Indigenous Business Australia v Kani [2012] NTSC 24

Websdale & Ors v S & JD Investments Pty Ltd & Ors (1991) 24 NSWLR 573.

Hunter v Hunter & Ors [1936] AC 222.

Mobil Oil Australia Ltd v Kosta (1969) 14 FLR 343.

Hamwood v Murdoch [2010] NTSC 62

Fisher & Lightwood's Law of Mortgage, E Tyler, P Young and C Croft, LexisNexis Butterworths, Second Australian Edition 2005.

The Law of Real Property Mortgages, WD Duncan and WN Dixon, Federation Press 2007.

Defendant: Central Australian Aboriginal Legal Aid Service

Indigenous Business Australia v Kani [2012] NTSC 24

[1] The Plaintiff seeks an order for possession pursuant to Rule 45.05(2)(b) of the Supreme Court Rules, of a residential property situate at 3 Mallam Crescent, Alice Springs ("the Property") from the Defendant consequent upon an alleged default of a certain mortgage ("the Mortgage") and loan agreement ("the Loan Agreement").

[2] The terms of the Loan Agreement and Mortgage are not in dispute. The loan documents evidence that the Defendant borrowed approximately $260,000.00 to fund the acquisition of the Property and was required to repay the loan by monthly instalments of approximately $1,276.00. The Defendant resides in the Property with her partner and their five children.

[3] The Plaintiff alleges that the Defendant has defaulted on the loan over an extended period between approximately November 2009 and March 2012. Despite the extended period of the default, the arrears have not exceeded $8,000.00 exclusive of enforcement costs.

[4] The Plaintiff served two notices on the Defendant. Firstly, on 17 June 2011, a Notice of Default of Mortgage ("NDM") which was served by ordinary pre-paid post addressed to the Defendant at the Property. The NDM gave the Defendant thirty days to clear the arrears. The second notice was the statutory notice provided for in section 89(2) of the Law of Property Act ("the Act") namely, a Notice of Exercise of Power of Sale ("NPS"). The NPS was dated 18 July 2011 and again was served by ordinary pre-paid post addressed to the Defendant at the Property.

[5] Although some ongoing payments were made by the Defendant and accepted by the Plaintiff since the initial default, the default was not remedied within the time allowed in either notice. In consequence the Plaintiff commenced the current proceedings on 14 October 2011. The arrears have been fully cleared as at 16 March 2012.

[6] The Defendant has made application for relief pursuant to section 105(3) of the Act. In support of that application the Defendant has filed an affidavit sworn by herself on 12 March 2012. Therein she admits to falling into arrears in respect of the loan. She also confirmed receipt of the NDM on or about 17 June 2011. She confirmed that she did not remedy the default by the time allowed in the NDM. She confirmed that she also received the NPS by post and although she does not specifically confirm a failure to comply with the NPS, that is implicit in the remainder of the affidavit.

[7] To put these reasons into context it is necessary to consider various provisions of the Mortgage. Firstly the default provisions in clause 9:-

9.1.1. You are in default if one of the following events of default occurs:

a. you do not make your loan repayments at the time specified in the loan agreement;

9.2.1. If you are in default and we choose to enforce the mortgage, we will give you notice in accordance with the relevant state or territory law where the mortgage is registered.

9.2.2. The notice will state that you are in default and specify a grace period. During this grace period, you must correct the default. If you do not correct that default within the grace period or if the default cannot be corrected, then, the amount owing becomes immediately due for payment at the end of the grace period without further notice. In addition we may do the following (after satisfying any mandatory legal requirement):

[8] The Mortgage contained provisions dealing with the giving of notices. These are contained in clause 11.12 of the Mortgage which provide as follows:-

11.12.2. A notice, approval, consent or other communication in connection with the mortgage given by us to you pursuant to the mortgage ("Notice"):

b. may be given by one of our authorised officers or agent or our solicitor; or

c. if applicable, must be given or served in a manner prescribed by the relevant state or territory law where the mortgage is registered.

