Equuscorp Pty Ltd v Rigert [2003] VSC 343

2. This is an appeal pursuant to s.109 of the Magistrates' Court Act 1989. Such an appeal is restricted to an appeal on a question of law. In accordance with accepted practice the Magistrate has taken no active part in this proceeding and has indicated that he will abide by the decision of the Court.

5. The appellant sued the respondents in the Magistrates' Court by complaint issued on 26 September 1997. The claim was for moneys due under a finance agreement made on 12 February 1991 ("the agreement"). The appellant is the assignee of the lender. The lender had supplied finance to the respondents for the purpose of acquiring time share interests in a venture known as Club Mildura. On 2 April 2003 the Magistrates' Court at Melbourne dismissed the claim with costs on the basis of a limitations defence. It is against this order the appellant now appeals.

9. The agreement provided that the lender would lend the respondents the amount of $10,480 (referred to in the agreement as the "amount financed") and that the respondents would pay a credit charge of $11,830.40, reflecting an annual percentage interest rate of 23.4% on the loan. The total amount of $22,310.40 was repayable by 84 monthly payments in accordance with a schedule which provided for two escalations in the rate of such payments.

12. The respondents sought to "have the contract rescinded" shortly after it was entered into as a result of "cooling off" and no repayments were ever made.

15. On 26 March 1991 the lender sent a reminder notice to the respondents notifying them that the account was in arrears. Thereafter it appears nothing was done to enforce the agreement until 1997. Nevertheless mere delay on the part of a creditor for anything short of a period giving rise to a statutory defence by way of limitation, does not ordinarily raise any equity or constitute a bar to a claim. "As long as the contract subsists, nothing short of a Statute of Limitations can prevent his obtaining the benefit conferred upon him by his contract."[1]

18. In April 1997 the appellant sent a letter of demand for the payment of the sum of $9,841 by the respondents. On 5 September 1997 the appellant sent to the respondents by post notices under s.107 of the Credit Act 1984 requiring payment of alleged arrears of $22,310.49, and extra interest totalling $15,105.04 (incurred by reason of default). The total demanded as at the date of the notice was thus $37,415.44. The notices further sought the payment of an instalment of $282.44 which would fall due on 12 September 1997 during the period of the notice. It concluded (prior to the schedule) with the words:

"This Notice refers to payment of amounts due under the Loan Contract and the amount due will increase until payment in full is made."

22. An extract from the appellant's books of account was put in evidence before the Magistrate and the relevant account statement shows that the figure of $37,415.44 was in fact the amount due as the "actual outstanding balance" as at 12 September 1997. The account statement indicates that as at 12 August 1997 the actual outstanding balance due was $37,013.43. Further by demanding the amount due as at 12 September 1997, together with the payment of the instalment due on that date, the appellant demanded a total of $37,697.88 as at 12 September 1997. No point as to these discrepancies in the figures appears to have been taken before the Magistrate, but for reasons I will elaborate they may be regarded as significant.

25. In any event no payment was received following the service of the notice and the appellant instituted Magistrates' Court proceedings making the following claim.

"3. By an agreement made on or about 12 February 1991 ('the agreement') the defendants borrowed from the Club the principal sum of $10,480.00.

PARTICULARS

The agreement is in writing and a copy of the same may be inspected at the offices of the plaintiff's solicitors. 4. There were terms, inter alia, of the agreement that: a) the defendants would purchase one share in Club Mildura Limited and one unit in the Club Mildura Interim Trust so as to become a tenant in common of one equal undivided one one hundred and second interest in cluster plan 1433 ('the timeshare'); b) the defendants would pay interest on the principal sum at 23.4%; c) upon a default the principal advances together with interest then outstanding became due and payable immediately. ... 8. The defendants have defaulted in their obligations under the agreement in that they have failed to pay to the plaintiff the monthly payments of interest due under the agreement. 9. By section 107 Notice of the Credit Act (1984) dated 5 September 1997, the plaintiff demanded payment from the defendants of all moneys then outstanding under the agreement.

PARTICULARS

The Notice under Section 107 of the Credit Act (1984) is in writing and a copy of the same may be inspected at the offices of the plaintiff's solicitor by prior appointment. 10. The defendants have failed, neglected and/or refused to remedy the default and pay to the plaintiff the balance outstanding under the agreement and by reason thereof the plaintiff has suffered loss and damage.

PARTICULARS

Outstanding sum of $35,915.44 with interest at the rate of 23.4%."

29. It can be seen that the default alleged was in terms with respect to interest instalments only, the s.107 Notice demanded "all moneys then outstanding under the agreement", and the amount claimed was "the balance outstanding under the agreement" nominated as a lesser unparticularised figure than that specified in the s.107 Notice and a lesser figure than that supported by the appellant's books of account. (It might also be noted the statement of claim alleged no term requiring payment of instalments of principal).

32. It is also to be observed that the proceedings were instituted prior to the expiry of the one month period fixed for payment in the s.107 Notice dated 5 September 1997. Under r.4.04 of the Magistrates Court (Civil Procedure) Rules 1999 a proceeding is commenced when a complaint is filed. The complaint is recorded as filed on 26 September 1997.

35. The respondents filed a defence and counterclaim on 13 November 1997 which contended in summary:

(a) the appellant had failed to comply with s.107 of the Credit Act in that no notice was served on the respondents before the filing and service of the proceeding;

(b) the proceeding was brought after the expiration of six years from the date on which the cause of action accrued and was barred by s.5(1) of the Limitation of Actions Act 1958;

(c) the contract failed to comply with various provisions of the Consumer Credit Act 1972 (South Australia); and

(d) the respondents were entitled to both set up a counterclaim and establish a set off pursuant to s.73 of the Trade Practices Act 1974 (Cth).

