Plaintiff v Defendant

2 At the time the defendant filed his defence and made complaint to the Financial Ombudsman Service he was legally represented. Those solicitors ceased to act for him on 31 January 2012 and thereafter he has been self-represented.

3 At the commencement of the hearing on 15 February 2012 the defendant applied for an adjournment for 21 days i.e. to 7 March 2012 on the basis that he anticipated that he would be in receipt of funds from his business venture in the Philippines by 1 March 2012 which would enable him to make a payment to the plaintiff and demonstrate that he was now in a position to service the loan. The application was opposed. I refused it. As it transpired, the hearing did not commence until late in the afternoon of 15 February and so was not completed on that day. The hearing was adjourned part heard to 13 March 2012. I allowed the defendant by directions made on 15 February to file further material by 7 March 2012, specifying that this order applied in particular to any affidavit in support of an application to change the terms of the credit contract.

4 The defendant swore and filed two further affidavits prior to the adjourned hearing- one on 7 March 2012 and the next on 13 March 2012. The affidavits contained some material that may have been in support of an application to change the terms of the credit contract and were also relied upon by the defendant in support of a renewed application for adjournment, then for a further two weeks, made by him on 13 March. I refused the adjournment for the reasons given at the time. The hearing was completed on 13 March 2012 and I reserved. I will consider the facts asserted in these two affidavits to the extent they relate to an application for change to the credit contract later in this judgment.

5 The defendant sought by email to my associate dated 4 April 2012 to supply further information in support of his case. That method was inappropriate and it was appropriately opposed by the plaintiff. Subsequently, at the same time as causing the proceedings to be listed for judgment, and without being aware that the defendant intended to be overseas on the listed day, I caused the defendant to be advised of the proper method if he sought to re-open his case in an endeavour to give him the opportunity to do so prior to delivery of judgment. The defendant took up that opportunity and filed a summons in support of such an application, but, as was apparent from the affidavit material filed in support, was aware at the time that he would not be able to attend on the return date of the summons. Apparently he made no arrangement for any legal representative to appear on his behalf as there was no appearance for him on that day. I dismissed the summons to re-open his case.

6 Section 61 of the Civil Procedure Act 2010 (Vic) enables a plaintiff to apply for summary judgment i.e. judgment without a trial on oral evidence "on the ground that a defendant's defence or part of that defence has no real prospect of success". A number of cases have now held[1] that this test is a lower threshold than the test previously to be met by a plaintiff seeking summary judgment under Order 22 of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules"). Under the previous test the plaintiff was required to show that any proffered defence was bound to fail. Now it is not necessary to show that the defence is bound to fail- it is sufficient if its prospects of success are fanciful rather than realistic. The new test may require examination of the merits of the proposed defence. Although the threshold for summary judgment is lowered, the Court is still required to exercise the power with caution.[2]

7 Notwithstanding the change in the test to be satisfied, the Court retains a discretion to refuse summary judgment and order that the proceeding continue to trial, even if there is no real prospect of success in the defence. Section 64 of the Civil Procedure Act provides that:

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because-

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate

The Court of Appeal has stressed that the Court should consider whether this discretion should be exercised in every instance where summary judgment is proposed.[3]

8 The plaintiff must first prove its case on an application for summary judgment, to the extent that case is not admitted. The Court then considers any proffered defence. In respect of each of these stages, the Court considers the pleadings and the affidavits filed in support of, and in opposition to, the application, together with oral submissions.

9 By written statement of claim dated 16 May 2011 the plaintiff seeks possession of the defendant's home at 7 Antrim Close, Endeavour Hills ("the land"), and the sum of $367,568.59 as at 11 May 2011. It is pleaded that the plaintiff is entitled to this relief by reason of default by the defendant in payment of required instalments on a loan agreement dated 11 July 2008, the payment of which was secured by a mortgage of the same date. The statement of claim pleads that under the loan agreement the interest rate could be varied by the plaintiff, in the event of default a default rate of interest was payable, that the defendant's monthly payments could be varied by the plaintiff and that, amongst other matters, if the defendant failed to pay the plaintiff an amount due under the loan agreement and such failure continued for at least seven days, the plaintiff may notify the defendant of the failure and if such failure continued for at least 31 days after service of that notice the plaintiff could require the defendant to pay all amounts under the loan agreement.

10 The statement of claim then pleads a mortgage dated 11 July 2008 by which the defendant mortgaged all his estate and interest in the land to secure payment or repayment of all moneys owed under the loan agreement, which mortgage incorporated the Memorandum of Common Provisions and contained terms requiring the defendant to pay interest fees, charges and expenses, including all reasonable amounts which the plaintiff reasonably spent or incurred in relation to the enforcement of the mortgage, including legal fees, and an entitlement to possession in the event of failure to comply with a notification of default for at least 31 days after service of that notice.

11 The statement of claim pleads an advance in reliance on the loan agreement and mortgage and default "[p]rior to 6 October 2010 and for a period exceeding seven days". The statement of claim relies on a notice in writing dated 6 October 2010 giving notice to the defendant of this default and requiring him to remedy it within 31 days from service. It pleads that the default was not remedied and that as at 11 May 2011 the total amount owing was $367,569.59 which continues to accrue interest. The statement of claim also claims an entitlement to possession pursuant to the terms and conditions of the mortgage and, or alternatively, pursuant to s 78(1)(b) of the Transfer of Land Act 1958 (Vic).

