Reported Decision : (2002) NSW ConvR 55-998 New South Wales Supreme Court CITATION : JE & EJ Investments P/L v Masselos Adcom Holdings P/L v Masselos & Anor [2001] NSWSC 844 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 11261/2001; 13002/2000 HEARING DATE(S) : 27 August 2001 JUDGMENT DATE : 27 September 2001 11261/2001 - JE & EJ Investments Pty Limited (Plaintiff) Katherine Masselos (Defendant) PARTIES : 13002/2000 - Adcom Holdings Pty Ltd (Plaintiff) Steve James Masselos (First Defendant) Katherine Masselos (Second Defendant) JUDGMENT OF : Master Harrison Mr M W Young (Plaintiffs in both matters) COUNSEL : Mr N A Confus (Defendants in both matters) R L Kremnizer & Co (Plaintiff in both matters SOLICITORS : P J Ellis (Defendants in both matters) CATCHWORDS : Summary judgment - notice under s 92 Conveyancing Act 1999 - declaration as to costs Supreme Court Rules LEGISLATION CITED : Real Property Act 1900 (NSW) Conveyancing Act 1919 (NSW) Property Law Act 1952 (NZ) Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 CASES CITED : Webster & Anor v Lampard (1993) 177 CLR 598 Kater v Kater (No 1) (1963) NSWR 1667 Feickert v Perpetual Trustees Estate & Agency Co of NZ Ltd [1981] 2 NZLR 11 Kennedy v Cheesman (1923) GLR 577 Wallace McLean Bawden & Partners Nominees Ltd v Fish [1980] 1 NZLR 540 DECISION : (1) The plaitiff's notice of motion in proceedings 11261/2001 is dismissed; (2) The plaintiff is to pay the defendant's costs; (3) In proceedings 13002/2000, the defendant is to pay the plaintiff's costs of the proceedings except both parties are to pay their own costs of the motion. 16 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON THURSDAY, 27 SEPTEMBER 2001 11261/01 - JE & EJ INVESTMENTS PTY LIMITED v KATHERINE MASSELOS 13002/00 - ADCOM HOLDINGS PTY LTD v STEVE JAMES MASSELOS & KATHERINE MASSELOS JUDGMENT (Summary Judgment - notice under s 92 Conveyancing Act 1919; declaration as to costs) 1 MASTER: There are two notices of motion, one in each proceedings. In each proceedings, the s92 issue is the same, service of the s57(2)(b) notice is in dispute and a costs order in sought in the Adcom proceedings. 11261/01 - JE & EJ Investments Pty Limited v Masselos 2 By notice of motion filed on 4 June 2001, the plaintiff in the first proceedings, JE & EJ investments Pty Limited, seeks an order for summary judgment pursuant to Part 13 r 2 of the Supreme Court Rules for possession, damages, interest and costs as sought in paragraph 9 of the statement of claim. The plaintiff relied on the affidavits of Matthew Bransgrove sworn 31 May 2001 and Kelly Reynolds sworn 15 August 2001. The defendant relied on her affidavit sworn 10 August 2001. 3 By statement of claim filed 1 May 2001 the plaintiff in the first proceedings alleges that on or about 24 March 1999 the plaintiff loaned the defendant the sum of $654,000. The plaintiff secured the repayment of the loan to the defendant by taking a mortgage of land, being a property situated at 779 Military Road Mosman. The mortgage provided that the loan was to be repaid in full on 24 March 2000. The plaintiff alleges that the defendant failed to repay the principal on the due date. 4 On about 16 January 2001, the plaintiff's solicitor served the defendant with a notice pursuant to s57(2)(b) of the Real Property Act 1900 (NSW). The defendant has paid all interest since the issuing of this notice but continues to be in default, having not repaid the principal. The plaintiff seeks possession of the land and payment of the sum of $654,000. It is common ground that the defendant continues to make interest payments but that the principal sum has not been repaid. 5 By defence filed 17 May 2001 the defendant admitted that the plaintiff made a loan of $654,000 to the defendant, securing the loan with a mortgage over the property at 779 Military Road Mosman and admitted to the terms of the payment of interest. Although the defendant admits that she did not repay the principal sum on 24 March 2000, she does not admit that the principal sum was due to be repaid on 24 March 2000. The defendant alleges that the plaintiff made an offer in writing on 2 November 2000 to extend the mortgage for a further two year term. There was no evidence to support this contention. In any event it is not pleaded that the defendant accepted this offer. In fact there is a letter dated 16 January 2001 by the plaintiff's solicitor to the defendant which states: "We advise that the above mortgage has expired. We note that on 2 November 2000 we wrote to you enclosing variation documents for you to complete and return within three weeks. To date we have not received these documents." 6 Some months after the variation documents had been forwarded to the defendant, they had still not been completed by the defendant. Accordingly, the portion of the defence that alleges that there was an offer to extend the term of the mortgage is hopeless and should be dismissed. 