Bank of Western Australia v Wong - [2012] SASC 124

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BANK OF WESTERN AUSTRALIA v WONG
[2012] SASC 124
Judgment of Judge Burley a Master of the Supreme Court
25 July 2012
MORTGAGES
Application by mortgagee for possession of mortgaged property - mortgage secures repayment of monies due under a guarantee - whether defences available such that the Summons should be summarily dismissed - whether arguable defences such that the matter should proceed on pleadings - whether National Credit Code applies - whether set-off based on alleged lack of good faith in respect of mortgagee sales of other properties - whether incorrect date on demand notices rendered notices ineffective.
Held: Order for possession as sought in the Summons.
Law of Property Act 1936 s 55A; Real Property Act 1886 Part 17; National Consumer Credit Protection Act 2009 National Credit Code, ss 3, 4, 5 and 22, referred to.
Corporation of the Town of Moonta v Rodgers and Rodgers (1981) 26 SASR 143; Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62; Indrisie v General Credits Limited [1985] VR 251; J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 61 FLR 108; James v Commonwealth Bank (1992) 37 FCR 445; Takemura v National Australia Bank Ltd (2003) 11 BPR 21, considered.

BANK OF WESTERN AUSTRALIA v WONG
[2012] SASC 124
JUDGE BURLEY:

The plaintiff has applied, pursuant to the provisions of Part 17 of the Real Property Act 1886 for an order for possession in respect of a residential property owned by the defendant. The defendant’s contentions in opposition to the application fall into three categories:
(a)that the plaintiff has failed to prove its entitlement to an order for possession,
(b)in the alternative, the defendant has good defences to the plaintiff’s application, the proper determination of which require the matter to proceed on pleadings and to be referred to trial on oral evidence,[1] and
(c)initially the defendant contended that the plaintiff had not proved its case because of a failure to prove the transactional connection between the primary debt and the obligations under the guarantee being secured by the mortgage the subject of the proceedings. After this evidentiary gap was filled, the submission was not pursued.
[1] CF Corporation of the Town of Moonta v Rodgers and Rodgers (1981) 26 SASR 143.
The parties each relied on the various affidavits filed by each of them respectively in support of and in opposition to the application. The plaintiff took a number of objections to the evidence adduced by the defendant, which resulted in the exclusion of some evidence. The plaintiff’s evidence was admitted without objection.
The affidavit supporting the Summons is that of Mr Hogan sworn on 24 January 2012 (FDN4). He is a senior manager with the plaintiff. Most of what he has deposed to is not in dispute. The defendant is the registered proprietor of land situated at 40 Traminer Way, Auldana, South Australia (the Auldana property). The Auldana property is subject to a mortgage which, according to Mr Hogan, “secures repayment of … the monies owing to the bank pursuant to facilities that the bank made available to Boord Nominees Pty Ltd …”. In May 2009 the bank agreed to lend monies to Boord Nominees and the account thereby set up was referred to as a “facility”. If Boord Nominees defaulted in respect of the facility, an event of default occurred which rendered the total amount owing under the facility repayable on demand.
By agreement in writing entered into on 27 March 2008, the defendant agreed to guarantee the obligations of Boord Nominees under the facility. The guarantee provided that if Boord Nominees did not pay the amounts payable under the facility on time to the bank, the defendant would pay the amounts payable to the bank on demand. The plaintiff alleges that payment of monies under the guarantee is secured by the mortgage on the Auldana property.
As at 13 October 2010 the sum of $7,492,770.02 was owing by Boord Nominees to the bank. By Notice of Demand dated 13 October 2010, and forwarded to Boord Nominees on that date, the bank demanded repayment of the amount owing. The notice recited that Boord Nominees was required to repay the total amount owing to the bank by 1 July 2010 and that it had failed to do so. The bank demanded repayment of the amount due within one business day after the day on which the notice was served on Boord Nominees. Boord Nominees failed to comply with the terms of the Notice of Demand.
At paragraph 19 of his affidavit, Mr Hogan refers to a notice in writing dated 24 June 2011, a copy of which is Exhibit MAH6. It is a notice directed to the defendant and it purports to demand payment of the sum of $7,198,497.10 pursuant to the guarantee. The Exhibit shows that the notice was dated 24 June 2010, although it is clear that the notice was posted to the defendant on 24 June 2011. The defendant failed to comply with that notice.
