Murray v Thain - [2006] SASC 24

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MURRAY & ORS v THAIN & ANOR
Reasons of Judge Lunn a Master of the Supreme Court
2 February 2006
REAL PROPERTY
Possession application by mortgagees under Part XVII of the Real Property Act - held s 55A notice under Law of Property Act valid although it did not refer to s 55A - held such notice proved to have been sufficiently served on 1st defendant by proof that it was in his possession - inference drawn against 1st defendant by him failing to depose in his affidavit whether he had received the notice and merely saying he had not been served with it - held breaches of rules by plaintiffs were only irregularities under R 3.05 and did not disentitle plaintiffs to a possession order - held no basis for any estoppel against the plaintiffs - held proper for the plaintiffs to join 2nd defendant as a person in joint possession of the property as a defendant to the action - order for possession made.

MURRAY & ORS v THAIN & ANOR
[2006] SASC 24
Reasons on Plaintiffs’ application for possession of land.

JUDGE LUNN. Prior to 7 December 2004 the first defendant was the registered proprietor of the land in Certificate of Title Volume 5536 Folio 480, being Lot 51, Fuller Road Victor Harbor (“Lot 51”). His home, where he has lived with his wife, the second defendant, is on Lot 51. On 28 October 2003 the plaintiffs jointly lent $400,000 to the first defendant for a term to expire on 28 October 2004. The first defendant gave a registered mortgage over Lot 51 to secure this loan. (The mortgage was also over another property, Lot 81, but that is not directly relevant to these proceedings.) By a guarantee dated 26 October 2003 the second defendant guaranteed the first defendant’s repayment of the loan to the plaintiffs.
On 7 December 2004 the first defendant became bankrupt and has remained an undischarged bankrupt. His interest in Lot 51 vested in Stephen Duncan, his trustee in bankruptcy, who became its registered proprietor. At about the same time the second defendant also became bankrupt.
There were discussions between the parties about an extension of the term of the mortgage over Lot 51 for a further term of 12 months to expire on 28 October 2005. At some time in early 2005 the plaintiffs prepared the document of extension of the mortgage which was executed by the first defendant and apparently returned to the plaintiffs. There is a dispute on the affidavit evidence whether the plaintiffs knew of the bankruptcies of the defendants, and, if they did, whether they appreciated their legal implications. I need not resolve that dispute. It is clear as a matter of law that after 9 December 2004 the first defendant had no legal capacity to grant any security over Lot 51 and thus any purported extension of the mortgage which he executed was of no legal effect. Subject to any estoppel operating against the plaintiffs, which will be dealt with below, the whole of the outstanding principal under the mortgage became due for payment on 28 October 2004 and interest continued to accrue on the debt. (There were some repayments of principal, and a substantial reduction of it by a sale of Lot 81 in December 2005, but the actual amount owing under the mortgage is at present of no significance in the context of this action. There is still a significant amount owing).
In the mortgage and other documents exchanged between the parties the defendants’ address was shown as “PO Box 975 Victor Harbor SA 5211” (“the PO address”). On 2 February 2005 the plaintiffs’ solicitor sent a notice of default under the mortgage dated 2 February 2005 (“the default notice”) by registered post addressed to the first defendant at Lot 51. That default notice and the covering letter were subsequently returned undelivered to the plaintiffs’ solicitors.
On 22 April 2005 the plaintiffs’ solicitor sent a letter to the second defendant addressed to the PO address enclosing a copy of the default notice calling up her liability under the guarantee of the mortgage debt. That letter and its enclosure was received by the second defendant shortly after 22 April. The plaintiffs’ solicitors also contend that they sent a similar letter containing a copy of the default notice addressed to the first defendant at the PO address on the same date. Whether he received such a letter and its enclosure is disputed and will be dealt with later.
