Commonwealth Bank of Australia v Zatorski
[2012] VCC 1407
•5 October 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
COMMERCIAL LIST
BANKING AND FINANCE DIVISION
Case No. CI-11-03303
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) | Plaintiff |
| v | |
| CHRISTIAN JEREMY ZATORSKI | Defendant |
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JUDGE: | HIS HONOUR JUDGE SHELTON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 and 20 September 2012 | |
DATE OF JUDGMENT: | 5 October 2012 | |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Zatorski | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1407 | |
REASONS FOR JUDGMENT
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SUBJECT – BANKING AND FINANCE
CATCHWORDS – Mortgagee’s sale – adequacy of notice given under s76 Transfer of Land Act – whether sale complied with s77 – whether broker was bank’s agent
LEGISLATION CITED – Transfer of Land Act 1958
CASES CITED – Carver v Westpac Banking Corporation [2002] NSWSC 431; National Australia Bank Ltd v Walter [2004] VSC 36; Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226; Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469; Esanda Finance Corporation Ltd v Spence Financial Group Pty Ltd [2006] WASC 177.
JUDGMENT – The plaintiff is entitled to judgment against the defendant in the sum of $868,341.49.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Moffatt | Gadens Lawyers |
| For the Defendant | Self-represented | - |
HIS HONOUR:
Introduction
1 The plaintiff claims the sum of $868,341.49 from the defendant, being the balance owing under an advance made by it to the defendant in August 2007. The purpose of the advance was to finance the purchase by the defendant of ten vacant blocks on the Yea Springs Estate (“the Yea properties”) from the defendant’s step-father, Gary Donald Stewart (“Stewart”). The purchase price was $1.115 million. The advance was secured by a first mortgage over the Yea properties.
The Facts
2 The facts are not in dispute.
3 Mai-Linh Tran (“Tran”), who described herself as a mobile banker with the plaintiff in August 2007, gave evidence that she received an application for a loan on behalf of the defendant. It was forwarded to her by Glenn Dingle (“Dingle”), whom, she stated, worked as a solicitor and referred to the plaintiff clients seeking finance. On the basis of information he faxed to her, she prepared a loan application. The application stated that the loan was to be for the sum of $893,350.00 and that the defendant, aged only nineteen, had been employed by “Zenettis” for a period of two years where he was earning an annual income of $194,000. The application was dated 7 August 2007.
4 On 13 August 2007, Tran received by facsimile a letter on the letterhead of Finch Industries, which stated:
“To Whom it May Concern
I confirm that Christian Zatorski is employed by this company in a full time position within it, he earns approximately $200,000 p/a and is regarded as a good stable worker.
[Signed etc Jay (Bluey) Finch]
Owner/ Manager.”
(sic).
5 She stated that on the same day, she spoke on the telephone to a person purporting to be Finch, who confirmed that the defendant was employed by Finch Industries and earning $200,000 per annum.
6 Finch gave evidence that the letter was written on an old letterhead of Finch Industries, that the defendant had never worked for Finch Industries and therefore was not earning $200,000 per annum, and that his signature appearing on the letter had been forged. He stated that he had never met the defendant.
7 He could not recall being contacted by Tran.
8 The defendant, who appeared in person, did not give any evidence and thus did not give any evidence to contradict that of Finch. Further, he did not cross-examine Finch upon his evidence.
9 In the circumstances, I accept Finch’s uncontested evidence that the defendant never worked for him and that the information contained in the letter was false.
10 On 13 August 2007, Tran also received a letter of that date, which stated:
“I, Gary Stewart, give to my stepson, Christian Zatorski, the sum of $400,000.00 to assist in the purchase of land at Yea. This is a non-refundable gift.
[Signed etc Gary Stewart].”
11 Anthony Charles Raviola (“Raviola”) gave evidence that in May 2008, he was a manager in the Credit Management Unit of the plaintiff. He stated that on 15 May 2008, he spoke to the defendant, who told him that he had not received the sum of $400,000 as a gift from his stepfather, Stewart, but only the deposit ($111,500) and stamp duty costs. The defendant did not cross-examine Raviola upon this evidence, nor did he himself give any evidence on this issue.
12 In the circumstances, I accept that a gift of $400,000 was not made by Stewart to the defendant and that the statement in Stewart’s letter of 13 August 2007 was false.
