Permanent Custodians Limited v Carolyn Joy Upston

102 These defaults have also added to the plaintiff's liability under this account legal costs of $110, default fee $75, a further default fee of $75, legal costs $62.50, a further default fee of $75, a reversal fee of $50, further legal fees of $77, a reversal fee of $50, enforcement costs $330, legal costs $33 and a reversal fee of $50.

103 The Transaction History in respect of loan account 8002346/2 (the loan of $84,000) shows payments during the same months and default in payments in December 2005, January 2006 and February 2006. Payments have been made on the due dates from and including 22 March 2006.

104 The payments due under this loan for December 2005 was $699.30; for January 2006 was $699.30 and for February 2006 was $699.30.

105 The defaults under this loan have resulted in debits for payment reversal fees totalling $150.

106 By letter dated 21 July 2006 addressed to the plaintiff's solicitors, the defendant's solicitors relevantly said: "We are looking into a number of commercial options in light of the defendant's recently improved and improving financial position. We understand the following points of mutual interest:

Reliable income since the closure of the café business venture has resulted in your monthly mortgage payments being paid in full and reliably on 22 March, 22 April, 22 May, 22 June and we are instructed that this is reliably set to continue on 22 July and continuing.

We have this week received the CGU Certificate of currency for 22 Buckingham Road that is valid from 19/4/06 until 19/7/07. That this is current is of obvious mutual interest.

The client is proactively managing the current situation by having the property listed for sale with a local real estate agent and the agency period is from 7/6/06 to 7/8/06. The prospect of electing to place a tenant is also a medium term option for improving cash flow. An agency agreement has been made available to us. The real estate agent has confirmed to our client this week that there is good interest in the property.

Could you please consider and reply to the following:

Would the plaintiff consent to a court ordered mediation by a Registrar to determine whether a suitable repayment schedule could be agreed?

What repayment schedule, including dates and amounts would be acceptable to the plaintiff?

What total amount is presently outstanding (including principal, interest and any necessary costs)?

Please provide detailed and itemised account so we can check the maths and determine whether a refinance is possible.

What can the plaintiff offer in relation to extending the loan by 3 to 5 months in order to by that or similar means resolve the 3 months lacuna?

Would the plaintiff consent to a three week adjournment to give the defendant time to find a commercial solution to the dispute? Such a delay is in any event likely given the non-compliance by the plaintiff with the orders made on 23 June 2006."

107 The response to this letter was an email from the plaintiff's solicitors in the following terms: "Our client has instructed us that they require evidence of financial hardship before they can consider your client's hardship application.

Accordingly, please provide us sworn statement of financial affairs together with supporting documentation.

Supporting documentation is to include copies of bank statements, payslips and any other business records."

108 By email dated 11 August 2006, the defendant's solicitors sent a draft affidavit and a formal affidavit was sent under cover of a letter of the same date.

109 I now pass to the facts upon which the defendant relies in support of her claim of extreme financial hardship during the period from November 2005 to the end of February 2006, which led to her being unable to meet the mortgage instalments for December 2005 and January and February 2006.

110 She took over Bimbo's Takeaway shop and commenced trading on 12 September 2005. At that stage she had been offered a position in Brewarrina, which she accepted, because it provided her with funds for living whilst the business was in the starting stages and she employed a manager to run the business in her absence. The manager was a person whom she had known and trusted and considered capable of doing the job.

111 Trading figures provided by the manager revealed that the turnover of $4000 to $5000 per week as represented by the vendors of the business, was not being reached. In fact the turnover was only $1,500 to $1,8000 per week.

112 She then put in place a system involving stock checks and strict reporting which revealed that some $2,000 to $3,000 each week was unaccounted for.

113 Initially, she thought it may have been a temporary slump due to new ownership, but after 4 to 6 weeks of checking, it appeared that money was just disappearing. Accordingly, she gave up the contract work in Brewarrina and returned to manage and monitor the business herself.

114 At this point, she commenced to lose her ability to pay the mortgage instalments because the turnover of the business was between $3,000 and $3,500 per week. After payment of expenses, there was insufficient left to pay herself anything. In addition she had lost the income from her contract work.

115 The business serviced an industrial area. The turnover declined from just before Christmas 2005 until towards the end of January 2006 because a number of businesses in that industrial area closed down during that period.

116 The defendant thought that she had prepared for eventualities and fluctuations in the takings of the business by borrowing extra funds to provide working capital to carry her through the first twelve months. However, the disappearance of money (which she considered to be due to theft which could not be proved) caused a quick exhaustion of that working capital.

