First Mortgage Capital Pty Ltd v Staniford
[2021] SASC 88
•22 July 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
FIRST MORTGAGE CAPITAL PTY LTD v STANIFORD & ANOR
[2021] SASC 88
Judgment of Judge Dart a Master of the Supreme Court
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - POWERS AND REMEDIES OF MORTGAGEE - POSSESSION
Loan to company - director's guarantee - directors give mortgage to secure guarantee - term of the loan expired - company defaults - mortgagee seeks possession - is there an arguable defence?
Held:
1. No arguable defence established.
2. Applicant entitled to order for possession.
Australian Securities and Investments Commission Act 2001 (Cth) s 12BF, s 12BI; National Consumer Credit Protection Act 2009 (Cth); Real Property Act 1886 (SA) Part 17, referred to.
Armour Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259; Corporation of the Town of Moonta v Rodgers and Rodgers [1980] 26 SASR 143; Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; Russo v Buck & Ors [2006] SASC 380; Westpac Banking Corporation v Chadha [2012] SASC 223, considered.
FIRST MORTGAGE CAPITAL PTY LTD v STANIFORD & ANOR
[2021] SASC 88Civil
This is an application seeking an order for the possession of real property. It is made pursuant to Part 17 of the Real Property Act 1886 (“the Act”). The respondents are the registered proprietors of the subject property. The applicant is entitled to the order for possession.
Background
The respondents are the directors of Staniford Livestock Pty Ltd. On or about 13 September 2018 the company borrowed the sum of $220,796 from the applicant. The loan was for a term of 12 months. The respondents, in their capacity as directors of the company, gave a guarantee in respect of the company’s obligations. That obligation was secured by a mortgage given over their property at 388 Carey Gully Road, Carey Gully. It is a registered second mortgage.
At the end of the term the loan was not repaid. It appears that the loan may have been rolled over for a period of months. The principal and interest that accrued on the loan have not been repaid. On any view, the term expired more than a year ago. I assume the company is unable to make payment.
On or about 16 July 2020 the applicant served a demand on the respondents pursuant to the guarantee. The demand was not complied with. On or about 14 October 2020 relevant statutory notices were issued under the mortgage.
The terms of the loan were onerous. Interest accrued at the rate of 24% per annum. The interest rate doubled in the event of a default. The charging of such interest rates is not of itself unlawful.
It should be noted that the respondents took legal advice in relation to the transaction. A solicitor provided certificates in relation to the guarantee. No point is taken by the respondents in relation to the statutory notices. The primary issue in dispute appears to be in relation to the interest calculation.
A summary procedure
Applications made pursuant to Part 17 of the Act are dealt with on a summary basis. That is, they are dealt with on the papers. It is usually a straightforward matter of establishing the existence of a loan, a registered mortgage and a default in respect of the contractual arrangements.
Absent a defence, it is simply a matter of the Court being satisfied that, at the date the order was sought, there was money secured by a mortgage. In Russo v Buck & Ors Doyle CJ said: [1]
The order for possession necessarily involves a judicial determination that the Bucks were, at the date of the order, entitled to possession of the Aldinga property pursuant to the mortgage. That determination must have been based on a conclusion that the mortgage was duly registered and was valid and effective as between Mr Russo and the Bucks; a conclusion that at the date of the order there was money secured by the mortgage; and a conclusion that there had been an event of default as defined by the mortgage (a failure to pay money due) giving rise (upon the giving of the necessary notices) to a right of possession: see Morlend Finance Corp (Vic) Pty Ltd v Levine [1990] VR 205 and Angel v National Australia Bank Ltd [2001] FCA 1053; (2001) ATPR 41-832.
[1] [2006] SASC 380 at [174].
The practice in the Court has long been to refer a matter into the civil list where a defence is raised that cannot be dealt with on a summary basis. The position was set out by Zelling J in Corporation of the Town of Moonta v Rodgers and Rodgers where his Honour said:[2]
I think it suffices to say that the inveterate practice in this jurisdiction has been that this Court, faced with an application in the summary jurisdiction under s. 195 of the Real Property Act, will not make orders where disputed questions of fact and law can only be resolved by remedies available in the ordinary jurisdiction of the Court. Sections 196 and 199 recognize and give force to this view. In my opinion the issues in this matter can only be satisfactorily resolved by proceedings in the ordinary jurisdiction of the Court in which the issues are explored after the delivery of proper pleadings on each side.