41. The Magistrate held that the evidence did not satisfy him as to the facts and matters relied upon as founding misrepresentations giving rise to a counterclaim under the Trade Practices Act.

"I do not find that the plaintiff or its assignor breached any of the provisions of the consumer legislation which have been pleaded and in particular find that notice was properly served under section 107 of the Credit Act."

48. He then concluded that s.73 of the Trade Practices Act might still be relied upon by the defendants in the particular circumstances of the case (where the vendor had repossessed property for which he had received full value under a tied contract) to establish a set off, but that the relevance of such conclusion was subject to consideration of the effect of the Limitation of Actions Act.

51. After considering the terms of the contract and the submissions of the parties by reference to relevant authorities he concluded that the claim was barred by s.5(1) of the Limitation of Actions Act.

54. In this Court the appellant contends that the Magistrate erred in law in so holding and that his decision gives rise to a series of interrelated questions of law. First, whether the entire claim of the plaintiff was barred by s.5(1) of the Limitation of Actions Act 1958? Second, whether a necessary element of the accrual of the cause of action in the proceeding was service of a s.107 Notice pursuant to the Credit Act and the exercise of the option provided for in the loan contract by the appellant to require the respondents (as debtors) to pay the balance outstanding under the loan consequent upon a default? Third, whether separate causes of action accrued on each date an instalment payment was defaulted under the credit contract?

"2. REPAYMENT 2.1 The Debtor agrees to pay to the Credit Provider: (a) the Amount Financed and the Credit Charge by the instalments of the amounts and on the dates set out in Item 1 of the Schedule. On the date the final instalment is due, in addition to that instalment the Debtor will pay to the Credit Provider all amounts (including all accrued credit charges) then payable under the terms of this Loan Contract; (b) all other sums of money that from time to time fall due under the terms of this Loan Contract; (c) all stamp duties, government charges, legal fees and other costs relating to the Mortgage or the Guarantee or the Loan Contract (including Financial Institutions Duty) which are permitted to be recovered by the Credit Act. 2.2 Except where Clause 2.3 applies, repayments under this Loan Contract shall be made at the postal address of the Credit Provider in Victoria specified above. 2.3 Where the Debtor is resident in South Australia repayments shall be made at: (a) the postal address of the Credit Provider in Victoria specified above; or (b) the South Australian address of the Credit Provider specified above. 2.4 Repayments shall be made by cash, money order, bank order, cheque or by a direct debit to a bank account of the Debtor made at the Debtor's direction. The Debtor shall be credited only with charges and other remittances which are met by the Credit Provider on presentation. 2.5 Failure by the Credit Provider to insist on immediate payment of any instalment shall not affect payment of any remaining instalment or the Credit Provider's rights and remedies under this Loan Contract. 3. DEFAULT 3.1 The Debtor shall be in default in the event that:- (a) the Debtor fails to make payment of any amount due under this Loan Contract or this Mortgage; (b) the Debtor breaches any of these terms and conditions (including failure to comply with the terms and conditions on the Mortgage); or (c) the Debtor (being a company) goes into liquidation or has an official manager or receiver appointed or an application for winding up is filed or it enters into any scheme of arrangement; or (d) the Credit Provider believes on reasonable grounds that it was induced by fraudulent misrepresentation of the Debtor to enter into this Loan Contract or this Mortgage; (e) the Credit Provider is unable to locate the Debtor after making reasonable efforts to do so. 3.2 Subject to the Credit Act, upon default by the Debtor, at its option the Credit Provider - (a) may immediately require the Debtor to pay the outstanding balance of the Amount Financed together with all amounts (including all accrued credit charges) payable under this Loan Contract until the Amount Financed is paid or recovered in full; (b) may enforce the Mortgage and sell, transfer and dispose of the Mortgaged Property and may complete the transfers executed by the Debtor referred to in Sub-Clause 1.2(d) and/or may arrange redemption of such of the shares, and/or units which may be redeemable and may exercise all or any of the rights and remedies granted to a mortgagee under any relevant statute and the general law; (c) may exercise the Debtor's rights of entry, access, possession and use in respect of the Time Share Resort. PROVIDED THAT in the case of a default under Sub-Clause 3.1(a) or 3.1(b), the Credit Provider shall only exercise its rights under this Clause 3.2 where that default continues for a period of one month following receipt by the Debtor of a notice of default in accordance with the Credit Act. ... 5. DEFAULT CHARGE If the Debtor defaults in payment on any amount payable when due, the Debtor shall pay on demand a default charge calculated by applying the daily percentage rate (being the annual percentage rate divided by 365) to the daily balance of the amount due and unpaid."

62. It can be seen the agreement imposed positive obligations upon the borrower:

(a) to pay the instalments as and when they fell due; and

(b) to pay interest on demand with respect to amounts not paid when due.

68. In addition the agreement gave the lender the right (subject to compliance with the proviso set out in clause 3.2):

(a) to accelerate repayment of the whole loan;

(b) to enforce the mortgage over the property acquired; or

(c) to exercise the borrower's rights of entry, access and possession in relation to the time share resort.

74. In my opinion the cause of action with respect to the first category of matters namely enforcement of the right to payment of instalments and interest under the agreement upon default, accrued as and when payments became due. Conversely, the cause of action with respect to the right to accelerate repayment of the whole of the loan did not accrue unless the proviso was complied with.

77. In the present case the claim was for "the balance outstanding under the agreement" being the sum then outstanding as demanded by notice (although as I have said such balance was stated in the claim at a sum less than that nominated in the s.107 Notice).

