Chapman v Commonwealth Bank of Australia
[2012] VSCA 162
•31 July 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2010 0105
| ALEXANDRA CHAPMAN | |
| Appellant | |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA (ABN 48 123 123 124) | Respondent |
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JUDGES: | HARPER and TATE JJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 13 June 2012 | |
DATE OF JUDGMENT: | 31 July 2012 | |
MEDIUM NEUTRAL CITATION: | [2012] VSCA 162 | |
JUDGMENT APPEALED FROM: | Commonwealth Bank of Australia v Chapman [2010] VCC 441 (Judge Kennedy) | |
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BANKING — Home loan and ‘Viridian Line of Credit’ — Default — Acceleration clause — Whether Bank acted lawfully when giving default notice to the borrower — Whether, and the extent to which, the enforcement provisions of the Consumer Credit (Victoria) Code apply to the line of credit — Consumer Credit (Victoria) Code, ss 80, 84 and 85 — Appeal dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr A W Sandbach | Goldsmiths Lawyers |
| For the Respondent | Mr S J Maiden | Gadens Lawyers |
HARPER JA
TATE JA:
The appellant has admittedly defaulted on each of two loans which she obtained from the Commonwealth Bank. This litigation is confined to the lawfulness of the procedures adopted by the Bank in pursuit of what it claims to be its rights as the appellant’s creditor.
Each loan was the subject of a written agreement executed, in each case, on 27 September 2008. The larger of the two was known by the Bank as a ‘Complete Home Facility’, but in ordinary parlance is called a home loan. The sum borrowed pursuant to it was $1,110,000. The Bank allocated the other loan to a facility known by it as a ‘Viridian Line of Credit’. We shall, for convenience, refer to it as the ‘line of credit’.
The terms of the home loan are to be found in four documents, each of which was generated by the Bank. The first of these is entitled ‘Usual Terms and Conditions for Consumer Mortgage Lending’. It contains terms which are common to a number of the loans within the Bank’s portfolio of those of its standard credit facilities which are secured by a mortgage over real property. It also contains separate provisions which are applicable only to particular products. Thus, Part B of the document is headed ‘Home Loans’, and the clauses contained within it, although numbered sequentially from 1 to 17, are distinguished from the terms common to all the loans to which the document applies, and from the other terms relating to other products, by incorporating the letters ‘HL’ into the number of each clause.
The second document in which the terms of the home loan are to be found is a schedule to the first. It is headed ‘Consumer Credit Contract Schedule’, and it records the particulars of the agreement: the amount of the loan ($1,110,000.00) and the terms of its repayment (by 359 instalments of $8,641.00 each, save for the final repayment of $7,672.26). The first instalment is due one month after the ‘funding date’, which is the first date upon which the Bank debits any amount (other than for the payment of a credit fee or charge) to the home loan account. In this case, that date was 1 October 2008, the day upon which the loan was fully drawn down. The first instalment was accordingly due on 1 November that year.
The third and fourth of the four relevant contractual documents are those which constitute the mortgage itself. They are, first, the single sheet which identifies the parties, the property and the applicable memorandum of common provisions, and upon the basis of which the mortgage is registered in the Titles Office; and, secondly, that memorandum.
The terms of the line of credit are similarly to be found, in part, in the ‘Usual Terms and Conditions for Consumer Mortgage Lending’; but on this occasion the clauses which relate specifically to the Viridian Line of Credit facility are to be found in Part D of that document, where they are numbered sequentially from 1 to 8, with each clause given the letter ‘O’ as a prefix. There is, again, a ‘Consumer Credit Contract Schedule’, which in this case specifies a credit limit of $490,000 with any amount outstanding repayable on demand. Interest is, according to the schedule, to be calculated monthly, and then debited to the relevant account; and, by clause O3.1 of Part D, this must be paid within one month of the date of the borrower’s monthly account statement.
The Bank’s ‘Usual Terms and Conditions for Consumer Mortgage Lending’ contained, in clause 9 of its common terms, provisions which were to apply on default by any borrower whose loan was covered by those terms. In the case of the home loan taken out by the appellant, the Bank was required to give a notice that the default be ‘fixed’ within the time specified in the notice; but if the borrower remained in default thereafter then the Bank ‘may decide, without further notice, that all money owing by [the borrower] under the contract is due and payable immediately’;[1] and the Bank ‘may sue [the borrower] for payment of the money’ which the borrower then owes.[2]
[1]Clause 9.3(d).
[2]Clause 9.3(e).
