Australia & New Zealand Banking Group Limited v Pollard - [2012] SASC 91

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED v POLLARD & ANOR
[2012] SASC 91
Reasons of Judge Lunn a Master of the Supreme Court
31 May 2012
REAL PROPERTY
Mortgagee served default notice claiming enforcement expenses - whether for more than amount reasonably incurred contrary to s 107(1) of the National Credit Code - reasonableness of charging to be assessed against scale in Schedule 2 to Supreme Court Civil Rules 2006 - insufficient evidence to enable assessment - whether process server's fee excessive - held plaintiff could not be required to serve by registered post under s 112 of the Law of Property Act - held reasonable to serve at place of abode of defendants and not at subject property which was further away - what amount of GST chargable on part of enforcement expenses.

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED v POLLARD & ANOR
[2012] SASC 91
Reasons on reasonableness of enforceable expenses

The defendants mortgaged their property at Port Vincent to the plaintiff to secure monies owing by them to the plaintiff. The defendants have defaulted in making the payments due under that mortgage. The plaintiff’s solicitors, Fisher Jeffries, arranged for All State Interstate Pty Ltd, a licenced process server, to serve a default notice dated 28 June 2011 (“the default notice”). This notice was served on 30 June 2011 by a process server delivering it to the property at Port Vincent and by affixing copies for each defendant on the back door of the house on the property which was apparently then unoccupied. The default notice, inter alia, required payment of enforcement expenses of $755.66 by the rectification date of 14 August 2011. This sum was not paid by that date.
It was common ground that the provisions of the National Credit Code (“NCC”) applied to the mortgage.
On 20 December 2011 the plaintiff issued this summons under Part 17 of the Real Property Act seeking an order for possession of the property. On 2 May 2012 the defendant took out an interlocutory application (FDN8) seeking various relief including that the action be dismissed. The dismissal was sought on the ground that the default notice was defective in that the enforcement expenses claimed of $755.66 were excessive. It was agreed that I would deal with this as a preliminary issue together with any entitlement of the plaintiff to a dispensation from the requirements of the NCC and s 55A of the Law of Property Act if I found that the enforcement expenses were excessive.
The mortgage entitled the plaintiff to recover its legal costs incurred in enforcing the mortgage on a full indemnity basis.
However, s 107 of the NCC provides:
107   Recovery of enforcement expenses
(1)     A credit provider must not recover or seek to recover enforcement expenses from a debtor, mortgagor… in excess of those reasonably incurred by the credit provider…
(2)     Any provision of the credit contract, mortgage… that appears to confer a greater right is void…
(3)     If there is a dispute between the credit provider and the debtor, mortgagor… about the amount of enforcement expenses that may be recovered by the credit provider… the court may, on application by any of the parties to the dispute, determine the amount of that liability.
Section 107 limits the plaintiff’s right to recover legal and associated costs in connection with the enforcement of the mortgage to those which have been “reasonably incurred” by it. The plaintiff did not dispute this. In my view this means that both the nature of the work which was done, and the amount paid by the plaintiff for such work, were reasonable in the circumstances of the case[1]. In assessing such reasonableness it is necessary for the Court to strike a fair and just balance between what is appropriate for the plaintiff to protect and enforce its legal rights under the mortgage and the defendant not being required to pay anything in excess of this.
[1] Citibank Savings Ltd v Pirrotta Full Court, 1 April 1998, Jud No 56603.
As the reasonableness of the enforcement expenses was challenged by the defendants, there was an evidentiary onus on the plaintiff to show on the balance of probabilities that $755.66 was an amount reasonably incurred by it for such expenses. The only evidence on the topic was the second affidavit of Ms Pye (FDN12), a solicitor for the plaintiff. The relevant part of the affidavit was as follows:
4.I refer to paragraph 10 of Mr Pollard’s Second Affidavit which states that the Defendants do not know how the enforcement expenses set out on the Notice of Default are calculated.
4.1    The amount of $755.66 comprises two accounts rendered by Fisher Jeffries to the Plaintiff…
4.2    The fee portion of the invoice dated 13 July 2011, being $515, is the fixed fee agreed between Fisher Jeffries and the Plaintiff for the following scope of work:
4.2.1an initial review of the Plaintiff’s original lending file and security documents, which results in advice to the Plaintiff on an agreed set of factual and legal issues relevant to the enforcement of the Plaintiff’s security; and
4.2.2preparing and arranging service of a Notice of Default on each of the Defendants and providing the Plaintiff with copies of the same.
