GE Mortgage Solutions Ltd v Whild
[2013] VSC 503
•18 September 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2004 07145
| GE MORTGAGE SOLUTIONS LIMITED (ACN 070 797 894) | Plaintiff |
| v | |
| SUSAN IRENE WHILD | Defendant |
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JUDGE: | Derham AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 April 2013 | |
DATE OF JUDGMENT: | 18 September 2013 | |
CASE MAY BE CITED AS: | GE Mortgage Solutions Ltd v Whild | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 503 | |
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MORTGAGES — Mortgagee’s right to recover possession — Previous determination of validity of Notice of Default — Whether provision for late charge fee a penalty — Whether penalty affects validity of default notice served — Whether issue estoppel arising from VCAT proceedings preventing reliance on penalty point — Default notice valid and plaintiff entitled to possession.
PRACTICE & PROCEDURE — Summary Judgment — test for s 63 Civil Procedure Act 2010.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hay | Gadens Lawyers |
| For the Defendant | Mr D C Turner | George Liberogiannis & Associates |
HIS HONOUR:
Introduction
By summons filed 18 February 2013, the plaintiff (“GEMSL”) seeks summary judgment against the defendant (“Ms Whild”) pursuant to ss 61 and 63 of the Civil Procedure Act2010 (Vic) and/or pursuant to r 22.02 of the Supreme Court (General Civil Procedure) Rules2005. The application is for judgment for possession of the land situate at and known as 12 Strong Street, Spotswood, Victoria, being the whole of the land comprised in Certificate of Title volume 02073 folio 414. There is no claim for any debt or other sum due.
The application is supported primarily by the affidavit of Andrew Paterson sworn 13 February 2013, to which Ms Whild responded by affidavit sworn 28 March 2013. On the day of the hearing of the application, the plaintiff sought to file a supplementary affidavit in support of Annette Leigh Gaber sworn 3 April 2013. The latter affidavit merely exhibited points of claim and defence in a proceeding in the Victorian Civil and Administrative Tribunal (“VCAT”) to provide a foundation for an issue estoppel, as I shall relate.
In addition to these affidavits, there are affidavits in support of, and in opposition to, an earlier application for summary judgment filed on 11 May 2006.[1] That application was dismissed by consent on 5 February 2007.
[1]The affidavits are by Malcolm Renneboogh sworn 26 April 2006, Kathy Tilling sworn 21 April 2006 and Ms Whild sworn 1 November 2006.
Background facts
Procedural background
The proceeding has a long and tortuous history. It commenced in 2004, and relates to loans made by the plaintiff to the defendant secured on properties owned by her. The proceeding was stayed for a considerable period whilst proceedings in VCAT and on appeal were dealt with.[2]
[2]Order of Master Evans made 11 December 2008.
The VCAT proceedings were commenced on 23 May 2008,[3] heard before Senior Member C McKenzie between March and September 2010 and resulted in orders made on 31 March 2011. Ms Whild’s application in VCAT was dismissed.
[3]See affidavit of Susan Irene Whild sworn 30 May 2008 at [20] and VCAT proceeding M171/2008.
By Originating Motion filed on 28 April 2011, Ms Whild sought leave to appeal the VCAT orders to this Court. On 3 August 2011, Associate Justice Randall granted leave. This resulted in a hearing before Croft J on 5 March 2012, a judgment on 18 May 2012 and orders on 2 August 2012 affirming the order of VCAT and dismissing Ms Whild’s appeal.
The Claims[4]
[4]This account of the facts is drawn from the affidavit of Andrew Paterson sworn 13 February 2013 and the exhibits thereto, including the reasons of Croft J in Whild v GE Mortgage Solutions Ltd [2012] VSC 212. Croft J, in turn, drew upon the findings in the VCAT proceeding, which was between the same parties and concerned the same loans as are the subject of this claim.
Ms Whild and GEMSL entered into two loan agreements in January 2004 (“the Loan Agreements”). The first of these loans, called “Loan A”, was for the sum of $304,000 and the second loan, called “Loan B” was for the sum of $204,000. Both Loan A and Loan B were secured by a registered mortgage over two freehold properties, being 12 Strong Street, Spotswood (“Spotswood Property”) and 71 Huntingfield Drive, Hoppers Crossing (“Hoppers Crossing Property”). The mortgage was registered by the Land Titles Office in dealing number AC651596Q and incorporated Memorandum of Common Provisions No. AA706 (“Mortgage”).
The terms of the Loan Agreements were set out in what is called the Home Loan Contract Terms and Conditions (“Loan Terms”).[5] Under these terms, including the schedules (which set out details of the loan amounts, repayments, interest rates and the like), Ms Whild was obliged to make repayments as follows:
(a)in relation to Loan A — $2,299.00 per month commencing on 27 February 2004, then payable on the 27th day of each month thereafter; and
(b)in relation to Loan B — $1,543.00 per month commencing on 27 February 2004, then payable on the 27th day of each month thereafter.
[5]Exhibit AP-3 to the affidavit of Andrew Paterson sworn 13 February 2013.
In January 2004, for the purpose of making the loan repayments under, and in accordance with the provisions of, the Loan Agreements,[6] Ms Whild established a direct debit authority on her National Australia Bank Ltd (“NAB”) account. On 27 February 2004, GEMSL attempted to use this direct debit authority, unsuccessfully, because the NAB account did not have funds to meet the repayments.
[6]Clauses 4.9 and 4.10 of the Loan Terms required a direct debit authority.
