STORR v STOILOV - [2007] SASC 426

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
STORR v STOILOV
[2007] SASC 426
Reasons of Judge Lunn a Master of the Supreme Court
6 December 2007
REAL PROPERTY
Action for possession by mortgagee under Part 17 of the Real Property Act - failure to serve valid notice under s 55A(1) of the Law of Property Act - application for dispensation under s 55A(2a) - criteria for dispensation - dispensation refused.

STORR v STOILOV
[2007] SASC 426
Reasons on plaintiff’s application for dispensation from s 55A of the Law of Property Act.

JUDGE LUNN: These reasons are confined to the only contested issue for current determination by me, which is whether the plaintiff should be granted a dispensation under s 55A(2a) of the Law of Property Act (“s 55A”). There are other issues between the parties, and particularly about the amount owing, which will require subsequent determination, but which I do not address at this stage.
The defendant is the registered proprietor of a property at 11 McMurray Avenue, Seaton (“the property”). (In some places in the documents it is incorrectly referred as 7 McMurray Avenue, Seaton). The defendant has granted six registered mortgages over the property. The first mortgage is to Elaine Beerworth and the five subsequent mortgages are all to the plaintiff. Elaine Beerworth and the plaintiff have been represented in their dealings with the defendant by George Mortimer (“Mr Mortimer”), a mortgage financier.
This action is based only on the first of the mortgages given by the plaintiff to the defendant. That mortgage was dated 9 March 2005 to secure repayment of a loan for $100,000 which was to become due for payment on 9 March 2006 (“the second mortgage”). It provided for monthly payments of interest. It was conceded s 55A applied to it. The moneys advanced under the last mortgage given by the defendant to the plaintiff were used, inter alia, to pre-pay monthly interest payments which were to become due on the second mortgage which has led to considerable confusion. On 18 April 2006 Mr Mortimer, acting under a power of attorney for the plaintiff, executed an extension of the second mortgage until 9 April 2007. Mr Mortimer certified the extension and arranged for its registration on 10 July 2006. Hence the principal under the second mortgage did not become due for repayment by the defendant until 9 April 2007. There was no acceleration clause in the second mortgage which made that principal sum become due for payment at an earlier time if there was any default in payment of interest.
On 30 October 2006 Mr Mortimer served a notice (“the October notice”) on the defendant by registered post alleging defaults by the defendant in payments of interest instalments due on 9 September and 9 October 2006 and demanding payment of those instalments and the principal sum totalling $101,833 within one calendar month after service of the notice. That notice incorrectly recited that the principal sum had become due on 9 March 2006. Although that notice did not refer to s 55A, the plaintiff contended until the last hearing before me that it was a valid notice for the purpose of that section.
By a notice dated 1 December 2006 (“the December notice”), which did express to be given under s 55A, the plaintiff demanded payment of a total of $102,750 plus costs within one month. This notice also incorrectly recited that the principal sum under the second mortgage had become due on 9 May 2006.
On 21 February 2007 the plaintiff instituted this action under Part XVII of the Real Property Act seeking an order for possession of the property based on the second mortgage, but not on the other four mortgages which she held over the property. The action has had a long and complicated history which it is not necessary to recite. On 15 October 2007 there was extensive argument before me on the plaintiff’s entitlement to an order for possession which was resisted by the defendant, but not on grounds that the October and December notices had improperly demanded repayment of the principal. I reserved my decision.
In the course of preparing my reasons I noted that the copy of the certificate of title, which was exhibited, showed that the second mortgage had been extended to 9 April 2007 and that there conflicting statements in various affidavits of Mr Mortimer on whether the term of the second mortgage had been extended or not. On 23 October 2007 I sent a memorandum to counsel raising this issue. In response, the plaintiff filed affidavits of Mr Mortimer acknowledging the extension of the term of the mortgage, but not conceding that it defeated the plaintiff’s claim. At a hearing on 6 November I re-opened the argument, gave the parties leave to file further affidavits and set a further hearing for 23 November 2007.
Further affidavits filed by the plaintiff did not concede the invalidity of all of the s 55A notices. At the outset of the hearing on 23 November counsel for the plaintiff for the first time conceded that neither the October nor the December notices were valid notices under s 55A. In view of the extension of the term of the second mortgage until 9 April 2007 there were clearly major errors in both those notices in claiming repayment of the principal sum of $100,000. In the light of that error any dispute about whether one or two monthly interest payments had not been made paled into insignificance. Accordingly, the argument was confined to the plaintiff’s oral application for a dispensation from the requirements of s 55A under s 55A(2a).
