Plaintiff (Respondent on Appeal) v Defendants (Appellants on Appeal)

1 On 30 September 2013, an Associate Judge acceded to the plaintiff's application for summary judgment. Orders were made against the first and second defendants, Mijalce Stoyanov and M & J Stoyanov Transport Pty Ltd, that they pay the plaintiff the sum of $198,468.71 plus costs. An order for possession a property at 25 Midholm Court, Thomastown, was also made against Mijalce, the registered proprietor and mortgagor. A stay of 45 days on enforcement was granted. The application for summary judgment against the third defendant, Joyce Stoyanov, was dismissed, and the costs of that application reserved.

2 Reasons for Judgment were not published until 9 October 2013. On 14 October 2013, Mijalce and the company appealed. The grounds of appeal were as follows:

(2) The learned Associate Judge erred in failing to dismiss the plaintiff's application for summary judgment as against the first and second defendants.

(3) The learned Associate Judge erred in failing to find or hold that the first and second defendants have a real prospect of successfully defending the plaintiff's claim against them.

(4) The learned Associate Judge erred in failing to hold that the monthly default charge claimed by the plaintiff, of $990.00 per month, is on its face void as a penalty.

(5) The Associate Judge erred in failing to find or hold that the plaintiff's assertion that the loan was in default on 20 June 2011 is wrong.

There was a sixth ground of appeal, in which the appellants reserved the right to add further grounds once the reasons for judgment were published. The Reasons had, of course, already been published. In any event, no further grounds have been advanced.

3 The generality of grounds (1), (2) and (3) was unhelpful. Grounds (4) and (5) were misconceived. On an application for summary judgement, there is no occasion for such findings. The appellants' case on appeal fell broadly within ground (3).

4 Mijalce and Joyce, are husband and wife. The Thomastown property has been the family home for 37 years. They have raised three children in the home. The second defendant is a company which Joyce described as 'my husband's company'. It carried on business transporting crushed rock for construction and building sites. The registered office of the company and principal place of business were at the family home. Notwithstanding her evidence attributing ownership of the company to her husband, Joyce was the sole director, secretary and shareholder. Mijalce said that he was not an officer of the company 'on the advice of my accountant'.

5 In 2007, Joyce purchased a property at 36 Semaphore Street, Coronet Bay, as a family holiday home. She paid a deposit of $24,750 out of funds given to her by her father, and borrowed $227,750 from Liberty Finance, who took a first mortgage.

6 By 2011, the company had also incurred debts. One debt arose out of a hire purchase agreement with Pepper Australia Pty Ltd for the purchase of a truck. As at March 2011, the payout figure was $68,745.83.

7 Joyce deposed that as a result of the global financial crisis, the trucking business experienced a downturn and she was unable to service the loan from Liberty, who threatened to take possession of the Coronet Bay property. The appellants' accountant, David Hatzis, suggested they consult a finance broker, George Misalides, for assistance. The broker said he could arrange finance with the respondent, and eventually arranged three loans. These were used to discharge existing debts, avoiding a threatened proceeding by Liberty.

8 The borrower in each instance was the company. Mijalce and Joyce were guarantors and mortgagors. One loan was for $187,000, secured by a first mortgage over the Coronet Bay property. A second loan was for $51,000, secured by a second mortgage over the Coronet Bay property. The third loan, with which this proceeding is concerned, was for $107,500, secured over the Thomastown property. Each loan carried a substantial loan application fee and a range of default fees. Joyce went so far as to speculate that the plaintiff had established three loans in order to charge more fees.

9 Joyce managed the negotiations for the loan transactions on behalf of all borrowers and sureties. She was informed by the broker that the respondent would only make business loans. While she said she was unhappy about that requirement, she did not explain why. She said she felt compelled to agree to the proposal.

10 When loan documentation was prepared, it was made available for collection by Joyce at the broker's place of business. After collecting the documents, Joyce made an appointment with her lawyers, L N Christie & Co Lawyers, to have certain of the documents witnessed, and for a solicitors certificate to the effect that the transaction had been explained to and understood by the sureties. Joyce took the documents to her husband's place of work, at Hansen Quarries, where he signed his guarantee and the mortgage documents relating to the Thomastown property. Joyce then took the documents to her lawyer's office, where she met with an employee solicitor, who witnessed her signature, and that of her husband, although in his absence. The solicitor also provided the necessary certificates.