It is not based on any court scale and does not depend upon the time spent by the practitioners undertaking the work necessary to complete the scope of work.
5.     The advice referred to in paragraph 4.2.1 addresses the following topics.
5.1     As to the secured property:
5.1.1 whether the security property is occupied, vacant or tenanted;
5.1.2 the value of the security property at the time the loan was entered into;
5.1.3 the current value of the security property; and
5.1.4a recommendation as to whether there is sufficient equity in the property to cover the loan(s);
5.2     As to the letter of offer:
5.2.1 review of relevant lenders mortgage insurance;
5.2.2whether the letter of offer is correctly signed, dated and holds the correct security property;
5.2.3whether the amount set out in the letter of offer matches the Bank’s internal system;
5.3     As to the borrower(s) details:
5.3.1 telephone number;
5.3.2 residential address;
5.3.3 postal address
5.3.4 age;
5.3.5 employment history;
5.3.6 hardship history
5.3.7 relevant disabilities and/or health issues;
5.3.8 bankruptcy;
5.4     As to the original lending documents:
5.4.1advice as to whether the mortgage is correctly executed and enforceable;
5.4.2review of Certificate of Title, including to identify caveats and encumbrances;
5.4.3whether there is any evidence of fraud.
6.I have performed the work involved in the agreed scope of works on numerous occasions. Typically the work involved in completing that scope of work involves:
6.1    Between 15 and 20 units (within the meaning of Items 7 to 9 of the Schedule 2 to the Supreme Court Rules) of a solicitor’s time involving the exercise of skill;
6.2    Between 8 and 10 units of a solicitor’s time not involving the exercise of skill; and
6.3Between 2 and 4 units of a law clerk’s time.
6.4    I note that applying the hourly rates in Items 7 to 9 of Schedule 2 to the Supreme Court Rules, that time equates to a range of costs of between $622 and $836.
6.5    I note that in this particular case, the time records of Fisher Jeffries record the following times for the work covered by the scope of works identified above as follows:
6.5.118 units of solicitors’ time involving the exercise of skill;
6.5.210 units of solicitors’ time not involving the exercise of skill; and
6.5.32 units of law clerk’s time.
In addition, the accounts from Fisher Jeffries to the plaintiff of 13 July 2011 and 10 August 2011, totalling $755.66, were exhibited to this affidavit.
At the outset of the hearing on 24 May counsel for the defendants queried whether the plaintiff had put forward all the evidence on which it relied to show that the enforcement expenses were reasonably incurred. Counsel for the plaintiff intimated he would argue the case on the evidence as it stood. He did not apply for any adjournment to file any further affidavits on the point.
The argument on the preliminary issue involved three points which I will deal with separately. The plaintiff has sought to justify reasonable enforcement expenses well in excess of $755.66, but it is only necessary for it to establish items totalling that amount even if I do not accept other components in its total claim.
Solicitors’ Fees of $515
By the account of 13 July 2011 Fisher Jeffries charged the plaintiff solicitors’ fees of $515 plus GST. As stated in Ms Pye’s second affidavit, this was an agreed fixed fee for the range of work set out in that affidavit. However, there is no basis upon which I can find that such a fixed fee is reasonable for the work done in this matter. There is no evidence that the work was put out to tender by the plaintiff and that market forces through the tender process would show that this was the cheapest fixed price at which the work could be reasonably done.
The plaintiff’s evidence does not tell me what work was actually done by Fisher Jeffries for which the charge of $515 was made. All I am told in paragraph 6.5 of the affidavit is that certain amounts of time were spent in performing the work.[2] I do not know how much of that time was spent on the various tasks set out in paragraph 5 and what those tasks involved in the context of this case. I do not know what instructions were given by the plaintiff, what documents were perused or examined, the length or complexity of those documents or why it was reasonable to perform all of such tasks in the context of this particular case.
[2] I assume that units for this purpose mean units of six minutes.
In this Court the starting point for assessing the reasonableness of legal costs is the application of Schedule 2 to the Supreme Court Civil Rules 2006 to the work which was properly done.[3] It is in essence a work-based, and not a time‑based, scale. The reasonableness of costs under that Scale is not to be assessed by taking the time occupied in performing all of the work done and charging that at the rates in items 7-9 of Schedule 2.[4]
[3] Note A to that Schedule allows for the amounts to reduced or increased depending upon the circumstances of the case.