12 By his defence dated 6 July 2011 and filed 8 July 2011, the defendant does not admit the terms of the loan agreement or in the alternative asserts that the agreement was one regulated by the Consumer Credit Code (the former State Code) and then the National Credit Code. There is no dispute that the loan and mortgage are so regulated. The defendant pleads that by agreement of the parties the terms and operation of the loan agreement could be varied at any time. He appears to admit the mortgage and the terms as pleaded but says there were further terms being that the mortgage was a mortgage to which the Consumer Credit Code and National Credit Code applied (as indicated, this is not disputed) and that by agreement of the parties the terms and operations of the mortgage could be varied at any time.[4] The advance and default are not admitted.

13 The defence denies that the plaintiff is entitled to the claimed relief or any relief by reason of the following positive defences that are pleaded:

1. that the default notice dated 6 October 2010 (receipt of which is admitted) failed to comply with the requirements of s 88(3) of the National Credit Code and Regulation 86 of the Regulations made under that Code;
2. the notice did not specify as pleaded in the statement of claim that the defendant would be liable to pay all moneys secured by the mortgage;
3. the plaintiff did not agree to a requested change to the loan and mortgage made by the defendant on or about 29 October 2010 or the plaintiff failed to comply with its obligations under s 72(3) of the National Credit Code in relation to such request; and
4. the defendant seeks change to the terms of the loan and mortgage pursuant to s 74 of the National Credit Code.

Strictly, matter number 4 should be advanced by way of counter claim rather than defence as positive relief is sought. As the defendant is now unrepresented, the plaintiff does not take this objection.

14 The plaintiff relies principally on the affidavit sworn by Azita Doudman on 21 July 2011, together with the affidavit of Kate Mattson sworn 9 March 2012 which updates the amount owing as at that date. The defendant relies on an affidavit sworn by him on 17 August 2011, to which is exhibited, amongst other exhibits, a copy of his complaint to the Financial Ombudsman Service. I will also consider his further affidavits sworn 7 and 13 March 2012 to the extent they are relevant to the substance of any defence, as opposed to his application for adjournment on 13 March 2012.

15 The defendant's principal oral submission is that he anticipates being able to discharge the arrears by the end of the year and be shortly able to renew regular instalment payment of the principal and interest having regard to the anticipated profitability of his business endeavour in the Philippines. I will consider this submission as being in support of an application for variation of the credit contract pursuant to s 74 of the Code. The defendant did not orally address the other matters put on his behalf in the defence or to which he deposes in his affidavit sworn 18 August 2011. As he is unrepresented, I will nevertheless consider them.

16 I am satisfied that the affidavit of Azita Doudman proves the loan and mortgage (which appear as AD-1 and AD-3 to that affidavit) as pleaded. The advance is not admitted in the defendant's defence but appears conceded in his affidavit sworn 17 August 2011. In any event, I am satisfied that it is proved by AD-5 to Ms Doudman's affidavit. AD5 consists of a series of duplicate home loan statements. The statements evidence the initial draw on the loan on 6 August 2008 in the sum of $350,000 (the loan being for a single draw down only). They also show that Mr Tesoro fell into arrears under the loan at least from December 2008, although he continued making payments. The last payment made by him under the loan prior to the default notice sent to him in October 2010 was in July 2010. The defendant made no payments in August, September, October or November 2010. AD5 evidences that his next payment was made in December 2010. The statements are consistent with his affidavit sworn 17 August 2011 in which he states that when he entered into the loan agreement he was employed but in late 2008 was unexpectedly retrenched. He states in paragraph 4 of that affidavit that "In late 2010 I fell behind in the loan repayments with the Plaintiff due to financial hardship." I am satisfied that the plaintiff was in default under the loan and mortgage prior to the issue and service of the default notice dated 6 October 2010.

17 Receipt of the default notice dated 6 October 2010 is admitted. I will return to discussion of this notice under the defendant's case. The failure of the defendant to remedy the default as required by the notice is not admitted by him expressly in his defence, as he pleads he was not required to. It is apparent from AD5 that he did not remedy the default then identified being failure to pay the sum of $5,084.37 within the required 31 days.

18 The terms of the loan and mortgage as proved contain an acceleration clause and entitle the plaintiff to possession on failure to remedy in accordance with the notice. Accordingly, subject to the question of compliance of the default notice with the National Credit Code, I am satisfied that the plaintiff has established its case.

Non-compliance of the Default Notice with the National Credit Code

19 There is no dispute that the National Credit Code applies to this loan and mortgage. Sections 88(1) and (2) of the National Credit Code provide that a "credit provider" must not begin enforcement proceedings pursuant to a credit contract or a mortgage, including proceedings for possession of property subject to a mortgage, unless the debtor or mortgagor is in default, the credit provider has given that person a default notice which complies with s 88 and allows the debtor or mortgagor a period of at least 30 days from the date of the notice to remedy the default, and the default has not been remedied within that period. Here the defendant was in default under the credit contract and mortgage, the notice in question provided at least 30 days from the date of the notice to remedy the default and the plaintiff has established that the default was not remedied within that period. The issue is whether the default notice complies with the requirements of s 88.

20 By s 88(3) the default notice must specify a number of matters including, by paragraphs (f) and (g), certain information prescribed by the Regulations. It is conceded that the default notice served does not comply with the form specified in the Regulations, Form 12, which sets out the information required by s 88(3)(f) and (g), in the following respects:

You have specific legal rights to request changes be made to your contract to help you repay the debt if ...

