New South Wales Supreme Court CITATION : George Hraiki v Jean Dorothy Beljon [2008] NSWSC 775 HEARING DATE(S) : 9 July 2008 JUDGMENT OF : McDougall J at 1 EX TEMPORE JUDGMENT DATE : 9 July 2008 DECISION : See paras [46] to [49] of the judgment. CATCHWORDS : CONSUMER CREDIT – application to restrain mortgage sale – whether Consumer Credit Code applies – whether certificate that does not identify credit provider is valid for purposes of s11 – whether certificate given after credit contract made – payment in Court – delay. Consumer Credit Code 1995 Consumer Credit (Queensland) Act 1995 LEGISLATION CITED : Consumer Credit (New South Wales) Act 1995 Real Property Act 1900 Contracts Review Act 1980 Consumer Credit Regulation 1995 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 CASES CITED : Harvey v McWatters (1948) 49 SR (NSW) 173 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 George Hraiki (First Plaintiff) Colleen Hraiki (Second Plaintiff) PARTIES : Jean Dorothy Beljon (First Defendant) Megan Taubman (Second Defendant) Wendy Barnett (Third Defendant) Maurice Lilienthal (Fourth Defendant) FILE NUMBER(S) : SC 3584/08 COUNSEL : A G Rogers (Plaintiffs) A L Hill (Defendants) SOLICITORS : Elias Gates & Associates (Plaintiffs) Mackellar Crain & Barnett (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION McDOUGALL J 9 July 2008 (ex tempore - revised 9 July 2008) 3584/08 GEORGE HRAIKI AND ANOR v JEAN DOROTHY BELJON AND ORS JUDGMENT 1 HIS HONOUR: This is an application for an interlocutory injunction, the immediate effect although not the full extent of which would be to restrain a mortgagee sale fixed to take place on Saturday next, 12 July 2008. 2 The plaintiffs are the proprietors of land 53 Dutton Street, Bankstown. The defendants hold a first registered mortgage over that property. There is a second registered mortgage and, allegedly, an unregistered third mortgage "protected" by a caveat. 3 On any view, the plaintiffs have made default under their mortgage to the defendants. The defendants have recovered judgment for possession. The writ was executed, and vacant possession was given to the defendants, on 21 May 2008. 4 The plaintiffs' case is that the Consumer Credit Code applies to the mortgage given by them to the defendants and to the underlying credit contract. The defendants rely on a certificate under s 11 of the Code. The plaintiffs say that that certificate is ineffective. Accordingly, they say, the Code must be taken to apply. 5 Further, the plaintiffs say that the defendants have not complied with the requirements of s 80 of the Code, which provides for certain things to be done before a credit provider can begin enforcement proceedings. 6 Finally, the plaintiffs say, the circumstances in which they came to give the mortgage in question to the defendants are such that the transaction is unjust, and may be reopened under s 70 of the Code. 7 It is unnecessary, and having regard to the fact that this is an interlocutory application undesirable, to traverse the facts in excessive detail. The plaintiffs sought a loan for $303,000. They required the loan to pay out an existing registered mortgage and provide a surplus by which they could buy out the interest then held in the land by a third family member. The plaintiffs relied on relatives, who are cousins of the second plaintiff and are said to have had experience in the finance industry, to locate the finance that the plaintiffs required. The plaintiffs say, that through the fraud of those relatives, perhaps aided and abetted by a solicitor, the advance that was sought was not $303,000 but $600,000. There is no doubt that this is the amount that the defendants agreed to lend and did lend, and that it is stated to be the principal amount secured by the mortgage in question. 8 It may be noted that none of the facts on which the plaintiffs rely to suggest that the mortgage and the underlying credit contract are unjust show that the defendants were advertent to, or negligently or otherwise inadvertent of, the allegedly fraudulent matters in question; let alone that the defendants were in some way complicit in those matters. As between the plaintiffs and the defendants, on the plaintiffs' evidence, the defendants were entirely innocent of any wrongdoing. The family members on whom the plaintiffs relied approached a finance broker who in turn approached another finance broker who approached the defendants' solicitor. There is no basis for suggesting, nor was it suggested, that the defendants' solicitor, and through him the defendants themselves, were aware of anything out of the ordinary or untoward in the application that was submitted for their consideration. 9 The first question to be considered is whether the Code applies. The Consumer Credit Code is, in matter of form, an appendix to the Consumer Credit (Queensland) Act 1995. It has effect in New South Wales by s 5 of the Consumer Credit (New South Wales) Act 1995. Regulations made under the Code have effect in New South Wales by s 6 of this latter Act. 10 Section 11 of the Code provides by subs (1) that the Code is "presumed" in proceedings to apply to a credit contract or mortgage if it is so alleged by a party in those proceedings. The presumption applies "unless the contrary is established". 