Caruso v Ravenswood P/L - [2017] SASCFC 33

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
CARUSO v RAVENSWOOD P/L
[2017] SASCFC 33
Judgment of The Full Court
(The Honourable Justice Peek, The Honourable Justice Nicholson and The Honourable Justice Doyle)
19 April 2017
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA
MORTGAGES - MORTGAGEE'S REMEDIES - POSSESSION - GENERALLY
On 7 September 2016, a Master of this Court made in favour of the respondent mortgagee what was referred to as “an extended” order for possession of a property owned by the appellant mortgagor. The appellant was ordered to give possession to the respondent within 70 days. An appeal against that order was heard and dismissed by Bampton J. By notice of appeal dated 28 February 2017, the appellant has appealed to the Full Court from that decision.
Held per Nicholson J (Peek and Doyle JJ agreeing):
1. Appeal dismissed.
2. Stay of the sale of the property ordered by Blue J on 3 March 2017 vacated.
Real Property Act 1886 (SA) s 137; Law of Property Act 1936 (SA) s 55A, referred to.
Caruso v Ravenswood Pty Ltd [2017] SASC 15; Ravenswood Pty Ltd v Caruso [2017] SASC 31; Barker v Perpetual Trustees Australia Ltd and Pioneer Homes Australia Pty Ltd [2003] SASC 148, (2003) 85 SASR 263; Shiloh Spinners Ltd v Harding [1973] AC 691, considered.

CARUSO v RAVENSWOOD P/L
[2017] SASCFC 33
Full Court: Peek, Nicholson and Doyle JJ

PEEK J. I would dismiss the appeal. I agree with the orders proposed by Nicholson J and with his reasons.
NICHOLSON J.
Introduction
On 7 September 2016, a Master of this Court made in favour of the respondent mortgagee what was referred to as “an extended” order for possession of a property owned by the appellant mortgagor. The appellant was ordered to give possession to the respondent within 70 days. An appeal against that order was heard and dismissed by Bampton J.[1] By notice of appeal dated 28 February 2017, the appellant has appealed to the Full Court from that decision. I would dismiss the appeal for the following reasons.
[1] Caruso v Ravenswood Pty Ltd [2017] SASC 15.
Background
The appellant is the registered proprietor of land situated at 29 Edgeworth Street, Prospect (“the property”). Whilst the appellant was in possession, he leased part of the property to commercial tenants, resided with his child in part of it and conducted his own hairdressing business from another part. On 18 May 2015, the appellant mortgaged the whole of his estate and interest in the property to the respondent by way of security for a loan. Pursuant to the terms of the mortgage the appellant agreed to repay the principal sum advanced together with interest on 1 May 2016. In accordance with the agreement reached by the parties, 12 months interest was also drawn down at the same time as the advance of the principal sum such that the interest for the 12 months loan period was, in effect, capitalised and formed part of the amount of $768,417 due and payable on 1 May 2016. Thereafter, interest was to be payable calendar monthly in arrears commencing on the first day of May 2016 and on the same day of each calendar month.
The appellant failed to pay the amount of $768,417 by way of principal and interest when it fell due on 1 May 2016. He has not, at any time thereafter, paid to the respondent any part of the overdue amount nor any further interest as it has accrued after 1 May 2016.
It is a term of the Memorandum of Mortgage that, upon default in payment of the amount secured by the mortgage or any part thereof, the mortgagor is to have the statutory powers conferred by section 137 of the Real Property Act 1886 (SA). These statutory powers include a power to enter into and bring an action for possession of the property. In the event that the mortgagor were to obtain possession of the property the memorandum of mortgage further provides for a power of sale to be exercised upon the satisfaction of certain conditions.
On 3 May 2016, following the appellant’s default, the respondent served on the appellant a document dated 2 May 2016 and headed “Default Notice and Notice of Intention to Enforce Acceleration Clause” which, omitting formal parts, contained the following.
