Citibank Savings Ltd v Stergiou
[1996] FCA 459
•13 JUNE 1996
CATCHWORDS
REAL PROPERTY - mortgage - whether default in payment of interest on principal sum secured by mortgage registered under Real Property Act 1925 (ACT) - whether mortgagee's right to bring an action of ejectment arose upon the occurrence of default under the mortgage independently of any right in mortgagee to exercise a power of sale under Act.
Real Property Act 1925 ss 92, 93, 96(c)
City Mutual Life Assurance Society Ltd v Lance Creek Meat Works Pty Ltd [1976] VR 1
Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512
Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307
J Baalman, The Torrens System in New South Wales (2nd Ed)
W R Cole, The Law and Practice In Ejectment Under the Common Law Procedure Acts of 1852 and 1854
R H Coote, A Treatise on the Law of Mortgages
E A Francis, The Law and Practice Relating to Torrens Title in Australasia, Vol 1
D Kerr, The Principles of the Australian Land Titles (Torrens) System
R E Megarry & H W R Wade, The Law of Real Property, (5th Ed)
E L G Tyler, P W Young & C E Croft, Fisher & Lightwood's Law of Mortgage (Australian Ed)
E I Sykes & S Walker, The Law of Securities: An Account of the Law Pertaining to Securities Over Real and Personal Property Under the Laws of Australian Jurisdictions, (5th Ed)
D J Whalan, The Torrens System in Australia
D H Wiseman, The Law Relating to the Transfer of Land, (2nd Ed)
CITIBANK SAVINGS LIMITED v STANLEY STERGIOU and EKATERINE STERGIOU
ACT G34 OF 1995
BURCHETT, LEE, KIEFEL JJ
PERTH
13 JUNE 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. ACT G34 OF 1995
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
B E T W E E N: CITIBANK SAVINGS LIMITED
Appellant
and
STANLEY STERGIOU and
EKATERINE STERGIOU
Respondents
MINUTE OF ORDER
THE COURT: BURCHETT, LEE, KIEFEL JJ
DATE OF ORDER: 13 JUNE 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
The appeal be allowed.
The decision of the trial judge be set aside.
The matter be remitted to the trial judge for further determination in accordance with these reasons.
The respondents pay the appellant's costs of the appeal.
The costs of the trial be determined by the trial judge.
Leave be granted to each party to adduce further evidence in conformity with such directions as may be given by the trial judge.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. ACT G34 OF 1995
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
B E T W E E N: CITIBANK SAVINGS LIMITED
Appellant
and
STANLEY STERGIOU and
EKATERINE STERGIOU
Respondents
CORAM: BURCHETT, LEE, KIEFEL JJ
DATE :13 JUNE 1996
PLACE: PERTH
REASONS FOR JUDGMENT
THE COURT:
The appellant ("Citibank") appeals from an order of a judge of the Supreme Court of the Australian Capital Territory (Higgins J) dismissing Citibank's claim as mortgagee made under s 96(c) of the Real Property Act 1925 ("the Act") for an order that the mortgagors deliver up possession of the mortgaged property.
The respondents ("Mr and Mrs Stergiou") are the registered proprietors of a Crown Lease over property situated in Canberra ("the property"). In April 1988 pursuant to s 92 of the Act Mr and Mrs Stergiou executed a mortgage to Citibank of their interest in the property. Between 1988 and 1991 Mr
and Mrs Stergiou received from Citibank, by various drawings under accounts established with Citibank for that purpose, the sum of approximately $200,000. The mortgage, as varied by several registered memoranda of variation, secured moneys advanced by Citibank to Mr and Mrs Stergiou to the extent of $160,000.
Late in 1991 a dispute arose between Mr and Mrs Stergiou and Citibank. At that time Mr and Mrs Stergiou failed to continue to make interest payments in the terms of the loan agreement made between themselves and Citibank as required by the mortgage.
On 22 February 1992, by a notice dated 7 February 1992, solicitors for Citibank served on Mr Stergiou notice of default by Mr and Mrs Stergiou under the mortgage and required the default to be remedied within one month of the service of the notice. The material before the Court does not show whether the notice was served separately on Mrs Stergiou. The notice advised that Citibank would exercise its power of sale under the mortgage if the default was not remedied. In its terms the notice was said to be a notice under s 93 of the Act.
