RHG Mortgage Corporation Limited v Summerfield & Anor

Background

1. The loan agreement between the parties was entered into on 2 September 2002. On or about 2 October 2002, RHG advanced the amount of $380,000 to the applicants, who mortgaged to RHG all of their interest in the property. A variation agreement was executed by the applicants on 20 November 2003 when RHG made a further advance of $100,000 to the applicants.
2. It was a term of the loan contract that the applicants were required to make regular fortnightly repayments to RHG. If such payments were not made, RHG was obliged to give notice stating that the applicants were in default and that if the default was not corrected within the grace period of 31 days all money owing to RHG would become immediately due for payment without further notice.
3. The applicants first fell into arrears in 2013. On 11 July 2013, RHG obtained judgment against them and a writ of possession of the property was issued. An eviction was carried out on 28 March 2014.
4. Negotiations were subsequently conducted between RHG and the applicants and a written agreement was reached on 3 June 2014 by which RHG allowed the applicants to regain possession of the property subject to three conditions. Those three conditions were: that they pay $51,544 towards outstanding arrears immediately, that they pay $24,978 by 19 December 2014, being the costs incurred by RHG in seeking possession of the property, and that they maintain all further contractual payments when they fall due. The amount of $51,544 was paid immediately and fortnightly payments were made regularly thereafter.
5. On 7 January 2015 RHG issued notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) and s 88 of the National Credit Code (Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)) demanding under the loan contract payment arrears in the sum of $7,491 by 13 February 2015. That amount was expressed to be made up of the following missed payments: $908.24 on 7 November 2014, $ 1,645.69 on 21 November 2014, $1,645.69 on 5 December 2014, $1,645.69 on 19 December 2014 and $1,645.69 on 2 January 2014.
6. There was no dispute in the evidence before me that the applicants in fact did make their regular fortnightly payments during that time. Although the amount of $24,978 due under the 3 June 2014 agreement on or before 19 December 2014 was not paid as at 7 January 2015, it was not relied upon in that default notice as forming part of the default.
7. By statement of claim filed on 19 February 2015, RHG sought an order for possession of the property, an order that RHG have leave to issue a writ of possession in respect of the land, judgment against the applicants in the sum of $446,192.30 (comprising the debt of $442,055.30, fees in the amount of $2,816 and costs in the amount of $1,321), and interest accruing at the rate of 7.95% per annum or such a rate as varied by RHG from time to time from 18 February 2015 until the date of the judgment and costs. The statement of claim described the basis of the action at [11]-[12] as follows: "11. It was a term of the Loan Contract that the defendants must make regular fortnightly repayments to the plaintiff, in accordance with the terms set out in the Loan Contract. 12. In breach of the terms pleaded in paragraph 11 above, the defendants failed to maintain their regular fortnightly repayments to the plaintiff. As at 7 January 2015, the Loan contract was in arrears by the amount of $7,491.00."
8. On 20, 22, 23 and 26 February 2016 and on 1 and 5 March 2015, process server Naomi Greer visited the property and unsuccessfully attempted to serve the statement of claim on the applicants. Notes were left on each occasion for the applicants to contact her. In addition to the evidence of Ms Greer, there was also affidavit evidence from process server Kris Sabatino dated 20 June 2016. Mr Sabatino was present when the statement of claim was first left at the premises on 20 February 2015 and he took a photograph of the property.
9. Ms Greer attended the property on 6 March 2015. She spoke with the applicants' daughter, who said "Yes, we still live here. I'll tell Mum and Dad they need to contact you. They got your note".
10. On 8 March 2015, Ms Greer made arrangements by phone to meet with the second applicant. The second applicant said to her, "We have been working hard to catch up the payments. I'll make sure Brian is here too". On 12 March 2015, the statement of claim was served on the second applicant personally. She said, "Just give his to me. We know how this works, we have been there before".
11. Further visits were made by the process server on 17, 22, 23, 29 and 31 March 2015 and then on 7, 8, 10, 16, 18 and 20 April 2015 in attempts to personally serve the first applicant. Text and voice messages were left on the first applicant's mobile phone on 23 and 31 March 2015 and 16 and 20 April 2015. The affidavit evidence of Ms Greer did not specify what time each day she attempted to serve the first applicant.
