HEARD : 23 & 24 AUGUST, 27 & 28 NOVEMBER, 1 DECEMBER 2006

BETWEEN : AUDREY FRANCES HALL As Executrix of the Will of KENNETH DUNCAN HALL (DEC)

Mortgages - Remedies of the mortgagee - Proof of the giving of notice of a default notice and notice of demand

Transfer of Land Act 1893 (WA), s 106(1), s 106(2), s 107, s 108

Yap Cheng See v Challenge Bank Ltd, unreported; SCt of WA (Parker J); Library No 970695; 12 December 1997

1 JENKINS J: This is a mortgage action in which the plaintiff, Audrey Frances Hall as executrix of the Will of Kenneth Duncan Hall (dec) ("Mr Hall"), seeks judgment against the defendant, Nancy Cloonan Hall, for money outstanding under a mortgage and possession of two properties which are subject to the relevant mortgage. As both parties are named Hall, in order to avoid confusion between them I shall refer to them as the plaintiff and defendant, respectively.

2 The plaintiff, by her statement of claim, pleads:

1. She is the executrix of the estate of Mr Hall who died on 9 August 2001;

2. The defendant is the registered proprietor of two properties, being:

(a) Lot 126 on Plan 4553 and being the whole of land comprised in Certificate of Title Volume 1048, Folio 795 also known as 169 Hazelmere Circus, Hazelmere, Western Australia; and

(b) Part of Lot 50 on Plan 1237 and being the whole of the land comprised in Certificate of Title Volume 1696 Folio 880 also known as 86 Grosvenor Road, Mount Lawley, Western Australia ("the properties");

3. The defendant entered into a mortgage dated and stamped 23 December 1992, which was subsequently registered, with Engineering Facilities Pty Ltd (ACN 008 731 244) as the mortgagee ("the mortgage");

4. The principal sum advanced to the defendant under the mortgage was $350,000 and the mortgage was secured by a registered first mortgage over each of the properties.

(b) a regular rate of interest of 15 per cent per annum, reducible to 13 per cent if all payments were up to date;

6. By transfer registered on 12 December 1994 the benefit of the mortgage was transferred to Mr Hall for which Mr Hall paid Engineering Facilities Pty Ltd the sum of $374,107.45;

7. The plaintiff became the registered proprietor of the mortgage by transfer registered on 19 March 2002;

8. In breach of her obligations under the mortgage, the defendant has not, despite demand, repaid any of the principal sum or interest owing under the mortgage;

9. By notice dated 6 March 2003, the plaintiff demanded that the defendant repay the principal sum together with interest thereon at the rate of 15 per cent per annum from 12 December 1994;

10. The defendant did not satisfy the notice of demand or otherwise remedy her default;

11. By reason of her default and the non-payment of the sum due under the notice of demand, she is entitled to judgment against the defendant in respect of the principal sum, together with interest thereon and delivery up of possession of the properties so that she may exercise her power of sale pursuant to the mortgage.

3 The defendant, by her defence, admits the mortgage, the transfer of the benefit of it to her brother, Mr Hall, his death and the fact that the plaintiff became the registered proprietor of the mortgage in 2002. The defendant denies the balance of the plaintiff's allegations and denies that the plaintiff is entitled to any relief. She pleads that Mr Hall's repayment of the sum owing to Engineering Facilities Pty Ltd was a gift to her. In the alternative, she pleads that Mr Hall represented to her that she was not required to pay either capital or interest on the mortgage, that in reliance of Mr Hall's representations she did not repay any capital or interest but rather expended her money on other matters and that Mr Hall did not issue a notice of breach of mortgage to her either before his death or at all.

4 This matter commenced before me as a trial held in the presence of both parties. The plaintiff was at all times represented by counsel. The defendant was unrepresented. After the first two days of the plaintiff's case I adjourned the trial to enable the defendant to prepare her defence to the plaintiff's claim. Considerable assistance was offered to the defendant by the Court to help her to prepare her defence. Despite this, and an adjournment of some months, the defendant failed to appear for the balance of the trial. Consequently, she did not present any evidence or any submissions for my consideration. Therefore, this action will be decided on the basis of the evidence presented in the plaintiff's case.

