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[2008] NSWSC 108
Supreme Court of NSW
2008-02-05
Smart AJ
Original judgment source is linked above.
CITATION : King Mortgages Pty Ltd v Nader [2008] NSWSC 108
CATCHWORDS : Application to set aside default judgment & writ of possession - Explanation for Delay and Reasonably arguable defences under Consumer Credit Code and Contracts Review Act
Consumer Credit Code LEGISLATION CITED : Contracts Review Act ss 7 & 9 Conveyancing Act Real Property Act
Accom Finance Pty Limited v Mars Pty Limited [2007] NSWSC 726 CASES CITED : King Mortgages v Satchitanantham [2006] NSWSC 1303 Perpetual Trustee Limited v Khoshaba [2006] NSWCA 41 Yeshiva v Marshall [2004] NSWSC 921
PARTIES : King Mortgages Pty Ltd v Marilyn Maddie Nader
COUNSEL : Self Represented (P) A Crossland (D)
SOLICITORS : Self Represented (P) Jackson Smith (D)
IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION LIST SMART AJ
KING MORTGAGES Pty Ltd ("KM") v Marilyn Maddie NADER ("Ms Nader") JUDGMENT
(d) the plaintiff has not served a notice pursuant to s 80 of the Code and therefore (i) the proceedings have not been validly commenced; and
(ii) no relief can be granted in the proceedings in respect of the plaintiff's claim. 3. KM relied upon Ms Nader's declaration that the loan was "to be applied wholly or predominantly for business or investment purposes". On her application to KM opposite the words "Business/Investment Purpose of Loan" she had written "To build a home office". Ms Nader contended that KM knew or had reason to believe at the time the declaration was made (21 June 2006) that the credit was in fact to be applied predominantly for personal, domestic or household purposes.
(b) The adjusted principal and interest are due and payable within 28 days after judgment
(c) There be no liquidated damages arising from payment or early repayment of the loan
(d) Discharge of the mortgage is not conditional upon any deed of release or payment of an additional sum 2. Costs
9 Valuation Fee: Valuation fee of TBA is payable on signing this Letter of Offer. This fee is non refundable. 10. If we advance to you the valuation fee or incur legal or other fees for preparation of your caveat & mortgage documents, and if the loan does not proceed, you agree to repay these fees and any other fees associated with the recovery of costs immediately. This obligation will be caveatable interest in the security property and will attract interest at the interest rate under the proposed loan. 11. Borrowers need to obtain and supply lender with a copy of independent legal advice obtained on mortgage and an accountant's certificate verifying serviceability before funds will be advanced. 12. The loan is subject to the advance being for Business or Investment Purposes.
(c) Cheque directions for disbursal of $50,000 prepared by KM on 30/05/06 (d) Copy Caveat AC 333449Q lodged by Finance Express (Qld) Pty Ltd dated 26 May 2006 (e) Letter from L J Hooker Ltd of 12 May 2006 estimating a likely sale price of property somewhere in the vicinity of $280,000 to $285,000 14. The Cheque Directions prepared by KM showed the fees that were to be charged, that $40,000 was to be allocated to pay out the second mortgage and a balance of $7,141 to be paid to Ms Nader subject to the deductions of the costs of the valuation. The interest of Rams Mortgage Corporation Limited as first mortgagee was noted.
construction of an office within existing building for running of an existing marketing business." He has also recorded (Ex A - p 144) that she was "Self-employed Five years." 19. In her Loan Repayment Ability Declaration of 21 June 2006 (Ex A 131) Ms Nader stated that her current gross income per annum was $96,000. That was untrue. She further declared that she was able to make all the required monthly repayments and repay the loan in accordance with its terms.
Explanation of Delay 28. Ms Nader said that (i) On 8 January 2007 an officer of the Supreme Court advised her that she should contact KM and if it required payment she should try to reach an agreement as to repayment.
