Monas v Perpetual Trustees Victoria Limited

[2012] HCATrans 114

[2012] HCATrans 114

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S24 of 2012

B e t w e e n -

BIANKA MONAS

Applicant

and

PERPETUAL TRUSTEES VICTORIA LIMITED ACN 004 027 258

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 MAY 2012, AT 9.46 AM

Copyright in the High Court of Australia

MR J.C. SHEAHAN, SC:   May it please the Court, I appear with my learned friends, MS R.S. FRANCOIS and MR G.A. DONNELLAN, for the applicant.  (instructed by Legal Aid Commission of NSW)

MR M.A. ASHHURST, SC:   May it please the Court, I appear with my learned friend, MR S.B. DOCKER, for the respondent.  (instructed by Kemp Strang Lawyers)

GUMMOW J:   Yes, Mr Sheahan.

MR SHEAHAN:   Your Honours, this application relates to a section which is at the heart of the consumer credit regime which has been in force on the mainland as a national scheme since 1995 and now is a truly national scheme under Commonwealth legislation since 2010 in terms which are not materially different.  That scheme is described in paragraph 25 of our outline in broad terms identifying the structure of the legislation.  Your Honours will see from that paragraph that it is aptly described as a comprehensive scheme of regulation of consumers’ rights as against those in the business of providing credit to consumers.

The critical provision in this matter is section 80 of the Act, which appears in the judgment of the Court of Appeal commencing at page 44 of the application book.  Subsections (1) and (2) are cognate.  Subsection (2) is the one that matters.  It creates a precondition, as we submit, to enforcement by a credit provider of a mortgage covered by the legislation, the precondition being service of a notice and default not being remedied within the relevant period, and it provides that non‑compliance with that provision ‑ ‑ ‑

GUMMOW J:   “Unless” – “must not unless”.

MR SHEAHAN:   “Must not unless”, indeed.

GUMMOW J:   Is that some jurisdictional constraint on the court exercising the power in the enforcement proceedings?  What is it?

MR SHEAHAN:   We do not submit that it goes to jurisdiction.  What we submit is that it creates, in effect, a defence that can be raised by someone who is proceeded against without compliance or, if you were thinking of extra curial enforcement, for example, the appointment of receivers, the consumer might be able an injunction, but we do not submit that non‑compliance involves nullity or want of jurisdiction in the Court, but it is an instruction that proceedings commenced otherwise than in compliance with the section should not occur.  It is an offence for it to occur and if that happens, then the Court will give effect to that by dismissing them.

GUMMOW J:   But if the point is not taken, the matter just goes ahead?

MR SHEAHAN:   Yes.  So that it would be akin to Berowra Waters considered by this Court.  If the point is not taken and the proceedings result in a judgment, well, then judgment follows.  Here the point was taken in a timely way in accordance with the rules of court.  Our submission is that by not giving effect to section 80, by dismissing the proceedings, that defence having been raised, the courts below failed to give effect to the evident intent of the legislation.

Subsection (3) sets out the requirements for a default notice; they must specify three things.  Subsection (4), which is new in this legislation compared to the previous legislation in 1984, made provision for when a default notice was not required.  The introduction of that provision might be thought to emphasise the significance of the mandate in subsection (2) rather than detracting from it, “you must unless”.

GUMMOW J:   Subsection (4)(c) is badly drafted obviously.

MR SHEAHAN:   Subsection?

GUMMOW J:   Subsection (4)(c), the tense.

MR SHEAHAN:   As to tense?

GUMMOW J:   Yes.  When does it authorise?

MR SHEAHAN:   It is not as plainly expressed as it could be.

GUMMOW J:   No.

MR SHEAHAN:   I will come that almost immediately, your Honour.

GUMMOW J:   A national scheme, is it?

MR SHEAHAN:   I am sorry, your Honour?

GUMMOW J:   It is now a national scheme?

MR SHEAHAN:   Yes.  Indeed, I will come to that immediately.

GUMMOW J:   This is the nunc pro tunc point?

MR SHEAHAN:   The nunc pro tunc point.  It is convenient to deal with it first because your Honour has mentioned it, because it can be dealt with shortly and because it was raised in relation to the primary construction point of subsection (2) by the court below.  The reasons of the Court of Appeal on this question were very brief.  Your Honours will see that at page 53 in paragraph 45 and it comes down to the last sentence in that paragraph.  On the face of it, looking at 80(4) in isolation, one would think, in our respectful submission, that it was intended to contemplate applications before commencement.  It talks about “begins”, uses that expression, and it is in a context where non‑compliance with section 80(2) is, first, an offence which is complete upon the commencement of the proceedings and, secondly, non‑compliance with it gives rise to a right to compensation.  One would not likely conclude that a court might by an order under subsection (4), as it were retrospectively, alter those consequences.