DEFAULT NOTICE[2]
AND NOTICE OF INTENTION TO ENFORCE
ACCELERATION CLAUSE
IN RELATION TO ACCOUNT
WITH RAVENSWOOD PTY. LTD. A.C.N. 007 805 263
[2]    The entire Notice was in capital letters.
To:           Luigi Caruso
               29 Edgeworth Street
               PROSPECT   SA   5082
You are in default under your mortgage with Ravenswood Pty. Ltd. A.C.N. 007 805 263 (“the Mortgage”) and the following security:-
Mortgage Registered No. 12333028 (“the Mortgage”) over the land and improvements situated at 29 Edgeworth Street Prospect in the State of South Australia being the whole of the land comprised in Certificate of Title Register Book Volume 5181 Folio 995 (“the Mortgaged Property”).
You are in default under the following term:-
You have not paid on time all the amounts due under the Mortgage.
The term of the Mortgage has expired and the total amount that is overdue is $768,417.00.
The default can be remedied by paying to Ravenswood Pty. Ltd. A.C.N. 007 805 263 within thirty one (31) days after the date of the giving of this notice:-
1.the above amount; plus
2.$407.00 being the cost of preparation and service of this notice; plus
3.any further payments, charges and other amounts which fall due on or are debited to this account pursuant to the Mortgage between the date of this notice and the date upon which payment in full is made. You must contact Ravenswood Pty. Ltd. A.C.N. 007 805 263 to obtain an exact figure.
Please also note that a subsequent default by you of the same kind that occurs during the period specified in this default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within that period.
Under the Privacy Act 1988, a credit reporting body (within the meaning of that Act) may collect and hold default information (within the meaning of that Act) in relation to the default.
Please also note that if you fail to comply with this notice your liabilities under the Mortgage will be affected by the operation of the acceleration clause in the Mortgage. This will have the effect of allowing Ravenswood Pty. Ltd. A.C.N. 007 805 263 to demand payment by you of the total amount required to pay out the Mortgage which at the date of this notice is $768,417.00.
This amount will change on a daily basis.
If you fail to comply with this notice Ravenswood Pty. Ltd. A.C.N. 007 805 263 is entitled to sue you for all monies due to it under the Mortgage and/or enforce any security including repossession and sale of the Mortgaged Property.
Please note that repossession and sale of the Mortgaged Property may not extinguish your liability.
This notice is dated the 2^nd day of May 2016.
It is common ground that section 55A of the Law of Property Act 1936 applies to prescribe certain requirements that must be observed in the giving of such a notice of default. I will return to the requirements of section 55A later in these reasons.
The appellant did not comply with or respond in any material way to the default notice and the respondent commenced enforcement proceedings seeking, in particular, an order for possession of the property. On 7 September 2016, the proceedings came before a Master of this Court. Submissions were made on behalf of the appellant to the effect that a contract to sell the property for $1.2 million, with a settlement period of three months, had recently been entered into. However, the Master was also told that the appellant expected to be able to arrange refinance within 4-6 weeks following which the respondent would be paid all monies due. The Master made orders in the following terms:
1.[The appellant] give [the respondent] possession within 70 days of the service of a copy of this order on him of the land subject to Memorandum of Mortgage ...
2....
3.[The respondent] recover from [the appellant] the costs of these proceedings to be adjudicated or agreed.
4.If [the appellant] pays to [the respondent] all moneys secured by the above Memorandum of Mortgage, [the respondent] (subject and without prejudice to the due exercise of any power of sale under that security) is to re-deliver possession of the property to [the appellant] and discharge the Memorandum of Mortgage.
5....
On 29 September 2016, the appellant filed a notice of appeal against the order for possession together with an interlocutory application seeking a stay of the order for possession or, in the alternative, an extension of time to comply with the order. Doyle J granted a stay on 31 October 2016. As earlier indicated, the appeal came before Bampton J and was dismissed on 17 February 2017.[3]
[3] Caruso v Ravenswood Pty Ltd [2017] SASC 15.
As well as dismissing the appeal, the Judge lifted the stay of execution of the order for possession. In due course, a warrant authorising the sheriff to obtain possession of the property on behalf of the respondent was issued by this Court.