[2] [1980] 26 SASR 143 at 154.
More recently, the position was put by Peek J in Westpac Banking Corporation v Chadha:[3]
In summary, provided that the applicant for an order for possession has met the requirements specified in Part XVII, Real Property Act 1886, the applicant is prima facie entitled to that order. However, if the Court is satisfied that the defendant has raised an arguable case supported by some evidence which, if accepted, could give rise to a particular defence, the matter may be referred to the ordinary civil trial list for determination.
[3] [2012] SASC 223 at [35].
There is a further consideration that arises in this matter. In light of the arguments put on behalf of the respondents, it is necessary to consider other authority. A mortgage, of course, is a property right and what the applicant is seeking is an exercise of that right. Under the Torrens system, a registered mortgage is an interest in property in the nature of a statutory charge.
In Inglis v Commonwealth Trading Bank of Australia[4] the High Court was dealing with an application to enjoin a mortgagee from exercising its power of sale. There was no dispute that monies had been lent, which were secured by a mortgage and the debt had not been paid. The applicants for the injunction sought to restrain the exercise of the mortgagee’s powers pending a dispute about the amount owed. Walsh J, at first instance, said:[5]
A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court. (at p164)
The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury's Laws of England, 3rd ed., vol. 27, p. 301:
"The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage, the claim is excessive."
Then there is a reference to a special case where the mortgagee was the mortgagor's solicitor. The plaintiffs contend, however, that such a rule can have no application in this case, in which the action brought by them is brought to establish a claim that upon balance there is no debt due by them to the defendant, but on the contrary, there is a balance due to them. They contend that that action is not one in which they seek to maintain rights in the capacity of mortgagors. (at p164)
In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due. (at p165)
[4] (1972) 126 CLR 161.
[5] Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at [13]-[15].
The matter was subsequently appealed to three justices of the High Court, but the appeal was dismissed.
The same issue has been considered in this Court. In Armour Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd[6] Bray CJ was considering a number of interlocutory applications. They included an application for an injunction, and also for a stay. The issues arose after a hearing in the Full Court. At trial and before the Full Court Armour Coatings had argued that a particular mortgage was, for various reasons, invalid. The injunction and/or stay was sought after the Full Court dismissed the argument that there was an invalid mortgage. Permission to appeal to the Privy Council was granted, but the stay and injunction applications were dismissed. His Honour said:[7]
The normal practice of the Court is apparently to require the mortgagor to pay into court or tender to the mortgagee the amount claimed by him before the sale will be restrained, assuming that there is no other ground for impeaching it than the wish of the mortgagor to redeem. See Beddoes on The Law of Mortgage 2nd ed. (1908) pp. 196-197, where it is said that “if there is a bona fide dispute as to the amount due, the word of the mortgagee must, for the purpose of the injunction, be taken as conclusive.” However, I can conceive of cases where the Court might interfere if the accounts were genuinely in dispute and the mortgagor were willing to pay into the Court the amount which according to him was due. But here there is no payment into court and no offer of payment into court of a single cent.
The mere fact that the amount due is disputed is no ground for restraining a mortgagee’s sale: Halsbury, Laws of England 3rd ed. Vol. 27, p. 301, par. 566; Gill v Newton,[8] where Turner L.J. said: “I wish it to be clearly understood that I do not at all proceed upon the ground that the amount due upon the mortgage is in dispute. If that were so, a mortgagor would have but to raise a dispute about the sum due, in order to deprive his mortgagee of his remedies under the mortgage deed.”
[6] (1978) 17 SASR 259.
[7] Armour Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 289.
[8] (1866) 14 W.R. 490, at p. 491.
The respondents’ contentions
The applicant says that, as at 1 December 2020, the sum of $296,524.32 was owing to it and secured by the mortgage.
