Hontille Pty Ltd v S No 1 Haritopouylos Pty Ltd - [2007] SASC 439

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
HONTILLE PTY LTD v S NO 1 HARITOPOULOS PTY LTD
[2007] SASC 439
Reasons of Judge Burley a Master of the Supreme Court
14 December 2007
REAL PROPERTY
Application for order for possession of land by mortgagee - notices requiring remedy of breach given 15 months prior to commencement of proceedings - no explanation for delay - whether two notices given at the same time ineffective - whether subsequent notice of demand would be relied upon - whether notices relied upon had lapsed - statutory power of sale and power of sale in mortgage.
Real Property Act 1886 and Part 17 of the Act. ss 132, 133 and 137, referred to.
A2 Dairy Distributors Pty Ltd v Flinders Property Investments Pty Ltd (Unreported, Supreme Court, delivered on 17 April2007), considered.

HONTILLE PTY LTD v S NO 1 HARITOPOULOS PTY LTD
[2007] SASC 439

JUDGE BURLEY: In these proceedings the plaintiff seeks an order for possession of the land comprised in Certificate of Title Register Book Vol.5742 Folio 38 (the land). The plaintiff is the mortgagee referred to in mortgage no 10529123 registered over the land. The proceedings have been brought pursuant to part 17 of the Real Property Act 1886 (the Act). Part 17 of the Act provides a summary procedure for, among others, mortgagees to claim an order for possession of the mortgaged property. Like all summary procedures, it cannot be invoked where there are material disputes of fact. In this case there are no material disputes of fact. The matter has proceeded on the affidavits filed by the parties. The defendant has not filed affidavits disputing the material factual assertions made in the affidavits filed by the plaintiff.
The defendant contends that the plaintiff has not established that it is entitled to an order for possession because it has allegedly failed to serve upon the defendant the required notices under either the provisions of the Act or the provisions of the mortgage. That being the case, it is instructive to refer first to the statutory and documentary sources of power of a mortgagee who alleges that the mortgagor is in default under the mortgage.
I mention first that because the defendant is a corporation, the provisions of s 55A of the Law of Property Act do not apply. Consequently, the plaintiff does not have to comply with the requirements of that section as a pre-condition to obtaining an order for possession. The defendant accepts this proposition.
The loan secured by the mortgage is in the sum of $500,000. The concessional rate of interest is 15% pa which converts to 20% pa if the mortgagee is in default. The mortgage is dated 29 November 2005. The mortgage debt was to be repaid by 28 November 2006 with monthly instalments of interest payable in the interim. The borrower of the funds is stated to be Golden Chef (Vic) SA Pty Ltd and the mortgagor is the defendant.
The relevant statutory provisions are contained in the Act. Section 137 enables a mortgagee to take possession of the relevant land where the mortgagor is in default. Possession may be taken before or after any sale of the land effected under a power of sale.
Section 133 of the Act confers upon a mortgagee a power of sale where the mortgagor is in default.
Section 132 of the Act sets out the procedure to be followed by a mortgagee in the case of default on the part of the mortgagor. The relevant parts of the section are as follows:
Every mortgage… under this Act shall have effect as a security, but shall not operate as a transfer of the land thereby charged and in case default be made in the payment of the principal sum, interest… or any part thereof thereby secured… and such default shall be continued for the space of one month, or for such other period of time as may therein for that purpose be expressly limited the mortgagee… may give to the mortgagor… notice in writing to pay the money then due or owing on such mortgage… and that sale will be effected if such default be continued…
The provision states that the mortgagee “may give to the mortgagor” a notice. The section is therefore permissive, but if it is invoked, it must be complied with.
Section 132 is linked to s 133 which, as I have said, confers a power of sale. The relevant parts of s 133 of the Act are as follows:
If such default [ie the default referred to in s 132] be continued for the further space of one month from the date of such notice, or for such other period as may in such instrument be for that purpose limited, the mortgagee…is hereby authorised and empowered to sell the land …
Section 137 acts in aid of the power of sale because, in most cases the mortgagee will require vacant possession in order to sell the property without hindrance from the mortgagor and, in all cases, if a sale is effected, the mortgagee will need to provide vacant possession to the purchaser.