12. On 5 May 2015, RHG succeeded in its application to this court for an order for substituted service of the statement of claim on the first applicant. The statement of claim was served on the first applicant on 6 May 2016. In accordance with the order for substituted service, it was left on the property in a sealed envelope addressed to the first applicant. The first applicant was also sent a text message alerting him to the service on 7 May 2015.
13. Neither applicant filed a defence to the statement of claim.
14. On 22 June 2015, RHG obtained a default judgment for the whole of the debt and possession of the property.
15. On 25 June 2015, a writ of possession was issued and an eviction scheduled for 28 September 2015.
16. The first applicant gave evidence that he read the writ of possession in late September 2015 after his wife informed him about it. It was at that time that he realised that there was a judgment for possession in favour of RHG.
17. On 25 September 2015, the first applicant contacted RHG and was informed that the only way to stay the eviction would be to pay the arrears amount of $7,000. He was not given any explanation for the debt except that he should consult his bank statement. At that time, he had not yet received the statement for that quarter. The email correspondence with the senior arrears officer at RHG, Mr Ross Papantonio, dated 25 September 2015 was in these terms: "Dear Brian, When the security was handed back to you the arrangement was for you to maintain your payments and clear the full arrears by the 19/12/2014. The above arrangement was broken, numerous attempts for contact to resolve the situation have been ignored. Judgment has been obtained for the full debt which is currently $441,403.63. As it stands the eviction scheduled for the 28/09/2015 will be proceeding. The only option of having the eviction stayed will be to pay a lump sum of $7,000 by close of business day today with the balance to be paid in November as you have outlined below. A remittance advice would need to be provided for evidence of payment."
18. The first applicant paid the amount of $7,000 on 25 September 2015 as advised and the eviction was stayed. He then immediately lodged a complaint with the Credit and Investments Ombudsman ("Ombudsman") as he firmly believed he was not in arrears in the amount of $7,000 as alleged.
19. In a letter dated 30 September 2015, the Ombudsman advised the first applicant that no enforcement action could take place while the complaint was being investigated and that, if his complaint was about a loan, then interest, fees and charges would continue to accrue while the complaint was being considered. The Ombudsman advised that payment obligations under the loan should continue to be met. The first applicant's evidence was that he misunderstood the contents of the letter to mean that the payments under the mortgage would also not be accepted. As a result, he stopped all payments on the loan. Up until he received the letter from the Ombudsman, the applicants had made a payment every fortnight as required.
20. In early October 2015, the first applicant was further advised that the Ombudsman would not be able to assist him if a judgment had been obtained. The Ombudsman undertook to check whether any judgment had been entered. The first applicant's evidence was that he thought that the Ombudsman would investigate and advise on what to do next.
21. In a letter dated 23 February 2016, the Ombudsman informed the applicants by email that it did not have jurisdiction to deal with their complaint and that RHG was permitted to continue enforcement action, including enforcing the judgment obtained against the applicants. The first applicant stated that he did not receive that email.
22. On 14 April 2016, RHG requested that the Sheriff reschedule the eviction. On 21 April 2016, a "Writ for possession - Notice to Vacate" was issued, scheduling an eviction for 30 May 2016. In late April 2016, the second applicant was served with this document.
23. On 25 and 26 May 2016, the first applicant sent emails to the Ombudsman seeking assistance. On 26 May 2016, the Ombudsman emailed the first applicant the judgment of 22 June 2015. The first applicant states that he then searched his earlier emails and located a letter sent to him on 23 February 2015. It informed the first applicant that the Ombudsman would not be able to assist him, given that there was a judgment obtained against him and his wife.
24. The first applicant then called the case manager at the Ombudsman, who telephoned RHG and discovered that the outstanding amount in arrears was now $67,854.82. He was informed that RHG would only accept the payment of the full amount of the loan. He was also given a number of the mortgage legal service regarding further assistance. On 27 May 2016, the mortgage legal service advised him to file a notice of motion in the Supreme Court to stay the writ.
25. On 27 May 2016 a stay of the writ of possession was granted. The notice of motion seeking that the default judgment be set aside was filed on 6 June 2016.

