Can I obtain leave to defend an application for summary judgment for possession (part 1)?

In an proceeding for possession of a security property by a mortgagee, it can be very difficult to mount an arguable defence.

In the vast majority of claims for possession by mortgagees, either no appearance or no defence is filed, and the mortgagee obtains an order for possession in default.

The second-most common outcome is for a 'holding defence' to be filed, with the borrower really only seeking more time to pay out the mortgagee.

There are some cases where a real defence is filed, where the borrower does not seek more time to pay out the loan. In those cases, mortgagees will often seek summary judgment on the basis that the borrower has no defence to the claim for possession.

There are some recent cases which shed light on the circumstances in which a defendant borrower will be granted leave to defend an application for summary judgment.  

Pagone J in Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd and ors [2012] VSC 490 had to decide whether a defendant had done enough to be granted leave to defend the claim on the hearing of an application for summary judgment.

In paragraph 9, Pagone J noted: 

The defendants rely upon the facts in the particulars to para 44 in resisting the application for summary judgment.  They maintained before Gardiner AsJ, and before me, that on an application for summary judgment it was not necessary for a defendant to verify by non hearsay evidence the facts alleged in a pleading.  The defendants submitted that it was sufficient in response to a plaintiff’s application for summary judgment for a solicitor, ... to make an affidavit which referred to the particulars in para 44 of the defendants’ Amended Defence and Counterclaim and depose that he was “informed by [the client] and believe[d] that the facts pleaded [in para 44] are true and correct”.  Portbury contended before Gardiner AsJ, and before me, that this was insufficient to satisfy a defendant’s obligation to show cause under r 22.04 of the Rules or the Civil Procedure Act 2010 (Vic), but did not otherwise controvert the facts in the particulars.  It did, however, through the evidence it filed, give evidence ... from which it maintained an entitlement to summary judgment.

Pagone J then summarised the relevant principles as follows (paragraph 24): 

The plaintiff has the burden of satisfying a court that it is appropriate to give summary judgment whether that is sought under s 63 of the Civil Procedure Act 2010 (Vic) or under Order 22 of the Rules.  The relevant principles were considered by Dixon J in Ottedin Investments Pty Ltd v Portbury Development Co Pty Ltd[6] in which his Honour said:

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[6]          [2011] VSC 222; see also JBS Southern Aust Pty Ltd v Westcity Group Holdings Pty Ltd [2011] VSC 476, [36]-[50] (Croft J).

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Summary Dismissal

7           In moving for summary dismissal, a party may rely on r 23.01 of the Rules, s 63 of the Civil Procedure Act 2010, and/or the court's inherent jurisdiction.

8             By civil procedure reform introduced by the Act, the operative effect of the principles governing applications for summary dismissal is now less stringent...

9             The new test is evident in the plain language of Part 4.4 of the Civil Procedure Act 2010.  Section 62 permits a defendant in a civil proceeding to apply to the court for summary judgment on the ground that a plaintiff's claim or part of that claim has no real prospect of success.  Section 63 provides:

63       Summary judgment if no real prospect of success

(1)          Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.

(2)          A court may give summary judgment in any civil proceeding under subsection (1)—

(a)          on the application of a plaintiff in a civil proceeding;

(b)          on the application of a defendant in a civil proceeding;

(c)          on the court's own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.

It will be recalled that in explaining the test used prior to the Act, a variety of expressions describing that test could be found in the cases.  The expression now identified by Parliament is in plain language: "no real prospect of success".

10           ...  The critical qualifying word "real" directs the court to "the need to see whether there is a realistic, as opposed to a fanciful, prospect of success".

11           In two other respects, the provisions of the Act ought be borne in mind when exercising the discretion to summarily dismiss.  First, the court must seek to give effect to the overarching purpose of the Act and the Rules in exercising, or interpreting, the statutory power to summarily dismiss.  This overarching purpose is "to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute". The court is directed to further the overarching purpose by having regard to the objects and matters articulated in s 9 of the Act.  The manner in which the court will consider these objects and matters will depend on the nature and circumstances of the application before it.  On this application, I bear in mind the following objects (s 9(1)):

(a)       the just determination of the civil proceeding;
(c)       the efficient conduct of the business of the court;

(d)          the efficient use of judicial and administrative resources;

(f)       the timely determination of the civil proceeding; and

(g)          dealing with a civil proceeding in a manner proportionate to—

(i)          the complexity or importance of the issues in dispute; and

(ii)       the amount in dispute:

and I have regard to the following matters (s 9(2)):

(f)          any prejudice that may be suffered by a party as a consequence of any order proposed to be made or direction proposed to be given by the court;

(g)          the public importance of the issues in dispute, and the desirability of a judicial determination of those issues; and

(h)          the extent to which the parties have had the benefit of legal advice and representation.

