Malavazos v Govcorp Finance Pty Ltd - [2022] SASC 44

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
MALAVAZOS v GOVCORP FINANCE PTY LTD
[2022] SASC 44
Judgment of the Honourable Justice Blue
6 May 2022
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - EQUITABLE MORTGAGES
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - RIGHTS, LIABILITIES AND REMEDIES OF MORTGAGOR
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - DEFAULT JUDGMENT - SETTING ASIDE
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - PENALTY - PROCEDURE AND EVIDENCE
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - ADMISSION OF FURTHER EVIDENCE
Appeal against a default judgment granted by a Master in favour of the respondent against the appellants.
The second appellant is the director of Professional Beauty and Mup Pty Ltd. In September 2019 the respondent agreed to lend $76,000 to Professional Beauty with a guarantee by the appellants secured by a mortgage over their residential property. The mortgage provided for a higher interest rate of 9 per cent per month and a lower interest rate of 4.5 per cent per month.
The respondent brought an action in the Supreme Court against the appellants, seeking a declaration that it has an equitable mortgage over the land; orders for sale and possession of the land; and judgment for $200,548.08.
The appellants did not file a defence within 28 days of service of the Claim and statement of claim. The respondent filed an interlocutory application seeking default judgment. The second appellant filed an affidavit to explain the delay in filing a defence and establish that the appellants had an arguable defence that the mortgage imposed an interest rate that comprised an unlawful penalty or was unconscionable.
A Master concluded that the appellants had not satisfactorily explained their delay or that they had an arguable defence and granted default judgment.
The appellants contend on appeal that the Master erred on both issues and also seek to argue that they have additional defences.
Held:
1The Master erred in finding that it was not reasonably arguable by the appellants that the provisions of the mortgage providing for payment of interest at the higher rate were invalid as an unlawful penalty (at [77]).
2The Master erred in finding that the appellants had not satisfactorily explained their delay in filing a defence (at [83]).
3The Master erred in refusing an extension of time to file a defence to the monetary claim and granting default judgment for the monetary claim (at [87]).
4The Master’s conclusion that the appellants had not established that they had a reasonably arguable case based on unconscionable conduct was correct (at [103]).
5Although not argued before the Master, it is reasonably arguable that the provisions of the mortgage providing for payment of interest at the higher rate are rendered void by section 12BG of the Australian Securities and Investment Commission Act 2001 (Cth) (at [120]).
6The appellants have not established that it is reasonably arguable that the respondent engaged in misleading conduct in respect of the provisions of the mortgage providing for payment of interest at the higher rate in breach of section 12DB(g) of the ASIC Act (at [130]).
7The appellants have not established that it is reasonably arguable that the respondent:
(a) was required to hold an Australian financial services licence under the Corporations Act 2001 (Cth) (at [165]); or
(b) engaged in unconscionable conduct under section 12CB of the ASIC Act in lending to them (at [172]).
8The appellants have not established that it is reasonably arguable that the Mortgage was not a valid equitable mortgage:
(a) because it was not created by deed by reason of subsection 28(1) of the Law of Property Act 1936 (at [184]); or
(b) because it was not registered by reason of section 67 of the Real Property Act 1886 (at [192]).
9The appellants have not established that it is reasonably arguable that the respondent cannot enforce repayment of the loan by selling the land:
(a) because it did not meet the requirements of section 192(b) of the Real Property Act 1886 (at [206]); or
(b) because it did not serve a valid notice as required by section 55A of the Law of Property Act 1936 (at [233]).
10Leave to appeal and to amend the notice of appeal granted. Appeal allowed. Order by the Master refusing an extension of time to file and serve a defence insofar as the appellants sought to defend the monetary claim set aside. Order granting an extension of time to the appellants to file and serve a defence to the monetary claim. Default judgment set aside insofar as judgment was granted that the respondent recover from the appellants a monetary judgment but otherwise not set aside (subject to potential variation) (at [239]).

Australian Securities and Investments Commission Act 2001 (Cth) s 12BA, s 12BAB s 12BF, s 12BG, s 12BH, s 12BI, s 12BL, s 12CA, s 12CB, s 12DB, s 12GA and s 12GB; Competition and Consumer Act 2010 (Cth) Schedule 2 s 20, s 21 and s 22; Contracts Review Act 1980 (NSW) s 7; Corporations Act 2001 (Cth) s 763A, s 763B, s 764A, s 765A, s 766A, s 766C, s 911A, s 913B, s 924A, s 925A and s 925E; Corporations Regulations 2001 (Cth) reg 7.1.06; Fair Trading Act 1987 (NSW) s 43; Law of Property Act 1936 (SA) s 7, s 28, s 29, s 30, s 31, s 43 and s 55A; Property Law Act 1952 (NZ) s 92; Property Law Act 1974 (Qld) s 84; Real Property Act 1862 (NSW) s 55 and s 56; Real Property Act 1886 (SA) s 67, s 133, s 192 and s 249; Trade Practices Act 1974 (Cth) s 51AC; Uniform Civil Rules 2020 (SA), referred to.
Adelaide Bank Ltd v Gibbs (1995) ANZ Conv R 615; Andrew Garret Wine Resorts Pty Ltd v National Australia Bank Ltd (2004) 206 ALR 69; Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436; Bunbury Foods Pty Ltd v National Banking Company of Australasia Ltd (1980) 2 NSWLR 907; Campbell v Commercial Banking Company of Sydney Sydney (1879) 2 NSWLR 385; Clyde Properties Ltd v Tasker [1970] NZLR 754; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1; Johnson v Synnex Australia Pty Ltd; Jonhson v Leader Computers Pty Ltd (No 2) [2017] SASCFC 165; Kellas-Sharpe v PSAL Ltd [2012] 2 Qd R 233; Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; Lamshed v Plakakis (1988) 47 SASR 316; Montesa Investments Pty Ltd v Certane Ct Pty Ltd [2022] SASC 43; Morris Finance Ltd v Brown [2017] FCAFC 97; PSAL Limited v Kellas-Sharpe [2012] QSC 31; Stephenson Developments Pty Ltd v Finance Corporation of Australia Ltd [1976] Qd 326; Stubbings v Jams 2 Pty Ltd [2022] HCA 6; Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2011] NSWCA 149; Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584; Ulowski v Miller [1968] SASR 277, considered.

MALAVAZOS v GOVCORP FINANCE PTY LTD
[2022] SASC 44

BLUE J: The appellants Anastasios Malavazos and Soula Malavazos (collectively the Malavazos) appeal against a default judgment granted by a Master in favour of the respondent Govcorp Finance Pty Ltd (Govcorp) and seek leave to appeal for that purpose.
Mrs Malavazos is the sole director of Professional Beauty and Mup Pty Ltd (Professional Beauty). In September 2019 Govcorp agreed to lend a total of $76,000 to Professional Beauty with a guarantee by the Malavazos secured by a mortgage over their residential property (the Land). The Malavazos executed a mortgage over the Land.
Govcorp brought an action in the Supreme Court against the Malavazos, seeking a declaration that it has an equitable mortgage over the Land; orders for sale and possession of the Land; and judgment for $200,548.08.
The Malavazos did not file a defence within 28 days of service of the Claim and statement of claim. Govcorp filed an interlocutory application seeking default judgment. Mrs Malavazos filed an affidavit to explain the delay in filing a defence and establish that the Malavazos had an arguable defence that the mortgage imposed an interest rate that comprised an unlawful penalty or was unconscionable.
A Master concluded that the Malavazos had not satisfactorily explained their delay or that they had an arguable defence and granted default judgment.
The Malavazos contend on appeal that the Master erred on both issues and also seek to argue that they have additional defences.
Background
Govcorp carries on business as a commercial private lender. Nikola Vujasin is a director of Govcorp. Summer Lawyers act as solicitors for Govcorp.
In July 2017 Summer Lawyers lodged at the Lands Titles Registration Office for registration Standard Terms and Conditions of Mortgage entitled Summer Lawyers 2017 Memorandum, which was deposited by the Registrar-General as Registered Number TC 12758935 (the Standard Terms).
As at 2019, the Malavazos had granted a registered mortgage in favour of the ANZ Bank over the Land.
Professional Beauty carries on business operating a beauty salon or salons in Adelaide. In 2019 it sought loan funding in order to pay for fitout and stock.
Professional Beauty applied via a finance broker to Govcorp to borrow money. Professional Beauty retained a solicitor, Mark Sander, to act for it in relation to the potential borrowing transaction. No evidence was adduced of any dealings between Professional Beauty, the broker, Mr Sander or Govcorp before 25 September 2019.
On 25 September 2019 Mr Vujasin sent an email to Mrs Malavazos saying “Your loan has been approved” (the Loan) and attaching a letter of offer (the letter of offer). The letter of offer showed Professional Beauty as borrower and the Malavazos as guarantors. It referred to a principal of $50,000, with six months capitalised interest, and a term of six months with an option to extend at the lender’s discretion and subject to loan conduct. It referred to a higher interest rate of nine per cent per month and a lower interest rate of 4.5 per cent per month. It referred to security by way of personal and unlimited guarantees from the directors, and a first registered mortgage over the Land. It set out the fees as an establishment fee of $2,200, legal fees of $2,200, an introducer fee of $1,000 and a valuation fee.
The letter of offer contained provision for execution by Professional Beauty and the guarantors. However, no version executed by them was tendered and there is no evidence that the letter of offer was executed (although no submission was made that it was not executed).
Summer Lawyers on behalf of Govcorp prepared a suite of documents for execution by Professional Beauty, the Malavazos and their solicitor. I infer that Summer Lawyers or Govcorp sent the documents to Mr Sander or the Malavazos for execution.
On 26 and 27 September 2019, the Malavazos executed a mortgage of the Land in favour of Govcorp in the presence of Mr Sander (the Mortgage). It contained provision for execution by Govcorp. A version executed by Govcorp was not tendered (although no submission was made that it was not executed). It contained a clause mortgaging the Malavazos’ estate in the Land on the terms and conditions set out in the Standard Terms and on the additional terms and conditions set out in the Mortgage.
The terms and conditions set out in the Mortgage included that:
·the Final Repayment Date was six months after the Commencement Date;
·the Principal Amount was $76,000;
·the Lower Rate of Interest was 4.5 per cent per month and the Higher Rate of Interest was nine per cent per month;
·the Date for the Payment of Interest was on the same day of each month as the Commencement Date;
·the Specified Interest Regime was Regime A (clause 5.11); and
·Retained Interest was $20,520 being non-refundable interest retained by the lender and deducted from the Principal Amount to pay towards interest owed under the mortgage.
On 26 and 27 September 2019 Schedules A to G were also executed. They were presumably schedules in the form of pro forma Schedules A to G (the latter were not tendered) to the Standard Terms. Schedule A set out similar variables to those set out in the Mortgage. Schedule B set out various fees, including an establishment fee of $2,200, legal fees of $2,200, a brokerage fee of $1,080 and various default fees. Schedules C, D and F were declarations by the Malavazos. Schedules E and G were certificates by Mr Sander.
On 30 September 2019 Govcorp lodged a caveat over the Land noting an interest under an equitable mortgage dated 27 September 2019.
On 4 October 2019 Summer Lawyers sent an email to Mr Sander setting out a payment direction showing disbursement of $76,000 as follows:
·$47,165.95 to Professional Beauty;
·$2,834.05 to Mitcham Council in payment of outstanding Council rates levied against the Land;
·$20,520 Retained Interest for six months prepaid;
·$5,480 for establishment, legal and brokerage fees.
On 8 and 9 October 2019 Summer Lawyers transferred $47,165.95 into Professional Beauty’s bank account and $2,834.04 into the Malavazos’ bank account for the purpose of payment of council rates.
In December 2019 Govcorp paid $4,380.17 (the charging order payout) to pay out a debt of the Malavazos the subject of a charging order registered over the title to the Land which had been preventing registration of any dealing with the Land.