11.12.3. If we serve you with a Notice it will be deemed to be served when:

a. if it is left for you at, or sent by pre-paid ordinary post to, your address in the mortgage, or the last address you told us, or at your usual place of abode or business, or if you are a corporation, at your registered office or at any premises owned or occupied by you;

b. if it is sent to you by facsimile transmission to fax number provided by you to us; or

11.12.4. The Notice will be deemed to be served even if:

a. when the Notice is given or served, you are mentally ill or otherwise temporarily or permanently incapacitated, bankrupt, insolvent or absent from the place where it is served or deceased;

b. the Notice served by post is returned to us through the post office unclaimed; or

c. you do not received the Notice on account of any other matter, event or circumstance.

[9] The provisions of the Act relevant to the current proceedings are:-

(1) A mortgagee must not exercise the mortgagee's power of sale (whether conferred by an Act or an instrument of mortgage) unless:

(a) default has been made in the payment of the principal money or interest (or a part of it) secured by the instrument of mortgage, notice requiring the payment of the amount that constitutes the default has been served on the mortgagor and the default has continued for 30 days (or any other period of not less than one day as agreed) after the service of the notice; or

(b) default has been made on the part of the mortgagor or of some other person concurring in the making the mortgage in the observance or fulfilment of a provision contained in the instrument of mortgage or implied by this or another Act, notice requiring the default to be remedied has been served on the mortgagor and the default has continued for 14 days after the service of the notice.

(2) A notice under subsection (1) is to be in the approved form.

105 Relief against provision for acceleration of payment

(1) If default has taken place:

• (a) in the payment of an instalment of principal or interest due under a mortgage; or

(b) in the observance of a covenant or obligation in a mortgage,

and under the terms of the mortgage an accelerated sum may or has because of the default or of the exercise on default of an option or election conferred by the mortgage become due and payable, the mortgagor is entitled to relief under this section.

(2) A mortgagor who, at any time before sale by the mortgagee or before the commencement of proceedings to enforce the rights of the mortgagee:

(a) performs the covenant or obligation in respect of which default has taken place; or

(b) tenders to the mortgagee, who accepts payment of, the amounts of the instalment in respect of which default has taken place and the reasonable expenses incurred by the mortgagee,

(3) A mortgagor who, in any proceedings brought to enforce the rights of the mortgagee or brought by the mortgagor:

• (a) gives an undertaking to the Court to perform a covenant or an obligation; or

• (b) tenders or pays into Court the amount of an instalment;

in respect of which default has taken place, may apply to the Court for relief from the consequences of the default.

(4) If a mortgagor makes an application for relief, the Court may grant or refuse relief as the Court having regard to the conduct of the parties and all other circumstances thinks just and, in doing so, may stay any proceedings brought by the mortgagee or otherwise or may grant relief on the terms it thinks just including the payment of any reasonable expenses of the mortgagee and the payment of costs.

(5) If in granting relief under subsection (4) the Court has stayed proceedings for the enforcement of the rights of the mortgagee, the Court may, on application, remove the stay of proceedings if the mortgagor defaults in carrying out an undertaking referred to in subsection (3).

(6) This section:

• (a) applies to mortgages made before or after the commencement of this Act;

• (b) applies only to a default occurring after the commencement of this Act; and

• (c) has effect despite any term of a mortgage to the contrary.

(7) In this section, accelerated sum means the whole or part of principal or interest secured by a mortgage other than an instalment referred to in subsection (1)(a).

(1) A notice required or authorised by this Act to be served on or given to a person or a notice served on, or given to a person under an instrument or agreement that relates to property, may be served on or given to the person:

(a) by delivering the notice to the person personally;

(b) by leaving it for the person at the person's usual or last known place of residence or, if the person is in business as a principal, at the person's usual or last known place of business;

(c) by posting it to the person by registered mail as a letter addressed to the person at the person's usual or last known place of residence or, if the person is in business as a principal, at the person's usual known place of business; or

(d) in the case of a company, by leaving or posting it, as a letter addressed to the company at or to its registered office or principal place of business in the Territory

(8) This section applies to the service of a notice under an instrument, agreement or Act unless the instrument, agreement or Act specifies another method of serving the notice.