11 Joyce deposed that the solicitor did not ask to see her husband at any stage. She claimed that the solicitor did not explain the loan documents to her, or the fact that, because they were business loans, some consumer laws did not apply. In any event, she returned the loan documents to the broker and settlement was arranged for 12 May 2011.

12 At settlement, the respondent retained interest out of the settlement sum, calculated from 28 April until 31 May 2011, even though the funds were not advanced until 12 May. The interest retained at settlement later became a matter of complaint by Joyce to the financial services ombudsman, resulting in a refund of so much of the interest as was referrable to the period prior to settlement.

13 There was no dispute about the authenticity and execution of the loan documentation, guarantees and mortgage. The loan was for a period of 12 months, repayable in full on 1 June 2012. The first instalment of interest was due on 1 June 2011, although Joyce said that she had been told by the broker, 'you have six weeks before your first payments are due'.

14 Under the terms of the loan and mortgage, penalty interest was payable unless the instalment was paid within two days of the due date. There was an additional monthly charge of $990 in the event of a default. In that event, the annual compliance fee of $197.08 would also become payable. There was also a dishonour charge of $45 in respect of each unpaid instalment.

15 Payments were to be made by direct debit from a nominated account. The payment due on 1 June 2011 was not made.

16 A Notice to Pay, purportedly given pursuant to s 76 of the Transfer of Land Act 1958, was served on Mijalce, as guarantor and mortgagor, on or shortly after 20 June 2011. A further Notice to Pay under the loan contract was served on the company. There were probably other notices under the Coronet Bay mortgages and loan contracts. Joyce deposed that having received the Notices, she telephoned the respondent's solicitor and spoke to Skye Fraser. She complained about the date for the first instalment, claiming that she had until 1 July to pay. She also telephoned the broker, who suggested that she speak to the respondent's chief executive officer. Joyce called Dean, the respondent's chief executive officer, and asked why the respondent had not given her prior warning of the default. Dean apparently told her that a letter had been sent. Joyce responded that she had not received the letter. It is difficult to divine any clear sense of what letter was under discussion, as the notices had already been sent. Presumably, Joyce believed she should have received something earlier.

17 On the following day, Joyce spoke to the broker and asked him to start looking for another lender. Her attempts to refinance the loans were unsuccessful. In July 2011, Joyce lodged a complaint with the ombudsman. The effect of the complaint was to prevent further legal action by the lender until the matter had been resolved. The ombudsman's initial file was closed on 14 February 2012, but a new file was opened on 30 January 2012. It related to specific complaints concerning the date on which the first instalment was due (1 June 2011) and the overcharging of interest was ultimately refunded. The ombudsman sought information from Joyce to support a request to the lender for restructured payments, and for time to sell the properties, but no such information was forthcoming. In the end, the ombudsman could do no more and the file was closed.

18 Joyce claimed that at some point, although it is not clear when, the respondent offered to accept interest at the lower rate provided all arrears were paid. But what is clear, is that the appellants made no attempt to remedy the default, bring arrears up to date, repay the principal, or to have the amount due adjusted by deducting the default fee of $900 per month.

19 The loan expired on 31 May 2012. It was not repaid and has not been repaid. Apart from the initial interest deducted at settlement, and some erroneous debits made by the plaintiff under a bank authority, which were subsequently refunded, nothing further has been paid in reduction of the principal and interest.

20 At the hearing before the Associate Judge, the issues in contention were firstly, whether there was a default as to justify the Notice to Pay; and secondly, whether the mortgage and guarantee might be set aside in equity, because Mijalce was labouring under a 'special disability' rendering enforcement unconscionable. Accordingly, the Associate Judge embarked upon the enquiry as to whether, on the material before the court, those defences had any real prospect of success.

21 It was not easy to discern the scope of the appellant challenge to default and the validity of the Notice from the Reasons published by the Associate Judge, although mention was made of the 'essence of the case' put by counsel for the defendants. That case, according to the Associate Judge, was that Joyce had been led to believe that the first instalment would not be due for six weeks. Another argument advanced by the appellants' counsel on that occasion was to the effect that the reimbursement of interest by the respondent, following the complaint to the ombudsman, invalidated the Notice because the amount stated as owing was, in hindsight, overstated.