On becoming aware that the direct debit authority had been dishonoured, Ms Whild arranged a new direct debit authority on a Westpac account from which repayments were to be made. Due to an oversight, GEMSL did not use the new direct debit authority for the March and April 2004 repayments, because it did not upload the new account details onto its computer system to enable those repayments to be made. This meant that, as at 1 April 2004, two repayments on Loan A and Loan B had not been made.
As a result of these events, both Loan A and Loan B were in arrears and, on this basis, GEMSL sent default notices (“the default notices”), for both Loans A and B separately, dated 1 April 2004, to Ms Whild requiring her:
(a)to pay $4,598[7] within 31 days of the giving of the Loan A default notice in relation to Loan A; and
(b)to pay $3,086[8] within 31 days of the giving of the Loan B default notice in relation to Loan B.
Neither default notice claimed any “late charge fee” under clause 10.6 of the loan terms.[9]
[7]Being two repayments of $2,299 as required by the terms of Loan A.
[8]Being two repayments of $1,543 as required by the terms of Loan B.
[9]Exhibit AP-14 to the affidavit of Andrew Paterson sworn 13 February 2013.
Ms Whild did not pay the amounts required by the default notices and, as a consequence, the respondent took possession of the Hoppers Crossing property on 4 May 2005 and sold it to a third party on 29 September 2005.
VCAT proceedings
Ms Whild’s application to VCAT was for various kinds of relief against GEMSL under the Consumer Credit (Victoria) Code (the “Code”) and the Fair Trading Act1999 (the “FT Act”), summarised by Senior Member McKenzie as follows:[10]
[10]Whild v GE Mortgage Solutions Ltd [2011] VCAT 797 at [2]–[9].
(a)First, the annual percentage rate of interest under the loan contract was overstated. It should have been 0.2 per cent lower. This overstatement also meant that the default rate of interest was overstated, and the monthly loan payments were calculated incorrectly;
(b)Second, default notices issued by GEMSL to Ms Whild in respect of the two loans were defective either because at the time of the issue no default under the loans existed or, if there was default, because that default was due to GEMSL’s actions and not Ms Whild’s. This claim revolved around the date on which the replacement direct debit authority was given by Ms Whild to GEMSL, the date on which GEMSL received that authority, and the effect of that authority;
(c)Third, Ms Whild claimed that GEMSL had, without notice to her, unilaterally increased annual percentage rates of interest over the loan contracts. She also claimed that the default rate of interest under the loan contracts were harsh, a penalty, or constitutes interest on interest and should not be enforced against her;
(d)Fourth, Ms Whild claimed that GEMSL wrongfully took possession of the Hoppers Crossing Property and wrongfully sold it;
(e)Fifth, Ms Whild claimed that, after GEMSL had taken possession of the Hoppers Crossing Property, its agent negligently drained the swimming pool on that Property causing the pool to collapse. She sought damages for this, and for what she says is the devaluation of the Property because of the condition of the pool;
(f)Sixth, Ms Whild claimed that GEMSL wrongfully failed to safeguard her personal possessions on the Hoppers Crossing Property during the period while GEMSL was in possession of it. She sought compensation or damages for personal possessions which she says were lost or stolen during GEMSL’s period of possession;
(g)Seventh, Ms Whild claimed that an entry made by GEMSL on her records kept with the credit reporting agency VEDA Advantage (“VEDA”) was incorrect and misleading. She says that the entry incorrectly alleged that she was in default under the two loans. She says that the existence of the entry made it impossible for her to get finance from other sources (finance that would have enabled her to settle her case against GEMSL), because other lenders would not lend to her in the light of that entry on her credit record;
(h)Eighth, Ms Whild claimed that GEMSL’s attempt, in 2005, to take possession of the Spotswood property constituted coercion or harassment of her.
Senior Member McKenzie noted that when the Amended Particulars of Claim in VCAT were drawn, Ms Whild was represented by a lawyer. That lawyer ceased to act for her before the substantive hearing of the case, so that at that hearing, she was unrepresented. The evidence at the hearing raised another issue, which GEMSL treated as part of Ms Whild’s claim. That issue was that GEMSL incorrectly calculated the beginning of each repayment period under the loan contracts. On their proper construction, those contracts did not authorise what GEMSL did.
The remedies which Ms Whild sought in the VCAT proceeding were:[11]
(a)compensation, or a civil penalty be imposed, under the Code for breach of certain key requirements of the Code;
(b)the transactions giving rise to the loan contracts and mortgage be reopened and that those contracts and that mortgage be set aside as unjust under ss 70 and 71 of the Code;
(c)relief against payment of what she alleged were unjust or harsh interest rates under the loan contracts;
(d)under the FT Act, damages for what she alleges were the wrongful taking of possession of the Hoppers Crossing Property, its wrongful sale, and the loss of many of her personal possessions;
(e)breach of various provisions of the FT Act, including those concerning unconscionable, misleading or deceptive conduct and those provisions permitting the Tribunal to declare void or vary unjust terms of contracts.
[11]Whild v GE Mortgage Solutions Ltd [2011] VCAT 797 at [10].