117 She summarised matters which she claims contributed to her financial difficulties, namely:- "a. The theft of a considerable amount of money in the early operations and consequent expenditure of the allowed working capital.

c. Exaggerated turnover provided in pre purchase figures.

d. Her failure to take into account the fact that a couple had previously owned the business and were able to draw a wage, whereas as a single person she needed to pay wages for the extra person thereby preventing her from having any personal income from the business.

e. Lack of savings and personal financial resources to fall back on."

118 She advertised the business for sale, first in late November and continued to advertise it until late February.

119 During January and February, she fell into arrears with the rent of the premises at which the business was conducted. She negotiated with the real estate agent acting on behalf of the landlord. However, she was locked out of the premises on 1 March 2006 before a sale had been effected. Once she was locked out, she was unable to trade, so there was no income and the business immediately lost all value.

120 During February she was offered and accepted a position at Armidale to commence 5 March 2006.

121 She eventually sold the business in April 2006 for $15,000, most of which went to the real estate agent. The balance went to other sundry business creditors and in meeting her obligations to her employees. She still owes two friends a total of $7,000 but they are not pressing for payment, at the moment.

122 The defendant has produced her bank statements, which support her claims that she ran out of money during the subject three months. In addition, she has produced pay slips which show that from 2 to 8 October 2005 she earned $1,386; from 9 to 15 October $1,435.50; and from 16 to 22 October 2005, $1,870.85. Income tax has not been deducted from these figures.

123 The pay slips also show that she resumed work on 5 March 2006 and that her total earnings from contract work for the financial year ending 30 June 2006 was $33,255.31. This was, in fact, for only about 34 weeks of contract work because she had been out of work whilst trying to resuscitate Bimbo's Takeaway from 23 October 2005 to 5 March 2006, a period of 18 weeks.

124 Annexed to the defendat's affidavit is the Profit and Loss account for Bimbo's Takeaway for the period 12 September 2005 to 13 January 2006. This shows income from sales $63,336.40. The cost of sales was $36,036.05. In addition the total expenses came to $50,873.60. Thus there was an overall loss during this period of about 18 weeks of $14,837,55.

125 Once her contract for work at Armidale was confirmed, she made a verbal offer in February 2006 to Mr John Gharibian to pay off the arrears by instalments of $50 per week, to be increased as other debts from the failed business were cleared. Mr Gharibian responded with words to the effect, "No we wouldn't be bothered taking such small amounts, we want you to pay the full amount you have missed".

126 It is now convenient to consider the defendant's prospects of making good the arrears. She operates as an independent contractor and has had an Australian Business Number 53171782217 since 7 May 2002. She obtains contract work with Local Government bodies through Neptune Corporation Pty Ltd.

127 From February to December 2006, she was engaged by Armidale Dumaresq Council as Acting Manager, Administration Services during the absence on long service leave of the incumbent of that position.

128 From July to October 2005, she was engaged on a temporary contract as the Human Resources Officer at Brewarrina Shire Council.

129 Between 2001 and 2005 she ceased work to be a full time carer for her elderly mother, who died in January 2005. However, during this time she was a volunteer business mentor with the Central Coast Business Mentoring Service and also commenced studies for a Graduate Certificate in business administration.

130 From 1999 to 2001, she was employed by Gloucester Shire Council as Director of Corporate Services and Acting General Manager. From 1998 to 1999, she was the Customer Services Manager for the city of Cockburn.

131 There are further employments prior to 1998 but all of a similar nature. In addition, she has done courses to improve her skills in the sphere of local government administration and practice.

132 Annexed to her affidavit is a document called "Details of Assignment" showing an assignment to Tumbarumba Shire Council as Senior Governance Officer, commencing 2 January 2007 for a period of 6 to 8 weeks. Her rate of pay was $50 per hour, flat contract rate. Workers compensation, public liability, and professional indemnity insurance cover were her responsibility. In addition, the Council was to reimburse her travel expenses for the first trip to Council and the last trip home and to provide comfortable self-contained accommodation.

133 This is equivalent to gross earnings of $1,750 per week.

134 As from 12 March 2007, she is engaged by Warringah Council for a term of 3 months at the hourly rate of $50 per hour for working ordinary hours between Monday and Friday, not including public holidays. She anticipates that she will be working a minimum of 35 hours per week and at times 38 hours per week. She holds the position of Business Survey Officer.