[10] The NDM alleged a breach of both the Loan Agreement and the Mortgage. It alleged a breach of clause 3.1.1. of the Loan Agreement, which is the obligation to repay the loan. It then asserted, in paragraph 4:-

"A breach of the Loan Agreement also constitutes an event of default under the Mortgage (clause 6.1.1.a. of the mortgage Common Provisions) and consequently you are also in breach of the Mortgage."

[11] Clause 6.1.1.a. of the Mortgage imposes an obligation on the Defendant to keep the Property in good condition and repair. There is no evidence that the Defendant is in breach of that obligation. Clearly the reference to that clause in paragraph 4 of the NDM is an error. It should have referred to clause 9.1.1.a.

[12] The NPS recited the giving of the NDM and alleged a failure to remedy the default alleged in that notice. The NDM is therefore connected to the NPS by reason of that reference. The two notices are also connected by paragraph 4 of the NDM which is set out above.

[13] Although a mortgagee may be taken to have waived a notice by conduct in certain circumstances, ordinarily acceptance of a payment after the expiration of a grace period specified in a notice is not treated as a wavier.[1] In addition payment of all arrears after the expiration of the grace period in a notice does not remedy the default such as to prohibit a mortgagee proceeding with action in consequence of that default. A mortgagee will only be taken to have waived a breach of a mortgage where the mortgagee's conduct evidences an intention not to rely on the breach or the notice: Morton v Suncorp Finance Ltd.[2] There is nothing in the circumstances or the facts of the current case which could be construed as evidence that the Plaintiff has waived the breach.

[14] The Defendant argues that the Plaintiff is not entitled to possession firstly, on the basis of defects in the notices due to errors and, secondly, on the basis that the notices were not validly served. The Defendant argues that a valid notice and effective service are pre-conditions to the Plaintiff's right to enforce the Mortgage and therefore to seek the order for possession.

[15] Hunter v Hunter & Ors[3] ("Hunter") is authority for the proposition that the pre-conditions to the exercise of a power of sale specified in a mortgage should be strictly complied with. The House of Lords there considered that was appropriate due to the very drastic nature of the remedy of the power of sale. That case dealt with notices preliminary to the exercise of the power of sale whereas the application before me is for an order for possession. Notwithstanding that, I do not see that there is anything which would prevent the application of that principle to an application for an order for possession particularly given that possession is sought as a prelude to the exercise to the power of sale.

[16] Dealing first with the claimed defect due to errors, the Defendant's argument is based on Websdale & Ors v S & JD Investments Pty Ltd & Ors[4] ("Websdale"), an authority in respect of statutory notices. The Defendant argues that the principle equally applies to a notice that is given pursuant to the Mortgage given that the NDM is required by the Mortgage and is a precondition to the exercise of all rights of enforcement including the exercise of the power of sale. I agree that the principle has application in the current case.

[17] In Websdale the New South Wales Court of Appeal held that a notice which misstated the extent of the default did not comply with the relevant statutory provision. The statutory provision in that case was sufficiently similar to section 89(2) of the Act for current purposes. In that case the default by the mortgagor was a default in the payment of interest. The relevant notice however also incorrectly alleged a default in respect of repayment of principal. The Defendant argues that Websdale has equal application on the facts of the current case and therefore that the NDM is ineffective.

[18] However I cannot agree. The misstatement of the default in Websdale was an obvious misstatement of the nature and extent of the default. The misstatement relied upon by the Defendant in the current case is simply the erroneous reference in the notice to clause 6.1.1.a. It is clear that is a simple error and that it should have referred to clause 9.1.1.a. The extent of the misstatement is as to the numerical identification of the clause in the Mortgage and not the description of the nature of the default as required by section 89(1)(a) of the Act. The misstatement follows a correct statement of the nature of the default namely, a default in payment of the instalments due under the Mortgage and a correct statement that a breach of the Loan Agreement is an event of default under the Mortgage.