The relevant parts of s 137 of the Act are as follows:
The mortgagee… upon default in payment of the principle sum, interest… secured by any mortgage… or any part thereof, may enter into possession of the mortgaged… land… and either before or after any sale of the land shall be effected under the power of sale given or implied in his mortgage…
The section refers to “the power of sale given or implied” in the mortgage.
This leads to a consideration of the terms of the mortgage the subject of these proceedings, a copy of which is exhibit JH J2 to the affidavit of Mr Jarvis sworn on 30 May 2007.
Clause 24.1 of the mortgage states that the plaintiff (described as the lender) shall have the statutory powers conferred by s 136 and 137 of the Act. Clause 24.2 of the mortgage provides for additional powers where there is default by the mortgagor, including the power to take actual possession of the property.
A power of sale is provided for in clause 26 of the mortgage. It arises where the mortgagor is in default. The relevant parts of clause 26.1 are as follows:
If default is made in payment of the principal sum or interest thereon, or any part thereof…and if such default is continued for the space of 3 days, the lender may give the owner [the defendant] notice in writing to pay the money then due or owing under this mortgage… and the sale will be effected if such default be continued.
The space of 3 days is hereby expressly limited in lieu of the space of 1 month specified in s 132 of the Real Property Act 1886, to the intent that a notice of sale given under this clause may constitute as well a notice of sale given pursuant to s 132.
Clause 26.2 is to a similar effect in relation to substituting time limits specified in the mortgage for the time limits specified in s 133 of the Act. The clause also empowers the plaintiff to sell the property where the default continues for the specified period. Like clause 26.1, the term combines a power of sale specified in the mortgage with the power of sale specified by s 133 of the Act.
In my opinion, because s 132 and 133 each provide for the continuance of a default for periods specified in the mortgage, as opposed to the period of 1 month specified respectively in the two sections, compliance with the provisions of the mortgage relating to the giving of notices intended to lead to the exercise of the power of sale, constitutes compliance with the sections.
I turn now to the various notices given by the plaintiff to the defendant purportedly pursuant to the terms of either the Act or the mortgage or both.
Two notices, each dated 7 March 2006, were served by the plaintiff on the defendant at about that time. Copies of the notices are exhibit JHJ3 of the affidavit of Mr Jarvis. Each of the notices purports to be given pursuant to s 132 of the Real Property Act. One notice states:
WHEREAS by memorandum of mortgage dated 29 November 2005… the mortgagor mortgaged to the mortgagee all its respective estate and interest… in… the whole of the land comprised in certificate of title register book volume 5742 folio 381.
WHEREAS the mortgagor has failed to pay the interest due on 29 January 2006 and such has continued for 7 days. Accordingly the mortgagee demands immediate payment of the mortgagor of the whole of the principle of $500,000 pursuant to the provisions of clause G of the said mortgage.
Clause G. of the mortgage is as follows:
GIf default is made in due payment of any part of the principal sum or any interest from time to time due and payable… and the default is continued for 7 days or longer, the lender may by written notice to the owner demand payment of the full amount of the principle sum then owing under this mortgage, which shall thereupon become due and payable to the lender.
It is clear that the effect of this notice is to invoke an acceleration clause so that the mortgage debt of $500,000 (together with any interest which has accrued thereon and which is unpaid) becomes immediately payable. As such, the notice has nothing to do with s 132 of the Act.
The other notice dated 7 March 2006 also refers to s 132 of the Act. The mortgage is then referred to and it is asserted that there has been a failure on the part of the mortgagor to pay interest payments for January and February 2006. The notice requires the defendant to remedy the breach within 7 days after service of the notice by paying the interest due calculated at the default rate. The notice then states:
Nothing in this notice contained shall be construed as in any way affecting the total obligation of the mortgagors named in the said mortgage to pay to the mortgagee the monies thereby owing and secured.