80. Such a claim did not involve an allegation that the power under clause 3.2(a) had been exercised. It was simply a claim for the instalments then alleged to be due (made on the basis contemplated by clause 2.5) and for interest under clause 5.

83. It can readily be appreciated that a lender might not wish to obtain repayment of the full "amount financed" upon default being made in respect of instalments, when the agreement obliged the borrower to pay 24.5% per annum interest on moneys due under it. It cannot be inferred that the parties intended the whole of the amount financed would necessarily become immediately repayable upon any default in monthly repayments.

86. Under the terms of the agreement no present entitlement had arisen prior to the date of the s.107 Notice to claim the whole of the amount financed because no notice had been given and received in accordance with the proviso to clause 3.2 which required as follows:

"PROVIDED THAT in the case of a default under sub-clause 3.1(a) or 3.1(b) the Credit Provider shall only exercise its rights under this clause 3.2 where that default continues for a period of one month following receipt by the Debtor of a notice of default in accordance with the Credit Act."

90. The agreement did not provide that the whole of the amount financed became due and payable upon default by the borrower or upon demand by the lender consequent on default. It required the vendor to give notice in accordance with the Credit Act and for the default to continue for a period of one month following receipt by the debtor of the notice. Conversely, however, the contractual right to claim for instalments as and when they fell due under the agreement was subject to no such proviso, notwithstanding that its exercise was subject to the independent operation of the Credit Act. Accordingly, the credit provider was entitled to sue as and when the instalments fell due and was subject to a potential limitation defence with respect to instalments due and payable more than six years prior to the institution of proceedings.

93. The relevant principles were stated by Fullagar J in Ogilvie v Adams[2]. In that case a loan was expressed to be repayable upon demand. It was held no demand was necessary to found the cause of action for repayment and the cause of action commenced upon the making of the loan. Fullagar J stated:

"The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor's money, and this whether the creditor brought an action of debt or an action in indebitatis (sic) assumpsit. Therefore if A lends money to B, then instantly B is detaining A's money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The courts have long since settled it that a mere statement or agreement that the money is repayable on demand (or request or at call) is not sufficient to contract out of that situation where all else that is known of the terms of the contract is that A has paid money to B by way of loan. The lender's cause of action still arises instanter on the receipt of the money by the borrower, so that the lender's cause of action becomes statute barred at the expiry of six years after the receipt of the money."[3] (citations omitted)

"There is a long-settled rule of construction that, where there is a present debt between the parties to a contract to repay money, and the only terms as to repayment of the debt are to be spelled out of a promise to repay on demand, or out of a statement that the money is to be repaid or repayable on demand (or on request), an instantaneous cause of action, upon the very creation of the contract, arises in the lender Whether one calls it a rule of law or not does not seem to me to matter. The only reason why I have chosen the expression 'rule of construction' is because other words or terms may appear in the contract which may be in the circumstances sufficient to show an intention that the cause of action is not to arise until some actual demand or some form of demand is made or until some period after the demand has elapsed: see for example Murphy v Lawrence [1960] NZLR 772. But it is equally correct to say that, where such 'other words' or terms do not appear, it is settled law that a loan (for example) which is simply described as being repayable on demand or on request or at call creates a cause of action in the lender enabling him to recover the money instantaneously upon the loan being made, and without any demand being made at all."[4]

"Dr Pannam is of course unquestionably right when he says that 'the parties must be able to insist by contract that the cause of action to recover the loan shall not arise until after a demand for payment has been made'. But in my opinion they cannot do it by simply describing the loan as being 'repayable on demand'. They certainly can do it by describing the loan as 'repayable two days after demand made'. The essential difference is, in my opinion, not hard to find. An acknowledgment of a loan creates, or rather constitutes, inter alia, an implied contract to repay the money at once; or, as some learned judges have put it, the borrower is in breach of contract every moment of every day from the commencement of the loan or from the commencement of the acknowledgment. It is of course possible, by clear words, to make an express contract which is inconsistent with what would otherwise be the implied contract."[5]

105. These principles have been applied in a number of authorities. In Lakshmijit v Faiz Sherani[6] the majority judgment of the Privy Council after referring to the decisions in Reeves v Butcher[7] and Harry Smith Ltd v Craig[8], stated:

"In each case the courts held that the plaintiff's right of action accrued as soon as the defendant made default in payment of an instalment of interest and was barred after six years from that event. They were not treated as cases in which the plaintiff could elect between inconsistent remedies but as cases in which each contract imposed an obligation on the defendant to pay the principal lent as soon as the interest fell into arrear ..."

109. In the present case it is in my view clear that the parties contemplated that the lender could elect between either keeping on foot the primary obligation to pay instalments as and when they were due (together with interest upon such instalments from the date they were due) or accelerating the obligation to repay the principal. Further, the power to accelerate payment was dependent upon the satisfaction of the precondition stated in the proviso.

112. In Esso Petroleum Co Ltd v Alstonbridge Properties Ltd & Ors[9] Walton J considered a claim against a surety. At p.1483 he stated:

"My difficulty is that the demand in the present case is a demand which of its own intrinsic nature changes the nature of the liability; it turns a liability to pay by instalments into a liability to pay the whole at once. Under these circumstances, in my judgment, even as against a principal debtor, a demand antecedent to the issue of proceedings is a necessary prerequisite of the whole cause of action. I would put it this way: that where the pre-existing obligation is to pay the debt by instalments, the demand that it be paid in one lump sum is an act which radically changes the nature of the debtor's obligation, and so is an essential ingredient of any cause of action to recover the lump sum. I think the case is precisely equivalent to the type of case envisaged by Scrutton LJ in Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, where he said at p.848: 'But it is otherwise where the debt is not present but to accrue'; ie, in such cases a demand is requisite. This appears to me to be the case here."