7 The defendant further pleads that the plaintiff is required to give the defendant three months notice of its intention to take these proceedings pursuant to s 92 of the Conveyancing Act 1919 (NSW). The defendant submitted that proper notice under this section was not given. I shall refer to this issue in more detail later in the judgment. The law on summary judgment 8 The relevant parts of Part 13 r 2 are as follows: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and (b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires." 9 In a Court of Appeal decision Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb. 10 In General Steel Barwick CJ, who heard the application alone stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 11 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 12 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 13 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 14 The plaintiff submitted that the court could finally determine a point of law rather than find that the point of law is an arguable one and leave that argument for another day. In this particular case, I will proceed to determine the legal point as the facts are not in dispute and if I did not do so, the same arguments would be re-ventilated. This would incur unnecessary court time and unnecessary costs. Section 92 of the Conveyancing Act 15 As previously stated, the defendant submitted that the plaintiff has not complied with s 92 of the Conveyancing Act. The plaintiff submitted that the notice issued pursuant to s 57(2)(b) of the Real Property Act was sufficient for the purposes of s 92. 16 Section 92 of the Conveyancing Act provides: "92 Mortgagee accepting interest on overdue mortgage not to call up without notice (1) Where the mortgagor has made default in payment of the principal sum at the expiry of the term of the mortgage, or of any period for which it has been renewed or extended, and the mortgagee has accepted interest on the said sum for any period (not being less than three months) after default has been so made, then, so long as the mortgagor performs and observes all covenants expressed or implied in the mortgage, other than the covenant for payment of the principal sum, the mortgagee shall not be entitled to take proceedings to compel payment of the said sum, or for foreclosure, or to enter into possession, or to exercise any power of sale, without giving to the mortgagor three months' notice of his or her intention so to do. … (3) This section applies to mortgages under the Real Property Act 1900. (4) This section shall have effect notwithstanding any stipulation to the contrary." 17 Section 57(2)(b) of the Real Property Act provides: "57 Procedure on default (2) A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if: … (b) where: (i) the default relates to that payment, or … (b1) where a notice is required to be served under paragraph (b), a copy of that notice has been served (in the manner authorised by section 170 of the Conveyancing Act 1919) on: (i) each mortgagee, chargee or covenant chargee (if any) of the land mortgaged or charged under a registered mortgage, charge or covenant charge which has less priority than that of the person intending to exercise the power of sale, and (ii) each caveator (if any) who claims as an unregistered mortgagee or chargee to be entitled to an estate or interest in the land mortgaged or charged, and (c) where such a notice is so served, the requirements of the notice are not complied with within the time notified pursuant to subsection (3) (d). (3) A notice referred to in subsection (2) complies with this subsection if: (a) it specifies that it is a notice pursuant to section 57 (2) (b) of the Real Property Act 1900, (b) it requires the mortgagor, charger or covenant charger on whom it is served: (i) to observe, except in relation to any time expressed in the covenant, agreement or condition for its observance, the covenant, agreement or condition in respect of the observance of which the mortgagor, charger or covenant charger made default, or (ii) as the case may be, to pay the principal, interest, annuity, rent-charge or other money in respect of the payment of which the mortgagor, charger or covenant charger made default, (c) if the costs and expenses of preparing and serving the notice are to be demanded, it requires payment of a reasonable amount for those costs and expenses and specifies the amount, and (d) it notifies the mortgagor, charger or covenant charger that, unless the requirements of the notice are complied with within one month after service of the notice (or, where some other period exceeding one month is limited by the mortgage, charge or judgment for remedying the default referred to in the notice, within that other period after service of the notice), it is proposed to exercise a power of sale in respect of the land mortgaged or charged. (4) Where a notice is served under subsection (2) (b) and the requirements of the notice are complied with within the time applicable to the notice under subsection (3) (d), the default to which the notice relates shall be deemed not to have occurred." 