The parties accept that the home loan is subject to the provisions of the Consumer Credit (Victoria) Code. They also accept that clause 9.3(d) is an ‘acceleration clause’ within the meaning of that expression as defined in s 84(1) of the code – namely:
a term of a credit contract or mortgage providing that:
(a)on the occurrence or non-occurrence of a particular event, the credit provider becomes entitled to immediate payment of all, or a part, of an amount under the contract that would not otherwise have been immediately payable; or
(b)whether or not on the occurrence or non-occurrence of a particular event, the credit provider has a discretion to require repayment of the amount of credit otherwise than by repayments fixed, or determined on a basis stated, in the contract;
but does not include any such term in a credit contract or mortgage that is an on demand facility.
The relevant mortgage was executed by the appellant on 1 October 2008. The memorandum of common provisions provides, under the heading ‘What can happen if you are in default’ that the borrower will, in the circumstances which obtain in this case, be given a notice which must identify the default and require that it be fixed within the period stated in the notice, being at least 30 days: clause A22.2. Failure to rectify will allow the Bank to decide, without further notice, that the amount owing is payable immediately: clause A22.5(a). The Bank may also, without further notice, take possession of the mortgaged property and sell it: clause 22.5(b) and (d).
The requirement that the Bank give notice has as its principal source neither the home loan agreement, nor its schedule, nor the common provisions of the mortgage. That source is to be found in the provisions of the Consumer Credit (Victoria) Code. It is these which provide the principal source of the appellant’s resistance to the Bank’s claims. The first applicable provision of the Code is s 80, which with its heading relevantly provides:
Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor
80. (1)Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and –
(a)the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and
(b)the default has not been remedied within that period.
Maximum penalty – 50 penalty units.
(2)Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and –
(a)the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and
(b)the default has not been remedied within that period.
Maximum penalty – 50 penalty units.
(3)Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period.
(3A)Combined notices. Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor.
Section 85(1) of the Code is also relevant. It provides that an ‘acceleration clause’ – of which Clause 9.3(d) of the ‘Usual Terms and Conditions’ is an example – is to operate only if the debtor is in default, and if three other preconditions are met. First, a default notice must have been given pursuant to s 80. Secondly, the notice must contain a statement ‘of the manner in which the liabilities of the [borrower] … would be affected by the operation of the acceleration clause and also of the amount required to pay out the contact (as accelerated)’. Finally, the default must have remained un-remedied after the expiration of the specified time.
The Bank wrote to the appellant by letter dated 26 March 2009. It noted that she was in default under the home loan, and therefore also under the mortgage. It identified the failure which constituted the default: a failure to make payments totalling $10,861.01. It told her that this amount must be paid, and that if after 38 days it was not, the Bank would be entitled to accelerate payment of the outstanding balance – being the whole of the amount lent, with interest. The letter added that the Bank might also in those circumstances: (a) commence legal proceedings for the recovery of the outstanding balance, and (b) take possession of, and sell, the mortgaged property. It concluded with the following words:
At the date of this notice, the amount required to pay out this contract (as accelerated) is $1,125,683.96. Until that amount is paid it increases with interest and any other amount we may debit to your account under the contract.
If you pay the amount demanded by this notice and then fail to make another payment which falls due within the period allowed for payment in this notice, we can exercise the rights noted above against you without further notice to you under the Consumer Credit Code.
The Bank also wrote to the appellant about the line of credit. That letter was dated 1 April 2009. It alleged that the relevant account was overdrawn by $4,768.27, and that this amount had been outstanding for more than 30 days. Accordingly, the appellant was – as the Bank claimed, and is now not disputed – in default under this loan too. She was given seven days to pay, failing which, as the letter informed the appellant, the Bank might: (a) commence legal proceedings for the recovery of the overdrawn amount; (b) not permit any further transactions on it; and (c) require the appellant to pay the full outstanding balance.
A second letter followed. It is dated 10 June, and referred to what the Bank said (and the appellant admits) was her failure to pay the amount demanded on 1 April, namely, $4,768.27. It went on to state (in effect) that, in these circumstances, the Bank might take a number of steps unless the total amount required to pay out the account ($502,053.03) was received by the Bank within 38 days from 10 June. Of these steps, it is necessary to mention only two. First, the Bank might take proceedings to recover the sum required to completely extinguish the debt; and, secondly, it might take possession of, and then sell, the mortgaged property.
The appellant failed to meet any of these demands, whether of 26 March, 1 April or 10 June. Accordingly, the Bank issued proceedings on 13 October 2009, claiming possession of the security. It also claimed the sum of $1,157,822.89 as the amount then owing under the home loan, and the sum of $494,270.34 as the appellant’s then current indebtedness under the line of credit.
The claims were contested, albeit on the limited basis to which we refer below. The trial was heard in the County Court. The trial judge found for the Bank. On 20 July 2010, her Honour ordered that it be given possession of the mortgaged property, and be paid the sums of, respectively, $1,198,974.95 as the balance then due in relation to the home loan, and $515,017.63 as the like amount due in relation to the line of credit.