On or after 15 January 2020 Oak Capital Wholesale Fund Pty Ltd lodged a caveat over the Land noting a charge on the Land under an agreement dated 15 January 2020.
On 8 April 2020 the Loan fell due for repayment. The Malavazos did not repay it. Mrs Malavazos in her first affidavit said that this was due to a business downturn due to Covid-19 and the Malavazos’ ill health.
On 15 April 2020 Summer Lawyers sent a default notice to Professional Beauty alleging that it had defaulted under the agreement comprising the Mortgage including Schedule A and Schedule B by failing to pay the principal amount of $76,000 and contending that the amount owing was now $100,006.49.
On 15 April 2020 Summer Lawyers sent a default notice to the Malavazos giving notice that Professional Beauty had not repaid the principal amount and demanding payment within seven days of $100,006.49.
The notices did not identify how the amount of $100,006.49 was calculated. However, Blake Palmer, in his first affidavit sworn on 25 August 2021, identified that it comprised $76,000 principal; $8,222.74 interest from 8 April to 8 May 2020 at the Higher Interest Rate; $3,188.75 in legal costs and $12,595 in various itemised fees and costs.
On or after 23 April 2020 Directline Finance Pty Ltd lodged a caveat over the Land noting a charge on the Land under an agreement dated 23 April 2020.
There is no evidence as to what communications took place between the parties between April and August 2020.
Between 17 August 2020 and 20 January 2021 there were communications between solicitors or a conveyancer acting for Professional Beauty/the Malavazos and Summer Lawyers about a proposed refinancing to be obtained from the ANZ Bank to pay out the Loan. These communications were initially with Van Dissel Solicitors; then with Roger Scott, a conveyancer; and then with Campbell Law, each in turn acting for the Malavazos.
In the course of communications between those acting for the Malavazos and Summer Lawyers, payout figures for the Loan were provided to the Malavazos on several occasions between September 2020 and March 2021 for the purposes of proposed refinancing of the Loan.
On 23 December 2020 Summer Lawyers served on Mr Scott, who had instructions to accept service on behalf of the Malavazos, a Default Notice and notice under section 55A of the Law of Property Act 1936 (SA) (the Property Act) and section 133 of the Real Property Act 1886 (SA) (the Real Property Act). The Notice (the Statutory Notice) stated that the Malavazos had defaulted under the Mortgage by failing to repay the secured moneys by 8 April 2020. It stated that the amount owing as at 18 December 2020 was $169,444.06. It gave notice that, if the Malavazos did not remedy the default within 31 days after service of the notice, Govcorp proposed to exercise its rights to power of sale in respect of the Land.
On 8 February 2021 Australian Secured & Managed Mortgages Pty Ltd sent emails to Summer Lawyers stating that it had agreed, subject to valuation, to provide finance to the Malavazos and attaching a conditional letter of offer to the Malavazos of a loan of $300,000 for six to 12 months secured by a second mortgage over the Land.
On 12 February 2021 Govcorp instituted the action by filing a Claim supported by a statement of claim. The relief sought comprised:
·$200,548.08 being principal of $76,000; interest to 9 February 2021 of $120,112.41 and the charging order payout of $4,435.67;
·a declaration that Govcorp has an equitable mortgage over the Land; and
·orders for sale and possession of the Land.
On 17 February 2021 Australian Secured & Managed Mortgages Pty Ltd sent an email to Summer Lawyers stating that it had withdrawn its offer of finance.
On 18 February 2021 Campbell Law filed a notice of acting in the action on behalf of Mrs Malavazos.
On 9 March 2021 Matti Lamb & Associates filed a notice of acting in the action on behalf of the Malavazos. On the same date, they sent an email to Summer Lawyers attaching a conditional letter of offer from Universal Finance Commercial of a loan of $420,000 secured by second mortgage over the Land. Between 9 March and 12 May 2021 there were communications between Matti Lamb & Associates and Summer Lawyers. Matti Lamb & Associates said that there were delays due to the health and hospitalisation of Mr Malavazos. During those communications, a forbearance deed was negotiated but it was not finally agreed or executed.
On 10 June 2021 Govcorp filed an interlocutory application seeking default judgment in the absence of a defence having been filed. The application was made returnable on 18 June 2021. The application was supported by an affidavit affirmed on 10 June 2021 by Karunya Vetcha, a solicitor at Summer Lawyers, exhibiting the Mortgage and the executed Schedules A to G.
On 17 June 2021 Websters Lawyers filed a notice of acting in the action on behalf of the Malavazos.
At the hearing on 18 June 2021 counsel for the Malavazos informed the Court that they opposed the application for default judgment and intended to seek an extension of time to file a defence. It was ordered that the application for an extension of time, supported by affidavit, be filed by 2 July 2021.
On 12 July 2021 the Malavazos filed an interlocutory application seeking an extension of time to file a defence. This was supported by an affidavit by Mrs Malavazos affirmed on 12 July 2021 (Mrs Malavazos’ first affidavit). Mrs Malavazos said that they had been unable to repay the Loan due to a downturn due to Covid-19 and their ill health. She explained the failure to file a defence within the requisite time as being that she did not understand that she had grounds to defend the claim until receiving advice from Websters Lawyers (on 17 June 2021). She exhibited a draft defence, which pleaded that the default interest rate was an unlawful penalty and was unconscionable, and said that she considered that the amount claimed by Govcorp was excessive. She explained the failure to file her affidavit until 12 July as being due to ill health and a lack of funds to properly instruct Websters Lawyers.

On 25 August 2021 Mr Palmer swore an affidavit deposing to and exhibiting communications between Summer Lawyers and Mrs Malavazos or lawyers or other representatives acting for the Malavazos between September 2020 and May 2021 (Mr Palmer’s first affidavit).
The hearing before the Master
The Malavazos relied on Mrs Malavazos’ first affidavit. Mrs Malavazos was not cross-examined.
Govcorp relied on Ms Vetcha’s affidavit and Mr Palmer’s first affidavit. They were not cross-examined.
The Malavazos contended that they had reasonably arguable defences to the claim insofar as it included interest at the higher interest rate. They contended that the provisions of the contract providing for interest at the higher interest rate comprised an unlawful penalty; and in the alternative the imposition of interest at the higher interest rate was unconscionable in equity or under section 12CB of the Australian Securities and Investment Commission Act 2001 (Cth) (the ASIC Act) or under section 20, 21 or 22 of the Australian Consumer Law (the Australian Consumer Law) enacted by the Competition and Consumer Act 2010 (Cth). Govcorp took issue with these contentions.
The Master’s reasons
The Master summarised the background and the parties’ contentions.
The Master concluded that the Malavazos had not presented a sufficient reason for their failure to file a defence within the time set out in the Uniform Civil Rules 2020 (SA) (the Rules). The Master referred to a lack of evidence to support the assertion of ill-health or to support an assertion of alleged shortcomings of the Malavazos’ previous lawyers.
The Master concluded that the Malavazos had not demonstrated that they had a reasonably arguable defence. In relation to the penalty doctrine, the Master referred to her decision in Lerrett Holdings Pty Ltd v O’Neill (Lerrett Holdings),[1] which considered the case of Kellas-Sharpe v PSAL Ltd,[2] in which the Queensland Court of Appeal upheld the distinction between an increase in the rate of interest (which attracts the penalty doctrine) and a decrease in the rate of interest (which does not attract the doctrine). In Lerrett Holdings, the Master considered that the decision of Kellas-Sharpe v PSAL Ltd was binding and there was no prospect of the Court finding that the interest provisions in the loan agreement amounted to a penalty.
[1] SCCIV-20-436, unreported, delivered 3 February 2021.
[2] [2012] QCA 371, [2013] 2 Qd R 233.
In relation to unconscionability, the Master referred to the Guarantors Advice Declarations signed by the Malavazos on 26 and 27 September 2019 (Schedule F), in which they stated that they executed the guarantee voluntarily without undue influence or pressure and had obtained legal advice as to the legal effect of the guarantee and their obligations under it. The Master held that it must be assumed that legal advice was obtained by the Malavazos in respect of the interest rate and the consequences for them in the event of default by the company and it was impossible to find that Govcorp’s conduct was unconscionable in the circumstances.
The appeal hearing
During the course of the hearing of the appeal, the Malavazos sought leave to amend the notice of appeal to raise additional issues beyond the matters argued before the Master involving the penalty doctrine and unconscionable conduct in relation to the higher interest rate. This was supported by an affidavit affirmed by their solicitor, Peter Scragg, on 15 March 2022. Leave to amend was opposed by Govcorp but full submissions were made on the additional issues against the possibility that leave to amend might be granted.
The Malavazos tendered a further affidavit by Mrs Malavazos affirmed on 11 February 2022 (Mrs Malavazos second affidavit) in support of one of the additional issues. Reception of that affidavit was opposed by Govcorp. The Malavazos also tendered an affidavit by Mr Palmer sworn on 10 March 2022 (Mr Palmer’s third affidavit)
Govcorp tendered a further affidavit by Mr Palmer sworn on 28 January 2022 (Mr Palmer’s second affidavit), an affidavit by Mr Vujasin sworn on 17 February 2022 and a further affidavit by Ms Vetcha sworn on 10 June 2021.
The additional issues are identified below. For the reasons given below, I have decided to grant leave to the Malavazos to amend the notice of appeal and to receive the further affidavits tendered on appeal by the Malavazos and Govcorp.
I have also decided to grant leave to appeal. For clarity, I address the substantive issues arising on appeal first before addressing leave to appeal.
Monetary judgment
The first issues on appeal relate to the default monetary judgment entered by the Master. The Master granted judgment for $200,548.08 plus interest at nine per cent per month from 9 February 2021 compounding each month.
The penalty doctrine
The Malavazos contend that the Master erred in not finding that they had a reasonably arguable defence to the monetary claim, namely that the claim for interest at nine per cent per month comprised an unlawful penalty, that they had provided a satisfactory explanation for failing to file a defence within the time required by the Rules, and that an extension of time should be granted for them to file a defence. They contend that the Master erred consequentially in granting the default monetary judgment.
Reasonably arguable?
In PSAL Ltd v Kellas-Sharpe[3] the loan agreement provided that interest was payable at the rate of 7.5 per cent per month “but while the Borrower is not in default under the Facility, the Lender will accept interest at a concessional rate of 4% per month”. Applegarth J held that this clause did not provide for a penalty, referring to “a longstanding rule that effectively avoids the jurisdiction to relieve against a penalty if, instead of providing for a higher rate of interest in default of punctual payment, the mortgagee stipulates that the higher rate is payable under the mortgage and provides for its reduction in case of punctual payment”.[4] However, Applegarth J did hold that the clause was unconscionable under section 12CB of the ASIC Act: this aspect of the decision is addressed below.
[3] [2012] QSC 31.
[4] At [56].
The borrowers appealed against the rejection of the contention that the penalty doctrine applied. In Kellas-Sharpe v PSAL Ltd[5] the Queensland Court of Appeal dismissed the appeal. Gotterson JA (with whom Margaret McMurdo P and Fryberg J agreed) referred amongst others to decisions of intermediate courts of appeal that had recognised the “rule” identified by Applegarth J (albeit the point did not directly arise in those cases).[6] Gotterson JA referred to the obligation to follow decisions of other intermediate courts of appeal unless convinced that they are plainly wrong and said that he was not convinced that those decisions were plainly wrong.
[5] [2013] 2 Qd R 233.
[6] David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1; Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343, (2008) 77 NSWLR 205; Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2011] NSWCA 149.
.
The members of the Court referred to equity’s preference for substance over form and to criticism of the “rule” on the basis that it is a triumph of form over substance. However, the Court held that the “rule” is too well-established to be overturned at intermediate appellate court level and effectively that it is a matter for the High Court.