Section 93 of the Act reads as follows:
"93.(1)Any mortgage or encumbrance under this Act shall, when registered under this Act, have effect as a security but shall not operate as a transfer of the land thereby charged.
(2)If default is made in the payment of the principal sum, interest, annuity or rent-charge, or any part thereof, secured by the mortgage or encumbrance, or in the observance of any covenant expressed in any memorandum of mortgage or of encumbrance registered under this Act, or that is in the succeeding provisions of this Act declared to be implied in the instrument, and the default is continued for the space of one month or for such other period of time as is therein for that purpose expressly limited, the mortgagee or encumbrancee may -
(a)give to the mortgagor or encumbrancer notice in writing to pay the money then due or owing on the memorandum of mortgage or of encumbrance, or to observe the covenants therein expressed or implied, as the case may be, and that sale will be effected unless the default be remedied; or
(b)leave the notice on the mortgaged or encumbered land or at the usual or last known place of abode in the Territory of the mortgagor or encumbrancer or other person claiming to be then entitled to the land or with his agent in the Territory."
The default specified in the notice was the non-payment of interest on the 15th of each month for the three months to 15 January 1992. The notice further recited that the "full amount of the principal sum under the Mortgage has by reason of your default now become due and payable and interest continues to run". The mortgage (cl 4.3) provides that if the
mortgagors default, inter alia, in the payment of interest under the mortgage the principal sum, at the option of the mortgagee, becomes due and payable and is to be paid to the mortgagee by the mortgagors on demand. No period of continuance of the default the mortgagors were required to remedy was set out in the notice. Pursuant to the terms of the mortgage (cl 13.1(a)) the period of time limited by the mortgage for the continuance of default before service of a notice under s 93 of the Act was stated to be seven days.
The terms of the notice may be said to be ambiguous in defining the default Mr and Mrs Stergiou were called upon to remedy. (See: Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307 at 318-319.) No issue in the appeal turns on the construction of the notice and counsel for Citibank did not pursue an argument that the notice of default was also a demand for payment of the principal sum.
At all material times Mr and Mrs Stergiou were not represented by a legal practitioner in the proceeding in the Supreme Court and continued to appear in person on the hearing of the appeal.
Section 96 of the Act reads as follows:
"96.The mortgagee or encumbrancee upon default in payment of the principal sum or any part thereof, or of any interest, annuity or rent-
charge secured by any mortgage or encumbrance may -
(a)enter into possession of the mortgaged or encumbered land by receiving the rents and profits therefor; or
(b)distrain upon the occupier or tenant of the land for the rent then due; or
(c)bring an action of ejectment to recover the land, either before or after entering into the receipt of the rents and profits thereof or making any distress as provided in the last two preceding paragraphs, and either before or after any sale of the land effected under the power of sale given or implied in his memorandum of mortgage or of encumbrance,
in the same manner in which he might have made the entry or distress or brought the action if the principal sum or annuity were secured to him by a conveyance of the legal estate in the land so mortgaged or encumbered."
Citibank commenced its action of ejectment on 23 March 1992. The learned trial Judge held that the right to bring the action under s 96 of the Act arose "in consequence of the operation of sub-s 93(2)" of the Act. His Honour held it was necessary for Citibank to prove that there had been default under the mortgage that had continued for one month before the giving of notice under s 93 of the Act on 22 February 1992. As his Honour put it "there had to be a default as at 22 January 1992 which would justify the giving of a notice under s 93".
With respect to his Honour we are unable to agree that the requisite period of default for a notice under s 93 of the Act, or the service of such a notice, was relevant to the exercise of the right to bring an action of ejectment under s 96(c) of the Act.
In its terms s 96 gives the mortgagee the same right to bring an action to recover possession of the mortgaged property as is available to a mortgagee under a mortgage of land made under the general law. Section 96 does not deem a mortgage made under the Act, defined in the Act as "any charge on land created merely for securing a debt", to be a general law mortgage, under which the consequence of default in the payment of interest by a mortgagor is the termination of any possessory interest the mortgagor might hold by grant from the mortgagee (see: E L G Tyler, P W Young & C E Croft, Fisher & Lightwood's Law of Mortgage (Australian Ed) (Butterworth & Co, 1995), pp 374-375). However, s 96(c) of the Act does provide a mortgagee with a right equivalent to that enjoyed by a mortgagee under a general law mortgage to bring an action in ejectment immediately upon the occurrence of such a default.