On 21 July 2005 the plaintiffs’ solicitors issued a summons under Part XVII of the Real Property Act against the defendants seeking a summary order for possession of Lot 51. (The plaintiffs did not seek any orders in relation to Lot 81.) Although the second defendant was not a party to the mortgage, she was named as a defendant because she was in joint possession of the land. The summons was supported by an affidavit of Peter Pedler, the plaintiffs’ solicitor, sworn on 21 July 2005 (“the first Pedler affidavit”). The summons was initially returnable for 14 September. The plaintiffs’ solicitor attended on that occasion and sought an adjournment to continue negotiations with the defendants. On the next hearing on 28 September the second defendant, but not the first defendant, attended, alleged that all the arrears had been paid and obtained an adjournment to negotiate about outstanding issues. On 22 November a solicitor filed a notice of acting for both defendants. At the next hearing on 23 November directions were given for the filing of affidavits about matters in dispute and a date for argument was set.
Under R 65.08 evidence is only to be allowed on a summons under Part XVII on information and belief where leave is given to do so. Some of the affidavit evidence was apparently not within in the deponents’ own knowledge and proper grounds for evidence on information and belief were not made out under R 83.04(1). I excluded all of the first Pedler affidavit, except the exhibits which were admissible under s 45A of the Evidence Act as business records, and paragraph 10 of the second affidavit of Mr Pedler. I did not give any leave under R 65.08. My findings are based only on the evidence which the deponents were able to depose to of their own knowledge and on the documents which were admissible under s 45A.
Counsel for the defendants mounted numerous grounds of opposition to the possession order. I now deal with each of them.
Defective s 55A Notice
It was not disputed that s 55A of the Law of Property Act applied and the plaintiffs were not entitled to any order unless they had served a notice in compliance with s 55A(1)(a) or had obtained a dispensation from doing so. The plaintiffs relied on the default notice. It read:
NOTICE OF DEFAULT & INTENTION TO SELL
(Section 132 of the Real Property Act SA 1886)
…..
WHEREAS by a certain Memorandum of Mortgage dated 26October 2003 registered number 9713383 (“”the Mortgage”) given by you as mortgagor to Thomas Patrick Murray of 556 Portrush Road Glen Osmond SA 5064, Frank William Warnest and Valerie Ethel Warnest both of 42 Elizabeth Street Tanunda SA 5352, Colin Murray Norton & Mary Bruce Norton both of 214 Victoria Grove Estate 254-256 Greenhill Road Glenside SA 5065, Warren Lloyd Dunow and Kay Lorraine Dunow both of 58 Malvern Avenue Malvern SA 50651, Leo Stanley Hayes and Ruth Mary Hayes both of Lakeview Via Kadina SA 5554, William Arthur Leach of 42 Horseshoe Drive Aberfoyle Park SA 5159, Robert Brian Baxter & Jennifer Margaret Baxter both of 73 Hill Street Netherby SA 5062 and Daniel Garland of 7 College Road Somerton Park SA 5044 (“the Mortgagee) as Mortgagee over and in respect of the whole of the land comprised and described in Certificate of Title Registerer Book Volume 5536 Folios 476 and 480 situated at Lots 51 and 81 Fuller Road Victor Harbour, in the State of South Australia, (“the land”) you secured the repayment of principal and interest thereon advanced by the mortgagee AND WHEREAS default has been made in the observance of the covenants and conditions contained in the mortgage in that you have paid in full to the Mortgagee the principal amount which fell due pursuant to the Mortgage on 28 October 2004.
NOW THE MORTGAGEE HEREBY REQUIRES YOU:
1To remedy such default by the payment to the Mortgagee of the principal sum plus interest accruing at the rate of 12.50% per annum on the principal sum from 28 October 2004; and
2To pay to the Mortgagee the further sum of FOUR HUNDRED AND FORTY DOLLARS ($440.00) being costs and expenses incurred by the Mortgagee in consequence of your breach of the covenants and conditions pursuant to the Mortgage.
NOW FURTHER TAKE NOTICE:
3That if you do not remedy the default within one (1) month after service of this Notice upon you then the Mortgagee will exercise the power of sale of the Land without further notice to you pursuant to the said Memorandum of Mortgage and by law; and
4That if you hereafter pay to the Mortgagee any sum of money in respect of the Mortgage which sum is less than the amount due and costs as hereinbefore demanded or which sum is less than the amount due and payable under the said Mortgage as at the date of such payment then the rights and remedies of the Mortgagee shall not be invalidated by virtue of its acceptance of such payment.
