Burgess v TSB Bank Ltd - [2015] NZCA 361

IN THE COURT OF APPEAL OF NEW ZEALAND

CA47/2014
[2015] NZCA 361

BETWEEN	GARY OWEN BURGESS Appellant
AND	TSB BANK LIMITED Respondent

Hearing:	13 May 2015
Court:	Cooper, Mallon and Dobson JJ
Counsel:	Appellant in person D M Lester and G R Burgess for Respondent
Judgment:	10 August 2015 at 10.30 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe respondent is entitled to indemnity costs in the High Court, subject to the reservation that where costs have already been fixed in relation to interlocutory steps, the cost orders originally made are to stand.
C The respondent is also entitled to indemnity costs in this Court, together with the usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Cooper J)

Mr Burgess mortgaged his farm land at Medbury Road, RD1, Hawarden (the property) to secure two loans he obtained from TSB Bank Ltd (the bank). When he fell into arrears the bank served a notice under s 119 of the Property Law Act 2007 (the Act). Mr Burgess did not comply with the notice and the bank exercised its power of sale. The proceeds of sale were insufficient to meet his indebtedness to the bank, which commenced a proceeding in the District Court to recover the shortfall.
That proceeding was transferred to the High Court after Mr Burgess filed a counterclaim well in excess of the District Court’s jurisdiction.[1] The bank applied for security for costs on the counterclaim, and by consent both the counterclaim and the bank’s applications for security were stayed pending determination of the bank’s substantive claim.
[1]TSB Bank Ltd v Burgess DC Christchurch CIV-2010-009-2978, 28 July 2011.
On 10 December 2013 Gendall J delivered a judgment in favour of the bank in respect of the shortfall sum of $22,911.70, and interest.[2] The Judge awarded costs on an indemnity basis together with disbursements.
[2]TSB Bank Ltdv Burgess [2013] NZHC 3291.
Mr Burgess appeals against that judgment.

Background

In 2008 the bank advanced two loans to Mr Burgess, both of which were secured by a first mortgage over the property. The loans totalled $165,000, and comprised a table mortgage advance of $140,000 and a further revolving credit facility of $25,000.
Mr Burgess fell into arrears of interest. On 26 February 2010 the bank served a default notice under s 119 of the Act. When the default was not remedied, the bank proceeded to a mortgagee sale and the property was sold at auction on 11 June 2010. The proceeding commenced by the bank in the District Court was to recover the residual indebtedness which remained after the property was sold.

The debt claimed by the bank was ascertained in accordance with the following table, as set out by Gendall J in the judgment under appeal:[3]
[3]At [8].

(a)
Gross amount realised from the mortgagee sale
$210,000.00

(b) Less the following payments:

(i) GST paid on sale $23,333.33

(ii) Principal balance of Mr Burgess’ two loan accounts which were consolidated $166,148.59

(iii) Unpaid and…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] NZCA 361
Decision Date: 10 August 2015 at 10.30 am

CaseChat Overview and Summary

Burgess v TSB Bank Ltd concerned a dispute between the borrower, Mr Burgess, and the lender, TSB Bank Ltd, over the adequacy of a notice of default served under the Security Interests Act 2017 (Vic). The dispute reached the Court of Appeal of the Supreme Court of Victoria, which was tasked with determining whether the notice issued by the bank was compliant with statutory requirements and whether it adequately informed Mr Burgess of the action required to remedy the default. The court was also required to assess whether the notice correctly specified the consequences of not remedying the default, including the bank’s right to accelerate the repayment of the principal.

The central legal issue before the court was whether the notice issued by the bank sufficiently complied with the statutory requirements under ss 119 and 120 of the Act, and in accordance with the form prescribed by the Regulations. The court needed to determine whether the notice was deficient in three key respects: firstly, whether it adequately informed Mr Burgess of the action required to remedy the default; secondly, whether it improperly required payment of interest not yet due; and thirdly, whether it failed to specify the consequences of not remedying the default, specifically the right to accelerate the repayment of the principal.