The defendant contends that the notice was ineffective because it was dated a year earlier and the assertions in the notice, in particular that the sum of $7,198,497.10 was owing to the plaintiff by Boord Nominees, was not correct. It was not explained how the amount referred to in the guarantee notice was incorrect. Paragraph 19 of Mr Hogan’s affidavit contains the statement that that was the amount owing as at 24 June 2011. Consequently, the only thing incorrect about the notice was its date. Mr McNamara, counsel for the defendant, contended that the wrong date was sufficient to make the notice inoperative. I disagree with this submission. No evidence has been adduced from the defendant that he was misled or confused in relation to the wrong date being placed on the notice. The uncontested evidence is that the guarantee notice was posted on 24 June 2011. The amount referred to in the notice has been confirmed by Mr Hogan’s affidavit and there is no evidence of any confusion created by the wrong date. The notice must be taken to be effective, notwithstanding that it bore the date of 24 June 2010.
After the notice under the guarantee was given requiring the defendant to pay the amount of the indebtedness within two business days, the defendant did not comply with the notice. Consequently, the plaintiff gave the defendant further notice in order to comply with the provisions of s 55A of the Law of Property Act 1936. A copy of this notice is Exhibit MAH7. It required the defendant to pay the sum of $7,198,497.10 within one month after service of the notice upon the defendant. The defendant was duly served with the notice and failed to comply with its terms. The defendant argued that because the notice referred to non-compliance with the previous notice dated 24 June 2011, the notice (Exhibit MAH7) was ineffective, because no notice of demand dated 24 June 2011 was ever given to the defendant. That is not in dispute. However, the plaintiff relied upon the notice (Exhibit MAH6) which was posted on 24 June 2011, although it contained the date 24 June 2010. Again, there is no evidence from the defendant that the difference in the dates, and in particular the reference in the second notice to the date 24 June 2011, caused any confusion on his part. In my opinion, both notices are effective because the ordinary reasonable reader would take the former to have contained the wrong date and that the correct date was 24 June 2011. Applying this approach to the second notice (MAH7), the ordinary reasonable reader would take the reference to the Notice of Demand dated 24 June 2011 as being the previous notice received shortly after 24 June 2011.
Accordingly, those grounds of defence advanced by the defendant must fail. I have proceeded to a final determination in that regard, because on a summary proceeding under Part 17 of the Real Property Act, it is possible to reach a determination in a summary way provided that there are no material disputes of fact and that, in the case of a legal dispute, the determination of that dispute is not unduly complex.
The application of the National Credit Code
The defendant contended that the National Credit Code (the Code) applied to the transactions entered into between the plaintiff and the defendant giving rise to the alleged default on the part of the principal debtor (Boord Nominees) and the defendant as a guarantor. These include what has been referred to as a Letter of Forbearance which was followed by a Deed of Cross-Collateralisation (the Deed). The Letter of Forbearance is dated 16 December 2010, a copy of which is MAH11. When sent to the defendant (to whom the letter was addressed) a copy of the Deed was forwarded with it. It is not in dispute that the Letter of Forbearance, which set out various terms proposed by the bank, was signed by the defendant and by various of his companies. Its purpose was to grant the defendant and his associated companies extra time within which to comply with repayment requirements, the time for which had already expired. The letter sets out the amount of the indebtedness owing by the defendant and the various associated companies. The total of the debt amounted to just over $26 million. Reference was made to two housing loans with debit balances of $866,224.22 and $683,927.36. The repayment of those loans was secured by mortgages over properties referred to as the “Pymble and Auldana land”. The Auldana land is the property in respect of which the plaintiff in these proceedings seeks an order for possession pursuant to a mortgage held by the plaintiff over the property.
At the end of the letter there occurs the following:
Acceptance
1.Please note that the Bank has recommended that before accepting the terms contained in this letter you and the Companies obtain independent legal and financial advice regarding its terms.
2.By accepting the terms contained in this letter you acknowledge and agree that a legal binding contract is created between the Bank, yourself and the Companies.
