RHG Mortgage Corporation Limited v Saunders

1. [1]

   HER HONOUR: By notice of motion filed 19 May 2016, the defendant seeks firstly, an order that judgment be set aside; secondly, that the defendant file any defence within 14 days; and thirdly, that the plaintiff pay the costs of this matter on an indemnity basis.

2. [2]

   The plaintiff is RHG Mortgage Corporation Limited (“RHG”). The defendant is Gregory John Saunders (“Mr Saunders”). RHG relied upon the affidavit of Brad Hooper dated 15 June 2016, the affidavit of Matthew William Gradidge dated 17 June 2016, paragraph [3] of the defendant’s affidavit sworn 10 May 2016, the affidavit of Arun Krishnan sworn 22 June 2016 and the affidavit of Tanya Slater sworn 23 June 2016. The defendant relied upon his affidavit dated 22 June 2016. A copy of a draft defence is marked Exhibit A.

The pleading framework

1. [3]

   On 2 July 2015 by statement of claim, the plaintiff sought possession of property at XX, Branxton NSW (“the property”).

2. [4]

   On 11 October 2007, the defendant mortgaged to the plaintiff the property as security for the amount owing to the plaintiff under a loan agreement. It was a term of the loan agreement that the defendant would pay to the plaintiff the repayments set out in the loan agreement at the time specified. The defendant failed to repay the loan on the specified dates.

3. [5]

   On 9 June 2015, the plaintiff served on the defendant notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) and s 88 of the National Credit Code (“default notice”). The National Credit Code is contained in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth).

4. [6]

   The default notice required the defendant to pay an amount of $2,441.70 by 10 July 2015, made up of the following missed payments: $366.06 on 9 April 2015; $406.41 on 16 April 2015; 30 April 2015; 21 May 2015; and 28 May 2015, together with enforcement expenses of $450.

5. [7]

   The defendant has not complied with the default notice and, as at 15 July 2015, the defendant was indebted to the plaintiff in the amount of $261,196.23, being the amount payable by the defendant to the plaintiff pursuant to the loan agreement.

6. [8]

   The defendant has not filed a defence.

7. [9]

   On 2 December 2015, default judgment was entered. On 2 February 2016, a writ of possession issued. The plaintiff has obtained possession and wishes to sell the property. As this judgment is reserved and no stay of execution of the writ of possession has been applied for, I made an order that the plaintiff’s solicitors are to give the defendant’s solicitor 14 days’ notice once they decide to market the property.

The law

1. [10]

   The plaintiff relied upon Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) rr 36.15 and 36.16. I shall deal with UCPR 36.15 first and then UCPR 36.16 if necessary. Counsel for Mr Saunders submitted that RHG did not comply with s 72 of the National Credit Code and judgment should be set aside pursuant to UCPR 36.15 because it was entered illegally.

2. [11]

   UCPR 36.15 reads:

3. [12]

   The meaning of this rule was considered by this Court in Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387; 78 NSWLR 190. The Court (Allsop P, Campbell JA and Handley AJA) said in its joint judgment:

4. [13]

   It is necessary to look at the whole of the relevant circumstances: see Webster v Aquaqueen International Pty Ltd [2013] NSWSC 1181 at [120].

The National Credit Code

1. [14]

   Mr Saunders’ argument involves ss 72, 89A and 204 of the National Credit Code. Section 72 relevantly reads:

2. [15]

   Section 89A relevantly reads:

3. [16]

   Pursuant to s 204, “enforcement proceedings” relevantly means:

The evidence

1. [17]

   Counsel for Mr Saunders submitted that on or around 19 May 2015, Mr Saunders made an oral hardship application to which RHG did not respond. I shall set out both parties’ versions of that conversation. They are in similar terms. I shall refer to this conversation as the “conversation of 18 May 2015”.

2. [18]

   Mr Saunders deposes that on or around 19 May 2015, a person from RHG came to his house to discuss the loan. He does not recall the exact words spoken, however the conversation was to the following effect:

3. [19]

   This conversation is recorded in a log of RHG. It reads:

4. [20]

   Counsel for Mr Saunders alleged it is clear that during this conversation Mr Saunders made an oral hardship application and RHG did not respond, therefore it did not comply with s 72 of the Credit Code. However, on either version of the conversation, Mr Saunders did not mention the word “hardship”, nor did he mention a “hardship application”. It is common ground that Mr Saunders did mention $100 a week. While both parties’ versions of the conversation are not dissimilar, Mr Saunders’ version is that he said, “I can only do about $100 a week” and RHG’s version is that he said, “I can only offer to pay [an] extra $100 a week”. The conversation ended when Mr Saunders gave his contact phone number and stated that he could be contacted on that number should RHG require further information.

