RHG MORTGAGE CORPORATION LTD -v- SCHAFER [2014] WASC 297 (21 August 2014)

3 An application for summary judgment is required to be brought within 21 days after appearance, or at any later date with leave of the Court.[1]

4 The writ in this matter was issued on 25 March 2013, initially only against the first defendant, Mrs Schafer. She entered an appearance on 9 May 2013. She was represented by solicitors. There followed a period of negotiation between the solicitors for the plaintiff and the solicitors for the first defendant through May 2013. I note in passing that, in the course of that correspondence, Mrs Schafer's solicitors did not deny her liability under the loan agreement or the mortgage.

5 On 7 June 2013, the plaintiff was advised that the defendant had referred a complaint to the Financial Ombudsman Service (FOS). By then, an affidavit had been prepared in support of an application for summary judgment. However, on receipt of the FOS complaint, the plaintiff immediately instructed its solicitors to place all enforcement action against Mrs Schafer on hold pending resolution of the complaint.

6 On 20 December 2013, the plaintiff received advice that the FOS had concluded that the dispute appeared to fall outside its terms of reference and that the complaint lacked substance.

7 On 23 December 2013, the plaintiff's solicitors wrote to Mrs Schafer's solicitors advising them that they were instructed to apply for judgment in the event that the defence was not received by 17 January 2014. Mrs Schafer's solicitors replied, on 6 January 2014, advising that their client intended to pay all outstanding monies, but seeking the full accounting breakdown. She sought an extension until 28 February 2014 for payment, in light of certain personal difficulties that she had been required to face in late2013.

8 Payment was not made as promised, and the application for summary judgment was filed on 2 April 2014.

9 The very significant delay in the bringing of the application is largely attributable to indulgences granted to the defendants, or the first defendant in particular, in the face of her acknowledgement of liability or as a result of her unsuccessful complaint to the FOS. In the circumstances, I consider this to be an appropriate case in which extension of time should be granted. None of the defendants' submissions, either in writing or orally, argued to the contrary. There should be an order that the time for bringing of the application under O 14 r 1 of the Rules of the Supreme Court 1971 (WA) be extended until 2 April 2014.

10 The plaintiff's claim is relatively simple. It is supported by affidavits filed by Mr Warren Handel. Mr Handel is the collections team manager of Unisys Mortgage Processing (RHG) Pty Ltd. By arrangements between Unisys, the plaintiff and another company, Receivables Servicing Pty Ltd (the servicer of the mortgage loans made by the plaintiff), Mr Handel deposed to matters concerning the transaction between the plaintiff and the defendants from the plaintiff's records to which he had access. On that basis, Mr Handel verified in his affidavits that:

1. Mrs Schafer is the owner of the property known as 42B Morris Road, Innaloo, Western Australia, more particularly described as Lot 2 on Strata Plan 34280 and being the whole of the land comprised in Certificate of Title Vol 2129 Folio 272 (the Property). That fact was not disputed by the defendants.
2. The plaintiff entered into a loan agreement with the defendants on 6 June 2007, which was varied by written agreements on 20 April 2010, 18 November 2011, 6 April 2012, and 10 October 2012. Those facts were not in issue save for the variation said to have occurred on 10 October 2012. The defendants assert that, although they signed and posted to the plaintiff a loan variation agreement (LVA) in October 2012, that document was superseded by a LVA dated 6 November 2012 which was in identical terms but for one additional clause. I will deal in more detail with that issue in the context of consideration of the defendants' possible defences.
3. The first defendant executed a mortgage over the Property to secure the amount of the loan the subject of the agreement of 6 June 2007. The execution of the mortgage was not in issue.
4. The mortgage was registered at Landgate. That matter was also not in issue.
5. The plaintiff advanced a loan of $471,750, but the loan principal was increased from time to time by the subsequent LVAs referred to above. It is not in issue that Mr & Mrs Schafer received the amount of the loan, and agreed to capitalisation of arrears of interest from time to time as reflected in the LVAs. They do not accept, however, that the plaintiff was in fact the lender which advanced the funds. That assertion is central to the defendants' proposed defence, which will be dealt with in more detail below.
6. The first and second defendants defaulted in payment under the terms of the loan agreement and the mortgage. It is not in issue that the defendants fell into arrears in relation to the amounts payable under the loan agreement and the mortgage, but they raise questions as to whether they were obliged to make payments at particular times.
7. By reason of the first and second defendants' breaches of terms of the loan agreements and the mortgage, the plaintiff became entitled to possession of the properties pursuant to the terms of the mortgage. That assertion is in issue on the basis of the defences which the defendants propose to raise.
8. The balance outstanding under the loan agreement, as at 12 June 2014, was $613,773.25 plus accruing interest and costs. There is no issue as to the calculation of the amount if the plaintiff is in fact entitled to the remedies it seeks under the loan agreement and the mortgage.

