Supreme Court New South Wales Medium Neutral Citation: RHG Mortgage Corporation Ltd v Summerfield [2018] NSWSC 972 Hearing dates: 27–28 November 2017 Date of orders: 29 June 2018 Decision date: 29 June 2018 Jurisdiction: Common Law Before: Garling J Decision: (1) Amended Statement of Claim dated 5 May 2017 dismissed. (2) Plaintiff to pay the defendants' costs. (3) In the event that either party seeks a different order from Order (2), then on or before 13 July 2018, a motion accompanied by all material relied upon and an outline of submissions shall be filed and served on the opposing party, and a copy provided to my Associate. (4) The party in receipt of such motion is, on or before 27 July 2018, to file and serve all material upon which they rely, together with all submissions on the opposing party, and to provide a copy to my Associate. (5) Any costs application is to be determined on the papers unless the Court of its own motion relists the matter for oral argument. (6) Liberty to apply on 24 hours' notice. Catchwords: MORTGAGES AND SECURITIES – rights and liabilities of mortgagor and mortgagee – whether mortgage and loan agreement entitled mortgagee to possession of land – where writ of possession previously executed – whether mortgagors were in default of a subsequent agreement with the mortgagee which entitled them to retake possession of the property – where 'arrears adjustment' made to loan account – whether default notices complied with requirements of the loan agreement – whether fees and charges applied to loan account accorded with the loan agreement – default not established – mortgagee not entitled to possession CONTRACTS – construction of terms of the loan agreement and later agreement by correspondence – principles of construction of commercial contracts Legislation Cited: National Credit Code (Cth) Real Property Act 1900 (NSW) Cases Cited: Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640 Gollin & Co Ltd v Karenlee Nominees Pty Ltd [1983] HCA 38; (1983) 153 CLR 455 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 JP Morgan Trust Australia Limited v Anthony Robert Bridge [2013] NSWSC 668 Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37; (2015) 256 CLR 104 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Re Golden Key Ltd (in receivership) [2009] EWCA Civ 636 RHG Mortgage Corporation Limited v Summerfield & Anor [2016] NSWSC 1595 Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 Zhu v Treasurer of New South Wales (2004) 218 CLR 530 Texts Cited: Not Applicable Category: Principal judgment Parties: RHG Mortgage Corporation Ltd (P) Brian John Summerfield (D1) Catherine May Summerfield (D2) Representation: Counsel: M W Young SC (P) D Eardley (D1, D2) Solicitors: Dibbs Barker (P) Jane Button & Associates (D1, D2) File Number(s): 2015/52745 Publication restriction: Not Applicable Judgment 1. RHG Mortgage Corporation Ltd ("RHG"), which was formerly known as "RAMS Mortgage Corporation Ltd" ("RAMS"), loaned $380,000 to Mr Brian John Summerfield and Mrs Catherine May Summerfield ("the Borrowers"). The loan was secured by a mortgage given by the Borrowers to RHG over their property in Hibiscus Close at Alfords Point ("the Property"). 2. RHG claims that that the Borrowers are in default under the loan agreement and mortgage, and that it is entitled to possession of the Property and repayment of the entire capital sum of the mortgage. 3. The Borrowers dispute that there is any arrears in respect of the loan, and challenge RHG's right to possession and the other relief which RHG seeks. 4. For the reasons which follow, I am of the view that RHG is not entitled to the relief which it seeks, and that the proceedings should be dismissed with costs. 5. This matter has had a complex history, both in respect of the loan agreement and in respect of the proceedings in court. It is necessary to outline that history in order to give the present issues some context. The Loan 1. In August 2002, the Borrowers made a loan application to RAMS. The Borrowers sought to borrow $380,000 to purchase the Property, which was being sold for $640,000. The balance was to be paid from the Borrowers' own funds. The loan sought was a principal and interest loan for 30 years. 2. RAMS made an offer to lend the $380,000 sought by the Borrowers to them in accordance with its standard "Low Doc Home Loan Agreement" ("the Loan Agreement"). The agreement was entitled "Solace". The offer was made on 3 September 2002. Under the Loan Agreement the Borrowers were required to make specified fortnightly payments. The offer was accepted by the Borrowers on 6 September 2002, and the monies were advanced ("the Loan"). 3. The evidence is not clear as to when RAMS became known as RHG. That is of no particular relevance. It will be convenient to refer to the entity as RHG, and not to distinguish between it and RAMS. 4. The Loan Agreement contained the "Solace General Terms". Those terms included the following: "What you must pay and when 4. What you must pay You must repay all amounts you borrow from us and pay us interest charges and other amounts under clause 9. 5. Repayments 5.1 You must make repayments at the frequency indicated in the Details. The Details also indicate the repayment method or methods applicable to your loan. 5.2 The repayment methods are as follows. Principal and interest repayments 5.3 We calculate principal and interest repayments so that, during the period they are payable, the • balance owning on your loan account at the start of the period, and • all: - interest charges - financial institutions duty - other fees and amounts we notify you as being included in the repayment amount which accrue or become payable during the period are repaid during the period. Under this method, the part of each repayment which repays the balance owing on your loan account at the start of the period gradually increases throughout the period but repayments are equal as long as: - the interest rate - the financial institutions duty rate - any other fee or other amount we notify you as being included in the repayment amount remain constant. However, the last repayment may be different as it equals the total amount owing on the last of the loan term. Repayments are rounded to the nearest cent. 5.4 For the purpose of clause 5.3, we may calculate principal and interest repayments at any time on the basis that we deem the balance owing on your loan account to be your then current loan curve balance. If we do so, the principal and interest repayment amount notified to you is greater than the amount which would be the principal and interest repayment but for a calculation under this clause 5.4. In these circumstances, we may choose to require you to pay an amount less than the principal and interest repayment amount we have notified to you. If we debit you with the lesser amount under the direct debit authority, you will not be in default under this agreement. We may calculate the lesser amount as being equal to the principal and interest repayment but for a calculation under this clause 5.4." 1. Clauses 9 and 10, which will later be referred to, are in the following terms: "9. Other amounts Enforcement expenses may become payable under this agreement or any mortgage or other security in the event of a breach 9.1 You must pay us: (a) all fees and charges in the circumstances indicated in the Details and any changed or new fee or charge notified to you; (b) an amount equal to any government charges and duties on receipts or withdrawals under this agreement, calculated in accordance with the relevant legislation. Without limiting this obligation, you must pay stamp duty imposed on credit business (Queensland). These are payable whether or not you are primarily liable for such charges and duties; and (c) when we ask, any reasonable expenses we reasonably incur in enforcing this agreement or a security after you are in default (including, in the case of a mortgage, expenses incurred in preserving and maintaining the property, such as by paying insurance, rates and taxes for the property). 9.2 You authorise us to debit these amounts to your loan account. We may do so on or after the date we pay them or the date they become due or payable by you or by us (whichever is earlier). 9.3 To the extent they are known, the amounts of the fees and charges current at the disclosure date are shown in the Details. 9.4 By giving you advance notice (in writing or by newspaper advertisement), we may change the amount, or frequency of payment, or any fee or charge, or impose a new government fee or charge. But some changes in government fees and charges are publicised by the government and not us. 10. Interest Charges We publish changes to the RAMS interest rates in the general news section of The Australian newspaper. 10.1 You must pay us interest charges for each day on the balance owing on your loan account for the end of that day. Interest charges are calculated daily at the interest rate applying to the relevant amount for that day on the basis of a 365 day year (including in a leap year). The interest charges accrue daily from and including the settlement date. Subject to clause 10.2, they are debited to your loan account on: (a) the first day of each month; and (b) the last day of the loan term; and (c) in respect of any fixed portion, on the last day of the fixed rate period (whether or not the fixed rate period terminates early); and (d) the day your first full repayment cycle period begins. 10.2 If your loan settles on the first day of the month, then interest charges are first debited to your loan account on the first day of the following month. 10.3 If you are in default, the interest charges are higher (see clause 19). In such a case we exclude from the balance owing on your loan account for the purpose of this clause 11 any amount on which interest charges are payable at the default rate under clause 19 and charge interest instead on that amount under clause 19. 10.4 The variable interest rate which applies to your loan is named in the Details. The rate shown in the Details is the RAMS variable interest rate as at the disclosure date and is only a guide – the actual variable rate may have changed by the settlement date. 10.5 Whenever your loan has the variable interest rate, we may change the variable interest rate which applies to the loan at any time. 10.6 We notify you in writing or by a newspaper advertisement on or before the date of any interest rate change. 10.7 We may change your repayment amount to take account of any change to the interest rate (and otherwise as permitted under clause 5.8)." 1. The nature of a default and when it occurs is addressed by clauses 17 to 19 of the Loan Agreement in the following terms: "17. When are you in default? You are in default if: (a) you do not pay on time any amount due under this agreement or another loan agreement you have with us; or (b) you do something you agree not to do, or you don't do something you agree to do under this agreement; or (c) you give, or another person gives, us incorrect or misleading information in connection with this agreement or a security; or (d) we reasonably believe you or another person has acted fraudulently in connection with this agreement or a security; or (e) you become, or a security provider becomes, insolvent or steps are taken to make you or them so; or (f) you are, or a security provider is, in default under a security or withdraws from it; or (g) you or another person who signs a trust letter breaches its terms. 18. What can happen then? 18.1 If you are in default, we may give you a notice stating that you are in default. If you do not, or cannot, correct the default within any grace period given in the notice or required by law (or if you are in default again for a similar reason at the end of that period), then, at the end of that period and without further notice to you, the total amount owing becomes immediately due for payment (to the extent it is not already due for payment). We may then sue you for that amount, or enforce any security, or do both. 18.2 In limited circumstances set down by law (such as if we are unable to locate you), we need not give the notice or wait until the end of any grace period given in a notice. Instead, if you are in default, the total amount owing becomes immediately due for payment without notice. We may then immediately sue you for that amount, or enforce any security, or do both. 18.3 If you are in default and we assign this agreement to another person (including anyone who insures us against late or non-payment under this agreement), you agree that if the total amount owing immediately before the assignment is more than the amount we receive in relation to the assignment, we are still entitled to recover the difference from you (together with interest on it at the default rate). This is so despite any law which would otherwise provide that because we have taken action to recover those amounts, this agreement ends, or that our right to recover amounts from you ends on the assignment. 19. Higher interest charges Under this agreement, a default rate of interest may be charged when payments are in default. 19.1 If you are in default, the default rate set out in the Details may be charged daily on any amount while it is overdue. Note: The overdue amount on which default interest is charged can include the total amount owing if that total amount owing becomes due for payment under clause 18 (for example, because you do not correct a default within the period of grace) and you do not pay it immediately. 19.2 If you do not pay these default interest charges, we add them to the overdue amount (this is known as 'capitalising') on the first day of each month, including after the end of the loan term. You are then liable for default interest charges on the new amount overdue. 19.3 The default rate for an amount is always 2% per annum more than the interest rate applying to that amount at any particular time. Therefore, if the interest rate changes (including because you fix all or part of your loan), then so does the default rate. 19.4 Your obligation to pay on time is not cancelled by this clause." 