(ii) Between 8 and 16 January 2007 she attempted to contact KM but it was closed. (iii) On 17 January 2007 she contacted KM and spoke to Mr Danny Swart. After some exchanges she was to try and refinance to settle the matter. (iv) About 15 February 2000 she spoke to Janet Swart of KM and advised that she (Nader) had finance available and requested a payout figure. Ms Swart said that KM would give Ms Nader another payout figure upon receipt of $350, that the payout had to be in full and KM required Bluestone to write to KM specifically about the loan. Ms Swart said that KM required a caveat to secure that any balance was paid in full. (Ms Swart apparently envisaged that the loan may not be paid in full). (v) During the period 15 February 2007 - 1 March 2007 she spoke to Newcastle Local Court, Legal Aid in Newcastle, Law Access and a private firm of solicitors in Kurri Kurri seeking advice on opposing the Statement of Claim. They all advised her it would be better to re-finance the loan as it would be too costly to defend the matter. They failed to appreciate sufficiently that the subject property was her home. (vi) On 1 March 2007 the Sheriff served a Notice to Vacate. (vii) Settlement attempts failed. (viii) On 15 March 2007 she obtained orders staying the writ of possession. (ix) Thereafter she sought further legal advice prepared an affidavit and obtained further stays from this Court. (x) On 5 April 2007 her application for Legal Aid assistance was refused as the information provided did not "satisfy the merit test". On 18 April 2007 she lodged an appeal against the refusal of Legal Aid. (xi) On 26 April 2007 she again attended this Court. It did not extend the stay of proceedings. The Court Registry, a little later, told her that her Notice of Motion of 28 March 2007 was dismissed and "the file is closed". (xii) Shortly after 26 April 2007 she received a letter from Legal Aid NSW of that date confirming that the Commission had authorised expenditure to obtain counsel's advice. The authorisation was "limited to applying for a stay of proceedings and lodgement of a Defence and Application to set aside default judgment if recommended by counsel", that is, if counsel thought that she (Nader) had reasonable prospects of success. This was the first time she was able to obtain formal legal representation. 29. The requisite advice was obviously obtained and on 10 May 2007 Ms Nader made the current application supported by her detailed affidavit.
Defence on Merits 30. In the light of her declaration that the loan was to be applied wholly or predominantly for business or investment purposes or for both purposes the first question is whether KM knew or had reason to believe at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
Q. Was the other loan a home loan? A. It was half a personal loan and half a business loan for a café." 32. She said that the other loan was $30,000 and that her personal loan was half of the $30,000 (T4). Ms Nader was anxious to avoid paying Finance Express interest at the rate of 5 per cent per month (or 60 per cent per annum)
Ms Nader understood that she would only obtain the loan of $50,000 from KM if she stated that it was predominantly for business purposes.
In the circumstances it is arguable whether KM knew or had reason to believe that the loan was to be applied wholly or predominantly for personal domestic or household purposes. The report of Mr Valuer Leslie reveals that erected on the 4,047sq.m property is an old residential dwelling of various constructions but mainly weatherboard and a corrugated iron roof. The valuer estimated the cottage as being over 100 years old and in need of substantial renovation. He added, "I note there are signs of current renovations or extensions but these would appear to be getting done without council's approval. I do not know whether the last statement is correct. On any view the condition of the cottage could be said to be rudimentary. Reading the valuation would lead to the view that the money being sought was likely to be applied in renovations and repairs.
As Ms Nader gave evidence what came through was that at the time she was seeking the loan from KM she was prepared to say and sign anything to obtain the loan. She was aware that if she told the truth she would not obtain the loan. She knew that for her to obtain the loan it had to be predominantly a business loan. She was desperate to complete the roof and keep out the rain. There is, in my opinion a reasonably strong case that the credit of $50,000 was to be provided predominantly for personal domestic or household purposes and not predominantly for business or investment purposes. I have not overlooked that there is a serious debate whether the purpose referred to in s 6(1)(b) of the Code is that of the borrower or the lender.
There is, in my opinion, a reasonably arguable case that KM, through Mr Swart knew or had reason to believe at the time the declaration was made that the credit was in fact to be applied predominantly for personal, domestic or household purposes. Neither Mr Swart nor Ms Gebert gave evidence to the contrary. At the final hearing it would be open for Mr Swart and Ms Gebert to give evidence or mount a case to the effect that while Ms Nader initially told them that the loan was for house renovations and repairs when she was told that a loan could not be granted for that purpose she changed and insisted that the loan was for business purposes. There is material to support such a contention but that is a matter for determination on a final hearing
Ms Nader relied both on KM not giving a Notice under s 80 of the Consumer Credit Code and thus contravening the prohibition as to the commencement of proceedings and the contract being unjust in the circumstances relating to the contract at the time it was made. She relied both on s 70 of the Consumer Credit Code and ss 7 and 9 of the Contracts Review Act (CRA).
Ms Nader challenged the term of the mortgage providing for liquidated damages of $4250 for early repayment on the basis that it would have given rise to excessive damages that were in the nature of a penalty and were not justified by the risks undertaken by KM. The letter of offer stated that the early repayment penalty was one month's interest at the higher rate, i.e., 102 per cent per year. I could have understood using the lower interest rate of 48 per cent per year. The use of the higher rate is reasonably arguable. (See cl 43 of Memorandum).