13 Dingle told Tran that the National Australia Bank had offered funds at a rate .85 per cent less. She obtained authority to reduce the rate the plaintiff would otherwise have charged by .85 per cent.
14 Tran approved the loan on the basis of the information provided.
15 By a document entitled “Consumer Credit Contract Schedule” (“the Schedule”), the plaintiff offered the defendant a loan of $893,350.00 at an interest rate of 7.2 per cent per annum, which was stated to be .85 per cent per annum below “reference interest rate”.
16 Monthly repayments were $6,443.00. A first mortgage was required over the Yea properties.
17 The Schedule stated:
“The Contract is made up of this Schedule and the Usual Terms and Conditions for Consumer Mortgage Lending (in the Contract we call them the UTC). By signing the Schedule you agree to be bound by the Contract.”
18 This Schedule was signed by the defendant.
19 The UTC provided, so far as is relevant:
“3. WHAT WE REQUIRE FROM YOU
3.1When we ask you, you must fully and truthfully tell us your current financial position.
…
9. DEFAULT
9.1 You are in default under the Contract if:
…
(e) you give us incorrect or misleading information in connection with the Contract before or after you sign the Contract;
…
9.2 In most circumstances we give you a notice requiring you to fix the default (if the default can be fixed) within a certain time of telling you what the default is. In some circumstances we do not have to give you a notice (for example, if a court excuses us from giving a notice).
9.3 If you are in default and:
(a) you do not fix the default in the time allowed by the notice we give you under clause 9.2;
(b) the default cannot be fixed, and the time stated in the notice we give you under clause 9.2 elapses; or
(c) we do not have to give you a notice under clause 9.2;
THEN
(d)we may decide, without further notice, that all money owing by you under the Contract is due and payable immediately;
(e)we may sue you for payment of the money you owe us;
(f)we may exercise rights under the Security, including our right to sell the Security Property.”
20 A first mortgage over the Yea properties was executed by the defendant.
21 Relevantly, the mortgage stated:
“The mortgagor covenants with the mortgagee that the provisions of the Memorandum of Common Provisions (MCP) referred to in this mortgage and retained by the Registrar of Titles form part of this mortgage.
Memorandum of Common Provisions
AA966
…
COVENANTS:
…
The mortgagor covenants with the mortgagee as follows:
1. … You (the mortgagor) agree to keep to the provisions in the MCP.
… .”
22 Memorandum of Common Provisions AA0966 provided, so far as is relevant:
“A3. Your declarations
A3.1 You declare that:
…
(d)all the information you have given us in connection with this mortgage … is correct and not misleading; and
(e)you have not withheld any Information which might have caused us not to enter into this mortgage …; and
…
What can happen if you are in default
A21.When are you in default?
You are in default if:
…
(c)you or another Person give us incorrect or misleading information (for example when you make your declarations under clause A3) in connection with this mortgage … before or after you sign this mortgage; or
…
A22.What can happen then?
…
A22.2If you are in default and we choose to enforce this mortgage, then, except in the cases described in clause A22.3 and A22.4(c), we must give you a notice before doing so. The notice must:
(a)tell you what the default is; and
(b)require you to fix the default (if it can be fixed) within the period stated in the notice. (If we give you notice under the Consumer Credit Law, you will have at least 30 days to fix the default); and
(c)contain any other information the law requires us to give you.
…
A22.3We need not give you a notice referred to in clause A22.2 or wait for the periods specified above where we believe on reasonable grounds that:
(a)the default cannot be remedied; or
…
A22.4For the purpose of any law (other than a Consumer Credit Law) relating to giving default notices prior to enforcement of real property mortgages:
(a)which requires that you must be in default for a certain period of time before we give you the notice and allows the period to be fixed in the mortgage, the period is fixed at one day; or
(b)which allows this mortgage to limit the period of time in which you must fix a default, the period (which must be at least one day) is the period set by the notice; or
(c)which allows the parties to a mortgage to agree that the mortgage may be enforced without giving a notice, you agree that we need not give you a notice before beginning enforcement proceedings against you.