12           Second, the discretionary nature of the power to summarily dismiss is exercisable having regard to s 64 of the Act.  That section provides:

64       Court may allow a matter to proceed to trial

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a)       it is not in the interests of justice to do so; or

(b)          the dispute is of such a nature that only a full hearing on the merits is appropriate.

The section affirms the court's broad discretion, exercised judicially, whether to summarily dismiss a proceeding or a claim, which was the basis upon which the previous test was applied.  The circumstances in which the court might consider the dispute to be of such a nature that only a full hearing on the merits is appropriate is equally wide in its compass and plainly to be considered in the circumstances of each case.[7]

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[7]          [2011] VSC 222 [7]-[12] (citations omitted).

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His Honour went on to note the observations of French CJ and Gummow J in Spencer v Commonwealth of Australia[8] that the exercise of powers to terminate proceedings summarily must always be attended with caution.[9] In Karam v Palmone Shoes Pty Ltd[10], decided since the coming into force of s 63 of the Civil Procedure Act 2010 (Vic), it was observed that “the power to order summary judgment is [still] to be exercised sparingly and not ‘unless it is clear that there is no real question to be tried’ ”.[11]

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[8]          (2010) 241 CLR 118.

[9]          Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222, [15] (Dixon J).

[10]         [2012] VSCA 97; see also Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99 (Mason, Murphy, Wilson, Deane and Dawson JJ).

[11]         Karam v Palmone Shoes Pty Ltd [2012] VSCA 97, [28] (Nettle and Osborn JJA); see also Ticco Pty Ltd v Complete Family Healthcare Services Pty Ltd [2005] VSCA 221, [20]–[21] (Hollingworth AJA), [36]–[37] (Charles JA).

The result of the Portbury decisions (by Pagone J and Dixon J) is that the principles governing applications for summary dismissal are now less stringent, and the court will grant a mortgagee summary judgment where there is no real prospect of any defence succeeding.

In a claim for possession by a morgagee of land registered under the Transfer of Land Act, 1958, the proof of the claim are relatively simple. 

The usual pleading includes: 
(a) ownership of the land by the borrower, 
(b) the loan of money by the lender to the borrower,
(c) registration of the lender's mortgage on title, 
(d) an obligation to pay interest, or repay principal by the borrower, 
(e) breach of that obligation, 
(f) notice to remedy that breach, 
(g) a failure to remedy the breach despite notice, and
(h) continued possession of the land by the borrower.

Proof of those elements would ordinarily result in an order for possession of the property in favour of the mortgagee.  

The cases confirm that the court is unlikely to refuse an application for summary judgment by a mortgagee without good cause. 

However, in the particular circumstances of the case, Pagone J decided at paragraph 36:

In my view the defendants have shown cause against the application for summary judgment, and the plaintiff has not discharged the onus upon them under either r 22.02 of the Rules or s 63 of the Civil Procedure Act 2010. 

W G Stark
Hayden Starke Chambers

Will Victoria legislate a requirement that lenders must take reasonable steps to identify potential borrowers?

Four mainland states (New South Wales, Queensland, Western Australia and South Australia) have already legislated a requirement that lenders must take positive steps to verify the identity of proposed borrowers. 

On 5 August 2014, the Transfer of Land Amendment Bill 2014 was introduced into the Victorian Legislative Assembly.  

One of the amendments contained in the Bill is to require a lender to verify properly the authority and identity of a proposed borrower by taking "reasonable steps" (proposed Section 87A) to ensure that the proposed borrower is the same person as the registered proprietor or proposed registered proprietor of the property.

This proposal, if passed, will bring Victoria into line with the existing requirements in Queensland, New South Wales, South Australia, and Western Australia. 