The notice as served states instead:

You may also have specific legal rights to have changes made to your contract to help you repay the debt ...

1. In two places the prescribed form warns that if no contact is made

we may commence further action against you

whereas the default notice as served uses the warning

we may commence legal action against you.

1. The section of the prescribed form that notifies the debtor that the lender will provide a written notice within 21 days as to whether or not it agrees to a proposed change specifies that the notice will be sent within 30 days. The plaintiff's default notice specifies a time period of 31 days.
2. After listing three starred types of request that a debtor can make of the lender to change the contract, the prescribed form contains the words

Alternatively, you may request that we negotiate with you to postpone any further action that we may take against you.

This alternative is entirely omitted from the notice as served. This departure from the prescribed form is not identified in the filed documents in the defendant's case. I alerted the parties to it at the hearing.

21 In addition to these departures from the required form of notification, the defendant in his affidavit of 17 August 2011 and defence also asserts that the notice is defective because it does not, as pleaded in paragraph 10 of the statement of claim, give notice that the defendant would be liable to pay the plaintiff all moneys secured by the mortgage without further notice if he did not remedy the default. The notice as served specifies that in the event of failure to remedy the default:

the Lender will begin enforcement proceedings against you and will exercise a power of sale in respect of the Mortgage property to recover the full account balance. At the date of this notice the full account balance is $355,149.33 (not including fixed rate costs if applicable). The actual payout figure may vary depending on when the full account balance is paid.

The notice also warns that this amount does not include costs, fees, government and other charges and states, "We may also seek payment of any expenses incurred if we commence legal action against you". The deficiency is said to be that these statements are not the same thing as notifying the defendant that he would be liable to pay the plaintiff "all moneys secured by the Mortgage" as pleaded.

Notification that all moneys will become payable

22 Dealing with this last claimed deficiency first, the National Credit Code provides in s 93 that an acceleration clause only operates if the default notice contains notification "of the manner in which the liabilities of the debtor or mortgagor under the contract or mortgage would be affected by the operation of the acceleration clause and also of the amount required to pay out the contract (as accelerated)" (s 93(1)(b)) but does not contain any applicable requirement as to the form of words to be used. I am satisfied that the words used in the default notice were sufficient to meet this requirement.

23 Accordingly, the only defence arising from this claimed deficiency can be whether the form of words used was such that the plaintiff was not contractually entitled by the loan or the mortgage to issue or rely upon the notice. If the plaintiff was so entitled and the deficiency is only a difference between the form of the pleading and the actual notice, it can be cured by amendment to the pleading if required.

24 Paragraph 16 of the General Terms and Conditions of the Loan (which are exhibited as AD2 to the affidavit of Azita Doudman sworn 21 July 2011) provide simply that the lender may give a notice if there is any default which has continued for at least seven days and that if the failure continues for at least 31 days after service of the notice then "we can require you to pay all amounts under the loan contract that would not otherwise have been immediately payable" (emphasis added). Paragraph C2 of the Memorandum of Common Provisions which forms part of the mortgage and is exhibited as AD-3 to the affidavit if Azita Doudman provides that if the mortgagor fails to "pay to the Lender an amount due under this mortgage" and the failure continues for at least seven days, the Lender "may notify you of the failure and serve a notice on you" (emphasis added). The paragraph continues that if default continues for at least 31 days after service of the notice (which it did here) "then the Lender can do any one or more of the following, but it need not do so" (emphasis added). The possible actions by the Lender include requiring the mortgagor to "pay to the Lender all moneys secured by this mortgage" and "take possession of the property".

25 Thus neither the general terms of the loan agreement nor the mortgage require the mortgagee, the plaintiff, to serve any notice. The National Credit Code does require that a notice be served in respect of this particular loan and mortgage, but does not require any specific form of words to be used as to the consequences of failure to remedy the default, other than that repossession and sale of the property may not extinguish the debt. In my view the form of words used here as to the amounts that might be payable sufficiently comes within the contractual description in both the loan and the mortgage, although a slightly different form of words is used in the mortgage to the loan, and it is the form of words used in the mortgage which is pleaded. I do not consider the difference between "all moneys secured by this mortgage" (the form of words pleaded) and the composite of "full account balance", "other unpaid amounts owing to the lender" and possible payment of any expenses incurred in legal action (the words used in the notice) to be material. If I am wrong and so it were necessary, I would give leave to amend the statement of claim to more accurately correspond to the form of words used in the notice.

26 The more substantial issues are in relation to the departure from the statutory requirements. The plaintiff relies on s 208(1) of the National Credit Code which provides that if a form is prescribed or approved by or for the purpose of the Code, strict compliance with the form is not necessary and substantial compliance is sufficient.

27 In Equipment Investments Pty Ltd v MJ Dowthwaite and Co,[5] ("Equipment Investments") Justice Gibbs, as he then was, sitting in the ACT Supreme Court held, in relation to compliance with a statutory form of notice in a hire purchase context, that:

A divergence from the form would be substantial or material if it caused the statement to convey less information than the form requires or to confuse or mislead the prospective hirer as to the matters which the form is designed to bring to his notice.