116. In my view the same distinction applies in the present case.

119. In Brooker v Pridham[10] Olsson J referred to Fullagar J's judgment in Ogilvie and stated:

"If a loan is not to be treated as being of that species which is continuously recoverable at all times, then there must be a basis for asserting that the arrangements between the parties were contrary to such a legal situation eg because of the imposition of qualifications as to specific notice of mode of withdrawal or the requirements for some additional act or event before an action could be brought. Alternatively some other feature of the arrangements between the parties may clearly negative the operation of the normal rule ..."[11]

123. In the present case the intention of the parties was that acceleration of the repayment of the whole of the loan could not be required unless the proviso stated in clause 3.2 was met.

126. In summary the position under the contract is:

(a) the limitation period runs with respect to a claim for instalments from the date at which each instalment respectively falls due;

(b) the limitation period with respect to interest payable "on demand" runs as and when the interest accrues;

(c) the limitation period for a claim for accelerated repayment of the amount financed runs from the point in time at which the lender has the right to make such a claim following the expiration of the one month notice of default period specified under the contract;

(d) the present case is of the first and second kind.

132. Notice was required to be given prior to the claim not by reason of the provisions of the contract, but by reason of the independent operation of the Credit Act itself. It is therefore necessary to consider the effect of the Act upon this analysis.

136. The Credit Act 1984[12] relevantly provides:

"107. (1) A credit provider shall not - (a) institute proceedings against a debtor or guarantor in respect of a matter arising under a regulated contract by reason of - (i) a default by the debtor; ... (b) exercise, or purport to exercise, a right under a regulated contract arising by reason of - (i) a default by the debtor; ... or; by reason of which the whole or a part of the outstanding balance of the amount financed or of the amount owed has become due on a date earlier than the date on which it would have become due if the default, failure, exercise, fact, act or thing had not occurred or been done - unless - (c) the debtor is in default under the contract; (d) the credit provider has served on the debtor and, where there is a guarantor in respect of the contract, on the guarantor, a notice in accordance with sub-section (3); and (e) the notice referred to in paragraph (d) has not been complied with in accordance with sub-section (4). ... (3) A notice referred to in paragraph (d) of sub-section (1) or paragraph (b) of sub-section (2) is a notice - (a) specifying the default, as the case may be - (i) of the debtor under the regulated contract; ... (b) stating the intention of the credit provider or mortgagee to exercise rights and remedies under the regulated contract or regulated mortgage unless, within a period of one month after service of the notice (or where a longer period is specified in the notice, that longer period) - (i) the default is remedied (except insofar as the default relates to a requirement to do a thing at or before a certain time, or within a certain period, or is a default in payment of an amount that became payable earlier than would have been the case if there had been no other default); (ii) the amounts that would be due to the credit provider under the contract if the default, failure, exercise, fact, act or thing had not occurred or been done, are paid; and (iii) the enforcement expenses (if any) in relation to the exercise by the credit provider or mortgagee of any rights arising from the default of the debtor are paid; (c) stating, if the notice refers to payment of amounts due under the contract that increase until paid, that the amounts so increase; and (d) containing the prescribed information. (4) The notice referred to in paragraph (d) of sub-section (1) or paragraph (b) of sub-section (2) is complied with if within the period of one month after service of the notice (or where a longer period is specified in the notice, that longer period) the default is remedied (except as referred to in sub-paragraph (i) of paragraph (b) of sub-section (3)), the amounts referred to in sub-paragraph (ii) of paragraph (b) of sub-section (3) have been paid or tendered and the enforcement expenses referred to in sub-paragraph (iii) of paragraph (b) of sub-section (3) (if any) have been paid."

140. It was submitted on behalf of the appellant that the effect of s.107 is to prevent a cause of action accruing until a notice is served in accordance with it. Accordingly, it was said that no cause of action accrued with respect to any moneys due under the agreement until a s.107 notice was served. I reject this submission. In my view Mr Johnson, counsel for the respondents, is correct in characterising s.107 as being concerned with the exercise rather than the existence of rights. Section 107(1) prevents the institution of proceedings but does not govern the existence of rights. It is a provision intended to protect consumers. Compliance with a notice given under s.107 does not preclude rights arising but leads to a potential prohibition upon the enforcement of those rights as the terms of s.108 demonstrate:

"108. Proceedings prohibited where breach remedied Where a credit provider or a mortgagee serves a notice referred to in section 107 on a debtor in relation to a regulated contract or on a mortgagor in relation to a regulated mortgage, and the notice is complied with in accordance with section 107(4), the credit provider or mortgagee shall not, in relation to the default specified in the notice, institute proceedings or exercise or purport to exercise a right under the contract or mortgage or under a contract of guarantee that relates to the contract. Penalty: 20 penalty units."