The Malavazos contend that the Master erred in concluding that it is not reasonably arguable that the interest rate clause in the present case imposes an unlawful penalty. First, the clause does not fall within the “rule” to which the Queensland Court of Appeal referred. Secondly, it was not appropriate to grant default judgment and preclude the Malavazos from seeking to argue that the “rule” is anomalous and should not be followed.
The Master did not refer to the terms of the clause in the Standard Terms that provides for the payment of interest. Clause 5 addresses the payment of interest and fees. It relevantly provides:
5.1Interest pursuant to this Mortgage is to be calculated and paid in accordance with clauses 5.2 to 5.15.
5.2     The Debtor shall pay Interest to the Lender on the Date for the Payment of Interest.
5.3The Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period.
5.4The Lender may notify the Debtor that a Lower Interest Amount is to be paid for any Interest Period and upon the Lender giving that notice the Interest to be paid for that Interest Period shall be that Lower Interest Amount.
5.5The Higher Interest Amount is to be calculated as follows:
B x HIR ÷ 365 x N
Where:
B = the Balance
HIR = the Higher Interest Rate; and
N = the number of days for the relevant Interest Period.
5.6The Lower Interest amount is to be calculated as follows:
B x LIR ÷ 365 x N
Where:
B = the Balance
LIR = the Lower Interest Rate; and
N = the number of days for the relevant Interest Period.
5.7The Debtor shall pay the Higher Interest Amount for any Interest Period where before the Date for the Payment of Interest for that Interest Period:
(a)     the Debtor has failed to pay any amount due under this Mortgage by the due date for payment; or
(b)     the Debtor has failed to comply with any of the Obligations; or
(c)     there is an Event of Default.
5.8Any Interest not paid by the Debtor to the Lender by the Date for the Payment of interest shall be capitalised immediately upon the Interest not being paid and the amount of unpaid Interest shall be Outstanding Interest and form part of the Secured Money.
5.9If the Debtor has paid Interest on the Date for the Payment of Interest based on the Lower Interest Amount and it later becomes apparent that at the time that the Interest was paid:
a)    the Debtor had failed to pay any amount due under this Mortgage by the due date for the payment of that amount; or
(b)     the Debtor had failed to comply with any of the Obligations; or
(c)     an Event of Default has occurred –
then the Interest payable by the Debtor for the Interest Period immediately prior to the event in paragraphs (a) to (c) above and all subsequent Interest Periods shall be the Higher Interest Amount.
5.10   The Specified Interest Regime governs the calculation and payment of any Interest.
5.11   If the Specified Interest Regime applicable to this Mortgage is Interest Regime A:
(a)     the Debtor shall pay Interest to the Lender monthly in advance on the Date for the Payment of Interest;
(b)     and, the Debtor fails to pay Interest on the Date for the Payment of Interest, then:
(i)the Debtor shall be liable to pay Interest on the Outstanding Interest at the Higher Interest Rate compounding monthly on the Date for the Payment of Interest until the Outstanding Interest is paid in full; and
(ii)the Interest on the Outstanding Interest compounded on the basis specified in paragraph (i) above shall, become part of the Secured Money as soon as it compounds.
(c)     Interest once accrued for a month shall payable for the whole of the month and shall not be refundable or adjustable after the Date for the Payment of Interest.
5.12   [Interest Regime B].
5.13   [Interest Regime C].
5.14   [Interest Regime D].
…
Clauses 5.12 to 5.14 address Interest Regimes B to D in terms very similar to the manner in which clause 5.11 addresses Interest Regime A and need not be reproduced because Interest Regime A was applicable in the present case. Clause 5.15 addresses interest on amounts due under court orders. Clause 5.16 requires the debtor to pay the fees set out in Schedule B.
The capitalised terms in clause 5 are defined primarily in clause 1.1. Most of the defined terms are self-explanatory and need not be reproduced other than the following:
“Date for the Payment of Interest” means the day in the month specified in Schedule A as the date for the payment of Interest by the Debtor to the Lender;
“Interest Period” means the Mo
nth for which Interest is to be calculated and paid;
“Month” means calendar month;
Clause 5 is a complex clause that does not fall within the dichotomy the subject of the “rule” referred to in Kellas-Sharpe v PSAL Ltd.
Clauses 5.7 and 5.9, considered in isolation, are expressed in terms that clearly impose a penalty on application of the “rule”. They not only provide that interest at the higher rate is charged in the event of a breach, but they also provide for the retrospective imposition of interest at a higher rate if interest has been paid at the lower rate and the Lender later discovers that the Borrower was in fact in default at the time of payment.
Clause 5.11, considered in isolation, is also expressed in terms that clearly impose a penalty on application of the “rule”. This is the only provision[7] within clause 5 that provides for compounding of interest and it provides for compounding at the higher interest rate if the debtor is in breach by failing to pay interest on the due date.
[7] Leaving aside counterpart clauses 5.12 to 5.14 that address Interest Regimes B to D that are inapplicable in the present case.
Clauses 5.3 and 5.4, considered in isolation, do not fall within the classic description of the other side of the “rule” under which a lower, concessionary, rate is charged if punctual payment is made. They are a variation on such a provision, providing that the Lender, in its discretion, may charge interest at the lower rate independently of punctuality of payment.
Clause 5.1 makes it clear that clause 5 must be read as a whole as it provides that interest is to be calculated and paid in accordance with clauses 5.2 to 5.15.
Given the existence of clauses 5.7, 5.9 and 5.11, it is reasonably arguable that clause 5 imposes a penalty by imposing an obligation to pay interest at the higher rate in the event of breach.
Clause 5 gives rise to complex issues of construction as well as complex issues as to the application of the penalty doctrine to it. In the circumstances, it was not appropriate to grant default judgment in favour of Govcorp precluding the Malavazos from defending the monetary claim on the basis of the penalty doctrine.
Govcorp contends that clause 5 should be construed so as to give primacy to clause 5.3; clauses 5.7 and 5.9 only operate when the lower rate of interest has been specified under clause 5.4 and, if necessary, clauses 5.7 and 5.9 should be severed from clause 5 leaving clause 5.3 to operate without offending the penalty doctrine.
It is neither appropriate nor possible to determine in this appeal the substantive issues raised in relation to the penalty doctrine. The issue on this appeal is merely whether the Malavazos’ defence is reasonably arguable, not whether Govcorp might ultimately succeed at trial.
It is reasonably arguable that the penalty doctrine must be applied to a provision for payment of interest at differential rates as a whole: the clause either attracts the penalty doctrine or it does not. This would be consistent with the approach of equity considering the substance of a provision as opposed to attempting to divide it into parts, some of which attract the doctrine and others which do not.
Further, as observed above, clause 5.11 is the only provision within clause 5 addressing compound interest and it operates in harmony with clauses 5.7 and 5.9 to impose an obligation to pay interest at the higher rate in the event of breach.
No evidence has been adduced of any communications between the parties before Govcorp issued the letter of offer on 25 September 2019. It is likely that such evidence would be admissible at trial as to the background circumstances under the doctrine identified by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW.[8]
[8] (1982) 149 CLR 337.
In addition, even if the doctrine of severance is available and applicable in the context of application of the penalty doctrine, its application in the present case would give rise to complex issues. Which subclauses would be severed from clause 5 and in particular would they include subclause 5.11? How do each of subclauses 5.7, 5.9 and 5.11 interrelate with clause 5.3? Can some subclauses be severed, leaving the remaining subclauses to operate? What is the effect of subclause 5.1 providing that interest is to be calculated and paid in accordance with clauses 5.2 to 5.15?
Finally, although it forms no part of my decision, it is noteworthy that in its own pleading, Govcorp pleads that the Mortgage provided that the higher interest rate applies when Professional Beauty is in default and relied on clauses 5.2, 5.3, 5.5 and 5.7 in this respect. Paragraph 10.2 of the statement of claim pleads:
10The Agreement contained the following express terms:
…
10.2 Professional Beauty would pay 9% interest on the loan amount on or before the 8th day of each calendar month during each month when Professional Beauty was in default of its obligation under the agreement.
Particulars
Clauses 5.2, 5.3, 5.5 and 5.7 of the MCP read together with Schedule A.
This ground of appeal is established. The Master erred in concluding that the penalty defence was not reasonably arguable.
Explanation for delay
Govcorp contends that, even if the Master erred in concluding that the penalty defence was not reasonably arguable, nevertheless an extension of time was properly refused by the Master because there was not a satisfactory explanation by the Malavazos for their failure to file a defence within 28 days of service of the Claim.
On an application to extend time to file a defence (as opposed for example to an application to set aside a default judgment), the Court exercises an unfettered discretion. There is no rigid requirement that the applicant for the extension of time must establish both an arguable defence and a satisfactory explanation for the failure to file a defence within the requisite time. Exercise of the discretion must ultimately be considered holistically. The error by the Master in relation to the issue whether the penalty defence was reasonable arguable vitiates the exercise of the Master’s discretion.
In any event, the Master erred in considering the explanation given by Mrs Malavazos for failing to file a defence within 28 days of service of the Claim. Mrs Malavazos did not explain this delay by reference to the Malavazos’ ill-health or stress. Her reference to ill-health and stress was exclusively addressed to explaining the delay between 2 July 2021 (the date by which the Malavazos had been ordered to file an interlocutory application and supporting affidavit) and 12 July 2021 (when the Malavazos filed the interlocutory application and supporting affidavit). In respect of that period of delay of 10 days, given the shortness of the period, the fact that Mrs Malavazos was not cross-examined, her evidence was not thereby challenged as to her explanation and she was not asked for corroborative proof, it could not be concluded that her explanation was unsatisfactory such as to justify denial of an extension of time to file a defence.
The delay between 15 March 2021 (when the defence was due) and 18 June 2021 (when Websters Lawyers informed the Court that the Malavazos wished to defend the action and sought an extension time to file a defence) was explained by Mrs Malavazos that, until 17 June 2021, they were unaware that they had a defence to the action. Mrs Malavazos said that, after the action was initiated, they engaged solicitors to act and advised Govcorp that they were applying for finance to discharge their liability. They had difficulties obtaining such finance. She did not understand that they had grounds to defend the claim as she acknowledged that the Loan was made and had not been repaid. Her former solicitor did not explain to her that that there were any grounds for defending the claim and that is why no defence was filed. Instead, she focussed on seeking to refinance the Loan. It was not until they engaged Websters Lawyers on 17 June 2021 that they became aware that they might have a defence with respect to the rate of interest charged being unlawful.

Mrs Malavazos was not cross-examined, and her evidence in this respect was not challenged. It was inherently unlikely that she would have been aware of the penalty doctrine before being advised by Webster Lawyers. The communications exhibited to Mr Palmer’s first affidavit corroborated that the Malavazos were seeking to refinance when the action was instituted and up to the date when a defence was due (18 March 2021) and after that date. Those communications suggest that the retainer of their lawyers was to assist in refinancing. There was no reason to reject Mrs Malavazos’ explanation for not filing a defence by the due date. Particularly in the absence of a challenge in cross-examination or a contention by Govcorp that privilege had been waived and evidence should be adduced from the solicitors, there was no call for the Malavazos to adduce corroborative evidence in that respect.
In the circumstances, the Malavazos had given a satisfactory explanation for their failure to file a defence within the requisite time. The Master erred in concluding otherwise
Discretion
The exercise by the Master of the discretion is vitiated for the two reasons given above. It is necessary to exercise the discretion afresh.
In Ulowski v Miller[9] the Full Court considered the primary factors to be taken into account in exercising a discretion whether to dismiss an action for want of prosecution. That context is different to the context of exercising a discretion to extend time for filing a defence. However, without being exhaustive, the same or analogous factors will often be relevant to the exercise of the discretion to extend time to file a defence. After referring to cases addressing the factors relevant to dismissal for want of prosecution, Bray CJ (with whom Mitchell and Walters JJ agreed) said:
In these cases, as perhaps might be expected, a variety of opinions has been expressed in language differing in emphasis and sometimes in substance… It must be remembered that we are dealing here with a discretion and in my view it ought not to be fettered by any absolute or inflexible rules. It clearly appears from these cases that five paramount matters to be considered are the length of the delay, the explanation for the delay, the hardship to the plaintiff if the action is dismissed and the cause of action left statute-barred, the prejudice to the defendant if the action is allowed to proceed notwithstanding the delay, and the conduct of the defendant in the litigation.[10]
[9] [1968] SASR 277.