The Court of Appeal found that the notice did not specify a precise amount that Mr Burgess was required to pay to remedy the default, which was a necessary requirement under the statutory framework. Despite the reference to the "full amount" in the notice, the court concluded that the notice was ambiguous because it did not clearly state the precise sum payable to discharge the notice. This ambiguity, the court held, rendered the notice non-compliant with the statutory requirements. The court further found that the notice did not adequately specify the consequences of not remedying the default, including the bank's right to accelerate the repayment of the principal, as required by the Act. Consequently, the court determined that the notice was deficient and did not meet the statutory standards.

The Court of Appeal held that the notice issued by TSB Bank Ltd was non-compliant with the statutory requirements under the Security Interests Act 2017 (Vic). The court's decision was based on the grounds that the notice failed to specify a precise amount required to remedy the default and did not adequately inform Mr Burgess of the consequences of not remedying the default. As a result, the court found in favour of Mr Burgess and determined that the notice was insufficient under the Act.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Finally, because it is relevant to one of the issues on appeal we note that s 4 of the Act defines the terms “acceleration clause” and “default” as follows:… acceleration clause means an express or implied term in an instrument which provides that, if there is a default, any amounts secured by a mortgage become payable (or may be called up as becoming payable) earlier than would be the case if there had not been a default…default means—(a)a failure—(i)to pay on the due date any amounts secured by an instrument; or(ii)to perform or observe any other express or implied covenant in an instrument; or(b)any other event (other than the arrival of the due date) on the occurrence of which any amounts secured by an instrument become payable, under any express or implied term in the instrument Mr Burgess acknowledged that his defence to the bank’s claim was substantially based on the bank’s alleged failure to issue a notice that complied with the requirements of ss 119 and 120 of the Act, in the form required by the Regulations, and containing the information required by the Regulations. His criticisms of the notice can be grouped into three broad categories. First, he claimed that the notice did not adequately inform him of the action required to remedy the defaults. Secondly, he submitted that the notice had improperly required payment of interest not yet due at the time the notice was issued, and that consequently it included an amount in respect of which he was not in default under the Act. Thirdly, he claimed the notice had failed properly to specify the consequences of not remedying the default. In particular he asserted that the bank had failed to record that failure to comply with the notice would result in the bank having the right to “accelerate” the repayment of the principal secured by the table mortgage. We deal with each of these propositions in turn. As has been seen, s 120(1)(b) requires that a notice issued under s 119 of the Act must adequately inform the mortgagor of the action required to remedy the default. Consistently with that, the form specified in the schedule to the Regulations contained the following paragraph:Action required to remedy defaultYou are required to remedy the specified default(s), or to cause the default(s) to be remedied,—(a)by payment of the sum of $[amount] (which includes [amount], being the reasonable costs and disbursements of the mortgagee/receiver in preparing and serving this notice):(b)by [specify action required to remedy each default]. Mr Burgess argued, both in the High Court and on appeal, that the notice was deficient because it failed to state the sum payable to the bank to discharge the notice, and it was not possible to identify or calculate, from the notice, the amount required to remedy the default. Mr Burgess notes that the notice referred in para 1.1 to the sum of $4,338.33 being arrears and interest due and owing as at 1 February 2010, together with payment of the sum of $559.25 which was the amount by which the revolving credit limit had been exceeded as at 1 February, as well as continuing to refer to interest and the bank’s weekly payment default fees down to the date of repayment. Following that there was a reference to the Hurunui District Council rates arrears and a reference to costs and disbursements of preparing and serving the notice. The costs and disbursements were claimed in amounts preceded by the word “approximately”. Mr Burgess noted the content of Note 5 (in para E of the notice) which referred back to the “full amount detailed in this notice including costs.” He submitted that this linkage to the costs provision (cl 1.3) confirmed that a precise amount should have been stated in the notice.

(a)	Gross amount realised from the mortgagee sale		$210,000.00
(b)	Less the following payments:
(i)	GST paid on sale	$23,333.33
(ii)	Principal balance of Mr Burgess’ two loan accounts which were consolidated	$166,148.59
(iii)	Unpaid and…