GUMMOW J:   This is why I was asking you about section 80(4).  Is it anything more than a penalty provision?

MR SHEAHAN:   It is more than that, in our respectful submission.

GUMMOW J:   This is really a case about teasing some illegality, is it not, out of a penalty provision – some illegality in general law out of a penalty provision?

MR SHEAHAN:   It is in a sense, yes.  The section proscribes this conduct and what we submit is the court therefore does not entertain or give effect to the proscribed conduct by lending it its aid in court processes, if the point is taken.

GUMMOW J:   That follows as a matter of construction of the section, does it?

MR SHEAHAN:   Yes.  In particular, in a scheme of consumer protection legislation which is designed to encourage compliance by credit providers; people who are in the business of providing credit.  Keeping in mind that in the context of this particular provision, giving notice before enforcement, one might think that pursuit of prosecutions is not likely to be the primary mechanism of enforcement.  The thing that will goad those in the business of providing credit most directly into complying with the notice provisions is the threat that if they do not, they will have to go back to go and not collect their money and start again.

GUMMOW J:   Anyhow, you were looking at subsection (c).

MR SHEAHAN:   Yes.  The basal reason given by the court for accepting that it must be given a nunc pro tunc operation is that it was difficult to see what work it would have to do if that were not the case.  One needs to appreciate that.  The only other specific provisions in section 80(4) for proceeding without a notice that are pertinent to a mortgage are those in subsections (a) and (b).  That is where you have got a contract induced by fraud or the mortgagor cannot be found.  But there are many other situations when a mortgagee would be extremely anxious to proceed immediately by appointing a receiver, going into possession, for example, without having to go through the notice process. 

HAYNE J:   Are those not all covered by (4)(d)?

MR SHEAHAN:   No, because that only applies in relation to goods.

HAYNE J:   “[O]r that urgent action is necessary to protect the mortgaged property” you read as ‑ ‑ ‑

MR SHEAHAN:   In the context, yes.

HAYNE J:   Limit it to goods, do you?  Odd that it should use the expression “mortgaged goods” and then a line and a half later refer to “mortgaged property”, I would have thought.

MR SHEAHAN:   Your Honour, I accept that that construction is open, the contrary construction is also open.  But even on that approach, it is not, in our respectful submission, to be taken as comprehensive of all the situations that might arise.  For example, a situation where the property is not at threat but the mortgagor is using it for an illegal purpose, that might render void the insurance in respect of the premises where the property is being used by the mortgagor for purposes that pose an environmental risk which does not threaten the property as such but which might make the mortgagee liable under environmental protection legislation for clean up subsequently. 

Subsection (c) should be seen properly as a catch‑all provision of the manifold circumstances in which the secure creditor will want to move more quickly.  There was one other circumstance that might be pertinent, I should say, and that is where the mortgagee was intending to rely or might want to rely on one of the other provisions like (a) or (b) in order to avoid having to comply with the notice requirements but there was some doubt and it wanted to avoid the doubt, doubt as to whether it had made sufficiently reasonable inquiries, doubt as to whether the court would be satisfied that there had been fraudulent inducement of the transaction and so on.

Now, section 80(3) has a curious operation.  The part of the section dealing with subsequent defaults, that is, commencing with the words “and that” in the third line, appears to have a double function.  First, in a sense substantively, it creates an exception to the operation of subsection (2) in respect of further defaults of the same kind occurring within the notice period.  Fresh default of that kind can be the subject of enforcement action without notice, whereas without those words, on the face of it, a further notice would be required.  Secondly, adjectivally, it requires notice of that exception to what would otherwise be the operation of subsection (2).  In both of those aspects of its operation, the words “without notice” are critical; they are the gist of it, and it those words that were missing from the notice in question in this case.

Now, when it came to construing section 80(2) and (3) and their effect, the Court of Appeal essentially approved the reasons of Justice Hoeben, which appear in the record book at pages 47 to 52.

GUMMOW J:   Just looking at the reasons of the primary judge, he found the notice was valid, did he not?