This provision has a bearing upon how the other notice of 7 March 2006 (which I shall refer to as the shorter notice) is to be given effect to. It permits the mortgagee to have recourse at the same time to more than one power conferred by the mortgage. In this case, the shorter notice accelerated payment. If there had been a sale consequent upon the other notice (which I shall refer to as “the longer notice”) the mortgagee could have deducted from the proceeds of sale the whole of the mortgage debt even though the time for payment of the principal sum had not, but for the acceleration clause, been reached. The fact that the shorter notice wrongly refers to s 132 of the Act does not alter this position. If is for these reasons that I reject the defendant’s submission that the two notices of March 2006 are ineffective because they were given at the same time and are contradictory.
The final paragraph of the longer notice is as follows:
NOW TAKE NOTICE that if you fail to remedy the breach of covenant within 7 days after the service of this notice on you the mortgagee may exercise the power of sale provided for in the mortgage and s 133 of the Real Property Act together with all or any other of the powers and remedies conferred on or accruing to the mortgagee by virtue of the mortgage or the Real Property Act without further notice to you and whether or not you make any payment of less than the full amount in the meantime.
I take the words “full amount” to mean the full amount of the arrears of interest.
During the course of argument, Ms Polson, counsel for the plaintiff accepted that the longer notice of 7 March 2006 was the only notice given to the defendant which was capable of complying with s 132 of the Real Property Act. In my opinion, if that were (i) the only notice served on the defendant by the plaintiff prior to the commencement of these proceedings, and if (ii) there had not otherwise have been a waiver of the requirements of the notice or a lapse of the notice it would comply with s 132 of the Act. It specifies a default, requires the default to be rectified within the time limited by clause 26 of the mortgage and it specifies that if there is a further default for the period specified in the notice the mortgagee may exercise the power of sale provided for in the mortgage and in s 133 of the Act.
There is a further notice which needs to be taken into account, given the arguments of the defendant. The further notice is entitled “notice of demand” and it is dated 13 April 2007, more than a year after the longer and shorter notices just referred to. A copy of the notice of demand is exhibit JH J5 to the affidavit of Mr Jarvis. It does not purport to be given pursuant to any statutory provision. It is a demand for the principal sum of $500,000 together with interest to 5 April 2007 calculated at $130,251.25.
Mr S McNamara, counsel for the defendant, argued that the April 2007 notice of demand subsumed the earlier notices of March 2006. As such there were no notices pursuant either to the provisions of the Act or the provisions of the mortgage which complied with the requirements of either the Act or the mortgage in relation to the exercise of the power of sale. That being the case, he submitted, the plaintiff had not established an entitlement to an order for possession.
In his affidavit in support of the application, Mr Jarvis refers to the three notices and states at para.16:
As the defendant has not complied with any of the notices of demand referred to herein, the plaintiff seeks an order for possession of the land.
That statement is somewhat equivocal, but I infer that the plaintiff seeks possession of the land in order to exercise the power of sale conferred upon the plaintiff by the mortgage and the relevant provisions of the Act.
I think it is significant that there is no explanation in Mr Jarvis’ affidavit as to why there was the delay of 15 months between the service of the notices in March 2006 and the commencement of proceedings.
I should also mention the affidavit of Pantelis Charitopoulos sworn on 20 September 2007. The affidavit was filed on behalf of the defendant. The deponent stated that the repayment of the debt referred to in the mortgage was also secured by way of mortgage over a property at Level 9, 185 Victoria Square, Adelaide. When that property was sold, the sum of $171,206.77 was paid in reduction of the loan. The defendant relied upon this payment to support the contention that the defendant was no longer in default with regard to the payment of interest. Consequently, it was argued, if the plaintiff were to proceed, it could only rely upon the default in respect of the repayment of the principal. I reject this argument. If the longer notice of March 2006 was effective, it was not complied with within the time specified in the notice and, if it has not lapsed or otherwise been waived, it constitutes a default upon which the plaintiff may base a power of sale and thereby seek an order for possession in aid of the exercise of the power of sale.
The defendant relied upon the decision of Judge Lunn in A2 Dairy Distributors Pty Ltd v Flinders Property Investments Pty Ltd, an unreported decision given on 17 April 2007. In that case Judge Lunn dealt with an application for an extension of the time for the removal of the caveat. He said that in order to obtain such an order, the plaintiff must establish a sufficient prima facie case in respect of the claimed caveatable interest. He was therefore not dealing with an application giving rise to a final decision on the question of whether or not the plaintiff had a caveatable interest. Instead, he was dealing with an application that required him to determine whether or not certain propositions advanced by the plaintiff were arguable.