22 The purpose in mentioning the arguments, advanced before the Associate Judge, and ultimately rejected by him, is to contrast them with the appellants' case on appeal. The case for invalidity advanced to the Associate Judge was abandoned. In its place the appellants contended that the Notice did not specify whether the amount demanded in the notice comprised principal, interest, or an amount due pursuant to any particular covenant. They contended that the absence of particularity, and inaccuracy, invalidated the Notice. The inaccuracy was the wrongful inclusion of the default fee of $990. The appellants contended they were not contractually obliged to pay the fee, or it was unenforceable as a penalty. They contended that the amount of the claim was so excessive and wrongful that it might be inferred that the plaintiff would have refused to accept tender of the correct amount in satisfaction of the demand.

23 Mijalce also abandoned reliance on his 'special disability' case advanced before the Associate Judge. Thus, the appellants did not set out to challenge the decision of the Associate Judge based on any error found in the Reasons. Their complaint was that the decision was wrong on grounds that had not been argued before the Associate Judge.

24 The appellants conceded that their case on appeal had not been advanced before the Associate Judge. In Wallis Nominees (Computing) Pty Ltd v Pickett,[1] the Court of Appeal said:

1. It is a general rule that parties are not permitted to pursue arguments on appeal that were not run below because

[i]t is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.

1. Permitting the running of a new argument under such circumstances therefore 'not only undermines the respective functions of the trial and appellate courts and the policy of law but perhaps more importantly it deprives the appellate court of the benefit of the views of the trial court.'
2. A consideration of whether the new argument should be entertained raises issues concerning:

the finality of litigation; the difficulty of inducing an appeal court to consider new facts; the undesirability of encouraging tactical decisions not to present an issue at first instance: keeping it in reserve for appeal; and the need for vigilance to avoid injustice to a party having to meet new facts and new issues of law for the first time at the appeal court.

1. Exceptional circumstances may arise where it would not be contrary to principle to entertain the point. A point will not be entertained when 'evidence could have been given there which by any possibility could have prevented the point from succeeding'. However, if 'all facts have been determined beyond controversy or the question is one of construction or law and it is expedient and in the interests of justice to entertain the point, a party may ... take a point for the first time on appeal.'

25 It is true that the hearing before the Associate Judge was not the trial of the issues in dispute. The evidence filed on behalf of the defendants was not challenged, and ordinarily, a plaintiff would have no opportunity to crossexamine witnesses. The court was not obliged to finally determine all factual and legal issues. The question before the Associate Judge was whether the defendant had shown cause as to why there ought to be a trial of all or some of the issues. When approaching that question, the Associate Judge was obliged to apply the principles enunciated by Chief Justice Warren and Nettle JA in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd.[2] They concluded:

1. the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a 'real' as opposed to a 'fanciful' chance of success;
2. the test is to be applied by reference to its own language and without paraphrase or comparison with the 'hopeless' or 'bound to fail test' essayed in General Steel;

1. it should be understood, however, that the test is to some degree a more liberal test than the 'hopeless' or 'bound to fail' test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent's case is not hopeless or bound to fail, it does not have a real prospect of success;

1. at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.

26 Notwithstanding the significant differences between an application for summary judgment and a trial of a proceeding, there is no reason why the general rule under consideration in Wallis Nominees should not apply to an appeal under r 77.06 of the Supreme Court (General Civil Procedure) Rules 2005. An appellant will ordinarily be required to show error on the part of the court below before appellate power will be exercised. In Oswal v Carson,[3] Ferguson J said:

The appeal and cross-appeal are brought by notice under r 77.06 of the Supreme Court (General Civil Procedure) Rules 2005. Such appeals are no longer by way of rehearing de novo. Instead, they are rehearings which, in the absence of further evidence or a change in the law, ordinarily require the appellant to show error on the part of the Associate Judge before appellate power may be exercised. In addition, if the orders from which an appeal is brought relate to a matter of practice and procedure (as the orders in this case do), an appellate court will exercise particular caution in reviewing the decision.

