RHG Mortgage Corporation Ltd v Summerfield

The 2015 Default Notice

1. On 7 January 2015 RHG, by new solicitors, issued a further default notice ("the 2015 Default Notice") which, having stated that it was issued pursuant to s 88 of the National Credit Code and s 57(2)(b) of the Real Property Act 1900, proceeded:

Default 2. A default has occurred under the Facility and the Mortgage (Default). The Default is that the Overdue Amount has not been paid, as follows: Account Number Due Date Outstanding Amount 1299981 7 November 2014 $908.24 21 November 2014 $1,645.69 5 December 2014 $1,645.69 19 December 2014 $1,645.69 2 January 2015 $1,645.69 Overdue Amount $7,491.00

3. The action necessary to remedy the Default is for RHG to be paid the Overdue Amount and the Enforcement Expenses, being a total amount of $7,841.00 (Total Due).
4. The notice later described the consequences of failure to remedy the default: If you fail to remedy the default by 13 February 2015 6. If the Total Due is not paid by 13 February 2015, then (without the need for RHG to give further notice): (a) the whole of the balance outstanding under the Facility (the Account Balance), will become immediately due and payable (in accordance with the terms and conditions of the Facility, interest, fees and charges will continue to accrue on the Account Balance until it is paid and further enforcement expenses may also be incurred and added to the Account Balance); and (b) RHG may start enforcement proceedings in a court in relation to the Default, to recover any payment due to RHG under the Facility and the Mortgage and to seek repossession of the Security Property; and (c) RHG may exercise its power of sale in relation to the Security Property; and (d) repossession and sale of the Security Property may not extinguish the Borrowers liability to RHG under the Facility and the Mortgage.
5. The 2015 Default Notice did not refer to the outstanding fees and charges of $24,978.53. While the 2015 Default Notice referred to five instalment payments due on specified dates between 7 November 2014 and 2 January 2015, the Summerfields had in fact made the appropriate payments on or about each of those dates, as they had from the time when the arrears were ostensibly cleared by the payment of $51,544.10 on or about 3 June 2014. RHG's collections manager, Mr Hooper - who was the only witness for RHG at the trial - accepted that the records of the Loan Account showed that "… the usual fortnightly payments were made by the [Borrowers] in relation to those dates". He gave the following evidence: The reference in Default Notice 2 to defaults on 7 November 2014, 21 November 2014, 5 December 2014, 19 December 2014 and 2 January 2015 was not intended to be indicative of any failure by the defendants to make the usual fortnightly payments on or around those dates. The plaintiff's records indeed show that the usual fortnightly payments were made by the defendants in relation to those dates. As, however, the loan account was in repayment arrears as at those dates, those payments were applied by the plaintiff in relation to those arrears and hence monies were not available to satisfy the payment obligations falling due on [those dates].
6. The alleged arrears arose only because on 29 September 2014, RHG debited to the loan account - which following the payment of $51,544.10 showed the Summerfields to be in advance by $5,627 - a sum of $11,473.85. This had the consequence of changing their position from being in advance by $5,627, to one of being in arrears by $5,846.57. The basis of this "arrears adjustment" has never satisfactorily been explained, although it seems possible that it was attributable to "penalty interest" in respect of the period before June 2014, which had not previously been debited to the account.

The proceedings

1. The Summerfields continued to punctually pay the mortgage instalments, at least until 3 February 2015. However, on 19 February 2015, RHG issued a statement of claim for possession and a monetary judgment, relying on a default constituted by alleged arrears of $7,941 as at 7 January 2015 - being the default referred to in the 2015 Default Notice. Default judgment was obtained on 22 June 2015, and a writ of possession issued on 25 June 2015. An eviction scheduled for 28 September 2015 was stayed when the Summerfields paid the sum of $7,000 stipulated by RHG for that purpose. On 21 April 2016, a further writ of possession issued, and an eviction was scheduled for 30 May 2016. On 27 May 2016, a stay was granted, and a notice of motion to set aside the default judgment was filed on 6 June 2016. On 11 November 2016, N Adams J set aside the default judgment, but also ordered that the Summerfields pay RHG the sum of $24,978 within 14 days; [2] that sum was paid on 25 November 2016. An amended statement of claim was filed on 20 April 2017, in which RHG sought to rely in addition on the failure to pay the sum of $24,978 by 19 December 2014 in conformity with the June 2014 agreement.
2. The trial judge concluded that: 1. properly construed, the 2014 agreement did not confer on RHG a right to immediate possession in the event of a failure to pay the sum of $24,978 by 19 December 2014; 2. apart from the sum of $24,978 for fees and charges, RHG had not established that there were any arrears such as to found the default referred to in the 2015 Default Notice; 3. as to the $24,978 for fees and charges, which was not particularised in the 2015 Default Notice, RHG had not proved that each component of them was properly debited to the loan account; 4. in those circumstances, no default entitling RHG to possession - or accelerating repayment of the principal sum so as to found a monetary judgment for it - was established.

