Khalid v Perpetual [2012] WCA 153

This Court of Appeal decision concerned the validity of a s57(2)(b) notice.

Misstatement of the principal amount

The borrower argued that the notice was invalid because it misstated the amount of the principal. The lead case on this question is the High Court decision in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10. In that case the full court held:

It is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt… the interests of the parties will be more adequately protected by the principle that the debtor must be allowed a reasonable opportunity to comply with the demand before the creditor can realize the security. In determining whether the debtor has had such an opportunity it will be relevant to take account of the debtor’s knowledge, lack of knowledge and means of knowledge of the amount due and of the information which the creditor has provided in that respect, including the response which he has made to any inquiry by the debtor.

In this case, the Court of Appeal noted:

In this case, the borrower received monthly statements that specified the amount of principal outstanding. She continued to make payments of principal and interest on the balances specified in the statements from time to time.

As she continued to make instalment payments calculated on the amount specified in the statement from time to time, she accepted her liability for the outstanding balances stated to be due, including the increased balance amounts due to the now disputed redraws.

It follows, in my opinion, that she had the requisite knowledge to enable her to determine what amount was due. There was no evidence she denied or disputed her liability for the amount stated in the notice or that she had sought any clarification of the amount claimed.

Non-monetary default

The Court of Appeal appeal-proofed its decision by finding that even if they were wrong on the question of whether or not the section 57(2)(b) notice was valid, because of section 58A of the Real Property Act no notice was required in any event.

S58A relevantly provides that:

Any notice prescribed by section 57 (not being notice relating to default in the payment of money) may, by agreement in the mortgage, be dispensed with.

In effect, this section provides for borrowers and lenders to agree, in the mortgage, to waive requirements that the lender give notice before it exercises power of sale. These clauses are known as dispensing agreements, because they dispense with notice requirements.

In this case, the dispensing clause read:

There may be some statutes (ie. laws passed by parliament) or other law (usually called the common law) intended to limit mortgagees’ rights… none of these statutes or laws will operate to limit the mortgagee’s rights under the mortgage unless by law those rights cannot be negated. In particular, the mortgagee need only wait for one day after default occurs and need not give any notice before exercising any right, power (including the power of sale), obligation or remedy under the mortgage unless required by law, and if the law does require notice, the mortgagee need only give one day’s notice or the shortest notice required by that law.

The Court of Appeal analysed the lead case on this question Topfelt Pty Limited v State Bank of New South Wales Limited (1993) 6 BPR 13, 209 and decided that although “awkwardly drafted” this clause was effective to dispense with the need for a notice for non-monetary default. There was a non-monetary default that was conceded by the borrower, namely the borrower sold the property without the consent of the lender.

Accordingly, no notice was required.

As an aside, it is worth noting that this whole case would have been unnecessary had the mortgage not required the lender to have a statutory power of sale before possession proceedings. Thus, as well as including “awkwardly drafted” clauses, the mortgage contained a serious own goal. If you are a lender and you wish to avoid this sort of aggravation and expense, contact Bransgroves Lawyers for a review of your security documents.

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