MR SHEAHAN:   He did.  He seems to have done so on the footing that there was substantial compliance with the language of the section, even though there was not strict compliance.  So even though ‑ ‑ ‑

GUMMOW J:   What is wrong with that approach?

MR SHEAHAN:   As an approach, it does not give effect to the language of 80(2) and (3) because what they require is that the notice must specify things.

GUMMOW J:   The language of 80(2) is to create a criminal offence.

MR SHEAHAN:   Yes, and one does commit the offence if one does not give a notice which complies with subsection (3) and to comply with subsection (3) you must specify various things.  Now, this notice does not specify that there may be enforcement in respect of a subsequent default within the notice period without notice and so it fails, strictly speaking, to comply with the requirements of subsection (3).  His Honour Justice Hoeben decided that there was nevertheless substantial compliance, in effect, because you could fairly collect, seems to have been his reasoning, that that would be the consequence from the language used in the notice as a whole, but the Court of Appeal did not deal with the matter on the footing that it was a strictly compliant notice.

GUMMOW J:   I know, but if the matter came here, your opponent would pick up the point, I suppose.

MR SHEAHAN:   Well, our opponent might, although ‑ ‑ ‑

GUMMOW J:   We have to have it in mind.

MR SHEAHAN:   Well, your Honours do, but we note that in the submissions on this application that is not a point that is taken against us and, in our submission, rightly, because fairly reading the decision of the Court of Appeal and Justice Hoeben ‑ ‑ ‑

GUMMOW J:   If I may say so, both sides have been rather blinkered in approaching this statutory provision.

MR SHEAHAN:   That is possible, your Honour.  Turning to the reasons of Justice Hoeben, at pages 20 to 29 he deals with this question and the points on which we wanted to focus were these.  The first was that he decided not to follow a decision of the Court of Appeal on earlier legislation in similar terms really because the reasons of Justice Clarke, he thought, had been overtaken by the decision of the High Court in Berowra Holdings v Gordon.  Can we just note that the reasons of Justice Clarke in Graham were agreed with by both the other members of the court.  Even though Justice Cole gave his own reasons, he concluded by agreeing with the reasons of Justice Clarke.

Secondly, more substantively, what Justice Hoeben decided was the significance of Berowra Waters involved, in our respectful submission, a serious misapprehension of the effect of that decision.  The case concerned an issue of nullity, proceedings had been commenced, inconsistently with the statutory prohibition, something shall not happen until six months after something else.  They had gone all the way to the point where a notice of settlement under the court rules had been given and then and only then did the defendant take the point.  So the issue was nullity or not.  If the proceedings were not a nullity, then the plaintiff was entitled to accept the offer and take the money.  The reasons of the court make it plain that if the point had been taken in good time, it was liable to be effective.  In our folder of authorities, your Honours, at page 33 in paragraph 36 the first two sentences:

Proceedings commenced by a worker in contravention of s 151C engage the jurisdiction and procedural rules of the court in question.  Such proceedings are vulnerable to an application by the defendant to strike out the initiating process or to move for summary dismissal, but they are not a “nullity”.

We accept that.  We accept its application here that it was not given effect by Justice Hoeben or by the Court of Appeal.  His Honour Justice Kirby spoke to similar effect in paragraph 104 on page 52.  He said:

What, then, is to happen when a provision of the kind found in s 151C(1) of the Act is raised?  If it is pleaded promptly, there is no question but that it must be given effect so as to uphold the express command of Parliament.

GUMMOW J:   Looking at page 66, letter C, one view of it would be that that masks rather than discloses, deals with, the problems of construction that arise.  “Legislative intent is that it is necessary” – what does that mean – “of a credit provider to satisfy a condition precedent” – what does that mean – “before he can institute and prosecute” – what does that mean? I am not sure this is an entirely satisfactory precedent, in any event.

HAYNE J:   It is essential as your argument becomes, does it not, this notice did not meet the statutory requirement because it did not give notice that the credit provider had an additional right, that is step one.  Step two, commencement without a notice of that kind constituted an offence.  Step three, where I stumble to articulate it, it is put in terms of prosecution of the proceeding is permitted, but it is a defence to the proceeding that no adequate notice has been given, not that there is available some, what, motion for summary termination?