DATED this2 day of February 2005
The Mortgagee
By their solicitors
DUNCAN BASHEER HANNON
Per
PETER DAVID PEDLER
The defendants’ primary contention was that the notice was defective because it required the payment of the whole of the principal sum which they claimed was not due until the expiration of the extension of the mortgage on 28 October 2005. As I have found above there was no valid extension and so the principal sum had become due on 28 October 2004.
The defendants’ counsel argued that even if the extension was not valid in law the plaintiffs were estopped by their conduct from denying that it had been extended until 28 October 2005. Even assuming that the plaintiffs did lead the defendants to believe that there was a valid extension until 28 October 2005, which is not clear on the evidence, but which I will assume for this purpose, the defendants have not shown that they acted in any particular way to their detriment upon such an express or implied representation of the plaintiffs so as to give rise to any form of estoppel or actionable unconscionable conduct. The evidentiary onus was on the defendants to show such detriment, and they have not done so. The correspondence and e-mails which were exhibited show that from early in 2005 the first defendant was working towards obtaining an annulment of his bankruptcy by seeking to have his creditors accept a payment of 50 cents in the dollar on their debts. The plaintiffs were not unsympathetic to this proposal and were prepared to consider a further extension of the mortgage if the annulment eventuated. Why the annulment was not obtained is not disclosed in the affidavit evidence. There is no evidence that the first defendant’s creditors did accept any arrangement to take 50 cents in the dollar in satisfaction of their debts or that the defendants were in a position to pay the money necessary to achieve this. In paragraph 39 of his affidavit, the first defendant asserted “the plaintiffs, by their conduct, have frustrated my attempt to refinance and to be annulled from bankruptcy”. However, he deposed to no facts from which such a conclusion could be derived. It has not been proved, and his general assertion about it is not admissible evidence of it. The correspondence exhibited to affidavits strongly suggests that the plaintiffs withheld action under their mortgage pending the first defendant implementing his proposed annulment but eventually lost patience and sought their legal remedy. No possible basis for any estoppel or unconscionable conduct to prevent the plaintiffs from relying upon the principal becoming due for payment by the first defendant on 28 October 2004 has been shown on the evidence before me.
The defendants’ counsel also submitted that the default notice could not be an effective notice under s 55A because it did not refer to that section, but only to s 132 of the Real Property Act. Provided the terms of the notice satisfy s 55A(1)(a) of the Law of Property Act there is no requirement that the notice need expressly refer to s 55A. There is no reason why the same notice cannot be used to satisfy both s 55A(1)(a) of the Law of Property Act and s 132 of the Real Property Act 1886. I am satisfied that the contents of the default notice satisfy the requirements of a valid notice under s 55A.
Service of s 55A Notice
The issue is whether the plaintiffs have proved that the default notice was sufficiently served on the first defendant.
s 112(3) of the Law of Property Act provides:
(3)Any notice required or authorised by this Act to be served shall be sufficiently served it if is left at the last-known place of abode or business in South Australia of the mortgagee, mortgagor, or other person to be served, or, in the case of a notice required or authorised to be served on a mortgagor, is affixed or left for him on the land or any house or building comprised in the mortgage.
The terms of this subsection have not been satisfied. Sending the notice by prepaid ordinary post to the mortgagee is not effective service under s 112(3): Bank of Western Australia Ltd v Shearer Withers M, 23 September 2005, Judgment No [2005] SASC 366, unreported. I reject the defendants’ submission that s 112(3) lays down the only means by which such a notice can be served. That subsection is facultative, and not mandatory (“shall be sufficiently served”). Generally in law a person is taken to have been served personally with a document if it is shown that he has come into possession of it from any source: Technitrade Pty Ltd v Computucom Computers Ltd (2002) 221 LSJS 457; Emhill Pty Ltd v Bonsoc Pty Ltd (2004) 185 FLR 389. Bank of Western Australia Ltd v Shearer (above) is not contrary to this conclusion as there it was expressly found that the document did not come to the mortgagee’s notice and in paragraph [10] it was said there had to be either personal service or the document was otherwise proved to have been received.