27 When considering exceptions to the general rule, regard must be had to the nature of the proceeding below, and in particular the enquiry to be undertaken by the court. But even so, many of the policy considerations reflected in the general rule as it is applied to appeals from a trial division have equal relevance to an appeal under r 77.06. Preliminary skirmishes should be discouraged. The nature of the appeal under r 77.06 is no longer de novo. Ordinarily, error must be demonstrated before the appellate power may be exercised. In my opinion, the established exceptions to the ordinary rule make ample allowance for the differences between an appeal from an order for summary judgment and judgment following a trial. It was not suggested by the respondent that the appellants sought to introduce new material. They had filed five affidavits, although it must be said that they were mostly directed to the 'special disability' defence. Discovery had been given. Some discovered documents were included within the Appeal Book. The appellants have had every opportunity to advance their best case.

28 The appellants contended that they ought to be entitled to advance their new case, because it did not stray from the material that was before the Associate Judge. They only sought to place a different complexion on some of the material, and advance new arguments based on a construction of the loan documents, the nature of a default fee and the content of the Notice. That contention had merit. The new case did no more than invite a different analysis of existing material. To prevent the appellants from now putting their best case forward on appeal, would seem unjust. In my opinion, it is both expedient, and in the interests of justice to entertain the new arguments. Accordingly, I turn to the new case advanced on appeal.

29 The case for a penalty was not developed beyond assertion, coupled with a reference to Andrews v ANZ[4] and Paciocco v ANZ.[5]

30 The default fee of $990 per month, in addition to penalty interest charged at a very high rate, required an explanation from the respondent. No explanation was given. The amount referrable to that fee, included in the amount of the judgment, was $27,720. Similar, although not identical, amounts were said to have been charged by the plaintiff in respect of the other two loans. The appellants wish to amend their defences to recover those payments in this proceeding. That will require a counterclaim, for which leave must be sought and obtained.

31 Having regard to the amount of the loan, the rates of interest and the fees charged by the plaintiff, I am satisfied that the defendants have some prospect of success at trial should they contend that the default fee of $990 ought to be characterised as a penalty, for which they are not liable. That being so, the judgment for the money sum ought to be set aside, and the appellants ought to be granted leave to defend for so much of the claim as reflects the default fee of $990 per month.

32 The appellants also contended that they had no obligation to pay the default fee of $990, because it was not mentioned in the letter of offer dated 17 March 2011. They relied on clause 12.13 of the loan agreement, which stated:

Inconsistencies with Letter of Offer

In the event of any inconsistency with between this document and the Letter of Offer, the terms and conditions of the Letter of Offer will override the terms of this document only to the extent of any inconsistency.

33 A similar provision is found in cl 9 of the mortgage:

The Mortgagor further covenants and agrees to observe and comply at all times with the terms and conditions of or contained in the Mortgagee's letter of offer including written variations or further letters of offer (the Terms and Conditions). The Terms and Conditions are deemed to be incorporated herein and such Terms and conditions to the extent of any inconsistency with the provisions of this Mortgage (including the Further Covenants) shall override the latter.

34 The appellants argued there was inconsistency between the letter of offer on the one hand and the terms of the loan agreement and mortgage on the other, because the letter of offer made no mention of the default fee of $990. In my opinion, the absence of any reference to the default fee in the letter of offer does not necessarily make it inconsistent with the loan agreement and mortgage, both of which were later in time, more precise, and contained different amounts for loan and interest. I need not decide that question. Should the appellants prosecute their challenge to the default fee as a penalty, they may also raise the construction argument.

35 The appellants' contentions concerning the character of the default fee of $990 were not designed to stand alone, merely reducing the overall sum payable. The contentions were intended as the foundation to their challenge to the validity of the Notice. The appellants contended that notwithstanding the decision in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd,[6] there were circumstances in which ambiguity, error and overstatement can have the effect of invalidating such a Notice. They relied on the decision of Waddell CJ in Clare Morris Ltd v Hunter BNZ Finance Ltd.[7]

36 The Clare Morris case involved an application for interlocutory relief by a defaulting mortgagor under a lease of restaurant equipment secured by a registered mortgage. The mortgagee proposed to sell the mortgaged land, but the mortgagor lodged a caveat on title and commenced proceedings, claiming that the Notice to Pay, given under s 57(2)(b) of the Real Property Act 1900 (NSW), was invalid for two reasons. Firstly, that it did not identify whether the amount required to be paid was for principal, interest, annuity, rent charge or other money in respect of which the mortgagee claimed a default. The Act required the notice to specify to which of the matters the amount demanded related. It did not do so. It was held that strict compliance was necessary.