11 I am satisfied that, subject to consideration of the various objections to evidence and foreshadowed defences that might be arguable, the plaintiff has established the necessary elements of its cause of action and would be entitled to judgment.

12 It is necessary therefore to turn to the defendants' arguments.

13 In all, Mr and Mrs Schafer filed a total of 12 affidavits sworn by one or other of them. The affidavits raised a number of issues and concerns. It is not entirely easy to discern the precise defences which the defendants contend are open to them. Because of that, I suggested at a directions hearing, on 12 June 2014, that it would assist if the defendants were to file and serve a defence so as to clarify how they say the matters which they raise would absolve them from their obligations under the loan agreement and the mortgage. At that directions hearing, I ordered that that document be filed and served by 1 July 2014, but, at the second defendant's request, later extended that date to 8 July 2014. A defence was not filed, but Mr Schafer swore an affidavit explaining that because he did not consider there to be any valid evidence before the Court, and because he considered the plaintiff's claim to have 'no substance ab initio', he found it impossible to attempt to defend the action.

14 It is thus necessary to identify, as best I can, the precise nature of any possible defence which might be available, and to consider whether the evidence of Mr Handel (to which I have referred above) should not be accepted, with the result that the plaintiff would not have discharged its burden of proof.

15 It is convenient to first deal with the foreshadowed defences, before turning to the reliability of Mr Handel's evidence.

16 In his oral submissions, Mr Schafer stated that he and his wife did not dispute their liability to repay the loan amount if, in fact, the plaintiff was the true lender of the funds to them. He contended, however, that despite persistent requests for documents which are said to relate to the source of funds and to underlie the plaintiff's ability to pay over the loan at settlement, the plaintiff had not discharged the burden of proving that it lent money to the defendants (as distinct from some other entity providing the funds). He contended that documents which he produced, and other documents of which he sought access, suggested, or were likely to suggest, that the plaintiff was a mere gobetween between the borrower and the true lender, earning commissions of which the borrower had no notice, and was thus 'masquerading as a lender' or a 'pretender lender'.

17 As a consequence, Mr Schafer contended that the plaintiff did not provide 'valuable consideration' to its customers because the money it was advancing was not its own. Thus, he argued, the loan arguments should fail for want of consideration.

18 The principal document upon which Mr Schafer relied is the document entitled 'Information Memorandum', issued by Rams Mortgage Securities Pty Ltd in its capacity as the trustee of the Rams Mortgage Securities Trusts. It is a document designed to provide information to potential investors in notes, the proceeds of which would be used to fund the acquisition by the trustee of, amongst other things, certain mortgage loans and approved mortgages. In relation to residential loans, the document provides that the trustee will hold only an equitable title to mortgage loans and approved mortgages, as the borrowers would not be notified of the equitable assignment of their loans. It also provides that various participants in the program will receive fees, brokerage and commissions and may act as principal in any dealing with the notes.

