CONSUMER CREDIT − Loan contract secured by mortgage − Dealing regulated by Consumer Credit Code − Ancillary unregulated dealing secured by mortgage over same land − Single enforcement proceeding on both dealings − Whether defective notice renders whole proceeding invalid − Consumer Credit Code s 80.
[3]
By summons filed 18 September 2009, the plaintiff ("the Bank") has applied under Rule 22.02 for summary judgment against the first and second defendants (but not the third defendant) on the ground that those defendants have no defence to the whole of the Bank's claim. When the application was heard on 16 October 2009, the plaintiff sought to amend its summons to limit its application to only a part of the claim as alleged in paragraphs 19 to 49 of its the statement of claim. In essence, the Bank sues on two loan contracts, each of which was secured by various mortgages over land. The Bank acknowledges there is a triable issue concerning the first loan contract, but contends the first and second defendants have no defence to the claim under the second loan contract.
The first and second defendants neither consented to nor opposed the amendment to the summons because, they submitted, the question arising under the Consumer Credit Code ("the Code") creating a triable issue for the first loan "tainted" the Bank's claim under the second loan, indeed the whole proceeding.
This agitates a primary question of construction concerning s 80 of the Code which requires the service of a default notice on a borrower. If the proceeding concerning the second loan was not so tainted, then a second and unrelated question arises about the validity of what is commonly referred to as a Dobbs certificate given by the Bank to prove the indebtedness under the mortgages for the second loan. [1] If the Bank survives an adverse outcome on those questions, counsel for the first and second defendants accept that the Bank's case is proved, and as I understood the attitude, there is no barrier to summary judgment. The only affidavit in opposition was sworn by the first defendant Stephen Richard Smith on 14 October 2009. He states he was not served with a notice under section 80 of the Code. There is no dispute the second loan contract was made, the mortgages were given, the facilities were provided, the advances were made, and that default occurred. Nor is there any sort of countervailing claim by these borrowers against the Bank.
Thus, as there are no facts in dispute, this appears to me to be a type of case where the Court may decide a point of law on a summary judgment application rather than giving leave to defend on the basis there is a case to be fully argued at trial. Further, as it is being contended that the proceedings are tainted as instituted, it is just as well the Court decide the question on such an application. [2]
Yet in written submissions delivered with the Court's leave after the hearing, these borrowers submitted that the questions and issues are complex and not easily resolved, and ought to be determined at trial. Reliance was placed on Commonwealth Bank v Clune[3], in which a lender sought possession of mortgaged land on the basis of a mortgage default under a home loan. In that case, the borrowers pleaded that the lender's notices under s 80 of the Code were defective and invalid. The lender pleaded an alternative case based on the law of mistake which, if sustained, meant that s 80 of the Code and the Code itself, would not apply to the contract. The borrower asked for a separate or preliminary determination of the s 80 issue. The Court declined to do so, because the circumstances were said to be unusual and the issues as between the Code case and non-Code case were not clear cut and severable.
In my view, Clune is but an example of the exercise of discretion in a particular case, and even then, not a summary judgment application. The elements of the case in Clune seemed to be interconnected and therefore, a determination of the s 80 question would not necessarily dispose of the whole proceeding. The context in the present case is quite different. To demonstrate that, and in order to properly expose and consider the legal question, it is necessary to recite the elements of the Bank's case.
By a writ filed on 26 February 2009, the Bank claims possession of six pieces of land in Euroa mortgaged by the first defendant ("the principal debtor") as security for the moneys due and owing under two loan contracts. The first loan contract, which was offered by letter dated 20 June 2006 and accepted by the principal debtor, was for "an amount of credit" of $600,000 and was acknowledged to be regulated by the Code_.[4]_ That first loan contract was secured by a mortgage over two pieces of land owned by the principal debtor which, adopting the abbreviations used in the statement of claim, can be called the first land and the second land. The Bank claims the loan is in default and as at 14 September 2009 the amount due is $705,410.37.
The second loan contract was offered by a letter to the principal debtor dated 27 June 2006 and accepted by him on 29 June 2007.[5] Under that dealing, there were three banking facilities: an overdraft up to a limit of $75,000; a fixed rate commercial bill facility up to a limit of $1,070,000; and an "Agri" revolving facility up to a limit of $1 million.
For this second loan contract, the statement of claim alleges (and it is not disputed) the principal debtor gave the bank a mortgage over the second, third, fourth and sixth land as security in one mortgage dealing, and gave a mortgage over the fifth land in another mortgage dealing. All up then, a mortgage over five pieces of land are pleaded, although in argument I was told that the first land (in Certificate of Title volume 5378 folio 455) was also mortgaged for the second loan. This was not disputed. Looking at the instrument of mortgage, it appears that the first land is there identified.[6] The second loan contract and other related mortgages are not regulated by the Code because they were loans for business and investment purposes.