11 Section 11(2) provides what purports to be a conclusive presumption that the Code does not apply in certain circumstances. Although the presumption is said to be conclusive, it is undermined by subs (3). For convenience, I set out the whole of section 11: 11 Presumptions relating to application of Code (1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established. (2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes). (3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained. (4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not. 12 The expression "credit contract" is defined by s 5 of the Code to mean a contract under which credit is or may be provided, being the provision of credit to which the Code applies. There is no doubt that by the mortgage and any antecedent credit contract, the defendants did agree to provide credit to the plaintiffs. 13 Schedule 1 to the Code defines a contract to include a series or combination of contracts or contracts and arrangements. To jump ahead a little: in the same schedule, the expression "enforcement proceedings" is defined to mean proceedings in a court to recover payment of an amount due or proceedings for possession of property mortgaged or other action to enforce a mortgage. There is no doubt that the proceedings commenced by the defendants to recover possession, and by which they did recover possession, are enforcement proceedings as defined. 14 The defendants rely on a document purporting to be a certificate under s 11 of the Code signed by the plaintiffs and dated 26 September 2007. That certificate reads as follows: I/WE Colleen Hraiki & George Hraiki ("the borrower(s)") declare that the credit to be provided to me/us by the credit provider, ______________________________________ is to be applied wholly or predominantly for business or investment purposes (or for both purposes). IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration, you may lose your protection under the Consumer Credit Code. 15 It will be noted that the certificate does not state the name of the credit provider. 16 The first question to be decided is whether the certificate on which the defendants rely is a certificate for the purposes of s 11. As I have already noted, s 11(4) requires a declaration under s 11 to be substantially in the form required by the regulation. If it is not, it is ineffective. 17 Section 10 of the Consumer Credit Regulation deals specifically with the form of a s 11 declaration. Section 10 of the regulation reads as follows: 10 Declaration of purposes for which credit provided (1) For the purposes of section 11 of the Code, the form of the declaration is as follows— 'I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).'. (2) The declaration is to contain (immediately below the above words or, if the declaration is to be made by electronic communication, prominently displayed when (but not after) the person signs) a warning in the following form— (3) The declaration is to contain— (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider. Note — The Code applies only to credit provided or intended to be provided for personal, domestic or household purposes. Section 11(2) of the Code provides that credit is conclusively presumed not to be provided for those purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes). The declaration is not effective unless it is substantially in the form required by the regulations. IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. 18 In my view, a certificate that does not specify the name of the credit provider is not a certificate that complies with s 10 of the regulation. That is because the required form of declaration refers to "credit to be provided... by the credit provider". The expression "credit provider" must be capable of being given some meaning. If no name is specified, it cannot be. 19 In circumstances where s 11 is a key provision for the purposes of the Code - it determines, in effect, whether a transaction is or is not one to which the Code applies - I do not think that there ought be room for any doubt in relation to a certificate. Nor do I think that it is appropriate for a certificate to be given in blank, so that it can be completed at some later time, as might happen if, for example, application were made to several credit providers. In my view, the purpose underlying s 11 (bearing in mind that it appears in legislation that is enacted for the benefit of consumers and that it should be given, so far as possible, a beneficial construction in the interests of consumers) would be undermined if the s 11 certificate did not on its face apply to the specific transaction that was intended to be exempted from the operation of the Code. 20 It was submitted for the defendants that the defect as to the statement of the name of the credit provider could have been rectified because the plaintiffs gave the defendants' solicitor an authority to complete documents. That authority authorised the solicitor "to fill in any blanks which may be necessary to complete the mortgage documents". I do not think that the certificate under s 11 forms part of the mortgage documents in question. But even if it did, it can not matter: the certificate would then speak as at the date the blank was completed, and that would still be a date after the making of the credit contract. 21 For that reason alone, it being clear that in these proceedings the plaintiffs do allege that the Code applies to the mortgage and to any antecedent credit contract, I would conclude that the defendants have not discharged the onus (which by s 11(1) is cast on them) of showing that the Code does not apply. 22 There is, however, a second reason for coming to the same conclusion. It will be noted that by s 11(2), the declaration must be made before the debtor enters into the credit contract. In this case, it is clear that the defendants agreed to give credit to the plaintiffs. It is therefore clear that there was a credit contract between them. It is at least arguable that the credit contract was made by 20 September 2007. A letter of that date from the broker who dealt with the defendants' solicitor to the other broker involved, but I think copied to the defendants' solicitor, notes that as at that date the defendants' solicitor and an accountant purporting, or who was purported, to act for the plaintiffs "have agreed on a loan amount of $600,000". 