5. [21]

   Counsel for RHG referred to a practice that had arisen between Mr Saunders and RHG over a number of years in relation to hardship applications. The practice involved Mr Saunders phoning RHG and requesting a written hardship application from RHG, RHG posting one to him, Mr Saunders completing the application and posting it back to RHG and then RHG making a decision and notifying him of it. I was taken through RHG’s log by counsel for RHG. It showed that this procedure was followed on 28 June 2011 to 20 September 2011; 27 July 2012 to 27 August 2012; 8 February 2013; 2 May 2013 to 28 May 2015; and 19 June 2013 to 1 August 2013. This procedure was also followed on 3 October 2013, although Mr Saunders did not return the application forms to RHG. Thus there were at least five financial hardship applications made by Mr Saunders in which this procedure was followed. Some of the applications were granted and some were not.

6. [22]

   I accept that Mr Saunders was well aware of the procedure he was required to follow if he wanted to make a hardship application as he had previously done so on numerous occasions. Counsel for Mr Saunders drew my attention to the fact that the last written application was made in August 2013, which was some years ago. So far as the conversation of 18 May 2015 is concerned, counsel for RHG submitted that while the defendant may have subjectively considered that he made a hardship application, whether or not he did so is to be determined on an objective basis. The question is what a reasonable person would understand the conversation to mean taking into account the surrounding facts and circumstances.

7. [23]

   In the past Mr Saunders made hardship applications in writing. Section 72(1) of the National Credit Code also allows for an oral application to be made. I accept that the contents of an oral conversation could constitute a hardship application. However, in my view the conversation between Mr Saunders and the RHG agent of 18 May 2015 did not amount to a hardship application because there was no mention of “hardship” or a “hardship application” by Mr Saunders. Also the conversation concluded with Mr Saunders providing his contact phone number and stating that he could be contacted should RHG require further information. He did not, for example, ask that he be informed of the outcome of his hardship application. Even if the conversation that took place on 18 May 2015 could be construed as Mr Saunders making a hardship application, there was a later conversation between Mr Ross Papantonio, senior arrears officer for RHG, and Mr Saunders on 31 July 2015, albeit outside of the 21 day period stipulated in s 72(2). That conversation was as follows:

8. [24]

   This conversation establishes that Mr Saunders was told that his “offer” of $100 per week was rejected and this is in accordance with s 72 of the National Credit Code.

Consideration of Monas

1. [25]

   Counsel for the plaintiff referred to Monas v Perpetual Trustees [2011] NSWCA 417; 80 NSWLR 739 (“Monas”) in submissions. Before I refer to Monas, it is convenient that I briefly refer to the National Credit Code and its predecessor in New South Wales, the Consumer Credit (New South Wales) Code (“NSW Credit Code”).

2. [26]

   The National Credit Code came into force on 1 April 2010 and applies to contracts entered into on or after 1 July 2010. Transitional provisions were dealt with by the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth). Section 4 contains a dictionary in which the term “carried over instrument” was defined as “a contract or other instrument that: (a) was made before commencement; and (b) was in force immediately before commencement; and (c) the old Credit Code of a referring State or a Territory applied to immediately before commencement.”

3. [27]

   Sections 80 of the NSW Credit Code and 88 of the National Credit Code are in almost identical terms. Both provide for criminal sanctions. Likewise, s 72 of the National Credit Code also provides for a criminal sanction.

4. [28]

   Turning to the facts of Monas, Ms Monas sought to file an amended cross claim and a second further amended defence relying on the hardship provisions of the National Credit Code. She also asked to have determined separately the issue raised by the hardship application and the issue of compliance by the respondent with the requirements of s 80(3) the NSW Credit Code. More or less as a defensive measure, the respondent filed a notice of motion for authorisation to begin the current proceedings nunc pro tunc in case the Court should find that there was a defect in its s 80 notice.

5. [29]

   In his Honour’s reasons for decision, Young JA (with whom Beazley JA and McColl JA agreed) stated (at 749) that the Court did not need to consider the s 72 hardship application as the amount of credit extended to Ms Monas exceeded the threshold amount of $500,000 to which s 72 applied. Unlike Monas, in these current proceedings before me counsel for the plaintiff conceded that the hardship provisions apply. The amount of credit extended to Mr Saunders was about $265,000, which is under the threshold amount.

6. [30]

   So far as s 80 of the NSW Credit Code is concerned, the Court of Appeal in Monas stated at [33] to [37]:

7. [31]

   On the s 80 issue, the Court of Appeal stated at [44]:

8. [32]

   Thus non compliance with s 80 of the NSW Credit Code does not mean that there is a failure of a condition to the present litigation and therefore the present litigation must be dismissed. However, the Court of Appeal in Monas found it unnecessary to consider whether a notice that does not comply with s 80 is invalid.

9. [33]

   Section 72 of the National Credit Code also provides a penalty for non compliance. In Bank of Queensland Ltd v Dutta [2010] NSWSC 574, Davies J referred to s 170 of the NSW Credit Code which is identical to s 193(1) of the National Credit Code.