1. Some other features of the standard conditions are relevant. The first additional feature is the ability of RHG to give a certificate or formal statement which constitutes prima facie proof of a matter. Clause 28 is in the following form: "28. Our certificates We may give you a certificate or formal statement about a matter or about an amount payable in connection with this agreement. This is sufficient evidence of the matter or amount, unless it is proved to be incorrect." 1. Clause 30 of the standard conditions set out how the delivery of communications by RHG to the Borrowers could occur. Clause 30.3 is in the following form: "30.3 Communications to you may be: (a) given personally …; or (b) left at your residential or business address last known to us; or (c) sent by post to your postal or residential or business address last known to us; or (d) sent by fax to your residential or business fax number last known to us; or (e) given in any other way permitted by law." 1. There are also various definitional provisions. These are set out in clause 33. So far as is relevant, the following definitions ought be referred to: "balance owing on your loan account means, at any time, the difference between all amounts credited and all amounts debited to you under this agreement at that time. When this amount is to be calculated for the end of a day, it includes all debits and credits assigned to that day. … loan curve balance means at any date the amount that would be owing on your loan at that date if you had paid all scheduled repayments on time and had no prepaid any amounts. … … total amount owing means, at any time, the balance owing on your loan account at that time, plus all accrued interest charges, default interest charges and other amounts which you must pay under this agreement but which have not been debited to your loan account at that time." Mortgage 1. The Borrowers gave RHG a mortgage over the Property in order to secure the Loan ("the Mortgage"). The Mortgage was dated 2 October 2002. The terms and conditions of the Mortgage were set out in Memorandum No. 2510216 filed with Land and Property Information NSW. Events of default are dealt with in clauses 18, 19 and 20. They are in the following form: "What can happen if you are in default? When are you in default? 18. You are in default if: (a) you do not pay the amount owing on time; or (b) you do something you agree not to do, or you don't do something you agree to do, under this mortgage or an agreement covered by this mortgage; or (c) you or another person has given us incorrect or misleading information (including through you declarations under clause 1.5) in connection with this mortgage or an agreement covered by this mortgage; or (d) we reasonably believe you or another person has acted fraudulently in connection with this mortgage or an agreement covered by this mortgage; or (e) if you are a company, you become insolvent or steps are taken to make you so; or (f) you do not, or another person does not, carry out in full an undertaking given in connection with this mortgage or an agreement covered by this mortgage, within the period specified, or within seven days if no period is specified. What can happen then? 19.1 If you are in default and we choose to enforce this mortgage, we must give you a notice. (You must have been in default for one day or more before we may do this). This notice must: (a) state that you are in default; and (b) specify a period of grace of at least 31 days. 19.2 The law (including statute law governing the exercise of our power of sale as mortgagee and, if applicable, a Consumer Credit Code) requires us to give you certain information before enforcing this mortgage. We may include that information in the notice under clause 19.1 or another notice. 19.3 During the period of grace given under clause 19.1, you are allowed to correct any default that can be corrected. If you do not correct that default within that period or if there is a default that cannot be corrected, then, to the extent it is not already due for payment, the amount owing becomes immediately due for payment at the end of that period without further notice. In additional, we may then do one or more of the following as well as anything else the law allows us to do as mortgagee: (a) sue for the amount owing; (b) take possession of the property (We may remove personal possessions and either abandon them or store them without being liable to you. If we store them and you do not reclaim them within a reasonable time, we may dispose of them and use the proceeds towards paying the amount owing). (c) do anything an owner of the property could do, including selling or leasing it or carrying on any business on it; (d) appoint a receiver to do any of those things and anything else the law allows a receiver to do. Enforcement expenses 20. When we ask, you must pay us the reasonable expenses we reasonably incur in enforcing this mortgage after you are in default (including in preserving and maintaining the property – such as by paying insurance, rates and taxes for the property). This applies to expenses we incur before or after taking action under clause 19." 1. The Mortgage also contains a provision with respect to the disbursement of money. That provision is in clause 21.1. It says: "Money received under this mortgage is to be used towards paying the amount owing unless we are obliged to pay the money to anyone with a prior claim. …" 1. "Amount owing" is defined in the following way: "Amount owing means, at any time, all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or an agreement covered by this mortgage. …" Variation of Loan Agreement in 2003 1. The Loan Agreement was varied by the parties with effect from 20 November 2003. An additional loan of $100,000 was obtained by the Borrowers from RAMS. The terms of the Loan Agreement, after that variation was agreed to, required repayments in the following way: "One principal and interest payment of $1,246.23 and then 750 fortnightly principal and interest repayments of $1,527.05 each. These repayment details assume that: • the interest rate at the variation disclosure date does not change; • fees and charges do not change after the variation disclosure date; • you make repayments on time." 1. The evidence does not suggest that there was any change in the interest rate, or fees or charges of any relevant kind between the variation disclosure date and the date the agreement was varied. 2. The length of the Loan Agreement as varied was noted as remaining unchanged, namely for a period at 30 years. Administration of the Loan Agreement 1. RAMS established a loan account on its books which was allocated account number 1299981 ("the Loan Account"). That Loan Account recorded all financial transactions which took place after the Loan was initially made. It also calculated a running account balance ("the Loan Balance"). 2. The detail of this account lies at the centre of the litigation between the parties in these proceedings, which will be referred to in detail in due course. 3. Whilst it will be necessary to come to the course of dealings between the parties at the times relevant to the present proceedings, it is now convenient to outline the previous court proceedings and the existing court proceedings in order to describe the complex history of them. Court Proceedings and Surrounding Events 1. Sometime between 2003, when the variation was entered into by RAMS, and 2012, RAMS changed its name and became known as RHG. Nothing turns on the change in name. 2. On 20 June 2012, Kemp Strang, the solicitors for RHG, sent an identical letter to each of the Borrowers ("the June 2012 Default Notice"). The letter was on the solicitor's letterhead which, having described the firm, included a line which read "Kemp Strang Collections Department". 3. There was then a heading on the letter which described it as a "Default Notice". It informed the recipient that Kemp Strang acted on behalf of RHG. It set out a table of "… the status as at 15 June 2012 of Credit Contract(s) pursuant to which [RHG] advanced monies to you". 4. The table described the Credit Contract, Mortgage and Property by their requisite identification numbers and address. It then included the following two columns: Arrears Amount Outstanding $19,720.88 $448,618.52 increasing at a rate of 9.12%pa The "Notice" then included the following statement: "To remedy the Default(s), you are required to pay the Arrears to the Lender by no later than 3 August 2012 ("Grace Period"). If you do not pay the Arrears within the Grace Period, or if a default of the same type as specified in this notice occurs during the Grace Period and that default is not rectified within the Grace Period, then without further notice: ● 'the Amount Outstanding and the Lender's Costs and charges will automatically be due and payable …' " 1. The letter described the "type" of Arrears as being "Arrears were not paid when due". No further details were provided in support of that description. 2. The Notice contained a statement that it was issued: "… pursuant to: ● the Credit Contract(s) and the Mortgage(s); and ● Section 57(2)(b) of the Real Property Act 1900 (NSW); and ● Section 88 of the National Credit Code (if applicable)." 1. On 13 August 2012, RHG commenced proceedings in this Court against the Borrowers alleging that they were in default in an amount of $19,720.88, a sum which coincided with the sum in the June 2012 Default Notice. RHG claimed judgment for possession of the Property ("the 2012 proceedings"). No claim for a money judgment was made. 2. On 11 July 2013, in the absence of any defence being filed, RHG obtained default judgment against the Borrowers for possession of the Property. At the request of RHG, a Writ of Possession issued. Initially, an eviction was scheduled for 15 November 2013, but was postponed by RHG when it received a payment from the Borrowers of $45,676.80. 3. Further payments were made by the Borrowers in November and December 2013. In the absence of any further payments, a further eviction was scheduled for the property on 28 March 2014. The Sheriff of NSW conducted an eviction on that day and RHG took possession of the Property. The Borrowers, and anyone else who was in residence at the Property, left the Property and did not resume living there at that time. 4. As will become apparent, pursuant to an agreement entered into by exchange of correspondence between 30 May 2014 and 3 June 2014 ("the 2014 Agreement"), the Borrowers returned to the Property in early June 2014 and have continued to reside there ever since. 5. The details of this agreement and these arrangements will be set out below. 6. Nothing further occurred in the 2012 Supreme Court proceedings. In short, RHG as plaintiff had sued for possession of the Property. That suit was not defended. RHG obtained a judgment for possession of the Property. By way of enforcement of that judgment, it obtained a Writ of Possession and entered into possession of the Property. In that way, the 2012 proceedings were, in all respects, spent. No monetary judgment had been sought, and no such judgment was entered. 7. On 7 January 2015, RHG issued, in one document, a Default Notice and a Notice of Exercise of Power of Sale, which was addressed to the Borrowers ("the 2015 Default Notice"). The "Overdue Amount" was described as $7,491.00. The Notice said that a default had occurred under the Loan Agreement and Mortgage because the Overdue Amount had not been paid. Details of the following dates and amounts were provided: Due Date Outstanding Amount 7 November 2014 $908.24 21 November 2014 $1,645.69 5 December 2014 $1,645.69 19 December 2014 $1,645.69 2 January 2015 $1,645.69 Overdue Amount $7,491.00 1. The Notice then called upon the Borrowers to remedy the default by paying a total of $7,841.00. This sum was the total of the Outstanding Amount and an item described as "Enforcement Expenses" of $350.00. The amount was required to be paid by 13 February 2015. 2. The Notice also included a statement that if the "Total Due" was not paid by 13 February 2015, then without the giving of any further notice by RHG: "the whole of the balance outstanding under the facility … will become immediately due and payable …" 1. The Borrowers were also informed that they had the right to ask RHG to postpone any enforcement action "… before 13 February 2015". 2. On 19 February 2015, the present proceedings were commenced. A Statement of Claim was filed by RHG against the Borrowers claiming a judgment for possession of the Property together with leave of the Court to issue a Writ of Possession. As well, RHG sought a money judgment against the Borrowers for the $446,192.30 – being the whole of the debt due together with fees and costs. Interest accruing at the rate of 7.95% per annum was claimed ("the 2015 proceedings"). 3. The nature of the relief sought in the 2015 proceedings, in particular a claim for a judgment for possession of the Property, embraced two concepts: 1. an acceptance by RHG that the 2012 proceedings were spent and that it was necessary to commence fresh proceedings; and 2. an acceptance by RHG that it had no right to immediate possession of the property, and that new proceedings and a new judgment were necessary for it to obtain possession of the Property. 1. When it was filed, the Statement of Claim relied upon a default which was constituted by a failure of the Borrowers to maintain their regular fortnightly payments to the plaintiff, with the effect that as at 7 January 2015, the loan contract was claimed to be in arrears by the amount of $7,491. 2. After the Statement of Claim was served by way of substituted service, neither Borrower filed a defence to the Statement of Claim. On 22 June 2015, RHG obtained default judgment for the whole of the debt and possession of the Property. A few days later, a Writ of Possession was issued and eviction was scheduled for 28 September 2015. 