23 I accept that it is open to question whether that letter is capable of bearing the weight that the plaintiffs put upon it. However, the defendants' solicitor, in a letter dated 24 September 2007 to the plaintiffs' then solicitor, stated among other things that subject to searches and valuations "the intending Mortgagees consent to lend $600,000 on the security of the above property by way of first registered mortgage...". In my view, bearing in mind both the definition of credit contract and the extended definition of contract contained in, respectively, s 5 of and Sch 1 to the Code, that letter establishes that a credit contract was made no later than the date of the letter, 24 September 2007. 24 As I have said, the certificate in question was dated 26 September 2007. For that reason also, it is in my view ineffective. 25 Thus, I think, there is a serious question to be tried (at the very least) that the Code applies. Although it is not necessary to do so, I would go further and say that there is a very strong case indeed that the Code does apply. 26 If the Code does apply then the requirements of s 80 become relevant. That section reads, so far as relevant, as follows: 80 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. (4) When default notice not required. A credit provider is not required to give a default notice or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if— (a) the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the credit contract or mortgage; or (b) the credit provider has made reasonable attempts to locate the debtor or mortgagor but without success; or (c) the Court authorises the credit provider to begin the enforcement proceedings; or (d) the credit provider believes on reasonable grounds that the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract or under the mortgage concerned, or intends to remove or dispose of mortgaged goods, without the credit provider's permission or that urgent action is necessary to protect the mortgaged property. (5) Non-remedial default. If the credit provider believes on reasonable grounds that a default is not capable of being remedied— (a) the default notice need only specify the default; and (b) the credit provider may begin the enforcement proceedings after the period of 30 days from the date of the notice. 27 It was not submitted for the defendants that this was a case under subs (4) where default notice was not required, or a case of a "non remedial default" under subs (5). 28 There is no suggestion that any notice under s 80 was given. The only notice on which the defendants relied was a notice under s 57 (2) (b) of the Real Property Act 1900. It was not submitted that this notice met the requirements of (for example) subs (3) of s 80; nor could such a submission, if made, have been sustained. 29 It follows that the enforcement proceedings that have been commenced were, at least arguably, proceedings commenced in defiance of s 80. In my view, that means that there is a serious question to be tried as to whether the proceedings ought to be halted. I have already noted that the Code is properly to be regarded as remedial legislation enacted for the benefit of consumers. There is thus a strong presumption that protections conferred by the Code on consumers ought be complied with, and that the courts should be slow to let non-compliance go by the board. 30 In this case, presumably, the non-compliance could be dealt with by the service of a notice under s 80. If that were done, and if the plaintiffs did not comply with the requirements of the notice, it would be open to the defendants to bring enforcement proceedings. 31 It is plain from the evidence and from the way that the plaintiffs put their case that if the amount secured by the mortgage is indeed $600,000, together with arrears of interest for the past ten months or so at 12 per cent per annum, then the plaintiffs could not comply. The plaintiffs' case is that they can only comply to the extent of the obligation that they thought they were undertaking: a loan of $303,000. 32 Thus, the effect of enforcing s 80 would be to do very little but increase expense and delay, unless the plaintiffs had some right that could be activated in the meantime. 33 The right to which the plaintiffs point is their right to move under s 70 for the allegedly unjust transactions constituted by the credit contract and the mortgage to be reopened. 34 Section 70 (1) empowers the Court, in terms that are familiar from s 7 of the Contracts Review Act 1980, to reopen a credit contract or mortgage if in the circumstances relating to them at the time they were made they were unjust. A variety of matters to be considered by the Court are set out in s 70 (2). Again, in substance, those factors are familiar, from s9 of the Contracts Review Act (I think, only para (n) of s70(2) is unique to the Code). 35 It is clearly established, in applications under the Contracts Review Act, that ordinarily relief will not be granted against an innocent party. For example, in Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, Meagher JA at 277 said in substance that very strong reasons would need to be demonstrated before the legal rights taken by an innocent party under a contract could be disturbed because, by reason of circumstances for which that party had no responsibility, the contract could be regarded as "unjust." 