28 This test was adopted by Patten A.J. in Permanent Mortgages Pty Ltd v Cook and anor[6] ("Cook") in relation to a default notice under the State Code precursor to s 88 (s. 80 of the State Code). The test was formulated differently, without reference to Equipment Investments or Cook, by the New South Wales Court of Appeal in Monas v Perpetual Trustees Victoria Limited[7] ("Monas"). In that case, the Court dismissed an appeal from Hoeben J at first instance who had held that the default notice sufficiently complied with the legislative requirements. Young JA, with whom Beazley and McColl JJA agreed, held that, in accordance with prior authority on default notices under conveyancing legislation, default notices "are valid so long as they reasonably convey to the recipient the message that the section intends the borrower to receive and the borrower is not misled."[8] It may be that in truth this is not a different test, if a notice cannot be said to "reasonably convey" the intended message if it contains less information than the form or section requires.

29 Whichever formulation is applied, I do not consider that the departures from the statutory form identified in the defence mean that the default notice does not substantially comply with the requirements. Dealing with the first departure identified earlier in these reasons, on its face a change from "you have specific legal rights" to "you may also have specific legal rights" conveys different information, but that change must be seen in its context. The change to "you may" in the notice as served is accompanied by change to the balance of that sentence so that the whole sentence in the notice as served reads "You may also have specific legal rights to have changes made to your contract to help you repay the debt". The prescribed form wording is, "You have specific legal rights to request changes be made to your contract to help you repay the debt" (emphasis added). The dual changes to this sentence in the notice as served in my view result in the same meaning as is conveyed by the prescribed form.

30 Nor do I consider the replacement of "further action" in the prescribed form with "legal action" in the notice as served to be material. Further, the change from 30 days within which the lender will notify whether a requested change is accepted to 31 days in the notice as served is insignificant in my view, although it gives the plaintiff one day more to respond, because it corresponds to the one day more given to the borrower to remedy the default given earlier in the notice.

31 I do, however, consider that the failure to include in the notice as served the statutory words "Alternatively, you may request that we negotiate with you to postpone any further action that we may take against you" means that the notice as served conveys less information than the form requires. Expressed in the other formulation of the test, I do not consider that the notice can be said, in this respect, to "reasonably convey" all that it was intended it convey, given that postponement and change are distinct options available to a debtor by the Code (s 94 deals with postponement and s 72 with change). Accordingly, I do not consider that the notice is in substantial compliance with the legislative requirements in this respect, although it is otherwise in substantial compliance.

32 The issue then becomes what flows from this failure to comply. The defendant contends in his defence and affidavit that by virtue of this failure to comply, any enforcement action purported to be taken by the plaintiff under the loan and mortgage, including these proceedings, is "unlawful". The plaintiff says that the failure to comply is an irregularity and that the Court can authorise, now for then, the commencement of the enforcement proceedings notwithstanding the failure to comply. The plaintiff relies on s 88(5) of the National Credit Code which provides that:

A credit provider is not required to give a default notice or to wait until the period specified on the default notice has elapsed, before beginning enforcement proceedings, if

(c) the court authorises the credit provider to begin the enforcement proceedings.

33 In addition, the plaintiff stresses that s 88 itself does not expressly provide that the consequence of noncompliance is that any enforcement proceedings are invalid or unlawful and indeed, expressly only provides for a criminal penalty. I accept these submissions. I consider that they are fortified by the following. First, s 193 of the Code (formerly s 170 of the State Codes) specifically adverts to whether non compliance with a Code requirement renders the underlying transaction illegal, void or unenforceable. The section states:

(1) A credit contract, mortgage or guarantee or any other contract is not illegal, void or unenforceable because of a contravention of this Code unless this Code contains an express provision to that effect.

(2) Except as provided by this section, this Code does not derogate from rights and remedies that exist apart from this Code.

There is no express provision in s 88 that failure to comply with its requirements renders the enforcement proceedings ineffective i.e. makes the mortgage unenforceable. It follows from s 193(1) that the proceedings are not ineffective by reason only of that failure to comply.

34 Next, there is a civil remedy provided elsewhere in the Code. This adds weight to the contention of the plaintiff that failure to comply with s 88 results in criminal penalty rather than civil consequence. The Code provides in Part 6 for an application by a debtor for a civil penalty or financial compensation to be paid to him or her in respect of certain failures of the lender to comply with the requirements of the Code. A civil remedy for failure to comply with the notice requirements under s 88 would lie under s 124 (formerly s 114 of the State Codes), which enables the court to order the credit provider to "make restitution or pay compensation" to a person affected by the failure to comply. For present purposes it is sufficient to note that no reference is made in the defence to this section and there is no application by cross claim pursuant to it.

35 The consequence of failure to comply with the State Code equivalent of s 88 (s 80 of the State Codes) were also considered in Monas. The provision of the State Code there in question was in the same terms as s 88(5)(c) of the National Credit Code. Hoeben J had held at first instance that a failure to comply with s 80 did not render the enforcement proceedings invalid and the Court had power under s 80(4)(c) (now s 88(5) of the National Code) to regularise the proceedings by giving leave to proceed, if necessary, nunc pro tunc, i.e., now for then. He was upheld by the Court of Appeal. Young JA, with whom Beasley JA and McColl JA agreed, held that noncompliance with the State provision:

...does not mean that there is a failure of condition precedent to the present litigation and that therefore the present litigation must be dismissed....In my view, were it necessary to consider the matter fully, I would uphold the decision in [82] of Hoeben J's judgment that proceedings commenced in breach of s 80 involve at worst an irregularity.[9]

Young JA also agreed with the decision of the trial judge that authority to commence the proceedings where the notice does not comply can be given nunc pro tunc.