Under the general law, subject to the terms of the mortgage, upon the mortgagee's entitlement to possession arising in consequence of a default such an action may be taken without delivery of notice or demand for possession to the mortgagor. (See: W R Cole, The Law and Practice In
Ejectment Under the Common Law Procedure Acts of 1852 and 1854, (London: H Sweet, 1857) p 465; R E Megarry & H W R Wade, The Law of Real Property, (5th Ed), (London: Stevens & Sons Limited, 1984), pp 942-943; R H Coote, A Treatise on the Law of Mortgages, (7th Ed), (London: Stevens & Sons Ltd, 1904), pp 814-817.)
Under s 93 of the Act continuing default in the payment of principal or interest, or in the performance of any covenant, permits the mortgagee to give a notice which, if the default continues for the period of the notice, will ground a statutory power of sale granted to the mortgagee under s 94 of the Act.
Section 96 of the Act is not dependent upon the mortgagee establishing a right to exercise a power of sale under s 94 and, to the contrary, consistently with the rights under a general law mortgage, appears to contemplate the exercise by the mortgagee of the powers set out in the section irrespective of the entitlement of the mortgagee to exercise a power of sale. (See: E A Francis, The Law and Practice Relating to Torrens Title in Australasia, Vol 1, (Sydney: Butterworth & Co, 1972) pp 387, 481; D J Whalan, The Torrens System in Australia, (Sydney: The Law Book Company Limited, 1982), pp 176-177; E I Sykes & S Walker, The Law of Securities: An Account of the Law Pertaining to Securities Over Real and Personal Property Under the Laws of Australian
Jurisdictions, (5th Ed), (Sydney: The Law Book Company Limited, 1993), pp 248 et seq; D H Wiseman, The Law Relating to the Transfer of Land, (2nd Ed), (Melbourne: Law Book Company of Australasia, 1931), pp 258-259, Note (b); D Kerr, The Principles of the Australian Land Titles (Torrens) System, (Sydney: Law Book Company of Australasia, 1927), pp 410, 415-417; J Baalman, The Torrens System in New South Wales, (2nd Ed), (Sydney: Law Book Company of Australasia, 1974), 209-291, 294; Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 per Sheller JA at 11,517; City Mutual Life Assurance Society Ltd v Lance Creek Meat Works Pty Ltd [1976] VR 1 per Newton J at 10.)
Although the decision in City Mutual Life was in respect of the operation of the Transfer of Land Act 1958 (Vic) which may provide a mortgagee with rights more extensive than those provided under the Act, the relevant principles discussed in that case provide assistance in the construction of s 96.
It is unnecessary to consider the nature of the mortgagors' right to possession of the mortgaged property under the attornment clause contained in the mortgage (cl 16) to determine whether such a clause made the mortgagors tenants or created a tenancy by estoppel. In either case the clause was sufficient to ground an action of ejectment by the mortgagee (see: Sykes & Walker, pp 250-251; Fisher & Lightwood, pp 405-407; Megarry & Wade, pp 946-947), the attornment clause stipulating that no notice was required of default under the mortgage by the mortgagors before the mortgagee was entitled to take possession of the mortgaged property and determine the tenancy created by the attornment. The commencement of the ejectment proceeding was an act by the mortgagee to determine the right of possession recognized in the attornment.
It follows from the foregoing that the relevant inquiry to be undertaken, and determination to be made, is whether Mr and Mrs Stergiou were in default in the payment of interest on the sum secured by the mortgage at the time the ejectment proceeding was commenced on 23 March 1992.
That question was not considered or determined by his Honour and the matter should be returned to the learned trial Judge for that purpose.
On the hearing of the appeal it became apparent that Citibank's conduct of Mr and Mrs Stergiou's accounts included the regular debiting of "credit charges" and the charging thereon of interest which did not reflect the terms of the relevant clause of the mortgage (cl 4.1). Counsel for Citibank submitted that the provisions of the loan agreement preceding the mortgage permitted Citibank to calculate in that manner the interest payable by Mr and Mrs Stergiou. On the
material before us it is not obvious that the contract between Mr and Mrs Stergiou and Citibank so provided, but that issue, and any effect the determination of it may have upon the default of Mr and Mrs Stergiou under the mortgage in making due payment of interest to Citibank, will be a matter for his Honour.