18 Thus the purpose of the s57(2)(b) notice is to inform the mortgagor that the mortgagee intends to exercise its power of sale. (1) Service of the s 57(2)(b) Notice 19 The defendant submitted that the plaintiff had not served notice pursuant to s 57(2)(b). On 16 January 2001 the plaintiff's solicitors posted a notice pursuant to s57(2)(b) of the Real Property Act and s 111(2)(b) of the Conveyancing Act to the defendant at her address for service. 20 The operative parts of the s 57(2)(b) notice specified that: "TAKE NOTICE that you are hereby required by JE & EJ Investments Pty Limited, as first mortgagee to pay the principal sum specified hereinbelow of which you have failed to make in default of the below mentioned mortgage. You are also required to pay our reasonable costs of $385 (including GST) for the preparation and service of this Notice. TAKE FURTHER NOTICE that unless the requirements of this Notice are complied with within three (3) months after service of this Notice, JE & EJ Investments Pty Limited propose to exercise their Power of Sale in respect of the below mentioned land the subject of the Memorandum of Mortgage specified below. Details of the default which you have made are:- (A) Principal due 24 March 2000 and remaining unpaid as at 16 January 2001 $654,000.00 (B) Mortgage costs and expenses of this Notice (including GST) $ 385.00 $ 654,385.00 Memorandum of mortgage: 5751750 Address of Security: 779 Military Road, Mosman Dated 16 January 2001" 21 The defendant deposed that she has no recollection of receiving the s 57(2)(b) notice. By letter dated 22 January 2001, (some six days after the notice was posted) the defendant's solicitor wrote to the plaintiff's solicitor. The first paragraph of the letter acknowledges that they are in receipt of a letter addressed to their client which purports to attach a s 57(2)(b) notice (Ex A). In these circumstances, the s 57(2)(b) notice was validly served. 22 There is no authority which directly determines the requirements of a s 92 notice. In Kater v Kater (No 1) (1963) NSWR 1667, Manning J held that s 92 of the Conveyancing Act operated as a prohibition upon the mortgagee's right to exercise certain contractual powers and was not a prohibition which automatically from time to time refixed a date upon which the principal sum was payable. 23 There are some New Zealand authorities but these are of little assistance because s 90 is read with s 92 of the Property Law Act 1952 (NZ), whereas under s 92 of the Conveyancing Act stands alone. The New Zealand provisions state: "90. Mortgagee accepting interest not to call up without notice Where the mortgagor has made default in payment of the principal sum at the expiry of the term of the mortgage, or of any period for which it has been renewed or extended, and the mortgagee has accepted interest on the said sum for any period (not being less than 3 months) after default has been so made, then, so long as the mortgagor performs and observes all covenants expressed or implied in the mortgage, other than the covenant for payment of the principal sum, the mortgagee shall not call up and compel payment of the said sum without giving to the mortgagor 3 clear months' notice of his intention so to do. 92. Restriction on exercise by mortgagee of his rights (1) Subject to the provisions of this section, no power to sell land or to enter into possession of land conferred by any mortgage shall become or be deemed to have become exercisable, and no moneys secured by any mortgage of land shall become or be deemed to have become payable, by reason of any default (whether made before or after the commencement of this Act) in the payment of any moneys so secured or in the performance or observance of any other covenant expressed or implied in the mortgage unless and until the mortgagee serves on the owner for the time being of the land subject to the mortgage a notice specifying the default complained of and a date on which the power will become exercisable or the moneys will become payable, as the case may be, and requiring the owner to remedy the default, and the owner fails to remedy the default before the date so specified." 24 Where there is a default in payment of the principal sum this three months' notice must be given specifying the default. A particular date must be specified when the power will become exercisable. 25 The issues of firstly, whether the notice given by the defendant to the plaintiffs was in accordance with the requirements of ss 90 and 92 of the Property Law Act 1952 (NZ) and secondly, whether the notice was ambiguous and did it fail to state clearly the obligations of the plaintiffs as required by law were considered by the New Zealand High Court in Feickert v Perpetual Trustees Estate & Agency Co of NZ Ltd [1981] 2 NZLR 11. Davidson CJ held that in relation to question one, the notice gave the plaintiffs three clear months' notice of the defendant's intention to call up and compel payment of the principal sum. The Court found that the notice complied with s 92(1) in that it specified the default, gave a date as to when the power of sale would become exercisable and required the plaintiffs to remedy the default. In answer to the second question, the notice was not ambiguous and stated clearly the obligations of the plaintiffs. 