Ms Whild’s application was dismissed. For present purposes, the relevant findings were:
(a)the reference in the contract schedules for each loan to a margin of 1.6 per cent was an error. The total interest rate of 8.8 per cent specified in each contract schedule reflected correctly the agreement between the parties;[12]
(b)the purpose of Loan A was the purchase of the Hoppers Crossing Property for investment and the Code did not apply to this loan;[13]
(c)the purpose of Loan B was to refinance the debt on the Spotswood property, which was Ms Whild’s home. The loan was for personal, domestic and household purposes and the Code applied to that loan;[14]
(d)GEMSL could rely on the missed monthly payments due on 27 February 2004 for each of Loan A and Loan B as an event of default (because in relation to that missed monthly payment the first direct debit authority was still in force and there was insufficient funds in the NAB account to meet the payments), but the plaintiff could not rely on the missed monthly payments due on 27 March 2004 (in respect of each loan) because, by that time, Ms Whild had submitted the second direct debit authority on an account which had sufficient funds to meet those payments;[15]
(e)the default notice in respect of Loan A (the unregulated agreement) was invalid as it contained an incorrect statement that a default existed when it did not. It was not an overstatement of the amount in default. It was an incorrect statement that a default existed when it did not;[16]
(f)the default notice in respect of Loan B (the regulated loan) was invalid as it failed to specify the default correctly. That is to say, it contained the same defect as the default notice in respect of Loan A. In addition, the default notice overstated the accelerated balance;[17]
(g)despite the defects in the default notices identified above, GEMSL was entitled to take possession of the Hoppers Crossing Property in reliance on clause 10.4 of the Loan Terms and clause 2.1 of the Mortgage, on the basis that it had made reasonable efforts to locate Ms Whild without success at the time of repossessing the land;[18]
(h)that on the evidence, she was not satisfied that GEMSL’s interest rates were unconscionable. No evidence was led to support the claim that the late charge was a penalty, or interest on interest, and should not be enforced. In these circumstances, that claim was dismissed;[19] and
(i)to the extent that the Amended Particulars of Claim asserted that because of the unjust nature of the terms of the loan contracts in relation to interest, late charges, the settlement date and repayment periods that those terms should be declared void or varied or the transaction reopened and the contract set aside, those claims were dismissed.[20]
[12]Whild v GE Mortgage Solutions Ltd [2011] VCAT 797 at [91].
[13]Ibid at [133].
[14]Ibid at [134].
[15]Ibid at [169] and [178].
[16]Ibid at [169]–[170].
[17]Ibid at [178]–[179].
[18]Ibid at [212].
[19]Ibid at [233].
[20]Ibid at [235].
The Appeal
In the appeal before Croft J, the appellant appealed on the following question of law:[21]
In circumstances where the Senior Member found that Default Notices served pursuant to section 76(1) of the Transfer of Land Act 1958 (“section 76”) were invalid was it open to the Senior Member to then determine that the Respondent in order to obtain a power of sale over the properties could rely upon the contractual conditions of the mortgages and loan contracts and
(i)subsequent notices that were not tendered in evidence; and/or
(ii)subsequent notices that did comply with section 76?
[21][2012] VSC 212 at [6].
By a Notice of Contention, GEMSL contended that VCAT erred by finding that:[22]
(a)the Default Notice [dated 1 April 2004 in respect of the loan of $304,000] contained an overstatement of the amount in arrears in that it contained an amount referrable to the ‘missed’ 27 March 2004 payment;
(b)the Default Notice was invalid because it contained the overstatement which, properly construed, amounted to an incorrect statement that a default existed when it did not;
(c)(if the Tribunal correctly held that the Default Notice contained an overstatement of the arrears) the line of cases concerning such overstatements (to the effect that mere overstatement will not invalidate an otherwise valid notice) did not apply to the Default Notice.”
[22][2012] VSC 212 at [7].
The respondent also sought, and was granted, leave to amend its Notice of Contention to more accurately articulate its contentions as set out in its Notice of Contention and also to add a further ground of contention that:[23]
(a)the Notice, even if invalid as a ‘Default Notice’ for the purposes of the Transfer of Land Act1958 (Vic) and/or the mortgage, constituted a valid notice stating that the appellant was ‘in default’ for the purposes of the mortgage;
(b)because the Notice was valid for the purpose of stating that the appellant was ‘in default’, the powers contained in clauses 8.20 and 8.21 of the mortgage were enlivened at the time of the sale of the Hoppers Crossing Property; and
(c)because the powers contained in clauses 8.20 and 8.21 of the mortgage were enlivened at the time of the sale of the Hoppers Crossing Property, the appellant’s claim for damages for wrongful sale of the Hoppers Crossing Property must be dismissed.
[23][2012] VSC 212 at [8].
In substance, GEMSL submitted that the default notice with respect to Loan A, the only default notice with which the appeal was concerned, was valid on two bases. The first was that, regardless of the failure to make payments, the default notice accurately reflected the amount in arrears in relation to Loan A as at 1 April 2004 and was, consequently, valid. The second basis relied upon was that if it were found that the default notice did contain an overstatement of the amount due, it was only an overstatement and not a notice with respect to a breach which had not occurred.[24]
[24][2012] VSC 212 at [20].
Croft J concluded that Ms Whild was not in breach of her obligations under the Loan Agreements or the mortgage with respect to and securing Loan A in relation to the payment due but not paid on 27 March 2004. The only default extant at the date of the default notice of 1 April 2004 was the failure to make the payment due on 27 February 2004. Thus, the sum stated in the notice of default was not accurate and he rejected GEMSL’s contention that it was valid because it was accurate.[25]
[25]Ibid [21]–[27].
In relation to the claim that the overstatement did not invalidate the notice of default, Croft J, after reviewing at some length the relevant authorities, concluded that the notice of default with respect to Loan A, although overstating the amount owing, nevertheless correctly identified the event of default upon which it relied and did not rely upon any non‑default in the relevant sense and was, accordingly, valid and that in the result VCAT was in error in finding that the notice was invalid.[26]
[26]Ibid [28]–[48].
