Perpetual Limited (formerly known as Perpetual Trustees Australia Limited) v Marwa Dilati and Khalid Ali Khalid [2011] NSWSC 1259 (27 October 2011)

Last Updated: 12 January 2012

Supreme Court New South Wales

Case Title:	Perpetual Limited (formerly known as Perpetual Trustees Australia Limited) v Marwa Dilati and Khalid Ali Khalid
Medium Neutral Citation:	[2011] NSWSC 1259
Hearing Date(s):	07 October 2011
Decision Date:	27 October 2011
Jurisdiction:	Common Law
Before:	James J
Decision:	Appeal allowed - orders of primary judge set aside
Catchwords:	Proceedings for possession - mortgages - notice to mortgagor allegedly overstating amount due - s 58A Real Property Act - whether clause in mortgage an agreement within s 58A dispensing with notice
Legislation Cited:	Real Property Act Supreme Court Act
Cases Cited:	Abalcheck Pty Ltd v Pullen (Hodgson J 26 June 1990) Bond v Hong Kong Bank of Australia Ltd (1991) 25 NSWLR 286 Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1983-1984) 153 CLR 491 Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404 Cosmedia Productions Pty Ltd v Australia and New Zealand Banking Group Limited (Federal Court of Australia Sheppard J 22 January 1997) Farrow Mortgage Services Pty Ltd v Ragata Developments Pty Ltd (1993) 32 NSWLR 333 House v The King [1936] HCA 40; (1936) 55 CLR 499 Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 Mir Bros Projects Pty Ltd v 1924 Pty [1980] 2 NSWLR 907 Notaras v Sly & Weigall [2005] NSWCA 275
Texts Cited:
Category:	Procedural and other rulings
Parties:	Perpetual Limited (formerly known as Perpetual Trustees Australia Limited) - Plaintiff Marwa Dilati - First defendant Khalid Ali Khalid - Second defendant
Representation
- Counsel:	N. Bearup - Plaintiff M W Young SC - Second defendant
- Solicitors:	Gadens Lawyers - Plaintiff Pope & Spinks - Second defendant
File number(s):	2009/296958
Publication Restriction:

JUDGMENT

1. This is an appeal pursuant to r 49.4 of the Uniform Civil Procedure Rules against a decision of Associate Justice Harrison ordering that Khalid Ali Khalid ("Mr Khalid") be joined as the second defendant in proceedings for possession of land brought by Perpetual Limited ("Perpetual") against Marwa Dilati ("Mrs Dilati") and that a default judgment obtained by Perpetual against Mrs Dilati for possession of land be set aside.

Background facts

2. For the purposes of the proceedings before the primary judge and this appeal against the decision of the primary judge there was no dispute about any of the following background facts.

3. Mrs Dilati is the wife of Mohammed Dilati and Ahmed Dilati is their son. Mrs Dilati has been at all material times the registered proprietor of the subject land ("the property").

4. In October 2003 Mrs Dilati entered into a loan contract with Perpetual, to which certain General Conditions applied, and a mortgage of the property to Perpetual, which incorporated a memorandum filed at Land and Property Information New South Wales. The mortgage was registered.

5. In 2004 discussions about the property took place between Mr Khalid and Mohamed Dilati and Ahmed Dilati. Discussions took place with Mohammed Dilati and Ahmed Dilati, and not Mrs Dilati, because Mr Khalid as an Arab observed what was said to be an Arab custom, that a man should not deal directly with a woman who is not a member of his family.

6. During these discussions Mr Khalid had a conversation with Mohammed Dilati and Ahmed Dilati to the following effect:-

"Mohammed: We are going to sell our house in Greenacre.

Mr Khalid: I'm interested in buying it.

Ahmed: Our real estate agent says he had found a purchaser for $840,000.

Mr Khalid: I can buy it for that but I would have to pay the money off over time.

Mohammed: I agree. When you have paid the price then we will transfer the property to you, but you can live in the house in the meantime."

