Commonwealth Bank of Australia v Selby-Fullgrabe; First Mortgage Company Home Loans Pty Ltd v Perre - [2011] SASC 48

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
COMMONWEALTH BANK OF AUSTRALIA v SELBY-FULLGRABE; FIRST MORTGAGE COMPANY HOME LOANS PTY LTD v PERRE
[2011] SASC 48
Reasons of Judge Withers a Master of the Supreme Court
7 April 2011
PROCEDURE
Service - Notices of Default.
Law of Property Act 1936 (SA) s 55A; National Credit Code (Cth) s 88, referred to.
Brand & Media Pty Ltd v Aeropack Australia Pty Ltd (2007) 212 FLR 357; [2007] NSWSC 854; T R & M R Wardle & Sons Pty Ltd v Tjaliri Aboriginal Corporation [2009] SASC 146; Murray & Ors v Thain & Anor (2006) 243 LSJS 299; [2006] SASC 24; Civil Procedure South Australia Lunn, considered.

COMMONWEALTH BANK OF AUSTRALIA v SELBY-FULLGRABE; FIRST MORTGAGE COMPANY HOME LOANS PTY LTD v PERRE
[2011] SASC 48

JUDGE WITHERS. These reasons apply to both actions as the issue in each action is the adequacy or otherwise of both service and content of Notices of Default served as part of applications under Part 17 of the Real Property Act 1886 (SA) (“RPA”) by the plaintiffs as mortgagees to obtain orders for possession against the defendants in respect of the mortgaged properties.
In the matter of Commonwealth Bank v Selby-Fullgrabe, a Notice of Default said to comply with s 88 of the National Credit Code (Cth) (“NCC”) and s 55A of the Law of Property Act 1936 (SA) (“LPA”) was forwarded by registered post on 3 December 2010 addressed to the first defendant’s last known place of abode and the street address of the mortgaged property. Australia Post provided a registered post delivery confirmation advice receipt noting that the documents were collected on 13 December 2010.
On 3 December 2010 the same Notice of Default was forwarded by registered post to the second defendant at a post office box address at Mount Torrens. On 13 December 2010 the plaintiff’s solicitors received an Australia Post registered post delivery confirmation advice receipt advising that notice had been collected on 8 December 2010.
It was argued that for the purposes of s 88 of the NCC and pursuant to s 112 of the LPA each notice should be regarded by the Court as having been served in the words of s 112(4):
… at the time at which the registered letter would in the ordinary course be delivered.
The plaintiff argued that s 160(1) of the Evidence Act 1995 (Cth) provides that an article sent by post is presumed to be received on the fourth working day after posting. However, s 160(1) of that Act is in the following terms:
160 Postal articles
(1)It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted.
I also note that s 29(1) of the Commonwealth Acts Interpretation Act contains service by post. It provides:
29Meaning of service by post
(1) Where an Act authorises or requires any document to be served by post, whether the expression “serve” or the expression “give” or “send” or any other expression is used, then unless the contrary intention appears the service shall be deemed to be effected by properly addressing prepaying and posting the document as a letter, and unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post.
The concept of ordinary post generally involves delivery of the article to the postal address of the addressee. But with registered post no such delivery occurs. Rather the article is retained within the custody of Australia Post and a notice of its retention and readiness to collect is delivered to the addressee. In my view registered post is “delivered” when collected. This is similar to the situation in Brand & Media Pty Ltd v Aeropack Australia Pty Ltd (2007) 212 FLR 357; [2007] NSWSC 854, where delivery to a common mailroom not under the control of the addressee was held to occur only upon collection of the document by the addressee. See the discussion of service by post on a corporation in Lunn, Civil Procedure South Australia at 6R 62.10(5) and the discussion in T R & M R Wardle & Sons Pty Ltd v Tjaliri Aboriginal Corporation [2009] SASC 146.
As to service of a Notice of Default pursuant to s 55A of the LPA see the discussion at Lunn, Civil Procedure South Australia at 6R 204.1, and in particular Murray & Ors v Thain & Anor (2006) 243 LSJS 299; [2006] SASC 24 at [14].
The notice forwarded to the Selby-Fullgrabes, a copy of which is Exhibit “MFM3” to the affidavit of Martha Fidelis McGarrigan filed 2 February 2011 and Court Document 2C, gave notice to the defendants of a default of payments due to 2 December 2010 in the amount of $18,303.17. Enforcement expenses of $328.90 were sought and, accordingly, the notice provided that $18,632.07 was the amount in default.
Paragraph 3 provides:
3.To remedy this default, the Total Amount Due must be paid to the Lender no later than 8 January 2011 (Rectification Date). Interest, fees, and charges continue to accrue on this amount until paid. Additional enforcement expenses may also be incurred.
