Maytom v Perpetual Trustees Victoria Limited

PARTIES : Gary Alan Maytom Perpetual Trustees Victoria Limited

COUNSEL : M Dicker - for the plaintiff P Newton - for the defendant

SOLICITORS : Warren McKeon Dickson - Plaintiff Kemp Strang Lawyers - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GARY ALAN MAYTOM v PERPETUAL TRUSTEES VICTORIA LIMITED

1 HIS HONOUR: This is an application by the plaintiff to restrain the exercise of the defendant's power of sale in respect of the property at 70 Glenning Road, Glenning Valley, New South Wales. The loan agreement between the plaintiff and the defendant was entered into in July 2007. The statements issued by the defendant to the plaintiff indicate that as interest rates were varied from time to time throughout the term of the loan, the plaintiff did not maintain the payments that were due by him to the defendant and that numerous dishonour fees and default interest charges were debited to the account. 2 The loan history reveals, with increasing clarity, a predictable story of lump sum payments by the plaintiff to meet outstanding arrears from time to time in order to catch up with charges to the account.

Loan Contract - Terms & Conditions 3 The contract of loan was constituted by two documents. The first was entitled Loan Offer which was accepted on the plaintiff's behalf. The second is a document incorporated by reference in the loan offer entitled Loan Terms and Conditions Booklet. 4 The Loan Offer provided that the lender may change any of the following features of the loan without the consent of the borrower and at any time unless otherwise stated in the offer or in the terms and conditions. One of those features of the loan was the annual percentage rate and the default rate. Another was the way interest is calculated. 5 Clause 7.1 of the Loan Terms and Conditions Booklet is headed "Changes to interest rates". It provides as follows: We may change the Higher Rate and the Lower Rate from time to time to reflect our view of the market conditions and cost of funds or as otherwise provided in the Loan Agreement or these Terms and Conditions.

When there is a change in the Higher Rate or the Lower Rate we will notify you of such new rates and the dates from which such new rates will apply which may be before or after you receive such notice.

The Facts 6 The plaintiff says that in September 2007 he was informed that the transfer of funds to pay the monthly interest rate payment had been dishonoured because there were not sufficient funds in his account. He says that he later discovered that the reason why there were not sufficient funds in his account was because there had been an interest rate increase. He says he was not notified of the increase in the interest rate until after the transfer of funds had been dishonoured. He says that the interest rate was raised a number of times from September 2007 until January 2010 and he said that on each time he was not notified by or on behalf of the defendant. 7 Statements were issued to the plaintiff at three monthly intervals. It is apparent from them that any reasonable reader would have appreciated that they revealed that interest rate increases had been made and that that was the reason for debit charges to the account to reflect default interest or dishonour fees. It is clear to me from the plaintiff's affidavit that, although he may not have been kept formally informed of interest rate rises, he knew, or must have been aware, that that was happening and that the interest rate rises were the reason why his account was in arrears 8 The defendant caused a notice under s 57(2)B of the Real Property Act to be issued to the plaintiff on 6 November 2009. It specified that the plaintiff was in arrears in the sum of $7,946.70. The plaintiff responded to that notice by paying the amount specified in it and bringing his loan up to date. On 17 February 2010 a further s 57(2)B notice was issued specifying an amount in arrears of $4,497.79. The amount of $4,497.79 was not paid within the time stipulated in the notice. It appears to have been paid after the period of time stipulated in the notice. On 26 March an amount of $4497.79 was credited to the account but was dishonoured on 29 March. On 29 March an amount of $8667.73 was paid. No payments have subsequently been made by the plaintiff. 9 The plaintiff puts its application to restrain the power of sale on two bases. The first basis is that the s 57(2)B notice is not valid because there are no arrears in fact. It says that there is a serious question to be tried in relation to that issue. The second basis is said to be that the plaintiff should be granted interlocutory relief to protect its equity of redemption. 10 An injunction to restrain an exercise of a power of sale is one that is granted in aid of an equitable right or title or in aid of a legal right or title. Such injunctions, like almost all injunctions, are ancillary remedies which do not exist on their own. There must be an underlying cause of action which provides the fulcrum for the injunction.

First Basis - Contract 11 The plaintiff puts its first basis on the ground that an injunction should issue, in the exercise of the court's discretion, because there is a serious question as to whether there are any arrears in fact. The proposition is that there has been a contravention of cl 7.1 in the Loan Terms and Conditions Booklet. Clause 7.1, as I pointed out, provides that the defendant will notify the plaintiff of such new rates and the dates on which such new rates shall apply. 12 Behind that proposition is the contention that, properly construed, the promissory statement in cl. 7.1.1 that the defendant will give notice, constitutes a condition precedent which the defendant must satisfy before being entitled to exercise its legal right to charge interest at the varied rate. In other words, the entitlement to charge the varied interest is contingent upon the giving of notice. 13 I do not think that there is any reasonable basis upon which cl 7.1 can be construed in that way. I do not think that the argument is sufficient to raise a serious issue. It is not implicit in the language used in cl 7.1 that the defendant's entitlement to charge the higher rate as varied is contingent upon notice. The very language of cl 7.1 presupposes that the higher rate may apply before or after notice is given. 14 If it were intended to be the case that as a matter of contract, the parties agreed that the borrower should not be obliged to pay a varied interest rate unless and until notified of it by the lender, then the contract could readily have expressly so provided. The construction for which the plaintiff contends, is in my view, commercially implausible and impractical. Interest rates rise and fall at periodic intervals. If borrowers wish to protect themselves against interest rate rises, they enter into a fixed rate loan, at greater expense. Except in the case of a fixed rate loan, it is notorious that loan contracts prepared by financial institutions invariably permit lenders to increase the rate at their discretion. 15 In any event, the plaintiff received quarterly statements which made clear that increased rates had been charged to the loan. As increased interest payments became due and were not paid, charges were levied for dishonour fees and other charges. Those charges all appeared on the statements issued to the plaintiff and constituted notice. 16 The plaintiff also relies upon cl 7.3 which does not relate to variations to the interest rate, but to changes to fees and charges. The language of cl 7.3 is marginally different but I do not think the language assists the plaintiff. Clause 7.3 provides that the defendant may introduce new fees or charges for loans. It goes on to provide: We may change the amount or time for payment and the manner in which each fee and charge for the loan is to be paid. When those changes are made unilaterally by us you will be given at least 20 days notice in writing of the change or new fee or charge.