3. After a series of further events, which it is unnecessary to detail here, on 27 May 2016, the Borrowers filed a Notice of Motion in this Court seeking a stay on the Writ of Possession, which was granted. On 6 June 2016, the Borrowers filed a Notice of Motion seeking an order that the default judgment be set aside. 4. That Motion was heard on 19 July 2016. For the reasons which she articulated, N Adams J ordered on 11 November 2016 that the default judgment was to be set aside and that the Borrowers were to file a defence within 28 days. Her Honour also ordered that the Borrowers were to pay the sum of $24,978 to RHG within 14 days: RHG Mortgage Corporation Limited v Summerfield & Anor [2016] NSWSC 1595. 5. On 20 April 2017, the plaintiff (RHG) was granted leave to file an Amended Statement of Claim. 6. As will become apparent, that Amended Statement of Claim, whilst seeking similar orders to the original Statement of Claim, claimed a right to possession arising from the 2012 proceedings, and the 2014 Agreement as well as the 2015 default. 7. The proceedings were heard finally on 27 and 28 November 2017. The Issues in the Proceedings 1. RHG relied primarily on its right to possession, which it said was to be found in the judgment of this Court for possession in the 2012 proceedings. RHG accepted that possession was restored to the Borrowers pursuant to the 2014 Agreement, but it submitted that such restoration was conditional upon the Borrowers complying with the conditions of the agreement. It argued that they did not so comply by failing to pay the sum of $24,978.53 by 19 December 2014, and, accordingly, its right to possession under the judgment continued to be enforceable. 2. In addition, RHG relied upon a default by way of a failure by the Borrowers to comply with the 2015 Default Notice, the essential terms of which appear above at [36] to [39]. 3. The Borrowers argued that the judgment for possession granted by the Court in the 2012 proceedings is no longer extant because RHG, having obtained judgment, executed the judgment and took possession of the Property. Accordingly, the Borrowers submitted that no present right to possession exists based upon the judgment obtained in the 2012 proceedings. 4. The Borrowers argued that there has been no other default under the loan agreement of a kind which enabled RHG to issue the 2015 Default Notice in the sums specified, or at all. Accordingly, the Borrowers argued that there has been no default proved by RHG. 5. This outline of the issues conceals a degree of factual complexity to which it will be necessary to turn. The 2012 proceedings have been sufficiently described above. It is necessary then to consider the 2014 Agreement, made by an exchange of correspondence in mid-2014. The 2014 Agreement 1. As earlier indicated, in March 2014 the Borrowers were evicted from their possession of the Property by the Sheriff. The Sheriff was acting on a Writ of Possession issued at the request of RHG, consequent upon, and authorised by, the judgment which RHG obtained in this Court for possession of the Property, in the 2012 proceedings. 2. During April and May 2014, according to journal notes comprising internal records of RHG, there were ongoing negotiations between the Borrowers directly with officers of RHG, and also between the solicitors for the parties. 3. The contents of the journal notes suggest that by that time one of the Borrowers, Mr Summerfield, has been made bankrupt. One of the issues which affected the ongoing negotiations was the attempts being made by Mr Summerfield to have that bankruptcy annulled. As well, there were issues about the furniture which remained in the Property and the goods and chattels of the Borrowers which had not been removed prior to, or else at the time when, the eviction took place. 4. Ultimately, the direct negotiations led to an exchange of written offers. The Borrowers' solicitors sent an email on 28 May 2014 - the terms of that email and the accompanying offer are not in evidence, but the offer was responded to. 5. Kemp Strang Lawyers, the solicitors for RHG in the 2012 proceedings, sent a letter to the Borrowers' solicitors on 30 May 2014. Omitting formal parts, it was in the following terms: "We refer to your email dated 28 May 2014 and to our previous correspondence. We are instructed that RHG will return possession of the security property to Mr and Mrs Summerfield on the following conditions. 1. Mr and Mrs Summerfield to pay to RHG the sum of $51,544.10 which will be applied to loan account 129981. 2. Mr and Mrs Summerfield provide RHG with confirmation of the annulment of the bankruptcy by no later than close of business 18 June 2014. 3. Mr and Mrs Summerfield are to make all ongoing repayments to the loan account as and when they fall due. 4. Mr and Mrs Summerfield clear the arrears on the loan account in full by 19 December 2014. 5. If Mr and Mrs Summerfield fail to comply with any of these conditions, RHG will continue with enforcement action. If your clients agree to all of the above conditions, would you please have each of them sign the acknowledgment on the bottom of this letter and return it to us within seven days. It is our client's intention that upon receipt of the signed acknowledgments, possession of the [Property] will be returned to your clients as soon as possible after receipt by our client of the payment of the sum of $51,544.10. Our client reserves all of its rights, and the terms of this offer in no way alter or effect the terms and conditions of the loan agreement or the mortgage." 1. A few days later, on 3 June 2014, that letter was responded to by Jane Button & Associates, who were acting for the Borrowers. Again, omitting formal parts, Ms Button's response was: "Thank you for your letter dated 30 May 2014. 1. We enclose a copy of your letter, which has been signed by our client and his wife. 2. We confirm that we have been authorised to transfer the sum of $51,544.10 to the account provided by you. Please provide account details and the transfer will be done this morning. 3. We are now settling the issues with the Trustee and expect to be in a position to provide the annulment of the bankruptcy by 18 June 2014. 4. We note that your client has given our client until 19 December 2014 to pay out the arrears of $24,978.53. 5. We also confirm that our client will be resuming mortgage repayments as and when they fall due. Please would you provide the first date for this to occur. We understand that on receipt of the acknowledgment of your terms and confirmation of payment to you of the amount held in our trust account, our client may resume occupation of [the Property]. Our client requests a return to the property by Thursday 5 June 2014, this being their daughter Rhiannon's birthday. Please confirm that our client and his family will be able to resume occupation of [the Property] by that date, and the process for this to take place." 1. Accompanying that letter was, as Ms Button indicated, a copy of the Kemp Strang letter signed by both of the Borrowers. 2. The figure of $24,978.53 mentioned in paragraph 4 of the letter of Jane Button & Associates of 3 June 2014 represented the sum for the total of all fees and charges which RHG had applied to the Loan Account at various times from when it began on 27 September 2002 through to the time of the correspondence. 3. According to the affidavit of Mr Brad Hooper, a collections manager for RHG, who was the only witness called by RHG, the sum for the outstanding fees and charges as at 18 July 2014 comprised five separate components. The first was a sum of $829 in fees associated with the variation of the Loan in December 2003. The second was the sum of $3,040 which represented direct debit dishonour fees and late payment fees, which Mr Hooper said had been added to the Loan Account sporadically between June 2007 and July 2012. The third component, and the largest in size, was the sum of $19,191.54 which was described by Mr Hooper as being legal expenses paid by RHG to Kemp Strang in the period November 2010 to July 2014. Mr Hooper deposed that the majority of that sum was incurred between August 2012 and July 2014. The fourth component was $2,982.59 which was the total of fees paid to: "… the plaintiff's property presenter, LegalStream, in the period October 2012 through to June 2014 for services provided in respect of the eviction scheduled at the Property, the plaintiff taking possession of the Property, improvement works to the Property when it was assumed the plaintiff would sell it as mortgagee and handing possession of the Property back to the defendants in accordance with the [2014 Agreement]". 1. The final component was a small sum of $344.78 which was in respect of property insurance premiums paid by the plaintiff for the period it was in possession of the Property. 2. It is apparent that the components to which Mr Hooper referred added up to an amount in excess of that which was specified in the 2014 Agreement. No explanation was provided for this discrepancy, and it is unnecessary to determine why that discrepancy exists for the purpose of this judgment. 3. The sum for fees and expenses of $24,978.53 was not paid by 19 December 2014. The legal consequence of this non-payment may be one issue that needs to be determined, as may be the legal consequence, if any, for RHG subsequently accepting payments of that sum. The sum was in fact paid by two separate deposits by the Borrowers into the Loan Account on 25 November 2016. The payment was the subject of the orders made by this Court on 11 November 2016. 4. It is necessary in this narrative to leave these fees and charges to one side and return to consider the state of the Loan Account. The sum of $51,544.10 represented the total of the Loan arrears at the time of the 2014 Agreement. 5. According to the evidence of Mr Hooper, at least from 29 September 2014, the standard practice of the plaintiff when it received any payments at a time when a loan was in arrears was to credit those payments to the oldest outstanding loan amounts. As will be apparent from the discussion below, by reason of the adjustment entry made by Mr Hooper, RHG, notwithstanding the receipt by it of $51,544.10 for the loan arrears in mid‑2014 in a timely way as required before taking possession of the Property, and notwithstanding the timely payment of fortnightly loan repayments, regarded the Borrowers, at the end of September 2014, to be in arrears in the sum of $5,846.57. That position remained the same until 8 December 2014, except for a short period in each month between when payments were due and payments were made. 6. Based upon that calculated arrears figure of $5,846.57 and, in effect, one missed payment, Mr Hooper's evidence is that the arrears on the Loan by 6 January 2015 were $7,491.00. 7. It is clear from records maintained by RHG that a number of its credit officers attempted to make contact with both of the Borrowers. Those attempts were largely unsuccessful. According to Mr Hooper's evidence, the contacts made between 14 November and 30 December 2014, including attempts made to contact the Borrowers, were carried out by officers of RHG attempting to ascertain whether the amounts agreed in the 2014 Agreement would be paid in full by 19 December 2014. 8. It is to be noted that although the sum of $24,978.53 was in fact for outstanding fees and charges inclusive of legal fees, it had been referred to in the 2014 Agreement as arrears. Fees and charges were, as will be apparent from the discussion of the Loan Account below, regarded separately by RHG in its internal documents from loan arrears and were not ordinarily taken into account in the arrears column of the ledger of the loan. 9. As will be obvious, this is capable of, and did in December 2014, produce confusion, including during a telephone conversation between an RHG officer and Mrs Summerfield. 10. The only occasion upon which any conversation took place between an officer of RHG and one of the Borrowers was on 12 December 2014, when, according to the records of RHG, a credit officer (Mr Andrew Bevan) spoke with Mrs Summerfield. The record reads as follows (I have substituted full words for abbreviations to make it readable): "Called Borrower on mobile number # on File, borrower 2 stated the reason that Borrower 1 hasn't called back is because he believes there is no arrears – I stated to borrower 2 the ATP via the courts was that actioned [scil: action] was ceased on the basis the Borrowers would maintain payments and clear the current outstanding arrears ($5,846.00) in full by the 19/12 but we have had no contact from either Borrower to discuss. Borrower 2 stated she will informed Borrower 1 to call back to discuss clearing the arrears or recovery action will recommence as of the 22/12/2014 if arrears are not cleared in full …" [sic] 1. In the period after this telephone call through to January 2015, the Borrowers did not pay the sum of outstanding fees and charges agreed in the 2014 Agreement but continued, with one exception, to make the standard fortnightly payments. 2. It is to be observed that in the telephone call of 12 December 2014 that RHG's credit officer informed Mrs Summerfield that the amount of arrears was $5,846.00 and that that would need to be cleared by 19 December 2014. That sum represented the arrears balance asserted by Mr Hooper to be correct following upon his arrears adjustment entry as discussed below. It is unsurprising that Mr Summerfield, when told of that figure by his wife, said that there were no arrears outstanding. No doubt, if he was referring to arrears on the Loan as opposed to monies agreed to be paid for fees and charges, then he was correct on the basis of the knowledge which he had of the status of the Loan and on the basis of the payment of the agreed sum of $51,544.10 in June 2014, and regular payments since that time. That was because, as discussed below, the adjustment entry was not brought to the attention of either of the Borrowers by RHG. 3. Indeed, the statements which the Borrowers received from RHG for the period ended 30 September 2014 and the period ended 31 December 2014 did not show any arrears on the Loan, but conveyed the impression that the Loan was in good standing. There was an entry on each of those statements about the balance of fees and charges that were claimed to be owed. In respect of these, the Borrowers were asked to make arrangements to clear the fees and charges "… on your loan to avoid paying interest on this amount". It was not there said that these outstanding amounts constituted a loan default. 