[10] At 280.
In the present case, the relevant delay was three months between March, when a defence was due to be filed, and June 2021, when the Malavazos informed the Court that they wished to defend the action. Although significant, that is not an inordinate delay and, by comparison with dismissing an action for want of prosecution, is not such a long delay as would justify such dismissal. The Malavazos provided an explanation for the delay in that over this period they did not believe that they had a defence to the action and this was not unreasonable. The Malavazos would suffer obvious prejudice if they could not advance what I have concluded is a reasonably arguable defence. By comparison, the prejudice to Govcorp of the costs it incurred in applying for default judgment is relatively small and, if the Master had granted an extension of time, there would have been sufficient equity in the Land at that time such that Govcorp would have been able to recover any costs ordered to be paid by the Malavazos as costs thrown away.
Taking into account all relevant circumstances, the Master erred in not granting an extension of time to file a defence and consequentially in entering default monetary judgment.
Unconscionability and related causes of action: 9% per month interest rate
Given my conclusion in relation to the penalty defence, it is not necessary to determine whether the other “defences” advanced by the Malavazos either before the Master or on appeal are reasonably arguable. However, I will address them because Govcorp’s monetary claim must proceed to trial.
Unconscionability
Before the Master, the Malavazos contended that they had an unconscionability defence in respect of the default interest rate. They relied upon unconscionability in three alternative forms:
·unconscionability in equity;
·statutory equitable unconscionability adopting the equitable concept of unconscionability (under section 20 of the Australian Consumer Law); and
·statutory standalone unconscionability (under section 21 of the Australian Consumer Law and section 12CB of the ASIC Act).
The Malavazos contend that the Master erred in finding that they did not have a reasonably arguable case based on unconscionability in respect of the charging of interest at nine per cent per month (as opposed to 4.5 per cent per month). They also seek on appeal to rely on statutory equitable unconscionability under sections 12CA and 12CB of the ASIC Act. Given that this is an analogue of section 20 of the Australian Consumer Law, upon which the Malavazos relied before the Master, there is no prejudice to Govcorp in permitting them to rely upon this provision on appeal.
Although the defence exhibited to Mrs Malavazos’ first affidavit did not refer to the Australian Consumer Law or the ASIC Act, the Master considered the three forms of unconscionability as if they had been pleaded. I adopt the same approach.
Govcorp concedes that a respondent can rely upon the first form of unconscionability (in equity) by way of defence. However, it contends that a respondent can only rely on the second and third forms of unconscionability (under statute) by way of counterclaim (or standalone action). I accept that contention.
The scheme of Chapter 2 and Part 5-1 of the Australian Consumer Law is that a contravention of a provision in Chapter 2 (which encompasses unconscionable conduct, misleading conduct and unfair contract terms) gives rise[11] to private statutory remedies contained in Divisions 2, 3 and 4 of Part 5-1 encompassing injunctions, damages, compensation and other civil relief.
[11] Leaving aside criminal provisions, civil penalty provisions and other public remedy provisions.
Similarly, the scheme of Division 2 of Part 2 of the ASIC Act is that a contravention of a provision in Subdivisions BA, C and D, which encompass unfair contract terms, unconscionable conduct and misleading conduct amongst others, gives rise[12] to private statutory remedies contained in Subdivision G encompassing injunctions, damages, compensation and other civil relief. The statutory unconscionability provisions do not give rise to a mere defence.
[12] Leaving aside criminal provisions, civil penalty provisions and other public remedy provisions.
The fact that statutory unconscionability must be advanced by way of substantive action (for example a counterclaim) has both procedural and substantive consequences. As to the procedural consequences, the defence exhibited to Mrs Malavazos’ first affidavit sought relief including that the transaction documents be read as if they provided only for interest at 4.5 per cent per month. Although technically this was not included under the heading of a counterclaim, in substance it amounted to a counterclaim. Given the nature of the issues before the Master (extension of time and default judgment), the technical deficiency in the pleading is not fatal from a procedural point of view.
As to the substantive consequences, I address them in Montesa Investments Pty Ltd v Certane Ct Pty Ltd.[13]
[13] [2022] SASC 43 at [192].
Turning to the merits of the Malavozos’ reliance on unconscionability, in Kowalczuk v Accom Finance Pty Ltd[14] the borrower granted three mortgages to the lender. The higher interest rate was 120 per cent per annum under two mortgages and 96 per cent per annum under the other mortgage. The lower interest rate was 60 per cent per annum under two mortgages and 48 per cent per annum under the third mortgage. The New South Wales Court of Appeal held that the imposition of the higher interest rate on a compounding basis was unconscionable within the meaning of section 43 of the Fair Trading Act 1987 (NSW), which is similar to the Commonwealth statutory unconscionability provisions applicable in this case.
[14] (2008) 77 NSWLR 205.
In PSAL Ltd v Kellas-Sharpe[15] the higher interest rate was 7.5 per cent per month and the lower interest rate was 4 per cent per month. Applegarth J held that imposition of the higher interest rate on a compounding basis over an extended period was unconscionable within the meaning of section 12CB of the ASIC Act and section 51AC of the Trade PracticesAct 1974 (Cth).
[15] [2012] QSC 31.
Every case of alleged unconscionability must be considered on its own facts. However these cases demonstrate that the imposition of a much higher interest rate than that applicable in the absence of default and on a compounding basis is capable, depending on the circumstances, of amounting to unconscionable conduct. In the present case, it would be relevant to have regard to the entirety of the provisions in the Standard Terms imposing obligations on the borrower in the event of default. These were not confined to a higher interest rate under clause 5, but included the following fees imposed by clause 5.16 of the Standard Terms:
·Default fee charged when an Event of Default occurs: 1.5 per cent of the Principal Amount;
·Default correspondence fee: $235 for each item of correspondence;
·Monthly account fee charged in the Event of Default: $115 per month;
·Default management fee charged when an Event of Default occurs: $70 per day; and
·Enforcement costs payable upon notice of default being issued: $2,000.
The Master relied on the fact that the Malavazos signed Schedule F to the Mortgage, being the Guarantor’s Advice Declaration that the Master construed as stating that they had received legal advice in respect of the interest rate and the consequences for them in the event of default. The Master considered that this rendered it impossible to find that Govcorp’s conduct was unconscionable in the circumstances.
The Malvazos’ execution of Schedule F did not entail that unconscionability could not be established. First, it did not state that they had received legal advice in respect of the interest rate: it merely stated in general terms that they understood the terms of the guarantee in the Mortgage and their financial and legal liability thereunder; that they understood that the provisions of the guarantee will have a financial impact upon them if enforced; that they executed the guarantee without pressure from any third party; and that they had obtained legal advice before executing the guarantee as to its legal effect and their obligations under it. Secondly, in the absence of evidence from the Malavazos or Mr Sander, it is not possible to make a finding in the abstract at this stage as to the content of the legal advice given to the Malavazos.
Nevertheless, all that was pleaded in the draft proposed defence before the Master by way of unconscionability was that “the default interest rate is unconscionable” and “the applicant unconscientiously took advantage of the necessitous circumstances of the respondents in obtaining their purported agreement to the default interest rate”. There was no plea of any material facts capable of comprising unconscionable conduct such as material facts by reason of which the Malavazos had a particular vulnerability or by reason of which Govcorp took advantage of their vulnerability.[16] No evidence was adduced in Mrs Malavazos’ first affidavit to establish unconscionable conduct by Govcorp. Nor have the Malavazos sought to adduce any further evidence on appeal in this respect.
[16] For a recent exposition of the essence of unconscionable conduct, see Stubbings v Jams 2 Pty Ltd [2022] HCA 6.
Accordingly, the Master’s conclusion that the Malavazos had not established that they had a reasonably arguable case based on unconscionable conduct was correct.
Unfair contract terms
The Malavazos contend that they had a reasonably arguable case based on unfair contract terms in respect of the charging of interest at nine per cent per month (as opposed to 4.5 per cent per month). They accept that they did not make this contention before the Master and seek to make it for the first time on appeal. They seek leave to amend their notice of appeal to include this ground.
Govcorp opposes leave to amend the notice of appeal and further opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, the point was fully argued on appeal and, for the reasons given above and below, the action is to proceed to trial in any event on the issue whether the imposition of the higher interest rate is an unlawful penalty. In the circumstances, it is appropriate to grant leave to amend and to entertain the contention on its merits.
For the same reasons as in respect of statutory unconscionability, in order to seek relief of the ground of unfair contractual terms, it is necessary for a party to bring a substantive action (either a standalone action or counterclaim). The position is the same, from a procedural and substantive perspective, as for statutory unconscionability addressed above.
In their proposed amended defence proffered on appeal, the Malavazos seek to invoke Subdivision BA of Division 2 of Part 2 of the ASIC Act which addresses unfair contract terms.
Section 12BF of the ASIC Act applies to a term of a contract (subject to exclusions contained in sections 12BI and 12BL) if the contract is:
1.a consumer contract[17] or small business contract;[18]
2.a standard form contract;[19] and
3.a financial product[20] or contract for the supply or possible supply of financial services.[21]
[17] Defined by sub-s 12BF(3).
[18] Defined by sub-s 12BF(4).
[19] Defined by s 12BK.
[20] Defined by s 12BAA.
[21] Defined by s 12BAB.
Govcorp does not dispute, for the purposes of this appeal, that the first and third prerequisites are established by the Malavazos. It does dispute that the contract was a standard form contract, but does not contend that it is not reasonably arguable that it is a standard form contract.
Section 12BF of the ASIC Act provides that a term of a contract to which the section so applies is void if the term is “unfair”. Section 12BG defines the meaning of “unfair” and section 12BH gives examples of the kinds of terms that may be unfair. They relevantly provide:
12BG Meaning of unfair
(1)A term of a contract referred to in subsection 12BF(1) is unfair if:
(a)     it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
(b)     it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c)     it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
(2)In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
(b)     the extent to which the term is transparent;
(c)     the contract as a whole.
(3)A term is transparent if the term is:
(a)     expressed in reasonably plain language; and
(b)     legible; and
(c)     presented clearly; and
(d)     readily available to any party affected by the term.
(4)For the purposes of paragraph (1)(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.
12BH Examples of unfair terms
(1)Without limiting section 12BG, the following are examples of the kinds of terms of a contract referred to in subsection 12BF(1) that may be unfair:
…
(c)     a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
(d)     a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
…
(g)     a term that permits, or has the effect of permitting, one party unilaterally to vary financial services to be supplied under the contract;
(h)    a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
…
Govcorp does not contend on appeal that it is not reasonably arguable that the terms providing for payment of interest at nine per cent per month were unfair within the meaning of section 12BG (although of course it denies that they were in fact unfair). In Kowalczuk v Accom Finance Pty Ltd,[22] the New South Wales Court of Appeal held that terms providing for the imposition of a higher interest rate of 120 per cent per annum and 96 per cent per annum on a compounding basis were unjust within the meaning of section 7 of the Contracts Review Act 1980 (NSW). The term “unjust” is non-exhaustively defined in different terms to the definition of “unfair” in the ASIC Act. Nevertheless, the general considerations adopted by the Court of Appeal suggest that it is reasonably arguable that the terms providing for the higher interest rate of nine per cent per month in the present case were unfair (particularly taking into account the fees payable on default summarised at [99] above).
[22] (2008) 77 NSWLR 205.