The claim on the second loan is substantial. According to the Dobbs certificate, as at 8 October 2009 there was total debt of $3,013,845 with interest accruing at a daily rate of $811. [7]
There are claims against two guarantors who also gave a mortgage over land as security under the guarantee. Confining matters to the second loan contract, the second defendant Hastyco Pty Ltd guaranteed the payment of the full amount of the principal debtor's obligations under the second loan.[8] The mortgage that secured the guarantor's obligations was over land identified as the "seventh land".
For completeness, I should add that the Bank also makes a money claim against the third defendant under a guarantee for the indebtedness of the principal debtor but limited to $2,145,000. That guarantee was secured by the eighth land. By an amended defence and counterclaim filed 16 July 2009, the third defendant, who is the first defendant's wife, claims the guarantee and mortgage were procured under the first defendant's undue influence, and in circumstances of disability or disadvantage under the equitable doctrine of unconscionability, or in contravention of the Fair Trading Act. In essence, it is a claim which resembles instances where equity intervenes as considered for example in Yerkey v Jones [9] and Garcia v National Australia Bank Ltd.[10]
Thus, what emerges from these facts is that the Bank has brought recovery proceedings on two loan contracts, the first of which was regulated by the Code, and the second of which was not. The first loan contract is secured by a mortgage over the first and second land.[11] The second loan contract is secured by mortgages over the first and second land as well as the third, fourth, fifth and sixth land. [12] And, by companion, the seventh and eighth land was mortgaged by the second defendant under its guarantee for the principal debtor's obligations under the second loan.[13]
The problem for the Bank on the first loan arises as follows. On 14 May 2008, the Bank sent to the first defendant a default notice expressed to be under s 80 of the Code. [14] The notice was addressed to Dr Smith at "PO Box 360, Euroa, Victoria, 3666". The notice gave Dr Smith 31 days to remedy the default by paying an overdue instalment of $32,566.24.
Section 80(1) of the Code states −
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"A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and -
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(a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and
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(b) the default has not been remedied within that period.
[7]
There is an identical provision in s 80(2) concerning the enforcement of a mortgage. That is, a credit provider must not begin enforcement proceedings against a mortgagor unless a default notice was given which allowed at least 30 days.
This leads to s 172(1) of the Code which states that the notice may be given -
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(ii) by leaving it at, or by sending it by post, telex, facsimile or similar facility to, an appropriate address of the person; ... "
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Under s 172(2), the "appropriate address" of a debtor or mortgagor is -
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"(a) an address nominated in writing by that person to the person giving the notice or other document; or
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(b) if there is no such nomination, the address of the place of residence of that person last known to the person giving the notice or other document."
[12]
The first and second defendants contend, and the Bank accepts as a triable issue, that the delivery of the default notice to Dr Smith at a post office address was not an appropriate address within the meaning of the Code. What are the legal consequences of that? According to some New South Wales authorities, a breach of s 80(2) of the Code ("a credit provider must not begin enforcement proceedings ... unless ... ") does more than attract a pecuniary penalty; it means the proceedings are susceptible to be summarily dismissed or struck out: see Benjamin v Ashikian[15] and Permanent Mortgages Pty Ltd v Cook[16]. Of course, such an outcome means that the credit provider is not prejudiced in its ability to re-serve a compliant notice and sue again.
Mr Turner of counsel, who appeared for the first and second defendants, submitted that if the proceeding for the regulated contract was incorrectly instituted according to the authorities, then the whole proceeding was "ineluctably tainted by contagious invalidity", and should be dismissed even though it included a non-regulated loan, because part of the security for the non regulated loan was also security for the regulated loan.
He submits there cannot be severance between the Code and non-Code claim because it would circumvent the Code if the Bank was permitted to sell up security property common to both facilities. If the lender obtained security over a residence for both regulated and non-regulated lending, then the lender must live with the consequences of that dealing and get its notices right. He submitted the statute does not deal with a commingled situation, but the appropriate course in such a case would be to issue a combined notice under both s 80 of the Code and s 77 of the Transfer of Land Act.
There is no authority for these propositions but it was put as a matter of statutory construction. It was submitted that the Court should look to the purpose of the Code as being for consumer protection in borrowings for domestic purposes usually with a mortgage over the residential home of the borrower. That purpose would be circumvented, it was said, in this case. It was conceded that despite the commonality of two pieces of land in both loan contracts, there would have been no problem had the Bank brought separate proceedings for the non-regulated loan contract.