4. In January 2015, RHG instructed new lawyers, Dibbs Barker, to issue a default notice to the Borrowers. 5. On 7 January 2015, the 2015 Default Notice was issued. It was headed: "Default Notice Notice of Exercise of Power of Sale" 1. It noted that the account balance as at 7 January 2015 was $421,665.94. It identified the relevant credit facility and mortgage, the security property and the parties. 2. The Default Notice stated that it was issued pursuant to s 88 of the National Credit Code and s 57(2)(b) of the Real Property Act 1900. It then included this paragraph: "Default 2. A default has occurred under the Facility and the Mortgage (Default). The Default is that the Overdue Amount has not been paid, as follows: Account Number Due date Outstanding amount 1299981 7 November 2014 $908.24 21 November 2014 $1,645.69 5 December 2014 $1,645.69 19 December 2014 $1,645.69 2 January 2015 $1,645.69 Overdue Amount $7,491.00 3. The action necessary to remedy the Default is for RHG to be paid the Overdue Amount and the Enforcement Expenses, being a total amount of $7,841.00 (Total Due)." 1. It is to be observed that the Notice called for the default to be remedied by the payment of the total due of $7,841.00 by 13 February 2015. 2. The Notice went on to describe what would happen if the Borrowers failed to remedy that default. It said: "If you fail to remedy the default by 13 February 2015 6. If the Total Due is not paid by 13 February 2015, then (without the need for RHG to give further notice): (a) the whole of the balance outstanding under the Facility (the Account Balance), will become immediately due and payable (in accordance with the terms and conditions of the Facility, interest, fees and charges will continue to accrue on the Account Balance until it is paid and further enforcement expenses may also be incurred and added to the Account Balance); and (b) RHG may start enforcement proceedings in a court in relation to the Default, to recover any payment due to RHG under the Facility and the Mortgage and to seek repossession of the Security Property; and (c) RHG may exercise its power of sale in relation to the Security Property; and (d) repossession and sale of the Security Property may not extinguish the Borrowers liability to RHG under the Facility and the Mortgage." 1. The default recorded by RHG in the Default Notice referred to payments due in November and December 2014, and 2 January 2015. In evidence, Mr Hooper accepted that the records of the Loan Account showed that "… the usual fortnightly payments were made by the [Borrowers] in relation to those dates". 2. The evidence of Mr Hooper with respect to that nominated default was this: "The reference in Default Notice 2 to defaults on 7 November 2014, 21 November 2014, 5 December 2014, 19 December 2014 and 2 January 2015, was not intended to be indicative of any failure by the defendants to make the usual fortnightly payments on or around those dates. The plaintiff's records indeed show that the usual fortnightly payments were made by the defendants in relation to those dates. As, however, the loan account was in repayment arrears as at those dates, those payments were applied by the plaintiff in relation to those arrears and hence monies were not available to satisfy the payment obligations falling due on [those dates]." 1. It is also to be observed that the Default Notice made no reference whatsoever, and certainly not as an event of default, to the outstanding sum of $24,978.53 for fees and expenses in December 2014, and which by 7 January 2015 had not been paid. It made no reference to the 2014 Agreement, or any of the terms of it. The Default Notice relied entirely on the terms of the Loan Agreement and the Mortgage. 2. With respect to the omission of that amount, Mr Hooper surmised as follows: "With hindsight, Default Notice 2 should also have included a requirement on the defendants to pay the amount of $24,978.53 to the plaintiff, in accordance with the June 2014 Agreement. I believe this oversight occurred because at the time that Default Notice 2 was issued it was … the plaintiff's usual practice to only seek recovery of arrears owing on its customers' loan accounts and if those arrears were paid the plaintiff would allow the loan to continue on its standard footing. The plaintiff would not require customers to rectify outstanding fees and charges in order to return the account to standard footing. I believe that Default Notice 2 was issued with the plaintiff's usual policy in mind and without the plaintiff's relevant credit officer at the time taking into consideration the June 2014 Agreement." 1. An equally valid explanation for the 2015 Default Notice being issued without reference to the outstanding fees and charges is that the relevant RHG officer was simply following the policy and standard approach of RHG, which did not regard outstanding fees and charges as being an event of default under the Loan Agreement. 2. This is the approach which seems most likely, however, there is no need to come to any conclusion on what motivated the content of the instructions given as to the 2015 Default Notice. 3. After the 2015 Default Notice was issued, the Borrowers continued to pay the standard fortnightly instalments due and payable up to 3 February 2015. 4. On 19 February 2015, a Statement of Claim was filed commencing these proceedings. 5. On 22 June 2015, default judgment was entered in favour of the plaintiff. On 25 June 2015 a Writ of Possession was issued and an eviction was scheduled for 28 September 2015. On 25 September 2015, after the Borrowers paid the sum of $7,000.00 which was the sum nominated by the RHG Senior Arrears Officer, the eviction was stayed. 6. Thereupon, Mr Summerfield lodged a complaint with the Credit and Investments Ombudsman in circumstances where he did not believe that the sum of $7,000.00 said to have been the arrears in the Loan was outstanding. 7. On 23 February 2016, the Credit and Investments Ombudsman informed the Borrowers that he did not have jurisdiction to deal with their complaint. 8. On 21 April 2016, RHG obtained a further Writ for Possession. The Sheriff scheduled an eviction for 30 May 2016. 9. As described earlier, on 27 May 2016, a stay of the Writ of Possession was granted and a Notice of Motion seeking that the default judgment be set aside was filed on 6 June 2016. 10. For the reasons which she then gave, N Adams J set aside the default judgment entered on 22 June 2015, and ordered that the Borrowers were to pay $24,978.00 to the plaintiff within 14 days, and that they were to file a Defence within 28 days: see RHG Mortgage Corporation Ltd v Summerfield & Anor [2016] NSWSC 1595. 11. After further interlocutory hearings, the proceedings were fixed to be heard in November 2017. The Conduct of the Loan Account 1. After the Loan Account was initially set up, it was managed by Unisys Australia ("Unisys") for RAMS. In January 2014, Resimac Ltd ("Resimac") purchased the entirety of the RAMS portfolio. Thereafter it conducted that portfolio in the name of the plaintiff using the Unisys system. RHG assumed control of the management of the mortgages in that portfolio in September 2014, and thereafter used the Resimac system instead of the Unisys system. 2. The operating system that created the Loan Account was in place prior to September 2014 and was one designed and managed by Unisys. It appears that the Unisys data derived from its system was provided with respect to all mortgage accounts, including that of the Borrowers, to Resimac to enable that data to be electronically transferred into Resimac's operating system. That transfer occurred, but the detail of how it occurred, including what auditing or checking of the data occurred, is not addressed in the evidence. 3. Mr Hooper whom, it is to be recalled, was RHG's only witness (although business records were tendered and relied upon), was not involved in verifying or validating any of the data before it was moved across from Unisys to Resimac and entered into Resimac's operating system. He was unable to tell the Court who, if anyone, had performed any due diligence on that data either before or after the transfer. He did not see any report generated by any due diligence process, assuming one had been prepared or generated. Mr Hooper accepted that he had not performed any reconciliation exercise to check whether or not the data provided by Unisys to Resimac was correct and, accordingly, was unable to say if the data provided to Resimac with respect to the Borrowers' Loan was actually correct. It follows from such concession that he could not verify that the data appearing in the Resimac system was actually correct. 4. However, Mr Hooper, having been provided with a report or printout from the Resimac IT system on a large number of mortgages including that of the Borrowers in this case, formed the view on the material presented to him that the Loan in this case was not, as had been categorised by the Unisys data and system as being "in good order" but rather that on the basis of the Resimac data and system, the Loan was actually "in default". 5. As a consequence of drawing that conclusion, on 29 September 2014, Mr Hooper manually created an entry in the records of this Loan Account in the amount of $11,473.86 and which was described as an "arrears adjustment". The effect of this entry was to change the status of the Loan Account from being in good order to being in default. 6. Immediately prior to the "arrears adjustment" entry being made by Mr Hooper, according to the records of the account produced by Resimac from the data provided by Unisys, the Loan was $5,627.29 in advance of the position in which it ought to have been. That is to say, it was in good order by that amount. The effect of the adjustment was to cause the Loan to be regarded by the Resimac operating system, and therefore RHG, as being in arrears to the extent of $5,846.57. 7. Mr Hooper accepted that the change of the Loan Account from being in good order to being in default was the consequence of the adjustment entry which he made and nothing else. Further, he accepted that the reporting methodology of the Loan Account differed between the Unisys system and the Resimac system. Mr Hooper was unwilling to concede that either the Unisys system or the Resimac system contained figures that were incorrect. He gave evidence that in his view there was simply a change in the interpretation of the account. Mr Hooper does not have an accounting degree nor any tertiary qualifications of a kind that would be relevant to the keeping of accurate accounts. 8. The statement of the Borrowers' Loan Account put before the Court contained on it eight vertical columns. The first two were the processing date and the transaction date. These columns were self-explanatory. Generally, but not always, the transaction date and the processing date were the same for each entry. 9. The third column described the particular entry. Those entries included such things as "Payment due" or "Salary credit" or some other short description of the particular item. 10. The fourth column was the amount of the particular item which has been processed. As earlier indicated, one example of this was the arrears adjustment entry in which the sum was $11,473.86. In the amount column, when an item constituted a credit against the account (that is to say that money was paid by the Borrowers to RHG in reduction of the Loan Account) that entry would be shown with a minus sign in front of it. The fifth column showed the Loan Balance adjusted with respect to each transaction. 11. The remaining three columns again kept a running total. The first of those was a column titled "Arrears" in which a sum appeared representing the arrears on the Loan Repayments. If the sum in that column was shown with a minus sign as depicting a negative figure, it meant that the Loan was not in arrears but was in good order to the extent of that monetary amount. Conversely, when an entry appeared in that column unaccompanied by a minus sign, that meant that the Loan Account was in arrears by the particular amount. 12. The next column was headed "Fees and Charges". The evidence of Mr Hooper was that the approach at all times during the currency of the Loan was to separate out in each of the "Arrears" column and the "Fees and Charges" column, the amounts by which the Loan was in arrears referrable only to the non‑payment of fortnightly scheduled payments, including accrued interest by reason of those non-payments, and in fees and charges column, all fees and charges which were brought into existence at any time, including when the Loan was in default. 13. The final column was one described as "Scheduled Balance". Mr Hooper explained that what was intended to be shown in the Scheduled Balance column was a calculation of the sum of money owing by the Borrowers to RHG with respect to the Loan. The balance was calculated as if all payments had been made as the Borrower was obliged, and that the Loan had never been in default, so that the default rate of interest was not applicable and no sums had been accrued by way of default fees and charges. 14. Mr Hooper's reasoning was that if, at any time, the balance of the Loan shown in the fifth column and the Scheduled Balance of the Loan shown in the eighth column was different then, by reference to both balances, the state of the account could be determined as either being in good order or else in arrears. If the Loan Balance exceeded the Scheduled Balance, then Mr Hooper regarded the Loan as being in arrears. If the Loan Balance did not exceed the Scheduled Balance, Mr Hooper would regard the Loan as being in good order. 