Mercedes-Benz Financial Services Australia Pty Ltd v Kucharski
[2018] WADC 7
•18 JANUARY 2018
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: MERCEDES-BENZ FINANCIAL SERVICES AUSTRALIA PTY LTD -v- KUCHARSKI [2018] WADC 7
CORAM: EATON DCJ
HEARD: 27 NOVEMBER 2017
DELIVERED : 18 JANUARY 2018
FILE NO/S: CIV 4361 of 2015
BETWEEN: MERCEDES-BENZ FINANCIAL SERVICES AUSTRALIA PTY LTD
Plaintiff
AND
CHARLES KUCHARSKI
Defendant
Catchwords:
Contract - Chattel mortgage - Mortgagee's obligation to the mortgagor when exercising a power of sale
Legislation:
Nil
Result:
Judgment for the plaintiff
Defendant's counterclaim and set-off dismissed
Representation:
Counsel:
Plaintiff: Mr D Chandler
Defendant: In person
Solicitors:
Plaintiff: IRSA Legal Pty Ltd
Defendant: Not applicable
Case(s) referred to in judgment(s):
Banksia Mortgages Ltd v Croker [2010] NSWSC 1177
Boz One Pty Ltd v McLellan [2015] VSCA 68
Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676
EATON DCJ: By writ of summons filed in this court on 9 December 2015, the plaintiff commenced action against the defendant to recover an amount of $101,216.32 plus interest and costs. The claim is founded upon an admitted contract in writing between the plaintiff and the defendant, said to be made on or about 12 September 2011, whereby the plaintiff agreed to advance funds to the defendant to enable him to purchase a 2010 International 9900I Eagle sleeper cab 9000 prime mover ('the truck').
At all material times the defendant ran his own trucking business at Kalgoorlie.
The plaintiff pleads that funds were advanced to the defendant and that he defaulted 'by failing to make payments thereunder when due'. The plaintiff pleads further that it served a default notice on the defendant, that he failed to rectify the default or defaults and that, in consequence, the plaintiff repossessed the truck.
It was subsequently sold at auction. The amount recovered was not sufficient to offset the debt owed by the defendant to the plaintiff. In consequence, by its action, the plaintiff seeks to recover the balance due to it.
On 2 May 2016 the defendant, then represented by solicitors, filed a notice of defence, counterclaim and set-off. By his pleading, the defendant admits the contract with the plaintiff, the purpose of the advance and his obligation to pay instalments and interest in accordance with its terms.
The defendant admits that he failed to rectify the defaults within the time specified in the plaintiff's notices of demand. He pleads, however, that the plaintiff had an obligation of good faith and fair dealing and that it failed to comply with its obligation in that it failed to provide the defendant:
with a reasonable opportunity to sell the vehicle for proper value and chose to repossess the vehicle resulting in additional and unnecessary costs being incurred in relation to the repossession.
With respect to the sale of the truck by public auction, the defendant pleads that the plaintiff failed in its duty to take 'more reasonable care to sell the vehicle for no less than its market value'.
By way of counterclaim, the defendant pleads that the plaintiff was under a duty to act in good faith in relation to the contract and that it failed to do so by:
(a)failing to provide the defendant with sufficient time to satisfy the notice of demand;
(b)taking possession of the truck in circumstances where there was potential for it to be sold for market value;
(c)failing in its duty to take all reasonable care to sell the truck for not less than its market value; and
(d)failing to exercise the power of sale in good faith.
By way of counterclaim the defendant seeks damages for the pleaded breaches of duty and seeks to off-set damages recovered against his debt to the plaintiff.
In its reply and defence to counterclaim, the plaintiff joins issue with the defendant on his allegations of breach of good faith and, specifically, with the allegation that the defendant was not allowed reasonable time or opportunity to meet the demand made by the plaintiff. In brief, the plaintiff denies the alleged breach of good faith or fair dealing and the counterclaim and set-off.
Legal representation
The plaintiff has, throughout, been represented by IRSA Legal Pty Ltd. The defendant was represented by McKenzie & McKenzie, solicitors of Kalgoorlie. That firm entered an appearance on 24 March 2016. On 24 February 2017 McKenzie & McKenzie filed a notice of change of address for service which indicated, in effect, that the firm was no longer acting for the defendant, providing his personal address, email address and telephone number as contact and service details.
By letter of 12 April 2017 McKenzie & McKenzie wrote to the registrar of the court returning original documents delivered to the firm and advising that the firm no longer acted for the defendant.
On 27 November 2017 the matter came on for trial before me. Mr Chandler appeared as counsel for the plaintiff. The defendant confirmed that he was no longer represented by McKenzie & McKenzie and that he accepted that the trial should proceed, notwithstanding his lack of representation.