Evidence concerning whether there is a bona fide defence to the statement of claim

1. The statement of claim pleaded that the applicants had failed to make five payments in November and December 2014. Annexed to the first applicant's affidavit were bank records showing that fortnightly payments were in fact made throughout that period. To establish the default, RHG relied upon the evidence of Brad Hooper. Mr Hooper is an arrears supervisor at Resimac Limited ("Resimac"), which is a company that took over management of the loan.
2. In Mr Hooper's affidavit of 17 June 2015 in support of the default judgment he deposed that: "In breach of the Loan Contract (as defined in the Statement of Claim) the defendants failed to make regular fortnightly repayments to the plaintiff pursuant to the loan Contract and as at 7 January 2015 the defendants were in arrears under the terms of the loan contact in the amount of $7,491.00."
3. His affidavits of 3 June 2016 and 23 June 2016 annexed relevant documents.
4. In response to the affidavit sworn by the first applicant on 5 June 2016 annexing the relevant bank statements, showing that the amounts in the default notice had in fact been paid, Mr Hooper swore a further affidavit on 14 July 2016 in which he explained the default in a different way. He stated that, in September 2014, the applicants' loan was assigned to Resimac for a review as part of the new management of that loan. The applicants' loan account was processed and analysed by the Resimac accounts team to determine the "scheduled balance". That balance was a minimum balance for the loan account if the minimum contractual repayment were made in full and on time. The purpose of the review was to ensure that the numbers that were transferred were accurate and to establish whether the loan account was in any repayment arrears.
5. The "scheduled balance" for the applicants' loan was calculated as $406,507.42. When that was compared with the actual balance of $438,748.90, it was established that the applicants' home loan was in arrears of $32,241.48. The outstanding fees and charges accounted for $26,387.91, which left the amount of $5,846.57 as repayment arrears. This arrears adjustment was applied to the applicants' loan account on 29 September 2014 by way of a manual transaction. The purpose of this was to align the balance with the scheduled balance.
6. Mr Hooper's evidence was that, when the adjustment was made in September 2014, it was processed internally and was not reflected in the bank statements sent to the applicants.
7. Mr Hooper agreed that the attribution to the scheduled balance from the fortnightly mortgage account was not brought to the attention of the applicants. He also conceded that he was unable to show or demonstrate any journal entry transferring the money from the monthly mortgage account to the alleged "scheduled balance". Mr Hooper gave evidence that there was no single document that he could produce to demonstrate how the calculation was done. He was provided with this arrears number only and was not provided with any report or written record in relation to the review. Mr Hooper relied on his operations team as to the correctness of the information that was provided to him.
8. Mr Hooper did not dispute that the applicants met their usual fortnightly payments during the relevant time. Contrary to the position as set out in the statement of claim, Mr Hooper gave evidence that the default notice did not reflect the failure of the applicants to pay the fortnightly mortgage payments but, rather, that there was no money available to cover their obligations as specified in the notice because any further payments made after the arrears adjustment was applied were credited to cover the older outstanding amounts first. He, however, could not explain what further payments he was referring to and also stated that it was not his understanding that the monthly mortgage payments would also be attributed to pay that amount first.
9. A bundle of documents marked BH-1 was exhibited to Mr Hooper's affidavit dated 23 June 2016. These documents included a transaction listing statement dated 22 June 2016 and the running account. Those documents were generated by RHG with respect to the applicants' loan account. The transaction account statement provides details of date, transaction description, debit, credit and balance with respect to the loan account up to 15 June 2016. The running account provides details of the processing date, transaction date, description, amount, balance, arrears and fees/charges applied to the loan account up to 17 June 2016.
10. An examination of the running account indicates that after the applicants paid $51,544.10 on 4 June 2014 the "arrears" column showed that they were in credit of $5,575.62. They remained in credit until 29 September 2014 when the "Arrears Adjustment" in the amount of $11,473.86 was applied. The arrears column then shows that, on that date, the applicants went into arrears in the amount of $ 5,846.57 (page 112). Thereafter, each time RHG charged regular fortnightly payments (described as "Payment Due") they were added and recorded as arrears in the arrears column and did not show in the "balance" column; the loan balance would actually remain the same. However, each time a fortnightly payment was made it went to reduce the loan balance in the balance column and at the same time the arrears column would be credited back with that amount.
11. This document casts some doubt on the evidence of Mr Hooper that the fortnightly payments made regularly up to 29 September 2015 were taken by RHG in discharge of the older outstanding amounts first and not in discharge of the applicants' loan obligations as claimed by RHG.

Evidence of the first applicant regarding delay

1. The first applicant asserted that he never saw or received a default notice and that it is his wife who normally gets the mail from the mailbox and shows him anything that concerns him. He knew in January 2015 that they owed $24,978 to RHG for costs as part of the agreement reached with RHG not to act on the earlier writ of possession. He knew that that amount was not paid by 19 December 2014, when it fell due. He stated that he did not pay it because he did not understand how the amount was arrived at.
2. The first applicant stated that he had complained to RHG on a number of occasions to the effect that he did not understand how the amounts that were outstanding were calculated and that he never got a proper response.
3. He gave evidence that he did not receive the statement of claim and was not aware that the process server, Ms Greer, was trying to get in contact with him or attending at his house. He could not recall anyone by that name contacting him or leaving text messages. He denies ever seeing any documentation in relation to the statement of claim until he made the stay application in June 2016.
4. The first applicant denied that his wife told him that she had spoken with the process server and that she wanted him to be present at the house on 12 March 2015 to meet with Ms Greer. He also denied that she gave him a copy of the statement of claim that she had received from Ms Greer that day, giving the explanation that his wife would not know what a statement of claim was. He admitted that he had several conversations with his wife in relation to a number of phone calls that she had received from RHG informing her that they were in arrears. On each occasion, he told her that they were not in arrears.
5. He knew that RHG was trying to contact him, however he did not try to contact RHG. He explained that it would be difficult for him because he "might be driving a car, climbing up a ladder or doing some work so it is often not convenient to have a full-on discussion". He also felt that he would be at a disadvantage because he would not have the relevant documentation with him whilst they would have access to all the information. Another reason was that his bank statements did not show in recent times that he and his wife were in arrears.
6. The first applicant gave evidence that in or about January 2016 his computer got "corrupted" and he was unable to view any emails with regards to the complaint until 29 April 2016 when it was repaired. He stated that he may have received phone calls from the Ombudsman during that time but he could not hear any messages that were left because the case manager spoke very quietly.
7. The first applicant confirmed in his evidence that his mobile telephone number was the same one that RHG and the process server used to leave messages for him. His explanation for not responding was that he had no recollection of anyone by the name of Greer contacting him and leaving text messages.