Thereafter, the appellant brought further applications in an effort to have the order for possession set aside and the execution of the warrant stayed, but with only limited success. Following a hearing on 3 March 2017, before Blue J, the appellant’s application for a stay of execution of the warrant pending the resolution of this appeal to the Full Court was refused. However, the Judge did stay any subsequent sale of the property until the determination of the appeal which was listed for hearing on 3 April 2017.
On Monday 6 March 2017, the appellant brought a further interlocutory application seeking again, in effect, a stay of the execution of the warrant of possession. However, in the meantime the warrant had been executed. I dismissed this latest application on the basis that it lacked utility and was an abuse of process.[4]
[4] Ravenswood Pty Ltd v Caruso [2017] SASC 31.
As the position presently stands, the respondent has been in possession of the property for a month or so but has been subjected to a stay with respect to the execution of any power of sale available to it, pending the outcome of the appeal brought against Bampton J’s judgment dismissing the appeal against the order for possession made by the Master on 7 September 2016. The appeal was heard on 3 April 2017 and the Court reserved its decision.
The Judge’s reasons
Bampton J’s findings and reasons for dismissing the appeal can briefly be summarised.
(i)the default notice conformed with requirements of section 55A of the Law of Property Act 1936;
(ii)the appellant had not made any repayment of principal or interest;
(iii)notwithstanding the benefit of an unconditional stay for some extended period, the appellant had been unable to sell the property or to refinance the loan;
(iv)the appellant had been provided with ample opportunity to complete a sale or to refinance and there was no reliable indication that he would be able to do so; and
(v)given that the appellant had not complied with his mortgage repayment obligation, the respondent had been entitled to exercise its right to possession pursuant to the terms of the mortgage as regulated by the Real Property Act 1886.
Grounds of appeal
The notice of appeal contains six grounds of appeal.
By ground one, the appellant contends that the Judge erred in law and in fact by not giving sufficient or any consideration to the provisions of section 55A(5) of the Law of Property Act 1936.
By ground two, the appellant contends that the Judge erred in law and in fact by not giving sufficient or any consideration to the exercise of the discretion available pursuant to section 55A(3) of the Law of Property Act 1936 so as to grant relief to the appellant against the enforcement by the respondent of its rights.
By grounds three to five inclusive, the appellant contends, to the effect, that the Judge gave no or insufficient weight to the appellant’s proposals to sell the property and/or refinance the loan so as to be in a position in the near future to discharge the mortgage and that the Judge did not allow the appellant sufficient time to put into effect any such proposals. The underlying premise to these grounds would appear to be an assumption that the Judge was entitled to exercise a discretion whether or not to permit the respondent to enforce the rights available to it in accordance with the terms of the mortgage notwithstanding an unremedied default by the appellant.
By ground six, the appellant contends that the Judge erred in not giving any weight or in not giving sufficient weight to the proper value of the subject property and erred, in effect, by adopting the value placed on the property by the respondent. As a consequence, the Judge incorrectly identified a loan to value ratio of 123 per cent rather than (on the basis of the appellant’s valuation) a loan to value ratio of approximately 60 per cent.
Appeal grounds three to six, even if made out on the facts, do not offer any available defence to the respondent exercising its rights as mortgagee given the appellant’s clear, unchallenged and continuing default. These grounds are at best particulars of appeal ground two or arguments relied on for a favourable exercise of any discretion, if available, under section 55A(3). I turn to consider appeal grounds one and two together.
Consideration of the appeal
Section 55A(5) provides that section 55A will apply to a mortgage of land, inter alia, where the land is appropriated for domestic or agricultural use. Subsection (6) provides that land will be deemed to be appropriated for domestic or agricultural use unless the mortgagor has made a statutory declaration, to the effect, that no part of the land is to be so used. There is no such statutory declaration in evidence before the Court and, as indicated earlier, it is not challenged that section 55A applies.
Subsections (1) and (3) of section 55A are in the following terms.