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.
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 they confer 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; Hillier v Lucas (2000) 81 SASR 451 at 478-479.
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 the power under 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 considering the exercise of the Court’s judicial discretion here to grant a dispensation I have regard to the following matters:
·S 55A is a piece of protective consumer protection legislation which should be beneficially construed in favour of mortgagors to whom it applies: Co-operative Building Society v Plane (1993) 170 LSJS 457 at 471. Its function is to give a last chance to mortgagors to avoid what will usually be the draconian and expensive consequence of default in being evicted from their homes. The requirements of s 55A are not particularly onerous for a mortgagee in requiring the service of a relatively simple notice as a pre-requisite to taking the legal steps to deprive mortgagors of their homes if their defaults continue.
·The defects in the October notice and the December notice were each major in requiring repayment of the whole of the principal which was not then legally due for payment. As a general rule the more substantial the non-compliance the more reluctant the Court should be to dispense with the requirement for it. Here it is not a mistake about a few dollars.
·The only explanation given for the default was a statement by Mr Mortimer in his affidavit of 5 November 2007 that he had overlooked the extension of the second mortgage. Quite how he could have done so when he himself had signed the extension document on behalf of the plaintiff and had registered it was not made clear. It was a mistake which he perpetuated for many months. It is not the type of mistake which would be expected from a professional person operating a mortgage lending business. There is no suggestion that anyone for whom the plaintiff was not responsible contributed to the mistake and no good reason was put forward as to why the plaintiff should not have to take the consequences of this mistake by her attorney and agent.
·The plaintiff’s counsel submitted that the present position of the defendant would have been no different even if he had been served with a valid s55A notice at the appropriate time. In his affidavits the defendant did not address the question of whether he would have paid out a valid s 55A notice. His argument was that he had prepaid more interest instalments than he had been given credit for in the October and December notices. I do not intend to resolve that difficult issue on the affidavit evidence which I have. It was not disputed that the defendant has not repaid the principal under the second mortgage when it became due on 9 April 2007 and that at the time of the hearing before me he was substantially in arrears in his payments of monthly interest under the second mortgage. Perry J did not have to address this question in Lamshed v Plakakis above, but he apparently regarded it as significant. I do not consider that the mere fact that the principal sum has become due for repayment during the course of the action, and that at the time of the hearing there are some significant arrears of interest, in themselves justify granting a dispensation, but it is a factor to be taken into account.
·The plaintiff’s counsel submitted that the plaintiff would be significantly delayed and put to additional expense if she was refused a dispensation and had to start again. While that may be significant in some cases it is of little relevance in the circumstances of this matter. The major defects in the s 55A notices should have been apparent to the plaintiff’s agents from before the commence of this action and the plaintiff’s agents are the primary authors of her misfortune in this respect.
·The plaintiff has persisted with this action for many months on the basis that she could establish due compliance with s 55A and only when her attempts to establish valid compliance were clearly foredoomed to failure did she then pursue the alternative of a dispensation from s 55A. The application for a dispensation was only relied upon as her final fallback position. The Court is more ready to grant dispensations to mortgagees who readily acknowledge their defaults early in the proceedings and do not occupy judicial resources in pursuing what they ultimately acknowledge are untenable positions.
·The onus is on the plaintiff to show the justice of the matter is in favour of the dispensation.
The greatest weight is to be given to the factors of s 55A being consumer protection legislation and the gross default of the plaintiff in not properly complying with it and these outweigh other factors in the plaintiff’s favour. The plaintiff has not shown that justice will be served by granting a dispensation.
Accordingly, the dispensation is refused.
Counsel for the plaintiff indicated that if the dispensation was refused he wanted the opportunity to pursue the claim on the basis of a further s 55A notice served after the commencement of this action and to seek the necessary permission under 6R 105.
I have today made the following orders:
1The plaintiff’s application for dispensation under s 55A(2a) of the Law of Property Act is refused.
2The question of costs reserved for argument.
3Fit for counsel.
4Adjourned for mention only to 19 December at 9.30 am.