36 No competing authority has been put before me. The reasoning in Monas is equally applicable to the national legislation which now applies, the National Credit Code. I consider that it is correct. It flows that notwithstanding that the notice is defective, this is an irregularity only which does not render the proceedings invalid and a court can retrospectively authorise the commencement of the enforcement proceedings, including the present action, pursuant to s 88(5)(c).

Can an Associate Judge authorise commencement of enforcement proceedings?

37 Section 88(5) permits "the court" to authorise the commencement of proceedings without a valid notice. Section 187 of the National Consumer Credit Protection Act 2009 (Cwlth), to which the Code is a schedule, confers civil jurisdiction on, amongst other courts, a superior court of a state. In Monas the Court of Appeal affirmed that the Supreme Court of NSW had the jurisdiction to authorise the commencement of enforcement proceedings, there as here recovery of possession of mortgaged land, pursuant to s 88(5) if required. I conclude that this Court has that jurisdiction.

38 I raised with counsel for the plaintiff whether such leave was sought in the present proceedings and, if so, whether an Associate Judge could give this leave. In response, counsel made an oral application for authorisation, if that was necessary. He did not specifically address me as to whether it would be within the power of an Associate Judge to give such authorisation. An Associate Judge has power under Order 77 of the Rules broadly to exercise any power of the Court save give judgment at trial. None of the exceptions in r 77.02(3) to the authority of an Associate Judge apply to the subject application. The authorisation of enforcement proceedings pursuant to s 88(5)(c) is of its nature interlocutory. Associate Judges routinely exercise similar interlocutory powers. In my view, an Associate Judge has the power to exercise the discretion conveyed within that section.

39 The question that then arises is whether I should exercise that discretion, in particular whether or not that is appropriate in an application for summary judgment. I will return to this issue after consideration of the remaining defences advanced by the defendant.

40 The defendant asserts in his defence that the loan agreement and mortgage could be varied by agreement at any time. Ms Doudman in her affidavit sets out the history of communication between the plaintiff and the defendant after service of the default notice, as evidenced by computer file notes. The file notes record that the defendant contacted the plaintiff on 29 October 2010 and that as a consequence of that discussion the parties entered into what the plaintiff calls a "postponement arrangement" which was confirmed in a letter printed and mailed on 30 October 2010. The defendant did not adhere to that arrangement. Thereafter there was subsequent contact between the plaintiff and the defendant leading to a further arrangement, called by the plaintiff a "negotiated repayment arrangement" requiring payment by the defendant of $2,450 per fortnight commencing 7 December 2010. This arrangement was evidenced by a letter printed and posted 30 November 2010.

41 The defendant made the first payment under this arrangement one day late, on 8 December 2010. Arguably this was with the consent of the plaintiff. He did not make the next payment on the due date of 21 December. He spoke to two different collections officers that day. The discussion with the second officer arguably was to the effect that the plaintiff waived the failure or agreed to a variation. The defendant did not make a payment he had apparently promised for 24 December 2010. A third arrangement was entered into to the effect that enforcement action would be postponed if the defendant paid $2,450 per fortnight commencing 8 January 2011 until arrears were cleared. A notice confirming this arrangement in the same terms as the 30 November notice was sent to the defendant on 30 December 2011.

42 The defendant did not make the first required payment under this arrangement on 8 January 2011. He made no payment until 19 January 2011. This was his next payment after the payment made on 8 December 2010. AD-5 evidences payments until 4 February 2011 and it does not show any further payments to that date. There is no evidence before me as to whether any payments were made after that date. Ms Doudman's affidavit records that the defendant was told by officers of the plaintiff that he must pay $7350 by 3 March 2011, then all arrears by 6 April 2011 and then, on 11 April 2011, payment of all the arrears by 18 April 2011, "failing which litigation would commence"[10]. The computer file notes, being AD-8, evidence a further discussion with the defendant prior to the issue of the writ on 20 April 2011 when he was told legal action would continue unless he cleared the arrears and costs. The writ was issued on 16 May 2011.

43 This history shows multiple requests by the defendant for more time, and, in broad terms, preparedness by the plaintiff to extend time prior to issue until 18 April 2011. The plaintiff's case is that all these arrangements were without prejudice to its rights to rely on the earlier default, and the default notice dated 6 October 2010, and in any event the arrangements were not complied with. The last arrangement evidenced by notice, that of 30 December 2011, states (per the pro forma notice exhibited as AD-11) that it refers to negotiations between the recipient and the Westpac Banking Corporation ("the Bank"), sets out the "conditions of postponement arrived at those negotiations" and continues "If you comply with those conditions, no further action will commence." After the space for the conditions to be set out, the pro forma notice continues "If the Bank has issued default or demand notices, then this does not affect the Bank's rights under any of these notices." and that "the Bank reserves the right to continue with normal collections activity and/or further action if the Conditions are not met in full."

44 The defendant does not assert that he met the conditions of this notice, and it is plain from AD-5 that he did not. If it is the case that the subsequent discussions varied the conditions to allow payment of all arrears by 18 April 2011, while there is no evidence before me as to any payments after 4 February 2011, the defendant does not contend that he paid all the arrears and costs by 18 April 2011 and I conclude that he did not. Accordingly, there is no barrier by reason of the negotiations between the parties to the plaintiff relying on the earlier default and default notice of 6 October 2010.

45 The defendant puts his case arising from the negotiations in this way. He pleads in paragraph 8(b) of his defence that the plaintiff "did not agree to the defendant's requested change of the loan and mortgage" which request was made on 29 October 2010. In addition or in the alternative, the defendant pleads that the plaintiff failed to comply with its obligations under s 72(3) in relation to this requested change.

