New South Wales Supreme Court CITATION : First Option Credit Union v Williams [2005] NSWSC 855 HEARING DATE(S) : 24 August 2005 JUDGMENT DATE : 30 August 2005 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Harrison DECISION : (1) Paragraph (2) of the defendant's notice of motion filed 4 August 2005 is dismissed; (2) The defendant is to pay the costs of the notice of motion and the costs thrown away by the amendment to the defence. CATCHWORDS : Dismiss proceedings - s 80 Consumer Credit Code Consumer Credit Code - ss 80 & 85 LEGISLATION CITED : Credit Act 1984 - s 107 Uniform Civil Procedure Rules 2005 - r 13.4; r 14.28(1) Equuscorp Pty Ltd v Rigert & Anor [2003] VSC 343 CASES CITED : Equuscorp Pty Ltd v Olsen [2004] VSC 454 First Option Credit Union ACN 087 650 735 formerly Tab Credit Union Limited ABN 95 087 650 735 (Plaintiff) PARTIES : Elvie Joan Williams (Defendant) FILE NUMBER(S) : SC 11434/2005 Ms E Cohen (Plaintiff) COUNSEL : Ms M Sneddon (Defendant) Mr N J O'Connor, Neil J O'Connor & Associates (Plaintiff) SOLICITORS : Ms M Olsen Grey & Perkins (Defendant) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE HARRISON TUESDAY, 30 AUGUST 2005 11434/2005 - FIRST OPTION CREDIT UNION ACN 087 650 735 formerly TAB CREDIT UNION LIMITED ABN 95 087 650 735 v ELVIE JOAN WILLIAMS JUDGMENT (Dismiss proceedings – s 80 Consumer Credit Code) 1 HER HONOUR: By notice of motion filed 4 August 2005 the defendant seeks firstly, and order granting leave to file and serve an amended defence; secondly, an order that the proceedings be dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (UCPR); thirdly, an order that the plaintiff pay the defendant's costs of and incidental to this motion on an indemnity basis; and fourthly, an order that the plaintiff pay the defendant's costs of the proceedings. The plaintiff, First Option Credit Union formerly Tab Credit Union Limited, relied on three affidavits of Dennis Andrew Rutherford sworn 1 June 2005, 11 July 2005, 9 August 2005 and Jill Curry sworn 23 August 2005. The defendant, Elvie Joan Williams, relied on her affidavit sworn 4 August 2005. 2 The brief facts are that on 13 May 204 the plaintiff agreed to increase an existing loan facility to the defendant to the amount of $605,213.00. Under the loan agreement the defendant is the borrower, mortgagor and guarantor. The defendant's husband and son are co-borrowers but not mortgagors. The loan is secured by mortgage registered dealing number 8586758 over the defendant's property at 254 Pennant Hills Road, Carlingford. The property is an investment property and is currently tenanted (see para 4 of defendant's aff). 3 In late January 2005 the plaintiff served a statement of claim and a notice for possession on the defendant's tenant. Those proceedings, 10331/2005 did not allege service of a Notice pursuant to s 80 of the Consumer Credit Code (the Code). The plaintiff has not taken any further steps in those proceedings. Currently those proceedings are still on foot but the plaintiff's Counsel indicated that they are to be discontinued. 4 On 15 April 2005 the plaintiff commenced these proceedings. On 24 August 2005 leave was granted to the defendant to file and serve an amended defence within 48 hours. 5 Rule 13.4(1) of the UCPR provides that the court may dismiss the proceedings generally or in relation to any claim for relief in three situations. These are if the proceedings are frivolous or vexatious, or no reasonable cause of action is disclosed, or the proceedings are an abuse of the process of the court. 6 Rule 14.28(1) of the UCPR provides that the Court may at any stage of the proceedings strike out the whole or any part of the pleading in three situations. These include: firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 7 The defendant seeks to strike out the statement of claim on three grounds. The first ground is that the s 80 Notice was not served. The second ground is that the plaintiff purports to activate an acceleration clause as at the date of the Notice and this is in breach of the provisions of the Consumer Credit Code. According to the defendant the Code allows a lender to state that a debt may be accelerated upon the expiry of the Notice, but does not allow a lender to activate an acceleration clause before the expiry of the Notice. The third ground is that the s 80 Notice overstates the amount due in relation to one instalment and enforcement costs. 8 The general manager of the plaintiff, Dennis Rutherford (aff 11/7/2005) deposes that on 7 March 2005 the s 80 Notice was posted to Ms E Williams at her residential address, 3203/142-148 Elizabeth Street, Sydney and to 254 Pennant Hills Road, Carlingford. The plaintiff denies receipt of the Notices. Whether the s 80 Notice was served is an issue of fact which should be determined at trial. 9 The next two grounds namely the overstatement and acceleration submissions relate to ss 80 and 85 of the Code. 10 Relevantly s 80 provides: "Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor (1) Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and-- (a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty--50 penalty units. (2) Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and-- (a) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty--50 penalty units. (3) Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period. (3A) Combined notices. Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor." 11 Relevantly s 85 provides: "Requirements to be met before credit provider can enforce an acceleration clause (1) An acceleration clause is to operate only if the debtor or mortgagor is in default under the credit contract or mortgage and-- (a) the credit provider has given to the debtor and any guarantor, or to the mortgagor, a default notice under section 80; and (b) the default notice contains an additional statement of the manner in which the liabilities of the debtor or mortgagor under the contract or mortgage would be affected by the operation of the acceleration clause and also of the amount required to pay out the contract (as accelerated); and (c) the default has not been remedied within the period specified in the default notice (unless the credit provider believes on reasonable grounds that the default is not capable of being remedied)." 