135 The Council contributes an amount, equivalent to 9% of her pay, for ordinary working hours as superannuation. Workers compensation, public liability and professional indemnity insurance are the defendant's responsibility.

136 The defendant's work history, supported as it is by documentary evidence, satisfies me, on the probabilities, that since returning to the workforce in July 2005 after the death of her mother, the defendant has been in substantially regular employment, earning a gross sum of about $1,750 per week. The exception is the period when she left the work force in an attempt to salvage Bimbo's Takeaway between October 2005 and 5 March 2006.

137 All of this evidence comfortably satisfies me that the defendant can be reasonably expected to earn from her contract work $1,750 per week for 48 weeks of the year, making a total earnings of $84,000 per annum or $7,000 per month.

138 The defendant estimates monthly expenses at $4,180 made up as follows:- Rates - $150; home insurance - $60; food - $600; motor vehicle expenses - $450; telephone - $80; electricity - $30; provision for income tax - $1,500; entertainment - $60; superannuation - $750 and personal loan repayment - $500.

139 I have carefully considered each of these items of expense and conclude that they are very realistic. The provision for income tax, which can be checked against taxation schedules, if anything, overstates the potential liability by a few dollars. Furthermore, during the time that she works at Warringah Council, she will not incur the cost of superannuation because the Council will pay that for her.

140 However, I propose to leave this in the calculations because it does provide an extra buffer.

141 This means that the defendant has available funds each month of $2,820 dollars.

142 Over the life of the loans the interest rate has risen from 8.99% to 10.74%. The payment debited and reversed on 22 December 2006 on loan account 8002346/2 was $751.80. The payment debited and reversed on the same day in respect of loan account 8002346/1 was $1,675.56, making a total of $2,427.36 for that month.

143 This still leaves a further amount of $392 per month available for other expenses.

144 To obtain relief under s68 of the Consumer Credit Code, the applicant/defendant must establish the threshold matters set out in subsection 1 of s66 of that code.

145 She must establish, first, that she was unable reasonably, because of illness, unemployment or other reasonable cause, to meet her obligations under the credit contract.

146 The defendant claims that she meets these criteria because at the relevant time she was unemployed. She says that she had to give up her employment in order to attempt to salvage her Bimbo's Takeaway business.

147 As against this, the plaintiff submits that she was not unemployed because she was never in a contract of employment. She was always an independent contractor. The plaintiff submits that the code is designed to protect persons who are in employment and does not cover people who operate a business as an independent contractors and that the whole purpose of the Code is to protect individuals in respect of a personal loan and not to protect people who are in business on their own account.

148 Alternatively, the defendant submits that she was unable reasonably to meet her obligation because of "other reasonable cause". Her "reasonable cause" was the necessity to terminate her engagement at Brewarrina in order to manage and try to rescue the business of Bimbo's Takeaway.

149 The plaintiff submits that this cause was not "other reasonable cause" within the meaning of s 68. The argument is that "other reasonable cause" must be read ejusdem generis with the words "illness" and "unemployment". The genus is said to be causes which are forced upon the debtor for reasons outside of his or her control. In the present case, the defendant gave up her employment. She had gone into the business voluntarily and with her eyes open. The reason propounded by the Defendant would, according to the plaintiff's submission, mean that the plaintiff would be underwriting the defendant's business venture and that such a result is completely contrary to the spirit and terms of the Code.

150 The plaintiff submitted that the true explanation of what occurred is that, having engaged in a business operation, the defendant ran out of cash and had extra expenses while the business failed and that is not a reason for the court to exercise its discretion. The scheme of the Code is to allow for restructuring the loan for the purpose of someone's domestic or household purposes. Here, the court is being asked to underwrite a business failure.

151 It is further submitted that, as a matter of public policy, the court should shy away from exercising discretion in favour of the defendant which would achieve such a goal.

152 On behalf of the defendant it is submitted that there is no genus in the preceding words "illness" and "unemployment". The submission continues that the intention of the legislature when it inserted the words, "other reasonable cause", was not to limit it in such a way as to exclude the deterioration of someone's financial position as a result of the failure of an owner operated business.

153 In the case of Mattinson v Multiplo Incubators Pty Ltd 1977 1NSWLR 368 at 373, Mahoney JA said: - "The ejusdem generis process of reasoning has had a long but varied history; is based upon a doubtful premise; operates by a mechanism which is uncertain; and, to the extent that it presently operates, in my opinion, has real effect to determine the construction of a statute only in a limited area."