Evidence as to amounts now due

1. In a letter dated 22 June 2016 from Dibbs Barker on behalf of RHG to the applicants' solicitor, it was noted that the first applicant, in his affidavit sworn 27 May 2016 in support of the application to stay the eviction, deposed that he was prepared to pay $67,000 to clear the arrears. He has since paid amounts of $3,164.58 and $1,582.29 on 31 May 2016 and $1,582.29 on 15 June 2016.
2. From the transaction listing statement referred to above at [41], it can be seen that as at 22 June 2016 the amount of the loan advanced to the applicants was $476,310. The loan was $26,682.84 in arrears and also had $41,741.78 in outstanding fees and charges. The credit column of the statement shows that the applicants' last payment in 2015 was the amount of $7,000 on 25 September 2015 and that the only two further payments before 21 June 2016 were payments of $1,582.29 on 31 May 2016 and 15 June 2016. It is to be noted that, on 15 June 2016, the balance column shows the amount of $457,603.25. That amount is quite different from the amount of $476,310 that is shown at the front of the statement. It is not immediately apparent how this discrepancy is explained. In his affidavit of 3 June 2016, Mr Hooper states that as at 2 June 2016 the arrears amount was $66,512.33 and the total outstanding amount was $459,439.20.

The applicants' submissions

1. The applicants' submissions identified the three matters upon which the parties joined issue as follows.
2. First, contrary to the position of RHG, this is not a matter in which the default notice was defective based upon an inaccurate balance. Rather, there is no satisfactory evidence to show that the applicants were in arrears at all. The notice is thus entirely defective because it does not identify any defaults. There is no dispute that fortnightly payments were made when they were due and that the bank statements did not indicate that there were amounts owing. The defect is not that the amount was misstated, but rather that it was not owed at all. The dispute goes to the existence of the debt rather than any amount
3. Second, these proceedings are not concerned with the agreement between the parties on 3 June 2014, a condition of which was that the applicants would pay RHG $24,978 in costs. The statement of claim concerns an allegation that the applicants fell into arrears when they failed to make fortnightly payments in late 2014. In any event, the applicants have tried to pay the amount of $24,978 and RHG refused to accept payment.
4. Third, there is a disagreement between the parties as to the relationship between ss 56 and 58 of the Civil Procedure Act 2005 ("the CP Act"). The applicants' contention is that, in this context, justice between the parties is the prevailing and dominant factor as reflected in the case law and ss 57 and 58. RHG, on the other hand, submitted that the question of delay plays a dominant part in the determination of the application given the terms of s 56.
5. It was submitted that, although it would be open to the Court to draw a negative inference from the fact that the second applicant was not called to give evidence, such an inference should not be drawn given the evidence of the first applicant that his wife would not even know what a statement of claim was and that she thought that the whole issue was about the arrears that the first applicant had told her had been paid.
6. The applicants relied upon inconsistencies in the evidence of Mr Hooper as between his first affidavit, in which he stated that the applicants' arrears arose out of a default notice, and the position advanced in his affidavit dated 14 July 2016, where he asserted for the first time that it arose out of a process undertaken by Resimac to determine a "scheduled balance". The applicants also relied upon the fact that Mr Hooper could not demonstrate how the calculation was done nor the basis upon which the allegation that the balance due and owing was $7,491 was made.
7. It was asserted that any application of the regular monthly payments by the defendants to other arrears was done after the statement of claim was filed, given that it specifically states that it was brought about because of the applicants' failure to "maintain their regular fortnightly payments". Mr Hooper acknowledged that those payments were made. There is no evidence that the amounts claimed by RHG first in the default notice and then in the statement of claim were in fact due.
8. Mr Luitingh also submitted that RHG departed from its usual practice and failed to serve any of the critical documents on Mr Summerfield via email, despite being in possession of his email address at all material times, and that this departure amounted to a failure to act in good faith. He relied upon the decision in RHG Mortgage Corporation Limited v Saunders [2016] NSWSC 929. In that matter, RHG provided both SMS messages and emails to the mortgagor.
9. In addressing the issue of delay, Mr Luitingh submitted that the applicants' default should be seen in the light of the first applicant who, being a tradesperson, is an unsophisticated litigant and who, in the belief that he was not in arrears, did not take any action until 25 September 2015 when he received the writ of possession and was facing eviction. Instead of taking steps to set aside judgment, the first applicant took other steps. He contacted RHG the same day to find out more about the basis of the writ of possession and, in order to avoid eviction, he immediately made the payment of $7,000, as requested by RHG. Not understanding the basis for the charge and believing himself not to be in arrears, the first applicant reported the matter to the Ombudsman. Having made that payment, the applicants should have been in credit in circumstances where the amount demanded in the defective default notice was not due.
10. The applicants accepted that the onus is on them to demonstrate that they have a viable defence and to provide an explanation for the delay. In deciding whether to set aside a default judgment the court should be guided by the "dictates of justice" as reflected in ss 57 and 58 of the CP Act, with the Court's primary enquiry and a dominant factor being whether the applicants have a defence.
11. As for the relevant authorities, the applicants relied upon the principle in Bunburry Foods Pty Ltd v National Bank of Australia (1984) 153 CLR 491 that, in determining whether or not a debtor has had the opportunity to repay a debt, it is relevant to take account of the debtor's knowledge of the amount due and the information which the creditor has provided in that respect. It was not until Mr Hooper's third affidavit on 14 July 2016 that the applicants learnt for the first time how the amount of the debt was said to have been calculated.
12. The applicants distinguished the present case from the facts in the decisions relied upon by RHG being Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24, Khalid v Perpetual Limited [2012] NSWCA 153, Dai v Zhu [2013] NSWCA 412 and Monas v Perpetual Trustees Victoria Ltd [2011] NSWCA 417.