144. Unlike the proviso to cl. 3(2) of the agreement the provisions of ss.107 and 108 do not determine whether a cause of action exists but govern the circumstances in which it may be exercised. Mr Johnson referred to two authorities which illustrate the distinction. In Harding v The Council of the Municipality of Lithgow[13] it was held that a right of action against a municipality with respect to a widow's claim might arise although the deceased had not given notice of intention to sue under the relevant provision of the New South Wales Local Government Act. Dixon J stated:

"Section 580 of the Local Government Act 1919-1935 requires a notice of this description before the person injured brings his action. It does so as a preliminary condition to the writ. But it does not affect or destroy that person's cause of action considered as a title to a right to damages; it does no more than impose a condition upon the assertion or enforcement of the right by judicial process. Section 3 of the Compensation to Relatives Act provides a new cause of action for the relatives of the deceased man, but a new cause of action depending on the cause of his death. The cause must be such as would, if death had not ensued, have entitled the party injured to maintain an action and recover damages. It is well settled that at the moment of death the cause of action must subsist and that the deceased's remedy must not be barred so as to relieve the defendant of liability to him. But I do not think that this means that before his death the deceased must have taken every step which would enable him then to sue out process. The expression `as would have entitled the party injured to maintain an action' is descriptive and, of course, the description is hypothetical; the hypothesis being the survival of the deceased. The description connotes the existence at death of a title in the deceased to enforce a liability. But the imposition in favour of a particular defendant of a condition of suit, such as giving notice, is a procedural matter not going to the validity of the title to enforce the liability, but only to the mode of enforcing it, or the fulfilment of a preliminary procedural condition."[14] (Citation omitted - emphasis added).

148. This decision of the High Court was applied by Jordan CJ in Ex parte Eakin; Re Notley[15] in which it was contended that the cause of action with respect to a claim by a drainage union had accrued more than 12 months prior to the institution of the proceeding. Jordan CJ stated the relevant principle as follows:

"A cause of action in respect of a matter becomes complete only when every fact has occurred, the happening of which is necessary in order that a legal obligation may come into existence, of a kind, enforceable by action. It is necessary, however, in this connection, to distinguish between facts which are constituents of the cause of action and purely procedural facts which, although their occurrence is a condition precedent to an action being commenced, do not form part of the cause of action itself. Thus if a sum of money is not payable until a future time, no cause of action for recovery of the money comes into existence until that time has arrived. But if a sum of money is due and presently payable, the cause of action is complete, notwithstanding that the law requires that some procedural formality, such as the giving of a notice to the person liable, shall be complied with before an action is actually begun. It is conceived that this method of approach, which is that adopted by the High Court in Harding's Case, is to be preferred to considerations based upon what would have to be inserted in a pleading at common law and what would have to be proved in the absence of a special plea ..."[16] (Citations omitted)

152. The pleading rule referred to by Jordan CJ is described in Williams' Civil Procedure - Victoria in the commentary upon r.13.06 of the Supreme Court Rules:

"Under the system of pleading which prevailed in common law actions prior to the Judicature Act 1883, a plaintiff was allowed to allege generally the performance of all conditions precedent to the right to maintain the action. The opposite party was not at liberty to deny generally, but had to specify in his pleading any condition precedent the performance of which he intended to contest. See Common Law Procedure Statute 1865 s.15; Kreitmayer v Kennedy (1878) 4 VLR 215; Hobart v Victorian Woollen and Cloth Manufacturing Co Ltd [1881] VicLawRp 54; (1881) 7 VLR (L) 30; White v Derwent and Tamar Insurance Co [1888] VicLawRp 105; (1888) 14 VLR 642; Friemund v Spann (1895) 6 QLJ 185; Coulson v City Mutual Life Assurance Co (1907) 7 SR (NSW) 782."

156. Section 161 of the Credit Act provides:

"161. Except to the extent that this Act expressly provides otherwise, nothing in this Act excludes, modifies or restricts a right or remedy that a person would have had if this Act had not been enacted."

160. The relevant provisions of s.107 of the Credit Act provide for a statutory form of notice which may result in the position that rights which have accrued under the contract cannot be enforced. Nevertheless they do not determine the existence of a cause of action in terms of the Limitation of Actions Act. It follows that the operation of s.107 does not prevent a limitations defence being raised where more than six years elapses from the date at which moneys fall due for payment under the contract to the institution of proceedings. Therefore the appellant may be statute barred, at least with regard to the earlier payments claimed if not with regard to others (i.e. the later payments due).

163. There are however two further complications which arise under s.107 in relation to the notice served, which I have already noted. The first difficulty, from the appellant's point of view, is that the notice did not accurately specify the default under the contract. It misstated the actual outstanding balance by inserting the balance which would become due as at 12 September 1997 (but which was not due as at the date of the notice) and claiming the further instalment due as at 12 September 1997 in addition to the moneys claimed as presently due and payable. In my view such a notice cannot be said to have given notice of default in accordance with s.107. Section 107(3) requires the notice to "specify" the default. The notice in the present case did not specify the default. It specified a sum in respect of which the borrowers were not in default. As such it did not comply with s.107 and it did not give effect to the purpose of s.107.

166. The second difficulty is that the proceedings were instituted within the one month period specified in the notice. The notice was dated 5 September 1997 and was served by post in accordance with ss.164 and 165 of the Credit Act. The effect of s.165 is that the notices were deemed to have been given at the time at which the letters containing them "would have been delivered in the ordinary course of post". There is no evidence before me as to when letters directed to the respondents would have been received at the respondent's address in Paradise, South Australia but it is apparent from the copy of the complaint which is in evidence that the proceedings were instituted on 26 September 2003, that is, within the one month period required by s.107. Section 107 expressly prohibits a credit provider from initiating proceedings against a debtor under a regulated contract unless:

"(d) the credit provider has served on the debtor and, where there is a guarantee in respect of the contract, on the guarantor, a notice in accordance with sub-section (3); and (e) the notice referred to in paragraph (d) has not been complied with in accordance with sub-section (4)."

170. Section 107(3)(b) requires the notice to state a period of one month or longer for compliance before the credit provider exercises rights and remedies. The terms of the section are plain. There is no power to abridge time under the Act whereas there is a power to extend time under s.163.