A22.5If we have given you a notice under clause A22.2 or A22.4 and you do not fix the default within the time allowed in the notice, or you are in default and we are not required to give you a notice, we may:
(a)decide, without further notice to you, that the Amount Owing is due and payable immediately;
(b)take possession of The Property;
(c)manage The Property;
(d)sell, lease, subdivide or improve The Property …
(e)do anything else the law allows us to do as mortgagee;
…
A22.7If you are in default and we need not give you notice to fix it, then at any time we may do any of the things set out in paragraphs (a) to (f) of clause A22.5 … .”
23 On 27 August 2007, the sum of $893,477.00 was advanced by the plaintiff to the defendant. The defendant defaulted on the first payment due to the plaintiff on 1 October 2007, and thereafter payments were irregular.
24 As a consequence, the plaintiff investigated the defendant and his loan.
25 As part of this investigation, Raviola gave evidence that in his telephone conversation with the defendant on 15 May 2008, the defendant told him that he had recently changed employment and was now manager of Richmond Seafood Tavern. Raviola contacted Richmond Seafood Tavern on the same day and the employment of the plaintiff with it was confirmed.
26 In the same conversation on 15 May 2008, Raviola stated that the defendant told him that three of the Yea blocks had been sold, that he was waiting on an exchange of contracts for one block and that the sale of one block was under negotiation. Raviola stated that the defendant told him that R T Edgar was the selling agent. Raviola stated that on 16 May 2008, he contacted Mark Spencer of R T Edgar Real Estate, who confirmed that he had no listing of the five blocks – yet more false information provided by the defendant.
27 The noose was tightening for the defendant.
28 On 16 May 2008, Raviola forwarded an email to the defendant, which read as follows:
“Hi Christian,
Further to our earlier telephone conversation of 15 May 2008 regarding my review on you’re [sic] the Home Loan application. As discussed the Bank had identified some contentious irregularities and request that you attend with the following by 19 May 2008:
You informed me that you had changed your employ from Zenettis to acquire a manager position with Richmond Seafood Tavern. You undertook to provide me with a copy of your current remuneration package together with a commencement date by your employer, Richmond Seafood Tavern. This information will assist me in support of your ability to sustain serviceability towards the facility.
In addition, provide copies of three exchanged contracts of sale, solicitor details, settlement details and confirmation by the selling agent, RT Edgar, that deposits are held in trust.
On the scenario that this information is not forthcoming to meet the Bank’s lending requirements by 19 May 2008, I have no option but to escalate my findings to the Bank’s Legal counsel in support of legal proceedings under misrepresentation.
… .”
29 No satisfactory response having been received by 19 May 2008, Raviola instructed the bank’s solicitor, A J Mullumby, to pursue default proceedings.
30 Mullumby wrote to the defendant as follows on 29 May 2008:
“Notice under Section 76(1) of the Transfer of Land Act 1958
Home Loan Account Number(s): 513 251 403
I am the Solicitor for Commonwealth Bank of Australia (the Bank).
I am instructed that –
(a)a default has occurred under the loan agreement pursuant to which you provided a mortgage over the above mentioned property;
(b) incorrect or misleading information was given to the Bank in connection with the loan contract and mortgage;
(c)the default referred to in (b) above is not capable of being remedied; and
(d)the Bank has decided without further notice that all money owing under the loan contract and the mortgage are now due and payable immediately by you to the Bank.
As you are in default of your legal obligations to the Bank, I serve on you with this letter Notice under Section 76(1) of the Transfer of Land Act 1958.
My legaI costs for the issue of the Notice arising from the default under the above Mortgage are $440.00. This is an enforcement expense of the Bank and, in accordance with the provisions of the Mortgage the $440.00 will be debited to your Loan Account and will appear on your next Loan Statement.
Please direct any enquiries you may have about the loan/notice to Anthony Raviola … of the Group Risk Management Department of the Bank.”
31 The enclosed notice under s76(1) of the Transfer of Land Act 1958 (“the Act”) read as follows:
“Notice to Mortgagor
Section 76(1) Transfer of Land Act 1958
To: Christian Jeremy Zatorski
Of: …
You are required to pay to Commonwealth Bank of Australia ABN 48 123 123 124 (Bank) the amount of $898,457.97 being the amount of principal and interest accrued due and owing up to 29th May 2008, on account no. 513 251 403, to the Bank under the security referred to below (Security).