[19] The object of a notice preliminary to the exercise of mortgagee's remedies consequent on default is to protect the interests of a mortgagor where a default can be remedied.[5] The NDM achieves that object. The Defendant would have been in no doubt (indeed that is confirmed by her own affidavit) of the nature of the default and the remedial action required notwithstanding the reference to an incorrect clause number. Indeed the actual clause number is superfluous and I expect it would have been meaningless to the Defendant.

[20] Therefore I consider that Websdale can be distinguished. In my view the principle in Websdale would only apply to the current case if for example, the breach was described solely by reference to the clause number in the Mortgage, assuming such brevity would have been valid. In that event the misstatement would be fatal.

[21] Dealing now with the claim of invalid service, the evidence reveals that both notices were served by ordinary post. The Mortgage provisions relevant to the manner of service are set out above. Clause 11.12.2.c. mandates that, "..if applicable", service must be effected in the manner prescribed by the relevant "territory law". Clause 11.12.2. does not otherwise refer to any means of service. Clause 11.12.3. is potentially uncertain in that it is phrased in terms suggesting it is intended to be a provision to specify when service according to various means is deemed to be effected. However, nowhere else in the Mortgage is it specified that the modes of service referred to in 11.12.3. are permissible modes of service. Unless it was intended that those modes of service were permissible then clauses 11.12.3. and 11.12.4.b. would be unnecessary.

[22] The Defendant argues that the clause does not make sense by reason of the ambiguity or uncertainty in the wording. The Defendant relies on the uncertainty caused by the use of the words "when" and "if" throughout that subclause. Although I agree that the use of both "when" and "if" is problematic I do not agree that the clause necessarily does not make sense as a result. The clause contains reference to modes of service which do not appear elsewhere in the Mortgage but as the clause deems service within a certain time of service being effected in a particular way, I think it is clear enough that the intention is to authorise service by those means. Hence the effect is that service by prepaid ordinary post addressed to the Defendant's address stated in the Mortgage or the last address notified by the Defendant to the Plaintiff is a permissible mode of service.

[23] Although no address for the Defendant is specified in the Mortgage the evidence establishes that the address last notified by the Defendant to the Plaintiff is the address to which the notices were posted and therefore the pre-requisite is satisfied.

[24] Therefore, in my view the NDM has been validly served. However the same cannot be said of the NPS. Clause 11.12.2.c. mandates, "..if applicable", service by the relevant "territory law". In my view the proper construction of the clause is that if there is a "territory law" which is "applicable" to the notice being served, then service must be effected by the means specified in that "territory law". The NPS is given pursuant to the Act and therefore the Act is the relevant "territory law". The available modes of service under the Act are set out in section 219 of the Act. In the case of service by post, that requires post by registered mail. Although the use of the word "may" in section 219 of the Act appears to allow the Mortgage to specify other methods of service_[6]_, the use of the word "must" in clause 11.12.2.c. in the Mortgage adopts only the modes of service set out in section 219 of the Act.

[25] The case of Mobil Oil Australia Ltd v Kosta[7] ("Mobil") concerned service of a notice exercising an option. The terms of the option specified that it was to be exercised by serving the notice by registered post. The pleadings in that case did not allege service by registered post. The decision was in respect of an application to strike out the statement of claim and dismiss the proceedings on the basis that it did not disclose a cause of action given that it did not plead that service had been effected by registered post. Noting an absence of authorities which rendered service by ordinary post to be as equally effective as registered post, Blackburn J agreed that the pleading was lacking for that reason. As the case was an interlocutory application for a procedural order it is not clear whether there was any evidence, such as in the current case, that established the party had actually received the notice. Other than that, I see no reason why the principle could not equally apply to a notice under section 89(2) of the Act.

[26] In any case, the principle in Hunter has clear application to the current case. The principle applies to all pre-conditions to the exercise of the power of sale and therefore both as to form of notice as well as service requirements. The net effect is that a valid notice complying with section 89(2) of the Act must be served on the mortgagee in the manner prescribed by the Act or the Mortgage. That has not occurred.