The Deed was between the defendant and associated companies, referred to as the Covenantors, and the plaintiff, referred to as the Mortgagee. “Collateral Liabilities” is defined in the Deed as:
… the aggregate of all liabilities and obligations of each of the Convenantors (whether alone or jointly or severally with any other person) to the Mortgagee (whether primary or secondary, whether liquidated or not and whether contingently or presently accrued due) that have arisen prior to the date of this Deed or that arise at any time in the future under or in connection with any agreement, security or negotiable or other instrument or as a result of any matter or thing.
The securities covered by the Deed are set out in the Schedule. Clause 4.1 of the Deed provides that each security was to be collateral to each of the others.
Mr McNamara first referred me to sub-s 3(1)(a) of the Code which provides:
(1) For the purposes of this Code, credit is provided if under a contract:
(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred …
I accept that the combination of the Letter of Forbearance and the Deed constituted the deferral of a debt as defined in sub-s 3(1)(a) of the Code.
Section 4 of the Code defines “credit contract”. More importantly, s 5 deals with the “Provision of credit to which this Code applies”. If the Code applies to the letter of forbearance and the Deed (or for that matter any other transaction entered into between the plaintiff and the defendant) the provision of credit (as defined) must come within the requirements of s 5. First, the debtor must be a natural person or a strata corporation. In this case, the debtor is Boord Nominees Pty Ltd. The obligation of Boord Nominees to repay the debt is guaranteed by the defendant. Mr Roberts, counsel for the plaintiff, submitted that the debtor was Boord Nominees Pty Ltd and, as such, the debtor was neither a natural person nor a strata corporation as required by s 5(1)(a) of the Code. In addition, Mr Roberts has referred to s 204 of the Code which provides various definitions. It contains the statement:
debtor means a person (other than a guarantor) who is liable to pay for (or to repay) credit, and includes a prospective debtor.
I agree with Mr Roberts submission that the defendant, because he is a guarantor, does not come within the definition of “debtor” and that, consequently, the reference to “the debtor” in sub-s 5(1)(a) of the Code cannot refer to the defendant.
Sub-s 5(1)(b) of the Code is as follows:
(b)     the credit is provided or intended to be provided wholly or predominantly:
(i)    for personal, domestic or household purposes; or
(ii)     to purchase, renovate or improve residential property for investment purposes; …
It was submitted by Mr McNamara that the Letter of Forbearance and the Deed came within sub-s 5(1)(b) (i) or (ii). In my opinion, the defendant comes within neither category. If credit was provided to the defendant as defined in the Code, there is no evidence that it was provided for personal, domestic or household purposes. Nor is there any evidence that the provision of credit had as its purpose or predominant purpose the purchase, renovation or improvement of residential property for investment purposes. The fact that somewhere along the line one of the companies of the defendant was involved in domestic construction does not support the defendant’s contention that comes within the first two placita of sub-s 5(1)(b).
In light of these conclusions, it is not necessary to deal with the argument advanced by the defendant that failure to comply with the provisions of the Code by a credit provider resulted in the credit contract being unenforceable. In any event, Mr McNamara was unable to point to any section in the Code to this effect. He referred to s 22 which deals with non-compliance with the provisions of the Code. A credit provider may be prosecuted for failure to comply, but this does not necessarily render the credit contract void or unenforceable.
For these reasons, I do not consider that there is any actual or arguable defence available to the defendant based on the provisions of the Code.