15. It is self-evident that if either of the balance figures, e.g. Scheduled Balance or Loan Balance, were incorrect then any conclusion formed and expressed by Mr Hooper as to the Loan being in good order, or else in arrears, may be erroneous. It is also clear from his evidence that he did not, and was not in a position to, express any opinion about the integrity of the underlying figures. He relied upon them without questioning their accuracy. 16. There was another set of internal accounts about the Borrowers' Loan tendered in evidence. Mr Hooper described these accounts as being a transaction listing: "… generated by the plaintiff in respect of the loan account, recording all debits, credits and the running account balance from the day of the advance to 1 June 2017." 1. An examination of those records discloses a little more about the various charges which were made to the Loan Account. From those records, some greater detail, but not complete clarity, can be obtained with respect to the amount of fees and charges to which reference has been made in [63]-[65] above. A perusal of those records from 5 June 2007 through to 1 June 2017 indicates that fees and charges of various amounts had been added into the Loan Balance at various times. It seems that a standard fee of $50 was added in whenever a direct debit repayment was not made – it was described as a "direct debit dishonour". Additional fees were charged in a standard sum when an account was in arrears for a particular period. For example, on 1 October 2008, a transaction described as a "Function Charge: 14 days in arrears ARR 14 days" of $50 was debited. On 1 March 2008, a "Function charge of 30 days in arrears ARR 30" of $75 was charged. When the arrears were described as being 60 days in arrears, a "Function charge" of $95 was debited. Finally, when the arrears "Function Charge" was described as "90 days in arrears" a sum of $320 was debited to the Loan Account. The fees seem to be imposed when an arrears event continues without being rectified. For example between January 2008 and March 2008, there were standard dishonour fees of $50 applied to the account on 2, 15 and 30 January and 12 and 26 February. On 1 March, a $75 fee was debited to the account for arrears after 30 days. 2. The evidence from Mr Hooper, or otherwise from RHG, does not explain those entries at all. The entries appear on some occasions when payments were in arrears, but not on other occasions. The evidence is silent as to the period of time in terms of the starting date or the finishing date used for the calculations. The evidence is silent as to how the amounts of those fees were calculated or otherwise determined, or what they represented. 3. The differences in the increases of the amounts did not represent any type of linear progression. Nor can any logic explain all of the amounts charged. 4. The evidence of Mr Hooper was that this particular transaction listing document would not ordinarily be provided to a borrower, and that it was not provided to the Borrowers in this case. It was an internal document. 5. It needs also to be noted that the Loan Agreement itself did not identify those fees and charges, nor did the evidence reveal any agreement between the Borrowers and RHG (or RAMS) with respect to those charges. Nor did the evidence establish that the Borrowers had at any time been notified of the existence of, or imposition of, these charges. 6. These particular items do not fall within the descriptions of "Other amounts" in clause 9 of the conditions of the Loan Agreement. The Mortgage does not make specific reference to these fees, or the entitlement of RHG to charge such fees. The evidence did not disclose any basis for these fees to be debited to the Loan Account, or on whose authority they were debited in this case. 7. This transaction record also recorded payments made to Kemp Strang Solicitors in this way: "Function charge: Kemp Strang". An amount appeared against such an entry. Equally, where an amount was paid to LegalStream, that description was inserted in the same way as Kemp Strang's name. 8. That practice seems to change after September 2014. After that time the use of the term "Function charge" ceased, and a short description was inserted, such as "Property presenters" or "Legal fees". Other changes took place as well. Prior to September 2014, when an interest charge was debited to the account, it was referred to as "Interest: normal interest". After September 2014, what was noted was an interest charge, without the description of "normal interest" but with reference to a date. These changes seem to have coincided with the transition from the Unisys system to the Resimac system. 9. Two other features of the Loan Account presented in the evidence merit consideration. 10. The first is the entries and consequences of those entries in the account at the time the arrears adjustment entry was added by Mr Hooper. 11. It is to be recalled that that transaction date was 25 September 2014, but that the transaction was finally processed on 29 September 2014. The position of the Loan Account immediately before the transaction date can conveniently be regarded as 15 September 2014 for the purposes of observing what occurred. 12. I set out below a table reproducing the Loan Account both before and after the arrears adjustment. Processing Date Transaction Date Description Amount Balance Arrears Fees/Charges Scheduled Balance 29/9/2014 25/9/2014 Arrears Adjustment $11,473.86 $438,748.90 $5,846.57 $26,387.91 $408,160.11 29/9/2014 29/09/2014 Salary Credit -$1,645.90 $438,748.90 -$5,627.29 $26,387.91 $406,507.42 26/9/2014 26/09/2014 Payment Due 26/09/2014 $1,645.69 $440,394.80 -$3,981.39 $26,387.91 $406,507.42 15/9/2014 15/09/2014 Salary Credit -$1,645.90 $440,394.80 -$5,627.08 $26,387.91 $408,160.11 1. Some features of these transactions can be observed. The first is that at the start and end of these particular transactions, the Scheduled Balance of the Loan remains the same, notwithstanding that according to Mr Hooper's explanation of this calculation of the Scheduled Balance, the total ought to have reduced by the principal component of the periodic payment and not thereafter increased; the second is that the fees and charges outstanding also remain the same; the third is that during this period there have been two amounts deposited in repayment of the Loan which total $3,291.80. There has been one debit to the account by way of a periodic payment due of $1,645.69 which has the result that the Loan Balance has been calculated as having been reduced by $1,645.90. It will be seen that there is a discrepancy of $0.21 between the figure remaining after the debit (payment due amount) is subtracted from the two salary credit amounts and the Loan Balance. 2. Whilst this may be a small figure without significance, the discrepancy does demonstrate that the accuracy and integrity of these accounts, and the numbers in them, needs to be considered cautiously. 3. These entries also demonstrate some other difficulties with the Loan Account which means that a real question arises as to their accuracy. Accordingly to the evidence of Mr Hooper: 1. the Scheduled Balance is the figure which from time to time ought be the amount outstanding on the Loan if it had been kept in good order all the time, with periodic payments being made in a timely way; 2. the Fees and Charges column records the total of those charges imposed, which ought to be added to the Scheduled Balance to understand what is owed to the Lender by the Borrowers; and 3. if the Loan Balance is correctly recorded, the difference between the figures referred to in (a) and (b) above and that Loan Balance ought to be recorded in the arrears column as either a positive or loan arrears figure, or else as a negative or a figure in advance of the Loan requirements. 1. In none of the extracted entries do these calculations have a correct mathematical result. That situation is the same for both before and after the arrears adjustment entry made by Mr Hooper. The picture presented here leads to the conclusion that at least some, if not more, of the three essential columns, being the Loan Balance, the Fees and Charges amount and the Scheduled Balance amount, must be wrongly recorded. This conclusion means that the Court cannot accept as accurate the Loan Account presented to it by RHG. 2. The other observation to be made with respect to these entries is that although the Loan Balance and the Scheduled Balance have remained the same before and after the arrears adjustment figure, what has occurred is that the figure recorded in the arrears column has simply changed both in amount and from a negative to a positive figure, thereby categorising the Loan as not being in good order, but in arrears. The evidence does not provide any explanation as to how this can occur, other than by the entry made by Mr Hooper – the reason for which he attempted unconvincingly to explain. 3. The second matter which is worthy of comment is that, by this time, RHG was sending to each of the Borrowers a monthly statement by mail. The monthly statement for September 2014 showed the Loan Balance and the transactions which had occurred during the month of September. The debits and credits matched those in the Loan Records. There was no hint or indication on this monthly statement that the Loan had gone from being in good standing to being in default. There was no recording that the Loan was in arrears or by what sum it was in arrears. The arrears adjustment entry was not disclosed to the Borrowers. The only statement which could suggest that the Loan was not in good order was one to this effect: "Fees and charges balance, as at 30 September 2014, is $27,459.84. Please make arrangements to clear the fees and charges on your loan to avoid paying interest on this amount." 1. This does not constitute any statement or even suggestion that the outstanding fees and charges balance constituted a loan default, nor is there any suggestion that by reason of non‑payment of the fees and charges any consequences would flow. All that was said in this monthly statement was that the fees ought be repaid "… to avoid paying any interest …". If anything is to be drawn from this statement, it is that RHG did not regard the outstanding fees and charges balance as amounting to a loan default. 2. A further feature which is worthy of note with respect to these statements, and the way in which the account was recorded by RHG (or RAMS), is that when monies were deposited by the Borrowers to specifically pay for fees and charges, those monies were not appropriated by RHG to those fees and charges, but rather were credited to the general Loan Balance account. For example, on 19 November 2003, a valuation fee of $150 was debited to the account. That debit increased the outstanding balance of the Loan from $375,188.70 to $375,338.70. At the same time, the sum of $150 was placed into the fees and charges column. On the same day the Borrowers deposited a cheque for $150 into the Loan Account, which was duly credited so as to result in the reduction of the Loan Balance by $150 bringing the Loan sum back to $375,188.70. However, that deposit of $150 was not credited against the fees and charges column, so that the fees and charges remained at $150, which are regarded by RHG as outstanding, and are included in the present claim for outstanding fees and charges. 3. At the time of this transaction, all payments had been made by the Borrowers in a timely way, and the Loan Account was not in arrears. Applying Mr Hooper's view of the account, this can be confirmed by a comparison between the Loan Balance and the Scheduled Balance. Alternatively, that position is confirmed by a review of all of the individual entries in the Loan Account from the commencement of the Loan until the fee was charged on 19 November 2003. 4. I also observe that the chronological diary entry of RHG, which is dated 3 October 2014, contains this note made by a staff member after the adjustment entry was apparently made. Again, full words have been substituted for abbreviations: "Account review – as per conditions on the 06/06/14, repayments have been kept, Borrower has until the 19/12 to clear arrears. Property was handed back to the customer." 1. As will be apparent from other material, the arrears there referred to related to a sum which the Borrowers agreed to pay by way of fees and charges when possession was retaken. Plaintiff's Asserted Right to Possession 1. In the June 2012 Default Notices RHG's solicitor asserted that the Borrowers were in default under the Loan and Mortgage because "… Arrears were not paid when due …" in the sum of $19,720.88. 2. Prior to that Notice being issued, the Borrowers were not on notice of any arrears under the Loan. That was because, at that time, the periodical loan statements sent by RHG to the Borrowers did not record or display any arrears amounts. All that was displayed were the opening and closing Loan Balances for the period, together with the actual transactions which had occurred during the period. 3. The statements contained a separate statement of an amount for outstanding fees and charges. That amount was recorded as a single figure and did not provide any information about the component parts of those fees and charges. The periodical loan statements did not record those fees and charges as constituting arrears. 4. As Mr Hooper accepted, it was not possible to know how the arrears figure referred to in the June 2012 Default Notices was calculated, and whether any part of it was constituted by fees and charges. The figure is not readily apparent from a perusal of the Loan Account records. 