It was therefore, strictly speaking, unnecessary for his Honour to consider whether the Senior Member at VCAT was correct in deciding that notwithstanding the invalidity of the notice of default in respect of Loan A, GEMSL could rely upon the contractual conditions of the mortgages and loan contracts. However, he did consider the matter, but concluded that if the default notice was assumed to be ineffective so that the trigger relied upon to enliven the contractual power could only be what was called in the proceeding the “posting notices”,[27] then the exercise of the power fails. The posting notices were not valid default notices for the purposes of the statutory power and for the same reasons failed to trigger the contractual power of sale.
[27]These were notices issued by GEMSL on about 13 April 2004 notifying Ms Whild that a late charge fee had been incurred for non‑payment of the previous month’s payment. The text of one of these posting notices is set out in Croft J’s judgment at [51].
In the result, Croft J affirmed the decision of the tribunal and dismissed the appeal.[28]
[28]See exhibit AP‑17 to the affidavit of Andrew Paterson sworn 15 February 2013.
The pleadings
Most, of the allegations in the Second Further Amended Statement of Claim filed on 21 August 2012 are admitted by Ms Whild. There are some allegations that are not admitted but, in relation to these, the affidavits filed in support of the application, and the exhibits, including the findings of Senior Member McKenzie in the VCAT proceeding, make it impossible to conclude otherwise than that these matters have been established. In any event, the only issues relied on by counsel for Ms Whild in answer to the summons for summary judgment were those set out below as the issues. No other matter of defence or answer was raised.
The matters pleaded in defence of the claim are that:
(a)the acceleration provisions in each loan contract were unenforceable as being in breach of s 76 of the Transfer of Land Act 1958. This matter was not adverted to in argument and is not soundly based as far as I can tell. The default notices did not depend on the acceleration clause for the relevant default;
(b)that clause 10.6 of the Loan Terms, by purporting to entitle GEMSL to interest on the balance owing under the loan account where an instalment amount is overdue, is a collateral detriment and in terrorem and consequently is unenforceable as a penalty. This was the major defence advanced in argument;
(c)that Ms Whild provided GEMSL with a new direct debit authority on or about 27 February 2004 and not on 1 March 2004 as GEMSL pleaded (see paragraph 8D of the Second Further Amended Statement Of Claim) and that if there was any default under either loan agreement then it arose as a direct consequence of GEMSL’s failure to implement that new direct debit authority. I note that this ground was agitated before the Senior Member at VCAT and rejected on the evidence.[29] This was not raised as a matter of defence before me.
[29]See reasons [2011] VCAT 797 at [150].
The issues
At the hearing of the application for summary judgment, Counsel for Ms Whild, Mr David Turner, identified three issues in answer to the application for summary judgment. They are:
(a)whether clause 10.6 of the Loan Terms constitutes a penalty and, as a consequence, is unenforceable;
(b)whether the defendant is barred from raising the penalty argument because of an issue estoppel arising out of the VCAT proceedings; and
(c)whether Mr Paterson, who swore the principal affidavit in support of the application, is duly authorised by the plaintiff to make the statements he does.
The first two were identified in a written submission handed up on the day and also addressed in oral argument. The third was advanced, almost as an afterthought, in the course of oral submissions.
The loan terms and conditions
The Loan Terms[30] provide, so far as relevant:
[30]Exhibit AP-3 to the affidavit of Andrew Paterson sworn 13 February 2013, p 17.
(a)By clause 10.3:
If you are in default, we may give you a notice stating that you are in default.
If you don’t correct the default within any period given in the notice or any longer period required by law, then, at the end of that period and without further notice to you, the total amount owing becomes immediately due for payment (to the extent it is not already due for payment).
We may then sue you for that amount, or enforce any security, or do both.
(b)By clause 10.4:
we need not give you a default notice or wait until the end of any period given in such notice if:
(a) [not relevant]
(b) we have made reasonable attempts to locate you without success;
(c) [not relevant].
Instead, if you are in default, the total amount owing becomes immediately due for payment without notice. We may immediately sue you for that amount or enforce any security or both.
(c)By clause 10.6:
If all or part of the balance owing on your loan account is a payment which is overdue then a late charge fee is calculated on a monthly basis by multiplying one twelfth of the default rate margin described in the schedule, by the balance owing on your loan account at the end of:
(a)the 14th day after the payment became overdue; and
(b)the same day in each following month.
The late charge fee will be calculated as described unless the payment is no longer overdue on the day on which it would otherwise be calculated.
(“the late charge fee”)
The italicised words and phrases are those defined in clause 14. The following are the relevant terms:
(a)balance owing on your loan account means, at any time, the difference between all amounts credited and all amounts debited to your loan account under this contract at that time. When this amount is to be calculated at the end of a day, it includes all debits and credits assigned to that day;
(b)total amount owing means the balance owing on your loan account, plus all accrued interest, charges, default interest charges and other amounts which you must pay under this contract but which have not been debited to your loan account;
(c)you means the person or persons named in the schedule as “customer” and your has a corresponding meaning;
(d)we means GE Mortgage Solutions Limited and its successors and assigns and our and us have a corresponding meaning;
(e)loan account means an account we establish in your name for recording all transactions in connection with this contract.
The Contentions
Penalty
Ms Whild’s contentions
Mr Turner, Counsel for Ms Whild, contended that clause 10.6 of the Loan Terms imposes a late charge fee calculated on the balance owing on the loan account at the end of the 14th day after the payment became overdue and the same day in each following month. The late fee is calculated by charging 4 per cent per annum interest on the debit balance, that is the total of the outstanding loan principal, and dividing it by 12.