There is no direct evidence that the default notice came into the possession of the first defendant shortly after 22 April 2005, but the plaintiffs’ counsel invited me to infer from the whole of the evidence that it must have done so. The plaintiffs’ affidavits show that on 22 April the plaintiffs’ solicitors posted at the same time letters to each of the defendants which each contained a copy of the default notice. This is established by the extract from the post book of the plaintiffs’ solicitors. The letters to each defendant were addressed to them at the PO address. There is no suggestion that other correspondence to them did not reach them at that address. The second defendant admits that she received the letter addressed to her with the default notice shortly after 22 April 2004. There is a strong inference that if the letter addressed to the second defendant was received by her through that post box address, another letter posted at the same time to the first defendant would also have been received by him through that post box address.
Although it was not submitted that the second defendant was the agent of the first defendant for the purpose of service of the default notice on him, there is some likelihood that the default notice received by the second defendant shortly after 22 April 2005 would have come to the attention of the first defendant. The second defendant, who gave her occupation as “finance strategist”, stated in her affidavit, “My husband is a licensed builder and has worked for me trading as Blue Sky Developments for many years past”. The moneys borrowed on the security of Lot 51 were for use in building developments being carried on by the defendants. Many of the dealings between the defendants and the plaintiffs occurred between the second defendant and the first plaintiff. There is good reason to suppose that upon the second defendant receiving the default notice she would have at least discussed it with the first defendant and probably would have shown it to him. Shortly after April 2005 there were some dealings between the first defendant and the first plaintiff without any suggestion that the first defendant was unaware that the plaintiffs were taking legal action to enforce their mortgage over Lot 51.
I accept the submission of the plaintiffs’ counsel that an adverse inference can be drawn on this topic against the first defendant from the contents of his affidavit sworn on 6 December 2005. Where a party calls a witness at a trial a “Jones v Dunkel” type inference can be drawn against the evidence of that witness where the party calling him or her does not question him or her in chief on relevant topics: Commercial Union Assurance Co Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418; R v D (1998) 71 SASR 99; R v Martin (2002) 134 A Crim R 568 at 575-6. Similar principles apply where a party files an affidavit but does not deal in the affidavit with relevant matters.
The relevant parts of the affidavit of the first defendant are as follows:
…..
13I oppose the plaintiffs’ application for vacant possession of Lot 51 on the following basis:
13.1invalid service of the Notice of Default …..
…..
Service
14I was not served with the document purporting to be a Notice of Default and Intention to sell (‘Notice of Default’ dated 2 February 2005.
…..
19I am advised by Ms Flaherty and believe it to be true that there is no affidavit of service of the Notice of Default on the Court file deposing to personal service of the Notice of Default on me, as is required by the Law of Property Act (SA).
20Now shown to me and annexed hereto and marked with the letters “NAT2’ is a true copy of correspondence sent by Duncan Basheer Hannon, the solicitors for the plaintiffs, to my post office box on 22 April 2005 alleging to have served the Notice of Default.
21In the penultimate paragraph of the said letter Mr Pedler states:
On 2 February 2005 we served a letter of demand on you at your last known address being Lot 51 Fuller Road Victor Harbour. On 3 March 2005 that notice was returned to sender. Notwithstanding the letter of demand was returned, it was duly served in accordance with the terms of the Deed of Guarantee.
…..
22.3I dispute the deposition in Mr Pedler’s affidavit that the Notice of Default was served on me;
…..
24I am informed by Ms Flaherty and verily believe it to be true that she was provided with a copy of an affidavit sworn by Mr Peter Damian Murray on 2 December 2005 and filed in the within action on 6 December 2005. I am informed by Ms Flaherty and believe it to be true that:
24.1At paragraph 13 of Mr Murray’s affidavit he confirms that the Notice of Default was not personally served by registered post, or at all.
…..
Nowhere does the first defendant expressly depose that he did not receive the default notice through the post box address shortly after 22 April 2005 or that it did not otherwise come to his attention at about that time. In his affidavit, he hides behind a technical alleged requirement of formal service. The plaintiffs’ counsel correctly categorised his statements on the topic as “cute”. The inference is that although he was not formally served he did receive the document. I do not rely upon the ”Jones v Dunkel” principle to prove that he did receive it, but as a re-enforcement for the inferences drawn from the other matters set out in the preceding two paragraphs.

Accordingly, I find that the first defendant was served with a valid s 55A notice shortly after 22 April 2005 and that he did not comply with it in the stipulated time which would have been before the institution of this action.