46 Section 72(1) of the Code enables a debtor to apply to a credit provider for a change to his obligations under a credit contract if the debtor is unable for reasonable cause (including unemployment) to meet those obligations, and reasonably expects to be able to do so if the obligations are changed. The debtor is only able to seek to change his obligations in one of the ways set out in s 72(2). Section 72(3) provides:

If the debtor makes an application, the credit provider must, within 21 days after the day of receiving the application, give the debtor a written notice :

(a) that states whether or not the credit provider agrees to the change; and

(b) if the credit provider does not agree to the change-that states:

(i) the name of the approved external dispute resolution scheme of which the credit provider is a member; and

(ii) the debtor's rights under that scheme; and

(iii) the reasons for not agreeing to the change.

47 Failure to comply with s 72(3) is an offence of strict liability.

48 The defendant says in paragraph 6 of his affidavit drawn with the assistance of his then solicitors and sworn 17 August 2011 affidavit that:

I requested a variation of the loan on the grounds of hardship. Ideally I would have wanted to have all repayments postponed for a number of months and then have the loan reworked to have all arrears capitalised... However, instead of offering to capitalise the loan arrears the best the Plaintiff offered to me was that it would accept payment of $2450 per fortnight to towards clearing the arrears...This however ultimately did not really help me as at a time when I was suffering financial hardship I was forced to make payment of a fortnightly payment of $2450 which was far more than my regular monthly mortgage payment. (emphasis added)

49 The defendant then asserts in the affidavit that he was unaware at that time of his right to have the loan variation reviewed and determined by an external dispute resolution scheme.

50 Counsel for the plaintiff rightly submits that this account of what occurred, particular the italicised words, fails to establish that any specific request for postponement was in fact made, as opposed to hoped for. In his application to the Financial Ombudsman Service made 16 August 2011, which is exhibited to his affidavit, the defendant refers to October 2010 as the date of his complaint to the plaintiff, and proposes capitalisation of arrears as a fair and reasonable resolution of his dispute with the plaintiff. He says in the accompanying letter:

Around the 29th October 2010 I applied for a variation of the loan on the grounds of hardship so as to have payments postponed for a period of time. This wasn't agreed to by the lender (and I did not in any event receive a response from the lender as to my request, or notification of my rights under an approved external dispute resolution scheme as I no (sic) know that I have.) (emphasis added)

51 In fairness to the defendant, and having regard to the fact that this is an application for summary judgment without oral evidence, I will assume that the account given in the letter accompanying the complaint to the Financial Ombudsman Service, which I have italicised, and is closer to an account of an application actually made than the account in the affidavit, could be verified on oath at trial. On this basis, the defendant's defence is that he made application within s 72(1) for a change permitted by s 72(2), which the plaintiff did not accept, and yet the plaintiff did not comply with its obligations under s 72(3) to give reasons and notify the defendant of its external dispute resolution scheme.

52 I do not consider that there are any real prospects of success in such a defence. First, it may not succeed on the facts. The defendant does not dispute that the plaintiff sent him a notice on 30 October 2010 evidencing a different arrangement that the plaintiff's notes suggest was arrived at in the same telephone call. Even if the defendant did initially make request for postponement without payment in that telephone call, the sending of the notice is consistent with subsequent agreement by him in the telephone call to the plaintiff's counter proposal. It is of course possible that interlocutory steps, such as discovery, and oral evidence at trial would cast further light on exactly what was said, and accordingly I would not say that success on the facts of this defence as to what was said could be described as fanciful.

53 Where the proposed defence does fail for the purposes of the summary judgement application in my view is as a matter of law. This is because I do not consider there are any real prospects of success to the contention that failure to comply with s. 72(3), even if established, is a defence to enforcement action. In part this is for the same reasons as discussed above in relation to failure to comply with s 88. Failure to comply with s 72, just as failure to comply with s 88, expressly incurs criminal penalty only and the section does not state that enforcement action becomes invalid by reason of failure to comply. In addition, on my reading of s 72 to s 74, the intention of the Code is that the civil remedy for failure to comply with s 72(3) is provided by s 74, by which the debtor may apply to a court where the credit provider has not accepted the debtor's hardship application.

54 Section 74 provides:

(1) [Application to court] If the credit provider does not change the credit contract in accordance with the application, the debtor may apply to the court to change the terms of the credit contract.

(2) [Discretion of court] The court may, after allowing the applicant, the credit provider and any guarantor a reasonable opportunity to be heard, by order change the credit contract in an manner set out in section 72, and make such other orders as it thinks fit, or refuse to change the credit contract.

(3) [Stay of proceedings] The court may, if it thinks it appropriate in the circumstances, stay any enforcement proceedings under the credit contract, and make such other orders as it thinks fit, until the application has been determined.

55 I consider that the express provision in s 74(3) for the stay of enforcement action pending determination of a hardship application by the court supports the view that the Code envisages that both actions may run concurrently. Thus, the remedy for a debtor where his or her application for change is not accepted by the credit provider is to make application to the court, as the defendant purports to do by his defence. I now turn to that application.

Application under Section 74 of the Code

56 As mentioned earlier in these reasons, an application under s 74 should properly be pleaded as a counter claim. For the purposes of this summary judgment application I will assume that the pleading can be so corrected, and that the defendant seeks that the mortgage be varied in such a manner as to prevent the mortgagee exercising a power of sale and to reinstate an ongoing instalment credit contract. If there are prospects of success in such an application that are more than fanciful, then it would not be appropriate to grant summary judgment for debt and possession.