It was submitted that the late payment charge is a penalty because it is payable on breach of clause 10.6. That is to say, the primary stipulation is to pay the monthly instalments of $2,299. If this instalment is not paid on time, Ms Whild is obliged to pay interest on the whole of the outstanding balance, which includes the overdue instalment. It was submitted that this payment is in the nature of a penalty and is in terrorem of satisfaction of the primary stipulation, which is to pay the monthly instalment.
The late charges in May 2004 and June 2004 are calculated on the outstanding debit balance of $311,955.36 and $312,055.52, respectively. It was submitted that using the total debit balance as a basis to calculate the late charges is excessive. Those late charges are excessive, and constitute a penalty, because the only amount outstanding and overdue was the instalment amount in each month, plus the dishonour and/or collection fee. Under the terms of the contract there was not any acceleration of the total amount due at the time of the default in payment of the repayment amounts or default notices.
Mr Turner submitted that a stipulation in the contract that provides for the payment of an additional or different liability sum for non-observance of a provision is prima facie a penalty: Andrews v Australia and New Zealand Banking Group Limited (Andrews).[31] In that case, the High Court said:
In general terms, a stipulation prima facie imposes a penalty on a party ("the first party") if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party[32]. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation[33]. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation.
[31][2012] HCA 30 at [9].
[32]Waterside Workers' Federation of Australia v Stewart (1919) 27 CLR 119 at 128‑129, 131; [1919] HCA 63; Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514, 520; [1985] HCA 63.
[33]Rolfe v Peterson (1772) 2 Bro PC 436 at 442 [1 ER 1048 at 1052]; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86; cf, as to irrevocable letters of credit and “performance bonds”, the proceeds of which are in substitution for performance by a contractor, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812; Mason, "'I'll have my bond; speak not against my bond': Constructive trusts and surplus proceeds from performance bonds", (2012) 6 Journal of Equity 74 at 81‑83.
It is clear that a penalty is in the nature of a punishment for non‑observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability: Legione v Hateley.[34]
[34](1983) 152 CLR 406 at 445; [1983] HCA 11; Op cit Andrews at [9].
In Fisher & Lightwood’s Law of Mortgages, 2nd Australian edition 2005, at paragraph 3.18 it is stated:
It is a well settled, if not an intelligible, rule that if the mortgagee wishes to stipulate for a higher rate of interesting default of punctual payment he must reserve the higher rate as the interest payable under the mortgage and provide for its reduction in case of punctual payment. ... An agreement to pay a higher rate for non-payment at the appointed time is considered to be a penalty against which equity may give relief. [citations omitted].
In this case, the effect of the stipulation in question is to raise the interest rate payable in respect of each instalment by 4 per cent, as the clause applies the 4 per cent loading to the whole amount outstanding, which includes the principal loan amount and any charges and outstanding instalments. That sum is payable only where all or part of the balance owing on your account is overdue. That encompasses the failure to pay a monthly repayment. It therefore seems to me to satisfy the test of a penalty.
GEMSL’s contentions
Mr S Hay, who appeared for GEMSL (and who appeared for GEMSL in the VCAT proceeding and in the appeal) submitted that whether or not the payment under clause 10.6 was a penalty did not affect the right of GEMSL to possession of the Spotswood Property. That right turned on the efficacy of the default notice, which had been upheld, finally, in the appeal determined by Croft J.
Moreover, he submitted that it was clear that under clause 10.4, read with clause 2.1 of the Mortgage (the Memorandum of Common Provisions) had the effect found by the Senior Member at VCAT, that[35] —
Under clause 2.1 of the mortgage, if the mortgagor does not comply with the mortgagor’s obligations under the mortgage (which include obligations under any agreement covered by the agreement) the mortgagee may take possession of the mortgaged land or sell it. There is no mention of a prior default notice.
It may first be thought that clause 2.1 is inconsistent with clauses 6.3 and 6.4.[36] But, in my view, clause 2.1 deals with a case where a default notice is not required (such as under clause 10.4 of the terms and conditions, where the mortgagee has made reasonable but unsuccessful efforts to locate the mortgagor), while clauses 6.3 and 6.4 deal with the case where a default notice is required. The mortgage must be read with the agreements covered by it.
In my view, s77 of the TLA is not inconsistent with this approach. When this action speaks of remedying a default within the time “fixed” in the mortgage, it permits the mortgage itself to fix the time within which a default must be remedied. Under clause 2.1 of this mortgage (read with clause 10.4 of the terms and conditions), there is no time to be given to remedy a default where reasonable but unsuccessful efforts have been made to locate the mortgagor. If it were otherwise, a mortgagor could prevent the exercise of a power of sale by simply disappearing.
[35][2011] VCAT 797 at [182]–[184].
[36]Clause 6.3 of the Mortgage provides that if the mortgagor is in default and the mortgagee decides to enforce the mortgage, the mortgagee must give the mortgagor a notice of default. Under clause 6.4, if the default is not remedied within the time stated within the notice then (among other things) the mortgagor may take possession and/or sell the mortgage land.
The Senior Member summarised the evidence of the efforts to find Ms Whild in her reasons for decision.[37] She found:[38]
[T]hat GEMSL made reasonable but unsuccessful efforts to contact Ms Whild. In these circumstances, GEMSL was entitled to take possession of the property,[39] relying on clause 10.4 of the terms and conditions of the loan contracts, clause 2.1 of the mortgage and (in the case of loan B) s80(4)(b) of the Code. I am satisfied that these provisions also support the exercise of the power of sale in respect of the property. As far as the TLA is concerned, I am satisfied that the preconditions to the exercise of the power of sale had been complied with. Instructions for sale had been given at a time when Ms Whild could still not be located. The fact that she was located afterwards does not bar the exercise of the power of sale.
[37][2011] VCAT 797 at [192]–[212] (and other evidence as well).