On 21 August 2017 Registrar Kingsley ordered that the parties file and serve witness statements to be relied upon at trial, outlines of submissions and a statement of agreed facts. Both parties attempted to comply with those directions.
The contract
The contract giving rise to the action is entitled 'Dealer Truck Financial - Asset Loan Agreement (Chattel Mortgage)'. The plaintiff is described as the lender and the defendant is described as the 'purchaser/owner'.
The term of the loan is five years with the first monthly instalment due on 12 October 2011. Following 60 monthly instalments of $4,580.67, the defendant was obliged to make a final 'balloon payment' of $78,142.44.
The defendant falls into default
The plaintiff's bundle of documents (exhibit 2) includes a printout from an electronic diary maintained by the plaintiff's employees in connection with the contract between the plaintiff and the defendant. It indicates that on 18 March 2014, at the defendant's request, the plaintiff provided a quotation of the cost of paying out the loan earlier than in accordance with the contract schedule. I infer that the defendant's plans for the truck had not unfolded as intended.
In cross-examination the defendant said that an employee who was driving the truck for him was 'doing the wrong thing'. That is why, he said, he decided to sell it. It was in that context that he requested the plaintiff to provide him with a payout figure.
The diary indicates that on 20 January 2015 the defendant contacted the plaintiff by telephone to advise that business was slow and that he was actively looking for work. The note indicates:
Hardship not required as he is confident of getting through this. The unit is being taken to Perth for consignment.
The defendant indicated he would be calling back.
On 9 February 2015 the defendant called to advise that he was attempting to sell the truck and would keep the plaintiff informed.
On 16 February 2015 the defendant advised the plaintiff that he had received two offers to purchase the truck, both being rejected as being too low.
By letter of 19 February 2015, the plaintiff wrote to the defendant advising that he was $4,574.66 in arrears and requesting that he make payment of the arrears by 26 February 2015. It appears that no payment was made by that day and the plaintiff again wrote to the defendant regarding the outstanding amount. The plaintiff said:
Please remit payment before 5th March 2015 using one of the payment methods overleaf. Failure to pay or respond may result in late payment fees being charged to your account.
It is an agreed fact that on 26 February 2015 the defendant was in arrears under the terms of the agreement in the sum of $4,586.91.
On 10 March 2015 the defendant again spoke with the plaintiff to advise that a prospective purchaser would be inspecting the truck and another truck owned by him on that evening. On the following day the defendant advised the plaintiff that the prospective purchaser was 'thinking about it'.
By letter of 28 May 2015, the plaintiff again wrote to the defendant seeking an amount which by then had grown to $9,490.70. The plaintiff advised that unless the outstanding amount was paid within 14 days, being by 11 June 2015, 'your Contract will be terminated and you will be required to return the abovementioned security immediately'. The security was, of course, the truck.
By letter of 28 July 2015, the plaintiff wrote to the defendant advising that the truck had been repossessed and was being held in secure storage. It further advised that all money due under the contract should be paid within 21 days and, in the event of failure to make payment, the plaintiff advised of its intention to sell the truck by public auction. It advised further:
We give you notice that any deficiency in finalising your obligations under the Contract, following the sale of the above-mentioned security, will be recoverable from you. Should you have any questions concerning the recovery of the vehicle please contact the Collections Department at our Melbourne office on 1300 731 211.
In August 2015 the plaintiff obtained two valuations for the truck, one from Pickles Auctions in the sum of $65,000 and another from Select Trucks in the sum of $50,000.
Fixing a reserve price of $67,000 the plaintiff placed the truck with Pickles Auctions and, on 4 September 2015, it was sold at public auction conducted by that company for an amount of $67,000 inclusive of GST. The net proceeds of sale were $59,044.09. That amount was credited to the defendant's account, reducing his debt accordingly.
On 7 October 2015 the plaintiff gave notice to the defendant of an amount of $101,451.37 owing and demanded payment in full within 14 days or a suitable arrangement for payment within 14 days.
The evidence
At trial I heard evidence from Thomas Williamson, called by the plaintiff, and from the defendant and John Patrick O'Dowd, called by the defendant.
Mr Williamson gave evidence that he is the plaintiff's national marketing manager and had been in that position since May 2015. His responsibilities included recovering amounts due by customers who fail to meet their obligations under financing agreements. He said that, in the case of repossessed vehicles, following a default in payment by a customer, valuations are obtained prior to selling a vehicle by public auction. The purpose of obtaining valuations is to determine an appropriate reserve price.
To that end, the plaintiff has dealings with a number of auction houses including Pickles Auctions and Select Trucks. The latter, he said, is associated with the used truck division of Mercedes Benz. It sells used trucks and provides valuations to the plaintiff from time‑to‑time.
The truck was placed with Pickles Auctions in Perth. On 21 August 2015 he approved a reserve price of $67,000 for the truck. On 4 September 2015 it was sold by public auction for the reserve price.