5 The plaintiff gave evidence on her own behalf and called a number of other witnesses. In order of appearance they were:

1. Mr Keith Wilson, a valuer who, on instructions from Mr Harry Moore, prepared valuations, of the properties in March 2000;

2. Mr Harry Kelso Moore, a chartered accountant and the accountant for Mr Hall and the plaintiff;

3. Mr Kenneth Edward Yoong, an employee of Insolvency Trustee Service of Australia ("ITSA") who produced, under subpoena, the defendant's bankruptcy filed held by ITSA. Mr Yoong also gave evidence of conversations and correspondence with Mr Hall;

4. Mr Harold Arthur Baggs, a conveyancer who discussed the mortgage with Mr Hall;

5. Mr Peter James Baxter, a financial planner who had a conversation with Mr Hall about the mortgage;

6. Mr Sean Charles Mulhall, a solicitor who, in 2003, sent a letter of demand to the defendant, enclosing a default notice under the mortgage; and

7. Ms Meshell Marie Sandilands, who was employed in 2003 as a law clerk and who sent the letter of demand and default notice by registered mail to the defendant at various addresses.

6 The plaintiff and each of her witnesses are people of good character. They each gave their evidence in a credible manner. In many instances, there are contemporaneous documents to support their oral evidence. I accept, without hesitation, the truth and reliability of their evidence.

7 I am satisfied on the balance of probabilities by the evidence of the witnesses and by the documentary evidence of the following facts.

8 The plaintiff is the executrix of the estate of her late husband, Mr Hall. The plaintiff and Mr Hall were married in 1947 and lived their entire life in South Australia. They have four children each of whom is now an adult. The plaintiff has reached an advanced age and wishes to settle her financial affairs.

9 Mr Hall had three siblings, one of whom was the defendant. The defendant has had little physical contact with the plaintiff and Mr Hall over her lifetime as she left South Australia at approximately the age of 13 years. However, the defendant had some telephone and written contact with Mr Hall. Prior to December 1994, Mr Hall lent the defendant various sums of money. He did not take any security for these loans.

10 The defendant is and was at all relevant times the registered proprietor of the properties. As of December 1994 the properties were subject to the mortgage, which was a first registered mortgage in favour of Engineering Facilities Pty Ltd. The mortgage secured a loan of $350,000 which had been made to the defendant by Engineering Facilities Pty Ltd in 1992.

11 The mortgage secures monies being the principal sum of $350,000, interest on the principal sum at a rate of 15 per cent per annum or 13 per cent per annum if paid in advance, costs and expenses which the mortgagee may incur or become liable for in connection with the properties or the mortgage and interest upon all these monies at a rate agreed to by the parties or at the rate specified in the mortgage.

12 Clause 4 and Item 3 of the Schedule to the mortgage provide that the defendant shall pay to the mortgagee the sum of $44,500, being one year's interest in advance, on the date specified in Item 2C of the Schedule. The date specified in Item 2C is an unspecified date in December 1992. Item 3 also provides that the defendant shall pay to the mortgagee, without any demand, the principal sum and other monies secured by the mortgage, or such part of them as then remain unpaid, on an unspecified date in December 1993.

13 Clause 2 of the mortgage provides that if an event of default has occurred, the defendant shall be liable to pay, upon written demand, the money secured by the mortgage. Clause 29 states that an event of default includes default in the payment of the monies secured by the mortgage at the times when they are payable under the mortgage.

14 Clause 12 of the mortgage provides that three days must elapse after a demand for payment mentioned in the Transfer of Land Act 1893 (WA), ("the Act"), s 107 before the mortgagee's power of sale given by s 108 of the Act may be exercised. It further provides that such demand may be made notwithstanding any previous neglect or waiver of the rights to give such notice.

15 Clause 14 of the mortgage is headed "Mortgagee's Powers". Clause 14(2) provides that immediately on default in payment of the money secured or in the observance or performance of any of the conditions contained in the mortgage, all the powers conferred upon the mortgagee under the mortgage may be exercised by the mortgagee "without any proof of such default or its continuance or any notice whatsoever being requisite".

16 Clause 36(1) of the mortgage states that it is irrevocable and the defendant shall not be released by the payment of any money to the mortgagee or any other matter or thing.

17 Clause 36(2) of the mortgage contains an acknowledgement that the mortgage and the liability of the defendant under it is not effected by a number of matters including any subsequent transaction between the mortgagee and any other person, the granting of time or other indulgence or consideration by the mortgagee to any person, the mortgagee failing or neglecting to recover any monies owing to the mortgagee under the mortgage, the mortgagee failing or neglecting to exercise any of its powers under the mortgage and any act, omission, laches or default on behalf of the mortgagee whereby the liability of any person to the mortgagee would but for this provision have been effected, released or discharged. It also provides an acknowledgment that the liability of the defendant is not affected by the death of any person or the bankruptcy of any person.