173. These points relating to s.107 were first raised by the Court. They arise on the face of the exhibits tendered on the appeal. They were raised because as Lord Wilberforce has said in words adopted by Dawson J in Autodesk Inc v Dyson (No 2)[17]:

"Judges are more than mere selectors between rival views - they are entitled to and do think for themselves."

The points arise from the application of provisions of a statute intended by Parliament to be applied between parties who do not normally enjoy equal economic power, and for the benefit of consumers. Further they are points which may lead to the conclusion that the Magistrate's decision was correct although not for the reasons stated by him. They thus go to the underlying justice of the appeal.

178. Both s.107 and s.108 proscribe circumstances in which a credit provider may "institute proceedings". As I have already noted a proceeding in the Magistrates' Court is commenced when a complaint is filed.

181. Under s.107(6) the requirements of subsections (1) and (2)[18] including those as to notice here in issue, do not apply where the credit provider believes on reasonable grounds that he was induced by fraudulent misrepresentation on the part of the debtor to enter into the contract. A series of further exceptions applies in relation to regulated mortgages. Section 107(7) provides that the onus of proving subsection (1) or (2) does not apply is on the credit provider or mortgagee. These provisions reinforce that compliance with the notice provisions of the section is required in the ordinary case.

184. Section 107(8) provides that where a credit provider or mortgagee fails to comply with subsections (1) or (2) a court may order the credit provider or mortgagee to compensate the debtor or mortgagor for any loss suffered by him as a result of that failure. It is submitted on behalf of the appellant that this provision "contemplates the creditor's recovery proceedings continuing notwithstanding its failure to comply with 107(1)." In my opinion it does not. It simply contemplates compensation in circumstances where the debtor pays out money as a result of a failure to comply. Such a situation might occur where a debtor responds to a notice by paying more than was owing or suffers other loss consequent upon execution of a judgment improperly entered.

187. In Beugelaar v City of Springvale[19] Starke J considered the Victorian equivalent of the Local Government Act provision in issue in Harding's case (above). Starke J concluded:

"The words used in [s.82 of the Local Government Act 1958] are: 'such actions shall not be brought in the Supreme Court.' These words can only be construed, in my judgment, as an express prohibition."

In my view the words of s.107(1)(a) likewise comprise an express prohibition with respect to the institution of proceedings against a debtor unless the conditions stipulated are complied with.

192. In Canham v Australian Guarantee Corporation Ltd[20] Kirby P stated the philosophy underlying the disclosure provisions contained in the Credit Act 1984 (NSW) which was in comparable terms to the Victorian legislation introduced at a similar time.

"The ultimate theory behind the philosophy of truth in lending in our credit legislation is that disclosure of critical elements in the consumer contract will help to ensure honesty and integrity in the relationship (where one party is normally disadvantaged or even vulnerable); promote informed choices by consumers; and allow the market for financial services to operate effectively. This philosophy can be seen in the Rogerson Report, the Molomby Report, the Law Reform Commission Report and in the legislation which has followed, including the Credit Act. The policy behind the philosophy must be kept in mind in approaching the application of particular provisions in the Act to particular facts. The modern approach to the interpretation of legislation is, so far as the language of the legislation permits, to ensure that it give effect to, and does not frustrate the achievement of, the apparent purposes of Parliament as disclosed in that language: see generally, Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 423 and the cases there cited. In Anderson v HCF Financial Services Ltd [1988] VicRp 35; [1988] VR 251 at 255, the Victorian Full Court emphasised that the Victorian counterpart legislation to that which is here under consideration is 'primarily intended to protect borrowers [and] it should be given an interpretation beneficially to borrowers.' I agree with this approach."[21]

196. In cases such as the present the giving of notice in accordance with s.107 helps to ensure honesty and integrity between the credit provider and the borrower. It directly promotes informed choices by consumers and it results in the provision of information which will be known to the credit provider but which may not be known to the borrower. The giving of a notice which overstates default and the institution of proceedings before the period provided for notice under the Act are directly contrary to these underlying purposes.

199. These underlying considerations support the view that the prohibition on the institution of proceedings in s.107(1) and (2) save in the circumstances specifically exempted, is intended to be given effect as a direct prohibition. The provisions are intended to regulate relationships between parties of unequal bargaining power where one party is normally disadvantaged or even vulnerable. They are not provisions which it is intended should be the subject of concession by the weaker party. They should therefore be strictly enforced and this section should be given an interpretation which is "beneficial to borrowers". The approach which should be adopted is that adopted by Starke J in Beugelaar's case with respect to the Local Government Act provisions there in issue although in the absence of the compelling policy considerations affecting the present case. This approach was elaborated as follows:

"But there is, I think, a much more fundamental obstacle in the path of the plaintiff in setting up waiver. The result of my earlier finding is not that the issue of the writ without leave was a mere irregularity, but there was a direct prohibition in the statute against its issue and that, accordingly, it was a nullity. In those circumstances it is plain that no question of waiver arises. The general principle is stated in Chitty's Archbold Practice, 14 ed., p.445: 'Where the proceeding adopted is that prescribed by the practice of the court, and the error is merely in the manner of taking it, such an error is an irregularity, and may be waived by the laches or subsequent acts of the opposite party; but where the proceeding itself is altogether unwarranted, and different from that which, if any, ought to have been taken, then the proceeding in general is a nullity, and cannot be waived by any act of the party against whom it has been taken.' This passage was cited with approval by Bankes, LJ in Smythe v Wiles, [1921] 2 KB 66 at p.76. Accordingly I am of the opinion that the plaintiff's plea of waiver also fails on this ground."