[38][2011] VCAT 797 at [212].
[39]This is a reference to the Hoppers Crossing Property.
The result, it was submitted, is that no default notice is necessary in this case for the right to possession to arise.
Issue estoppel
Ms Whild’s contentions
It seems that in making submissions as to whether issue estoppel precludes Ms Whild raising the penalty argument, Mr Turner anticipated that this would be put in answer by GEMSL. He submitted that the penalty issue raised in answer to the summary judgment application was not decided in the VCAT proceeding, nor was it decided by Croft J in Whild v GE Mortgage Solutions Ltd.[40]
[40][2012] VSC 212.
It can be seen from the summary of the VCAT proceedings above that the issue of penalty was raised by Ms Whild in her amended points of claim in the VCAT proceeding.[41] It was one of many points raised in support of the main issues dealt with in the VCAT decision. Clause 10.6 of the Loan Terms was also put as a basis for the imposition of a civil penalty or compensation under provisions of the Code.[42] The Senior Member dismissed the claims for a civil penalty or compensation on the interpretation of the Loan Terms and the evidence. It is also clear that the Senior Member dismissed the claim of a penalty because no evidence was led to support it.
[41]See Exhibit ALG1 to the affidavit of Annette Leigh Gaber sworn 3 April 2013, at para [32].
[42]See Amended Points of Claim, paragraphs [23]–[28], Exhibit ALG-1 to the affidavit of AL Gaber sworn 3 April 2013.
In her affidavit of 28 March 2013, Ms Whild deposes that in the VCAT proceedings, she tried to raise as a part of her claim the point that the late charge fees were a penalty and as such void. She says that she had help in preparing the points of defence, but did not understand them. She went on:
(a)at the time of the VCAT proceeding, she was unrepresented because she could not afford to pay a barrister. She did not understand the penalty point argument and therefore was not able to present evidence about it;
(b)she now understands the effect of the late charges is that if she missed a payment she would be charged interest on the whole of the loan balance at the default interest margin, which included the overdue instalment.
There is no reason why a decision by a Member of VCAT, at least in its original jurisdiction, should not be capable of giving rise to issue estoppel: Morris v Riverwild Management Pty Ltd.[43]
[43][2011] VSCA 283 per Weinberg JA at [84]; see also Commonwealth Bank of Australia v Davies [2011] VSC 666.
Gibbs J, in Administration of Papua New Guinea v Daera Guba,[44] stated the principle in these terms in relation to the status of a tribunal as a judicial body:[45]
The doctrine of estoppel extends to decisions of any tribunal which has jurisdiction to decide finally a question arising between parties, even if it is not called a court, and its jurisdiction is derived by statute or from the submission of the parties, and it has only temporary authority to decide a matter ad hoc.
[44](1973) 130 CLR 353.
[45]At p.353; Op Cit per Gillard J in Kabourakis v Medical Practitioners Board [2005] VSC 49s at [85].
Where the plea is of res judicata, only the actual record is relevant. Where the plea is of issue estoppel, any material may be looked at which will show what issues were raised and decided. Reasons given for the judgment pronounced are likely to be particularly important for this purpose: Jackson v Goldsmith.[46]
[46](1950) 81 CLR 446, at 467 per Fullagar J.
The essence of issue estoppel is that a judicial determination directly involving an issue of fact or law disposes once and for all of the issues, so that it cannot be raised again between the same parties or their privies: Rogers v R;[47] Murphy v Abi-Saab;[48] Robert Bosch (Australia) Pty Ltd v Secretary, Department of Innovation, Industry, Science and Research;[49] SOS Nursing & Home Care Services Pty Ltd v Smith.[50]
[47](1994) 181 CLR 251.
[48](1995) 37 NSWLR 280.
[49](2011) 197 FCR 374; [2011] FCA 1133.
[50][2013] FCA 295.
In order to establish the plea of issue estoppel, GEMSL must prove the following:
(a)that the parties in the previous litigation were the same as the parties in the present litigation: Co-ownership Land Development Pty Ltd v Queensland Estate Pty Ltd;[51]
(b)that the particular issue of fact and/or law which it is sought to be litigated in this proceeding has already been litigated and decided in the first proceeding. It is essential to establish that the issue or issues decided are identical. It is essential that the actual issue decided in the first proceeding “be ascertained with some degree of precision”, per Lane LJ in Turner v London Transport;[52]
(c)that the court or tribunal in the first proceeding actually decided the fact or point of law which was directly in issue in the case and was a ground of the judgment. The determination must be necessary to the decision and fundamental to it: see Blair v Curran.[53]
[51](1973) 47 ALJR 519 at 522.
[52](1977) ICR 952 at 966.
[53](1939) 62 CLR 464 at 532 per Dixon J (as he then was).
Only a decision on an issue which it was necessary to decide can create an issue estoppel, and a practical test of whether an issue was so necessary is to ask whether it is possible to appeal against the decision. See Murphy v Abi-Saab (1995) 37 NSWLR 280 at 288.
Mr Turner submitted that in this case the decision of the Senior Member did not finally determine the issue of whether clause 10.6 of the Loan Terms was a penalty because she dismissed it as not being supported by evidence. He called in aid the decision of the House of Lords in Arnold v Natwest Bank Plc,[54] as applied by Gillard J in Kingston City Council v Monash City Council & Ors (Kingston),[55] and in particular the observations of Lord Keith who delivered the principal speech, that:
… there may be an exception to issue estoppel in the special circumstances that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result ...
[54](1991) 2 AC 93 at 109.
[55][2001] VSC 41, 19.