10. [34]

    Section 193(1) of the National Credit Code reads:

11. [35]

    If a hardship application was made on 18 May 2015 (and I have made a finding there was not), I would follow the approach of Davies J in Dutta and Hoeben J at first instance in Monas and find that any breach of s 72 involved at worst an irregularity.

12. [36]

    Finally, if I am wrong and Mr Saunders did make a hardship application, I consider that it was refused by RHG, albeit out of time.

13. [37]

    As I stated earlier, in my view there was no hardship application made by Mr Saunders so there was no irregularity. UCPR 36.15 does not apply.

Setting aside default judgment

1. [38]

   I now turn to consider UCPR 36.16

2. [39]

   The power to set aside a judgment is contained in UCPR 36.16. It reads:

3. [40]

   The most recent Court of Appeal authority in which an application to set aside default judgment pursuant to UCPR 36.16 was considered is Stankovic v Magee [2014] NSWCA 439 (“Stankovic”). In Stankovic, Macfarlan JA (with Basten and Gleeson JJA agreeing) stated:

4. [41]

   Another consideration to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995) 128 FLR 263; (1995) 38 NSWLR 476 at 481 quoting from the Federal Court in Davies v Pagett (1986) 10 FCR 226; 70 ALR 793 at 799:

Bona fide defence?

1. [42]

   Mr Saunders’ draft defence (Ex A) pleads essentially the same argument as that raised under UCPR 36.15, so I need not repeat my reasoning here other than to say that while I regarded the defence as bona fide in considering it pursuant to UCPR 36.15, in my view it does not raise an arguable or triable issue. Therefore, as I have considered it on its merits, I cannot conclude it is bona fide for the purposes of UCPR 36.16.

Explanation for delay

1. [43]

   Mr Saunders was served with the statement of claim on 28 July 2015. His counsel submitted that as he did not understand what this document meant, he should have been warned by RHG that it was entering default judgment against him. Counsel referred to Emibarb Pty Limited v Commonwealth Bank (NSWSC, 2 March 1992 unreported, Greenwood M) and Stormer Building Group Pty Ltd v Johnson [2014] ACTSC 23 (“Stormer Building Group”). In Stormer Building Group, Mossop M at [12] stated:

2. [44]

   However, RHG’s log shows that on 2 November 2015, Mr Saunders was sent the following SMS via email:

3. [45]

   On 19 November 2015, Mr Saunders was sent another SMS via email:

4. [46]

   On 24 November 2015, Mr Saunders was sent another SMS via email:

5. [47]

   On 26 November 2015, Mr Saunders was again sent a further SMS via email:

6. [48]

   On 30 November 2015, Mr Saunders was sent yet another SMS via email:

7. [49]

   It is clear that Mr Saunders was advised on a number of occasions that RHG was intending to enter default judgment against him prior to RHG doing so.

8. [50]

   It was only once Mr Saunders was evicted from his property on 22 March 2016 that he sought legal advice and a notice of motion seeking to set aside the default judgment was filed. In my view, Mr Saunders had been warned on

Interests of justice

1. [51]

   As at 1 June 2016, Mr Saunders owed $282,135.16 pursuant to the loan. When the statement of claim was issued, the default in repayments was for a modest amount of $2,441.70, including enforcement expenses of $450. Subsequently Mr Saunders has not made or offered to make any mortgage repayments. I understand that his main problem with making regular mortgage repayments is that he is casually employed as an earthmover in Rutherford so he is not able to work when it rains. Therefore the amount of his income each week is irregular. He has been struggling to pay the mortgage over a number of years. Mr Saunders did not provide any evidence to show that he will be able to make the mortgage repayments in the future.

2. [52]

   Counsel for the plaintiff submitted that it is not in the interests of justice to set the default judgment aside as there is little or no equity in the property. The property has been valued on two bases. Firstly, on a direct comparison approach, comparing the property’s value to recent sales of properties of similar value, the total market value of the property as is, is calculated at $265,000. Secondly, after clean up, it is valued at $300,000. The market value range is estimated at between $250,000 to $280,000 as is or between $290,000 to $320,000 as if complete (Aff Hooper, 31).

Conclusion

1. [53]

   It is my view that Mr Saunders’ defence, while bona fide, does not raise an arguable or triable issue. He has not provided an adequate explanation for delay. While I accept that the default as at 21 July 2015 (when the statement of claim was issued) was for a modest amount, there is little or no equity left in the property. Mr Saunders has struggled to pay the mortgage repayments since 2011 due to the nature of his casual work and there is no evidence to show that he will be able to properly service the loan in the future. Overall, it is not in the interests of justice to set the default judgment aside. For these reasons, the default judgment should not be set aside.

2. [54]

   The result is that the defendant’s notice of motion filed 19 May 2016 is dismissed.

3. [55]

   Costs are discretionary. Costs usually follow the event. The defendant is to pay the plaintiff’s costs on an ordinary basis as agreed or assessed.