Submissions on behalf of RHG

1. On behalf of RHG it was submitted that the notice is defective only in that it shows an inaccurate balance. The fact remains that RHG demanded less than the amount that was owed by the applicants. The failure to serve a valid s 88 notice constitutes a breach of the Code but does not void subsequent proceedings: Bank of Queensland Ltd v Dutta [2010] NSWSC 574; Monas v Perpetual Trustees Victoria Limited.
2. Mr Young submitted that the proposed defence would be futile on the bases that there were pre-existing rights for RHG to take possession of the property because of the applicants' failure to comply with the conditions of the 3 June 2014 agreement and that there was a much larger default that had not been met.
3. It was submitted that, as at 7 January 2015, the default was not confined to the amount of $7,491 as referred to in the default notice and in the statement of claim, but also included the further sum of $28,189.92. Part of the amount owed was the amount of $24,978.53 that the applicants knew about and had promised to pay to the plaintiff by 19 December 2014 but did not.
4. It was not in dispute that the applicants were making regular fortnightly payments, however each time a fortnightly payment was made the payment was not taken in discharge of the corresponding obligation falling due on the same day but in satisfaction of the pre-existing repayment defaults.
5. It was submitted that, even if it were accepted that the default notice contained an error and that there was no amount of $7,491 outstanding as payment arrears, the applicants knew of the existence of a further default in that they knew they still owed the amount of $24,978.53 that was not paid by 19 December 2014. The invalidity of the default notice would not provide a bona fide defence and would not invalidate the subsequently commenced proceedings for possession. The default alleged is both real and correctly described for the reasons set out in the affidavit of Brad Hooper dated 14 July 2016.
6. It was submitted that the first applicant deliberately avoided receiving information about the proceedings commenced in this Court by failing to read mail, notes left in his letterbox and email and not listening to voice mail messages left by Ms Greer. He "turned a deaf ear" to his wife but he knew of the notice and statement of claim from mid-March 2015 at the very latest. There were numerous attempts made by the process server to bring the statement of claim to the attention of the first applicant. He made a concerted effort not to allow contact from any agent of RHG in circumstances where at least four copies of the statement of claim were left at his house.
7. There was no explanation provided why the second applicant, who was served with the statement of claim on 12 March 2015, failed to file a defence prior to 22 June 2015 when default judgment was obtained. There is no adequate explanation as to why there were no attempts to set aside the default judgment earlier than 6 June 2016 when the first applicant knew about the writ of possession from at least September 2015 and circumstances where he must have known about the proceedings well before 22 June 2015.
8. Mr Young submitted that the applicants' motion should be refused regardless of whether there is an arguable defence because, even if the applicants could demonstrate a viable defence, there would be no useful purpose in setting aside the default judgment; an amendment to the statement of claim would leave them without a defence, given that the amount of $24,978.53 still remains unpaid.
9. RHG submitted that s 58 of the CP Act reaffirms the need for the court to take into account delays and defaults by a party and that pre-CP Act authorities that require explanation for delay remain good law: Dunwoodie v Teachers Mutual Bank Pty Ltd. While an important criterion, the existence of an arguable defence is not the dominant consideration.