Gillard J in Kingston said (at [108]):
What constitutes special circumstances will vary from case to case. It is important to confine the category of special circumstances otherwise it would defeat the very object of issue estoppel which is to bring litigation to an end and avoid repetitious litigation. Two of the important facts relied upon by the House of Lords in Arnold’s case were the absence of an effective right of appeal from the judge who decided the matter at first instance and the decision at first instance was attended with doubt.
In this case it was submitted the Senior Member did not consider and determine the issue and that there was no consideration of it on its merits. That was because Ms Whild did not understand the point and made no submissions concerning it. It was submitted that the special circumstances were:
(a) that Ms Whild was not represented;
(b) the dismissal of the penalty argument was made for completeness and without the benefit of any evidence or submissions;
(c) thus the point was not squarely dealt with. It was tangentially dealt with from a slightly different point of view. That is, whether or not the interest rates were excessive, not whether or not the late payment fee in itself was a penalty;
(d) there was no consideration given to the construction of clause 10.6; and
(e) there is a doubt as to whether natural justice was accorded to Ms Whild.
In any event, Ms Whild could not have appealed the decision to dismiss the penalty allegation.
GEMSL’s contentions
By contrast, Mr Hay, for GEMSL, submitted that the point was clearly raised and clearly dealt with and if there is a complaint to be made about how it was dealt with, the proper avenue would have been to pursue what was in fact pursued, which was to seek leave to appeal the VCAT decision under s 148 of the VCAT Act. The point of law might have been that the Tribunal failed to deal with the contention that the default rate constituted a penalty.
The authority of Mr Paterson
Mr Paterson swears that he is the manager, legal, in the permanent employment of Pepper Home Loans Pty Ltd (“Pepper”). He says that in or about October 2011, Pepper was appointed a servicer of various loans for GEMSL, including the loans the subject of this proceeding. He swears that he is duly authorised to make his affidavit on behalf of GEMSL.
Mr Turner submitted that there is no evidence before the court that this is the case, apart from Mr Paterson’s oath. There is no loan administration agreement or other documentation supporting his oath. So, said Mr Turner, GEMSL is relying on a third party who seems to have no connection whatsoever with GEMSL.
He submitted that therefore there is no evidence before the Court by GEMSL as to the claim that they're making for possession of the Spotswood Property.
It was also submitted that the certificate as to the amount owing under the Mortgage,[56] purportedly signed on behalf of GEMSL by Mr Paterson pursuant to clause 8.9 of the Mortgage,[57] was ineffective as there was no evidence that he was within the definition of “We” in clause 9.1 of the Mortgage (“We means GE Mortgage Solutions Limited (ABN 85 070 797 894) and its successors and assigns and our and us have corresponding meanings”).
[56]Exhibit AP-18 to Mr Paterson’s affidavit.
[57]Exhibit AP-6 to Mr Paterson’s affidavit.
In answer, Mr Hay for GEMSL submitted that:
(a) By clause 8.16 of the Mortgage, it is provided that “Our rights and remedies under this mortgage may be exercised by any of our employees or any other person we authorise”. As Mr Paterson has given evidence that he is authorised, that is sufficient;
(b) No amount owing needs to be proved in order to found the order for possession. All that is needed was a valid default notice; and
(c) In any event, Ms Whild has conceded there is a substantial sum due under the Mortgage. The exhibits to the affidavit of Mr Paterson show that only a few monthly payments were made in 2004 after the default notices were served. Thereafter no payments were made and, in particular, the missed payments on which the default notices were based were never met.
Summary Judgment test
Part 4.4 of the Civil Procedure Act 2010 sets out the test for summary judgment: a court may give summary judgment if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, has no real prospect of success (s 63).
This liberalises the rules governing summary judgment in Victoria, such that it is easier to dispose of unmeritorious claims or defences summarily. The Court of Appeal has stated that the test:
[S]hould be construed as one of whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success; that the ‘real chance of success’ test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.[58]
[58]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 at [29] per Warren CJ and Nettle JA (Neave JA agreeing).
The test must be applied according to its own terms and not according to considerations of whether the proceeding is ‘hopeless’ or ‘bound to fail’. To adopt ‘an unduly constrained, historical approach to the construction of s 63’ would ‘subvert the purpose of the provision’.[59]
[59]Ibid, at [25] per Warren CJ and Nettle JA (Neave JA agreeing).
Courts must, however, continue to exercise the power to terminate proceedings summarily with caution. Courts should therefore only exercise the power if it is clear that there is no real question to be tried. This is so irrespective of whether an application for summary judgment is made on the basis that: the pleadings do not disclose a reasonable cause of action, and no amendment could cure this error; or the action is frivolous, vexatious or an abuse of process; or the application for summary judgment is supported by evidence.[60]
[60]Ibid, at [35] per Warren CJ and Nettle JA (Neave JA agreeing).
The power to give summary judgment must be exercised in accordance with the overarching purpose of the Act and taking into account the fact that, if granted, a party will be deprived of the chance to pursue its claim or defence.[61]
[61]Ibid, at [42] per Neave JA).
In Wheelahan v City of Casey (No 3),[62] it was accepted that the ‘no real prospect of success’ test may in some circumstances extend to cases not regarded as sufficiently hopeless to warrant striking out under the Supreme Court (General Civil Procedure) Rules 2005.
[62][2011] VSC 15 at [8].
To that end, the test expands the basis for giving summary judgment compared with the test in the Court’s rules. However, in most instances, the new test will not differ from the old test in its practical application (National Australia Bank Ltd v Norman [2012] VSC 14 at [12]).