You are in default under the Security because of your continuing failure to pay this amount to the Bank. Unless this amount together with interest accruing from 29th May 2008 at the rate of $209.90 a day is paid by you within 7 days after service of this Notice, the Bank will exercise its power of sale in respect of the land referred to in the Security.
Security
Mortgage registered number AF308723C over the whole of the land contained in Certificate of Title Volume 10958 Folio 239 known as Lot 2 Yea Springs Drive, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land contained in Certificate of Title Volume 10958 Folio 243 known as Lot 6 Yea Springs Drive, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 245 known as I Hamilton Hume Terrace, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 0958 Folio 272 known as 4 Hamilton Hume Terrace, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 270 known as 8 Hamilton Hume Terrace, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 249 known as 9 Hamilton Hume Terrace, Yea, Victoria: and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 251 known as 13 Hamilton Hume Terrace, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 269 known as 2 William Hovell Way, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 267 known as 6 William Hovell Way, Yea, Victoria; and
Mortgage registered number AF308723C over the whole of the land in Certificate of Title Volume 10958 Folio 266 known as 8 William Hovel! Way, Yea, Victoria.
Dated 29 May 2008.”
32 On 2 June 2008, the defendant contacted Raviola by telephone. Raviola indicated that the plaintiff would proceed pursuant to the s76 notice but that the matter would be reviewed should further evidence and documentation be provided by 3 June 2008.
33 On 13 June 2008, the defendant forwarded to Raviola a letter from Daniel Ramadan from Richmond Seafood Tavern dated 26 May 2008, which stated:
“To Whom It May Concern
Christian Zatorski is employed at The Richmond Seafood Tavern as a Manager his annual salary (including performance based bonus) is approximately $180,000 pa.”
(sic)
34 Raviola stated that on 13 June 2008, he telephoned Richmond Seafood Tavern and spoke to one Danny Cecchi, who said he was a director of Richmond Seafood Tavern, and that the defendant was employed there.
35 Raviola checked a bank account of the defendant with it, which showed the following deposits where the transaction was described as “North Melbourne wages – Richmond Tav”:
Date Amount 16.01.08 $208.91 23.01.08 $585.37 30.01.08 $692.17 06.02.08 $162.79 27.02.08 $134.58 05.03.08 $215.51 02.04.08 $243.50 17.04.08 $262.00 24.04.08 $262.00 30.04.08 $42.64 01.05.08 $262.00 08.05.08 $262.00 14.05.08 $107.01 15.05.08 $262.00
36 Clearly, these credits to the account are not consistent with an income of approximately $180,000 per annum.
37 The defendant did not challenge Raviola’s evidence nor give any contrary evidence himself.
38 I conclude that the information contained in the letter from Richmond Seafood Tavern dated 26 May 2008 was false.
39 Also accompanying the facsimile of 13 June 2008 were Contracts of Sale for two of the Yea blocks. They stated that in respect of each of the Yea blocks, a deposit of $5,000 was paid on 10 May 2006. The purchase for each of the blocks was Allen Pollard.
40 On 13 June 2008, Raviola contacted the agent whose name appeared on the two Contracts of Sale, Max Johnstone of Max Johnstone Real Estate Pty Ltd, West Footscray. Raviola stated that Johnstone told him that the deposits had not been paid on 10 May 2008.
41 Again, the defendant did not dispute Johnstone’s evidence nor give any contradictory evidence himself.
42 I conclude that the two deposits alleged were not paid and that the information contained in the two contracts forwarded to Raviola was false.
43 On 20 June 2008, the defendant had a telephone conversation with Raviola. Raviola confirmed this telephone conversation by facsimile of the same date, which read as follows:
“Further to our earlier telephone conversation of today to assist me continue with the relationship review I am seeking the following:
● Statement copies of your account illustrating your pay from Richmond Seafood Tavern. This will support your ability to illustrate your capacity to service the facility.
● Settlement brought forward regarding contract of sale entered with Allen Pollard.
● Max Johnstone had assured me of a further 3 – 4 sales may eventuate next week. Should this be the case I will require confirmation of the sales contract & copies of 10% deposit held in the Agents Trust account. I recommend a settlement timeframe not more than 60 days or earlier.