26 In Kennedy v Cheesman (1923) GLR 577, Chapman J in the Supreme Court, Nelson, New Zealand held that s 68 of the Property Law Act 1906 (NZ) (the predecessor to s 90) is very clear and positive in its terms that operate whenever interest for any period not being less than three months has been accepted. In Wallace McLean Bawden & Partners Nominees Ltd v Fish 1 NZLR 540, the Court of Appeal at 542 stated that s 90 regulates the giving of three clear months notice to the mortgagor as a condition precedent to the exercise by the mortgagee of his power to call up and compel payment of the principal. As previously stated these New Zealand decisions are of limited assistance. 27 The current proceedings were commenced on 1 May 2001; that is, over three months after the service of the notice. The notice issued on 16 January 2001 stipulates that the defendant is in default of paying the sum of $654,000 and is required to do so within three months after service of the notice. The s 57(2)(b) notice contains a clause that if the defendant does not comply with the notice, the plaintiff proposes to exercise their power of sale. The s 57(2)(b) notice does refer to a three month period which is required pursuant to s 92. However, the notice does not specifically refer to the plaintiff's intention to take proceedings. 28 Under s 57 of the Real Property Act there is only one intended action that is the exercise of the power of sale. Section 92 stipulates that the mortgagee has to notify the mortgagor that it intends to take legal proceedings to either (i) compel payment of the sum; (ii) foreclose; (iii) enter into possession; or (iv) exercise any power of sale. The s 57(2)(b) notice served on the defendant does not make any reference to an intention to take proceedings. It is my view absent this reference that the content of s 57(2)(b) is not sufficient to fulfil the requirements of s 92. Therefore, no proper notice has been given to the defendant. The claim for summary judgment fails. 13002/00 - Adcom Holdings Pty Ltd v Masselos & Anor 29 By notice of motion filed 28 May 2001, the plaintiff in the second proceedings, Adcom Holdings Pty Ltd, seeks an order that the defendant do all acts and execute all documents reasonably necessary to provide the plaintiff with a discharge of two mortgages. In May 2001, the principal sum was repaid. The outstanding issue is a dispute as to costs. 30 The plaintiff relied on the affidavit of Kelly Reynolds sworn 17 July 2001. The defendants relied upon the affidavit of Katherine Masselos sworn 25 June 2001. The plaintiff's solicitor, Matthew Bransgrove and a paralegal clerk in the employ of the plaintiff deposed that on 25 July 2000 s 57(2)(b) notice was issued and served by post on the defendants at the security address. The second defendant, in her defence does not admit service. I find that the s 57(2)(b) notice was served. The statement of claim issued on 10 November 2000, over three months since the notice was served. However, the notice stipulated that a period for repayment was one month, not three as required by s 92. The defendant submitted that as the s 92 notice was invalid and this issue was raised in the defence, the proceedings were improperly commenced and the plaintiff should pay the costs of the proceedings. However, since the proceedings were commenced, the plaintiff has repaid the principal and signed consent orders. 31 There was much correspondence concerning quantum of legal costs that were payable pursuant to paragraph 9 of the memorandum of mortgage. The plaintiff took prior court proceedings due to a default under the mortgage in 1998. On 5 May 1998 this court made an order granting to the plaintiff possession of the Clontarf property. The costs of these earlier proceedings have not been paid by the defendants. The plaintiff would not agree to sign a notice of discontinuance until the costs issue had been finalised. The parties could not agree on a figure for the outstanding costs. As a consequence, the defendant filed the motion referred to above. The ultimate figure the parties settled upon reflected a compromise. Consent orders were filed and costs were reserved. It is also my view that the plaintiff is entitled to the costs of the proceedings except both parties should pay their own costs of the motion. ORDERS 32 I make the following orders: (1) The plaintiff's notice of motion in proceedings 11261/2001 is dismissed. (2) The plaintiff is to pay the defendant's costs. (3) In proceedings 13002/2000, the defendant is to pay the plaintiff's costs of the proceedings except both parties are to pay their own costs of the motion. ********** Last Modified: 10/24/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.