57 There are a number of difficulties with this "defence" advanced by the defendant. First, he has not given detail of the change to the terms of the mortgage and loan that he seeks. I do not consider that an applicant under s 74 is necessarily limited to the same application for change that he made to the credit provider, but the application must be sufficiently precise to enable the court to determine whether the proposed change is a permitted change under s 72, as the court's power under s 74 is limited to those permitted changes.

58 Further, the court must be able to determine whether the debtor's application proves both the preconditions for change under s 72 (that he or she is unable to meet his or her obligations by reason of one of the permitted causes) and that he or she reasonably expects to be able to discharge his or her obligations if the contract is changed as proposed. In Permanent Custodians Ltd v Upston[11] Cooper AJ of the NSW Supreme Court held in respect of an application for change under s 68 of the State Code (now s 74 of the National Code) that to obtain relief under that section the applicant must establish the threshold matters set out in s 66(1) (now s 72(1) of the National Code) and that she reasonably expects to be able to discharge her obligations if the contract is changed in one of the manners set out in s 66(2) (now s 72(2))in the National Code).[12] The applicant was there successful in avoiding the entry of judgment for possession, but on very detailed evidence, and having regard to the fact that there were only three months in which she did not make payment, and otherwise she had met all payments as they fell due. In RHG Mortgage Corporation Ltd v Cran and anor[13] the applicants were not successful in obtaining a change to the contract so as to resist a judgment for possession, in part because they could not establish that they had a reasonable expectation of being able to meet their obligations if the contract was changed.[14]

59 In his affidavit sworn 17 August 2011 the defendant says that he wanted, or "ideally would have wanted" at the time of his telephone call in October 2010 "to have all repayments postponed for a number of months and then have the loan reworked to have all arrears capitalised"[15]. In the application made in August 2011 to the Financial Ombudsman Service he sought "arrears to be capitalised and then loan repayments to continue". In the letter attached to the complaint he said that since May "myself and my business is back on track and expect to meet the obligations of the loan if Westpac agrees to capitalise the arrears and allows me to continue making repayments in accordance with the loan contract as per usual." The implication is that the defendant was not at that time seeking any further postponement, but only capitalisation of existing arrears and resumption of payment at the earlier amount. The defendant did not identify in either the body of this affidavit or in his application to the Financial Ombudsman Service the period for which he had made no payments (presumably the period for which he was seeking postponement), the amount of the current arrears, the amount he proposed to commence repaying and when.

60 These deficiencies have not been met by his subsequent affidavits. In his affidavit sworn 7 March 2011, which was expressed to be in support of his application to change the terms of the credit contract, the defendant said "I shall be able to service the loan once I get payed from the very first official order". This is a reference to a business in which the defendant says he has an interest of supplying water purifiers or similar in the Philippines. The machines are being manufactured on his evidence in India and delay had been occasioned by damage to the prototype machine and further delay was anticipated due to requested changes to the machines. He sought a further two weeks "so that I can provide concrete proof that the funds are on its way which will change my financial circumstances" and said he was awaiting payment "within 2 weeks from the potential distributor" (who was referred to in an attached document).

61 In his affidavit sworn 13 March 2012 he exhibited email exchanges which he said were to "support evidence that my circumstances are changing". He added

in 2 weeks time, more irrefutable proof will be provided that I shall be able to service my monthly mortgage payments with WESTPAC by means of a contract of an actual sale and/or schedule of the arrival of funds which will initiate the start of a recurring income that will support an application to change the terms of the credit contract.

62 As is apparent, the difficulty with all these assertions is that they are general, they do not give any detail of the existing arrears, his payment history since the last records attached to the plaintiff's material (which conclude in February 2011), the precise amount he proposes to pay by way of regular payment and, most importantly, when that will commence. The material exhibited to these affidavits shows at best that the defendant appears to have some involvement in a business enterprise in the Philippines supplying "water generators", that a number of potential buyers have expressed interest, and that is expected that income will be generated from sales. There is no proof as to the precise interest the defendant holds in this enterprise and whether it is enforceable, nor the expected financial return, let alone any certainty as to when that might eventuate. In essence I consider that the defendant's material is a series of requests for further time to show that he can formulate a proposal, rather than the detailed change proposal that is required to have any real prospect of success at trial under s 74.

63 Similar material was contained in the defendant's affidavit sworn 23 April 2012 in support of his application to re-open his case, which was otherwise concluded on 13 March 2012. That material is not in evidence because I refused that application, but I did so in part because it suffered from the same defects and so was not sufficiently probative to re-open the case.

64 As against the absence of certainty in the defendant's proposal, the evidence suggests that the amount owing is rising quickly. The last payment shown in the plaintiff's material, being AD-5 to the affidavit of Ms Doudman was made on 19 January 2011. The closing balance on 4 February 2011 shown in that exhibit was $358,880. At the time the writ was drawn on 11 May 2011 the amount owing was said to be $367,568.59. As at 21 July 2011, the date of the certificate by Ms Doudman which is AD-7 to her affidavit, the debt was $373,917.04. By 9 March 2012 the amount owing was (according to the certificate exhibited as KM-2 to the affidavit of Kate Mattson sworn 9 March 2012) $409,352.66. I infer that if any payments have been made by the defendant since January 2011 they have been minimal. The defendant has neither advanced a firm proposal for change on the basis of credible financial information nor, apparently, made any substantial payment for many months.