[4] McNamara Business & Property Law v Kasmeridis (2007) 97 SASR 129.
If the plaintiff is to discharge the onus on it to show that the costs charged to it are reasonable, it has to give to the Court the information and documents which it needs to be able to apply the items in Schedule 2 to the work for which charges are being made.[5] While I do not necessarily require an itemised schedule which complies with 6R273, I do need to know who did what work and to see the relevant documents.
[5] By 6R262 the solicitors were obliged to keep records which enable the work to be costed on the Court scale.
I will give the plaintiff the opportunity to re-open its case to provide the information which I need about the work which is the subject of this charge of $515, but as the plaintiff’s counsel elected to proceed against the warning of the defendant’s counsel that there was not sufficient evidence on the point, the plaintiff will have to bear the costs thrown away by any re-opening of the hearing on this topic.
Process Server’s Fee
Part of the $755.66 was the process server’s fee of $110 plus GST to serve the notice at Port Vincent. The defendants reside at Glenelg and, to the knowledge of the plaintiff, had done so for many years. They contend that the notice should have been sent to them by registered post addressed to their Glenelg home which they say would have been much cheaper.
It was reasonable for the plaintiff to adopt a mode of service of the default notice which was authorised by s 112 of the Law of Property Act. The relevant parts of that section are:
(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 … mortgagor… or, 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 be sufficiently served if it is sent by post in a registered letter addressed to the… 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.
I accept the plaintiff’s contention that it was not reasonable for it to serve the default notice by registered post pursuant to s 112(4). When that sub-section was enacted, the practice of the predecessor of Australia Post was that a postman would go to the property to which the notice was addressed and obtain a signed receipt from someone at the property for the document. However, in recent years the practice of Australia Post has been merely to deliver to the letterbox at the address a card stating that a registered article is awaiting collection by the addressee at a designated Post Office which can be some distance from the property. If the addressee goes to the Post Office he or she can collect the registered item by signing a receipt for it. However, if the addressee does not go to the Post Office, the item is eventually returned to the sender undelivered. Section 88(3)(d) of the NCC requires a rectification date to be stated in the notice which must be more than 30 days after it is delivered. The plaintiff runs the risk if it delivers by registered post that the item will only be collected by the addressee, if at all, less than 30 days before the rectification date.
In this matter I consider it was reasonable for the plaintiff to have left the notice at the place of abode of the defendants at Glenelg. I infer that the plaintiff knew that the Port Vincent property was a holiday house and was not a place at which the defendants would normally be found. The plaintiff had continued dealings with the defendants and was apparently well aware of their place of abode at Glenelg. If the process server charged $110 for non-personal service of the notice at Port Vincent, it would seem reasonable that its charge for such non-personal service of the notice at Glenelg would be significantly less. If this had been the only issue, I would probably have made a deduction of a reasonable amount to allow for this, but as a re-hearing is apparently needed on other grounds, I will allow the plaintiff to adduce evidence as to what was any standard charge for a non-personal delivery at Glenelg in June 2011 of such notices.
GST
In the $755.66 there is a component of $66.26 for GST. It was not suggested that such GST was not properly chargeable by Fisher Jeffries on its accounts to the plaintiff. However, it appears that the plaintiff has not debited the whole of this GST to the defendants’ account. In paragraph 7.3 of her second affidavit Ms Pye deposed:
I note that the Plaintiff’s practice is to debit a borrower’s account with only 25% of the GST in the invoice which accounts for the difference between the total of each invoice and the amount debited.
The defendants contended the enforcement expenses should contain no more of a GST component than the plaintiff had debited to their account. It is unclear to me why the plaintiff has not sought to recover the whole of the GST from the defendants. I do not know whether it is because the plaintiff does not regard the defendants as being liable for that GST or whether it is some gratuitous act by the plaintiff. Again, if the evidence is to be re-opened, this is a topic which can be addressed.
As I have not yet ruled whether the default notice was invalid, it is premature for me to deal with the issue of whether the plaintiff can obtain any dispensation from compliance with its obligations concerning the enforcement charges.
FDN8 is adjourned to a directions hearing on Friday 6 July 2012 at 9.30am. At that hearing I will then set a time for any argument about whether the evidence should be re-opened, and, if so, for supplementary submissions on the preliminary issue.