[27] Therefore in my view the NDM has been validly served and is not defective. The NPS however has been invalidly served given that ordinary post was utilised in lieu of registered post. Mobil treated a requirement for service by registered post in that case as a condition of valid service. In my view it is also a condition in the current case given the use of the words "must" in clause 11.12.2.c. of the Mortgage.

[28] That then raises the question of the interaction between defects in the NPS and the order for possession. As I said in Hamwood v Murdoch[8] a defect in a notice of exercise of power of sale only affects the exercise of the power of sale and is not an impediment to an application for an order for possession. However an order for possession is not as of right. It remains a matter for the discretion of the Court. Relevant to the exercise of that discretion is the purpose for which possession is sought. If, as is the case here, possession is sought for the purposes of facilitating the power of sale, any impediment to the exercise of the power of sale will necessarily impact on the exercise of the discretion. The exercise of a judicial discretion commonly involves a balancing of competing interests. An order for possession in this case will see the Defendant being evicted from her home. That is a drastic consequence. The Plaintiff's objective in seeking the order for possession is for the purpose of the proximate exercise of the power of sale. The defective service of the NPS means that the Plaintiff's ability to exercise its power of sale has not yet crystallized. Until the formalities for the exercise of the power of sale are complied with, an order for possession serves no useful purpose for the Plaintiff. On the other hand it will result in significant hardship for the Defendant and her family as she will be evicted from her home. That favours the rejection of the application on discretionary grounds in the circumstances of this case.

[29] The finding that the NDM has been validly given means that the Defendant's application for relief under section 105 of the Act still needs to be considered. Although the Plaintiff cannot yet exercise its power of sale, the NDM has enlivened the default provisions of the Mortgage. The pre-requisites are set out in section 105(1) and (4) of the Act. The former requires the existence of an "acceleration sum" as defined in section 105(7) of the Act. The Defendant seeks relief pursuant to section 105(3) of the Act which applies given that the current application by the Plaintiff is a proceeding "brought to enforce the rights of the mortgagee". If however the entitlement to relief depends on the existence of an acceleration sum, then in any case that is satisfied by clause 9.2.2. of the Mortgage.

[30] In my view, with appropriate conditions and undertakings it is appropriate to grant the relief sought in all the circumstances. Although the default has proceeded over an extended period the Plaintiff acquiesced by refraining to give notice of default for an extended period of over 18 months. Further, in the overall scheme of things the total value of the default is not excessive. Moreover the Defendant has cleared the arrears and the Plaintiff has accepted payment of all arrears. The Defendant has put in place arrangements to ensure as much as possible that no further default will occur. The stay I propose to order pursuant to section 105(4) is conditional on there being no further default in any case else the provisions of section 105(5) will be enlivened. The focus of the arrangements referred to is the deduction of instalments from her salary and direct payment by her employer to the Plaintiff. Although that arrangement failed at the first possible opportunity, I am satisfied from the evidence that this was not due to any default on the part of the Defendant herself but was attributable to an administrative error by her employer. The error was quickly rectified and in the end that instalment was only late by one day. Steps have been taken to ensure that, as much as possible, the error will not recur.

[31] For that reason, pursuant to section 105(4) of the Act I am prepared to stay the Plaintiff's application subject to the Defendant giving an undertaking to pay all amounts falling due under the Mortgage including all costs, the latter to be agreed or taxed in default of agreement. The Plaintiff's application is otherwise dismissed.

[32] I will hear the parties as to any ancillary matters.

[1] Compare s 105(2) of the Act which provides for relief in limited circumstances where a mortgagee accepts payments after a default.

[2] (1987) 8 NSWLR 325

[3] [1936] AC 222.

[4] (1991) 24 NSWLR 573

[5] See Fisher & Lightwood's Law of Mortgage, E Tyler, P Young and C Croft, LexisNexis Butterworths, Second Australian Edition 2005 at p 490.

[6] That is commonly recognised to be the case. See for example, The Law of Real Property Mortgages, WD Duncan and WN Dixon, Federation Press 2007 at para 10.4. Section 219(8) acknowledges this.

[7] (1992) 14 FLR 343

[8] [2012] NTSC 62