18 Clause 25 of the mortgage contains a provision with respect to notices. It provides that any notice to be given by the mortgagee shall be deemed to duly given if signed by the mortgagee or any solicitors or agents of the mortgagee. It further provides that, without prejudice to any statutory or other right of the mortgagee to give or serve any demand in writing, a demand in writing by the mortgagee for payment of the money secured by the mortgage shall be sufficiently given if delivered or sent by post to the defendant at her address in the mortgage or left upon the mortgaged property.

19 The defendant did not repay any of the principal or interest secured by the mortgage on the dates provided for in the mortgage.

20 In 1994 the defendant asked Mr Hall to loan her $374,107.45 to pay the money then owing under the mortgage on the properties. Mr Hall agreed to do this. He did not then tell the plaintiff of his intentions to assist the defendant in this manner. Mr Hall had some ready cash but he also had to borrow $200,000 to make the loan to the defendant. As security for the loan he took a transfer of the mortgage from Engineering Facilities Pty Ltd. Mr Hall travelled from South Australia to Perth to finalise the arrangements. On 12 December 1994 the transfer of the mortgage was registered on the titles to the properties and, thus, Mr Hall became the registered mortgagee.

21 Between 1994, when the loan was made, and Mr Hall's death, he had a number of conversations and written communications with the defendant, in which he asked her to honour the mortgage agreement. For example, on 31 March 1995 he wrote to the defendant and told her that if something was not done about the repayments of the monies outstanding and interest on the mortgage he would have no alternative but to sell the properties. He wrote other letters in the same vein. At no time did the defendant make a repayment under the mortgage.

22 Mr Hall also spoke to Mr Moore and other business associates regarding the debt and his expectation that the defendant would repay it. In or about 1998, the plaintiff became aware of the mortgage and she also overheard Mr Hall speaking to the defendant on the telephone requesting repayment of the debt.

23 I am not satisfied that Mr Hall represented to the defendant at any time after the mortgage was transferred to him that the defendant was not required to repay the money secured by the mortgage.

24 In 1995 the defendant became a bankrupt. She completed a Statement of Affairs in which she listed Mr Hall as a secured creditor and acknowledged that she owed him at least $500,000. On 28 April 1995 Mr Hall lodged a proof of debt with ITSA claiming that he held the first mortgage security in respect of a loan of $374,107.45 and accrued interest of $18,387.64 to 28 April 1995. Mr Hall also sent a letter to ITSA dated 21 October 1998 through his accountant, Mr Moore, asserting that the payout of the loan to the defendant was, as at 12 January 1999, $679,137.78. In 1998 Mr Yoong, on behalf of ITSA, also spoke to Mr Hall by telephone. In that telephone call Mr Hall asserted the fact of the loan and his security over the properties.

25 Shortly before his death in 2001, Mr Hall consulted Mr Baxter to regularise his financial affairs. He spoke to Mr Baxter about the loan to his sister and Mr Baxter suggested that it may be necessary to take legal proceedings to recover that money. Mr Baxter said that Mr Hall was "very comfortable with that". He testified that Mr Hall indicated to him that he wanted the loan repaid and that it was not a gift of any sort to the defendant.

26 On 26 July 2001 Mr Hall executed his last Will in which he appointed the plaintiff the sole executor and bequeathed his estate to the plaintiff. He did not make any testamentary disposition to the defendant.

27 On 9 August 2001 Mr Hall passed away and the plaintiff subsequently became the registered proprietor of the properties as executrix of Mr Hall's estate. In that capacity she has brought this action. Probate was granted by this Court over the Will of Mr Hall on 6 February 2002.

28 On 6 March 2003 the plaintiff sent a default notice pursuant to the mortgage to the defendant. The default notice alleged that the defendant had defaulted pursuant to the mortgage and failed to repay the principal sum and interest on the principal sum to Mr Hall. It demanded that she pay these amounts. An accompanying letter (the "letter of demand"), advised the defendant that if she did not remedy the default then she was required to provide vacant possession of the properties failing which the plaintiff's solicitors were instructed to initiate proceedings to protect the plaintiff's interests without further notice to the defendant. The default notice and letter of demand were sent by registered post to the defendant at six different addresses, including the defendant's address under the mortgage as entered in the register maintained by the Registrar of Titles, namely 127A Hazelmere Circus, Hazelmere. There is evidence before me that the default notices and letter of demand were returned, undelivered, to the plaintiff's solicitors.