154 My understanding of the cases where the ejusdem generis rule has been held to apply are those where numerous words describing specific instances are set out followed by words of general application. In those circumstances, having regard for the totality of the statute in which such those words appear, it can be said that the specific words create a genus by which the subsequent general words must be limited.

155 In the present section there are only two words describing specific instances used, namely "illness" and "unemployment". In my view, these do not create a genus.

156 In my view the words "other reasonable cause" are to be read with a wide application in accordance with their ordinary meaning. Their effect is that the court looks at what was the cause for the debtor being unable reasonably to meet his or her obligations and then determines on the facts of the particular case, whether that cause was reasonable. 157 The defendant has comfortably satisfied me that the cause of her being unable reasonably to meet her obligations to the plaintiff was the realisation that her business Bimbo's Takeaway was losing money quickly, and that if she was to save the situation she had to leave her place of work at Brewarrina and come back to Berkley Vale to supervise the business herself and determine what was going wrong. 158 I am satisfied that this cause was reasonable. 159 The period of her attempts and resulting lack of money to meet her obligations to the plaintiff lasted 3 months. This was a reasonable period of time. 160 Once she had done her best to salvage the business, she obtained a further engagement and income and then resumed the payments to the plaintiff. In short, the defendant has comfortably satisfied the court that she was unable reasonably, because of reasonable cause, to meet her obligations in December 2005 and January and February 2006 under the credit contract with the plaintiff. 161 The next matter which the defendant must prove is that she reasonably expects to be able to discharge her obligations if the terms of the contract are changed in one of the manners set out in subsection 2 of s66 of the Code. Support for the proposition that the defendant reasonably expects to be able to discharge her obligations if the terms of the contract are changed appears from the fact that apart from the three months from December 2005 to February 2006 she has met all payments as they have fallen due. 162 For the reasons set out earlier, I am comfortably satisfied that she has reasonable prospects of earning an amount which will cover her expenses including her liability to the plaintiff and leave her with a residue of some $390 per month. 163 However, in the background is a judgment obtained by Marina Bertolino against the plaintiff on 1 May 2006 in the Local Court at Wyong for $64,725. 42. Ms Bertolino has lodged a writ with the Registrar General on the plaintiff's title of the subject land. 164 It appears that the judgment was obtained by default of filing grounds of defence and that the cause of action was for money lent. 165 The plaintiff denies that she ever received the Statement of Claim and this was the reason for her not filing a defence. She claims that once she learned of the judgment, she attended at Wyong Court and lodged a Notice of Motion to set the judgment aside. In a defence which she drew up herself, she relies on the following facts and assertions:- "1 That I was not served with a Statement of Claim. Whilst I still have an interest in the property at 22 Buckingham Road, Berkley Vale 2261, I no longer permanently reside there. 2. I did not borrow the money claimed by the Plaintiff. 3. The Plaintiff sought to be involved with the business, Queens of Gloucester, which I conducted. 4. The Plaintiff may or may not have deposited the funds, as claimed in her statement, into accounts to which I was a signatory. 5. If deposits were made, they were made voluntarily, and not as any form of loan, in fact I informed the Plaintiff that they were definitely not to be considered loans because I was not in a position to repay her. 6. The business, Queens of Gloucester, was voluntarily transferred from my name into the name of the Plaintiff to protect her investment." 166 On behalf of the plaintiff in this case, it is submitted that these so-called particulars of defence clearly concede that she received money and it was by way of a loan. I do not agree. Whilst the wording is far from clear, it seems to allege that whatever money was paid by Ms Bertolino into the defendant's account, was by way of investment in a business and not by way of a loan. Accordingly, there seems to be a defence on the merits. 167 Although this Notice of Motion was filed as long ago as late June 2006, it has not yet come on for hearing and the defendant was unable to inform the court as to why there was such a long delay and when the matter would be heard. 168 At the same time, there is nothing to suggest that Ms Bertolino is doing anything to bring the case on for hearing quickly. 169 I am comfortably satisfied that the defendant expects to be able to discharge her obligations to the plaintiff if the terms of the contract are changed and that her expectation is based upon reasonable grounds. Accordingly, she has satisfied the court that she reasonably expects to be able to discharge the debtor's obligations if the terms of the contract are changed. 170 Even if the defendant is found liable to pay the debt to Ms Bertolino she still had the means to apply to the court for leave to pay the debt by instalments and to pay such instalments.