I now turn to the defendant’s contention that he has an arguable defence, namely that in the circumstances which applied to his signing of the letter of forbearance and the Deed, the Deed is in some way unenforceable. The factual basis for that contention is to be found in a statement of the defendant which forms part of Exhibit SPM6 to Mr McNamara’s Third Affidavit. Objection was taken to the admission of this statement on the basis that the content of the Exhibit did not come within the leave granted by me to the defendant to file further affidavit material. Only paragraph 4 and the first sentence of paragraph 5 came within that requirement and, consequently, the statement was excluded, apart from paragraph 4 and the first sentence of paragraph 5. Paragraph 4 is as follows:
4.On early Jan 2011, BankWest presented to me the Deed of Collatoralisation at a meeting. I had been with BankWest and only BankWest since 2005. There are hundreds of documents I had signed and I was comfortable with the bank at that time that with our good long term relations, the bank won’t set me up nor give me hard time [sic]. A new account manager Richard Tucker required me to sign on the documents and execute immediately. My English was very limited and did not understand its full meaning or effect [sic]. Mr. Tucker didn’t advise that I should obtain proper translation copies. I signed without hesitation immediately during the 15 minute meeting and didn’t even read through these lengthy documents seriously. What I have understood I was entering into an agreement with BankWest to quit properties and lower my exposure to the Bank but not that all my assets were being put up as cross collateral security.
The plaintiff relied upon the affidavit of Mr Tucker sworn on 21 June 2012 (FDN19) to answer the above assertions made by the defendant. Mr McNamara pointed out that the defendant had not had the opportunity to answer the allegations made by Mr Tucker in his affidavit. Given that the hearing of the application by the plaintiff was adjourned twice to enable the defendant to file additional material, it is not surprising that, on the resumption of the hearing before me on 25 June 2012, there was no application for a further adjournment, nor is it likely that one would have been granted. Thus, the affidavit of Mr Tucker remains unanswered. It is a complete answer to any suggestion arising from paragraph 4 of the defendant’s statement set out above that the letter of forbearance and Deed might arguably be avoided or set aside. But in any event, even if Mr Tucker’s second affidavit is ignored, the uncontested evidence is that the first version of the letter of forbearance and the accompanying Deed were sent by the plaintiff’s solicitors to the defendant by letter dated 1 October 2010. The defendant therefore had ample opportunity to get legal advice and translations of documentation if he had any doubt about what he was entering into. The October documentation is exhibited to Mr Hogan’s affidavit filed on 7 June 2012. The defendant has had the opportunity to comment on that evidence adduced by the plaintiff. It remains uncontested.
In those circumstances, I do not consider that the defendant has established a factual basis, the effect of which would give rise to an argument that the letter of forbearance and the Deed, or either of them, was in some way rendered nugatory.
It is to be noted that paragraph 4 deals only with the Deed. The defendant was therefore confined to an argument that the Deed should be avoided or set aside or rendered unenforceable. This overlooks the content of the letter of forbearance which contains a provision that the defendant would enter into a Deed of Cross-Collateralisation.[2] It was submitted by Mr Roberts that an agreement to enter into a deed can be specifically enforced.[3] He contended that if there was any doubt about whether or not paragraph 4 of the defendant’s statement set out above contained a sufficient factual basis supporting a plea that the Deed was ineffective, the fact that the defendant by the letter of forbearance imposed upon the defendant the obligation to enter into such a deed overrides any of the defendant’s contentions that the Deed should be avoided or set aside. Whilst I think there is some force to Mr Roberts’ submission, it is not necessary for me to determine the point. The argument is not without complexity. I prefer not to deal with the point in the absence of more detailed submissions from both parties.
[2] Paragraph 11 of the letter of 16 December 2010 from the plaintiff’s solicitors to the defendant.
[3] See Fisher and Lightwood’s Law of Mortgage Second Australian Edition, [1.35] and, in particular, Takemura v National Australia Bank Ltd (2003) 11 BPR 21, 185.
For the above reasons, I consider that the plaintiff has established that the failure by the defendant to pay the amount owing pursuant to the guarantee given by the defendant to the plaintiff constitutes a breach of the mortgage given by the defendant to the plaintiff over the subject land which, in the absence of any other defence, would entitle the plaintiff to an order for possession.
The only other defence raised by the defendant was that he could pursue a counterclaim against the plaintiff for the alleged failure on the part of the plaintiff to act in a bona fide manner in respect of the sale of mortgaged properties. In essence, the allegation by the defendant is that the plaintiff sold a number of mortgaged properties at an under-value, in circumstances where such sale amounted to a lack of good faith on the part of the plaintiff.