It was not in issue at trial that the loans were in default, that notices of default (in the form of the letters to which we have referred) had been received, and that the Bank’s demands had not been met. Nor were the amounts claimed by the Bank said to be inaccurately calculated. The issues contested at trial were threefold:
(i) whether the letter of demand sent by the Bank to the appellant on 26 March 2009 in relation to the home loan complied with ss 80 and 85 of the Consumer Credit (Victoria) Code;
(ii) whether the letter of demand dated 10 June 2009, requiring payments of $4,768.27 being the amount the Bank claimed to be due and owing as at 1 April 2009 pursuant to the line of credit, complied with s 80 of the Code and s 76 of the Transfer of Land Act 1958; and
(iii) whether the line of credit was governed by the Code.
In her judgment, which was delivered on 21 May 2010, the trial judge found that the letter of 26 March 2009 complied with the legislative requirements. She also held that, if the Code applied to the line of credit, then its requirements were likewise satisfied by the letter of 10 June. Her Honour held, in addition, that it was therefore unnecessary to proceed to the third issue. She nevertheless added that, ‘if it was necessary, in my view the Code does not … apply’.[3] She cited s 6(4) of the Code as the basis for that conclusion.
[3] Commonwealth Bank of Australia v Chapman [2010] VCC 441, [110].
In an amended notice of appeal dated 13 October 2010, the appellant puts forward 14 grounds of appeal. One of these, relating to an application by the appellant that the Bank pay her certain of her costs, has been abandoned.[4] The other grounds concerned the extent to which and the manner in which the Code applied to each of the loans. None of the grounds raised an issue with the Transfer of Land Act. In its written outline of submissions on the appeal, the Bank accurately summarises the grounds as amounting to a contention that the trial judge erred in not finding that:
[4]Another ground, ground 9, raised the question of whether the trial judge ought to have given effect to the evidence of certain witnesses. The transcript of that evidence was not included in the Appeal Book which was limited to portions of documents or portions of transcript referred to in the submissions and other court documents required by the Registrar's Notes on the Preparation of Appeal Book, pursuant to an order made by Lansdowne AsJ on 7 October 2010. The transcript of the evidence of the witnesses referred to in ground 9 was not included in the appellant's submissions (nor in the respondent's submissions). When, in reply, counsel for the appellant sought to rely on ground 9 the Court ruled that he not be permitted to do so.
(a) although the time specified in the default notice of 26 March seeking payment of unpaid instalments under the home loan had expired without remedy:
(i) section 80 of the Code required the Bank to issue a further default notice seeking payment of an amount that had become due as a result of the operation of clause 9.3 of the home loan agreement; and
(ii) because the Bank did not issue the further notice said by the appellant to be required, the proceeding was (to adopt the word used in the amended notice of appeal) ‘illegal’;
(b) the line of credit was governed by the Code; and
(c) the Bank’s letter of 1 April 2009 was defective because it did not include a statement – said to be required by s 80(3) of the Code – to the effect that ‘if a subsequent default of the same kind occurred during the period specified in the default notice for remedying the original default, it may be the subject of enforcement proceedings without further notice if not remedied within the period.’[5]
[5]Amended notice of appeal, 13 October 2010 [7].
While the amended notice of appeal does not say so in terms, it is implied by the form of relief sought by the appellant that the trial judge ought to have held that the errors which the appellant contends were evident in the relevant correspondence from the Bank invalidated the proceedings and thus required their dismissal.
By a notice of contention dated 27 October 2010, the Bank contends that the orders and judgment of her Honour should be affirmed on a ground which is additional to the grounds upon which the judge relied. The additional ground is that her Honour should have found that any infringement by the Bank of s 80 of the Code did not affect the Bank’s entitlement to enforce either the agreement or the mortgage.
The Bank contends, and we agree, that the amended notice of appeal and the notice of contention together raise four questions. The first of these is whether the Code required a second notice of default to be served before the Bank became entitled to issue proceedings to enforce such rights as it had under the home loan. The second is whether the line of credit was governed by the Code. The third is whether, if the line of credit was so governed, the relevant demand was required to include a reference to a ‘subsequent default’ as prescribed by s 80(3) of that legislation. Finally, if the Bank did contravene the legislation, is it now prevented from enforcing remedies which would otherwise be enforceable.
If the requirements of the Code have been met, or are inapplicable, then it is unnecessary to answer the last question. And if, assuming the Code was applicable to the line of credit, it nevertheless did not require reference to any subsequent default (and, therefore, that the third question should be answered in the negative) then it is unnecessary to answer the second.