The Appeal

1. On appeal, RHG contended that it was entitled to possession on three bases: 1. default under the June 2014 agreement, in failing to pay the sum of $24,978 by 19 December 2014; 2. default under the loan agreement and mortgage, by failing to pay the sum of $24,978 in relation to fees and charges by 19 December 2014; 3. default under the loan agreement and mortgage, in failing to pay the arrears of $7,491 referred to in the 2015 Default Notice.

Default under the 2014 agreement?

1. The first basis on which RHG claims to be entitled to possession is that of default under the 2014 agreement, by failure to pay the sum of $24,978 by 19 December 2014. Non-payment of that sum by the due date was not in doubt, and though it was later paid - as a condition of the judgment being set aside - the Summerfields did not propound a claim for relief against forfeiture. However, whether the omission to pay it punctually founded an entitlement to possession depends on the construction of the June 2014 agreement. RHG contended that its effect was merely to allow the Summerfields into occupation under licence so long as they complied with the conditions stipulated in the Kemp Strang letter, and that upon failure of any condition, RHG was entitled to resume possession.
2. The primary judge did not accept this argument, and nor do I. For the reasons that follow, the preferable construction of the statement that "RHG will restore possession of the security property to Mr and Mrs Summerfield on the following conditions" is that RHG's agreement to restore possession was conditioned on the Summerfields satisfying the two conditions which had to be satisfied before possession was restored, and assuming the other stipulated "conditions" as contractual obligations.
3. An obligation to surrender possession on default is a drastic remedy, and one would expect to see any such obligation expressed in clear words. No express words in the correspondence reserve or acknowledge a right on the part of RHG to resume possession upon failure of any of the conditions stipulated in the Kemp Strang letter. Rather, the express words contemplate restoration of "possession" - not mere occupation under licence - on satisfaction of two conditions, both of which were satisfied: the return of a copy of the Kemp Strang letter, duly signed by the Summerfields; and payment of the loan arrears of $51,544. Consistently with that, the reference to "continue with enforcement action" in condition 5 is apt to refer to what RHG would do, if the letter duly signed were not returned, or the $51,544 not paid; but not to describe what would be involved after the Summerfields had been reinstated in possession, as new proceedings for possession would then be required. Moreover, condition 3 - which stipulated that the Summerfields would make "all ongoing payments to the loan account as and when they fall due" - must be seen in a context where the term of the loan extended for another 18 years. At trial, RHG ultimately accepted that in respect of this condition, any right to resume possession on a failure would not endure for the whole term of the loan agreement. In this Court, RHG submitted that failure of this condition before payment of the $24,978 by 19 December 2014 would entitle RHG to resume possession, but failure after that payment would not. That one condition has to be treated in this way tells against it being intended that failure of any condition after the Summerfields were reinstated in possession would entitle RHG thereupon to resume possession.
4. I accept that condition 2 - which provides that the Summerfields must provide RHG with confirmation of the annulment of Mr Summerfield's bankruptcy by 18 June 2014 - tells somewhat in favour of RHG's construction, as there would be no contractual remedy for default. However, this is an informal contract, and not every element of it can be readily reconciled with either of the alternative constructions. Viewing it as a whole, the language of the correspondence (and in particular, the use of the term "possession"), the structure of the arrangements (that possession was restored only after return of the signed letter and payment of the $51,544, but before satisfaction of the other conditions), the provision for continuing enforcement action (which is sensible in the context of the period until possession is restored, but not afterwards), the admitted difficulty of reconciling condition 3 to the alternative construction, the absence of any express provision for the drastic remedy of retaking possession subsequently, and the absence of any reference to the possession being conditional in the penultimate paragraph of the Kemp Strang letter, render it more reconcilable with the view that failure of any of the conditions after the Summerfields were restored to possession did not confer on RHG any right to resume possession additional to those it enjoyed under the mortgage.
5. The trial judge was therefore right to reject the first basis on which RHG asserts an entitlement to possession.

