Lender obtains summary judgment against borrowers for residual debt remaining after security property sold as mortgagee in possession.
If exercised with caution, applications for summary judgement can be a cost effective way for lenders to resolve proceedings against borrowers. This without the cost of having to run the matter to trial.
In Perpetual Trustee Company Limited ACN 000 001 007 v Konrad and White  QDC 298 the court heard an application for summary judgment pursuant to r 292 of the Uniform Civil Procedures Rules 1999 (Qld). Under r 292:
- A plaintiff may, at any time after a defendant files a notice of intention to defend, apply to the court under this part for judgment against the defendant.
- If the court is satisfied that:
- the defendant has no real prospect of successfully defending all or a part of the plaintiff’s claim; and
- there is no need for a trial of the claim or the part of the claim;
the court may give judgment for the plaintiff against the defendant for all or the part of the plaintiff’s claim and may make any other order the court considers appropriate.
Under a loan agreement entered into on 5 February 2009, Perpetual agreed to advance the borrowers a sum of $368,000.00. This according to the terms and conditions contained in the loan agreement. In addition the borrower’s obligations were secured by a mortgage.
However, the borrowers fell behind on their loan repayments in January 2011. They thereby committed an event of default under the mortgage.
Perpetual issued a Default Notice in accordance with the Property Law Act 1974 (Qld). Under section 84, a mortgagee cannot exercise the power of sale conferred by the Act until default has been made in payment. Or unless default has been made in the observance of a provision in the mortgage instrument. Also, the default must occur for 30 days from service of the notice.
The Default Notice was served on the borrowers on 24 February 2011 and 28 February 2011 respectively. The terms of the Notice gave the borrowers 31 days to cure the default.
On 30 March 2011, the Borrowers sent a formal Hardship Application to Perpetual’s agent seeking relief from the mortgage repayments. On 5 April 2011, prior to Perpetual’s decision on the Hardship Application, one of the borrowers said he was able to make payments of $1,800.00 each Friday. As a result, Perpetual declined the Hardship Application. But agreed to the suggested repayment arrangement subject to certain conditions. These conditions included:
- that the borrowers sign a Direct Debit Authority and return same to the agent by 12 April 2011;
- that the borrowers pay $1,800.00 per week in accordance with the borrower’s offer dated 5 April 2011 from the week commencing 15 April 2011; and
- that the borrowers clear all arrears on the loan on or before 30 May 2011.
Pursuant to the Default Notice, the Loan Agreement and Mortgage, a consequence of failing to cure a default is that the entire loan balance becomes immediately due and payable. Perpetual asserted that the loan balance became immediately due and payable on 1 April 2011.
Therefore, on 17 June 2011, Perpetual took possession of the secured property. It also engaged a real estate agent to market and sell the property on behalf of Perpetual as mortgagee in possession.
Credit Ombudsmen Service Limited
A week later, the borrowers lodged a complaint with the Credit Ombudsmen Service Limited (COSL). This body provides dispute resolution services between borrowers and lenders. The borrower’s complaint sought:
- the crediting of higher interest charges applied by Perpetual due to the borrower’s default under the Loan Agreement and Mortgage; and
- 60 days to clear the arrears.
On 2 November 2011, COSL emailed the borrowers detailing an offer made by Perpetual to credit various charges applied to the loan account including:
- higher interest charges in the sum of $2,537.93,
- direct debit dishonour fees in the sum of $1,240.00,
- and certain legal fees included in a tax invoice dated 1 August 2011.
In conclusion, COSL stated that if the borrowers were not in a position to repay the arrears, they would not be able to ask for additional time to clear the debt. COSL considered the complaint finalised and closed their file.
Perpetual submitted that it reversed the higher interest charges in good faith only, without altering its rights under the Loan Agreement and Mortgage. Perpetual also contended that no agreement with the borrowers was ever reached during the COSL process.
The property secured by the Mortgage was sold by Perpetual as mortgagee in possession exercising its power of sale for a sum of $315,000. This reduced the loan debt to $170,118.40 and therefore Perpetual commenced proceedings to recover this amount.
Key Issues Raised by the Borrowers
- the Notice of Default was invalid as it did not include the information prescribed by the National Consumer Credit Code. And also that the loan balance as stated in Schedule 1 of the Default Notice was “substantially incorrect”; and
- there were two relevant agreements entered into between the parties which were not adhered to by Perpetual. Therefore Perpetual was either in breach of those agreements. Or estopped from pursuing its rights under the terms of the Loan Agreement due to a breach of those agreements. The ‘agreements’ sought to be relied upon by the borrowers were:
- a repayment arrangement dated 8 April 2011; and
- a repayment arrangement entered into on or about 2 November 2011.
Perpetual rejected the grounds of defence raised by the borrowers. Instead it applied to the court for summary judgment on the basis that the borrowers’ case was hopeless and had no real prospect of prevailing at trial.
The onus of proof when applying for summary judgment lies with the plaintiff. And the evidentiary burden only shifts to the defendant (borrowers) once the plaintiff has established a prima facie entitlement to summary judgement. The judge reiterated that the power to grant summary judgment should be exercised with great care. Also it should never be exercised unless it is clear there is no real question to be tried (Gray v Morris).
The judge found that the borrowers’ contention that the Default Notice was invalid was incorrect. The National Consumer Credit Code was not in operation at the time of the Loan Agreement. Therefore the retrospective provisions of the Act did not apply to loans entered into before 1 July 2010. On this basis, the judge held that there was no issue of law ‘of such complexity as to require or warrant a full hearing and is suitable for determination at the summary stage’. In relation to the alleged COSL agreement, the judge held that there was no evidence that Perpetual and the Borrowers had reached an agreement as asserted by the Borrowers.
For these reasons, summary judgment was entered against the borrowers in favour of the lender. Therefore the lender did not have the cost or inconvenience of a trial.
The judgment may be read in full by following the link below:
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