5. In the absence of any response to the June 2012 Default Notices, on 13 August 2012, RHG commenced proceedings for possession based on the Notices. On 13 July 2013, judgment for possession was entered by this Court in favour of RHG. 6. No claim was made in those proceedings for a money judgment although the June 2012 Default Notices had anticipated a call up of the whole of the Loan Balance. In due course, RHG caused a Writ of Possession to issue with respect to the Property and for it to be executed. RHG obtained possession of the Property on 28 March 2014, and remained in possession of the Property until 5 June 2014, when possession was returned to the Borrowers on the terms agreed in the 2014 Agreement. 7. Senior counsel for RHG accepted in submissions to this Court that at the time, or else immediately after, that RHG went into possession of the Property, the judgment obtained in the 2012 proceedings has been satisfied, and that the proceedings had terminated and were no longer on foot. He accepted that the Writ which was issued was spent when it was executed. I conclude that such right as RHG had to possession by reason of the judgment of this Court and the Writ of Possession which it issued had ceased because RHG had taken that possession. 8. Once possession had been returned to the Borrowers as the registered proprietors of the Property they were entitled to continue to retain possession, subject to any agreement that was reached and entered into by them with RHG. 9. There were two possible agreements by which the continued possession of the Borrowers might be disrupted in favour of RHG. The first was the 2014 Agreement by which the Borrowers re-entered the Property; and the second was the existing Mortgage (and underlying Loan Agreement) under which terms RHG was entitled to take possession of the Property in the event of a default under the Loan, subject to taking the appropriate required steps. 10. It is necessary to examine each of these agreements. Proper Construction of the 2014 Agreement 1. The letter of Kemp Strang (set out at [59]) contains the terms of the agreement proposed, which ultimately became the 2014 Agreement. A copy of it was signed by the Borrowers indicating their agreement, and then returned to RHG by the solicitor with a covering letter, which is set out at [58] above. 2. The Kemp Strang letter specifically preserved, without alteration, the full effect of the Loan Agreement and Mortgage and RHG's rights under those documents. 3. However, the proper interpretation of the terms of the Kemp Strang letter was in issue in these proceedings. As that letter constituted an offer which was accepted, and acted upon by both parties, the principles applicable to the Court's construction of its terms are those which would apply to commercial contracts. 4. The principles to be applied by a court when discerning the proper construction of a commercial contract are well-settled, and may be briefly summarised as follows: 1. The Court must adopt an objective approach in determining the rights and liabilities of the parties, in light of what a reasonable businessperson would have understood the terms to mean: Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640 at [35]; Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37; (2015) 256 CLR 104 at [46]. 2. This requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Woodside Energy at [35]; Mount Bruce Mining at [49]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564 at [51]-[75]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 461-462 [22]; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 at [15]. 3. Unless a contrary intention is indicated, the Court is entitled to give a "businesslike interpretation" to provisions in a commercial contract on the assumption that the parties "intended to produce a commercial result" and in order to avoid the contract "making commercial nonsense or working commercial inconvenience": Woodside Energy at [35]; Mount Bruce Mining at [51]; Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82]; Gollin & Co Ltd v Karenlee Nominees Pty Ltd [1983] HCA 38; (1983) 153 CLR 455 at 464; Re Golden Key Ltd (in receivership) [2009] EWCA Civ 636 at [28] per Arden LJ. 1. RHG submitted that the way in which the 2014 Agreement should be interpreted was that RHG was preserving a continuing right to immediate possession which could be acted upon, at its election, where there was failure by the Borrowers to comply with any of the conditions with respect to ongoing repayments, including the requirement for payment by 19 December 2014 of the agreed amount of $24,978.53. 2. Specifically, senior counsel for RHG submitted that the 2014 Agreement ought be interpreted in this way: "The plaintiff has got a right to possession and it is willing to provide possession back to the defendants. There is then a period from that moment until all of the conditions are complied with where the defendants [are] in effect there just on sufferance. … If everything is observed by 19 December, the Loan will then go back to how it used to be. That is, the parties will treat it as if there hadn't been a default, and it will be as if the plaintiff is in no better position than if there hadn't been a default." 1. I am unable to accept this construction of that Agreement. The essence of it is that the ceding of possession by RHG to the Borrowers in June 2014 was only a temporary or conditional arrangement whereby a failure to comply with a condition of the Agreement requiring future performance would mean that RHG was entitled to immediate possession. 2. There are a number of reasons for my view. First, there are no words used in the Kemp Strang letter which would support the ongoing existence of a continuing right to possession for RHG arising because of any past default, or as an existing base upon which the conditions are imposed. Put differently, there is no suggestion by specific words that when the Borrowers resumed possession, they did so subject to an overriding right to possession being maintained, pursuant to the agreement, by RHG unless and until all conditions were fulfilled. 3. Secondly, the language of the 2014 Agreement, in my view, tells against such interpretation. In the first instance, the second-last paragraph of the Kemp Strang letter described the intention of RHG as being to return possession of the Property to the Borrowers upon the happening of two events, namely the receipt of the signed acknowledgement (being the copy of the letter) and the payment of the sum of $51,544.10. Those words do not support RHG's contention that possession is not being returned absolutely to the Borrowers, but rather conditionally upon the future December payment (or other future payment). On the contrary, the disclosed intention about returning possession does not include any reference to the December or other future payments. That paragraph seems to me to be a complete and unambiguous statement of the intention of the parties, and this particular arrangement. 4. As well, if the possession was to be in some way conditional (or "upon sufferance") until the December payment, the statement whereby RHG reserved all of its rights under the terms and conditions of the Loan Agreement and Mortgage would be superfluous. This would be an odd result. 5. Thirdly, the initial statement in the letter of "five conditions", upon examination, does not appear entirely accurate. For example, the condition numbered 5 asserts that RHG will "continue with enforcement action" if there is a failure to comply with any of the conditions. The conditions, as described, included an obligation to make all ongoing payments to the Loan Account as and when they fell due. This involved a period approaching 20 years into the future. As well, the use of the term "continue with enforcement action" is unfortunate. As senior counsel for RHG properly conceded, there was no enforcement action at that time in existence because the 2012 proceedings and the judgment for possession obtained in those proceedings had been spent. 6. If what was intended to be referred to as the taking of enforcement action in the future, then that was a right which RHG had under the terms of the Loan Agreement and Mortgage, and did not need to be inserted as a specific condition of this 2014 Agreement. 7. Properly examined, the Agreement had two conditions to be fulfilled prior to possession being returned. The balance of the conditions (except Condition 5), were promises made by the contract to do certain things in the future. The ordinary contractual remedies existed for any failure to comply. Interpreted in this way, the statement that RHG reserved its rights under the Loan Agreement and Mortgage would not be superfluous, but would make it clear that those rights were not supplanted by the 2014 Agreement. 8. Fourthly, the context for the payments set out in the letter included two amounts. The first of $51,544.10 represented the "ordinary" loan arrears under the Loan Agreement as they existed at the time. That is to say, scheduled payments which had not been made totalled that amount. The second sum of approximately $24,000, which was sought to be paid by December was, I infer, for fees and charges. 9. The first payment of $51,544.10 was required to be paid before the Borrowers could resume occupation of the Property. The second payment was to be made at an identified time in the future. 10. RHG's policy at that time, as confirmed by Mr Hooper in his evidence, was not to regard outstanding fees and charges as constituting any arrears under the Loan. It was not the policy of RHG to require, ordinarily, timely payment of fees and charges as if they constituted a loan default. Rather, as is apparent both from Mr Hooper's evidence and the periodical loan statement sent to borrowers, borrowers were simply encouraged to pay outstanding fees and charges so as to avoid accumulation of interest. The interpretation of the 2014 Agreement contended for would make the payment of outstanding fees and charges the equivalent of arrears under the Loan, so as to give right to an immediate right to possession. Such interpretation is inconsistent with the way in which RHG, according to its then policy, acted in accordance with outstanding fees and charges and Loan arrears. 11. Fifthly, the third condition specified that the Borrowers would make "all ongoing payments to the loan account as and when they fall due". Since the terms of the Loan, which commenced in 2002, was 30 years, these ongoing payments were scheduled to occur for about another 18 years. Senior counsel for RHG ultimately did not contend that the ongoing right to possession, which he claimed the 2014 Agreement encompassed, would continue for that period and in respect of this condition. But the conditions relating to future performance in the Agreement were not differentiated. The interpretation contended for is selective between conditions to be fulfilled in the future. RHG's interpretation selects one of those conditions i.e. payment by December of $24,978.53, but not the other future payment condition. There seems no basis to make such a distinction, arising from the words used in the 2014 Agreement. 12. Sixthly, if a continuing right to possession existed, and RHG intended to maintain that right, the terms of condition 5 were inapt if they referred to taking the benefit of that right to immediate possession, but were apt to refer to taking enforcement action on the basis of any future loan default because of a failure by the Borrowers to comply with those conditions. 13. The correct interpretation of the 2014 Agreement, in my view, is that RHG, being in possession of the Property, was prepared to give up its right to possession upon the basis that the Borrowers returned the signed copy of the letter and paid the arrears of the Loan in the sum of $51,544.10 (which sum did not include fees and charges) before they were allowed to resume possession and that, by reason of the 2014 Agreement, once they resumed possession the Borrowers would do certain things at times which were either specified or defined in the future, namely: 1. provide confirmation of the annulment of Mr Summerfield's bankruptcy by 18 June 2014; 2. pay the sum of $24,978.53 on or before 19 December 2014; and 3. in the future, commencing with the next scheduled payment in the Loan Agreement, continue to make the payments required under that Loan Agreement, in accordance with its terms. 1. The consequence of this construction was that once the Borrowers entered into possession, they were entitled to retain that possession and there was no existing immediate right to possession which continued on for the benefit of RHG. 2. In my view, this interpretation is most faithful to the text of the Kemp Strang letter in light of its context and purpose. Further, this interpretation reflects the way in which RHG, as a matter of usual practice and procedure, approached the issue of loan default and enforcement. That it reflects their policy suggests that it is an interpretation that makes commercial sense, does not work any commercial inconvenience and gives the 2014 Agreement a businesslike interpretation. 3. Accordingly, in terms of the current entitlements of RHG to possession, and the other relief sought in these proceedings, there is no present right to possession, or continuing default of any kind giving rise to a right to possession arising from the 2014 Agreement and the circumstances surrounding the re‑entry into possession of the Property by the Borrowers, and their failure to pay the agreed sum of $24,978.53 by 19 December 2014. The Loan Agreement and Mortgage: Validity of the 2015 Default Notice 1. It is necessary to turn to the second contractual basis by which RHG could establish an entitlement to possession of the Property, namely a default under the Mortgage or the Loan Agreement. 2. The 2015 Default Notice asserted a default by reason of failure to make payments required by the Loan Agreement and Mortgage. It contained a figure for an amount of default calculated by reference to a series of payments, which it asserted had not been made. In order for this Default Notice to be valid, RHG needed to establish the correct state of the Loan Account as at 7 January 2015, and that it was in default. The Borrowers put in dispute that there was any default, and disputed that the Loan Account was in arrears. 