MR SHEAHAN:   That is what we mean by a defence.  What we submit consistently with what was said in Berowra Holdings is that confronted with proceedings commenced inconsistently with the statute, the natural response of the defendant is to move for their dismissal or apply for a stay.  Similarly, confronted with extra curial proceedings, appointment of a receiver, inconsistently with the statute, the natural response of the defendant is to apply for an injunction to restrain what is, on its face, an illegal act which affects their rights.  With that qualification, we accept what your Honour Justice Hayne put to us.

If I can go back to Justice Hoeben’s reasons at paragraph – I think my time might be just about up – your Honours, there is only one other point I wish to mention and that is the way the Court of Appeal relied upon the analogy of the Conveyancing Act provisions like section 129.  Two things; first, a completely different statutory regime and environment, general regulation of rights between any mortgagor or any mortgagee ‑ ‑ ‑

GUMMOW J:   Have we got the Real Property Act section?

MR SHEAHAN:   Not the Real Property Act one.  They are all ‑ ‑ ‑

GUMMOW J:   Or the Conveyancing Act section?

MR SHEAHAN:   The Conveyancing Act sections are behind tab 7 in our folder commencing at page 294.  These are provisions of general regulation going back to English legislation in 1881 and they would apply equally to a mortgage between ‑ ‑ ‑

GUMMOW J:   My recollection is this did not create an offence.

MR SHEAHAN:   No, it does not, or provide a right for compensation.  Importantly, section 80(5) makes special provision for service of notices where there is a default which is not capable of remedy.

GUMMOW J:   Nor did section 129, the old forfeiture relief section.

MR SHEAHAN:   Quite so.

KIEFEL J:   And the notice has other purposes under the Consumer Credit Code.

MR SHEAHAN:   Other purposes?

KIEFEL J:   Sections 86 and 88.

MR SHEAHAN:   It specifically engages sections 86 and 88 and it also provides an opportunity for a person to make a hardship application under section 66, so it is a quite different statutory regime, with respect, and the analogy was unhelpful.  Those are our submissions, your Honours.

GUMMOW J:   Thank you, Mr Sheahan.  Yes, Mr Ashhurst.

MR ASHHURST:   May I commence, your Honours, by taking your Honours to the definition of the word “property” in section 80(4)(d) that your Honours were asking our learned friend about.  That definition is at Schedule 2 of the Code which is at page 249 of the applicant’s authorities.

KIEFEL J:   Which part of Schedule 2 is that?

MR ASHHURST:   Part 3 of Schedule 2 at page 249 of the applicant’s authorities book.

GUMMOW J:   Yes.

MR ASHHURST:   Can I move then, your Honours, to what are essentially the four points that the respondents say as to why any appeal is likely to be unsuccessful and therefore the reason why special leave ought not to be granted.  Firstly, the respondent accepts that the legislative purpose of section 80 is to allow the debtor an opportunity of some 30 days to rectify the defaults before enforcement proceedings are commenced, subject to subsection (4).  The respondent says, however, that that purpose is not advanced by a strict or technical construction of the section.  Further, support for substantial compliance being sufficient is also obtained from section 11 of Part 2 of Schedule 2 of the Code, which is behind tab 4, page 246 of the applicant’s submissions, subsection (1).  Now, in this instance, no specific form had been prescribed or approved but, in our submission, that does not alter the effect of this provision.

GUMMOW J:   What does the word “form” mean, though?  What does that identify?

MR ASHHURST:   A document pursuant to which ‑ ‑ ‑

GUMMOW J:   Is there any definition of it?

HAYNE J:   The only thing that is not.

MR ASHHURST:   I think that Justice Hayne is right, it is the only thing that is not.  Your Honour does get some assistance by subsection (2)(a) to suggest that what is being considered is a document rather than the substance of a document.

GUMMOW J:   Yes, but it says “prescribed or approved”; it does not say “required”, you see.

MR ASHHURST:   Yes.

GUMMOW J:   It makes one wonder.

HAYNE J:   Prescribed by, amongst or for the purpose of, so “prescribed or approved by this Code” is I think one of the readings, but who knows what that encompasses.

GUMMOW J:   I would be very surprised if one trawled through this statute one would not find various provisions about forms, maybe in regulations.

MR ASHHURST:   If your Honour goes to section 161, that may be the section that your Honour has in mind.

GUMMOW J:   Yes.

MR ASHHURST:   The point that the respondents make then is that substantial compliance, we say, is sufficient for statutory purpose and that there is no suggestion that substantial compliance had not occurred in this situation.  The next point is the point that has already been raised to our learned friends and that is, of course, that the sanctions for any breach of this section are clearly prescribed, firstly by the reference to the 50 penalty units in section 80(2) itself and then also by reference to the right of compensation created by section 114.