(1)A right of sale or foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land or a right to appoint a receiver in respect 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, or such longer period as may be stipulated in the notice, to remedy the breach; and
(iii)if the mortgagee seeks compensation for the breach, requiring the mortgagor within one month after service of the notice or such longer period as may be stipulated in the notice, to pay to the mortgagee the amount of the cost and expenses, stipulated in the notice, that the mortgagee has reasonably incurred in consequence of the breach; and
(b) where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements.
(2)...
(2a)...
(2b)...
(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 against the enforcement of rights of a kind referred to in subsection (1) of this section, and may reinstate the position of the mortgagor in all respects as if no breach of a covenant or condition of the mortgage had occurred.
By subsection (1) a right of sale in respect of mortgaged land or a right to enter into possession of mortgaged land will not be enforceable by a mortgagee unless the requirements of (a) and (b) have been complied with. I agree with the finding of Bampton J that the notice of default, as set out earlier, complies with the requirements of (a). As at 1 May 2016, the appellant was in breach of a condition of the mortgage in that the principal owing together with the first 12 months of capitalised interest had fallen due for payment and not been paid. A notice to this effect was issued on 3 May 2016. The notice required the appellant to remedy that breach within 31 days after the date of the giving of the notice.
It is common ground that the respondent failed to comply with the requirements of the notice of default thus engaging section 55A(1)(b).
The appellant’s real complaint is that the Judge did not exercise the discretion under section 55A(3) to grant relief to the appellant against the enforcement of the respondent’s rights and upon such fair and equitable terms as the Judge might have determined (appeal ground two).
No formal application under section 55A(3) was made by the appellant before either the Master or at the appeal before Bampton J. Nevertheless, and given the unrepresented status of the appellant, I will assume without deciding that section 55A(3) fell to be considered by their Honours.
The appellant provided some evidence before the Master to the effect that he had entered into a contract to sell the property conditional on the purchaser obtaining necessary consents for a substantial relatively high rise development on the site. It was largely for this reason that the Master made the “extended” (70 day) order for possession. The appellant continued to assert the availability of the contract before Bampton J. However, during the hearing of the present appeal, the appellant conceded that no such development consent had been forthcoming and that this contract “had expired”.
As at the time of the appeal, the appellant had adopted a new position in support of his request for a continued indulgence by way of the court allowing further time within which he might sell or refinance the property. According to the appellant, he had very recently entered into another conditional contract to sell the property. The circumstances, together with some observations concerning the nature of the transaction, were outlined in my earlier judgment on 9 March 2017 refusing the appellant’s application for a stay of execution of the warrant of possession.[5]
The one potential new consideration (even if the lack of utility issue could be overcome) arises from the fact that during the hearing on 8 March 2017, Mr Caruso handed up a copy of a contract for sale of the relevant property, apparently executed and entered into by Mr Caruso as vendor and another person, JSS, as purchaser on the day of the hearing, that is, 8 March 2017.
The contract, on its face, records an agreement to sell the subject property for $1,300,000 with settlement to take place on 10 April 2017 but subject to the purchaser obtaining finance in the amount of $1,000,000 on or before 30 March 2017. The contract provides for vacant possession to be provided to the purchaser at settlement.
According to Mr Caruso, the purchaser was first approached last Saturday, that is, after Blue J had refused the stay. The purchaser apparently inspected the property on the Sunday and entered into the contract the following Wednesday, which was yesterday. I have no information before me as to whether or not Mr Caruso has served on the purchaser the vendor’s statement as required by section 5 of the Land and Business (Sale and Conveyancing) Act 1994.The cooling off period will not commence to run until that notice has been served. As such, it is not possible to know when the contractual cooling off period will expire. However, the earliest time it could expire would be the end of the second clear business day after the day on which the contract was entered into, provided the notice were to have been served on that day. As such, I am satisfied that the contractual cooling off period has not yet expired (see s 5(8) of the Land and Business (Sale and Conveyancing) Act 1994). During the cooling off period, the purchaser has an unfettered right to withdraw from the contract.