Default in payment of $7,491 referred to in the 2015 Default Notice?

1. It is convenient to turn next to the third basis, being the alleged default in payment of $7,491, referred to in the 2015 Default Notice. As has been mentioned, the Summerfields had in fact made the appropriate payments on or about each of the dates particularised in the 2015 Default Notice, and this alleged default existed only because of the adjustment made unilaterally by RHG on 29 September 2014 by debiting to the loan account a sum of $11,473.86.
2. Although the basis for the adjustment has never been satisfactorily explained, RHG contended that it arose from a discrepancy between what it was entitled to debit and what it had actually debited, possibly for "penalty interest", prior to June 2014. His Honour was "wholly unsatisfied" about the sum claimed to be in arrears, and "certainly not satisfied" that there was any amount in arrears such as to found the default identified in the 2015 Default Notice. Although his Honour referred to other reasons for treating the loan account maintained by RHG with caution - including not only what his Honour found incorrectly to be a discrepancy of 21 cents, but also that the three columns of the account did not mathematically reconcile - that conclusion was founded on the absence of any satisfactory explanation for the adjustment entry in September 2014, upon which the existence of any arrears depended. No more satisfactory explanation was proffered before this Court, and his Honour's conclusion that it was not sufficiently explained was not affected by error.
3. His Honour observed that RHG had not furnished a certificate under clause 28 of the loan agreement, nor a certificate under clause 24 of the Mortgage. Clause 28 of the loan agreement provided as follows: We may give you a certificate or formal statement about a matter or about an amount payable in connection with this agreement. This is sufficient evidence of the matter or amount, unless it is proved to be incorrect.
4. Clause 24 of the Mortgage was to the same effect. Before his Honour, RHG submitted that the periodical statements sent by RHG to the Summerfields setting out the loan balance, and including a statement to the effect that fees and charges had a particular balance at a particular date, constituted a certificate under the loan agreement and the Mortgage. His Honour rejected that argument: 185 I reject this argument. At the least, in order to constitute a certificate under the Loan or under the Mortgage of the kind which is contemplated by each of those clauses, the certificate (or formal statement) would need to identify itself as such and draw the reader's attention to the fact that RHG was giving the certificate (or formal statement) in accordance with the nominated clause of the Loan Agreement or Mortgage. As well, the certificate (or formal statement) would need to identify an amount payable in connection with the Loan Agreement (or Mortgage). It would need to identify what part or parts of the Loan Agreement the amount was payable in respect of. As well, I would expect it to include a statement noting that RHG would rely upon the certificate (or formal statement) as "sufficient evidence of the matter or amount unless it is proved to be incorrect", although the absence of such a statement may not affect its validity. 186 A periodical statement to a borrower issued from time to time in the ordinary course of business containing a statement of what RHG said was due, does not amount to a certificate under the Loan or the Mortgage which would have the effect of shifting the onus of proving that the amount stated in the certificate was incorrect to the Borrowers. Here at all times, the onus remained on RHG to prove to the Court what the amounts owing under the Loan Agreement were.