The Form of Order 171 The question, then, is what form of order should I make. 172 The initial default was failure to pay 3 monthly instalments. Having found that the defendant is entitled to relief, the question now arises as to the form that relief should take. Section 68 of the Code provides that the Court may, by order, change the credit contract in the manner set out in s66 and make such orders as it thinks fit, or refuse to change the credit contract. 173 Subsection 2 of s66 sets out three ways in which the terms of the contract may be changed. The first is:- "Extending the period of the contract and reducing the amount of each payment due under the contract, accordingly (without a change being made to the annual percentage rate or rates)." 174 The defendant here is not seeking a reduction of the amount of each payment due. Hence this paragraph has no application. 175 The second form of order stipulated in subsection 2 of s66 is:- "Postponing during a specified period the dates on which payments are due under the contract (without a change being made to the annual percentage rate or rates)." 176 It would be tempting to apply this paragraph and order that the dates on which payments were due in December 2005 and January and February 2006 be postponed until the end of the term. However, as I read this paragraph, it anticipates postponing future payments during the specified period rather than postponing the dates on which past payments were due. 177 The third form of order specified in s66 is: - "Extending the period of the contract and postponing during the specified period the dates on which payments are due under the contract (without a change being made to the annual percentage rate or rates)." 178 I am of the view that the requirements of this form of order can be met by an extension of the current contract for a term of 30 years from now, without a change being made to the annual percentage rate or rates. 179 In support of her application, the defendant has furnished as an annexure to her affidavit, an Advanced Repayment Calculator obtained on the Internet from www.yourmortgage.com.au. Allowing for an initial loan of $295,000 (as at 28 February 2007, the amount claimed by the plaintiff was $291,432.91), a term of 30 years and an interest rate of 10.74% the monthly repayments would be $2,752. The calculations set out a loan amortisation table showing how this is arrived at. 180 I have checked through the figures and they appear to be substantially correct. A monthly payment of $2,752 is well within the reasonable expectation of the defendant to meet. 181 The difficulty is that the calculations are based upon an interest rate of 10.74%, which is the current rate, whereas the mortgage provides for variable rates. Even if the rates are varied, the difference in the repayments would be, in my view, within the reasonable capacity of the plaintiff to pay. 182 I therefore propose make orders which will have the effect of postponing the three defaulted payments (22 December 2005, 22 January 2006 and 22 February 2006) until 22 March 2007. The total sum due under the credit contract is to be capitalised as at 22 March 2007. The evidence is that such capitalised sum was $291,432.91 as at 28 February 2007 and interest accrues at the rate of $85.77 per day. Accordingly the capitalised sum as at 22 March 2007 will be $293,318.85. The period of the contract is to be extended for a term of thirty (30) years commencing on 22 March 2007 during which the defendant is to pay the said capitalised sum together with interest thereon by monthly instalments without a change being made to the annual percentage rate or rates provided in the contract. 183 I have nominated 22 March 2007 because instalments under the contract are due on 22nd of each month and also to give the parties time to make the necessary administrative arrangements to give effect to my orders.

ORDERS 1. Pursuant to s 68(2) of the Consumer Credit Code it is ordered that the credit contract between the plaintiff and the defendant be changed in the manner following:- (a) By postponing until 22 March 2007 the dates on which the payments due under the contract on 22 December 2005 and 22 January 2006 and 22 February 2006 fall due. (b) The total amount of those three payments plus interest and charges caused by the failure to make those three payments as they fell due are to be included within the total amount of moneys due by the defendant to the plaintiff under the contract as at 22 March 2007. Such total is referred to as the capitalised sum and as at 22 March 2007 is $293,318.85. (c) The period of the contract is extended for a term of thirty (30) years commencing on 22 March 2007 during which the defendant is to pay the said capitalised sum of $293,318.85 together with interest thereon by monthly instalments without a change being made to the annual percentage rate or rates provided in the contract. 2. Liberty to either party to apply to the Court on 48 hours notice for such further orders as may be required to give effect to or to implement these orders. 3. I invite submissions as to costs.

1. The plaintiff's action is dismissed. 2. On the cross-claim I make the orders set out in paragraph 183 of my written judgment. 3. I make no orders as to the costs of the action. 4. I order the plaintiff/cross-defendant to pay the defendant's/cross-claimant's costs of the cross-claim. I direct that the exhibits remain in court for 14 days or further order.

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.