Consideration

1. The considerations relevant to the exercise of my discretion in this matter were conveniently summarised by McColl JA in Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [43] as follows: "The court's jurisdiction to set aside the default judgement is found in the bald terms of Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 36.16(2)(a), providing the "court may set aside or vary a judgment or order after it has been entered if ...(a) it is a default judgment (other than a default judgment given in open court)". The fundamental (but not the only) principles guiding a court asked to exercise the unfettered discretion UCPR 36.16(2)(a) confers, are whether the applicant has a bona fide ground of defence, an adequate explanation for the failure to defend and the length of any delay: Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 (at 506) per Hope JA (Glass JA agreeing). In the final analysis, it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974, unreported) cited with approval by Sackville AJA (Barrett and Leeming JJA agreeing) in Dai v Zhu [2013] NSWCA 412 (at [83])."
2. In Dai v Zhu [2013] NSWCA 412 Sackville AJA (with whom Barrett and Leeming JJA agreed) observed at [89] that "…the authorities consistently state that, as a general rule, a defendant who seeks to set aside a judgment by default regularly obtained must show that he or she has a bona fide defence. This ordinarily requires the defendant to file an affidavit demonstrating a prima facie defence on the merits. The rationale for this requirement is that in the exercise of its "unfettered, though judicial, discretion" the Court will consider: (a) whether any useful purpose would be served by setting aside the judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained."
3. His Honour went on to observe at [92]: "In determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case: Adams v Kennick Trading, at 507; CBA v Humphreys, at [3]. All that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue."
4. In exercising the power conferred by UCPR, r 36.16(2)(a), I must give effect to the "overriding purpose" stated in s 56(1) of the CP Act to facilitate the just, quick and cheap resolution of the real issues in the proceedings. The parties joined issue as to the significance of the delay in this matter in the context of ss 56(1) and 58(1). Section 58(1) requires the court, in deciding whether to make any order for the management of proceedings, to act in accordance with "the dictates of justice". Despite this, for the purpose of determining what are the dictates of justice in a particular case, s 58(2)(a) provides that the court must have regard to the provisions of ss 56 and 57.
5. The parties' submissions regarding the interrelationship between ss 56 and 58 of the CP Act really turned on matters of emphasis in the ultimate decision to be made. RHG relied upon the delay as having primary significance while the applicants rely on the existence of a bona fide defence as being more significant. The parties both accept that I have a wide discretion in this matter.
6. I turn first to consider the question of whether the applicants have a bona fide defence. Default judgment was entered in response to a statement of claim that alleged that the applicants were in default for not making fortnightly payments from 7 November 2014 to 2 January 2014 when they did in fact make payments on those dates.
7. The evidence of Mr Hooper is problematic to the claim as currently set out in the statement of claim. His evidence would appear to assist the applicants in a number of respects. Mr Hooper stated that the fortnightly repayments made by the applicants from November 2014 to early January 2015 were not meant to be taken to cover arrears. Although his evidence suggested that this in fact occurred, that is not reflected in the bank records as described above at [41] - [43]. Significantly, there is no evidence that the applicants were ever told that there had been any such recalculation nor that their regular payments were being used to repay an earlier recalculated debt (if that is indeed what occurred). None of the bank statements sent to the applicants at the time revealed this recalculation. Mr Hooper agreed that the recalculation was only apparent in internal banking records and not in statements sent to the applicants. Mr Hooper was not able to say how the figure of $11,473.86 was arrived at.
8. The timing of the audit of the applicants' loan account in September 2014 was most unfortunate. On the evidence before me, a written agreement was entered into between the applicants and RHG on 3 June 2014 to permit the applicants to regain possession of the property on terms that included payments of specific amounts of money. The applicants paid the amount due at that time and made fortnightly payments thereafter in compliance with that agreement. They were entitled to believe that from that time 'the slate was clean'. Then, in September 2014, only three months later and at a time when the applicants were not in default of that 3 June 2014 agreement in any way, there was a re-assessment of the entire loan which detected a shortfall of $11,473.86. After that recalculation was applied to the applicants' account, it left them in arrears of $5,846.57. This shortfall amount, if it can indeed be established, was apparently unknown to RHG at the time of that agreement. Furthermore, it was not communicated to the applicants that a finding of arrears was made in the manner described by Mr Hooper in his evidence on 19 July 2016. Nor was it reflected in their 31 December 2014 bank statement. The first time the applicants could have been made aware of it was when they first learned of the contents of Mr Hooper's affidavit of 14 July 2016.
9. I have had regard to the relevant bank statements sent to the applicants dated 31 December 2014, 31 March 2015 and 30 June 2015. The bank statement dated 31 December 2014 does not disclose any arrears in payments. At the bottom of the statement there is a note that: "Fees and charges balance as at 31 December 2014 is $28,000.86. Please make arrangements to clear the fees and charges on your loan to avoid paying interest on this amount." By the time of the 31 March 2015 statement, this amount for outstanding fees and charges had increased to $32,849.63 but the message was otherwise in the same terms.