I appreciate your keen efforts to satisfy the Bank to meet its procedural requirements and will continue with the review upon receipt of the above by 25 June 2008.
Should you have any further questions, please do not hesitate to contact me on … .”
44 On 27 June 2008, Raviola wrote to the defendant as follows:
“Home Loan: 513 251 403
Balance: $898,66.74
Property: Lot 2 Yea Springs Drive, Yea
Lot 6 Yea Springs Drive, Yea
1 Hamilton Hume Terrace, Yea
4 Hamilton Hume Terrace, Yea
8 Hamilton Hume Terrace, Yea
9 Hamilton Hume Terrace, Yea
13 Hamilton Hume Terrace, Yea
2 William Hovell Way, Yea
6 William Hovell Way, Yea
8 William Hovell Way, Yea
We refer to our telephone conversation of 20 June 2008 and advise that I have concluded my findings towards the legitimacy of your income and the two copies on (sic) Contracts of Sale dated 10 May 2008. My findings remain inconclusive as you have not provided me with the additional information in support of income deposits.
On that note the Bank intends to continue with its legal proceedings pursuant to the Notices dated 29 May 2008 issued under Section 76(1) of the Transfer of Land Act 1958 and advise that the Bank is taking possession of the above security properties.
The properties will be auctioned in due course and we will advise you of the outcome. Please contact the writer on … should you have any queries or wish to discuss this matter further.”
45 In preparation for auction of the Yea properties, Raviola engaged Valuers, A W Male & Associates Pty Ltd and Geoffrey Pope & Associates to value the properties. Both these valuers provided valuations in June 2008.
46 Raviola engaged Stuart Oddy of Landmark, a local estate agent, to auction the Yea properties and approved an advertising schedule prepared by Oddy.
47 Five of the blocks that were auctioned on 13 September 2008 were passed in at auction and subsequently sold.
48 The following schedule sets out the valuations obtained from the two Valuers, the contract price and the date of contract for each of these blocks:
“Address Male and Associates Geoffrey Pope
Contract
Date of Contract Lot 2 Yea
Springs Drive
Market $78,000
Forced $69,000
Market $72,500
Forced $65,000
$70,000 01.11.08 Lot 33 Hamilton
Hume TerraceMarket $78,000
Forced $69,000Market $72,500
Forced $65,000$65,000 03.04.09 Lot 6 Hamilton
Hume TerraceMarket $78,000
Forced $69,000Market $72,500
Forced $65,000$63,000 14.11.08 Lot 8 Hamilton
Hume TerraceMarket $80,000
Forced $70,000Market $75,000
Forced $67,500$68,000 13.07.09 Lot 12 Hamilton
Hume TerraceMarket $78,000
Forced $69,000Market $72,000
Forced $65,000$76,000 08.10.08”
49 It will be noted that the final sale, of Lot 8 Hamilton Hume Terrace, was not until ten months after the auction.
50 The remaining five blocks were auctioned on 6 December 2008. None of these properties were sold at auction and remain unsold. The plaintiff is still in possession of them.
The Proceeding
51 The plaintiff originally issued this proceeding originally in the Supreme Court on 12 November 2008. The sum claimed from the defendant was $917,768.46. By an Amended Statement of Claim filed 21 August 2009, this was reduced to $717,467.60. The defendant lodged a Defence to this Amended Statement of Claim and a Counterclaim on 5 February 2010. The Counterclaim sought damages on the basis that generally the plaintiff had not complied with the obligations imposed upon it by the Act.
52 On 22 September 2009, a summary judgment application was heard before Associate Justice Evans. He refused the application. The plaintiff lodged an appeal which was heard before Habersberger J on 11 December 2009. He dismissed the appeal. Surprisingly, Mr Moffatt, who appeared on behalf of the plaintiff, did not refer me to the transcript of the hearing nor of Habersberger J’s judgment, to be found at [2009] VSC 638. I located both these transcripts upon the Court file after the hearing before me. I refer to them in more detail presently.
53 Gregory Poloso, the manager of the Credit Risk Solutions Department of the plaintiff, gave evidence that the balance outstanding under the plaintiff’s loan to the defendant was, at 19 September 2012, $868,341.49. I was told from the Bar table that interest is accruing at the rate of $161.23 per day.