Paragraph 5 provides:
5.If the Total Amount Due is not paid by the Rectification Date then (without the need for the Lender to give you further notice):
(a)     pursuant to the terms of your loan agreement, the whole of the amount required to pay out the loan will become immediately due and payable; and
(b)     the Lender may commence enforcement proceedings in relation to the default, and, if relevant, repossession of Mortgaged Property may begin; and
(c)     the Lender may exercise all or any of the other rights under the loan agreement, the mortgage, or at law.
Accompanying the notice was a Form 12 providing information about debtor’s rights after default as required by s 88 of the NCC.
The issue which the Court has to presently determine is whether the Notice of Default served as it was complies with the requirements of both s 55A of the LPA and s 88 of the NCC.
In First Mortgage Company Home Loans Pty Ltd v Perre, a Notice of Default dated 21 October 2010 was served pursuant to s 112 of the LPA by being delivered to the security premises on 3 November 2010 – see affidavit of service of Linton Maxwell Smith – FDN 2.
That Notice of Default noted that there were arrears of payments alleged as at 21 October 2010 in the amount of $4,487.35, and enforcement expenses of $680.00 were sought. The total amount said to be due was $5,167.35.
In paragraph 4 of the notice the following is said:
4.To remedy this default, the Total Amount Due must be paid to the Lender no later than 25.11.2010 (Rectification Date). Interest, fees, and charges continue to accrue on this amount until paid. Your default interest rate may apply and if so interest will accrue at the higher interest rate. Additional enforcement expenses may also be incurred.
In paragraph 6 the notice says:
6.If the Total Amount Due is not paid by the Rectification Date then (without the need for the Lender to give you further notice):
(a) pursuant to the terms of your loan agreement, the whole of the amount required to pay out the loan will become immediately due and payable which means that default interest may be applied to the whole of the amount required to pay out your loan; and
(b) the Lender may exercise all or any of the other rights under the loan, the mortgage, or at law.
In that particular matter the notice was served on the premises on 3 November 2010. Again, the period between the date of service and the rectification date is less than one month. There is no period specified within which the default may be remedied. The issue for decision in that matter is whether or not the Notice of Default complies with the statutory requirements.
Section 55A of the LPA provides in sub-paragraphs (1)(a) and (b) as follows:
55A. (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.
Section 112 of the LPA provides for service of notices. It is as follows:
112. (1) Any notice required or authorised to be served or given by this Act shall be in writing.
(2) Any notice required or authorised by this Act to be served on a mortgagor shall be sufficient, although only addressed to the mortgagor by that designation, without his name, or generally to the persons interested, without any name, and notwithstanding that any person to be affected by the notice is absent, under disability, unborn, or unascertained.
(3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in South Australia of the mortgagee, mortgagor, or other person to be served, or, in case of a notice required or authorised to be served on a mortgagor, is affixed or left for him on the land or any house or building comprised in the mortgage.
(4) Any notice required or authorised by this Act to be served shall also be sufficiently served if it is sent by post in a registered letter addressed to the mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business, and if that letter is not returned through the post office undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.
Section 88 of the NCC also applies in this matter. Section 88 of the NCC is in the following terms:
88Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor
Enforcement of credit contract
(1)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.
Criminal penalty: 50 penalty units.
Enforcement of mortgage
(2)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.
Criminal penalty: 50 penalty units.
Default notice requirements
(3)A default notice must contain a prominent heading at its top stating that it is a default notice and specify:
(a)     the default; and
(b)     the action necessary to remedy the default; and
(c)     a period for remedying the default; and
(d)     the date after which enforcement proceedings in relation to the default, and, if relevant, repossession of mortgaged property may begin if the default has not been remedied; and
(e)     that repossession and sale of mortgaged property may not extinguish the debtor’s liability; and
(f)     the information prescribed by the regulations about the debtor’s right to:
(i)make an application to the credit provider under section 72; or
(ii)negotiate with the credit provider under section 94; or
(iii)make an application to the court under sections 74 and 96; and
(g)     the information prescribed by the regulations about:
(i)the approved external dispute resolution scheme of which the credit provider is a member; or
(ii)the debtor’s rights under that scheme; and
(h)     that a subsequent default of the same kind that occurs during the period specified for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period; and
(i)    that, under the Privacy Act 1988, the debt may be included in a credit reporting agency’s credit information file about the debtor if:
(i)the debt remains overdue for 60 days or more; and
(ii)the credit provider has taken steps to recover all or part of the debt; and
(j)    any other information prescribed by the regulations.
Combined notices
(4)     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.
…
(8)     This section is in addition to any provision of any other law relating to the enforcement of real property or other mortgages and does not prevent the issue of notices to defaulting mortgagors under other legislation. Nothing in this section prevents a notice to a defaulting mortgagor under other legislation being issued at the same time, or in the same document, as the default notice under this section.
The plaintiff filed written submissions. The primary contention of the plaintiff was that a notice under s 55A of the LPA did not have to include as an essential element the period for compliance unless it was greater than one month. It was sufficient for the purposes of s 55A of the LPA if the period allowed could be ascertained from the terms of the notice by comparing the date of the notice with the date by which compliance was required. During argument it was submitted to me by counsel for the plaintiff that on a proper construction of s 55A of the LPA it was not necessary to specify any particular time within the notice within which compliance was required.