Now, elsewhere in the legislation where specific result of contravening conduct in respect of civil effect is expressly prescribed – and, your Honours, we give all of the references in footnote 24 in our written submissions, but can I just take your Honours briefly to one of them by way of example – section 21(2).  The other section as an example of what the Act prescribes in certain circumstances that I wish to take your Honours to is section 55(1) and we say in circumstances where the legislature has quite clearly and expressly stated the civil effect of a non‑compliance with the section, then one ought not to infer that into this section.  But perhaps more important than any of those sections is section 170.  Now, there was no analogous section to section 170 in the form of the Credit Act as it was considered by the New South Wales Court of Appeal in Graham.

KIEFEL J:   Is section 171 relevant?

MR ASHHURST:   Not to the current factual situation, your Honour.  Subsection 171(1)(c) would, in any event, mean that subsections (4), (5) and (6) are not relevant.

GUMMOW J:   Are there any analyses of these provisions at either level in the Supreme Court?

MR ASHHURST:   Justice Hoeben makes a brief reference to it, page 19 of the application book.

GUMMOW J:   It seemed to have been limited submissions.

MR ASHHURST:   It was.  If your Honours then go to page 23 to paragraph 64.  Justice Hoeben was comparing the decision of Graham compared to the current matter.  There is a reference in paragraph 64 to section 114 that I have taken your Honours to.  The issue is raised again in relation to section 80(4)(c) and the nunc pro tunc issue in paragraph 69.

GUMMOW J:   Yes.

MR ASHHURST:   But no comprehensive analysis of these sections.  So the second major point, your Honours, that we make is that one ought not to, to use the Court’s terms, tease illegality out of a penal provision when it would seem that the legislative intention of a breach of that section has been fully described.  The remaining issue that we wish to make oral submissions about concerns section 80(4)(c).  Again, accepting the applicant’s submission that that section is to ensure that the debtor obtains 30 days notice in which to rectify any default unless the Court determines that such

notice may be dispensed with, our submission is that that legislative purpose is equally achieved whether the leave is granted either before or after the commencement of the proceedings. 

We say that is consistent with what the New South Wales Court of Appeal said in Jol v New South Wales.  We also say, citing Justice Gaudron’s comments in Emanuele, that where the Court has a power in relatively wide terms such as available under section 80(4)(c), then it ought not to be read down unless it can be said that that was the legislative purpose otherwise shown in this section of the Act.  They are our submissions.

GUMMOW J:   Yes, thank you, Mr Ashhurst.  Yes, Mr Sheahan.

MR SHEAHAN:   Just two points, your Honours.  Our learned friends say the purpose of the section is to give an opportunity to rectify defaults.  That was how it was stated by Justice Hoeben and broadly adopted by the Court of Appeal.  It is an inadequate statement of the purposes of section 80 because it extends to that matter, it extends to enlivening the right to make postponement applications under sections 86 and 88 and it extends to providing an opportunity to make a hardship application under section 66.

Secondly, as regards section 170 of the Act, its terms explain provisions like those our learned friend mentioned, section 21(2), section 55(1).  Those provisions provide for the unenforceability or voidness of contractual provisions or provisions in mortgages or certain actions.  The position for which we contend is that section 80(2) does not make inconsistently with section 170 a credit contract, mortgage or guarantee, illegal, void or unenforceable.  It has the consequence that proceedings commenced inconsistently with it must be restrained if someone asked them, or stayed or dismissed if someone asked for that to happen, amongst other consequences, but that does not have the consequence that the mortgage or the contract, et cetera, is void, unenforceable or illegal.  Those are our submissions, your Honours.

GUMMOW J:   We will take a short adjournment.

AT 10.23 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.33 AM:

GUMMOW J:   We are not persuaded that the applicant would have sufficient prospects of success in disturbing the actual orders made by the New South Wales Court of Appeal to warrant a grant of special leave in this matter.  In particular, we are not satisfied that the applicant has sufficient prospects of success in demonstrating that the failure to comply with section 80 of the Code has any larger consequences than those spelt out elsewhere in the Code.  Accordingly, the application for special leave is refused with costs.

We will adjourn to reconstitute.

AT 10.34 AM THE MATTER WAS CONCLUDED