Govcorp contends that it is not reasonably arguable that section 12BI(1)(b) does not exclude the terms providing for the higher interest rate in the present case from the application of section 12BF. Section 12BI relevantly provides:
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
(2)The upfront price payable under a contract is the consideration that:
(a)is provided, or is to be provided, for the supply under the contract; and
(b)is disclosed at or before the time the contract is entered into;
but does not include any other consideration that is contingent on the occurrence or non‑occurrence of a particular event.
(3)To avoid doubt, if a contract is a contract under which credit is provided or is to be provided, the consideration referred to in subsection (2) of this section includes the total amount of principal that is owed under the contract.
Govcorp contends that the higher interest rate of nine per cent per month was part of the upfront price payable under the contract within the meaning of section 12BI(1)(b) because it was:
·part of the consideration to be provided for the supply under the contract within the meaning of section 12BI(2)(a); and
·disclosed before the contract was entered into within the meaning of section 12BI(2)(b).
The Malavazos do not contend that the interest rate payable under the contract was not part of the consideration to be provided for the supply of the loan funds under the contract. They do contend that the terms of the Mortgage relating to the higher interest rate were not disclosed within the meaning of section 12BI(2)(b).
The onus of proof of the exclusion by section 12BI of the application of section 12BG probably lies on the party relying on the exclusion but in any event it is at least reasonably arguable that the onus so lies.
Clause 5 of the Standard Terms is not comprised within the documents executed by the Malavazos on 26 and 27 September 2019. Those documents merely referred to a higher interest rate and a lower interest rate. The Standard Terms were not apparently provided to the Malavazos before they executed the documents on 26 and 27 September 2019. Although the Mortgage document executed on those dates contained a reference to Document Reference 12758935, it was not self-evident what that document was or that it contained terms relating to the imposition of the higher rate of interest. Further, as explained above, the provisions of clause 5 are extremely complex and arguably ambiguous.

The question whether there is disclosure within the meaning of section 12BI(2)(b) is to be determined objectively as opposed to the subjective understanding or state of mind of the consumer or small business party to the contract. It is reasonably arguable that there was not the requisite disclosure to attract the operation of section 12BI.
In addition, section 12BI(1)(b) only excludes the operation of section 12BG “to the extent that, but only to the extent that, the term:…sets the upfront price payable under the contract”. It does not exclude the operation of section 12BG to a term relating to the upfront price in other ways. The assessment of the extent to which a term relating to the upfront price is excluded is a complex one.[23] It is reasonably arguable that the respects in which the Malavazos contend that the terms relating to the higher interest rate are unfair are outside the scope of the extent that the terms set the upfront price.
[23] See Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [73]-[86] per Banks-Smith J.
Govcorp observes that the Malavazos do not seek to adduce evidence as to their state of mind on appeal in support of this cause of action. However, because the issues are objective rather than subjective, this is not fatal to a conclusion that the cause of action is reasonably arguable.
It is reasonably arguable that provisions of clause 5 of the Standard Terms are rendered void by section 12BG of the ASIC Act. This has no consequence in terms of the disposition of the appeal because I have already concluded that the Master erred in finding that it was not reasonably arguable that the provisions of clause 5 comprise an unlawful penalty. However, it is relevant to the future conduct of this matter (addressed below).
Misleading conduct
The Malavazos contend that they had a reasonably arguable case based on misleading conduct in respect of the charging of interest at nine per cent per month (as opposed to 4.5 per cent per month). They accept that they did not make this contention before the Master and seek to make it for the first time on appeal.
Govcorp opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, the point was fully argued on appeal and, for the reasons given above and below, the action is to proceed to trial in any event on the issue whether the imposition of the higher interest rate is an unlawful penalty. In the circumstances, it is appropriate to entertain the contention on its merits.
For the same reasons as in respect of statutory unconscionability, in order to seek relief on the ground of misleading conduct, it is necessary for a party to bring a substantive action (either standalone action or counterclaim). The position is the same, from a procedural and substantive perspective, as for statutory unconscionability addressed above.
In their proposed amended defence proffered on appeal, the Malavazos seek to invoke section 12DB(1)(g) of the ASIC Act. Section 12DB(1)(g) provides:
(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:
…
(g) make a false or misleading representation with respect to the price of services;
Section 12GB addresses specific types of misleading conduct. Section 12GA addresses misleading conduct in generic terms. A breach of section 12GB will always, or almost always, entail a breach of section 12GA.
“Financial service” is defined by section 12BAB and “price” is defined by subsection 12BA(1). Govcorp does not dispute, for the purposes of this appeal, that it supplied “financial services” or that the interest rate chargeable was part of the “price” of the services. In any event, it is clear from the respective definitions that this is at the very least reasonably arguable.
The proposed plea is that Govcorp was in breach of section12DB(1)(g) because it was reasonable to infer from Schedule A that the lower rate of interest would apply where the borrower was not in default of its obligations under the loan agreement and that that was not the case.
Govcorp contends that it is not reasonably arguable that:
1.the proposed pleaded implication arises from Schedule A, or that it was misleading, in circumstances in which Schedule A referred to the Standard Terms;
2.the Malavazos were misled given that they have not adduced any evidence that they were misled and their having been misled is an essential element of causation of loss; or
3.there was any causation of loss because, if the posited implication arises, the Malavazos were not charged the higher rate for the first six months and, assuming the truth of that implication, they would in any event have been charged at the higher rate after the first six months.
I uphold the second and third contentions. It is an essential element of a cause of action for misleading conduct that the claimant prove causation. It was incumbent on the Malavazos to adduce evidence that they were in fact misled. In addition, on their proposed pleaded case, they would have been charged interest in the same manner and in the same amounts as they have actually been charged interest.
This contention is not reasonably arguable.
Conclusion
The monetary judgment awarded by the Master in favour of Govcorp must be set aside because the Master erred in relation to the unlawful penalty defence. The additional contentions by the Malavazos concerning unconscionable conduct, unfair contract terms and misleading conduct do not affect the orders to be made on appeal.
In relation to the future conduct of the case, given that Govcorp’s claim is to proceed to trial in any event on the issue of penalty, subject to their being properly pleaded, the Malavazos should be permitted to advance a case of statutory unconscionability under sections 12CA and 12CB and unfair contract terms under section 12BG of the ASIC Act. Any such case must be pleaded by way of counterclaim rather than defence because it seeks affirmative relief. Similarly, they should be permitted to advance a case of equitable unconscionability. Such cases are not presently adequately pleaded and must be properly pleaded to be advanced.
Other “defences”
The Malavazos contend that they also had a reasonably arguable case based on Govcorp failing to hold an Australian Financial Services licence (financial services licence) under the Corporations Act 2001 (Cth) (the Corporations Act) and on Govcorp engaging in unconscionable conduct under section 12CB of the ASIC Act in lending to them.
Financial services licence
The Malavazos contend that Govcorp is required to hold a financial services licence and does not do so and in consequence the loan contract is not enforceable against Professional Beauty or against them. They accept that they did not make this contention before the Master and seek to make it for the first time on appeal.
Govcorp opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, the point was fully argued on appeal and, for the reasons given above and below, the action is to proceed to trial in any event on the monetary claim. In the circumstances, it is appropriate to entertain the contention on its merits.
Govcorp does not dispute that it does not hold a financial services licence but contends that it is not required to do so and, if it were required to do so, it would have no effect on the loan contract with Professional Beauty or the Malavazos.
Section 913B of the Corporations Act provides for the issue by the Australian Securities and Investments Commission of financial services licences. Subsection 911A(1) provides that, subject to defined exclusions in subsection (2), a person who carries on a “financial services business” (a business of providing “financial services”) in “this jurisdiction” (essentially Australia) must hold a financial services licence covering “the provision of the financial services”.
Subsection 766A(1) defines when “a person provides a financial service”. Section 766A(1)(b) provides that a person provides a financial service if they “deal in a financial product”.
Section 766C defines “dealing” (in a financial product). Section 766C(1)(b) provides that issuing a financial product constitutes dealing in a financial product.
Section 763A contains a general definition of “financial product”. Section 764A provides for specific inclusions of things as financial products but it is not suggested that any of them are applicable in the present case. Section 763A(1)(a) provides that a financial product is a facility through which, or through the acquisition of which, a person “makes a financial investment” (see section 763B).
Section 763B defines “makes a financial investment”. It provides that a person makes a financial investment if:
(a)the investor gives money or money's worth (the contribution) to another person and any of the following apply:
(i)    the other person uses the contribution to generate a financial return, or other benefit, for the investor;
(ii)     the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);
(iii)    the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and
(b)the investor has no day-to-day control over the use of the contribution to generate the return or benefit.
Section 765A(1) provides for specific exclusions of things that are not financial products. Section 765A(1)(h)(i) excludes a “credit facility within the meaning of the regulations (other than a margin lending facility)”.
Regulation 7.1.06(1) of the Corporations Regulations 2001 (Cth) (the Corporations Regulations) defines “credit facility” for the purpose of section 765A(1)(h)(i). Regulation 7.1.06(1)(a) provides that a credit facility includes:
(a)the provision of credit:
(i)    for any period; and
(ii)     with or without prior agreement between the credit provider and the debtor; and
(iii)    whether or not both credit and debit facilities are available; and
(iv)    that is not a financial product mentioned in paragraph 763A(1)(a) of the Act; and
(v)     that is not a financial product mentioned in paragraph 764A(1)(a), (b), (ba), (bb), (f), (g), (h) or (j) of the Act; and
(vi)    that is not a financial product mentioned in paragraph 764A(1)(i) of the Act, other than a product the whole or predominant purpose of which is, or is intended to be, the provision of credit;
Regulation 7.1.06(3)(a) defines “credit” to mean a contract, arrangement or understanding under which payment of a debt owed by one person to another person is deferred or a person incurs a deferred debt to another person. Regulation 7.1.06(3)(b) provides that credit includes, amongst other things, any form of financial accommodation.
Regulation 7.1.06(1)(f) provides that a credit facility includes a mortgage that secures obligations under a credit contract (other than a lien or charge arising by operation of law or by custom), subject to the same exclusions as those contained in paragraph (a)(iv) to (vi). Regulation 7.1.06(1)(g) and (h) provide that a credit facility includes a guarantee related to a mortgage mentioned in paragraph (f) or a guarantee of obligations under a credit contract.
The Malavazos make two alternative contentions:
1.Govcorp issued a financial product to them by entering into the loan agreement and was thereby required to be licensed and the fact that it was not licensed entailed that the loan agreement, guarantee and mortgage were not enforceable against them.
2.Govcorp issued financial products to third party investors and was thereby required to be licensed and the fact that it was not licensed entailed that the loan agreement, guarantee and mortgage were not enforceable against them.
The first alternative contention is pleaded by paragraph 10(a) of the proposed Malavazos defence, which pleads that Govcorp issued a financial product by entry into the loan agreement. I reject this contention. First, the only relevant part of the definition of financial product in section 763A is the reference to a facility through which, or through the acquisition of which, a person “makes a financial investment”, which in turn is defined by section 763B as extracted above. The Malavazos cannot be regarded as the “investor” because they did not give money to Govcorp to generate a return to them.
Secondly, the loan agreement, mortgage or guarantee comprised a credit facility within the meaning of regulation 7.1.06(1)(a) and are thereby excluded by section 765A(1)(h)(i) from the definition of “product”. By entry into the agreement, Govcorp provided credit within the meaning of Regulation 7.1.06(1)(a)(i) to (iii). None of section 763A(1)(a) or section 764A(1)(a), (b), (ba), (bb), (f), (g), (h), (i) or (j) of the Corporations Act applied so as to exclude them from the definition of “credit facility” by regulation 7.1.06(1)(a).
The Malavazos’ second alternative contention is that Govcorp issued financial products to third party investors and was thereby required to be licensed, and the fact that it was not licensed entailed that the loan agreement, guarantee and mortgage were not enforceable against the Malavazos.
Govcorp makes four alternative contentions in response:
1.It has never raised funds from third-party investors and hence section 763B(a) does not apply.