19 A diagramatic program overview in the Information Memorandum (at p 9) sets out the structure of the financing arrangements. It demonstrates that the plaintiff is the entity which would be entitled to the 'receivables' from the 'debtors', being borrowers and mortgagees. It contemplates the sale of those receivables to the trust which in turn is funded from the proceeds of the sale of various classes of notes.

20 Mr Schafer was apparently a finance broker and agent of the plaintiff in June 2007, when the funds were advanced, up until around 2011. He deposes to the fact that he only became aware of the Information Memorandum, and of the structure for financing of loans which it revealed, in early 2011. He says that he had never been told of the underlying structure for financing the plaintiff's advances, and accordingly had never passed any information on to his clients, including in particular to his wife to whom he introduced this joint loan in his capacity as a finance broker. He considers that the fact that the lender is advancing monies which are not from its own funds, but sourced from elsewhere, is a matter which should have been disclosed and may have affected a decision to accept the loan. The defendants argue that the failure to disclose that the funds being advanced were being sourced other than through the plaintiff's own funds was a 'fraudulent misinterpretation with intention to deceive'.

21 Mr Schafer contends that, since it was not the plaintiff which advanced its own funds, it cannot recover from Mr and Mrs Schafer the money which was advanced to them. He also contended that, since the true identity of the lender is unknown, and he had no contract with whoever might have been the true lender, that he and his wife were simply entitled to retain the money which had been advanced to them.

22 The defendants' contentions are untenable. The Information Memorandum simply demonstrates that, as is hardly surprising, the monies used to advance funds to borrowers were raised through a form of investment. There was nothing which actually ties the funding arrangements dealt with in the Information Memorandum to the particular advance made to the defendants, but, even assuming that the funds advanced to the Schafers were acquired through the structure demonstrated by the Information Memorandum, that does not lead to the conclusion that the loan was not made by the plaintiff pursuant to the loan agreement.

23 The loan agreement simply requires that the plaintiff advance the agreed sum on the appropriate settlement date. The source of the funds, and any arrangements which the plaintiff might make to secure advances of funds to it, are not matters which are required to be disclosed to a borrower. Entities which lend the funds to the public no doubt have a wide range of sources of funding.

24 The simple position in this case is that the plaintiff was bound to advance funds pursuant to the loan agreement with the defendants, funds were advanced in satisfaction of that contractual obligation, and the defendants became liable to repay the funds advanced to the plaintiff in accordance with the terms of the loan agreement and the mortgage.

25 The defendants' assertion that the plaintiff did not provide valuable consideration is also untenable. The consideration provided was the amount of the loan funds. It matters not what liabilities the lender may have incurred in order to obtain funding, nor, in the context of those background funding arrangements, that commissions or fees were payable between the various entities involved. The underlying funding source arrangements have no effect on the rights or obligations of the borrowers under the loan agreement and mortgage.

26 The foreshadowed defence that the plaintiff may not have been the true lender has no substance and is not arguable.

27 The basis of this defence is an assertion that the plaintiff is not entitled to enforce its rights under the loan agreement or the mortgage because it is itself in breach of a provision of the loan agreement inserted in the last LVA.

28 In order to understand the contention, it is first necessary to review the facts. I note that, in the context of a summary judgment application, I should accept the version of facts which is put forward by the defendants unless that version is inherently incredible.[2]

29 It is common ground that by October 2012, the defendants were in arrears in relation to the loan totalling $17,286.50. It is also common ground that the plaintiff offered to capitalise those arrears, as it had on three previous occasions, taking the balance of the loan at that time to $533,132.31. It was also common ground that on 3 October 2012, the plaintiff sent to the defendants a LVA for execution. That document was executed by the defendants and returned to the plaintiff by mail. It is apparent that the document was not received by the plaintiff. The circumstances of those events were not the subject of clear evidence, but in a letter dated 5 June 2013 from the plaintiff's solicitors to the first defendant's solicitors, it is asserted that because the LVA signed by the defendants in October 2012 was not received by the plaintiff, a fresh LVA was sent to them for signing on about 2 November 2012.