In our opinion the letter of demand of 26 March 2009 complied with the relevant legislative requirements. The appellant was in default: s 80(1). By the 26 March letter, the Bank gave her a notice specifying the default and the action necessary to remedy it: s 80(3). It allowed her more than 30 days within which to effect that remedy: s 80(1)(a). In addition, it informed her that, if the arrears of $10,861.01 were not paid within the specified period (which was 38 days), the Bank would be entitled to exercise its right to accelerate payment of the whole of the outstanding balance, which it identified as $1,125,683.96: s 85(1)(b). This, according to the letter, meant that ‘instead of having to pay us normal payments required under the contract, you will have to pay us the whole amount you owe us on the [home] loan account’. Finally, it told her that if she paid the amount demanded by the notice and then failed to make another payment which fell due within the specified period of 38 days, the Bank could exercise the rights to which the letter had already referred: s 80(3).
A written outline of submissions lodged on behalf of the appellant made no complaint about the letter of 26 March. Rather, she argued that the Bank was wrong to claim the full outstanding balance without issuing a further notice specifying, as a default, the failure to pay that balance – and giving the appellant a further 30 days (at least) within which to make the default good.
In our opinion, the Bank was not required to serve a further notice, or give the appellant further time, for meeting her obligations under the home loan. It will be remembered that, by its statutory definition, the expression ‘acceleration clause’ includes a term of a credit contract providing that on the occurrence of a particular event the credit provider becomes entitled to immediate payment of all of an amount under the contract that would not otherwise have been immediately payable.[6] It will also be remembered that clause 9.3(d) of the Bank’s ‘Usual Terms and Conditions for Consumer Mortgage Lending’ provides that, unless a default of which notice had been properly given was ‘fixed’ within the time specified in the notice, then the Bank ‘may decide, without further notice, that all money owing by [the borrower] under the contract is due and payable immediately’.[7] Clause 9.3(d) therefore fits the definition to be found in s 84(1) of the Code.
[6]See [8] above.
[7]See [7] above.
The Code does not prohibit the use of acceleration clauses. It merely requires that they operate if the prescribed conditions are met. Here, for the reasons given above, they are met. That being so, the operation of clause 9.3(d) is sanctioned by the Code. But in those circumstances all money owing by the appellant pursuant to the terms of the home loan are payable immediately. It follows that no further notice is required. The first question – whether the Code required a second notice of default to be served before the Bank became entitled to issue proceedings to enforce such rights as it had under the home loan – must therefore be answered ‘No’.
The third question assumes that the second – whether the line of credit was governed by the Code – has been answered ‘Yes’. Adopting that assumption for present purposes, the question becomes whether the relevant demand, being a default notice, was required to include a reference to a ‘subsequent default’ as prescribed by s 80(3) of that legislation. As noted above, s 80(3) requires that a default notice state, among other things, that if a subsequent default of the same kind as that which gave rise to the notice occurs during the period specified in the notice for remedying the original default then, if that subsequent default is not remedied within the period so specified, it may be the subject of enforcement proceedings without further notice.[8]
[8]See [10] above.
In this case, the relevant demand was that made by the letter of 10 June 2009. In effect, it sought payment of the sum of $502,053.03 within 38 days, which by our calculations meant by 18 July 2009. There was no possibility of a further default within that period, because there was nothing which the appellant was obliged to do during that period except to extinguish the debt. If there were to be a default, it could not occur ‘during that period’ because it could not occur before 18 July.
It might be argued that this is irrelevant, given that by its terms s 80(3) does not provide for an exception where there can be no subsequent default. It requires that all default notices specify two things; and one of them is a description of what will happen if, in the circumstances described in the sub-section, there is a subsequent default.
We reject this argument. Even if, upon its proper construction, s 80(3) is to be read as requiring the insertion of information of the kind in question here, it is – it must be – relevant that there can be no subsequent default within any applicable period. If for no other reason, this must be so, in our opinion, because the Code specifies no consequences for breach of s 80(3), and in particular provides for no remedy. Moreover, no harm is done to a person in the position of the appellant on the occurrence of such a breach. On the contrary, such a person might well be confused, and therefore disadvantaged, by the inclusion of the information in question. None in the appellant’s position would be disadvantaged by its omission. She cannot, therefore, complain that it was omitted.
In these circumstances, there is no need to decide whether, upon its proper construction, s 80(3) is to be read as requiring the insertion of the information the omission of which is the subject of the appellant’s complaint. Even today some Latin maxims remain peculiarly apt. In this case it is de minimis non curat lex: the law does not concern itself with trifles.
Accordingly, even if the Code applied to the line of credit, the letter of 10 June did not constitute an actionable infringement of it.
For these reasons, the appeal must be dismissed.
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