203. I am, accordingly, of the view that the Magistrate was correct to dismiss the claim although not for the reasons which he stated. It is well established that a respondent may rely upon any alternative grounds open on the material to uphold the order of a magistrate.[22] Indeed the appellant in final written submissions concedes:

"The respondents are entitled to support the order of the court below on any ground that was open to him [sic] at the stage when that order was made whether the ground was raised then or not."

207. The predecessor to s.109 of the Magistrates' Court Act was the order to review procedure which provided for an appeal by way of review on questions of law. In MAB v Coutts[23] Brooking J stated:

"The principle that, unless the proceedings below took a course which make it unjust to allow the matter to be relied on now, a point not taken below may be raised on appeal if the defect could not have been cured (Edmondson v Macan [1878] VicLawRp 167; (1878) 4 VLR(L) 422; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at p.438) has been applied to these orders nisi for as long as the procedure has existed, whether the new point was advanced by way of attacking the order below, as in Noonan v Potter (1892) 14 ALT 164 and Warracknabeal Urban Waterworks Trust v Snow (1895) 18 ALT 40; 2 ALR 12, or by way of supporting it, as in Cameron v Moore [1894] VicLawRp 18; (1894) 20 VLR 66 at p.70_; Jones v Lorne Sawmills Pty Ltd_ [1923] VicLawRp 10; [1923] VLR 58 at pp.62-3_; Taig v Fawcett_ [1962] VicRp 7; [1962] VR 58 and Nevill v Halliday [1983] VicRp 114; [1983] 2 VR 553 at p.568; ..."[24]

211. Reference might also be made to longstanding authority of the High Court. In Adams v Chas. S. Watson Pty Ltd[25] a Magistrate dismissed a claim by the Deputy Federal Commissioner of Taxation because it had not been instituted within the 12 month period stipulated by the Justices Act 1928 (Vic). The appellant argued on appeal that the then provisions of the Commonwealth sales tax legislation excluded the application of the Justices Act provision. It was objected that the point was not raised before the Magistrate. Latham CJ stated on behalf of the Court (which also included Rich and Dixon JJ):

"The court is of the opinion that the objection should be overruled. It is entirely a question of law. I refer to George Hudson Ltd v Australian Timber Workers' Union [1923] HCA 38; (1923) 32 CLR 413 at p.426, per Isaacs J, where he says: 'In Ex part Markham (1869) 34 JP 150 the Court of Queen's Bench (Cockburn CJ and Blackburn, Mellor and Lush JJ) held that a fatal objection in law may be taken in the appellate court, though not noticed before the justices, the condition being that it could not be cured by further evidence.' The principles there expressed by Isaacs J appear to apply completely to this case. As Mr Ashkanasy has said, it is a matter which may be taken into account in considering the question of costs, but that will depend upon the view which the court takes of the whole matter."[26]

215. There are three underlying considerations which support the approach stated above. First it is appropriate that the Supreme Court exercise its supervisory role in a manner which recognises that proceedings in the Magistrates' Court may well be more summary in nature than those in better resourced jurisdictions. In the George Hudson case referred to by Latham CJ, Isaacs J stated as follows in words which reflect a continuing reality although the Magistrates' Court jurisdiction has been expanded:

"I should like to add another observation before parting with this point. The Court of Petty Sessions is par excellence the poor man's court, and is intended rather for a broad and speedy decision on facts than for any ruling on a difficult point of law. Section 101 is perhaps, as to parties in civil cases at all events, the most extensive and least expensive method of appeal so as to obtain a Supreme Court decision on the legal obligations of the parties. Whether represented by counsel or not or, being represented by counsel, whether or not he is habitually accustomed to the recondite intricacies of scientific jurisprudence, if a litigant, merely because some decisive but unusual point escapes attention, were to be debarred from the benefit of a Supreme Court's ruling on the point, Parliament would have failed to meet an obvious necessity."[27]

219. Secondly the power of the Court to make an order under s.109(6) of the Magistrates' Court Act is discretionary and it must be relevant to the exercise of the Court's discretion to consider whether the order which it is asked to set aside was in fact correct in law albeit not for the reasons stated by the Magistrate. As Hedigan J said in Urban No 1 Corportion Society v Kilavas[28]:

"It is sometimes said that the appellant must show that it will suffer a substantial injustice if the order appealed against is allowed to stand."[29]

223. Thirdly in cases such as the present where an appellant seeks the remission of proceedings for rehearing in accordance with law, it would be pointless to make such an order if the claim was doomed to fail in any event.

226. In Mond v Lipshut[30] Ashley J stated that it must be accepted that on an appeal under s.109 of the Magistrates Court Act a party may support an order appealed from by resort to a point raised for the first time on appeal.[31] I agree. I would only add as Brooking J observed in Coutts the point will not be regarded as open if the proceedings below took a course which makes it unjust to allow the matter to be relied on now or if the defect could have been cured before the Magistrate. Such circumstances might arise if there had been an unequivocal abandonment of a point before the Magistrate[32] or if the point if raised below could have been met by further evidence.

(a) there was no recognition of the relevant points before the Magistrate;

(b) the points arise squarely upon the material presented to the Court by the appellant; and

(c) the points in issue are not points which could have been remedied before the Magistrate despite argument to the contrary which I shall address further below.

235. It is nevertheless submitted on behalf of the appellant that it should not be required to meet a case not set out in the pleadings or raised by the respondents in argument before the Magistrate. There are a number of related answers to this submission.

(a) The Magistrates' Court is not a court of pleading and as I have already noted the statement of claim is manifestly deficient as a pleading.