Ms Nader also challenged the "term of the mortgage which purported to make discharge of the mortgage conditional on [Ms Nader] signing a 'deed of release'." This was alleged to be harsh, unfair and not justified by the risks undertaken by KM in entering into the transaction. (See cl 90 of Memorandum). This is reasonably arguable.
Ms Nader contended that the fees payable by her to KM pursuant to the cheque directions were excessive and were not justified by the risks of or costs to KM in entering into the transaction. This relates to the amount of $2670 mentioned earlier. Ms Nader's counsel submitted that this was especially so in the light of the interest charges. This is reasonably arguable.
Ms Nader contended that in entering into the transaction KM participated in a system which was contrary to the public interest involving the lending of funds to borrowers (including her) who had no capacity to discharge the mortgage other than by obtaining new finance, thereby incurring further application, establishment, broking, legal, valuation and other fees or selling their home to repay the principal. She also asserted that the loan was a form of asset lending. It was envisaged by Mr Swart that the mortgage to KM would be discharged by re-financing. KM was aware that when the works were completed, estimated to be in two to three months, or at the latest at the end of the term of the loan of six months, Ms Nader's proposed method of discharging the second mortgage was by re-financing. Under KM's mortgage interest only was payable during the term.
In support of her submission that KM had engaged in asset lending and that that was unjust Ms Nader relied on Perpetual Trustee Limited v Khoshaba [2006] NSWCA 41 at [92] per Spigelman CJ and at [128] per Basten JA. Ms Nader contended that in truth KM was proceeding on the basis of re-financing and, in default, enforcing the security.
What occurred in fact was a form of asset lending. The words "in fact" are used to cover the actual, as distinct from the incorrect position presented by Ms Nader. She could only meet her stated obligations under the loan agreement by re-financing with all the attendant expense or selling the property. Having regard to the property's age, construction and urgent need of renovation, it was not prime real estate and unlikely to sell readily except perhaps at a discount price. There was a large block of land. However, KM did seek income details but it could be argued that these were secondary. KM raised no queries about the departures in the accountant's letter from the standard form. KM's response is that it sought information as to Ms Nader's income and capacity to service the loan and was provided with incorrect information. KM contended that it was entitled to act on the information it received and was not bound to investigate further. The condition of the house strongly suggested that the money would be spent on renovating the house including putting electricity in the bedrooms. One would be cautious about taking at face value statements as to the level of income alleged by someone living in a house in its condition. KM sought no verification of KM's income statements and undertook no investigation.
There were two statements in the material supplied to KM by or on behalf of Ms Nader which were not easy to reconcile. In her Loan Repayment Ability Declaration of 21 June 2006 (Ex A 131) Ms Nader stated her current gross income was $96,000 whereas in her application form her net annual income was approximately $90,000. A gross annual income of $96,000 is unlikely to result in a net annual income of $90,000 approximately
Ms Nader asserted that KM's conduct and that of its officers and employees in similar transactions and courses of dealing was unfair, harsh, oppressive and was conduct similar to its conduct and that of its officers and employees in respect of the transaction between KM and Ms Nader, such unfairness and similarity being sufficient to justify the Court exercising its discretion to vary the loan and mortgage. Ms Nader relied on the decision of Bell J in KM v Satchitanantham [2006] NSWSC 1303, where the facts differed substantially from those in the present case. Bell J concluded that the loan agreement and mortgage entered by the wife "was unjust … because unfair pressure or unfair tactics were applied by [KM] in connection with the making of the initial offer and because it was prepared to lend on the strength of the security without regard to [the wife's] ability to meet her obligations under the loan."
I doubt if the facts revealed in the judgment of Bell J including, in particular, the conduct of KM assists Ms Nader when KM sought and was provided with incorrect information as to her income and ability to meet the repayment instalments. However, the adequacy of the security appeared to be the primary consideration.
Ms Nader submitted that the annual interest per cent rate was exorbitant and far in excess of the rates that would be payable to other lenders for a short term loan for the same amount. While the interest rates struck me as excessive KM referred me to two authorities dealing with loans on the short term bridging loan market where seemingly very high rates of interest were upheld: Yeshiva v Marshall [2004] NSWSC 921 at [46]-[53] and Accom Finance Pty Limited v Mars Pty Limited [2007] NSWSC 726 AT [54]-[55]. In the latter case Windeyer J expressed reservations as to the way in which the case law had developed, especially as to the higher rates being charged when default has occurred. The time has come for appellate review. I share the views of Windeyer J expressed in these sentences: "No one could consider 120% a proper rate even if 48% or even 60% could be justified as a proper rate. Thus when attention is given to the lower rate alone the principle really becomes absurd." In the present case the lower rate is 48 per cent and the upper rate is 102 per cent the latter rate could not be considered a proper rate. The gap between the two rates is large and the latter one is the effective one in so many cases of this variety (speedy loans on the short term money market - up to 6 months) including this one.