5. On appeal, RHG submitted that his Honour's description of what would be required to constitute a compliant certificate or formal statement went beyond what clause 28 required, and, in particular, that clause 28 contained no stipulation that the certificate (or formal statement) must identify itself as such, or state that it was "sufficient evidence of the matter or amount unless it is proved to be incorrect", or "identify what part or parts of the Loan Agreement the amount was payable in respect of". Further, it was submitted that the periodical statements were formal in presentation, being documents in tabular form under the name and ACN of RHG, identifying the borrower to whom it was addressed and his or her postal address, and not having the informal nature of an email or casual letter.
6. In my judgment, whatever the minimum content of a "certificate or formal statement" under clause 28, routine periodical monthly statements of account do not satisfy it. In this context, "formal statement" is to be construed eiusdem generis with "certificate". It connotes at the least a document which certifies, or formally states in a manner analogous to a certificate, the relevant matter. The degree of formality required is analogous to that of a certificate. The requirements of a "formal statement" might arguably be satisfied by a document authenticated by an authorised officer of RHG over her or his signature to the effect: I state that the amount of arrears outstanding under the loan agreement as at this date is $xxx.
7. However, a computer-generated routine periodical monthly statement of account, which involves no authorised officer adverting to and taking responsibility for its accuracy and authenticating it, does not qualify as a "formal statement" for these purposes. His Honour was correct to hold that there was no relevant "certificate or formal statement" that could have the effect of displacing the onus of proof.
8. There is a further reason for upholding his Honour's conclusion that no such default as was identified in the 2015 Default Notice was established. The June 2014 agreement involved agreement that the loan arrears (including interest) were $51,544, and that payment of that sum would clear the loan arrears, other than an agreed amount of $24,978 for fees and charges. This arises from the combination of condition 1 in the Kemp Strang letter (providing for payment of the sum of $51,544), condition 4 in that letter (providing for clearance of the balance of the account by 19 December 2014), quantification of that balance in the Jane Button letter at $24,978, and the common assumption that that balance was in respect of fees and charges. The purport of the June 2014 agreement was that upon payment of $51,544 the loan would be restored to good order, and would thereafter be maintained in that status by timely payment of fortnightly instalments. Effectively, the payment of $51,544 involved agreement that it cleared all arrears of principal and interest, and maintenance of future periodical instalment payments would keep the loan in order. The Summerfields made those payments. This is confirmed by the RHG chronological diary entry of 3 October 2014, referred to by his Honour: Account review - as per conditions on the 06/06/14, repayments have been kept, Borrower has until the 19/12 to clear arrears. Property was handed back to the customer.
9. Even if RHG had omitted to debit to the account, prior to June 2014, amounts it was otherwise entitled to charge, after the June 2014 agreement it was not entitled to debit those amounts. Alternatively expressed, the June 2014 agreement precluded RHG from contending that there were loan arrears arising from the period prior to the June 2014 agreement.
10. It follows that the primary judge was right to conclude that RHG had not established that (leaving aside for the moment fees and charges) there were any loan arrears as at 7 January 2015 when the 2015 Default Notice was issued, and thus that such alleged default could not found a claim for possession.