Mr Williamson's witness statement became exhibit 1.
In cross‑examination Mr Williamson agreed that Select Trucks did not have a dealership in Perth and were associated with the plaintiff. In consequence, the quotation obtained as to the value of the truck from Select Trucks was based on a written motor vehicle report and photographs. That report was prepared by Pickles Auctions following a full inspection of the vehicle. It was then sent, without reference to the valuation provided by Pickles Auctions, to Select Trucks for an independent assessment of the value of the truck.
The defendant's witness statement was the subject of objection by counsel for the plaintiff on a number of bases. In particular, objection was taken to a portion of the statement in which the defendant purported to give his opinion of the value of the truck.
The valuation of real or personal estate is, particularly when the value is substantial, a matter of expertise. In order to prove the value of the truck at any given time it would be necessary to call a witness and establish to the satisfaction of the tribunal of fact a suitable degree of expertise in the relevant area.
Counsel for the plaintiff agreed that, to the extent that the defendant was giving non‑expert opinion as to the value of the truck, such evidence should be admitted on the basis of it being non‑expert opinion but, nevertheless, the opinion of a person who had been involved in the trucking industry for a considerable time. In other words, I should receive the evidence and attribute appropriate weight to it in the circumstances. I did so.
The second basis of objection was as to hearsay. I upheld the objection in respect of a passage in the defendant's statement beginning with the words 'and informed me that …' and ending with the words '… sale of the truck'.
Subject to that passage being ruled inadmissible the defendant's statement became exhibit 5.
In cross‑examination the defendant agreed that in late March 2015 the plaintiff provided him with a 'hardship form'. Completion of such a form by a debtor might enable the creditor, in this case the plaintiff, to accept that the debtor might be in circumstances of hardship and make appropriate arrangements to accommodate that difficulty. The defendant said that, upon receipt of the form, he 'couldn't see the sense in it'. He declined to sign and submit the form. He said 'a hardship application is not going to solve the problem'.
The diary notes relied upon by the plaintiff of several discussions with the defendant during the relevant period suggest that he was sent a 'voluntary surrender' form. In particular, the note was 'Charlie will mail back the v/s. He advised he has been in hospital'. The defendant denied receiving the voluntary surrender form but, in response to a question from the bench, indicated that, at the relevant time, he had been in hospital, having suffered a heart attack in mid‑May 2015.
The defendant agreed that he had spoken with the plaintiff's employee named Kylie. He said:
I rang – when Kylie – I think I spoke to Kylie and she asked me how it was all going or whatever, and I said to her, 'look, to be honest with you I have suffered a heart attack. My commercial vehicle driver's licence has been suspended for five months. I have to go back –'.
The defendant explained that, having suffered a heart attack, he was prevented, as a matter of law, from driving commercial vehicles for a period of time. Driving commercial vehicles was his business. He was obliged to undertake stress tests and re‑apply for his licence to drive commercial vehicles in due course.
In cross‑examination the defendant agreed that from January to July 2015 he attempted to sell the truck. He received several offers to purchase for, he said, just over $100,000 but refused to sell because, in his view, the offers were too low. He considered the truck to be worth as much as $115,000.
The defendant agreed that it was reasonable for the plaintiff, having repossessed the truck, to sell it at public auction. His contention was that the reserve price was too low. In his opinion, the truck was sold well below its true value. He was aware of another truck which, he said, was identical to his that had been sold or offered for sale at a price in excess of $100,000.
John Patrick O'Dowd had provided a statutory declaration. It became exhibit 6. It was relied upon by the defendant as the witness's evidence‑in‑chief.
Mr O'Dowd said that he was, by trade, a panel-beater and spray‑painter but was, at the time, a dealer in motor vehicles and trucks. On 25 January 2015 he received the truck on consignment for sale. It was later repossessed from his yard.
He agreed that for about six months the truck was in his yard for sale at $160,000 in accordance with the defendant's instructions. It was not sold. It all depended, he said, on the market for trucks at the relevant time. There was, he said, some interest in the truck in the area of $100,000 ‑ $110,000 but, in that price bracket, it was well below the listed price.
Mr O'Dowd received a verbal offer to purchase the truck for $120,000 in mid‑July 2015. He informed the defendant. His intention was to go back to the prospective purchaser but, in the meantime, the truck was repossessed. The offer had never been put in writing. He could only remember the offeror's first name.
Conclusions
Two conclusions can be drawn from the evidence.
Firstly, the defendant, in the first half of 2015, if not in the latter part of 2014, was in financial difficulties and unable to make the payments required under the contract with the plaintiff. His difficulties were, early on, related to a problem with an employed driver and, perhaps, the loss of a contract. They were compounded by a heart attack in mid‑May 2015 which meant that he could no longer drive commercial vehicles.