It now goes without saying that the modern approach to interpreting the meaning of contestable legislative language is by a thorough investigation of
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the purpose of the provision in question.[17] To that end Mr Evans, for the Bank, submitted the evident purpose of the Code was to protect a consumer who borrowed money "wholly or predominantly for personal, domestic or household purposes"[18] and not to regulate loans and related mortgages for investment and commercial purposes. In this case, it was submitted, there were two separate loans and mortgages and it was immaterial that the first and second land was common security because what mattered was that the second loan was for a purpose not regulated by the Code.
[14]
Secondly, Mr. Evans focussed on the opening words of s 80 which state: "A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract . . .". He submitted as follows. The second loan does not involve or concern a credit contract because it was for business or investment purposes. There is no basis to expand the construction of s 80 to knock out another part of the proceeding that does not concern the credit contract. There would need to be specific language in the legislation if that were the intended effect. Otherwise, there would have to be separate proceedings in a case such as the present. It does not advance the purposes of the Code to deny the lender the ability to proceed with non-code matters in the same proceeding as a regulated loan. This was not an attempt to circumvent the Code but rather it was an attempt by the borrower to extend the Code to non-Code matters.
In aid of that submission, reference should also be made to two other provisions of the Code. First, s 8 of the Code states -
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(a) it secures obligations under a credit contract or a related guarantee; and
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(b) the mortgagor is a natural person or a strata corporation.
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(2) If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee."
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There is a similar provision in s.9 as it applies to guarantee. Section 9(2) states that "If any such guarantee also guarantees other obligations, this Code applies to the guarantee to the extent only that it guarantee's under the credit contract."
Thirdly, Mr Evans submitted that, in accordance with the High Court's analysis in Berowra Holdings Pty Ltd v Gordon,[19] the failure to comply with the notice provisions under the Code did not mean this proceeding was a nullity. A borrower could raise it as a defence in the ordinary way to a claim made under a regulated contract and perhaps have the claim summarily dismissed, but even so, it left the non-Code claim untainted.
To assert that the whole proceeding is tainted is a conclusion. There has to be some principled basis for contending that the invalidity of bringing a claim for the first loan therefore invalidated the non-regulated loan in the same proceeding. The piquancy of the word "tainted" does not make good the legal analysis, carrying as it does connotations of legal relations which are illegal as formed or performed which the Court should not countenance or lend its aid.
I think the commencement point is to accept that if a lender under a regulated credit contract brings a proceeding under that contract without first complying with the mandatory requirements, or condition precedent of s 80, then the proceeding is unlawfully instituted. That was the language of Clarke JA in the NSW Court of Appeal in Graham v Aluma Lite Pty Ltd [20] a case which considered similar consumer protection legislation and was applied in Permanent Mortgages Pty Ltd v Cook[21], which concerned s 80 of the Code. But that does not mean the credit contract is illegal or unenforceable: see s 170 of the Code, and generally Master Education Services Pty Ltd v Ketchell.[22] All it means is that a proceeding in such a case can be defended on the ground of statutory non-compliance. A borrower can move the Court to summarily dismiss the proceeding (without adjudicating its merits), as happened in Permanent Mortgages Pty Ltd v Cook, or have the case struck out but without prejudice to the lender's rights to bring fresh proceedings, as happened in Benjamin v Ashikian.[23] That outcome is a recognition of the well-known interpretative approach affirmed by the High Court in Berowra[24] which would characterise s 80 as an example of a statutory bar which does not go to the jurisdiction of the Court to entertain that claim, or extinguish the plaintiff's title, but goes to the remedy available and hence to the defences which may be pleaded. [25] It does not extinguish a lender's ability to enforce the loan, and the proceeding is not a nullity.[26]
But here we have a combined claim, and the second loan is outside the Code. If the claim under the Code for the first loan is not a nullity but faces a statutory bar, then by what legal principle is it that tars the remainder of the claim with the same brush? Is it substantive? Is it procedural? According to the first and second defendants it is because the security over the first and second land is common to both loan contracts and cannot be severed, and "the Code necessarily implies a conclusion that to sever the proceedings into Code and non-Code as put by the Plaintiff would have the effect of undermining the statutory purpose behind section 80."[27]
In my view, that submission begs the question. If as was conceded, it would have been open for the Bank to bring separate proceedings on the second loan, then I do not see the basis on which it can be said they cannot be severed. It is not as if the two claims have become scrambled, as it were, once put together in the one legal proceeding. They are separate legal relations, separate transactional facts, separately procured securities and separate defaults. Above all, they are for separate purposes.