It would be incorrect by refusing the current application to preclude an appellate review after a contested and final hearing at first instance.
I have not overlooked the other matters raised in Ms Nader's cross-claim. Some of them do not go to the issue whether the contract or a provision of the contract was unjust in the circumstances relating to the contract at the time it was made but to the issue of what, if any, relief should be granted. Some of the matters raised go to both grounds. I have tended to focus on whether it is reasonably arguable that the contract or a provision in the contract was unjust in the circumstances relating to the contract at the time it was made.
While KM strenuously contended that the Consumer Credit Code did not apply to this loan and that no arguable case had been made for relied under the Contracts Review Act it relied on the following additional argument in conjunction with what it submitted were weaknesses in Ms Nader's application. Ms Nader has defaulted under the existing first mortgage to Rams. She has consented to judgment for possession of the property. A writ of possession has issued. The solicitors for Rams, by letter of 4 January 2008 have stated that Rams will stay the eviction scheduled for 17 January 2008 if arrears of $23,938 were paid by 14 January 2008. The moneys were not paid by this date. At the time of the hearing Ms Nader said it had now been agreed with Rams that it will not proceed with the eviction if she (Nader) paid the arrears by 25 February 2008. She asserted that it was further agreed that she could refinance the loan and, if this did not occur, she would have to pay the mortgage instalments on the due dates.
In the Notice issued by Rams under s 57(2)(b) of the Real Property Act about 19 April 2007 to Ms Nader it was stated that an amount of $157,354 was due as of 16 April 2007. The Notice also stated that interest at a rate of 7.99 per cent would accrue on the outstanding balance. 52. The materials tend to indicate that the principal of the Rams mortgage first mortgage was about $148,000. I do not know how the arrears of $23,938 are calculated and what period they cover. The letter of 4 January 2008 from the solicitors for Rams (Ex 1) tends to suggest that they probably cover the period to 14 January 2008. That letter states: "[Rams] accepts payments on the basis that you will comply with your obligations under the loan agreement and mortgage. [Rams] reserves its rights to continue with the present proceedings if you fail to comply with your obligations under the loan agreement and the mortgage." 53. Ms Nader gave evidence that she had access to $24,000. It was part of the costs assessed on a worker's compensation payout which was received by her partner in the last few weeks. The total amount received by him was almost $50,000.
Ms Nader said that she had applied for finance from the Bluestone Group. She produced a Loan Pre-Approval from Bluelink Fast Finance Approvals. She sought a loan of $225,000 for 30 years at variable rates. The total monthly payments were stated to be $2584 and the property's estimated value was stated to be $300,000. This was Ms Nader's estimate based on a real estate valuation, assuming the renovations were completed. She told Bluelink that her net monthly income was $4975. She said that she has been distributing handmade biscuits to restaurants and cafes since August 2007. She gave the broker who prepared the loan application, records of her invoices (to her customers), bank statements and records of biscuits she had ordered in the last four months.
Ms Nader said that Bluelink would not consider her application until the renovations were completed. These included the installation of two garages at a price of $7800. They are kit garages. The contract/tax invoice from Topline Garages & Shed was produced. She has paid Council fees of $856 and is waiting upon Council approval which she anticipated will be received within a short period. I am wary of acting upon the evidence of Ms Nader as some of the information previously supplied by her on oath was incorrect. This applies particularly to her stated income.
Apparently, 25 February 2008 is the date fixed for the Sheriff to evict her from the Mulbring premises pursuant to the writ issued on the application of Rams. She must pay the arrears before this date to avoid this. If her most recent income statements (ie., to Bluelink) are correct she probably would be able to service the first mortgage to Rams but she would need to pay out KM, the second mortgage and obtain finance for that purpose.
KM submitted that it was inevitable that the property would be repossessed whether by Rams or KM and that it will be sold by public auction. It was submitted that at such auction it would not achieve more than $200,000. I accept that the property, if sold at public auction in what are described as "Fire Sale" circumstances, will probably fetch appreciably less than if sold in normal circumstances without that pressure.