If there is no real prospect of success, a court may nevertheless allow a matter to proceed to trial if:
(a)it is not in the interests of justice to summarily dispose of the proceeding (s 64(a)); or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate (s 64(b)).
Whether a proceeding should be allowed to go to a full hearing on the merits must be determined according to the circumstances of each case: Barber v State of Victoria.[63]
[63][2012] VSC 554 at [15].
Reasoning
Penalty
In my view, as I have said, the proper construction of clause 10.6 of the Loan Terms is that it constitutes a penalty. It is the consequences of this conclusion, however, that have significance to the summary judgment application. In equity, and it seems at law, Ms Whild is relieved from liability for the collateral stipulation, the penalty, which in this case is the late charge fee calculated in accordance with clause 10.6 of the Loan Terms.
Applying the reasoning of the High court in Andrews v Australia and New Zealand Banking Group Limited (“Andrews”),[64] to the facts of this case, if compensation can be made to GEMSL for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. Ms Whild is relieved to that degree from liability to satisfy the collateral stipulation. There has been no attempt yet to justify the penalty as a pre‑estimate of damage or loss suffered by GEMSL, and thus Ms Whild is, prima facie, entitled to be relieved of any liability for the penalty.
[64][2012] HCA 30 at [9].
That conclusion does not, however, affect the efficacy of the default notice, which did not claim any default on the basis of non-payment of the late charge fees. The notice relied on the missed monthly payment for February 2004. The default notice has been held valid by the decision of Croft J. It is the notice in respect of Loan A which is the foundation of GEMSL’s right to possession. Thus, the penalty argument does not affect the right of GEMSL to possession based on that default notice.
Issue estoppel
It is strictly unnecessary to deal with this issue in light of my conclusion as to the effect of the penalty argument as an answer to the claimed right to possession. It was, however, argued at some length and should this matter go further it is desirable that I deal with it.
The review of the authorities on this issue above, when applied to the facts of this case, shows that:
(a)that the parties in the VCAT proceeding were the same as the parties in the present litigation;
(b)that the penalty argument which it is sought to be litigated in this proceeding had been raised and decided in the VCAT proceeding. The issues are identical;
(c)But VCAT, although dismissing the allegation of a penalty, did not actually decide point of law which was directly in issue, although it may be said it was in part a ground of the judgment, because had it not been dismissed it might have formed a basis for an order in Ms Whild’s favour. In that sense, it might be said that the determination of the penalty issue in the VCAT decision was necessary to the decision. But it was not fundamental to the VCAT decision. It was, as Mr Turner submitted, tangentially considered.
It seems to me, therefore, that the absence of any substantive consideration of the penalty argument in the course of the VCAT proceeding precludes there being any issue estoppel arising for the purposes of this decision.
If I am wrong in that view, there were, in my estimation, special circumstances that provide an exception to the operation of the doctrine. Because one of the purposes of estoppel is to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result. For that reason, and because of the circumstances identified by Mr Turner[65] the doctrine should not apply to prevent the argument being put in answer to the summary judgment application. I say that conscious of the conclusion that the penalty argument cannot, on the state of the law in relation to penalties, answer the claim for possession.
[65]See paragraph 53 above.
Authority of Mr Paterson
For the reasons identified by Mr Hay on behalf of GEMSL,[66] I consider that not only does the Mortgage enable a person in Mr Paterson’s position to make an affidavit on behalf of GEMSL, but there is no reason why the court should not accept the oath of Mr Paterson as prima facie sufficient to establish his authority.
[66]See paragraph 60 above.
In any event, the affidavits filed in support of and in opposition to the summary judgment application, the findings in the VCAT proceeding and the judgment of Croft J in Whild v GE Mortgage Solutions Ltd,[67] together establish all the fundamental elements entitling GEMSL to possession of the Spotswood Property. No objection was taken to the admissibility of the reasons for decision of VCAT. A detailed analysis of the evidence given, and accepted as fact, in all those proceedings is not necessary or desirable.
[67][2012] VSC 212.
I note, however, for the avoidance of doubt, that the certificate given by Mr Paterson as to the amount due under the Mortgage[68] does not satisfy the terms of clause 8.9 of the Mortgage and is not admissible against Ms Whild.
[68]Exhibit AP-18 of the affidavit of Andrew Paterson sworn 13 February 2013.
Conclusion
For these reasons, it appears to me that GEMSL has established its entitlement to possession of the Spotswood Property. There is no real issue to be tried. There is no real, as opposed to fanciful, prospect or chance that Ms Whild can defend the claim on any of the bases identified by her Counsel. There is no basis for concluding that it is not in the interests of justice to summarily dispose of the proceeding. Nor is there any basis to say that only a full hearing on the merits is appropriate. The absence of a claim for any money sum due under the Loan Agreements and Mortgage means that the penalty argument leads nowhere in this proceeding. It may have consequences in the disposition of the sale proceeds in the event that the Spotswood Property is sold. But, having regard to the time that has elapsed and the costs that have been incurred by GEMSL in the several proceedings, that is to be seriously doubted.
When I announced I would hand down this decision, however, GEMSL informed the Court and Ms Whild’s solicitor that application would be made to re‑open the application to introduce evidence to put beyond doubt the authority of Mr Paterson to give evidence on behalf of GEMSL. In those circumstances, I will await that evidence before finally making orders.
Finally, I consider it unnecessary to deal with GEMSL’s subsidiary argument in support of its claim for possession,[69] as it seems to me that on the basis of the conclusions of Croft J in Whild v GE Mortgage Solutions Ltd[70] the efficacy of the default notice is beyond argument, or at least any argument that was put to me.
[69]See paragraphs 39 and 40above.
[70][2012] VSC 212.
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