54 The proceeding was transferred from the Supreme Court to the County Court on 17 June 2011.
Defence and Counterclaim
55 In its Defence to Amended Statement of Claim and Counterclaim dated 5 February 2010, the defendant, in essence, raises four defences to the plaintiff’s claim. I deal with them in turn. Only the defences referred to in (1) and (4) were referred to by the defendant in his final submissions. I deal with the defences raised in (2) and (3) for the sake of completeness.
(1) Validity of Section 76 Notice
56 Section 76 of the Act states:
“Procedure in case of default in payment of moneys secured
(1)If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).
(2)Where money secured by any such mortgage is made payable on demand a demand in writing pursuant to the mortgage shall for the purposes of this Act be equivalent to serving the notice aforesaid.
(3)… .”
57 In giving the Notice under s76(1) of the Act, the plaintiff, as appears from the accompanying letter of 29 May 2008 to the defendant, relies upon “incorrect or misleading information”. The incorrect or misleading information given by the defendant to the bank upon which the bank relies is:
(a) that he was employed by Finch Industries at an income of $200,000.00 per annum;
(b) that he was employed by Richmond Seafood Tavern at an annual salary of $180,000.00 per annum;
(c) that his stepfather, Gary Stewart, had gifted him the sum of $400,000.
58 There was, of course, further “incorrect or misleading information” given by the defendant to the plaintiff – three of the blocks had not been sold by R T Edgar and deposits had not been received for two of the blocks. In his final submission, the defendant focussed upon clause 9.2 of the UTC. He appeared to concede that there had been a breach of clause 9.1(e). He submitted that the plaintiff was required to give notice to him of what the “incorrect or misleading information” was and give him time to remedy it. However, clause 9.2 refers to the giving of notice “if the default can be fixed”. Here, none of the three defaults relied upon could be fixed. Although three defaults are relied upon, it would be sufficient for the plaintiff to rely upon any one of these defaults which could not be fixed.
59 The example given of a court excusing the giving of a notice is, just that, an example of a situation where a notice is not necessary. This example was not, in my view, meant to be an exhaustive statement of when the giving of notice was not necessary. The giving of incorrect or misleading information cannot be corrected and the giving of a notice of the incorrect or misleading information which cannot be corrected and time to remedy it would be pointless. It would appear that the defendant was under no misapprehension as to what the incorrect or misleading information was and certainly did not raise any query about this with the plaintiff when the s76 notice was served.
60 The provisions of clause 9.3(c) then apply and the plaintiff may proceed, as it did, in accordance with clause 9.3(d), (e) and (f), and gave the s76 notice.
61 So far as the actual Section 76 Notice is concerned, relevant provisions of Memorandum of Common Provisions AA0966 are clauses 3.1(d), A21(c), A22.3(a), A22.5 and A22.7.
62 As I have indicated, the defaults relied upon cannot be remedied and the plaintiff had reason to “believe on reasonable grounds” that this was so. The period of “one month” referred to in s76(1) of the Act is, by virtue of clause A22.4(a) reduced to one day. The defaults relied upon have continued obviously for more than one day.
63 I turn to consider the judgment given by Habersberger J on the hearing of the summary judgment application. It focussed upon clauses 9.2 and 9.3 of the UTC.
64 His Honour indicated that the plaintiff relied upon the same three items of incorrect or misleading information as before me. He took the view that the plaintiff was not entitled to rely upon the letter from the Richmond Seafood Tavern since it was provided after funds were advanced to the plaintiff. I was originally of this view, too, and raised by concerns with Mr Moffatt. He referred me to clause 9.1(e) which refers to the provision of “incorrect or misleading information” “after” the Schedule was signed. This would appear to cover the information regarding employment with respect to the salary being earned at the Richmond Seafood Tavern.
65 His Honour had concerns about the proper construction of clauses 9.2 and 9.3 of the UTC. He particularly expressed concerns about clause 9.3(b) which appears to envisage a default which cannot be fixed but yet requires a giving of notice.