65 Counsel for the plaintiff relies on Grace v ING Bank (Australia) Ltd[16] in support of his submission that the evidence before the Court must be sufficient to show that the debtor will be able to meet his obligations if the change is accepted. In relation to the current application for summary judgment this would require that the defendant has some real prospect of success in so satisfying a trial court, but that must be measured on the current evidence. In that case the Victorian Civil and Administrative Tribunal dismissed an application for postponement of enforcement action under s 88 of the former State Code (now s 96 of the National Code) on the basis that the Tribunal could not determine how long the postponement should last as it was uncertain when, if ever, the applicant would be able to pay the whole of the loan balance. The whole of the loan balance was there in issue as judgment for the whole had already been entered in the Supreme Court. As judgment for the whole has not been entered in this case, arguably it would be sufficient here if the defendant has a real prospect of success on the evidence that he will be able in a certain period to recommence instalment payment and pay arrears and costs. For the reasons advanced earlier, however, the evidence in the defendant's affidavits is insufficient in my view to show any reasonable and certain prospect of even reinstating regular instalment payment, let alone payment of the full principal and interest now outstanding. I do not consider there is any real prospect of success on a change application pursuant to s. 74.

Conclusion as to prospects of success of the defences and exercise of Section 88(5) discretion

66 In conclusion, I do not consider that the defendant has any real prospect of success in any defence advanced, except as to the failure to comply with the statutory requirements for the form of the s 88 notice. That failure may be cured under s 88(5). I have considered whether the necessity for such cure is a reason why the matter should proceed to trial under s 64(a) of the Civil Procedure Act, on the basis that it is not in the interests of justice to dispose of it summarily, because such a failure to comply with the consumer protection intent of the Code should not be authorised except at trial. I have concluded that notwithstanding this factor the necessity for cure does not justify the matter proceeding to trial, and it is appropriate that I cure the defect now for the purposes of the summary judgment application.

67 I first have regard to ss 7 and 8 of the Civil Procedure Act which provide that the Court must give effect to the overarching purpose of the Act in the exercise of any of its powers, that overarching purpose being to "facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute". The material on which the parties rely as to cure is before me. It is efficient, timely and cost-effective to deal with it now. The plaintiff relies on the fact that notwithstanding that the default notice did not contain the required reference to postponement, in fact the defendant did contact the bank during the remedy period. The notice sent to him confirming the arrangement arrived at is expressed to be a postponement notice (AD-9 to the affidavit of Ms Doudman). It is to be contrasted with the subsequent notices sent confirming arrangements arrived at after the default notice had expired, being AD-11. In other words, the action the defendant took was treated, to his advantage, by the plaintiff bank as falling within the very option it had failed to include in the default notice. There can be no better basis for curing the defect- the defendant could not be said to have been prejudiced by it.

68 I also take into account in the exercise of the discretion under s 88(5) that the defendant has had the advantage prior to issue of the writ of multiple subsequent extensions of required repayment after the original postponement, and further adjournment following the lodging of his complaint with the Financial Ombudsman Service.

69 Even if further evidence came to light if the matter proceeded to trial, I consider that these factors will remain compelling reasons to cure the defect, and the discretion should be exercised to cure the defect now, before the debt increases further. I do not consider it to be in the interests of justice to allow the matter to proceed when the defendant has conceded in oral submissions that the debt may already exceed the equity in the land and there is no credible basis before me on which it is likely to be reduced other than by sale.

70 For all these reasons, I consider it appropriate to cure the defect in the default notice, pursuant to s 88(5), now for then, so as to authorise the commencement of the enforcement proceedings and to give summary judgment to the plaintiff.

[1] Wheelahan and Anor v City of Casey and Ors (No.3) [2011] VSC 15 at [8] (Osborn J. as he then was); Matthews v SPI Electricity Pty Ltd and SPI Electricity Pty Ltd v Utility Services Corporation Limited and Ors (Ruling No.2) [2011] VSC 168 at [18] to [22] (J.Forrest J.); Ottedin Investments Pty Ltd v Portbury Developments Co. Pty Ltd and anor [2011] VSC 222 at [8] to [18] ("Ottedin") (Dixon J.); JBS Southern Australia Pty Ltd and anor v Westcity Group Holdings Pty Ltd and ors {2011] VSC 476 at [39] to [50] (Croft J.); Dattner v Wharton [2011] VSC 610 at [43] (Habersberger J.); Samfa Pty Ltd v Hilane Pty Ltd and ors [2011] VSC 644 at [9]- [10] (Davies J.). The Court of Appeal in Manderson M & F Consulting v Incitec Pivot Ltd [2011] VSCA 44 ("Manderson") cautioned at [30] that there is not yet sufficient judicial attention to clearly differentiate s.63 from the procedure under the Rules but did not overrule the cases earlier cited.

[3] Manderson op cit at [27] and [34].

[4] The defence is not entirely clear on this point as paragraph 2 of the defence appears not to admit the mortgage as pleaded in paragraph 4 of the statement of claim, but paragraph 3 of the defence admits the terms of the mortgage as pleaded in paragraphs 5 and 6 of the statement of claim.

[5] (1969) 16 FLR 23.

[6] [2006] NSWSC 1105 at [59].

[7] [2011] NSWCA 417.

[10] Affidavit of Azita Doudman sworn 21 July 2011 at [30(x)].

[11] [2007] NSWSC 223.

[13] [2009] QSC 183.

[16] [2009] VCAT 1975.