Consumer Credit Code
Although there was some argument about it, I will assume that the Consumer Credit Code did apply to the transaction. However, apart from the plaintiffs’ failure to refer to the Code in its documents supporting the summons it was not suggested that the defendants had any basis under the Code to oppose the order sought.
Breaches of the Rules
The defendants relied upon the following breaches of the Rules of Court by the plaintiffs:
·The first Pedler affidavit did not substantially follow Form 5A which was required by R 7.04(2).
·The first Pedler affidavit did not state whether the Code applied to the contract as was stipulated by Form 5A.
·The first Pedler affidavit was in breach of R 65.08 in not being deposed to by a person who could speak of his own knowledge.
These defaults are only irregularities for the purpose of R 3.05 and do not make the proceeding a nullity: National Bank Ltd v Trittenheim (2001) 215 LSJS 227; Griffiths v ANZ Banking Group Ltd (2002) 83 SASR 491. Also under R 3.07(2) the prescription of forms is only directory. The defendants did not take any steps under R 3.05(2) and (3) to set aside the proceedings for the irregularities within the time required. In any event such applications would have failed as it has not been shown that the defendants have been prejudiced in any way by the irregularities. They may well have some consequences in costs, but that issue will be dealt with later.
Breach of Practice Direction 19
The plaintiffs were in breach of paragraphs 7 and 8 of Practice Direction 19 in not having referred in the application to the Consumer Credit Code in the first Pedler affidavit and in the Civil Case Information Sheet. Breach of a Practice Direction does not invalidate a proceeding. Again the defendants have not shown any prejudice from the default as they could not benefit from the application of the Code.
Joinder of the Second Defendant
I reject the defendants’ contention that there was no proper basis for the plaintiffs to join the second defendant as a defendant in the action. She is in joint possession of the property. If she had not been joined as a defendant, it would have been necessary to have given her notice of the proceedings and she would have been entitled to have opposed the order sought. The procedure adopted by the plaintiffs in joining her was proper and in accordance with good practice.
No Proof of Service of the Summons
The defendants’ counsel asserted that it was a breach of paragraph 6 of Practice Direction 19 and s 193 of the Real Property Act for the plaintiffs not to have proved personal service of the summons on both defendants. The short answer to what is a technical point is that R 12.03 provides that the document is deemed to have been served personally where “(d) an answering document is filed or served after service”. The filing of an address for service for both defendants on 22 November 2005 means that it was thereby deemed that they had both been served personally.
Cumulative Effect of Plaintiffs’ Default
The defendants’ counsel submitted that in view of the cumulative nature of the plaintiffs’ defaults the application should be dismissed. However, an order for possession under Part XVII is not a discretionary remedy. If the plaintiffs establish an entitlement to possession, as they have here, and no legal bar to the granting of the remedy has been established, as is also the case here, subject to some discretion about the timing and the terms of the order the Court is obliged to make the order to give effect to the plaintiffs’ entitlement under their mortgage to possession of Lot 51.
Alleged Agreement to “Halt” the Proceedings
The e-mails and letters between the parties disclosed that in about early November 2005 the plaintiffs indicated that they would halt the proceedings if the defendants brought the arrears of interest up to date. However, this was stated in a context of proposals of the first defendant to seek an annulment of his bankruptcy with the consequent effect that there could then be a further renewal of the mortgage. It was also in a context of the defendants challenging the plaintiffs’ contentions about whether they were in default in their interest payments, but that issue has not been raised by the defendants before me. The statements of the plaintiffs amounted to no more than that they would give the defendants some unspecified period of time to obtain an annulment and further investigate the appropriations of interest payments in other transactions between them. Such conduct neither amounted to a contract between the parties nor to an estoppel to prevent the plaintiffs from seeking this order. In bringing the arrears up to date the defendants were not acting to their detriment, and particularly as they were then in occupation of the land. It could not have been intended that the plaintiffs would not be entitled to repayment of their outstanding principal.
Because of the other findings which I have made it is not necessary to deal with the plaintiffs’ alternative contention for a dispensation from s 55A of the Law of Property Act.
The plaintiffs are entitled to an order for possession. I will hear the parties on Friday 10 February 2006 at 9.30 am on the precise terms of the order and on the question of costs.