12 The s 80 Notice states: "You have defaulted under your loan contract in that you failed to pay on time the following monies payable by you under your loan contract and mortgage. Repayments due on: 13 November 2004 $4,020.01 13 December 2004 $4,022.43 13 January 2005 $4,022.43 13 February 2005 $4,022.43 Repayments unpaid totalling: $16,087.30 Total amount of arrears: $16,087.30 To remedy your defaults, you must, on or before 11th April 2005 (the 'deadline'), pay to TAB Credit Union Limited: Total amount of arrears - $16,087.30 Enforcement expenses - $2,310.00 Repayment amount which fall due before the date of this notice - $4,022.42 TOTAL: $22,419.73 NOTICE IS HEREBY GIVEN that if the defaults specified above are not remedied on or before the deadline or if a subsequent default of the same kind occurs and is not remedied on or before the deadline you must pay TAB Credit Union Limited the outstanding balance of the loan and all other amount owing under your contract with TAB Credit Union Limited (not just the amounts set out above) on the day after the deadline. This will be the required amount to pay out your loan contract at that time which (calculated as at the time of this notice) is $621,191.40 together with the amount of any further debits made to your account after the date of this notice including any further interest payable and any further enforcement expenses failing which TAB Credit Union Limited may take enforcement proceedings against you without any further notice." 13 The defendant submitted that as the Notice issued on 7 March 2005 which states that in order for the defendant to remedy its defaults it must, on or before 11 April 2005 pay to the plaintiff $22,419.73. This sum includes an additional amount being "Repayment amount which fall (sic) due before the date of the Notice being $4,022.43." However, under the provisions of the mortgage this repayment does not fall due until 13 April 2005 which is two days after the deadline date of 11 April 2005. The defendant also submitted that as it has not been provided with particulars of how the sum of $2,310.00 enforcement expenses was calculated some of it may relate to the earlier proceedings. According to the defendant the Notice contains an overstatement of the amount and this is fatal error. The defendant relied upon two Victorian decision, Equuscorp Pty Ltd v Rigert & Anor [2003] VSC 343 and Equuscorp Pty Ltd v Olsen [2004] VSC 454. The plaintiff submitted that firstly, the Code does not apply; secondly, inclusion of the sum of $4,022.43 in the Notice was not an overstatement; and thirdly, Rigert and Olsen involve Victorian legislation which differs to the Code. 14 Although the plaintiff has issued a s 80 Notice under the Code. It nevertheless asserted that the Code was not applicable. 15 Section 6(1)(b) and (4) of the Code read: "(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into-- (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; (4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose." 16 If when the credit contract was entered into for investment the purposes, the Code does not apply. Currently, there is no evidence upon which the court can rely to decide this issue 17 In Rigert, Olsen J stated at [44]: "… The first difficulty, from the appellant's point of view, is that the notice did not accurately specify the default under the contract. It misstated the actual outstanding balance by inserting the balance which would become due as at 12 September 1997 (but which was not due as at the date of the notice) and claiming the further instalment due as at 12 September 1997 in addition to the moneys claimed as presently due and payable. In my view such a notice cannot be said to have given notice of default in accordance with s 107. Section 107(3) requires the notice to "specify" the default. The notice in the present case did not specify the default. It specified a sum in respect of which the borrowers were not in default. As such it did not comply with s 107 and it did not give effect to the purpose of s 107." 18 This defect was held to be fatal. 19 In Olsen the Magistrate relied on the above passage from Rigert and considered that the overstatement of an amount in default was fatal. On appeal an unsuccessful attempt was made to distinguish the decision of Osborn J in Rigert. Balmford J found no clear reason not to follow Osborn J at [22]. Section 80 of the Code and s 107 of the Credit Act 1984 are different terms. The issues of whether the inclusion of the repayment due after the deadline is fatal or whether it can be considered is a further default for which the plaintiff does not have to give notice are both arguable. 20 Paragraph 19 of the Credit Union Plain England Home Mortgage (Consumer Credit Code version) [Ex A] allows the credit union to include expenses before it issues the notice. Whether the sum of $2,310.00 relates solely to costs in these proceedings is a disputed fact which should be determined at trial. Whether the acceleration clause in the s 80 notice complies with s 85 is also arguable. 21 It is my view that all of these issues are arguable and should be permitted to go to trial. The statement of claim should not be struck out. Paragraph (2) of the defendant's notice of motion is dismissed. 22 Costs are discretionary. As the defendant was granted leave to file an amended defence, it should pay the costs thrown away by the amendment. The defendant should also pay the costs of the notice of motion filed 4 August 2005. 23 The orders I make are: (1) Paragraph (2) of the defendant's notice of motion filed 4 August 2005 is dismissed. (2) The defendant is to pay the costs of the notice of motion and the costs thrown away by the amendment to the defence. ********** 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.