Secondly, the defendant attempted to sell the truck throughout the first six months of 2015 but was unable to do so, perhaps because his own estimation of the value of the truck was more a reflection of what he needed to recover from a sale in order to meet his commitment to the plaintiff rather than true market value.
I find that he was in regular contact with the plaintiff during that period and that he declined the plaintiff's offer to be recognised as being in hardship. His reason for doing so is unclear.
The law
The plaintiff admits that it owed the defendant a duty of good faith in selling the truck but denies that it breached that duty.
The plaintiff submits that it was entitled to repossess the truck and did so in accordance with the terms of its contract with the defendant. Having regard to the defendant's pleading there is no issue taken with the plaintiff's right to repossess the truck. Rather, the defendant refers to the plaintiff's obligation of good faith and fair dealing, claiming that it failed to act in accordance with the obligation by not allowing the defendant a reasonable opportunity to sell the truck prior to repossession.
I find that the defendant attempted to sell the truck without success for the period January to July, inclusive, of 2015. The plaintiff and the defendant remained in communication during that period. Repayments under the contract had ceased and arrears were accruing. In the circumstances, it could not be said that the plaintiff failed to allow reasonable time to the defendant to sell the truck prior to repossession. For that period the plaintiff was not in control of the truck or its sale. The defendant was. He failed to effect a sale.
The defendant pleads that it was the obligation of the plaintiff, in accordance with its duties of good faith and fair dealing, to sell the truck for its 'true market value'.
The value of the truck, as a matter of expertise, might well have been established by the calling of appropriate evidence. Other than the steps taken by the plaintiff in that regard, no independent evidence was put before me to establish its market value.
It is well established in law that a mortgagee exercising its power of sale has a duty to exercise that power in good faith and for the purpose for which it was conferred, such that a mortgagee may not recklessly or wilfully sacrifice the interests of the mortgagor. (See Boz One Pty Ltd v McLellan [2015] VSCA 68, 156).
In the matter before me the truck was placed in the hands of Pickles Auctions, being an auction house appropriate to the exercise. It was offered for sale at public auction.
A mortgagee exercising a power of sale should, as a matter of prudence, obtain an independent valuation of the property and advice as to an appropriate method of sale (Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676).
The failure of the defendant to sell the truck in the period from January to July 2015 inevitably means, in my view, that his expectation of the value of the truck was well in excess of its market value. He engaged Mr O'Dowd to sell the truck for $160,000. There was never an offer close to that amount.
During the period when it was offered for sale privately the defendant and the plaintiff remained in communication. The defendant advised the plaintiff, firstly, that he was trying to sell the truck and, secondly, of his personal financial difficulties. He also mentioned his health problems.
Acting appropriately, the plaintiff sought an independent valuation from Pickles Auctions and, equally appropriately, placed the truck with that auction house for sale by public auction.
There is no obligation on a mortgagee exercising a power of sale to delay sale of the mortgaged property in the hope that it might achieve a price consistent with the expectations of the debtor. There is no obligation on a mortgagee exercising a power of sale to take steps to enhance the value of the property repossessed prior to sale. (See Banksia Mortgages Ltd v Croker[2010] NSWSC 1177 [7]).
The defendant's counterclaim and set‑off are founded on his pleading that the plaintiff was under a duty to act in good faith in relation to the contract and failed to do so by failing to provide him with sufficient time to satisfy the notice of demand, by taking possession of the truck when he was trying to sell it, by failing to take reasonable care to sell the vehicle for no less than its market value and failing to exercise its power of sale in good faith.
The defendant made no attempt to provide a sound evidentiary basis for his contention that the truck was sold for less than its 'true market value'. He did refer, in his evidence, to his knowledge of a vehicle which was very similar to the truck which was either sold or offered for sale at a price of about $143,000. Such evidence is in the nature of anecdotal information not amounting, in my view, to a firm evidentiary foundation from which to arrive at a conclusion of fact as to the 'true market value' of the truck. On the evidence of both Mr O'Dowd and the defendant such interest as there was by prospective purchasers never reached that price bracket.
The defendant's own expectations in that regard do not assist. In fact, the absence of a successful sale by a private treaty while the truck was in the hands of Mr O'Dowd suggests that its market value must have been, at the relevant time, less than $100,000.
On the evidence before me there is no basis for concluding, firstly, that the plaintiff was in breach of its duty of good faith and fair dealing in repossessing and selling the truck. There is no basis for concluding that the plaintiff wilfully or recklessly sacrificed the interests of the defendant when doing so.
There is no basis for concluding that the plaintiff failed to allow the defendant sufficient time for him to sell the truck privately.
For the foregoing reasons I dismiss the defendant's counterclaim and set‑off and give judgment for the plaintiff in the sum of $101,210.32 with interest and costs. I will hear the parties as to appropriate orders and calculations in that regard.
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