30 On 6 November 2012, Mr and Mrs Schafer returned the fresh LVA to the plaintiff under cover of a letter of that date. An additional provision had been added into the LVA by Mr and Mrs Schafer (November 2012 LVA). It reads as follows:

Lenders obligations if you borrow the additional loan at the variation disclosure date

Upon the borrower's written request, lenders will (within 7 days) provide all information pertaining to the original loan agreement, including but not limited to:

• certified records of double entry bookkeeping
• details of assignment, transfers or sale
• evidence of intact chain of title

As requested, kindly find attached the original of the document for your acceptance and settlement.

We apologise for the delay experienced by the Australia Post stuffup.

Please note we have included one additional item in the agreement and are satisfied with all the other terms and conditions.

Kindly refer to page 2, paragraph 2.

All being to your satisfaction and acceptance, please proceed to settlement.

32 The reference to 'page 2, paragraph 2' is a reference to the additional provision set out above.

33 It is not apparent on the evidence precisely when the additional advancement by way of capitalisation of the outstanding interests was actually effected in the books of the plaintiff. In the plaintiff's solicitors' letter dated 5 June 2013, it is asserted that the 'additional loan' was supplied to the account at the time of the return of the November 2012 LVA.

34 Mr Schafer asserts that, in December 2012, he made requests for production of documents in accordance with the added provision. Those demands, which were said to have been made in writing, were not produced in evidence. It is not evident, therefore, precisely what was requested. Whatever was requested, it appears that it was not provided, and on 24 December 2012, the defendants sent to Mr Handel a document entitled 'Notice of Breach of Agreement'. The document recites their request for documents, the subsequent 'Notice of Default' (which I infer repeated the request for documents) and that no reply was received. The notice continued:

Dishonour

By the terms of the Initial Presentment and the Second Presentment, failure, refusal, silence or neglect in the presentment of a sufficient response, constituted Recipients acquiescence and tacit agreement and therefore Confession of Judgement [sic] on the merits is warranted.

Confession of Judgement [sic]

Recipients Dishonour is their confession of judgement [sic] to the following specific terms:

1. Recipient agrees that it has no standing to bring any further claims
2. Recipient agrees that it has no legal status to pursue the agreement
3. Recipient immediately ceases and desists from taking up any recovery and collection activities
4. Recipient agrees not to engage in any legal action whatsoever with Sender
5. Recipient agrees to pay 4fold damages to any amount claimed by Recipient in the event of Recipient commencing recovery action in court
6. Recipient agrees that this Notice of Breach of Agreement shall be taken as an equitable estoppel thereby RHG accepts it is not accredited to the agreement
7. Recipient agrees to waive all rights to pursue the Sender any further

35 As I understand the defendants' submissions, they are that the notice of breach of agreement took effect in the way described in the 'Confession of Judgment'. Accordingly, the defendants argued that the plaintiff was not entitled to commence proceedings against them until such time as it had complied with the requests for the provision of documents.

36 It should be noted that it is central to the defendants' argument that, whatever documents were in fact requested, they were documents of the description in the added provision, that related to matters pertinent to the underlying funding arrangements of the plaintiff in relation to the provision of the loan.

37 The first question which must be addressed in considering this issue is whether the operative LVA was that signed by the defendants in October 2012, or that which they signed and sent in November 2012.

38 In circumstances which were unexplained in the evidence before me, in his most recent affidavit of 12 June 2014, Mr Handel annexed a copy of an LVA apparently bearing the signatures of Mr and Mrs Schafer and dated 10 October 2012. Mr Schafer was reluctant to agree that that was a true copy of the LVA which he did in fact sign in October 2012, but it seems to me nothing turns on that issue. That is because Mr Schafer acknowledged that he did sign an LVA in October 2012 and post it to the plaintiff, and it did not contain the additional provision which he added to the subsequently executed November 2012 LVA. There is no reason to think that the copy of the 10 October 2012 LVA produced by Mr Handel was not, as he deposed, a copy of the document that Mr Schafer acknowledged he and Mrs Schafer signed in October 2012, but even if it is not, there is no issue that Mr and Mrs Schafer did sign a document in precisely the same terms.