3. Mr Hooper accepted that no part of this second Default Notice related to fees and charges, rather it relied entirely upon arrears of the Loan (as RHG defined them). As it was issued before the sum for fees and charges of $24,978.53 had been paid by the Borrowers in November 2016, it can be inferred that RHG did not regard any default with respect to that payment as being an operative or valid basis for asserting a default under the Loan. 4. Mr Hooper agreed, as is obviously the fact, that had the adjustment entry not been made by him in September 2014 (which adjusted the arrears balance by over $11,000) then there were would not have been any arrears recorded in the Loan Account with respect to the Loan in January 2015 which could have formed the basis for the issuing and service of the 2015 Default Notice and subsequent proceedings. 5. Accordingly, there needs to be a careful consideration of whether RHG has satisfied the Court that the adjustment entry made by Mr Hooper in September 2014 was correctly made, and that the Loan was in default as at January 2015. 6. It is to be recalled that Unisys managed the mortgages for RHG prior to September 2014. In January 2014, Resimac had purchased RHG's mortgage portfolio. Resimac assumed control of the management of the mortgage portfolio from Unisys in September 2014. 7. Mr Hooper was unable to give any evidence about the accuracy of the Loan Account data prior to Resimac taking control of it in September 2014. He was not involved in the preparation of that data as it had been contracted to Unisys. He did not now know whom, if anyone, had performed any verification or validation of the data before it was moved across to the Resimac system. He had not seen any reports on the due diligence exercise that had been carried out, including whether or not the systems which had been applied, or the method of calculation of the various mortgage balances, was correct. 8. He assumed, without knowing, that the data received by Resimac was correct even though it was work carried out by others whom he did not know, nor did he know who they were, and he did not know how the work, if any, had been carried out. He agreed that he did not know if the provenance of the data that Resimac received in relation to the Borrower's Loan Agreement was actually correct. 9. Based on his assumption that the figures were correct, and by applying what he described as a "different reporting methodology" which he was unable to explain, he concluded that the arrears adjustment entry should be made. He agreed that the adjustment entry was an internal one which was not made known to the Borrowers. He described the adjustment as being: "An internal adjustment to rectify the account, to have it showing the correct figure." 1. However, when confronted with the obvious proposition that if the figure needed to be corrected, there must have been an error in the data provided to Resimac (at least in the amount of that corrected figure), Mr Hooper declined to describe the data as being in error and instead advanced the proposition that Resimac was using a different calculation and reporting methodology to Unisys. 2. He gave this evidence in response to questions from the Bench: "Q. You put in an adjustment that you determined because the account at that time, in your view, did not accurately reflect the true position? A. Correct. Q. It had to be adjusted? A. That's correct. Q. It follows, doesn't it, that prior to your involvement either the schedule – the reason you adjusted it - was to take account of the difference between the monies actually paid and the scheduled loan sum? A. Correct. Q. It must follow, logically, must it not, if you had to do an adjustment, that prior to your involvement either the sums, in total, or the scheduled balance of the Loan, if it were calculated, were different from the sums you were working off? A. I would agree. Q. You are quite unable to say whether it was the Scheduled Balance or the sums actually paid because you don't know, do you? A. Well, no." 1. Ultimately, he was asked this question and gave these answers: "Q. Why is there a difference of $11,000 odd between the Unisys data and the Resimac date? A. The $11,000 can be attributed to extra default interest [that] has charged throughout the life of the Loan, where payments prior to the conversion, because obviously the date was a different reporting methodology, payments made prior to the conversion were absorbed to the value of approximately $10,000 due to obviously extra default interest, legal fees, interest on those type of matters. Q. I'm sorry, I don't follow that. Would you mind telling me that again? A. Yeah. So before September 2014 there was a different reporting methodology so payments that were made - Q. When you say reporting, reporting to whom internally? A. The – well the way we would – yeah, internally, the way we would report arrears. So prior to 2014, when it was still under Unisys management, monies would come in and they would be allocated to the combined figure of legal fees and contractual payments, whatever was outstanding at the time. Q. The entirety of the Loan? A. That's exactly right. Q. Yes. A. So all those payments made, if you just go on strictly payments made and payments due, then yes on that date there would have been $5,000 advance as you say. Q. Yes the Loan would have been to the good? A. That's right, by approximately $5,000. But the reality is that we had 26, well even – when I said 26, the legal fees actually were a lot more than that, up to $40,000 – yeah at one stage. So the amount of extra default interest accrued on those – on that quite significant amount of money, the payments made prior to the conversion would have been absorbed into that amount. Q. When you say the payments made prior to conversion, you mean that prior to September 2014 interest on those sums was not debited to the account? A. No, it would have been debited. Q. Right? A. Yes. Q. So the account, the Loan Balance would have been correct? A. The Loan Balance would have been correct, yes. Q. Right. So I don't follow then how the $11,000 approximately comes about. So you've got the correct Loan Balance which is what is outstanding, that's correct, so where does one go from there to get a Loan going from standing to the good to standing in arrears? A. The Loan Balance certainly doesn't change with the Scheduled Balance; few of those fees and charges would have. Q. Alright. So where do I see the Scheduled Balance changing on your document at page 74? A. The Scheduled Balance, basically it just continues to run on that curv[e]. It is no single change. It just – it evolves and changes throughout the course of the term. Q. Can you understand how I might find this a bit confusing? A. Certainly, yes. Q. I do apologise if I do, because I don't understand if the loan balance is correctly calculated, and the amount of money received is correctly recorded in the internal account, how one can ever change the arrears figures? A. It was – all I can say it was simply a change of methodology, reporting methodology." 1. Although there is a suggestion in this evidence that the application of default interest explains the difference, this seemed to me to be no more than guesswork on the part of Mr Hooper. After all, as the Loan Account records tendered in evidence show, the listed interest rates, which I would infer were those applied, did not include any default interest rate. 2. It is clear from this evidence that Mr Hooper was not in a position to be able, by reason of his own knowledge, or of knowledge of the system which had in fact been applied either by Unisys or Resimac, to prove the assertion underlying the issue of the 2015 Default Notice, namely that the account was in arrears at the relevant time. For this purpose, one can put aside the issue of outstanding fees and charges, because that was not the basis upon which that Default Notice was issued. 3. Indeed, what is clear is that Mr Hooper did not give any evidence, nor would it appear that he would have been in a position so to do, that the way in which that the Loan Balance had been calculated accorded with the Loan Agreement, in particular clauses 9 and 10 of the Loan Agreement. 4. As well, RHG did not serve on the Borrowers, nor tender as part of the evidence before the Court, a certificate under clause 28 of the Loan Agreement stating an amount payable in connection with it, nor a certificate under clause 24 of the Mortgage, which was to the same effect. 5. Senior counsel for RHG argued that the periodical statements sent by RHG to each of the Borrowers setting out the Loan Balance, and which included a statement to the effect that fees and charges had a particular balance at a particular date, constituted a certificate either under the Loan or the Mortgage. 6. I reject this argument. At the least, in order to constitute a certificate under the Loan or under the Mortgage of the kind which is contemplated by each of those clauses, the certificate (or formal statement) would need to identify itself as such and draw the reader's attention to the fact that RHG was giving the certificate (or formal statement) in accordance with the nominated clause of the Loan Agreement or Mortgage. As well, the certificate (or formal statement) would need to identify an amount payable in connection with the Loan Agreement (or Mortgage). It would need to identify what part or parts of the Loan Agreement the amount was payable in respect of. As well, I would expect it to include a statement noting that RHG would rely upon the certificate (or formal statement) as "sufficient evidence of the matter or amount unless it is proved to be incorrect", although the absence of such a statement may not affect its validity. 7. A periodical statement to a borrower issued from time to time in the ordinary course of business containing a statement of what RHG said was due, does not amount to a certificate under the Loan or the Mortgage which would have the effect of shifting the onus of proving that the amount stated in the certificate was incorrect to the Borrowers. Here at all times, the onus remained on RHG to prove to the Court what the amounts owing under the Loan Agreement were. 8. I return then to the Default Notice which was only issued because of the consequence of the arrears adjustment entry made by Mr Hooper. The basis upon which that arrears adjustment entry was made is entirely elusive. It is quite insufficient for Mr Hooper merely to say that there was a change in methodology without explaining either or both of the methodologies to the Court so that the Court can be persuaded that the methodology which is now applied reflects properly the way in which the Loan is to be calculated in accordance with the Loan Agreement. 9. I am wholly unsatisfied about the sum claimed to be in arrears under the Loan Agreement or the Mortgage. I am certainly not satisfied that, as at 7 January 2015 there was any amount in arrears under the Loan Agreement or the Mortgage such as to create an event of the default identified in the 2015 Default Notice. 10. Senior counsel for RHG argued that, on any view, the amount of fees and charges which was outstanding as at 7 January 2015, could be properly regarded as justifying a finding of default under the Loan, and even if the default was not that particularised in the 2015 Default Notice, there was nevertheless a default by reason of those unpaid fees and charges. 11. But there remains a fundamental difficulty with respect to all sums charged for fees and charges which tells against this submission. This fundamental difficulty has the consequence that the Court cannot be satisfied that any of the fees and charges are properly owing under the Loan Agreement and thereby under the Mortgage. This has the further consequence that if default interest, or any other interest, has been charged on those fees and charges as Mr Hooper surmised, the Loan Balance said to be outstanding may well be, and is highly likely to be, in error. 12. The Loan Agreement entitles RHG to charge particular fees and charges (leaving aside interest) in a particular way. Fees and charges are those specified within "Details" of the Loan Agreement, which are not said to be relevant here, and additionally those fees and charges falling within the terms of clause 9 of the "Solace", or General Terms of the Loan Agreement. 13. Clause 9 is in the form set out at [10] above. The fees and charges that RHG is entitled to levy are those falling under subparagraphs (a), (b) or (c) of clause 9.1. Clause 9.1(a) 1. All charges falling under clause 9.1(a) have to be included either in the "Details" of the Loan Agreement, or else be a new fee notified to the Borrowers. The "Details" to the Loan included fees on the second page in the column headed "Fees and Charges". The first group of those fees and charges were those incurred on or before settlement. They are said to be included in the Loan funds advanced. The second group of fees and charges are those payable after the settlement date. There are only two kinds of those charges, namely, charges payable upon discharge of mortgage to a "servicer" and government charges relating to discharge of mortgage registration fees. The details noted that $106 was debited to the Loan Account for government charges on discharge of mortgage. No other fees and charges are there included. 2. Accordingly, any further fees and charges which may come within the description "new fee or charge" under clause 9.1(a) would need to be notified by RHG to the Borrowers. There was no evidence tendered by RHG that notification of any new fee or charge had occurred. Mr Hooper accepted that the Borrowers were not notified of any fees and charges before such fees and charges were applied to the Loan Account and that the periodical statements, which included a sum claimed for fees and charges, would not demonstrate which of those charges or fees, if any, fell within clause 9.1(a). 