KM prepared a table of calculations showing that as at 24 September 2007, the previously fixed hearing date when the matter was not reached, if this application was dismissed it would suffer a loss of principal of about $33,191 and would only recover about $16,808.Those calculations were based on a number of assumptions. Some related to the Rams mortgage. If the arrears due to Rams are paid by 22 February 2008 and Ms Nader satisfied her obligation to Rams there will be a substantial change in the position as to that. Another assumption made was that the property would only realize the lower of Mr Valuer Leslie's fire sale figures of $200,000. This may be correct but I am not satisfied that it is. This is at best an estimate. Mr Leslie later lifted this figure to $220,000. I make no finding whether this is correct or on the low side.
KM submitted that there would be no utility in the Court setting aside its judgment. Ms Nader's Draft Amended Cross Claim seeks orders that the principal owing to KM be varied to $47,300 plus interest on that amount at the rate of 7 per cent per annum and that the adjusted principal and interest are payable within 28 days after judgment While the reduction sought in the principal is not large the postponement of the date of payment is important as is the reduction in the rate of interest.
KM submitted that even if Ms Nader achieved the desired result of having the principal reduced from $50,000 to $47,370 and the interest to 7 per cent that would result in $4113.24 being due by way of interest and a total of $51,483.24 being due as at 24 September 2007. That sum would have since increased. In addition to the assumptions earlier mentioned in calculating the shortfall of $33,191 propounded by KM various of the expenses of about $10,800 allowed for by KM in its calculations would not be incurred if the arrears to Rams are paid as foreshadowed, Ms Nader obtains the relief she seeks, the renovations to the house are completed and she is able to re-finance. If she obtains that relief the "payout figure" of the KM mortgage would be reduced. Interest at 102 per cent would no longer be payable.
I am not persuaded that there would be no utility in setting aside the judgment and allowing Ms Nader to defend the proceedings and bring her cross claim. I realize that there will be some delay occasioned by this course and that this delay may result in losses to KM.
During the hearing a subsidiary issue was raised, namely, whether notice under s 57(2)(b) of the Real Property Act and s 11 1(2)(b) of the Conveyancing Act bearing date "9 July 2006" had been sufficiently served. It was forwarded to her by registered post on 11 August 2006 according to the Post Office marking. It was addressed to Ms Nader at 5 Old Cessnock Road, Mulbring. Mulbring is a small village and according to the Post Office records the notice was delivered on 16 August 2006. Ms Nader knew Ms D Henderson, the lady who runs the postal service in Mulbring and the owner of the general store and who signed the record as to the delivery of the notice. Ms Nader denied that this Notice ever came to her notice. Having regard to Ms Nader's email of 16 August 2007 I do not think that this is correct. Ms Nader contended that the Notice was not correct in substance as the moneys claimed to be due at 9 July 2006 were not due. Probably the date intended to be inserted in the Notice was 9 August 2006.
If the Consumer Credit Code applies to this transaction then on one construction of s 80(2) KM is not able to begin enforcement proceedings against Ms Nader to take possession unless it has served her with a default notice. There could be some argument as to the consequences of not giving such a notice.
I am satisfied that a sufficient explanation has been given as to why a defence and cross claim were not filed in time. I am further satisfied that Ms Nader has a reasonably arguable defence and cross claim.
I note her undertaking to the Court to pay arrears amounting to $23,938.26 to Rams prior to 25 February 2008.
Upon Ms Nader's undertaking to the Court to pay arrears amounting to $23,938.26 to Rams Mortgage Corporation Limited (Account 1766187) prior to 25 February 2008 the following orders are made and directions given: 1. Set aside the judgment/order of 19 February 2007 that the defendant give the plaintiff possession of all the land situated at and known as 5 Old Cessnock Road, Mulbring, NSW 2323 contained in Folio Identifier No 1/1040654. 2. Set aside the writ for possession of land. 3. Order that the defendant pay the costs of the plaintiff of the application to the Court to set aside the judgment, the costs of the plaintiff of all applications for a stay of proceedings and the costs of the plaintiff thrown away by such stays. 4. Direct that the defendant file her defence and any cross claim within 10 days. 5. Direct that: (a) the plaintiff file any further affidavits in support of its case by 7 March 2008 (b) the defendant file any further affidavits in support of its case including in support of its cross claim by 27 March 2008 (c) the plaintiff file any affidavits in reply by 10 April 2008 (d) the defendant file any affidavits in reply on the cross claim by 24 April 2008 6. Direct that the matter be placed in the List of the Registrar on 29 April 2008 or such other day as the Registrar may appoint to fix a date for hearing of the action and cross claim.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
King Mortgages Pty Ltd
Nader