2.If it had, the funds would have been raised on terms giving the investor day-to-day control over the use of the contribution to generate the return or benefit and hence section 763B(b) does not apply.
3.If it is required to be licensed, Division 11 of Part 7.6 of the Corporations Act does not apply to provide for unenforceability because the loan agreement did not constitute or relate to the provision of a financial service by the non-licensee to the client within the meaning of section 924A(1).
4.In any event, section 925A only entitles the client to rescind an agreement to which it applies by giving notice of rescission within a reasonable period after becoming aware of the facts entitling the client to give the notice and the Malavazos have not proved when they became aware of those facts.
The Malavazos contend that Govcorp raised funds, which it used for the purpose of lending to borrowers such as them, from third party investors. They rely in this respect on a webpage contained on Govcorp’s website exhibited to Mrs Malavazos’ second affidavit.
The website is primarily directed to potential borrowers, who are called “customers”. At the bottom of the home page, and under the heading “Information”, there is a link entitled “Investors”, which connects to a webpage entitled “Investors”. This webpage invites persons to invest with or through Govcorp in second mortgage funds and caveat loans for a typical return of 18 per cent per annum. It states that Govcorp acts as mortgage manager by sourcing multiple opportunities to give maximum exposure to the market, conducting due diligence on each opportunity prior to submission to the investor for interest, approving the opportunity through its credit department and managing the mortgage for the lifetime of the Loan. It states that an investor has “total control” of what loan contracts are invested in on the investor’s behalf, and that the investor’s money is placed in an independent Third Party Trust Fund to ensure that it is only invested when the investor has given written permission to do so.
Mr Vujasin in his affidavit deposed to the fact that, despite Govcorp’s website, “Govcorp has not accepted or received any money from any third-party person or investor” and all funds deployed by way of loans from Govcorp have been from its own capital which has not been raised from any third party investor. The Malavazos did not seek to cross-examine Mr Vujasin on his affidavit.
The Malavazos refer to a webpage on the website entitled “Our Team”. One of the members displayed on the “Our Team” webpage is described as “one of Govcorp Finance’ initial high net worth investors”. The Malavazos contend that this is inconsistent with Govcorp’s never having had investors.
However, these references on the “Our Team” webpage are consistent with members of “Our Team” being investors (such as shareholders) in Govcorp itself, rather than being investors in mortgages or mortgage funds. In the absence of cross-examination of Mr Vujasin, there is no basis to challenge his evidence that Govcorp has never had third party investors of the type promoted on the “Investors” webpage.
The Malavazos have not adduced evidence to establish that they have a reasonably arguable case that Govcorp, as at September 2019, provided facilities through which investors make financial investments within the meaning of sections 763A(1)(a) and 763B of the Corporations Act.
I therefore uphold Govcorp’s first contention that it is not reasonably arguable by the Malavazos that Govcorp was required to hold a financial services licence by reason of the provisions of section 763B(a).
I reject Govcorp’s second contention that in any event investors investing pursuant to the invitation on the Investors webpage would have “day-to-day control over the use of the contribution to generate the return or benefit” within the meaning of section 763B(b). There are statements on that webpage that refer to investors’ money being placed in a “third party trust fund” and to “second mortgage funds” which suggest a pooling of investors monies. Although these might be explained by evidence from Govcorp, Mr Vujasin gave no explanation and it is reasonably arguable in the circumstances that investors investing pursuant to the invitation would not have day-to-day control over the use of their contribution to generate returns.
In relation to Govcorp’s third contention, assuming that it were required to hold a financial services licence because it provided a financial investment facility to investors, the consequences of not being licensed are set out in Subdivision B of Division 11 of Part 7.6 of the Corporations Act. Section 924A in Subdivision A identifies the agreements to which Subdivision B applies.
Section 924A(1) relevantly provides:
924A Agreements with certain unlicensed persons
(1)Subdivision B applies to an agreement entered into by a person (in this section and Subdivision B called the non-licensee) and another person (in this section and Subdivision B called the client ) (not being a financial services licensee) that constitutes, or relates to, the provision of a financial service by the non-licensee if:
(a) the agreement is entered into in the course of a financial services business carried on by the non-licensee; and
(b) the non-licensee does not hold an Australian financial services licence covering the provision of the financial service, and is not exempt from the requirement to hold such a licence.
For Subdivision B to apply, the agreement in question must constitute or relate to the provision of a financial service by the non-licensee to the client. A loan agreement between a borrower (such as Professional Beauty) and a lender (such as Govcorp) does not comprise or relate to the provision of a “financial service” by the lender to the borrower. This is because “financial service” is defined by section 766A in the manner described above such that it does not encompass the provision of a credit facility. This is unsurprising because the legislature’s concern is with the relationship between the person providing funds to a non-licensee rather than the person to whom the non-licensee may lend funds and invalidating a loan agreement with the latter would be detrimental to the interests of the former.

I uphold Govcorp’s third contention that it is not reasonably arguable that the Malavazos could utilise the remedies contained in Division 11 of Part 7.6 of the Corporations Act.
In relation to Govcorp’s fourth contention, Subdivision B contains provisions for the rescission and unenforceability of agreements to which it applies by reason of Subdivision A. Section 925A entitles the client to rescind an agreement to which the subdivision applies by giving notice of rescission but only within a reasonable period after becoming aware of the facts entitling the client to give the notice. Section 925E provides that an agreement to which the subdivision applies is not enforceable by a non-licensee against the client while a client is still entitled to give a section 925A rescission notice or after the client has given such a notice.
If Govcorp had been required to hold a financial services licence and if Subdivision A had applied to the loan agreement, mortgage and guarantee, section 925E would have precluded Govcorp from enforcing them against the Malavazos until the time for rescission under section 925A had expired. This would have extended to the date when the applications were heard by the Master. I therefore reject Govcorp’s fourth contention.
The Malavazos’ contention based on the Corporations Act is not reasonably arguable.
Unconscionable conduct: entire transaction
The Malavazos contend that they also had a reasonably arguable case on Govcorp engaging in unconscionable conduct under section 12CB of the ASIC Act in lending to them at all (that is, a broader case beyond merely the higher interest rate case). They seek leave to amend their notice of appeal to include this contention. They accept that they did not make this contention before the Master and seek to make it for the first time on appeal.
Govcorp opposes leave to amend the notice of appeal and further opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, the point was fully argued on appeal and, for the reasons given above and below, the action is to proceed to trial in any event on the monetary claim. In the circumstances, it is appropriate to grant leave to amend and to entertain the contention on its merits.
At paragraph 16 (first occurring) of the Malavazos’ proposed defence, they plead that Govcorp engaged in unconscionable conduct by:
·engaging in asset-based lending when it knew or should have known that it was likely that the Malavazos could not repay the debt other than by selling the Land;
·not investigating the possibility that they could not repay the debt other than by selling the Land;
·not investigating their ability to service and repay the mortgage debt; and
·not requiring them to first obtain independent financial advice as to whether they should enter into the loan agreement.
Govcorp contends that these pleaded matters are not in themselves sufficient to amount to unconscionable conduct and in any event the Malavazos have failed to adduce any evidence to establish that they have a reasonably arguable case in this respect.
I uphold Govcorp’s contentions. The pleaded matters do not amount to unconscionable conduct. For example, there is no plea of material facts by reason of which the Malavazos had a particular vulnerability, by reason of which Govcorp knew of or was reckless as to that vulnerability or by reason of which Govcorp took advantage of that vulnerability.
In addition, the Malavazos have not adduced evidence to establish that they have a reasonably arguable case. For example, they have not adduced evidence as to any urgent, desperate or important need for the funds: the only evidence adduced is that they wanted to pay for fit out and stock. They have not adduced evidence concerning their financial position as at September 2019. Nor have they adduced evidence of their dealings with any finance broker or with Govcorp before 25 September 2019.
This contention is not reasonably arguable.
Declaration of equitable mortgage
Before the Master, the Malavazos did not dispute that they had granted an equitable mortgage over the Land in favour of Govcorp. The Master made a declaration that Govcorp has an equitable mortgage in the form of the Mortgage document dated 27 September 2019 over the Land.
On appeal, the Malavazos contend that the Mortgage was not a valid equitable mortgage because it was not created by deed, which they contend is required by subsection 28(1) of the Property Act, or because it was not registered, which they contend is required by section 67 of the Real Property Act. They seek leave to amend their notice of appeal to include these contentions. They accept that they did not make these contentions before the Master and seek to make them for the first time on appeal.
Govcorp opposes leave to amend the notice of appeal and further opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, given that the grant of the monetary judgment by the Master was erroneous and must be set aside, the consequences of that setting aside on the other relief granted by the Master necessarily arise. Further, these points were fully argued on appeal. In the circumstances, it is appropriate to grant leave to amend and to entertain these contentions on their merits.
Property Act section 28
The Malavazos contend that the Mortgage was not a valid equitable mortgage because it was not created by deed, which they contend is required by subsection 28(1) of the Property Act.
Section 28 of the Property Act provides:
28—Conveyances to be by deed
(1)All conveyances of land or of any interest therein shall be void for the purpose of conveying or creating a legal estate unless made by deed.
(2)     This section shall not apply to—
(a)     assents by a personal representative:
(b)     disclaimers made in accordance with the provisions of any law relating to bankruptcy or not required to be evidenced in writing:
(c)     surrenders by operation of law, including surrenders which may, by law, be effected without writing:
(d)     leases or tenancies or other assurances not required by law to be made in writing:
(e)     receipts not required by law to be under seal:
(f)     vesting orders of the court or other competent authority:
(g)     conveyances taking effect by operation of law.
The term “conveyance” is defined by section 7 as follows:
conveyance includes a mortgage, charge, lease, assent, vesting declaration, disclaimer, release, surrender, extinguishment and every other assurance of property or of an interest therein by any instrument, except a will;
Starting with the text of subsection 28(1), it only renders void a conveyance for the purpose of conveying or creating a “legal estate”. The word “estate” is used in the law to connote a legal interest, that is an interest recognised by the common law. It is not used to connote an equitable interest, that is an interest recognised by equity but not by the common law. The word “legal”, although protean, is often used to connote the common law in contradistinction to equity. When used in conjunction, the phrase “legal estate” clearly connotes an interest in property recognised by the common law and does not connote an equitable interest.
Turning to context, sections 29 to 31, which immediately follow section 28, provide:
29—Instruments required to be in writing
(1)Subject to the provisions hereinafter contained with respect to the creation of interests in land by parol—
(a)     no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law;
(b)     a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
(c)     a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.
(2)This section shall not affect the creation or operation of resulting, implied, or constructive trusts.
30—Creation of interests in land by parol
(1)All interests in land created by parol and not put in writing and signed by the persons so creating the same, or by their agents thereunto lawfully authorised in writing, shall have, notwithstanding any consideration having been given for the same, the force and effect of interests at will only.
(2)Nothing in the preceding sections of this Act shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine.
31—Savings in regard to last two sections
Nothing in the two last preceding sections shall—
(a)     invalidate dispositions by will; or
(b)     affect any interest validly created before the commencement of this Act; or
(c)     affect the right to acquire an interest in land by virtue of taking possession; or
(d)     affect the operation of the law relating to part performance.
Sections 29 to 31 apply to the broader term of an interest in land, which is apposite to connote both legal and equitable interests. This is confirmed by the references in section 29(1)(c) to a disposition of an equitable interest and to the references in section 29(1)(b) and 29(2) to trusts. If the legislature had intended section 28 to apply to conveyances of equitable interests, it would have referred to a conveyance for the purpose of conveying or creating an interest in land in the same manner as the succeeding sections refer to the creation and disposition of interests in land.
The context also includes that historically conveyances of a legal estate in land were effected by deed, whereas the creation or conveyance of equitable interests in land were often effected by agreement.
The evident purpose of section 28 is to require the disposition of common law interests in land to be by deed. There is nothing that suggests that the purpose extends to the disposition of equitable interests.
