St George Bank Limited v McCormack (No 2) - [2008] SASC 39

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ST GEORGE BANK LIMITED v MCCORMACK (NO 2)
[2008] SASC 39
Reasons of Judge Lunn a Master of the Supreme Court
25 February 2008
REAL PROPERTY
Mortgagee seeking possession of property under Part XVII of the Real Property Act - previously held it had not served a valid notice under s 55A of the Law of Property Act as it demanded excessive enforcement expenses - application by mortgagee for dispensation under s 55A(2a) - held as a matter of public policy no dispensation should be granted as no explanation had been given of how the excessive claim for enforcement expenses came to be made - summons dismissed.

ST GEORGE BANK LIMITED v MCCORMACK (NO 2)
[2008] SASC 39
ST GEORGE BANK LIMITED –v- MCCORMACK (No 2)
Reasons on plaintiff’s application for dispensation from s 55A of the Law of Property Act.

JUDGE LUNN: In my Reasons in this matter published on 21 January 2008, [2008] SASC 8, I held I would dismiss the plaintiff’s summons for possession unless it obtained a dispensation under s 55A(2a) of the Law of Property Act (“the Act). Subsequently, on 1 February 2008 the plaintiff took out an application seeking dispensation under s 55A(2a). These reasons deal with that application. The general background and the wider history are contained in my earlier Reasons.
The relevant parts of s 55A are:
(1)A right of sale ….., a right to enter into possession 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;
…..
(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.
There is little authority on how the Court should exercise its dispensing power under s 55A(2a). In Lamshed v Plakakis (1998) 47 SASR 316 at 322-3 Perry J said:
….. the power to dispense with the requirement of notice, by invoking the power given by subs (2a).
I am not at all sure that it is appropriate to invoke the power to dispense in a situation such as this. I say that because subs (2a) contemplates that the only order is to dispense altogether with the requirement to give notice. It does not seem to be designed to empower the court to cure the consequences of the giving of a defective notice.
One could imagine circumstances where, for example, the whereabouts of the mortgagor are unknown, in which is might be appropriate for the court to exercise the jurisdiction under subs (2a) so as to dispense with the requirement to give the notice which the section specifies. But it is another thing to say that in a situation where it is otherwise appropriate to give a notice and where the mortgagor is available to be served with a notice, the consequences for the mortgagee of having given a defective notice should be overcome by removing the obligation to give one at all.
….. It is unnecessary for me to come to a concluded view as to whether I am able to agree with that construction of the dispensing power under subs (2a), as whatever may be the case in that respect, I am not satisfied that it would be proper to exercise the power in favour of the respondents here.
…..
…..
It seems to me, however, that in many cases the default has gone on for a long period of time but I do not consider that the sections should be so construed that a mortgagee should in such a case be relieved of the obligation to give the statutory notice. As to the suggestion that the defects in the notice are purely technical, this might be said of any failure to comply with the statutory requirements. However, it seems to that the policy of the statute which finds expression in s 55a is that notice complying with the requirements of the section will be given in circumstances where the mortgagor is a natural person and the land is appropriated for domestic or agricultural use, unless particular circumstances make it proper to exercise the power to dispense with notice.
….. The respondents maintain an entitlement to $80,000. The appellant asserts, inter alia, that the mortgage is void or voidable and that he owes nothing. It is important to note that no advance was ever made to the appellant. If an advance had been made to him, arguments as to what was due would assume a different complexion and importance.
….. I do not see the case as one in which, having regard to all the circumstances, it would be proper to use the dispensing power under subs (2a) even if it was otherwise appropriate to use that power in a situation where a defective notice has been given.
In the result, as the notice fails to comply with s 55a, any right to enter into possession of the mortgaged land is not enforceable by the respondents.
As I am concluding that no dispensation should be granted I need not pursue the point left open by Perry J in Lamshed v Plakakis above on whether subs (2a) extends to empowering the Court to cure the consequences of a defective notice as distinct from a failure to give a notice at all.
In Commonwealth Bank v Saunders (1995) 181 LSJS 363 at 367-8 Anderson M (as he then was) held that the mortgagee needed to mount a strong case for a dispensation under s 55A(2a) where the default had been due to its own mistake and his decision upheld on appeal without reference to the point: Commonwealth Bank v Saunders (1995) 64 SASR 428.