10. The first mention of any arrears was in the 30 June 2015 statement. At that time the arrears amount was stated to be $7,129.18 and the statement included a message to contact RHG urgently to clear that amount of arrears in order to avoid default interest and possible enforcement action. By that date, default judgment had already been entered. The fees and charges were again listed separately with the same message as in the earlier statement. By this time that amount was $35,758.89. There is no explanation in any of the three statements as to how the "fees and charges balance" was arrived at nor any threat as to the consequences of a failure to pay that amount beyond a recommendation to clear it to avoid paying further interest.
11. Based upon all of the material before me I am satisfied that the applicants have a bona fide defence to the claim that they were in default of their loan in the terms alleged in both the default notice and the statement of claim.
12. I turn next to the question of whether the applicants have satisfactorily explained the failure to defend the matter and the delay in seeking to have the default judgment set aside.
13. The relevant delay in filing a defence was up until 22 June 2015 when default judgment was entered. A writ of possession was issued on 25 June 2015 and an eviction was scheduled for 28 September 2015. Payment of $7,000 was made by the first applicant on 25 September 2015 and RHG agreed not to proceed with the eviction. The matter was then effectively stayed whilst the applicants pursued a complaint to the Ombudsman. The Ombudsman informed RHG that they could proceed on 23 February 2016. On 14 April 2016 a request to reschedule the eviction was made and on 21 April 2016 an eviction was scheduled for 30 May 2016. On 25 May 2016 a stay of the writ was granted. The relevant delay in seeking to set aside the default judgment is thus from June to September 2015 and then from February 2016 to May 2016.
14. Consideration of the explanation for the delay on the part of the applicants involves an assessment of the credibility of the first applicant as a witness. Mr Summerfield was not an impressive witness. His explanations for not being aware at any earlier time that RHG were alleging that he was in default are unpersuasive to say the least. His explanations are, variously, that he didn't respond to any telephone calls from RHG as he may have been at work when they called; that he was not aware of the attempts by the process server to serve him; that process server must have attended whilst he was at work; that his daughter did not live with him so could not have had the conversation with the process server alleged (in circumstances in which he did not adduce any evidence from his daughter on this issue); that his wife has no understanding of these matters and did not understand what was happening (in circumstances where no evidence was adduced from the second applicant); that his computer was corrupted and hence he could not receive emails for four months and that is why he did not receive any emails from the Ombudsman; and that, if he did receive telephone messages from the case manager at the Ombudsman, she spoke with a soft voice and could not be easily understood.
15. On the first applicant's evidence, after four months of not being able to access emails, he did not check the backlog of emails once his computer was repaired. Nor did he contact the Ombudsman on his own initiative to check on the progress of the matter in circumstances where there is evidence that the Ombudsman was trying to contact him on the phone. Nor did he take steps to immediately set the judgment aside once he was aware of it. He was legally represented at the time of the 3 June 2014 agreement. From late April 2016 he knew the eviction was scheduled for 30 June 2016. No explanation was offered as to why he waited until 25 May 2016 to contact RHG and the Ombudsman. A pattern emerges of him leaving everything until the last minute.
16. As for the contention advanced on behalf of the applicant that there was a failure to act in good faith on the part of RHG to serve critical documents via email, I make the observation that it may not have made any difference given that the first applicant stated that the emails sent by the Ombudsman were not received by him at the relevant times because his computer was corrupted.
17. None of the various explanations and excuses offered by the first applicant address the obvious question of why he never telephoned RHG to sort the matter out. His evidence was highly unsatisfactory in a number of respects and indicated a complete disengagement with the seriousness of his situation. Nor do I accept the submissions made on his behalf that he was an unsophisticated litigant who did not know to get a lawyer. I accept that he is a tradesman by occupation, but the evidence before me was that only six months prior to the notices being issued in January 2015 he had been evicted from his premises and obtained a solicitor who negotiated the return of possession of the property to him on written terms.
18. Furthermore, the first applicant is only one of the two applicants. The second applicant did not file any affidavit evidence nor attend Court. No explanation for this was offered. The process server Ms Greer was not required for cross-examination. There was no challenge to her evidence that she served the second applicant personally and that the second applicant told her that they knew what was happening. There was no evidence before the Court as to any incapacity on the part of the second applicant; merely an assertion from her husband that she would not understand what was happening. Although it is unnecessary for me to make any finding on this issue, it is open to me to infer from the evidence of the first applicant that any attempt by her to bring the relevant documentation to his attention would have been met with the response that there was in fact no default as alleged and nothing needed to be done.
19. I am not satisfied that the first applicant has provided any satisfactory explanation as to why he did not contact RHG and try to resolve the matter prior to default judgment being entered against him and his wife. On the evidence before me, he accepted that he had received telephone calls from RHG and ignored them. His evidence discloses that he was in complete denial about the situation. I am satisfied from his evidence that his state of mind at that time was that he knew he was in default of the agreement to pay the costs of $25,978 by 19 December 2014, but was confident that he was not behind in the fortnightly payments (which RHG now concedes). I am satisfied that the first applicant took every step he could to avoid service and to ignore any contact with RHG.