On its proper construction, section 28 of the Property Act is confined to the conveyance of common law interests in land (legal estates) and does not apply to the grant of an equitable mortgage. It is desirable that this issue be determined finally as between the parties.
Real Property Act section 67
The Malavazos contend that the Mortgage was not a valid equitable mortgage because it was not registered, which they contend is required by section 67 of the Real Property Act.
Section 67 of the Real Property Act provides:
67—Instruments not effectual until registration
No instrument registrable under this Act shall be effectual to pass any land or to render any land liable as security for the payment of money, but upon the registration of any instrument in manner herein prescribed, the estate or interest specified in such instrument shall pass, or, as the case may be, the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such instrument or by this Act declared to be implied in instruments of a like nature.
Starting with the text of section 67, it only applies to instruments registrable under the Act. A legal mortgage in registrable form is a registrable instrument. However, an equitable mortgage not in registrable form is not a registrable instrument, and therefore the section could have no application to it.
Turning to the context of section 67, it forms part of Part 5 which deals with registration of title. Section 67 is subject to other provisions of the Act.
Section 249 provides:
249—Equities not abolished
(1)Nothing contained in this Act shall affect the jurisdiction of the Courts of law and equity in cases of actual fraud or over contracts or agreements for the sale or other disposition of land or over equities generally.
(2)And the intention of this Act is that, notwithstanding the provisions herein contained for preventing the particulars of any trusts being entered in the Register Book, and without prejudice to the powers of disposition or other powers conferred by this Act on proprietors of land, all contracts and other rights arising from unregistered transactions may be enforced against such proprietors in respect of their estate and interest therein, in the same manner as such contracts or rights may be enforced against proprietors in respect of land not under the provisions of this Act: Provided that no unregistered estate, interest, contract, or agreement shall prevail against the title of any bona fide subsequent transferee, mortgagee, lessee, or encumbrancee, for valuable consideration, duly registered under this Act.
The Court has jurisdiction in equity over agreements for the disposition of land and over equities generally. That jurisdiction extends to the enforcement of equitable mortgages by making orders for sale and possession and section 249 preserves that jurisdiction. This is considered further below.
It would require clear language in the statute to evince an intention to abolish unregistered equitable interests. There is no such language and section 249 evinces a clear intention to the contrary.
On its proper construction, section 67 does not render void an equitable mortgage that is not registered under the Act. It is desirable that this issue be determined finally as between the parties.
Conclusion
It is appropriate to grant leave to amend the notice of appeal to encompass these additional grounds contending that the Mortgage is invalid pursuant to section 28 of the Property Act or section 67 of the Real Property Act. It is appropriate to determine finally these issues. In any event, they are not reasonably arguable by the Malavazos.
These contentions afford no reason to set aside the declaration of validity made by the Master.
Orders for sale and possession
The Master made detailed orders for sale of the Land and made an ancillary order that the Malavazos give up possession of the Land.
On appeal, the Malavazos contend that Govcorp cannot enforce repayment of the Loan by selling the Land because it did not meet the requirements of section 192(b) of the Real Property Act or because it did not serve a valid notice as required by section 55A of the Property Act. They seek leave to amend their notice of appeal to include these contentions. They accept that they did not make these contentions before the Master and seek to make them for the first time on appeal.
Govcorp opposes leave to amend the notice of appeal and further opposes the Malavazos being entitled to argue on appeal a point not raised before the Master. However, given that the grant of the monetary judgment by the Master was erroneous and must be set aside, the consequences of that setting aside on the other relief granted by the Master necessarily arise. Further, these points were fully argued on appeal. In the circumstances, it is appropriate to grant leave to amend and to entertain these contentions on their merits.
Jurisdiction to make orders for sale and possession
The Malavazos contend that Govcorp cannot enforce repayment of the Loan by selling the Land because it did not meet the requirements of section 192(b) of the Real Property Act.
Part 17 of the Real Property Act creates a regime under which certain persons can seek an order by the Supreme Court for possession of land against any person in possession of land under the Act by a summary, show cause, procedure.
The persons eligible to seek such an order are identified in section 192 in the following terms:
192—Summons to give up possession
Any of the following persons (in the following sections called the claimant) may cause any person in possession of land under the provisions of this Act to be summoned to appear before the Court to show cause why the person summoned should not give up possession to the claimant—
(a) the registered proprietor of a freehold estate in possession;
(b)any registered mortgagee or encumbrancee where the person in possession is a mortgagor or encumbrancer in default, or a person claiming under such mortgagor or encumbrancer;
(c)any lessor with power to re-enter where the rent is in arrear for three months, whether there be or be not sufficient distress found on the premises to countervail such rent, and whether or not any previous demand shall have been made for the rent;
(d)any lessor where a legal notice to quit has been given, or the lease become forfeited, or the term of the lease has expired.
Govcorp accepts that it was not eligible to seek an order under Part 17 and did not rely on those provisions.
It is clear that Part 17 does not cover the field of court process for obtaining possession of land. For example, the common law cause of action for ejectment remains available, albeit it is a more complex process. Additionally, Part 17 is silent as to the process for obtaining possession by persons who are not eligible under section 192.
Courts of equity have jurisdiction to grant specific performance of contracts. Courts of equity have jurisdiction to enforce an equitable charge or equitable mortgage by making an order for sale and disposition of the proceeds and an ancillary order for possession for the purposes of the sale.[24]
[24] Swiss Bank Corporation v Lloyds Bank Ltd[1982] AC 584 at 595 per Buckley LJ (with whom Brandon and Brightman LJJ agreed); Morris Finance Ltd v Brown[2017] FCAFC 97 at [38]-[39] per Beach, Markovic and Moshinsky JJ; Johnson v Synnex Australia Pty Ltd; Johnson v Leader Computers Pty Ltd (No 2) [2017] SASCFC 165 at [60] per Blue J (with whom Kourakis CJ and Evans J agreed).
The power of a court of equity to make an order for sale is explicitly recognised by section 43 of the Property Act. It provides:
43—Realisation of equitable charges by the court
Where an order for sale is made by the court in reference to an equitable mortgage on land the court may, in favour of a purchaser, make a vesting order conveying the land or may appoint a person to convey the land, or may create and vest in the mortgagee a legal estate in the land to enable him to carry out the sale as the case requires, in like manner as if the mortgage had been made by way of legal mortgage, but without prejudice to any incumbrance having priority to the equitable mortgage unless the incumbrancer consents to the sale.
Clause 18.3(c) of the Standard Terms provides:
18.3 If an Event of Default occurs, or is deemed to have occurred:
…
(c) the Lender may:
(i)take possession of and eject any occupants from the Mortgaged Property; and
(ii)sell, assign, transfer, dispose of, or exchange the Mortgaged Property, or grant options in respect of or over the Mortgaged Property;
Accordingly, the Master had jurisdiction to make orders for sale and disposition of the proceeds of sale and an ancillary order for possession. It is desirable that this issue be determined finally as between the parties.
Compliance with Property Act section 55A
The Malavazos contend that Govcorp cannot enforce repayment of the Loan by selling the Land because it did not serve a valid notice as required by section 55A of the Property Act.
Section 55A of the Property Act relevantly provides:
55A—Enforcement of rights against mortgagor
(1)A right of sale or foreclosure in respect of mortgaged land, a right to enter into possession of mortgaged land or a right to appoint a receiver in respect of mortgaged land shall not be enforceable by the mortgagee under a mortgage to which this section applies against the mortgagor by action or otherwise unless—
(a)the mortgagee has served upon the mortgagor a notice in writing—
(i)alleging a breach of a covenant or condition of the mortgage by the mortgagor; and
(ii)if the breach is capable of remedy, requiring the mortgagor within one month after service of the notice, or such longer period as may be stipulated in the notice, to remedy the breach; and
(iii)if the mortgagee seeks compensation for the breach, requiring the mortgagor within one month after service of the notice or such longer period as may be stipulated in the notice, to pay to the mortgagee the amount of the cost and expenses, stipulated in the notice, that the mortgagee has reasonably incurred in consequence of the breach; and
(b) where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements.
…
(2a)Upon the application of a mortgagee, a court may dispense, upon such terms and conditions as it thinks fit, with the requirement of notice under this section.
(2b)Where such a dispensation has been granted, the provisions of subsection (1) and subsection (2) of this section shall not apply in respect of the mortgage.
…
(5)This section applies to a mortgage of land (whether or not the land has been brought under the provisions of the Real Property Act where—
(a)the mortgagor is a natural person; and
(b)the land is appropriated for domestic or agricultural use.

On 23 December 2020 Govcorp served on the Malavazos a notice under section 55A (the Statutory Notice). The Notice stated that:
·the Malavazos had defaulted under the Mortgage by failing to repay the secured moneys by 8 April 2020;
·the amount owing as at 18 December 2020 was $169,444.06; and
·if the Malavazos did not remedy the default within 31 days after service of the notice, Govcorp proposed to exercise its rights to power of sale in respect of the Land.
The Malavazos contend that the Statutory Notice was invalid in that it overstated the amount owing because the interest component of the debt claimed was calculated at the higher rate rather than the lower rate of interest. This contention assumes that interest at the higher rate was not recoverable from the Malavazos. As this will be an issue at trial, for the purpose of determining this appeal, I assume that interest was only recoverable at the lower rate of interest, being 4.5 per cent per month.
Subsection 55A(1) precludes enforcement of a right of sale or foreclosure in respect of, or a right to enter into possession of, mortgaged land unless a notice complying with the provision has been served and the mortgagor fails to comply with the notice within one month (or such longer period as may be stipulated in the notice).
Subsection 55A(1) appears to be directed to rights conferred directly by a mortgage to sell, foreclose or enter possession, which rights are apposite to a legal mortgage. It is not self-evident that this provision is directed to orders made by a court of equity for sale, foreclosure or possession in respect of an equitable mortgage where the mortgagee does not have a right, absent such a court order, of sale, foreclosure or possession. The court will exercise a discretion in any event whether to make an order having regard amongst other things to prior notice of intention by the mortgagee to the mortgagor. However, the appeal was argued on the assumption that the provision does apply in the present case and I proceed on that assumption.
Starting with the text of section 55A, paragraph (1)(a)(i) requires the notice to allege the breach of condition of the mortgage by the mortgagor. What will amount to identification of the breach in compliance with this requirement will depend on the condition in question and the nature of the breach. Some breaches will be non-monetary. Other breaches (such as a failure to repay principal upon expiry of the term of the loan) will be monetary but the amount need not necessarily be set out in the notice provided that the breach is adequately identified.
Paragraph (1)(a)(ii) requires the notice, if the breach is capable of remedy, to require the mortgagor within one month after service of the notice to remedy the breach. If the breach has been sufficiently identified in accordance with paragraph (a)(i), the notice will ordinarily not need to identify how the breach may be remedied.
Paragraph (1)(a)(iii) only applies if the mortgagee seeks compensation for costs or expenses incurred in consequence of the breach. In that event, the notice must require the mortgagor within one month after service of the notice, or such longer period as may be stipulated in the notice, to pay the costs or expenses incurred in consequence of the breach.
The evident purpose of section 55A is to ensure that a mortgagee is afforded a final opportunity of one month to remedy a default before exercise of power of sale, foreclosure, a right to possession or appointment of a receiver is exercised by the mortgagee. The evident purpose does not require the amount the subject of the default (when applicable) to be stipulated or, if stipulated, not to be overstated provided that the default is sufficiently identified.
A construction of section 55A that would require the amount the subject of the default (when applicable) always to be identified and never to be overstated would result in difficulties where the calculation of the amount due is complex or might be the subject of dispute in the manner identified by the High Court in Bunbury Foods Pty Ltd v National Banking Company of Australasia Ltd[25] in the second paragraph extracted at [225] below.
[25] [1984] HCA 10; (1984) 153 CLR 491.
