Commission
(1988) 13 NSWLR 661 at 672;
- have in place adequate arrangements to ensure that the licensee’s clients are not
disadvantaged by any conflict of interest that may arise wholly or partly in relation to
credit activities engaged in by its representatives (section 47(1)(b));
- take reasonable steps to ensure that its representatives comply with the credit
legislation (section 47(1)(e)). This requires ACL holders to monitor and supervise
their representatives. The NCCP defines “credit legislation” to include the NCCP; Div
2 of Part 2 of the ASIC Act (dealing with unconscionable conduct and consumer
protection relating to financial services); and any legislation that covers conduct
relating to credit activities whether or not it also covers other conduct, but only
insofar as it covers conduct relating to credit activities. The definition would be
broad enough to cover the Privacy Act and the AML/CTF Act insofar that those
obligations relate to credit activities in which a licensee’s credit representative or
other agent engages;
- ensure that its representatives are adequately trained, and are competent, to
engage in the credit activities authorised by the licence (section 47(1)(g));
- have an internal dispute resolution procedure that:
* complies with standards and requirements made or approved by ASIC in
accordance with the regulations;
* covers disputes in relation to the credit activities engaged in by its representatives
- be a member of an approved external dispute resolution (EDR) scheme (section
47(1)(i)). A licensee is taken to be a member of an approved EDR scheme if it is a
member of an ASIC approved scheme that covers disputes in relation to the credit
activities engaged in by the licensee or its representatives (section 11(1)); and
- have adequate arrangements for compensating persons for loss or damage suffered
because of a contravention of this Act by the licensee or its representatives (section
122. If ASIC reasonably requests assistance from a licensee in relation to whether the
licensee and its representatives are complying with the credit legislation, the
licensee must assist ASIC (section 51(1) NCCP).
123. An ACL holder must inform ASIC of particulars relating to the ACL holder’s credit
representatives (Division 3, Part 2-3 NCCP).
124. In March 2013, ASIC issued Report 330 “Review of licensed credit assistance
providers’ monitoring and supervision of credit representatives”. The report was
made after ASIC reviewed 26 ACL holders that had appointed 12,545 credit
representatives between them.
125. The report included recommendations relating to:
- a licensee’s compliance and training documents for credit representatives being
tailored to reflect the nature, scale and complexity of the licensee’s business;
- licensees having practices and procedures to ensure their credit representatives
remain appropriately qualified on an ongoing basis;
- a licensee’s access to credit representative records to ensure the licensee can meet
any customer request for a copy of a preliminary assessment undertaken by the
licensee’s credit representatives;
- licensees being able to identify each instance of credit assistance given by their
credit representatives, including where credit was not provided ultimately and
particulars of the types of loans with respect to which credit representatives gave
- licensees having appropriate practices and procedures for undertaking compliance
reviews of credit representatives;
- licensees testing credit representative compliance with responsible lending
obligations by reference to the licensee’s policies;
- licensees addressing potential systemic compliance issues by updating training
materials, compliance plans and risk management systems regularly; and
- licensees having processes to identify and rectify consumer detriment arising out of
compliance issues with respect to credit representative conduct.
25 September 2013