The proposal means that a potential lender will be obliged to take certain legislated steps (set out in proposed section 87A(2) to verify the identity of the mortgagor. 

The sanction for lenders who fail to take those steps is that they will not obtain the benefit of indefeasibility of title in respect of the mortgage and the mortgage will be void. 

These proposals have gained currency in Australia, and Victoria has followed suit, as a result of allegations that the registration of fraudulent mortgages have become more commonplace. See, for example, the Victorian Bill's second reading speech, which alleges that there have been instances where a fraudulent mortgage was registered as a result of a financial institution neglecting to verify adequately the party with whom it was transacting (and thereby contributing to the fraud). 

In my opinion, it is good lending practice for potential mortgagees to undertake a detailed identity verification procedure, whether the Bill passes into legislation or it lapses when Parliament is prorogued for the forthcoming state election.

The problem with fraud is that identity theft is becoming more common, and fake identity documents are being used by fraudsters to trick lenders into lending money even if a thorough identity check is conducted. 

Electronic conveyancing and Electronic Certificates of Title are also nearly upon us, potentially creating more opportunities for fraud as a result of identity theft.

Whilst casting a heavier onus on lenders appears to be a simple answer to the problem, in reality identity theft is the real problem. If a lender has been duped by fake identity documents, these proposed legislative changes are unlikely to save the registered proprietor from the consequences. Lenders are more likely to be able to protect their position than registered proprietors. If a lender has conducted a thorough identity check as required by the proposed legislation, and it has still failed to uncover the identity theft, the registered proprietor will lose his or her property when the lender takes steps to recover the loan secured by its mortgage. This proposal will give mortgagees extra protection, by forcing them to prove that they took appropriate steps. Once those steps are proven, the registered proprietor will lose the mortgaged property even though they are not a party to the transaction.

W G Stark
Hayden Starke Chambers  

What are the duties of a mortgagee to a borrower when exercising its power of sale under the Transfer of Land Act?

In MBF Investments Pty Ltd v Nolan [2011] VSCA 114, the Victorian Court of Appeal considered a mortgagee’s duty when exercising its power of sale under section 77(1) of the Transfer of Land Act 1958 (Vic).

The mortgagee held a first mortgage over a property in the leafy Eastern Melbourne suburb of Kew. The property included a house where the borrower, Mr Nolan, and his family had lived for many years, and 2 vacant blocks. Mr Nolan defaulted; the mortgagee notified him it would sell the property. Mr Nolan proposed to subdivide the land for sale as 3 separate lots.

At the auction the first lot (a vacant block) was sold for more than the estimated sale price. After discussion between borrower, mortgagee and selling agent, the home lot was sold next. Those 2 lots resulted in there being a surplus over the amount owing to the selling mortgagee (there were a number of other secured creditors). The remaining lot was passed in at auction but sold by negotiation that day.

Mr Nolan sued the mortgagee claiming a breach of duty under s 77(1) of the Transfer of Land Act 1958 (Vic). Vickery J at first instance upheld the claim. The mortgagee appealed.

In examining the mortgagee’s duty under s 77(1), the Court of Appeal decided:

1. In exercising its rights over the security, the mortgagee must act fairly towards the mortgagor, and in a way that does not unfairly prejudice the mortgagor. The duty of a mortgagee to act in good faith can be equated to the duty to not act unconscionably.
2. The mortgagee must take reasonable steps to obtain the best price consistently with its right to enforce its security interest. This requires the mortgagee to consider how the property should be advertised and allow an appropriate time between the advertisement and the sale.  
3. The mortgagee’s interest in the property has priority over the interest of the mortgagor so that the mortgagee can protect its own interest. The mortgagee must also have regard to the interests of subsequent security holders.  

The facts of the case were quite unusual: the mortgaged land was initially one lot, although prior to the mortgagee sale it was sub-divided into 3 lots, leaving room for an argument (which was accepted by Vickery J, but rejected by the Court of Appeal) that the borrower had a special interest in the house lot of which the mortgagee had to take notice.

This case provides valuable guidance as to how a mortgagee should exercise the right of sale.

W G Stark
Hayden Starke Chambers 

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[1] [2011] VSCA 114