The same course must be followed in respect of the challenge by Citibank to a finding by his Honour that a sum of $5,000 was an "unexplained debit" raised by Citibank on the mortgagors' account. The sum appears as a journal entry described as a "disbursement" and not as a "drawdown" in Citibank's records of the account. It is apparent that this debit was not regarded by Citibank as an item in dispute in the hearing before his Honour. Mr and Mrs Stergiou brought no evidence to show that the sum was improperly added to the principal in the calculation of the sum payable by the mortgagors, although it may be said that the primary records in respect of the accounts were held by Citibank and that the affidavit of Mr and Mrs Stergiou had put Citibank on notice that it was contended by Mr and Mrs Stergiou that the reason for the debit had never been explained to them. His Honour accepted that inferentially Mr and Mrs Stergiou alleged that the debit was unjustified. Citibank relied on the calculation of the sum owing prepared by Mr and Mrs Stergiou, which included the sum of $5,000, for its assertion that the amount was not in issue. Such a calculation, however, had to be read
in the context of the affidavit to which it was exhibited and in that affidavit it is plain the inference drawn by his Honour was open.
The hearing was conducted on affidavits and numerous documents were exhibited to those affidavits and placed before his Honour. In such circumstances, where no pleadings defined the issues between the parties and where one of the parties is unrepresented, what is in issue between the parties may not be clear, and the difficulty his Honour faced in determining what latitude should be extended to the unrepresented respondents to prevent unfairness arising, without imposing unfairness upon their opponent, can be understood.
On the material placed before us, although it would appear that Mr and Mrs Stergiou have not shown that the sum of $5,000 was incorrectly included by Citibank in the calculation of the sum owed to it, and, therefore, of the interest thereon, it is a matter the parties have not addressed other than by argument on appeal and the question should be returned to his Honour for determination.
Citibank also challenged findings made by his Honour as to the amount of interest payable on the principal sum to which the terms of the mortgage applied.
His Honour found that the amount of interest payable on the principal sum proved to his Honour had been discharged by the set-off of amounts incorrectly debited by Citibank as amounts owed by Mr and Mrs Stergiou to Citibank.
It is necessary to set out some further facts relevant to these issues.
In July 1989 Mr and Mrs Stergiou applied to vary their loan agreement with Citibank by increasing the limit of advances from $100,000 to $140,000. Citibank agreed to that variation and the mortgage was varied accordingly.
Citibank opened a second account with a drawing limit of $40,000 instead of extending the limit on the original account. The reason for that step was to enable Citibank to charge a rate of interest different from that charged on drawings on the original account.
In July 1990 Mr and Mrs Stergiou applied to Citibank to vary the loan agreement by raising the limit on borrowings to $160,000. Citibank agreed to that variation. The security for the loan, the mortgage, was varied accordingly.
The credit limit on the original account was increased to $160,000. His Honour stated that Citibank intended to "alter its records so that the two accounts
previously established became fused". The credit limit on the second account was "deleted" but no other step was taken to transfer the credit extended on that account to the original account. As stated earlier, by November 1991 the amount advanced to Mr and Mrs Stergiou on the two accounts was approximately $200,000.
His Honour found that the steps taken by Citibank to establish the second account suited the administrative convenience of Citibank and were not effected pursuant to the terms of a contract between Citibank and Mr and Mrs Stergiou. His Honour found that any costs so incurred by Citibank could not be included in the principal sum repayable by Mr and Mrs Stergiou.
In respect of those costs his Honour stated that "by reason of the choice made by...[Citibank] to establish two accounts instead of one, an extra $67.88 was incurred in government charges". Why that is so is not clear. In any event it is not an amount his Honour took into account.
His Honour referred to two debits of $300 made by Citibank on 15 July 1989 and 8 September 1989 which his Honour found to be unauthorized. In fact the statements of the original account show only one debit in that amount, made on 8 September 1989 and later in his reasons his Honour only had regard to one "unauthorized debit" in such an amount. In a
letter to Mr Stergiou from Citibank dated 15 September 1989 the debit of $300 on 8 September 1989 was said to be full payment for a "peace of mind feature". The letter referred to a "request" from the "customer" that Citibank had accepted to "protect the Mortgage Power account from high interest rates".