17 For substantially the same reasons that I have explained in relation to cl 7.1, I have reached the view that cl 7.3 must also be construed in such a way that does not advance the plaintiff's argument. 18 There is also an additional reason. Mr Dicker raised the possible application of cl 7.3 only after I had commenced to give these reasons. The clause relates only to changes to the "amount or time for payment" and the "manner" in which each fee and charge is to be paid. Having regard to its language, I doubt that it has any real application to the issues in dispute. But even if it did, it does not seem to me to be a natural corollary of the language used in cl 7.3, or the reasonable commercial purpose and intent of that clause, that the defendant should be prevented from charging the fees and charges in question unless it has given the notice to which cl 7.3 relates. 19 At its highest, a borrower in a case such as this may possibly have a claim for damages for breach of contract in relation to charges debited to his account in circumstances where the defendant has contravened cl 7.3. But I do not think there could be any serious issue that the entitlement to charge a varied fee or charge is conditional on the giving of 20 days notice, even if cl 7.3 applied. 20 In both clauses 7.1 and 7.3, the defendant's right to charge the specified amounts, and its obligation to give notice, are neither conjoint nor mutual, in the sense that the existence of the former depends on the performance of the latter. The provisions as to notice are merely promissory. They could not be understood reasonably as specifying an essential obligation, the fulfilment of which was a necessary condition precedent to the performance of the defendant's entitlement to charge, and the plaintiff's obligation to pay, the increased amounts: cf Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Bowes v Chaleyer (1923) 32 CLR 159. 21 I do not think therefore that there is any arguable basis that supports the contention that the amount specified in the s 57(2)B notice dated 17 February 2010 does not in truth represent arrears under the loan.

Second Basis - Hardship & Alternative Finance 22 The second basis on which the plaintiff relies is that, even if there were no contractual breach of the loan agreement, and even if there were no equitable entitlement arising from a breach of duty of good faith by the defendant, it should have an injunction to protect the equity of redemption. I do not think that there is any orthodox basis upon which I can, or should, accede to that submission. As I said, injunctions are granted in aid of an equitable right or title or in aid of a legal right or title. They do not exist on their own. 23 It is not a sufficient basis for an injunction to restrain the exercise of a mortgagee's power of sale for a mortgagor to offer to redeem, and to point to evidence that he will be able to obtain refinance in a short time. In such a case, the hardship that a borrower might suffer is irrelevant. There must be an underlying cause of action based on some wrongful conduct by the lender. This will usually be an actual or threatened breach of its equitable duty of good faith, or of the terms of the loan contract and the security. To the extent that some statements in decisions such as Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 arguably suggest otherwise, I do not think that they reflect the law. The orthodox approach is set out in Solid Holdings v IMFML Finance [2008] NSWSC 573. Of course, even if a borrower has a legitimate basis for seeking an injunction to restrain a mortgagee's power of sale, a separate question arises as to whether the amount secured must be tendered in accordance with the principle explained in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 and in Harvey v McWatters (1948) 49 SR (NSW) 173. It has not been necessary for me to address that question.

Discretion 24 I should add, finally, some comments about the discretionary considerations. Even if I were persuaded that there were a serious question to be tried on either of the bases on which the plaintiff relies, it seems to me that the financial position of the plaintiff does not justify the restraint on the defendant's power of sale which is sought. The evidence of his ability to obtain refinance is problematic. All that I have before me is an indication that a lender called NCF Financial Services will, upon receipt of the sum of $4500, commence a due diligence process in respect of the loan and that, should the due diligence process be successful and the loan application accepted, settlement could be expected within ten business days after the commencement of the due diligence process. There is no realistic evidence that the plaintiff is in a position clearly to dispose of other properties owned by him. Nor is it suggested that he is prepared to do so. Nor should the defendant be obliged to accept any such proposal. The evidence as to the possible development potential of the land which is the subject of the mortgage, is opaque. It is certainly not convincing. But in any event it simply raises a hope about the future value of the land rather than dealing with the immediate discretionary considerations relevant to the impending exercise of the power of sale. 25 It seems to me that there is no good purpose to be served in restraining the exercise of the defendant's legal rights. I will therefore dismiss the notice of motion with costs. 26 I direct the plaintiff's solicitor to file the summons in the Registry and to pay the appropriate filing fee. oOo

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