In the context of dispensing powers under the Rules of Court it has been held that it confers a wide judicial discretion which can be exercised if no injustice would result from the dispensation and the party in default bears the onus of satisfying the Court that justice requires that his or her default should be overlooked: Alice Springs Abattoirs Pty Ltd v Northern Territory (1996) 111 NTR 9.
In relation to the similar powers under the now repealed RR 38.02(3) and 3.04(a) of the Supreme Court Rules 1987 Lander J said in Hillier v Lucas (2000) 81 SASR 451 at [220] – [221]:
The Rules of Court should always be observed: Ratnam v Cumarasamy (1965) 1 WLR 8 [1964] 3 All ER 933. Sometimes, however, there will be a failure to comply with the Rules. When they are not observed and a party seeks a dispensation from that party’s failure to observe obligations under the Rules then the question of whether a dispensation should be given depends upon whether the justice of the case necessitates that the default should be forgiven: Morres v Papuan Rubber and Trading Co Ltd (1914) 14 SR (NSW) 141 at 144 per Cullen J.
Rule 38 confers an unfettered discretion, except that the discretion must be exercised judicially, upon a trial judge to allow a party leave to adduce expert evidence when there has not been compliance with R 38: R 38.03. The Court is otherwise given power to dispense with compliance with the rules: R 3.04(a). The purpose of allowing parties to proceed notwithstanding non-compliance with the Rules is to allow justice to be done. Rules of this kind are to aid in the attainment of justice: Gallo v Dawson (1990) 64 ALJR 458; Hughes v National Trustees Executors and Agency Co of Australasia Ltd (1978) VR 257 at 262. It is, of course, for those seeking a dispensation or an indulgence to convince the Court that such an order is necessary to do justice in the matter: Pond v WorkCover (1999) SASC 362.
In Johannessen v Miller (No 2) (1977) 17 SASR 243 at 246, Hogarth J, in dealing with an application for dispensation under s 165 of the then Justices Act 1921, applied a test of whether the appellant had established that he had done whatever was reasonably practicable to comply with the requirements of the Act from which dispensation was sought. As he found that test to be satisfied he granted the dispensation.
In Morres v Papuan and Rubber Trading Co Ltd (1914) 14 SR (NSW) 141 at 144-5 the Full Court of New South Wales said, on an application for dispensation from a Rule of Court where a failure to serve a notice had been as a result of the negligence of the solicitor’s clerk,
But when a party, who has neglected to observe those requirements which the rules place him under for the protection of the other side, comes for the indulgence of the Court to ask that the proceedings shall continue notwithstanding that default, he has to satisfy the Court that justice requires that the default of his shall be overlooked, and he must satisfy the Court that there is some reasonable kind of explanation or excuse for his neglect of the rules. If a rule is one merely regarding a matter of detail in which the other party can be placed in as good a position as if the rules had been complied with, then in regard to such matters of detail the Court ought not to be very strict, because, the main purpose to be served being the carrying out of the particular proceeding, the mere matter of detail ought not to stand in the way of that purpose being served. But where it is a matter which definitely affects the right of the party, then although the Court has full power to condone the breach of the rules, it would require to see that the object to be served is one that justice really requires under the particular circumstances.
The excuse for failing to comply with the rules in this case was the neglect of a clerk to serve the notice of motion for several days after the time in which it ought to have been served. That excuse for the breach of the rule is not one which has been looked on with favour by the Courts, and in the case of Coles v Ravenspear, applying the case of In re Helsby ([1894] 1 QB 742), it was held that the neglect of a clerk is not one which in itself would establish any claim to the consideration of the Court. As Farwell LJ said, “A mere slip or blunder on the part of a litigant’s legal adviser cannot, in my view, entitle him to anything at all”. But notwithstanding that, I should say that if the Court sees that there are real merits in the application for the prosecution of the motion, notwithstanding the default, the say in which the default occurred would not be too closely scrutinized.
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Now, it seems to me that in order to protect the administration of justice against consequences that are contrary to the interests of the public, some kind of check ought to be placed on the facilities for re-opening questions in which no new question of law is involved and in which a very trifling sum of money is concerned.