39 The plaintiff contends that the general rule under the law of contract is that an offer is accepted when it is posted. On that basis, the plaintiff argues that the October 2012 LVA became operative when the defendants posted the signed document, it was not then open to them later to unilaterally insert the additional provision.

40 The defendants argue that the covering letter of 6 November 2012 LVA made it clear that they were making a counteroffer which was accepted when, having received that letter, and the November 2012 LVA, the plaintiff debited their loan account with the outstanding interests.

41 In the context of the summary judgment application, it is appropriate that I proceed on the basis that the version of facts put forward by the defendant is accepted. In that context, and although it involves a question of law, I assume for present purposes that the November 2012 LVA was operative, and that the plaintiff failed to provide documents pursuant to a request made under the additional provision. That does not, however, afford an arguable defence to Mr and Mrs Schafer.

42 If the plaintiff was in breach of an obligation to provide documents of the character described in the additional provision, that breach would not result in the consequences asserted in the Notice of Breach, or any of them. It is not a breach the nature of which would give rise to an entitlement to terminate the loan agreement. At best, the breach may give rise to an entitlement to seek an order for specific performance, or, for damages if some damage could be demonstrated (which it has not). Even if the additional provision was an operative provision of the loan agreement, its breach would not result in all of the other contractual obligations of the parties being somehow suspended or terminated.

43 The defence based on breach of the November 2012 LVA has no prospects of success.

44 A further foreshadowed defence raised turns upon the effect of a document entitled 'Notice of Financial Hardship' and certain payments made in accordance with that document.

45 On 31 January 2014, Mr and Mrs Schafer wrote to the plaintiff. Their letter was entitled 'Notice of Financial Hardship'. It identified a number of difficult issues which Mrs Schafer had endured during 2014 and problems that Mr Schafer had with his business, with the result that the family was said to be in extreme financial hardship. The letter stated that they fully intended to bring the account back into order as soon as possible. It then recounted attempts which had been made over the previous two years to obtain various documents in relation to the question of the plaintiff's standing to recover under the loan. It continued:

Notwithstanding the above lack of proof of creditor status, we are prepared to make a good faith offer of $500 per month until further notice to maintain 'CLEAN HANDS IN EQUITY', enabling us to recover the family finances while sorting out all matters with the immediate family in Germany since the father's passing.

46 A cheque for $500 was enclosed, and was subsequently accepted as a credit against the defendants' indebtedness. At least two further monthly payments of $500 were made before the defendants ceased making payments. There is no evidence of any response to the letter from the plaintiff.

47 The defendants assert that the letter was sent pursuant to the provisions of the National Consumer Credit Protection Act 2009 (Cth). I take that to be a reference to s 72 of the National Consumer Credit Code. That provision provides that a debtor who is unable to meet his or her obligations under a credit contract may give the credit provider a hardship notice of the debtor's inability to meet the obligations. The creditor is then permitted to seek information from the debtor. Within a specified period, the credit provider must provide a notice to the debtor either of an agreement to vary the credit contract, or of the fact that no agreement to change the credit contract has been made and the reason for that decision. A failure to do so attracts a civil penalty.

48 Section 74 of the National Consumer Credit Code permits a debtor to apply to a court where no change to the credit contract is made following a hardship notice, seeking an order to change the credit contract. The court is not able to reduce the amount ultimately payable by the debtor to the credit provider under the contract even if it changes the contract. The court may also stay enforcement proceedings.