37 The second basis for invalidity, advanced by the plaintiff in Clare Morris, was that the notice was void because a large proportion of the amount required to be paid was a penalty. Waddell CJ found that there was a strong prima facie case that the mortgagee was not entitled to the whole of the amount claimed. After considering Bunbury Foods and other authorities, his Honour concluded:

In the present case, before the notice was given, the Common Law proceedings already mentioned had come to a halt and I think that an inference may be drawn from the issues defined from the pleadings in that case and the defendant's failure to prosecute them, that there was an implied refusal to receive less than the full amount claimed.

Accordingly, there is a prima facie case that the amount claimed is considerably in excess of that actually due and there is evidence raising a prima facie case of an implied refusal to accept any less. In these circumstances there is, I think, a prima facie case that the s 57 notice is invalid on the ground that the amount claimed is substantially less than that due.

The defendant submits that if the notice is invalid the plaintiff waived the invalidity by not challenging the defendant's claim within a reasonable time after service of the notice. The defendant relied upon my judgment in Morton v Suncorp Finance Corporation Ltd, unreported, 12 November 1986, at 19-20. There I held that, as a result of actions over a lengthy period, a mortgagor had acquiesced in the proposed sale of the mortgaged property notwithstanding any invalidity in the s 57 notice. I do not think that the evidence in the present case leads to any inference of waiver.

For the foregoing reasons it seems to me that the plaintiff is entitled to interlocutory relief.[8]

38 The appellants' contention was that the wrongful claim for the default fee of $990 in the Notice was so excessive as to render the Notice invalid, because it was evidence of an implied refusal to accept anything less. In Clare Morris, there was evidence of implied refusal, in the present case there was none.

39 The appellants also relied on Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Limited,[9] a decision of Besanko J in the Supreme Court of South Australia, on appeal from a Master who had made an order for possession of land. The appeal was in the nature of a rehearing de novo. The mortgagor contended that the Notice to Pay, served under s 55A of the Law of Property Act 1936 (SA), was invalid because it demanded the sum of $2,100,000, whereas the amount secured by the mortgage was said to be no more than the sum of $1,500,000 plus interest and costs. The mortgage contained a provision to the effect that it was security only for a particular debt under an earlier mortgage, which was limited in the sum of $1,500,000 plus interest and costs. On that basis, Besanko J concluded that there was a triable issue as to whether the mortgage in question secured any greater amount. Besanko J considered various authorities, including Bunbury Foods, Inglis v Commonwealth Trading Bank of Australia,[10] and Mir Bros Projects Pty Ltd v 1924 Pty Ltd,[11] in which Powell J considered the requirements of a notice under the Real Property Act 1900 (NSW). Besanko J concluded:

Despite these submissions and not without some hesitation, I have concluded that the mortgagors' submission that an overstatement of the amount due leads to the invalidity of a notice under s 55A is arguable, and therefore raises a triable issue. I think the point is arguable having regard to the terms of s 55A and the purpose of the section which I think is to provide a clear opportunity to owners of property used for a particular purpose (ie., domestic or agricultural) to avoid the exercise of certain powers under a mortgage. Furthermore, I cannot exclude the possibility that evidence of what might have happened had the correct amount due been stated may be relevant to the outcome of the issue.

40 The Notice in the present case was given pursuant to s 76(1) of the Transfer of Land Act 1958, which relevantly provides:

If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).