The plaintiff’s counsel correctly pointed out that here the defective s 55A notice had been served in May 2007. Between the end of July 2007 and the beginning of February 2008 the defendant’s arrears under the mortgage had increased from $5,746 to $13,463 and the balance owing had increased from $145,746 to $153,463. (The defendant’s fiancée, who attended on the hearing, said that some payments have been made in February 2008, but I infer they were little more than interest at the default rate). He submitted that the defendant had been on notice since May 2007 that there had been a major default which he was required to remedy and that his failure to do so would result in the plaintiff obtaining possession of the property and selling it. He contrasted this with the default of the plaintiff in only having demanded payment of enforcement expenses which had been found to be $93 in excess of its entitlement which was relatively insignificant in comparison with the total amount which was due for payment by the defendant. (This submission, and the affidavit in support of the application, are not strictly correct in saying that the overstatement of the enforcement expenses was approximately $93: what I have found is that on a summary determination the enforcement expenses are overstated by at least $93 and that they could possibly be considerably more).
The plaintiff’s counsel submitted that it was relevant to the exercise of the Court’s discretion under s 55A(2a) that the defendant had not actively opposed the dispensation. I do not agree. The onus is on the plaintiff to satisfy the Court that a dispensation should be granted. The defendant’s fiancée, who represented him at the hearings, had no real appreciation of the legal issues or the significance of what was being sought by the plaintiffs. I determine the application for dispensation on the evidence and the submissions which are before me.
The plaintiff’s counsel submitted that the justice of the case could be met by imposing conditions under s 55A(2a). He did not have instructions to propose any particular conditions, but he suggested the Court could, if it thought fit, to work justice between the parties, impose conditions limiting the recovery of costs by the plaintiff from contesting the defective notice and granting some extension of time to the defendant before any possession order took effect.
As I put to the plaintiff’s counsel in the course of argument there is a public policy consideration involved in whether any dispensation should be granted. As I held in my earlier Reasons, the plaintiff in its s 55A notice required payment of enforcement expenses by way of legal costs to which it was not properly entitled in an amount of at least $93. Initially the plaintiff strenuously contested that there was any such overcharging and, if it occurred, that it invalidated the s 55A notice. Having had those issues determined against it, it now seeks a dispensation from being required to have served an s 55A notice which correctly stated the amount of enforcement expenses payable by the defendant. What it has not done is to give the Court any explanation about how it came to include an excessive sum for enforcement expenses in the notice. The notice was signed by its solicitor on its behalf and I therefore infer that it had some legal advice about the proper amount to be demanded. I also infer that the amount of those enforcement costs were ultimately payable to the solicitors who did the work. The fact that the enforcement costs were in an odd sum of $597.63 leads me to infer that the drafter of the s 55A notice had made a considered calculation to arrive at that odd figure. What the Court has not been told is the basis of that calculation. Under what was said in Morres v Papuan and Rubber Trading Co Ltd, quoted above, the Court needs to have that information if the plaintiff is to lay the proper foundation for any dispensation. Counsel for the plaintiff referred to the overcharging as being a mistake, but there is no evidence that there was either a mistake or, if there was, as to what was the nature of it. One possibility is that the plaintiff’s solicitors made a bona fide mistake after making proper investigations about what amounts could be recoverable under Schedule 1 to the Supreme Court Civil Rules 2006. Another equal possibility is that they made no proper investigation and made an unjustified assumption about the amount properly chargeable. Another equal possibility is that they knew the amount was excessive but sought to recover it for their own financial profit and hoped that neither the defendant nor the Court would bring them to account for it. This Court will not countenance any negligent or intentional overcharging by solicitors if either the second or the third possibility above are the correct explanation for the overstatement of the expenses. This Court, as a matter of public policy, and in the interests of justice, will not grant any dispensation in respect of it. Here, the onus was on the plaintiff to satisfy the Court that there was a proper innocent explanation for the overcharging and on the evidence presented it has not discharged the onus upon it to do so. Insofar as the consequences of it also adversely affect the plaintiff that is a matter between the plaintiff and its solicitors.
The application for dispensation is refused.
I have today made the following orders:
1Dispensation under s 55(a) of the Law of Property Act refused.
2Summons dismissed.
3No order as to costs.