7. In 2004 Mr Khalid believed that, as a Moslem, he was prohibited by his religion from borrowing money at interest to pay the purchase price for the property and accordingly would have to pay the purchase price by instalments.

8. There were other conversations between Mr Khalid and Mr Mohammed Dilati to a similar effect and Mr Khalid's wife had a similar conversation with Mrs Dilati.

9. On 18 April 2005 Mr Khalid paid $280,000 to Ahmed Dilati as a part payment of the purchase price of the property.

10. On or about 20 May 2005 Ahmed Dilati prepared notes of the agreement with Mr Khalid. The notes were as follows (retaining the original spelling):-

"1) Wich Amount where Going to regestier

The Sale For (check with Accountant)

2) $840,000.00 - $340,000

3) Received $430,000.00

4) Balance $415,000.00

5) 1 Year - To 3 Year

6) The/when The house has been paid off in full (That means there should be no money owing on the House) (The CAVE) MUST be Paid Off by Ahmed in four month) Then We would Transfer the house under Rhalad's name.

7) Every Thing has to be paid by both parties According to the LAW.

8) Moving Discussion with Both Parties

9) Ahmed will fix Kitchen His way

10) If ANY CONFLICT WE JUDGE OUR SELF TO ISLAMIC RULES.

Moving in Four Mounth

[signed]

20-5-05"

11. Towards the end of 2005 Mr and Mrs Dilati gave Mr Khalid the keys to the property. Mr Khalid permitted Mr Ahmed Dilati and his wife to continue living in the property.

12. On 31 July 2008 there was a serious fire and the property remained unoccupied for about a year, while repairs and renovations were being carried out.

13. In about 2009 Mr Khalid's wife entered into occupation of the property with their daughter and Mr Khalid soon afterwards joined them. Since about August 2009 Mr Khalid and his family have continuously occupied the property.

14. Between April 2008 and June 1010 Mr Khalid paid a total amount of $760,000 to the Dilatis or Perpetual. Almost all of this money was paid to the Dilatis.

The proceedings

15. In August and September 2009 Mrs Dilati failed to make monthly payments to Perpetual which Perpetual claimed were due under the mortgage documents. Perpetual gave Mrs Dilati a default notice dated 17 September 2009. No further payment was received by Perpetual from Mrs Dilati prior to the commencement of the present proceedings.

16. On 12 November 2009 Perpetual commenced the present proceedings against one defendant only, Mrs Dilati, claiming possession of the property and judgment for the sum of $551,529.33 being the full amount alleged to be due from Mrs Dilati as at 4 November 2009 under the loan agreement between Perpetual and Mrs Dilati. In the statement of claim Perpetual's claim for possession of the property was based on Mrs Dilati's alleged default under the mortgage in not paying money due to Perpetual the payment of which was secured by the mortgage.

17. No defence was filed on behalf of Mrs Dilati. In February 2010 Mrs Dilati and Perpetual through their solicitors entered into an agreement pursuant to which Mrs Dilati agreed to pay all arrears and to make all future payments on time. It was provided that, if Mrs Dilati complied with this arrangement up to 12 August 2010, Perpetual would allow the court proceedings to be dismissed. If Mrs Dilati failed to comply with this arrangement, Perpetual would be permitted to file consent orders providing for Perpetual to have judgment for possession of the property and judgment for the amount alleged in the statement of claim to be owing by Mrs Dilati.

18. Mrs Dilati failed to comply with the arrangement and Perpetual obtained a default judgment against Mrs Dilati for possession of the property and for the amount alleged to be due. Leave was given to Perpetual to issue a writ of possession.

19. By notice of motion dated 6 May 2011 Mr Khalid sought a stay of the writ of possession and an order that he be joined in the proceedings as a second defendant. The application was supported by an affidavit by Mr Khalid of 5 May 2011 in which he deposed to, inter alia, the background facts I have already stated.

20. On 6 May 2011 Johnson J, before whom the application had come, stayed the execution of the writ of possession, declined to make an immediate order that Mr Khalid be joined as a party to the proceedings and made an order intended to assist Mr Khalid to obtain copies of the loan documents between Perpetual and Mrs Dilati, so that they could be assessed by Mr Khalid.