41 In Whild v GE Mortgage Solutions Ltd,[12] Croft J dealt at length with a contention that a notice given under s 76 of the Transfer of Land Act was invalid because it contained an overstatement. His Honour drew a distinction between the requirements of s 57 of the Real Property Act 1900 (NSW) and s 76 of the Transfer of Land Act. His Honour said:

At the outset, in considering the authorities, it should be noted that the provisions of s 57 of the New South Wales Real Property Act 1900, provisions which regulate the exercise of the mortgagee's power of sale of registered mortgages of Torrens system land in that State, require, specifically, that the mortgagee brings to the attention of the mortgagor the particular default which the mortgagee alleges has occurred. Additionally, these provisions require that the notice specify that it is a notice pursuant to s 57(2)(b) of the Real Property Act 1900. Thus, the provisions of the corresponding Victorian provisions, s 76 of the TLA, are in marked contrast to the more detailed and prescriptive provisions of s 57 of the New South Wales legislation. Section 76(1) of the TLA requires "notice in writing to pay the money owing or to perform and observe the convenants (as the case may be)". It should also be noted that there is no provision in the Victorian legislation providing for a mortgagee's statutory power of sale and its exercise, under ss 76 and 77 of the TLA with respect to Torrens title land, which requires the notice to specify that it is a notice to pay under these provisions. Nevertheless, for reasons which are discussed further below, I do not regard the absence of an express requirement of this kind as decisive with respect to the form and content of such a notice in Victoria.

42 Croft J undertook an extensive, thorough and helpful review of the authorities, including Bunbury Foods and the decision of Powell J in Mir Bros Projects, concluding that a notice under s 76 will not necessarily be bad because a greater sum is demanded than is payable. He reasoned that the position may be different if the notice is, in all the circumstances, misleading.[13] Croft J concluded:[14]

1. In my opinion, on the basis of Websdale, Bunbury and the other authorities to which reference has been made, it is clear that a notice which correctly identifies the event of default relied upon but which overstates the amount owed is, nevertheless, valid for the purposes of the TLA provisions.
2. For these reasons, I find that the notice of default with respect to Loan A overstated the amount owing but did, nevertheless, correctly identify the event of default upon which it relied and did not rely upon any non-default in the relevant sense. Accordingly, the notice of default was valid and the Tribunal was in error in finding that this notice was invalid.

43 The event of default on which the respondent relied, was the appellants' failure to pay the instalment due on 1 June 2011. There was no ambiguity in the Notice in that regard. The appellants did not contend that the Notice was misleading in some respect, although they did contend that it was devoid of necessary particularity. The kind of particularity required, according to the appellants, resembled that which is required under the Real Property Act 1900 (NSW), but not required under the Transfer of Land Act. At its highest, the case advanced by the appellants was that the amount required to remedy the default was overstated and so excessive as to give rise to an implied refusal to accept the correct sum.

44 The overstatement, if there was one, was consistent with the terms of the loan and the mortgage. It was only on this appeal that the appellants claimed that they were not liable to pay it. The Notice prescribed the default as the mortgagee's failure to pay $3,961.14, described as 'total arrears outstanding as at 16 June 2011'. To that amount was added enforcement expenses of $614.80, resulting in a total of $4,305.94. The amount claimed to be in arrears comprised the default interest sum of $2,459.06, the monthly default fee of $990, the annual compliance fee of $197.08, and a dishonour fee of $45.

45 I do not accept that the appellants have a real prospect of successfully contending at trial that that there was any ambiguity about the composition of the stated arrears. The demand was not misleading. The breakdown of the amount was readily ascertainable from the loan documents and mortgage. The Notice required payment of the arrears, plus enforcement expenses, within seven days to remedy the default. The evidence did not disclose any complaint made by the appellants about the composition of the amount required to remedy the default, or that the Notice was ambiguous, or that they failed to understand the composition of the amount claimed. The uncontested fact was that they were in no position to pay, and all the evidence was consistent with that concession. The appellants did not challenge the validity or enforceability of the default fee of $990 until this appeal.

46 The substance of the complaint by the appellants to the ombudsman is difficult to define from the materials sent by Joyce. However, by letter dated 31 January 2012, the ombudsman summarised the complaint, which does not appear to include any complaint of ambiguity or uncertainty, and more particularly, any complaint that the appellants were not liable for the penalty fee of $990. At one point, the appellants sought hardship assistance. They complained to the ombudsman about the date for payment of the first instalment, and raised the issue of their 'special disability'. They successfully sought the return of some interest. It seems common ground that their contentions concerning the default fee of $990 were only recently developed for the purpose of the appeal.