The facts of the case were that the plaintiff borrowed monies from the defendant. The loan was secured by a mortgage. The loan monies were repayable on demand. On 30 November 2006 the defendant served two notices on the plaintiff. One was a demand to pay the mortgage debt plus interest and the other was a notice purporting to be made pursuant to s 132 of the Real Property Act. The latter required the plaintiff the remedy the alleged non-payment of the principal and interest. His Honour held that the two notices were arguably in conflict, the consequence of which was that, arguably, s 132 of the Act had not been complied with.
A similar argument was put in relation to subsequent notices given in February 2007 to a like effect. His Honour found that these notices were again potentially in conflict and that it was arguable that the plaintiff had failed to comply with s 132 of the Act. His Honour also found that it was arguable that the later notices replaced the earlier notices with the result that, arguably, the plaintiff could no longer rely upon the earlier notices.
In my opinion, the facts in A2 Dairy Distributors Pty Ltd were materially different from the facts of this case. The shorter notice of March 2006, although it purported to be pursuant to s 132 of the Act, was clearly a notice invoking an acceleration clause so that the plaintiff could recover the whole of the mortgage debt as opposed to arrears of interest. This was at a time prior to the repayment date specified in the mortgage itself, namely 28 November 2006. As I have said, the shorter notice could not be said to be in conflict with the longer notice merely because the shorter notice referred to s 132 of the Act. The longer notice fulfilled a pre-condition to the exercise of the power of sale referred to in s 133 of the Act. There is, in my opinion, no reason why a mortgagor may not invoke different powers under the mortgage so long as they are not mutually contradictory. In my opinion, for the reasons referred to above, a notice accelerating repayment does not contradict the exercise of the power of sale based on a breach constituted by the failure to pay interest instalments. I therefore consider that the longer notice of March 2007 was effective at the time it was given and it complied with the requirements of s 132 of the Act.
I turn now to the question of whether or not the notice of demand served in April 2007 could support an application for possession. In my opinion, by itself, it could not do so because it does not comply with s 132 of the Act. Nor could it be said that it can be relied upon in conjunction with either or both of the notices given in March 2006. In addition, for the same reason, I do not consider that the notice of demand of April 2007 subsumes the notices given in March 2006.
It follows that the only basis upon which the plaintiff can make good its application for a possession order is to rely upon the longer notice of March 2006. The question must immediately be asked: what is the effect of the delay of one year and three months between the giving of that notice and the commencement of proceedings. In my opinion, in the absence of explanation as to the delay, the notice must be taken to have lapsed. It would be contrary to the tenor of s 132 and 133 of the Act to permit a mortgagee to apply for an order for possession based on a notice that had been given 15 months prior to the commencement of the proceedings. The delay in commencement of the proceedings gives rise to the inferences that the mortgagee either waived reliance upon the notice or acquiesced in the defendant’s default where there is no plausible explanation offered as to the period of delay. Consequently, the plaintiff has not made out a case for an order for possession because the s 132 notice upon which it relies, during the 15 month period between the giving of the notice and the commencement of the proceedings, lapsed.
I mention also the argument of the defendant, that because the plaintiff was a trustee, the proceedings were in some way defective. In my opinion there is no merit to this argument. Even if it is assumed that the plaintiff held only the legal interest in the mortgage, that was sufficient to enable it to pursue a claim for a possession order based on a breach of the terms of the mortgage.

The defendant also advanced an argument that the mortgage was unenforceable because the mortgage states the borrower to be Golden Chef (Vic) SA Pty Ltd but it has been signed by Gold Chef (Vic) Pty Ltd. Either the borrower is wrongly stated in the mortgage or alternatively there has been an ineffective execution of the mortgage by the borrower. Given the conclusions to which I have come, and given that questions of rectification or ineffective execution may well require more detailed examination of the facts, I think it inappropriate to embark upon a determination of this point.
For the above reasons the plaintiff’s application will be dismissed. I will hear the parties as to costs and as to the monies paid into court by the defendant because of the adjournment of the hearing of the application.