Assured Funding Pty Limited v Gentzsch - [2007] SASC 101

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ASSURED FUNDING PTY LIMITED v GENTZSCH & ANOR
[2007] SASC 101
Reasons of Judge Lunn a Master of the Supreme Court
26 March 2007
REAL PROPERTY
Application for possession order by mortgagee - service of notice under s 55A(1) of the Law of Property Act - held notice speaks from date of service and not from when dated by the mortgagee - held amount of payment sought in notice was over stated where it did not give credit for payments received from mortgagors between the signing of the notice and its service - held a notice under s 55A(1) which over stated the amount due was invalid - possession order refused.

ASSURED FUNDING PTY LIMITED v GENTZSCH & ANOR
[2007] SASC 101

JUDGE LUNN: In these proceedings the plaintiff seeks an order under Part XVII of the Real Property Act 1886 for possession of land owned by the defendants which they had mortgaged to the plaintiff to secure repayment of a loan. There is no dispute that s 55A of the Law of Property Act (“the Act”) applies in this case. The relevant parts of that section are as follows:
(1)A right of sale or foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land ….. shall not be enforceable by the mortgagee under a mortgage to which this section applies against the mortgagor by action or otherwise unless –
(a) the mortgagee has served upon the mortgagor a notice in writing –
(i)alleging a breach of a covenant or condition of the mortgage by the mortgagor; and
(ii)if the breach is capable of remedy, requiring the mortgagor within one month after service of the notice, ….. to remedy the breach; and
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(b)where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements.
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(3)In any proceedings brought by a mortgagee for the recovery of a mortgage debt or for the enforcement of a mortgage, or in proceedings instituted by a mortgagor within twenty-one days after service of a notice under this section, a court may, upon such fair and equitable terms as it may determine, grant relief to a mortgagor …..
Section 112 of the Act provides in respect of the service of such notices:
(3)Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in South Australia of the mortgagee, ….. in case of a notice required or authorised to be served on a mortgagor, is affixed or left for him on the land or any house or building comprised in the mortgage.
(4)Any notice required or authorised by this Act to be served shall also be sufficiently served if it is sent by post in a registered letter addressed to the mortgagee, mortgagor, ….. by name, at the aforesaid place of abode or business, and if that letter is not returned through the post office undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.
On 5 July 2006 a notice, purportedly under s 55A, dated 29 June 2006 was served on the defendants by being left by a process server under the front door of the mortgaged premises. The relevant parts of that notice are as follows:
DEFAULT NOTICE
NOTICE OF INTENTION TO EXERCISE OF POWER OF SALE PURSUANT TO SECTION 132 OF THE REAL PROPERTY ACT 1886 AS AMENDED AND SECTION 55A OF THE LAW OF PROPERTY ACT 1936 …..
NOTICE TO THE MORTGAGORS NAMED BELOW:
Mortgagors:Leanne Kay Mary Kathryn Gentzsch and Roger Karl Gentzsch
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Lender/Mortgagee:                Assured Funding Pty Ltd
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1You are in default under the loan agreement and the mortgage in that you have failed to pay the following amounts due and owing under the loan agreement and secured by the mortgage and your default has continued for a period in excess of one day. Interest, fees and charges continue to accrue on this amount until paid
Due DateParticulars  Amount
25/06/2006Default Fee  $150.00
13/06/2006Part Payment Due  $645.58
Total Amount Due  $765.58
2To remedy the default, the Total Amount Due must be paid to the lender within 31 days of service upon you of this notice. …..
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4If the default is not remedied within 31 days of service upon you of this notice, by payment of the Total Amount Due, then (without the need for the lender to give further notice):
ayour liabilities under the loan agreement and the mortgage will be affected by the operation of an acceleration clause which obliges you to immediately repay the full amount owing under the loan agreement. …..
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cthe lender may take possession of the mortgaged property;
dthe lender may exercise its power of sale in relation to the mortgaged property and the mortgaged property may be sold by the lender; and or
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On 11 October 2006 the plaintiff instituted this action. The defendants disputed that they were in default. I heard extended argument on 14 December 2006 and reserved my decision. The defendants were unrepresented.
In the course of considering my reserved decision I saw that the affidavit evidence suggested that the amount sought in the s 55A notice of $765.58 may have been overstated. On 9 January 2007 my Personal Assistant wrote to the plaintiff’s solicitors raising the issue. On 20 February 2007 the plaintiff filed a further affidavit dealing with the point and written submissions from its solicitor. No further oral hearing was requested.
At the best for the plaintiff, when it prepared and signed the s 55A notice on the morning of 29 June 2006 the amount then due and owing by the defendants was $765.58. However, at about that time, and by no later than 30 June 2006, a further payment of $450 was received by the plaintiff from the defendants. (The defendants say that they paid that amount on 27 June, but that does not accord with the plaintiff’s records.) In any event it is clear that by no later than 1 July only $315.74 was due for payment by the defendants.
The crux of the argument presented by the plaintiff was that the validity of the s 55A notice was to be assessed at the time it was signed. No authority was cited for this proposition. At that time it did state the correct amount. However, s 55A(1)(a)(ii) makes the time for remedying the default run as from the service of the notice. Paragraph 4 of the notice is in those terms. Although only indirectly relevant, s 55A(3), quoted above, also makes the 21 period in it run from the service of the notice. Under s 112(3) of the Act service occurs when the notice is left at the mortgage premises. That service only occurs upon delivery of a notice is confirmed by the terms of s 112(4) of the Act. Accordingly, I hold that an s 55A notice speaks as at the time of its service, and not as at the date on which it was signed. This interpretation accords with the general purpose of s 55A which is to protect borrowers from the draconian consequences of default. It is remedial legislation which is where possible to be beneficially construed in favour of the borrowers.
I further hold that a significant overstatement of the amount required for payment under an s 55A notice invalidates the notice. The point was considered, but not decided, by Besanko J in Andrew Garrett Wines Resorts Pty Ltd v National Australia Bank Ltd (2004) 232 LSJS 314 at 232-4. The effect of the notice is to give borrowers a last chance to remedy their default and failing which they are liable to legal process to have them evicted from the property and to have it sold by the mortgagee. It is not for the borrowers necessarily to know exactly how much is due for payment. (This is illustrated by the circumstances of this matter where a number of charges were raised against the borrowers under the terms of the loan agreement of which they were not aware until some time later). The face of the notice should tell the addressees exactly how much they are required to pay to avoid the consequences of default. The amount demanded was over twice what was actually due. This overstatement could not be construed as de minibus. Accordingly, I hold that as no valid s 55A notice was served the plaintiff is not entitled to any order for possession.
I also raised with the plaintiff’s solicitors whether the terms of the s 55A notice were misleading and ambiguous. In view of the conclusion which I have reached about the overstatement of the amount demanded I need not pursue this point.
The plaintiff’s solicitors contended that if the notice only spoke at the date of its service, it may be impossible for lenders to serve valid notices as they did not immediately know what amounts the borrowers may have transferred into their bank accounts. While this is a practical problem for lenders, it can be overcome by service a further notice in correct terms under s 55A as soon as they become aware that there have been further payments or they can reject the further payments. In any event, in the circumstances of this matter, the plaintiff should have known by the time the notice was served on 5 July that its terms were incorrect and it could then have amended the notice before its service to show the correct amount.
I will not make any order at this stage pending a communication from the plaintiff’s solicitors as to what course the plaintiff now wishes to adopt in the matter