The form of the request was not put in evidence before his Honour and whether the amount debited had a contractual foundation is left to inference. We note that a form described as "Mortgage Power Rate Cap Proposal" dated 25 August 1991 was exhibited to the affidavit of Mr Stergiou and that document referred to a fee payable for "Rate Cap Coverage" (AB pp 256-257).
His Honour stated that there was "no evidence that (Mr and Mrs Stergiou) ever asked for or had the 'feature' explained to them" but does not say that he rejected the letter from Citibank to Mr Stergiou dated 15 September 1989 as such evidence.
On the material presented it would appear that his Honour overlooked the letter of 15 September 1989 and, therefore, the finding that the debit of $300 was "unauthorized" cannot stand. It will be a matter for his Honour to determine what inference is to be drawn from the evidence before him when the matter is returned for further
consideration.
His Honour found that further charges of $32 were levied against the original account "without apparent justification". Citibank conceded before his Honour that the sum claimed to be advanced to Mr and Mrs Stergiou in the statements delivered to them exceeded the correct sum by $41.51.
A further issue not determined by his Honour may need to be decided when the matter is returned for further consideration. Mr and Mrs Stergiou claimed that on 21 July 1989 a sum of $5,000 was deposited by them with Citibank in reduction of the sum advanced. According to the schedule exhibited to his affidavit Mr Stergiou appeared to claim that the sum was deposited by bank cheque drawn by "ANZ Bank". No further particulars were provided. On that evidence and faced with the evidence of no deposit on that date according to Citibank's statements of the account, the conclusion that the payment was made by Mr and Mrs Stergiou would not appear to be available in the absence of evidence of recollection or documentary evidence relevant to the issue.
A further ground of appeal raised by Citibank challenged his Honour's finding that Citibank had represented that only the original account was to be regarded as secured by the mortgage. In our opinion, on the facts of this case
the relevant question is not one of estoppel but the proper construction of the terms of the mortgage.
Under the mortgage Mr and Mrs Stergiou agreed to pay the moneys secured by the mortgage "and interest thereon". The mortgage secured payment of a "principal sum". The principal sum was described in the mortgage, as varied, as any "loans, advances, credit, credit line facility, or other financial accommodation to a limit of ($160,000)". In so far as Mr and Mrs Stergiou covenanted under the mortgage, (cl 1(iiA)), to pay to Citibank "all moneys in the "Relevant Credit Contract", that obligation did not extend beyond the prime covenant of the mortgage to pay the moneys secured by the mortgage, namely, moneys advanced under such financial accommodation to a limit of $160,000.
It follows that for the purposes of the mortgage a demand for the payment of interest secured by the mortgage was a demand for the payment of interest on a principal sum that did not exceed $160,000. No question of estoppel arises.
Counsel for Citibank submitted that subject to any recalculation that may be made necessary by findings as to the principal sum owing at relevant times, the amount of interest due on the original account, which, in effect, represented the amount of the principal sum secured, was $7,253.53 as at 23 March 1992.
It will be for his Honour to determine the amount of principal on which interest should have been calculated at material times throughout the period of the loan and to calculate the interest payable accordingly. That calculation cannot be made by setting off the amounts found to be improperly included in the principal sum against the amount of interest claimed to be owing on 23 March 1992. After applying moneys paid by Mr and Mrs Stergiou to discharge interest from time to time, his Honour may determine whether any part of the interest raised on the principal sum and secured by the mortgage remained undischarged by payments made on account of interest and, therefore, whether Mr and Mrs Stergiou were in default in the payment of interest on 23 March 1992.
In all the circumstances, it is appropriate to grant leave to each party to adduce further evidence, in conformity with such directions as his Honour may give, so that the real issues as now identified may be fully determined.
I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment of the Court.
Associate:
Date:
APPEARANCES
Counsel for the Appellant: R J Arthur
Solicitors for the Appellant: Phelps Reid
Mr Stergiou appeared for the respondents.
Date of Hearing : 26 October 1995
Date of Judgment : 13 June 1996
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