36 In my view, those considerations should be taken to apply with equal force to an application to reopen under s 70 of the Code. In this case, as I have sought to make clear, the circumstances that are alleged to make the relevant transactions unjust are not circumstances for which the defendants are said to possess any responsibility. This is not a case where the very terms of the credit contract or the mortgage are harsh or usurious. Nor is it a case where the means employed by the defendants to procure the plaintiffs' assent to those transactions were overbearing or oppressive or in any other way unjust. 37 If the matters of which the plaintiffs complain are correct, one can not but feel sorry for them. But feeling sorry for them does not mean that their sorrows should be visited upon the defendants. 38 In my view, the strength of the plaintiffs' case in relation to reopening the transactions - bearing in mind that it is a reopening vis-a-vis innocent defendants - is weak indeed. 39 Thus, although I think there is a strong case that the Code applies, I think that there is only a weak case that the plaintiffs are likely to obtain any ultimate satisfaction, as opposed to temporary delay, from the application of the provisions of the Code. 40 There are other matters that require to be considered. One is the question of an undertaking as to payment into Court of the amount secured by the mortgage. It was submitted for the defendants that this was a case where the plaintiffs, as a condition of relief, should be required to bring into Court the full amount secured by the mortgage: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; Harvey v McWatters (1948) 49 SR (NSW) 173. The submission appeared to proceed on the basis that the challenge was only to the amount secured by the mortgage. That submission is misconceived. The challenge is based on the unavailability of the power of sale because of non-compliance with s 80. In those circumstances, were it necessary to do so, I would conclude that the plaintiffs were not required to bring into Court the amount secured by the mortgage. 41 Another matter of very considerable concern is the delay before this application was brought. As I have said, the plaintiffs were dispossessed on 21 May 2008. They had received notice to vacate a month before. Although they have made numerous promises to re-finance the loan, they have not done so. It is plain from the plaintiffs' evidence that they consulted their present solicitors at least four or five weeks ago. There is no explanation as to why, having done so, they waited from then until Thursday of last week (3 July 2008) to move the Court. 42 If the case were one of competing equitable considerations, or of a claim in equity to restrain the exercise of a legal right, I would conclude that the unexplained delay of itself was sufficient to mean that an injunction should be refused. I would be more hesitant to do so where the injunction is sought in aid of a legal right: particularly where the right relied upon is one given by legislation of the kind in question, enacted for the purpose to which I have more than once referred. 43 The defendants relied also on the fact of the second and third mortgages, and on the application made by the second mortgagee for possession. In the circumstances, it is unnecessary to deal with those submissions, although I would have thought that, where the contest lies between the plaintiffs and the defendants, the position of other mortgagees or claimed mortgagees is of little significance. 44 There is no doubt that if an injunction were granted, the proceedings would need to be heard and determined very quickly if the defendants were not to be put at risk. The amount of their claim by now is at least $650,000. If the property is sold, there will be costs and expenses of sale. The property was valued last year at about $850,000. Although there is reasonable equity to protect the defendants' position in the short term, it would be as I have said necessary to ensure that the proceedings were heard quickly if that relative degree of protection were not to be imperilled. 45 The plaintiffs did offer to pay an amount on account of arrears of interest, and to pay interest for the future in each case on the assumption that the principal amount was $303,000. I accept that such an undertaking, if given effect, to some extent would have alleviated the risk to the defendants. 46 However, in my view, this application falls to be determined not by reference to the technicalities surrounding s 80 but by reference to the real purpose for which the plaintiffs seek a delay in the exercise of the power of sale. That real purpose is to move for relief under s 70. Since in my view, as between the plaintiffs and the defendants, that case is weak, I think, balancing all the other factors to which I have referred, that the interests of justice require that the application be refused. Accordingly, I dismiss the plaintiffs' application for interlocutory relief. 47 The defendants ask for their costs of the application. The plaintiffs concede that costs should follow the event of the application. I order the plaintiffs to pay the defendants' costs of the application for interlocutory relief. 48 I order that the balance of these proceedings be transferred to the Common Law Division and that they be listed for directions on 18 July 2008 together with the application in proceedings 10794/08 in that division. 49 Exhibits on the application are to be handed out. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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