I reject that submission. In my view the provisions of s 55A(1)(a)(ii) oblige the mortgagee to specify within the notice that if the breach is capable of remedy then it must be done within one month after service of the notice or within such longer period that is stipulated in the notice. If the period of time is not specified then in my view it is difficult to see how s 55A(1)(b) can be utilized. I therefore rule against the plaintiff in relation to that submission and rule that a Notice of Default under s 55A of the LPA to comply with the Act must include a period within which the mortgagor is required to remedy the breach, that period running from the time of service of the notice. That period must be no less than one month. It may be longer than one month and if longer, the length must be stipulated.
It was argued in relation to the NCC that s 88(2)(a) is not concerned with the content of the notice but only with what mortgagees allow as a matter of fact. The argument as I understand it was that s 88(3), which requires a default notice to specify the default, the action necessary to remedy the default, the period for remedying the default, and the date after which enforcement proceedings might begin does not require the details specified by s 88(3)(c) and (d) to be included in the notice to comply with s 88(2). I reject that submission.
Section 88(2)(a) of the NCC requires as a pre-condition to a credit provider beginning enforcement proceedings against a mortgagor, the giving to the mortgagor of “(a) … 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”. In my view a default notice to comply with s 88 of the NCC must include all of the matters referred to in subsection (3) and if it does not, then unless the credit provider can bring itself within subsections (5) and (6) of s 88 of the NCC the credit provider is not able to rely on that notice as a foundation for proceedings for possession.
It was argued that the use of the word “allowed” in s 88(1)(a) of the NCC contrasted with the use of the word “specified” in s 88(3). Because the word “allowed” was used this meant that providing the credit provider did not take action or enforcement proceedings against a debtor prior to the expiration of 30 days from the date of service of the notice to remedy the default, then the requirements of those two sections are met whatever time or dates might be specified in the notice. It was said that the requirements of s 88(3) only go to the content of the notice but do not preclude a credit provider from proceeding on a notice that may be deficient in some respect in relation to s 88(3) provided that at least 30 days has expired from the date of service of the notice. I reject that submission. In my view s 88(3) requires the mortgagee to specify both a period for remedying the default and the date on which enforcement proceedings may begin if the default has not been remedied. The purpose of the notice is to give the debtor or mortgagor an opportunity to remedy the default. The legislation is designed to protect consumers. Failure to specify a time within which this must occur in my view would generally invalidate the notice. I note that non-compliance with such a notice is at times said to be a proper basis for the mortgagee invoking an acceleration clause.
I note that the NCC in s 196 provides that a date of a notice or document is taken to be given:
(a)in the case of a notice or other document given personally—on the date it bears or the date it is received by the addressee, whichever is the later; or
(b)in the case of a notice or other document sent by post—on the date it bears or the date when it would have been delivered in the ordinary course of post, whichever is the later; or
…
As to service of the notices by post the plaintiff submitted that under both s 112 of the LPA and s 196 of the NCC service is effected when a document would have been received in the ordinary course of the post. The fact that it may not be collected by registered mail until some time beyond the ordinary course of post did not affect the presumed date of service pursuant to those sections. This it was argued is consistent with service being presumed when the notice is delivered to the mortgaged property. It reflects a policy of reasonable notice being given on the part of the mortgagee and a mortgagor acting in a responsible fashion. Under s 112 of the LPA if the document is returned through the post then service is not effected but otherwise service is deemed to be effected on the date that the document would arrive in the ordinary course of the post. I note my earlier discussion and findings as to effective service of such notices.

In my view notices under both s 55A of the LPA and s 88(3) of the NCC are required to contain within them the period within which the breach may be remedied, which period must be not less than one month, and in the case of the NCC the date after which enforcement proceedings in relation to the default may begin.
In my view service by registered post is effected when the document is collected unless the document is returned by Australia Post.
In light of those findings, in the action of Commonwealth Bank v Selby-Fullgrabe the rectification date of 8 January 2011 does not meet the requirements for the rectification date to be at least 30 days from the date of service of the notice to remedy the default. Accordingly, I am not satisfied in that matter that the Notice of Default has been validly issued and served.
In the matter of First Mortgage Company Home Loans Pty Ltd v Perre where the notice was served on premises on 3 November 2010 and the rectification date is stated as being 25 November 2010, one month’s notice has not been provided and, in my view, the plaintiff has not complied with the provisions of s 55A(1)(a)(ii) of the LPA or s 88(2) of the NCC.
On these findings both actions ought be dismissed. There should be no order for costs in favour of the plaintiff nor should the plaintiff be entitled to treat the costs of the action incurred by it as part of the mortgage debt. However, before making final orders I will adjourn the matter to enable the parties to consider these reasons.