Furthermore, the subject to finance clause is generously drawn. The purchaser is obliged to use best endeavours to obtain a loan from a specified lender, the Delphi Bank, on or prior to 30 March 2017 (approximately three weeks hence) in the amount of $1,000,000 for a term “as agreed” at an interest rate being “the agreed residential rate” and with respect to repayment terms “as agreed”. In addition, such evidence as there is before the Court suggests the likely value of the property to be well less than $1,000,000. As at 1 January 2016, the Valuer-General’s valuation was $750,000 and at an auction on 22 July 2016 the property was passed in at $800,000 on a vendor’s bid.
In all the circumstances, the prospects of the purchaser being able to procure the finance required, of Mr Caruso being able to enforce any such contractual obligation as he would appear to have against the purchaser that he use best endeavours to obtain such finance prior to 30 March 2017 and of, ultimately, the sale of the property settling on or before 10 April 2017, must be regarded as extremely guarded.
[footnote omitted]
[5] Ravenswood Pty Ltd v Caruso [2017] SASC 31 at [14]-[18].

During the appeal, the appellant conceded that no cooling off notice had been provided to the purchaser. It follows from this that, as at the time of the appeal, the purchaser retained an unfettered discretion to withdraw from the contract. The appellant also conceded that the purchaser had not obtained finance approval by the contractually required date (30 March 2017). In any event, the only reliable evidence of value strongly indicates that the property is worth substantially less than the amount required by the purchaser by way of bank finance. On the evidence, the prospect of finance being granted is remote.
As a consequence of these two matters, the other considerations referred to in the above extract from my earlier judgment, and the history of the appellant’s earlier unfulfilled assurances that he would obtain funds sufficient to discharge, the prospect of the appellant being in a position, at any time in the foreseeable future, to discharge the mortgage debt remains very low.
I return to consider the section 55A(3) discretion. The proper approach to its exercise was explained by this Court in Barker v Perpetual Trustees Australia Ltd and Pioneer Homes Australia Pty Ltd.[6] Bleby J (with whom Prior J agreed) said this.[7]
On the hearing of a substantive application under s 55A based on hardship to the mortgagor, the power of the court is to interfere with the exercise of the lawful rights of a mortgagee. It then behoves the mortgagor to make a true, full and frank disclosure to the court of all relevant circumstances. There must be a full and frank explanation by the mortgagor as to why the default has occurred. Where the application is based on circumstances of alleged temporary or permanent hardship or unexpected changes in circumstances, those circumstances must be fully explained, with no room for suggestion or inference that there may be some other reason for the default. When, as is usually the case, the mortgagor is seeking the indulgence of the court, it will be necessary to propose what the mortgagor suggests should be the fair and equitable terms on which the relief should be granted. The mortgagor cannot hope to avoid a sale without being required to comply with some material and perhaps ongoing terms and conditions.
Where there has been a temporary lapse in payment of instalments payable under the mortgage and the mortgagor proposes to resume payments, the court should be satisfied that the mortgagor has a reasonable prospect of making those payments or of complying with the fair and equitable terms that the mortgagor proposes or that the court thinks fit to impose. The mortgagor must present sufficient information to enable the court to reach its own independent conclusion that that is the case. The mortgagor’s unsupported assertion to that effect will seldom be sufficient.
If, when viewed as a whole, the mortgagor’s application appears to be no more than an attempt to delay and frustrate the exercise of the mortgagee’s rights, then the application for relief may well fail.
Also relevant to the exercise of the court’s decision to grant or withhold substantive relief will be the diligence with which the mortgagor has sought to pursue the remedies available to him. There would need to be good and cogent reasons why the time limits imposed by s 55A and by any relevant rules of court have not been observed, particularly where, as in this case, delay can cause the mortgagee to incur expense which will have to be reimbursed by the mortgagor.
All these considerations will be relevant to the court’s decision to grant the primary relief and to its assessment as to whether the mortgagor is likely to be able to comply with any terms and conditions necessarily imposed by the court under s 55A. If the court cannot be so satisfied, and there are no other countervailing considerations requiring relief under s 55A, the court will, in all probability, refuse the relief.