20. If the resolution of this matter were confined solely to the question of whether the applicants could provide a reasonable explanation of their tardiness in this matter, then I would find against them and in favour of RHG. If, on the other hand, the resolution of this matter was confined solely to whether the applicants have a bona fide defence, then I would find in favour of the applicants. The fact is that, not only must I have regard to both of these matters, I must do so having regard to what the interests of justice dictate, having taken into account all relevant matters, including the discretionary matters relied upon by RHG.
21. RHG now accepts that payments were made on the relevant dates. Their position is that, even if I were satisfied that there is a bona fide defence, which was not conceded, it would be futile to set the default judgment aside for three reasons: because by virtue of the $24,978 costs amount outstanding from the 3 June 2013 agreement (which was not paid by 19 December 2014) the applicants were in default in any event; because, even if the arrears were now paid, there was a default at the time the proceedings were commenced based on the evidence of Mr Hooper; and because RHG is entitled to possession of the premises by virtue of the earlier judgment in the 2013 proceedings.
22. There is no dispute that, as at the time that the statement of claim was filed, the applicants had failed to pay the outstanding costs amount due under the 3 June 2013 agreement. The first applicant was unable to provide any satisfactory explanation for not doing so. His evidence was that he did not pay it because he did not know how it had been arrived at. Be that as it may, the fact remains that he agreed in writing to pay that amount. The time for disputing how that figure was arrived at was prior to entering that agreement on 3 June 2013. In any event, there is evidence that the first applicant has been willing to pay this amount since May 2016.
23. I note Mr Young's submission that RHG could have included the outstanding costs figure in the 7 January 2015 notice but did not. The difficulty with this submission is that, not only was no attempt made to rely upon the failure to pay that amount as a default on the loan, when RHG sent the 31 December 2014 and 31 March 2015 bank statements to the applicants the only reference to that debt was a request to make arrangements to clear the fees and charges to avoid paying interest on that amount.
24. As for Mr Young's submission that RHG already had a writ of possession to evict the applicant in mid-2014, I observe that whether RHG could still act on that previous writ of possession (even if I were to set aside the current default judgment) is not a matter that was addressed by the parties in submissions. I do not propose to make any finding in relation to that discrete issue.
25. Having considered all of the evidence and submissions I find that it is in the interests of justice that the applicants be permitted to defend these proceedings on the merits for the following reasons.
26. First, for the reasons set out above at [79] to [82] I am satisfied that the applicants have a bona fide defence.
27. Second, although the applicants' conduct has been extremely foolish and has shown a pattern of avoidance that was quite extraordinary given what is at stake, I am satisfied that the likely explanation for this conduct was a genuinely held belief on the part of the first applicant that he was not in arrears in the terms alleged in the default notice or the statement of claim because he knew that he was making the fortnightly payments as required. That belief was a reasonable one to hold in circumstances where there is no dispute in the material before me that he was in fact making the fortnightly payments at that time. Despite this, it was still no excuse to ignore the pending proceedings.
28. Third, to the extent that reliance is placed on the applicants' failure to pay the $25,978 outstanding under the 3 June 2014 agreement, the evidence before me is that the applicant has attempted to repay that amount and such offer was refused. One of the orders in the motion before me is an order that this amount be paid to RHG. Contrary to their earlier position communicated to the applicants on 25 May 2016, RHG do not now oppose that order being made.
29. Fourth, there is evidence before me that as at 22 June 2016 the applicants are in arrears for a significant amount of money, being $26,682.84 with an additional amount of $41,741.78 in outstanding fees and charges. There is evidence that the applicants are willing to pay the arrears but seek a statement of account as how the figures are made up. The size of the arrears amount is to be viewed in the context that the applicants were regularly making their fortnightly payments until an allegation was made, incorrectly as it happens, that they were not making such payments. I am satisfied that it was this matter that caused the chain of events that has resulted in that debt. This is a further matter relevant to the exercise of my discretion.
30. Fifth, there was no evidence put before the Court as to the value of the property. The only evidence was that it was a residential property in Alfords Point, the photo of which shows a house. RHG did not put any evidence before the Court that the applicants' debt to RHG was approaching the value of the property. Given the absence of any reliance on such a submission by RHG and the fact that the debt is either $457,603.25, $459,439.20.or $476,310.00 (see at [54] above) secured against a house in Alfords Point, I am satisfied that that is not the case. This is another relevant matter going to the issue of any potential prejudice to RHG.
31. I have reached the conclusion that the orders sought should be made despite the highly unsatisfactory approach to these proceedings taken by the applicants. My findings should not be taken as any general principle that borrowers such as the applicants can ignore service and act in the avoidant way that they did without serious ramifications. The fact that I have ruled that they be permitted to defend the statement of claim turns on the unusual facts of this matter.

Costs

1. Counsel for RHG sought that I reserve the question of costs. I will shortly hear the parties on the appropriate costs order.

ORDERS

1. I make the following orders: 1. Set aside default judgment entered on 22 June 2015 in favour of the plaintiff. 2. The defendants are to pay $24,978 to the plaintiff within 14 days. 3. The defendants are to file a defence within 28 days. 4. List the matter for directions before the Common Law Registrar on 12 December 2016. 5. The defendants are to pay the plaintiff's costs of the motion on an ordinary basis. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 November 2016