There are a number of things that are not in dispute. They include that:
1.Monies were borrowed by the company.
2.The respondents gave a guarantee in respect of the company borrowings.
3.The monies borrowed by the company were secured by the subject mortgage.
4.The loan was intended to attract interest.
5.The term of the loan has expired and principal and interest have not been repaid.
6.The statutory notices in respect of the mortgage have been served.
Only one affidavit has been filed on behalf of the respondents. It is a solicitor’s affidavit. The respondents have not themselves filed any affidavit evidence. There is no offer of payment of any amount made by the respondents. The principal issue advanced is that there is a dispute about the amount owing under the mortgage. As can be seen from the authorities referred to above, that is not of itself sufficient to deny the applicant the right to exercise its powers as a mortgagee.
A number of other issues are advanced. The first is that the demand made under the guarantee is insufficient. No cause of action arises on a guarantee payable on demand until a demand is given. There was a demand made by letter on or about 16 July 2020. Having regard to the totality of the letter, I am satisfied it was a valid demand under the guarantee.[9]
[9] Morris v Hallett Brick Industries (1996) 67 SASR 328.
There was also an argument put that the National Credit Code has application. The Code provides the Court with power to grant relief in a variety of circumstances. The Code is a schedule to the National Consumer Credit Protection Act 2009 (Cth). The Code applies where the provision of credit is to a natural person and for personal domestic or household purposes. Here the borrower was a company and the borrowing was for business purposes. The Code has no application.
The other argument advanced was that certain provisions of the Australian Securities and Investments Commission Act 2001 (“ASIC Act”) have application and might found a basis for relief.
The respondents make reference to the following provision:
12BFUnfair terms of consumer contracts and small business contracts
(1)A term of a consumer contract or small business contract is void if:
(a)the term is unfair; and
(b)the contract is a standard form contract; and
(c)the contract is:
(i)a financial product; or
(ii)a contract for the supply, or possible supply, of services that are financial services.
The respondents assert that a number of the terms of the contract might be unfair and might give an entitlement to relief. That includes issues in relation to interest rates and charges. The main complaint of the respondents is in relation to the interest rate. It is very high. Nonetheless, that was the interest rate agreed at the time the transaction was entered into. Each of the respondents had separate legal advice in relation to the mortgage and the guarantee. There are separate solicitor’s certificates in relation to each of them stating that the nature and effect of the transactions were explained to them.
The ASIC Act goes on to exclude certain terms from the unfair term provision. In particular:
12BITerms that define main subject matter of consumer contracts or small business contracts etc. are unaffected
(1)Section 12BF does not apply to a term of a contract referred to in subsection (1) of that section to the extent that, but only to the extent that, the term:
(a)defines the main subject matter of the contract; or
(b)sets the upfront price payable under the contract; or
(c)is a term required, or expressly permitted, by a law of the Commonwealth or a State or Territory; or
(d)if the contract is an Insurance Contracts Act insurance contract—is a transparent term that:
(i)is disclosed at or before the time the contract is entered into; and
(ii)sets an amount of excess or deductible under the contract.
It can be seen that the terms that define the main subject matter of a contract are unaffected by the provisions of s 12BF. The main subject matters of the contract here were the amount of the loan and the interest rate which was the price payable. The interest rate is not a matter that is capable of falling within the unfair term regime of the ASIC Act.
I am not satisfied that the respondents have made out an arguable defence, such as to require the Court to direct the matter to go to pleadings and ultimately to a civil trial. The complaints articulated in various forms go to a dispute about the amount owing. That is not sufficient.
An arguable defence requiring a matter to go to pleadings and a trial in the usual way must be a defence that impugns the entitlement of the mortgagee to enforce the mortgage. The respondents’ complaints about the amount owing are not such a defence. Even if they are right to some extent in respect to disputes about the amount owing, at the end of the trial the mortgage would remain enforceable. The respondents do not say that they are in a position to make any payment to the applicant. It appears that delay is sought.
The applicant is entitled to the order for possession. I will hear the parties as to the form of the order and other matters.
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