Besanko J added the following.[8]
The right given to a mortgagor in s 55A(3) is a statutory right to apply to the court under the subsection for certain orders. The court has a discretion as to whether it will grant relief. A number of matters will be relevant to the question of whether a mortgagor will be granted relief under s 55A(3). These matters include the nature of the mortgagor’s default, the reasons for the mortgagor’s default, the effects on the mortgagor and the mortgagee of making or not making an order under the subsection, the identification of fair and equitable terms, the ability of the mortgagor to comply with the terms so identified, and the ability of the mortgagor to comply with the terms and conditions of the mortgage in future. Some of these matters are likely to require a careful scrutiny of the mortgagor’s financial position. It is not necessary for a mortgagor to have an underlying private law right, such as a claim for damages, before orders are made under the subsection. The mortgagor may or may not have such a right. Despite the breadth of the matters which a court might be required to consider under s 55A(3), it is to be expected that in the ordinary case there will not be a lengthy delay between the issuing of an application under that subsection and its determination. If an interlocutory injunction is needed to preserve the status quo, it should only be in place for a short period of time.
[6] [2003] SASC 148; (2003) 85 SASR 263.
[7] At [29]-[33].
[8] At [60].
Section 55A(3) is, at least in part, a statutory reiteration of the equitable doctrine of relief against the forfeiture of a mortgagor’s proprietary interest.[9] As with that doctrine, provided that “fair and equitable terms” can be identified together with an ability in the mortgagor to comply with the terms so identified the court has available a discretion to grant relief by way of restoring the parties’ mortgagee/mortgagor relationship. Typically, section 55A(3) will have work to do where a mortgagee purports to bring an ongoing mortgage relationship to an end for the non or late payment of instalments or interest. Provided that all outstanding amounts due under the mortgage together with interest and costs are paid, a court, typically, will grant a mortgagor relief and restore the otherwise ongoing relationship.
[9] See, generally, Shiloh Spinners Ltd v Harding [1973] AC 691 at 722 (Lord Wilberforce with whom Viscount Dilhorne and Lords Pearson, Simon and Kilbrandon agreed). I do not mean to suggest that the statutory and equitable discretions are necessarily co-extensive.
The present case is of a different character. Here, the mortgage relationship arguably came to an end on 1 May 2016 by effluxion of time. All moneys became due and payable. It is an open question, unnecessary to decide, whether section 55A(3) can apply at all to the present situation, either as a matter of law or in any practical sense. The fair and equitable terms necessary in order to condition any relief in favour of the appellant ordinarily would require payment of the whole of the principal together with accrued interest and costs. This is the very thing that the appellant has proven incapable of doing.
I will assume, without deciding, that section 55A(3) was or remains available to the appellant. There has been no satisfactory compliance with any of its requirements as explained in Barker. At present, the appellant has no demonstrated capacity to comply with any fair and equitable terms necessary to condition any form of relief. There was insufficient evidence before either the Master or Bampton J and insufficient evidence before this Court to demonstrate that the appellant would acquire in the foreseeable future any capacity to discharge the debt due.
Even if section 55A(3) were to be available in the circumstances of this case, neither the Master nor Bampton J erred in not granting the appellant any form of relief pursuant thereto. Further, if it were open to this Court to exercise the section 55A(3) discretion afresh, I would decline to do so.
On 3 April 2017, at the conclusion of the hearing of the appeal, the Court reserved its decision. However, the respondent’s power of sale has been stayed pending the hearing and disposition of this appeal. Until such a time as the respondent enters into a binding contract with a purchaser by way of mortgagee sale, the appellant will retain his equity of redemption. With this in mind, the Court advised the parties that judgment would not be delivered until after 10 April 2017, the nominated date for settlement of this second contract for sale earlier referred to.
None of the appellant’s grounds of appeal can be sustained. I would dismiss the appeal. Should the appeal be dismissed, the stay of the sale of the property ordered by Blue J on 3 March 2017 would, thereby, be vacated.
DOYLE J: I would dismiss the appeal. I agree with the reasons of Nicholson J.