66 He was of the view that “the defendant would have known what was being alleged against him” (paragraph 17). He concluded, at paragraph 18:
“Nevertheless, in my opinion, it is arguable that the correct construction of these confusing clauses has not been followed and therefore that there was no notice given with a time period which had to elapse before the next step could be taken, namely the bank deciding to call up all of the moneys due under the loan agreement.”
and at paragraph 20:
“As I have said in referring to the authorities on the appropriate test, obviously I am not making a final conclusion about the correct construction of the loan contract. All I have to decide is whether the point is reasonably arguable.”
and at paragraph 21:
“In the circumstances, I have reached the conclusion that it is reasonably arguable that the appropriate steps were not taken and that, therefore, the plaintiff had no right to serve a s 76 notice under the Transfer of Land Act … .”
67 With due respect to his Honour, an appropriate construction of clause 9.3(b), which is an alternative to clause 9.3(c), is that it is applicable where there was a default which could not be fixed where it was not necessary to give notice requiring the default to be fixed but it was in fact given. In any event, it appears to me appropriate to give effect to clause 9.3(c) which is clear in its terms.
68 I conclude that the Section 76 Notice was validly given.
(2) Sale at Under Value?
69 Section 77(1) of the Act provides:
“(1)If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.”
70 The defendant alleges that in selling five blocks of the Yea properties, the plaintiff was not acting in good faith and having regard to his interests and was not attempting to maximise the sale price of these blocks.
71 The general principles applicable to a mortgagee’s exercising a power of sale under a mortgage were stated by Austin J in Carver v Westpac Banking Corporation [2002] NSWSC 431, at paragraph 13.
72 These principles were stated with approval by Dodds-Streeton J in National Australia Bank Ltd v Walter [2004] VSC 36, at paragraph 284. They are as follows:
“1The power of sale is given to the mortgagee for its own benefit, and is not held by the mortgagee in a fiduciary capacity.
2Moreover, the fact that the mortgagee's sale is for a price disadvantageous to the mortgagor is itself no ground for judicial intervention: Warner v Jacob (1882) 20 Ch D 220, 224; Haddington Quarry Co v Hudson [1911] AC 727; Adamse v Broadway Credit Union Ltd (1999) NSW Conv Rep 55-876.
3Nevertheless, in exercising the power of sale, the mortgagee is subject to an equitable duty to act in good faith: Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; Forsyth v Blundell (1973) 129 CLR 477. The mortgagee's impropriety is sometimes described as a fraud on the power, and sometimes as a wilful or reckless disregard of the interests of the mortgagor, and sometimes as a sacrificing of the interests of the mortgagor. Whatever description is used, it is clear that the commission of actual fraud (in the sense of an intention to defraud the mortgagor, or corruption, or collusion with the purchaser) need not be shown: Forsyth v Blundell at 496-497, per Walsh J.
4It is unclear whether, as a matter of Australian Law, the mortgagor and the mortgagee stand in a relationship of proximity under which the mortgagee owes the mortgagor a common law duty to take reasonable care in the exercise of the power of sale: cf Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949; 2 All ER 633. So far the Australian cases have analysed facts suggesting failure to take reasonable care by recourse to the equitable principles concerning good faith, rather than common law negligence.
5Nor is it clear whether different practical results flow from the application of the equitable duty of good faith and the principles of common law negligence. Fisher and Lightwood's Law of Mortgage (Australian edn, 1995), p459, states:
‘There may be some practical differences between the two tests, such as in the extent of the mortgagee's duty to others besides the mortgagor, but it is doubtful whether in most cases the result would be different whichever test was applied. In Forsyth v Blundell (1973) 129 CLR 477 at 481 it was said that to take reasonable precautions to obtain a proper price is but part of the duty to act in good faith.’
6The following are some of the incidents of the mortgagee's duty of good faith:
(a) the onus of establishing breach of the duty lies on the mortgagor: Forsyth v Blundell at 499;
(b) a mortgagee fails to act in good faith if it looks after its own interests alone and sacrifices or absolutely disregards the interests of the mortgagor: Pendlebury at 680-681 per Griffiths CJ;
(c) action which is unfair would normally be regarded as action in bad faith: Pendlebury, at 694 per Barton J;
(d) the mortgagee cannot discharge its duty by delegating the exercise of the power of sale to an agent (such as a real estate agent), since the duty requires the mortgagee not only to select a competent contractor but also to give adequate instructions, and to exercise some surveillance over the contractor or to inspect the work he is doing: Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491, 498 per Gibbs CJ, 500 per Mason J;
(e) where the mortgagor's case of breach of duty is based on sale at an undervalue, it is not necessary for him to prove that any particular individual would have paid a higher price for the property: Nixon v Commercial and General Acceptance Ltd [1980] Qd R 153 (not disturbed, on this point, on appeal to the High Court); McKean v Moloney [1988] 1 Qd R 628.”