In Lamshed v Plakakis[26] the borrower defaulted in payment of monthly interest. The lender served on the borrower a notice under section 55A identifying the default as “default of money due and payable under the… mortgage” without identifying the amount of interest due. Perry J held that it was not necessary for the validity of the notice to specify the amount of interest unpaid comprising the default. However, the mortgage contained a term providing for acceleration of payment of principal in default of payment of interest and Perry J held that it may have been necessary to specify whether the default comprised merely non-payment of interest or also non-payment of principal.
[26] (1988) 47 SASR 316.
Perry J said:
The question is whether, when the breach is failure to pay the moneys due on the mortgage, the amount of the moneys due should be specified in the notice.
My attention has been drawn to Stephenson Developments Pty Ltd v Finance Corporation of Australia Ltd. That case dealt with a notice of sale under the Property Law Act 1974 (Qld). The relevant provision of that Act was rather more specific in that the right to exercise the power of sale was postponed until a notice, in the case of default in payment of the principal money or interest, was given “requiring payment of the amount”. In the course of his judgment, Douglas J said:
“I cannot see why it is necessary to the integrity of the document that the amount should be specified. Normally, it is a matter which is common knowledge to both parties. If an amount is specified, and it comes into dispute between the parties, it is not a factor which would prevent the sale: Cockell v Bacon”.
He went on to hold that a notice which failed to specify the amount but which otherwise complied with the provisions of the Queensland Act was valid.
I have reached a similar view with respect to the provisions of s 55a(1). In my opinion in the case of a notice directed towards remedying a breach of covenant or condition of a mortgage in failing to pay interest, there is no reason why the amount should be specified.[27]
[27] At 312. (Citations and pinpoints omitted)
In Adelaide Bank Ltd v Gibbs[28] Debelle J cited Lamshedv Plakakis[29] and the High Court’s decision in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd[30] as authority for the proposition that an overstatement of the amount due does not invalidate a statutory notice, saying:
A reasonable degree of latitude is allowed in respect of errors in notices under s.55a of the Law of Property Act. For example, a notice is not invalid because it demands more than is due: Bunbury Foods Pty Ltd v National Bank of Australasia Ltd; Lamshed v Plakakis.[31]
[28] (1995) ANZ Conv R 615.
[29] (1988) 47 SASR 316.
[30] (1984) 153 CLR 491.
[31] (1995) ANZ Conv R 615 at 617. (Citations omitted)
These decisions are consistent with decisions in other jurisdictions in respect of counterpart provisions to section 55A (statutory notices) or in the context of contractual provisions requiring notice before enforcement. Caution must obviously be exercised in relation to other legislation in different terms or other contexts but the decisions are uniformly to the same effect.
In Campbell v Commercial Banking Company of Sydney[32] sections 55 and 56 of the Real Property Act 1862 (NSW) provided that, if a mortgagor defaulted in payment of principal, interest, etc or otherwise in observing a covenant for at least a month; the mortgagee gave notice in writing to the mortgagor to pay the money then due or owing or to observe the covenant breached and that sale would be effected unless such default were remedied; and such default continued for a further month, the mortgagee could exercise a power of sale. The Privy Council held that a statutory notice under section 55 was valid even if it overstated the amount due. Sir James Colville, Sir Barnes Peacock, Sir Montague Smith and Sir Robert Collier said:
…the learned Judges of the Supreme Court have held, and in their Lordships’ opinion, have correctly held, not only that a notice under the Act is not bad because it demands more than is due… but that where a demand is made for a larger amount than that which is really due, such demand does not do away with the necessity for tendering what is actually due, unless there is at the same time refusal to receive less.[33]
[32] [1879] NSWLawRp 1; (1879) 2 LR (NSW) 375.
[33] At 385. (Citations omitted)
In Clyde Properties Ltd v Tasker[34] subsection 92(1) of the Property Law Act 1952 (NZ) provided that no power to sell or enter possession conferred by a mortgage should become exercisable by reason of any default in the payment of any monies or performance of any other covenant unless the mortgagee served on the owner a notice specifying the default complained of and the day on which the power would become exercisable and requiring the owner to remedy the default, and the owner failed to remedy the default before the specified date. Richmond J held that an overstatement in the statutory notice of the amount of principal due did not invalidate the notice, following Campbell v Commercial Banking Company of Sydney.
[34] [1970] NZLR 754.
In Stephenson Developments Pty Ltd v Finance Corporation of Australia Ltd[35] section 84(1)(a) of the Property Law Act 1974 (Qld) prohibited a mortgagee exercising a power of sale unless default had been made in payment of principal or interest, notice requiring payment of the amount the failure to pay which constituted the default had been served on the mortgagor, and such default had continued for 30 days thereafter. A notice was served alleging default in payment of interest without specifying the amount of interest. Douglas J, in the passage cited by Perry J in Lamshed v Plakakis extracted at [219] above, held that the notice was valid and no amount was required to be specified.
[35] [1976] Qd R 326.
In Bunbury Foods Pty Ltd v National Banking Company of Australasia Ltd[36] the issue was whether a notice demanding payment of monies owing without specifying an amount complied with a clause in the debenture dealing with demands. The High Court referred with approval to, and applied to this different context, the decisions in Campbell v Commercial Banking Company of Sydney and Clyde Properties Ltd v Tasker relating to statutory preconditions to the excise of the power of sale. The High Court held that the lender’s notice was valid and was not required to state the amount due. Mason, Murphy, Wilson, Brennan and Dawson JJ said:
It is of some materiality to note that it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt. Even a notice given to the mortgagor by the mortgagee as a condition precedent of a power of sale is not rendered invalid because it demands payment of more than is due (Humphery v. Roberts; Campbell v. Commercial Banking Co. of Sydney; Clyde Properties Ltd. v. Tasker; MIR Bros Projects Pty. Ltd. v. 1924 Pty Ltd). It may be thought that this provides sufficient reason for insisting that the creditor should specify the amount of the debt in his notice demanding payment for the validity of the notice will not be imperilled by an error in the statement of the amount. However, there is little point in requiring that the notice should state the amount if the correctness of the amount is not essential to the validity of the notice. In this situation insistence on the requirement may result in creditors taking insufficient care in stating the amount of the debt, thereby contributing to confusion on the part of debtors.
The foregoing examination supports the view that the interests of the parties will be more adequately protected by the principle that the debtor must be allowed a reasonable opportunity to comply with the demand before the creditor can enforce or realize the security than by the adoption of the suggested proposition that the notice of demand must specify the amount of the debt. In determining whether the debtor has had such an opportunity it will be relevant to take account of the debtor's knowledge, lack of knowledge and means of knowledge of the amount due and of the information which the creditor has provided in that respect, including the response which he has made to any inquiry by the debtor.[37]
[36] (1984) 153 CLR 491.
[37] At 503-504. (Footnotes omitted)
The Malavazos rely on the decision of Besanko J in Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd.[38] In that case, the lender served a statutory notice on the mortgagor demanding payment of $2.1 million. The terms of the notice are not set out or otherwise described in the judgment. The lender subsequently sought and obtained an order for possession. On appeal against that order, the mortgagor argued that the amount secured by the mortgage was limited to $1.5 million. Besanko J found that this was reasonably arguable.
[38] [2004] SASC 60, (2004) 206 ALR 69.
Besanko J further found that it was reasonably arguable that the notice was invalid because it demanded too much and accordingly the matter should proceed to trial. Besanko J referred to Bunbury Foods Pty Ltd v National Banking Company of Australasia Ltd and Stephenson Developments Pty Ltd v Finance Corporation of Australia Ltd. Besanko J said he had not been able to find any authority dealing directly with the point in relation to a notice under section 55A. It is apparent that the parties only made limited submissions on the point and Besanko J was not aware of the two authorities directly in point, namely Lamshed v Plakakis and Adelaide Bank Ltd v Gibbs. Given this, and the fact that Besanko J did not decide the point but only considered whether it was reasonably arguable, this decision is of no real assistance to the Malavazos.
Returning to the present case, the default identified in the Statutory Notice was “failing to repay the secured moneys to the Mortgagee by the term date, namely 8 April 2020”. The Mortgage itself identifies that $76,000 was due for repayment six months after commencement, that is by 8 April 2020. To identify the default, it was not necessary for the notice to specify the amount that was due for repayment by that date. The default identified did not extend to interest accruing after 8 April 2020 and hence any issue as to whether interest was lawfully payable at the higher rate, as opposed to the lower rate, was irrelevant to the default alleged.
The notice went on to state that “[t]he amount owing as at Friday, 18 December 2020 is $169,444.06”. On the assumption that this figure overstated the amount lawfully recoverable because it included interest calculated at the higher rate, that would not invalidate the notice. First, for the reasons given above, this was not relevant to the default alleged which was the failure to prepay the principal by 8 April 2020. Secondly, a mere overstatement of the amount due does not invalidate a statutory notice. Thirdly, the Malavazos could easily have calculated the amount due if interest were charged at the lower rate.
The Malavazos did not seek particulars of the calculation of the amount of $169,444.06 referred to in the notice. They did not make or tender any payment at all in response to or after service of the Statutory Notice. They had not made any payment of principal or interest since the Loan had become repayable on 8 April 2020.
Applying the reasonable opportunity approach articulated by the High Court in Bunbury Foods Pty Ltd v National Banking Company of Australasia Ltd[39] in the second paragraph extracted at [225] above, the Statutory Notice provided the Malavazos with a reasonable opportunity to comply with the demand before Govcorp could enforce the Mortgage. The Statutory Notice was not misleading. The amount said to be due included interest calculated at nine per cent per month and this is what the Malavazos expected given that they knew that they were in default.
[39] (1984) 153 CLR 491.
The Statutory Notice complied with section 55A(1)(a)(i). It also required the Malavazos to remedy the default within 31 days after service of the notice and thereby complied with section 55A(1)(a)(ii).
The Statutory Notice was valid. It is desirable that this issue be determined finally as between the parties.
Conclusion
It is appropriate to grant leave to amend the notice of appeal to encompass these additional grounds contending that there was no power to order sale or possession and that the Statutory Notice was invalid. It is appropriate to determine finally these issues. In any event, they are not reasonably arguable by the Malavazos.
These contentions afford no reason to set aside the orders for sale and possession of the Land made by the Master.
Conclusion
The Master erred in refusing the application for an extension of time in which to file a defence to the monetary claim by Govcorp. It follows that, insofar as the Master granted default judgment in favour of Govcorp against the Malavazos, the Master erred.
Leave to appeal should be granted. The underlying rationale for requiring leave to appeal against interlocutory decisions is that they often relate merely to matters of practice and procedure and in any event it is often desirable that there only be a single appeal at the end of the case rather than a series of interlocutory appeals. In the present case, the direct and immediate effect of the refusal to grant an extension of time to file a defence was that a default monetary judgment was granted against the Malavazos, having final effect. The refusal to grant the extension of time and the grant of the default monetary judgment caused substantive and obvious prejudice to the Malavazos.
By contrast, the Malavazos have failed to establish that they had a reasonably arguable defence to the claims by Govcorp for the declaration and for the sale and possession orders. It follows that the Master did not err in granting default judgment in respect of those claims.
I will make the following orders:
1.Leave to amend the notice of appeal granted.
2.Leave to appeal granted.
3.Appeal allowed.
4.Order by the Master refusing an extension of time to file and serve a defence insofar as the Malavazos sought to defend the monetary claim be set aside.
5.In lieu thereof, an order granting an extension of time to the Malavazos to a date to be determined to file and serve a defence to the monetary claim.
6.The default judgment be set aside insofar as judgment was granted for Govcorp to recover from the Malavazos $200,548.08 together with interest accruing on that sum at the rate of nine per cent per month on and from 9 February 2021, compounding each month.
7.The parties are to be heard in relation to modifications to the orders made by the Master for the disposition of the proceeds of sale.
8.The parties are to be heard in relation to any other matters, including the future conduct of the action.
9.The parties are to be heard in relation to costs.