There is no suggestion the two loans were arranged or structured in such a way as to avoid the regulatory requirement of the Code. As the second loan was for non-Code purposes, I do not see how a severance would undermine the statutory purpose of section 80. I think it correct for the plaintiff to direct special attention to the words "in relation to a credit contract" in section 80 as a manifestation of the distinct statutory purpose. The purpose of section 80 is to protect the borrower under a regulated loan from precipitate legal action and give a chance to remedy the default. Even though it is in the same proceeding, the Bank has a right to invoke the Court's jurisdiction to determine the claim on the second loan. The second claim is cognisable and is not contingent upon some fact or matter integral to the actionability of the first loan.
For those reasons I accept the submission on behalf of the Bank on this question.
[19]
Mr Turner submitted that the form of the Dobbs certificate was such that it was invalid. The starting point is clause 9.9 of the Memorandum of Common Provisions No. AA519 which was part of the relevant mortgage.[28] That clause states -
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"ANZ may give a certificate about any matter relating to this mortgage, the property or the secured money.
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For example, the things about which ANZ can give a certificate include:
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(a) how much I owe or have owed to ANZ on a specified date;
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(b) the rate of interest applicable during a specific period;"
[24]
Clause 9.7 states : "Any ANZ officer can exercise ANZ's rights relating to this mortgage, the property and the secured money on its behalf."
In the definition section of the Memorandum, "ANZ" is defined to mean Australia and New Zealand Banking Group Limited and includes its successors or assigns or transferees. The expression "ANZ Officer" is defined to mean an ANZ employee -
[25]
(a) "Whose title is or includes the word "manager", "accountant" or "officer" or who is acting in a position with such a title; or
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(b) who is authorised by ANZ to act as its attorney;"
[27]
The certificate for the second loan on which the Bank relies in this case is exhibited to the affidavit of T.D.M. Morris, sworn 8 October 2009.[29] The affidavit gives the deponent's designation as "Manager" and says in paragraph 1, "I am a manager in the employment of the Lending Services Commercial Department of the Plaintiff". In paragraph 2, the deponent states "I am authorised to make this affidavit on behalf of the plaintiff." The certificate has the heading "Mortgage Certificate Under Clause 9.9 of Memorandum of Common Provisions AA519". It commences with the words:
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"I, Trevor David Munro Morris of Level 13, 452 Flinders Street, Melbourne, Victoria, 3000, certify as follows:
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1. I am authorised by the Plaintiff to produce and sign this Certificate on its behalf."
[30]
The certificate is dated and shows a signature above the words "Signed for and on behalf of Australia and New Zealand Banking Group Limited."
[31]
Mr Turner submitted that given the conclusiveness of a Dobbs Certificate and the fact that it may not be set aside except for fraud or manifest error, the Court should take a strict approach when assessing its validity. He submitted that clause 9.9 does not refer to the ANZ giving a certificate by its officer. Therefore, he submitted that Morris was not properly authorised under the mortgage. He submitted that under s 127 of the Corporations Act, the only way a company can execute a document without using a common seal is if the document is signed by two directors of the company or a director and a company secretary of the company. He said that Mr Morris was neither of those things.
Mr Evans submitted that attention must also be given to clause 9.7. That clause is engaged any time the ANZ wants to act under the mortgage. Therefore, the ability of ANZ to exercise its rights under clause 9.9 can be exercised by any ANZ "officer" as defined. As Morris' affidavit plainly describes his designation as a "Manager", he is competent to exercise ANZ's rights under clause 9.9.
In reply, Mr Turner submitted that the certificate, on its face, must say that Morris was a manager and that the Court should ignore the extrinsic evidence in his affidavit.
In my opinion, the certificate is valid. Care must be taken not to approach clause 9.9 as if it were a question about a person's authority to act for or bind a company in dealings as a matter of company law or agency law. A mortgage is a type of contract and the question is whether this certificate conforms to what the parties have stipulated in a contract about the manner and form of a document. There is no clause which requires the form of the certificate to state ex facie that the giver is an officer, although it may well do so. The question of designation of the certificate giver is a matter of fact. The question is: has this contract been satisfied by a Manager giving the certificate? I see no reason why that authority cannot be proved separately from the certificate itself, especially where it is an exhibit to the certificate giver's certificate.
For those reasons, I find that the Bank's claim has been proved. I realise that exceptional caution must be exercised in an application for summary judgment to ensure that, under the guise of achieving expeditious finality, litigants are not deprived of an opportunity for trial: Webster v Lampard.[30] But, there are no disputed issues of fact and there is no other basis or affidavit material on which the first and second defendant's have sought to show a defence on the merits. I think a summary determination is therefore justified, but I shall abstain from pronouncing or formulating orders until I have heard from the parties concerned.
[17] See CIC Insurance Ltd v Bankstown Football Club Ltd(1997) 187 CLR 384 at 408. See also e.g. Australian Finance Direct Ltd v Director of Consumer Affairs[2007] HCA 57; (2007) 234 CLR 96, a case involving the Code.