47 It is difficult to discern a basis upon which the appellants might advance a case at trial, with any real prospects of success, for an implied refusal by the plaintiff to accept the correct amount, even if they are able to establish that the fee was, for one reason or another, not payable. No sum was ever tendered to the lender. Apart from their complaint to the ombudsman, the appellants did nothing to challenge or interrupt the exercise by the respondent of its security rights in relation to the Coronet Bay property, or the Thomastown property, prior to the summons for final judgment. The appellants did not advance any proposal to the lender to remedy the default within the time prescribed, or compromise their obligations under the loan agreements, because they were unable to do so. It is unnecessary to consider an implied refusal to accept an adjusted sum, because such a contention ignores the reality of the appellants' financial distress and their conduct following the default on 1 June 2011.

48 The history of the relevant provisions in the Civil Procedure Act, including the Explanatory Memorandum to the Civil Procedure Bill 2010, makes it clear the test for summary judgment was to be liberalised, although the power should always be exercised with caution. This purpose is best expressed in the recommendations of the Victorian Law Reform Commission recited in the Explanatory Memorandum:

The Commission stated that claims or defences that are without merit create problems for the parties and the administration of justice, subjecting plaintiffs and defendants to the inconvenience and expense of litigation. The pursuit of unmeritorious claims or defences also has adverse consequences for the administration of justice. Judicial and other publicly funded resources are expended and diverted from dealing with other cases.

The Commission stated that the summary judgment procedure is too restrictive, that the applicable test should be liberalised and that the procedure should be used more frequently and flexibly to dispose of claims or defences that are unmeritorious. It recommended that summary disposition should be available where a claim or defence has 'no real prospect of success'.

The Bill reforms the procedure for the earlier determination of disputes, including liberalising the test for the summary disposal of unmeritorious claims and defences. This will help the courts to remove at an early stage cases where a party has no real prospect of success.

49 One purpose of the new regime is to prevent unmeritorious claims from being litigated, even though it might not be hopeless or bound to fail. With the exception of the limited case in respect of the $990 fee, I am satisfied that it has no real prospect of success in the relevant sense. A trial of the appellants' challenge to the validity of the notice cannot be justified. There is no evidence to support an implied refusal to accept the correct sum. I would go so far as to find that the appellants' challenge to the Notice is bound to fail.

50 The term of the loan expired on 31 May 2012. To deny the respondent its remedy to recover the unpaid debt and call in its security, until after a trial on all issues and judgment, will unfairly and unjustly prejudice the respondent's rights. It will also be prejudiced to the appellants. Interest is continuing to accrue at the default rate. The appellants' equity in their home will be further eroded. It is only through the realisation of the security that the debt can be discharged.

51 While the Associate Judge did not err in his reasons, based upon the defences advanced by the appellants before him, the order for payment of the money sum must be taken to be erroneous. Thus, ground (3) has been made out by the appellants, but only in part. To that limited extent, the appellants have identified error, but only after being permitted to advance a new case. They have not succeeded in their substantive case of invalidity.

52 For the reasons given above, I set aside the order for the money sum and substitute an order that the appellants pay to the respondent the balance of principal and interest outstanding, less the amount attributable to the default fee. A new calculation will be required to adjust principal and interest. I give the appellants leave to defend the claim insofar as it is based upon the amount of the default fee of $990. I reject the appeal against the order for possession. I will make orders accordingly and hear the parties on the question of costs.

[1] [2013] VSCA 24.

[2] [2013] VSCA 158 [35].

[3] [2013] VSC 355, [11].

[4] [2012] HCA 30; (2012) 247 CLR 205.

[5] [2014] FCA 35.

[6] [1984] HCA 10; (1984) 153 CLR 491.

[7] 29 April 1988, Supreme Court of New South Wales - Equity Division; 4 BPR 97307.

[9] (2004) SASC 60, [37].

[11] (1980) 2 NSW LR 907.

[12] [2012] VSC 212, [33], emphasis added.

[13] [2012] VSC 212, [43].

[14] [2012] VSC 212, [47]-[48], emphasis added.