The plaintiff contended that, to the extent that there were properties sold which were owned by companies with which the defendant was associated, does not give rise to any claim that might be maintained by the defendant. The claim is limited to the registered proprietor. The fact that the defendant may be an officer of that company does not confer upon the defendant the right to pursue a claim based on an alleged lack of good faith on the part of the plaintiff in respect of the sale of mortgaged properties. I agree with that submission. I do not understand Mr McNamara to have contended otherwise.
The relevant properties are referred to at paragraph 4 of Mr McNamara’s Second Affidavit. They are the Morphett Street property, the Marion Road property, the Huntfield Heights land and the Grenfell Street property.
In relation to the Marion Road property, it is common ground that that property has not yet been sold. I accept Mr Roberts’ submission that it is not open to a registered proprietor to complain about a lack of good faith on the part of the mortgagee in possession unless and until the property has been sold.
The Huntfield Heights land is owned by Waoming Pty Ltd and, as such, Mr Wong can have no claim in respect of the plaintiff’s dealings with that property.
No complaint has been made in Mr McNamara’s Second Affidavit as to the defendant’s dealings in relation to the Grenfell Street property.
That leaves for consideration the Morphett Street property. At paragraph 4.6 of his Second Affidavit Mr McNamara states that on 23 August 2011 the defendant obtained a contract for the sale of the Morphett Street property to Irena Zhang for $4.9 million. A copy of the contract is exhibited to the affidavit (Exhibit SPM3). According to Mr McNamara, the defendant provided a copy of the contract to the plaintiff’s agent (without specifying who that agent was) and requested that the plaintiff settle in respect of that contract. It is alleged that the plaintiff refused to settle on the contract with Ms Zhang and put the Morphett Street property up for tender. The property was subsequently sold to Ms Zhang for $4.2 million.
The evidence of Mr Kidman[4] is that he never received the contract. It is apparent from his affidavit that he is the agent for the plaintiff as mortgagee in possession in respect of the Marion Road property, the receiver and manager and agent for the plaintiff as mortgagee in possession in respect of the Huntfield Heights property and is the receiver and manager of Boord Nominees in respect of the Grenfell Street property. He was also the joint and several agent for the plaintiff as mortgagee in possession in respect of the Morphett Street property.
[4] At paragraph 29 of his affidavit sworn on 12 June 2012 (FDN17).
As to this factual conflict, Mr Roberts submitted that the assertions in paragraph 4.7 lacks specificity. The agent to whom the document was allegedly given is not named, the time at which the copy was allegedly forwarded to the agent was not specified and nor was the manner in which the request that the plaintiff consent to settle on the contract set out. Similarly, the plaintiff’s alleged refusal to settle, in particular how that refusal was communicated, has not been specified. Mr Roberts submitted that the general allegation made in paragraph 4.7 could not stand against the clear denial on the part of the plaintiff’s appointed agent (Mr Kidman). I agree with that submission. I do not think that the defendant has gone anywhere near establishing the factual basis to support the contention that the defendant did not act in good faith in disposal of the Grenfell Street property or any other property.
Mr Roberts submitted in addition that even if an arguable basis had been established to the effect that the plaintiff had not acted in good faith in disposing of the properties, that was not sufficient to act as a defence to a claim for an order for possession. As I understand it, Mr McNamara conceded that this was so. In any event, I accept the submissions contained in the plaintiff’s supplementary written outline of argument, which is to the effect that a purported set-off must impeach the plaintiff’s title.[5]
[5] Cf Meagher Gummow and Lehane Equity: Doctrines and Remedies (2002) 4th Edition, p 1057 and James v Commonwealth Bank (1992) 37 FCR 445 at 457, Indrisie v General Credits Ltd [1985] VR 251 at 254, J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 61 FLR 108 at 127 and Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62 at 68.
In my opinion, as a matter of law and as a matter of fact, the defendant has failed to establish an arguable defence to the claim for possession based on the assertion that the relevant mortgaged properties have been sold at an under-value.
Given that the defendant has failed to advance a basis upon which either the plaintiff’s application for possession should be dismissed or there should be a direction that the matter proceed on pleadings, it is not necessary for me to deal with the submissions that were put that, if I were satisfied that the matter should proceed on pleadings, I should impose a condition that the mortgage debt be paid into Court.
For the above reasons there will be an order for possession as sought in the Summons.