73 As noted, the onus of establishing a breach of the mortgagee’s duty of good faith rests upon the mortgagor; that is, the defendant. I agree with the submission of Mr Moffat, who appeared on behalf of the plaintiff, that the defendant has not satisfied this onus.
74 The plaintiff engaged a local real estate agent, Stuart Oddy of Landmark Real Estate, to sell the Yea properties. There is no evidence of any dereliction of duty upon his part. The ten properties were put to auction. There was no suggestion that the advertising program for the sale of the Yea properties was inappropriate. Two valuers were engaged by the plaintiff pre-auction to obtain advice upon appropriate sale prices. I accept the submission of Mr Moffat that the fact that none of the properties were sold at auction but over the next ten months, confirms that the plaintiff was attempting to maximise the sale price of the Yea properties which were auctioned on 13 September 2008, that it was acting in good faith, taking into account the interests of the defendant and that it was not looking after its own interests alone. It is not suggested that the properties were not sold at arms’ length or that a better price could have been obtained. The defendant led no evidence on this issue.
(3) Was Dingle the plaintiff’s agent?
75 This is alleged in the Particulars appended to paragraph 2(b) of the Defence.
76 In Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 at 234, the High Court unanimously said:
“… However, under the general principles of the law of agency, a broker is the agent of the assured, not the insurer … . There will be rare circumstances in which a broker may also be an agent of the insurer, but the courts will not readily infer such a relationship because a broker so placed faces a clear conflict of interest between his duty to the assured on the one hand and to the insurer on the other. … .”
77 Further, in Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469, at 486, Marks J stated that:
“The mere possession of the appellant's forms is not enough to constitute agency …, nor is the fact that commission was payable for the introduction, nor is the filling in of the charges on the forms. … .”
78 As mentioned, Tran gave evidence that Dingle was the employee of a firm of solicitors. He lodged applications for finance on behalf of the defendant, not only with the plaintiff but also with National Australia Bank. This was not, in my view, one of those “rare circumstances”. Dingle was, in my opinion, not the plaintiff’s agent but the defendant’s agent.
79 A perusal of the transcript of the summary judgment application before Habersberger J on 15 December 2009 (pages 49 to 51) indicates that his Honour was concerned by the fact that the plaintiff paid a commission to Dingle and that therefore he was the plaintiff’s agent. At page 49, his Honour refers to an extract from a judgment of Newnes M in Esanda Finance Corporation Ltd v Spence Financial Group Pty Ltd [2006] WASC 177. This appears to be taken from an Outline of Submission prepared by Mr Moffatt, who appeared for the plaintiff on that occasion. Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (supra) and Custom Credit Corporation Ltd v Lunch (supra) were referred to in a footnote to Mr Moffatt’s submission but there is no indication that his Honour had before him the extracts from these cases to which I have referred above. Also, there is no indication that his Honour was aware that Dingle had also sought finance for the defendant from National Australia Bank.
80 In his judgment on the summary judgment application, Habersberger J did not refer to this agency issue, contenting himself to reject the summary judgment application on the basis of his concerns with the plaintiff’s right to give the s76 notice.
(4) Waiver etc
81 The defendant submitted that by continuing the relationship review after service of the letter of 29 May 2008, which accompanied the Section 76 Notice, the bank had waived its right to rely on the Section 76 Notice; or alternatively, was acting unconscionably in not serving new notices, or that by continuing the relationship review in June 2008, that it was estopped from relying on the Section 76 Notice.
82 In my view, there is no substance in this submission. At no stage did the plaintiff indicate that it was in any way prepared to defer proceeding on the Section 76 Notice, and this is clearly stated in Raviola’s letter to the defendant of 27 June 2008.
Conclusion
83 The defendant does not have a defence to the plaintiff’s claim.
84 The plaintiff is entitled to judgment against the defendant in the sum of $868,341.49.
85 I dismiss the defendant’s Counterclaim.
86 I will hear further from the parties on the question of interest and costs.
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