(b) Order 9.01(4) of the Magistrates' Court (Civil Procedure) Rules 1999 provides:

"4. A notice of defence must -... (c) contain a concise statement of the nature of the defence and a summary of the material facts, with particulars, on which the defendant relies for the defence."

The notice of defence did in fact specifically contend that the appellant had failed to comply with s.107 of the Credit Act. It stated:

"5. A notice pursuant to s.107 of the Credit Act was not served on the defendants before the filing and service of the within proceeding. 6. In the premises, the within proceeding is not maintainable."

(c) It is true that the argument in support of this contention appears to have been directed specifically to the fact of service. Nevertheless the terms of the notice of defence are sufficient to embrace the proposition that the purported notice was not a notice pursuant to s.107 of the Credit Act.

(d) The failure to specify the default within the meaning of s.107 is plain from the appellant's own statement of account tendered by it in evidence, nevertheless it is understandable that the evidentiary implications of such document were not necessarily fully appreciated by the defendants' representative before the Magistrates' Court. The point turns on a statement of account emanating from the appellant. It is not suggested this statement was erroneous. It was put to this Court by the appellant as evidencing the facts.

(e) As I have already noted in dealing with the defendants' reliance upon s.107 the Magistrate found:

"I do not find that the plaintiff or its assignor breached any the [sic] provisions of the consumer legislation which have been pleaded and in particular find that notice was properly served under s.107 of the Credit Act."

It is quite clear from the evidence before the Magistrate, however, that this finding was not open to him. This question does not turn on the weight of the evidence. The evidence before the Magistrate permitted only of the conclusion that the notice did not specify the relevant default.

(f) The failure to allow the prescribed time required by the notice to elapse before proceedings were issued is also plain on the face of the Magistrates' Court claim and is confirmed by the chronology put in evidence before me on behalf of the appellant. The initiating process bears the date of filing and the claim asserted within it gives the date of the s.107 notice pursuant to which the claim is made.

(g) It is said in supplementary submissions filed on behalf of the appellant that the appellant might be able to rely on other notices, but such notices were not the basis of the claim before the Magistrate which was specifically formulated by reference to the notice of 5 September 1997. Nor was the existence of any such notices in fact evidenced before this Court.

(h) It is further said the appellant might have amended its statement of claim "explaining what might now appear to be a defect in the notice". No explanation was, however, advanced to this Court and the defect is patent from the appellant's own evidence.

(i) It is further suggested the appellant might "refer to correspondence or communications between the appellants and the respondents which might nullify the effect of such defect". No such correspondence or communications were put in evidence before this Court and no legal basis was suggested on which the defect could be nullified.

(j) Further it was suggested there might be "other evidence capable of curing the alleged defect". There is no evidence before this Court which would provide any basis for concluding the appellant's own statement of account put before the Magistrate and relied on in this Court was inaccurate.

254. It is also submitted that although issued prematurely, the proceedings were not served until after the period stipulated in the notice had elapsed. This is no answer to the plain words of the section which require the giving of prior notice in accordance with the section before proceedings are instituted. Likewise s.107(1)(c) would prevent the valid institution of proceedings against a debtor who was not in default under the contract, even if such proceedings were not served until default occurred.

257. For the above reasons if the matter were remitted for rehearing before the Magistrate in accordance with law as the appellant submits it should be then there would be no answer to the points which have now been articulated with respect to s.107 of the Credit Act. In my opinion there is also no doubt that the respondents would be entitled to rely upon them. In this situation it would be pointless to set aside the dismissal of the proceeding which was correct although founded upon incorrect reasoning.

260. The proceedings before the Magistrate were fundamentally flawed and this Court should not set aside the order of the Magistrate dismissing the claim.

263. Lastly, it is to be observed that the fact that the proceedings were not validly instituted did not deprive the Magistrates' Court of the jurisdiction to award costs - see s.131(4) of the Magistrates' Court Act 1989.

[1] Palmer v Johnson (1884) 12 QBD 32 per A.L. Smith J at 36

[2] [1981] VicRp 92; [1981] VR 1041

[6] [1974] AC 605 at 617

[7] [1891] 2 QB 509

[8] [1938] SC 620

[9] (1975) 1 WLR 1474

[10] (1985) 10 ACLR 428

[12] The 1984 Act continues to apply to this matter: s.19B

[13] [1937] HCA 46; (1937) 57 CLR 186

[15] (1939) 39 NSWSR 221

[17] [1993] HCA 6; (1992) 176 CLR 300 at 317

[18] Section 107(2) is not set out above but it also proscribes the institution of proceedings or the exercise of rights, without giving a notice, in relation to a "regulated mortgage".

[19] [1969] VicRp 1; [1969] VR 3 at 6

[22] Preston Ice and Cool Stores Ltd v Hawkins [1955] VicLawRp 17; [1955] VLR 89; Mond v Lipshut [1999] VSC 103; [1999] 2 VR 342 at 350-351

[23] [1984] VicRp 69; [1984] VR 790

[25] [1938] HCA 37; (1938) 60 CLR 545

[26] Ibid at 548. The respondent to that appeal in turn sought to support the order of the Magistrate upon a ground other than that upon which the matter had been determined in its favour, namely that the offence was alleged to have occurred in a different bailiwick over which the Court had no jurisdiction.

[27] George Hudson Ltd v Australian Timber Workers Union [1923] HCA 38; (1923) 32 CLR 413 at 427

[28] [1997] 2 VR 201

[30] [1999] VSC 103; [1999] 2 VR 342

[32] cf Commonwealth of Australia v Verwayen (1990) 170 CLR 394