29 The defendant has not paid any money to the plaintiff, pursuant to the mortgage.

30 An issue potentially affecting the plaintiff's right to these orders is whether the defendant was given proper notice of the default notice and letter of demand. The defendant's defence denies that paragraph of the statement of claim which alleges that by the notice dated 6 March 2003 the plaintiff demanded that the defendant repay the debt. I have heard no evidence from the defendant to elaborate upon the bare denial in the defence.

31 Clause 25 of the mortgage provides a method of the giving or serving of a demand on the defendant. Such a method is without prejudice to any right of the plaintiff to give or serve any demand in writing pursuant to statute or otherwise.

32 The Act, s 106(1) provides that in case default be made in payment of monies secured under a mortgage, the mortgagee or his transferees may serve on the mortgagor notice in writing to pay the money owing on such a mortgage. Section 106(2) provides that, amongst other means, service of the notice may be properly affected if the notice is sent by registered post to the address entered in the register as the address of the mortgagor or the address known to the mortgagee or his transferees as the current address of the mortgagor. In respect to the Hazelmere property, the address of the defendant on the title to that property is 127A Hazelmere Circus, Hazelmere. In respect to the Mount Lawley property, the address of the defendant on that title is simply Hazelmere Circus, Hazelmere.

33 In Yap Cheng See v Challenge Bank Ltd, unreported; SCt of WA (Parker J); Library No 970695; 12 December 1997, Parker J said:

"The methods of service provided for in s106 suggest that it is not the intention of the provision that the notice to which it refers must reach the mortgagor. That is readily apparent from the method of service identified whereby the notice can be left on a conspicuous place on the mortgaged land, which method by no means ensures that the notice will be brought to the attention of the mortgagor. It seems to me, therefore, that there is no reason to understand the third method of service 'sending through the post office a registered letter' as requiring that the notice actually be received by the mortgagor."

34 Parker J referred to two single Judge decisions, one from the Victorian Supreme Court and one from this Court, supporting the above view.

35 Alternatively, the manner of service of the notices specifically provided for by cl 25 is delivery or sending by post to the defendant at her address in the mortgage. The defendant's address in the mortgage is 127A Hazelmere Circus, Hazelmere. The letter of demand and notice of default were sent by registered mail to this address.

36 In my opinion the plaintiff has complied with the provisions of the Act and the mortgage in respect of the giving or service of the default notice and the letter of demand.

37 In fairness to the defendant, the plaintiff made written submissions which addressed the issues raised in the defence, as if evidence had been given of those matters.

38 There is no evidence before me which satisfies me that Mr Hall told the defendant that she was not required to pay either capital or interest on the mortgage and that she should utilise her funds elsewhere. Consequently, it is unnecessary for me to consider further the matters raised in the defendant's defence that rely upon this alleged representation.

39 It is not disputed that Mr Hall did not issue a notice of breach of mortgage to the defendant before his death. I have already referred to the provisions of the mortgage which provide that Mr Hall's or the plaintiff's rights under the mortgage are not affected by such a failure. I am sure that Mr Hall was reluctant to take enforcement proceedings against his sister and that he hoped that the defendant would, in compliance with her legal and moral obligations, repay his loan to her without enforcement proceedings being taken against her. Similarly, I am sure that the plaintiff has reluctantly taken these proceedings out of an obligation she feels regularise her financial affairs. The resultant delay did not constitute waiver of Mr Hall's and the plaintiff's rights under the mortgage. No limitation of action issue was pleaded by the defendant.

40 I am satisfied by reason of the defendant's default under the mortgage by non-payment of the sum due under the mortgage, default notice and letter of demand that the plaintiff is entitled to judgment against the defendant in respect of the principal sum of $350,000, the arrears of interest paid by Mr Hall to Engineering Facilities in the sum of $24,107.45, together with interest on both sums at the agreed rate specified in the mortgage of 15 per cent per annum until judgment. Further, the plaintiff is entitled to an order for the delivery up of possession of the property so that the plaintiff may exercise the mortgagee's power of sale pursuant to the mortgage.