49 In this case, there is no evidence of any attempt by the defendants to seek any change in the credit contract as a result of the failure of the credit provider to respond to the notice of financial hardship. There is nothing in the National Consumer Credit Code which would therefore prevent the plaintiff from continuing the proceedings (which, of course, had already been on foot for some 10 months from the sending of the Notice of Financial Hardship).

50 As I understand the defendants' contention, it is that, by accepting the several cheques for $500 paid in accordance with the proposal contained in the notice of financial hardship, the plaintiff is precluded from pursuing its remedies. There is no merit in that contention. The offer to make payments (said to be a 'good faith offer') was not said to be in consideration for any forbearance, or any other action by the plaintiff. The plaintiff was entitled to accept the money as a payment on account as it did. There is no basis to argue that acceptance of the payments precluded the plaintiff from pursuing the present action, or that the plaintiff is in any way estopped from pursuing the remedies available to it.

51 Throughout the course of the interlocutory hearings leading to the hearing of this application, and at the hearing of this application, Mr Schafer sought various orders for the production of documents, or for discovery of documents. He contended that it was necessary have access to the documents which he described in order to fully present his defence.

52 Most of those documents were related to the issue as to the source of funds used by the plaintiff to make the advance to the defendants. For reasons which I have dealt with above, that issue does not provide a foundation for a defence, and the documents are thus irrelevant to any potential issue in the proceedings. There is no basis from which a summary judgment should be denied pending further pursuit of those irrelevant documents.

53 The defendants submitted that Mr Handel's affidavits should be struck out on the basis that they contained misleading information and were inconsistent. The principal basis for that contention was the inconsistency between the contents of the letter from the plaintiff's solicitors asserting that the October 2012 LVA had never been received, and the subsequent production of the October 2012 LVA in Mr Handel's last affidavit, without any explanation as to that apparent inconsistency. The solicitors' letter was written on 5 June 2013, and Mr Handel's affidavit producing the October 2012 LVA was sworn on 12 June 2014, some 12 months later. The later affidavit was filed as a result of the joinder of the second defendant and the need to produce the four LVAs to complete the full contractual documentation. Mr Schafer invites the Court to conclude that Mr Handel was seeking to mislead the Court as to the existence of the November 2012 agreement.

54 There was no basis for that conclusion. When Mr Handel swore his affidavit on 12 June 2014, the November 2012 agreement had already been annexed to affidavits of both defendants sworn on 16 April 2014. There is no basis for contending that Mr Handel was seeking to prevent the Court having regard to the November 2012 LVA, which had been squarely raised as an issue by the defendants in their affidavits. The purpose of Mr Handel's affidavit of 12 June 2014 was to produce the documents pleaded in paragraph 3 of the statement of claim. The document pleaded is the 10 October 2012 LVA. It is therefore understandable that that was the document produced in his affidavit as it was one of the documents relied upon by the plaintiff for summary judgment.

55 The other criticism of Mr Handel's affidavit is that his evidence should not be accepted because he has withheld documents from the defendants. As I understand it, the complaint is as to the withholding of documents going to the underlying financing arrangements by the plaintiff for the purposes of the loan to the defendants. For reasons which I have already covered, those documents are not relevant to the present proceedings and it is not immediately apparent to me what entitlement the defendants would have to those documents.

56 In any event, there does not appear to be any substantial dispute as to the contents of Mr Handel's affidavits. At the outset of these reasons, I outlined the essential elements of the plaintiff's claim which are supported by Mr Handel's affidavits. The factual matters there set out are largely undisputed. There is no reason why Mr Handel's affidavits should not be accepted and relied upon.

57 The power to order summary judgment should be exercised with great care and should not be exercised unless it is clear that there is no real question to be tried.[3] It follows from the foregoing that I am of the view that the defendants have failed to demonstrate any arguable defence. In my view, there is no real question to be tried in this case, and the plaintiff is entitled to judgment.

[1] Rules of the Supreme Court 1971 (WA) O 14 r 1.

[2] Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598, 608 (Mason CJ, Deane J & Dawson J).

[3] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99 (the Court).