Default under the loan documents by failing to pay fees and charges?

1. The remaining basis on which RHG contends that it is entitled to possession is default under the loan agreement and mortgage by failing to pay the sum of $24,978 in relation to fees and charges by 19 December 2014. Before the trial judge, RHG contended that these unpaid fees and charges were an available default under the loan agreement and mortgage, even if the default was not that particularised in the 2015 Default Notice. His Honour rejected this argument, essentially on the basis that in respect of each component of the sum of $24,978, RHG had not proved the conditions which entitled it to debit the charges to the loan account, with the consequence that RHG had not proved that the sum had been validly debited to the loan account, nor that there were any fees and charges outstanding when the 2015 Default Notice was issued.
2. On appeal, RHG submitted that this conclusion was erroneous, because it had been agreed in the June 2014 agreement that the sum of $24,978 for fees and charges was properly payable. In my view, just as the June 2014 agreement determined that the loan arrears (including interest) were $51,544, so too it determined that there were outstanding fees and charges properly payable of $24,978. In going behind that agreement to scrutinise whether each charge had been properly made, his Honour erred.
3. However, that does not mean that RHG was entitled without more to rely on non-payment of the $24,978 as an available default. Clause 18.1 of the Loan Agreement relevantly provided: 18. What can happen then? 18.1 If you are in default, we may give you a notice stating that you are in default. If you do not, or cannot, correct the default within any grace period given in the notice or required by law (or if you are in default again for a similar reason at the end of that period), then, at the end of that period and without further notice to you, the total amount owing becomes immediately due for payment (to the extent it is not already due for payment). We may then sue you for that amount, or enforce any security, or do both.
4. To similar effect, clause 19 of the filed memorandum incorporated in the mortgage provided: What can happen then? 19.1 If you are in default and we choose to enforce this mortgage, we must give you a notice. (You must have been in default for one day or more before we may do this). This notice must: (a) state that you are in default; and (b) specify a period of grace of at least 31 days. 19.2 The law (including statute law governing the exercise of our power of sale as mortgagee and, if applicable, a Consumer Credit Code) requires us to give you certain information before enforcing this mortgage. We may include that information in the notice under clause 19.1 or another notice. 19.3 During the period of grace given under clause 19.1, you are allowed to correct any default that can be corrected. If you do not correct that default within that period or if there is a default that cannot be corrected, then, to the extent it is not already due for payment, the amount owing becomes immediately due for payment at the end of that period without further notice. In additional, we may then do one or more of the following as well as anything else the law allows us to do as mortgagee: (a) sue for the amount owing; (b) take possession of the property (We may remove personal possessions and either abandon them or store them without being liable to you. If we store them and you do not reclaim them within a reasonable time, we may dispose of them and use the proceeds towards paying the amount owing). (c) do anything an owner of the property could do, including selling or leasing it or carrying on any business on it; (d) appoint a receiver to do any of those things and anything else the law allows a receiver to do.
5. Section 88 of the National Credit Code (Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor) relevantly provides that a credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of property subject to a mortgage, unless the mortgagor is in default under the mortgage; and the credit provider has given the mortgagor a default notice allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default: Enforcement of mortgage (2) A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless: (a) the mortgagor is in default under the mortgage; and (b) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and (c) the default has not been remedied within that period. ... Default notice requirements (3) A default notice must contain a prominent heading at its top stating that it is a default notice and specify: (a) the default; and (b) the action necessary to remedy the default; and (c) a period for remedying the default; and (d) the date after which enforcement proceedings in relation to the default, and, if relevant, repossession of mortgaged property may begin if the default has not been remedied; …
6. Those provisions make clear that the notice must identify the particular default relied on, the action necessary to remedy that particular default, the period for remedying that particular default, and the date after which enforcement proceedings in relation to that particular default may begin, if that particular default is not remedied. Plainly, the purpose of the requirement for such a notice is to draw the mortgagors' attention to the specific alleged default, and afford them an opportunity to remedy that specific default. Perhaps more clearly than the loan agreement and the mortgage, the Code directs attention to the specific default, and requires that an opportunity be provided to remedy that default.
7. The only default to which the 2015 Default Notice referred was the alleged failure to pay five instalments, which the Summerfields had in fact paid. The notice did not refer to failure to pay outstanding fees and charges of $24,978. In respect of that alleged default, RHG did not give the Summerfields a notice specifying the default (as required by s 88(3)(a)), or allowing a period to remedy the default (as required by s 88(2)(b)). RHG, not having given the Summerfields a compliant default notice referring to non-payment of the $24,978 for fees and charges and allowing a period of at least 30 days to remedy that default, was not entitled to begin proceedings for possession against them in reliance upon that default.

Conclusion

1. The Summerfields' failure to pay the sum of $24,978 by 19 December 2014 did not, under the June 2014 agreement, confer on RHG a right to resume possession. The default relied upon in the 2015 Default Notice, being default in payment of $7,491 in instalments of principal and interest, was not established. Although it was unnecessary for RHG to prove that the fees and charges of $24,978 were legitimately debited - as liability for them was accepted in the June 2014 agreement - non-payment of those fees and charges was not an available default because no compliant notice under s 88 of the National Credit Code had been given in respect of it.
2. Accordingly, no available default upon which RHG was entitled to possession, or to a monetary judgment on the basis that repayment was accelerated, was established. The proceedings were rightly dismissed. I propose that the appeal be dismissed, with costs.

Endnotes

1. RHG Mortgage Corporation Ltd v Summerfield [2018] NSWSC 972.
2. RHG Mortgage Corporation Ltd v Summerfield [2016] NSWSC 1595.

Amendments 22 March 2019 - Correct formatting error at Headnote. 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: 22 March 2019