3. In those circumstances, clause 9(a) is not available as a basis for RHG to claim any fee or charge from the Borrowers with respect to this Loan. Clause 9.1(b) 1. Clause 9.1(b) refers to government charges and duties on receipts and withdrawals under the agreement calculated in accordance with relevant legislation. There is no indication that any such charges were paid by RHG and added to fees and charges that were claimed to be outstanding. This does not provide any basis for RHG to claim any of the fees and charges relied upon. Clause 9.1(c) 1. Clause 9.1(c) refers to fees incurred in enforcing the agreement or security after a borrower is in default. There are three features of fees under this category: first, the borrower must be in default before the fee or charge is incurred; secondly, RHG must "ask" the borrower, after they are in default, before a borrower is obliged to pay RHG with respect to these fees; and thirdly, the expenses must be reasonable and also that they must be reasonably incurred in enforcing the agreement or a security after a borrower is in default. Fees and Charges Claimed 1. In his affidavit, Mr Hooper attributed the fees and charges outstanding in respect of the Loan Account by the Borrowers as falling within these categories: 1. $829 in fees associated with the provision of additional credit in December 2003; 2. $3,040 in direct debit dishonour fees and late payment fees; 3. $19,191.54 by way of legal expenses paid to Kemp Strang in the period November 2010 to July 2014; 4. $2,982.59 in fees payable to a property presenter, LegalStream, for inter alia "improvement works to the Property"; and 5. $344.78 for property insurance fees for the period March to June 2014. Discernment 1. The evidence about the sum of $829 in fees associated with the provision of additional credit in December 2003 is sparse. The itemised Loan Account record shows this total as comprising the following debited sums: 1. 19.11.2003 Valuation Fee $150.00 2. 4.12.2003 Variation Fee $295.00 3. 4.12.2003 Function Charge $384.00 1. The Loan Account records that these fees were paid in full in two ways. First, the Borrowers deposited a cheque for the $150 as a credit to their Loan Account on 19.11.2003, that is, the same day as the fee was debited. Secondly, the other two items, totalling $679, were paid from the advance of $100,000. What in fact happened was that the balance of the Loan Account was increased by $100,000 – being the fees of $679, and the balance of $99,321. The Borrowers, although they borrowed and agreed to repay the additional $100,000, only received the sum of $99,321. The Loan records show that both the Loan Balances and the Scheduled Balances were increased by $100,000. By only directly receiving the lesser sum ($99,321), the Borrowers had paid these fees. 2. In an unexplained way, RHG claims that these fees and charges remained outstanding as at January 2015. I am unpersuaded that this is so particularly as at the time of these entries, the Loan Balance was not in arrears. It was in good order and, accordingly, the credits were properly to be applied to these fees in accordance with the terms of the Loan Agreement. 3. It is convenient next to consider the $3,040 claimed for fees as described in [198(b)] above. 4. To the extent that RHG claims that these charges fall within clause 9.1(c), no attempt has been made in the evidence to demonstrate that they were expenses reasonably incurred by RHG. On the contrary, by reference to the discussion of these fees in [113] above when looking at the Loan Account, these fees seem to be arbitrarily applied, in a standard sum, by reference to no particular entitlement in the Loan Agreement. It is not possible, in the absence of any evidence which addresses the detail of these fees and charges, to regard these charges and fees as a reasonable expense, or expenses which were reasonably incurred. In any case, there is no evidence that RHG incurred these amounts. 5. In fact, if any inference is to be drawn, and it is unnecessary to do so finally, it would be appropriate to conclude that these amounts, as they are described, were not reasonable as they bear no commercial relationship to the nature, type and period of default, and do not reflect any detriment to RHG which would be entitled if it chose to apply the default interest rate during any period of default. 6. Further, RHG did not submit that there was any evidence that it had "asked" the Borrowers before imposing these charges on the Loan Account. 7. However, it is sufficient for the purpose of determining the issues posed here to find that these amounts did not constitute a fee or charge within clause 9 of the terms of the Loan Agreement (or the equivalent clause in the Mortgage). RHG was not entitled to regard them as owing by the Borrowers at the time the 2015 Default Notice was issued, nor at the time of the hearing of these proceedings. 8. The third category of fees and charges is the sum of $19,191.54 in legal expenses paid by the plaintiff to Kemp Strang Lawyers in the period November 2010 to July 2014. To the extent that any legal expenses were charged, the evidence of Mr Hooper was that the total amount of any invoice (and all invoices) received from the solicitors was simply added as a matter of course to the Loan Account. He did not suggest that anybody at RHG had considered whether the amount was reasonable, nor that they had considered whether the fees were reasonably incurred. 9. In this Court, other than a submission to the effect that the Court should be satisfied either that it is unlikely that Kemp Strang would have overcharged, or else charged unreasonable fees, or else that the Court could itself, based upon its own knowledge, assess that the sums claimed were reasonable, no attempt was made to prove that the sums claimed as being due and owing were reasonable. 10. In my view, what is necessary before a fee and charge can be added onto a Loan Account in accordance with clause 9.1(c) of the Loan Agreement is that a judgment has to be made by a duly authorised officer of RHG (not merely the data entry employee) before adding the amount to the Borrowers' Loan Account, that the expenses incurred are reasonable, that they have been reasonably incurred and that they have been incurred after default has been occasioned and in enforcing the agreement or security. Then there has to be a request to the Borrowers which if not satisfied, means that a debit to the Loan Account can be made. These are the requirements of clause 9.1(c) of the Loan Agreement. 11. In the absence of proof of those matters by evidence, the inferences urged upon the Court by senior counsel for RHG should not be accepted. 12. It is a matter for RHG to prove that the expenses were reasonable and reasonably incurred. The Court has to be persuaded that these amounts should properly have been added to the Loan Balance. It is not for the Court to form a view in substitution for RHG's view required under the Loan Agreement. The Court's role is to determine, if necessary, whether RHG's view was open to it. But here, where no view is shown to have been formed, the Court's own conclusion as to reasonableness is not relevant. 13. In those circumstances, RHG has not proved that this component of the fees and charges was properly debited to the Loan Account in accordance with clause 9.1(c) of the Loan Agreement. 14. The final two sums relate to monies paid to the "plaintiffs' property presenter" which included, amongst other things, "improvement works to the property when it was assumed the plaintiff would sell it as mortgagee". It is appropriate to observe that improvement expenses paid by the mortgagee in preparation for sale so as to obtain a higher price for the Property would not fall within clause 9.1(c). That is so because the clause refers specifically to expenses incurred in preserving and maintaining the Property. It does not refer to monies paid for improvement of the Property. 15. At least in the absence of clear proof of what these expenses were, and why they were incurred, the mere description of the body to whom the fees and charges were paid does not suggest that they come within clause 9.1(c). Nor does that description, or the balance of the evidence, enable a conclusion that any of the necessary steps have been taken before these amounts have been included as a fee or charge. 16. The final item relates to insurance which clearly does fall within clause 9.1(c). The evidence is silent, however, as to the reasonableness of that expense. Even assuming it to be reasonable, the balance of the steps required have not been taken. 17. The result of this discussion is to demonstrate that in the absence of evidence over and above that provided by Mr Hooper in his affidavit, and there is none, RHG has not persuaded the Court that the fees and charges were reasonable or reasonably incurred and that the requirements of clause 9.1(c) have been met. These are not matters which are routinely taken as being proved where there is a case of real challenge to the amount owing under the Loan Agreement. 18. It seems to me, as well, that the requirement in clause 9.1(c) of the Loan Agreement for RHG to ask the Borrowers to pay the fees and charges "when we ask: …", is not without commercial significance, and cannot be ignored by RHG. By asking for the payment of the fees and charges, RHG gives the opportunity to a borrower to challenge the fact of, and reasonableness of, the notified expense before it is added to the Loan Account. If RHG has fulfilled all of the other requirements, then it is entitled to debit the charge and ignore any query or protest which it receives. 19. The evidence does not establish that this step was even taken by RHG, and the effect of Mr Hooper's evidence was that no such step would ordinarily be taken because there was an automatic debiting to the Loan Account of solicitor's invoices when they were received. 20. RHG is the party in possession of all of the material about these expenses. It is the one that has the onus of proof in this case. It has not engaged with that onus of proof, but has simply taken the approach that if the expenses have been incurred, then they must be taken to be reasonable and reasonably incurred, and thereby properly debited to the Loan Account. This is not an approach which commends itself to the Court. 21. The end point of this consideration is that RHG has not proved that the sum for fees and charges which it claims is outstanding by the Borrowers has been debited validly to the Loan Account, nor that there were any fees and charges proved to be outstanding when the 2015 Default Notice was issued. It follows from that conclusion that RHG have not proved that there is any basis to conclude that the Borrowers' Loan Account was in default at the time the 2015 Default Notice was issued. Conclusion 1. In conclusion, I am not satisfied that RHG has established its cause of action, or its entitlement to the relief sought. 2. In the first place, when it entered into possession in 2014, RHG fully executed the judgment for possession made in its favour. The proceedings for possession which it had commenced in 2012, having proceeded to a final judgment, were then spent: JP Morgan Trust Australia Limited v Anthony Robert Bridge [2013] NSWSC 668 at [20] per Harrison J. 3. RHG gave up possession in 2014, in accordance with the 2014 Agreement which was reached in correspondence. The conditions necessary for the Borrowers to enter into possession were fulfilled prior to their re-entering into that possession. That Agreement did not give RHG a right to continuing possession. Only if there was a further default under the Loan Agreement or Mortgage, would RHG have a right, subject to appropriate enforcement steps being taken, to obtain possession. However, RHG retained the right to seek contractual relief under the 2014 Agreement. It has not done so. 4. Thereafter, I am not satisfied on the evidence before the Court that there has been any default shown in the regular periodic payments in compliance with the Loan Agreement or Mortgage. To the extent that outstanding fees and charges are relied upon to constitute a default, I am not satisfied that those fees and charges have been correctly debited to the Loan Account, because RHG has not taken the necessary steps to enable that to occur. 5. In short, the default which it is claimed existed in the Loan Account arose because of an adjustment entry made by an employee of RHG. The basis for that adjustment, nor the balance thereby created, has not been proved to have been calculated in accordance with the Loan Agreement, such that the Borrowers are in arrears. 6. But for that arrears adjustment entry, the Loan would be regarded by RHG to be in good standing. As RHG has failed to prove any default on the Loan in 2015 at the time it served its 2015 Default Notice, it had no basis to claim an acceleration of the Loan capital, or to demand the repayment of the entire Loan. 7. In those circumstances, RHG has failed to prove its case and the proceedings must be dismissed. Costs 1. I see no reason why costs should not follow the event, but it will be appropriate to allow the parties an opportunity to make submissions about that after the reasons for judgment have been made available. Orders 1. I make the following orders: 1. Amended Statement of Claim dated 5 May 2017 dismissed. 2. Plaintiff to pay the defendants' costs. 3. In the event that either party seeks a different order from Order (2), then on or before 13 July 2018, a motion accompanied by all material relied upon and an outline of submissions shall be filed and served on the opposing party, and a copy provided to my Associate. 4. The party in receipt of such motion is, on or before 27 July 2018, to file and serve all material upon which they rely, together with all submissions on the opposing party, and to provide a copy to my Associate. 5. Any costs application is to be determined on the papers unless the Court of its own motion relists the matter for oral argument. 6. Liberty to apply on 24 hours' notice. ********** 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. Decision last updated: 02 July 2018