21. On 22 May 2011 Mr Khalid made a further affidavit. In this affidavit he said that he would be able to obtain funds with which to discharge the mortgage. He said that he had been unable to locate Mrs Dilati and, although he had been able to locate Ahmed Dilati, he no longer trusted Ahmed Dilati. He said that, in the event of it appearing from his enquiries that there was no good defence to Perpetual's claim, he would pay out Perpetual's mortgage, obtain a transfer of the mortgage and compel Mrs Dilati to transfer title to the property, in accordance with the agreement between them.

22. On 23 May 2011 the matter came before McCallum J. Mr Khalid was seeking a further stay of execution of the writ of possession and an order that he be joined as a defendant in the proceedings. On the following day her Honour delivered a reserved judgment. Her Honour made certain orders, including an order for a further stay of execution and an order directing Perpetual to produce certain documents to Mr Khalid.

23. On 15 July 2011 a notice of motion was filed on behalf of Mr Khalid seeking an order that he be joined as a second defendant, an order that the default judgment for possession of the property be set aside and that there be a stay of execution of the writ of possession until further order. It was this application which came before Associate Justice Harrison.

24. On 15 July 2011 a further affidavit by Mr Khalid was filed. In this affidavit Mr Khalid set out a conversation he said he had had with Mr Mohammed Dilati. He said this conversation was in the following terms:-

"Me: The lawyers for Perpetual say that your family owes them nearly $600,000?

Mohammed: We are not going to cheat you. They are cheating. There is no more than $160,000, maybe $165,000 owing on the loan.

Me: The lawyers for Perpetual would not lie in the court.

Mohammed: No, there is no way that we owe as much as that to Perpetual. Even more there is there is $20,000 which must be refunded by Ausstar.

Me: That is not what the court was told.

Mohammed: There is something very wrong with their figures. What happened was that after the initial loan, a couple of times our son drew out large amounts of money without our knowledge. This was not authorised and so is not part of what we owe under the mortgage. So Perpetual's figures are wrong.

Me: Can you give me any more details?

Mohammed: No. We are not going to help you with the court."

25. Mr Khalid said in his affidavit of 15 July 2011 that he wanted to see the documents relating to the redraws under Mrs Dilati's loan on 12 June 2007 and 23 January 2009, which appeared to him to be the further drawings alleged to be without authority.

26. On 15 July 2011 Mr Khalid made a fourth affidavit. To this affidavit he annexed copies of the mortgage and the loan agreement between Perpetual and Mrs Dilati and two redraw requests dated 8 June 2007 and 23 January 2009. He asserted that signatures on the redraw requests purporting to be signatures of Mrs Dilati looked different from signatures purporting to be hers on the mortgage documents.

27. Also annexed to the affidavit was a draft defence which Mr Khalid would rely on, if the default judgment was set aside and he was joined as a second defendant.

28. The draft defence was a fairly lengthy document. The principal assertions made in the defence appear to be that Perpetual's claim to possession of the property depended, not only on default by Mrs Dilati occurring, but on the issuing and expiry of a valid default notice and that the default notice given by Perpetual dated 17 September 2009 was not a valid default notice, because it overstated the amounts of interest due and the account balance, in that the amounts of the redraws which, it was alleged, had not been made at the request of Mrs Dilati or with her authority, had been taken into account in the calculation of the amounts.

29. It was also alleged that because Perpetual, not having given a valid default notice, had no claim to possession of the property, Mr Khalid as the purchaser of the property under an uncompleted contract and as the occupier of the property had a right to possession which was superior to Perpetual's (Perpetual, indeed, having no right to possession).

30. In the draft defence Mr Khalid also disputed that a notice to occupier had been served on him by Perpetual, as required by the Uniform Civil Procedure Rules.

The hearing before the primary judge

31. As I have already indicated, it was Mr Khalid's notice of motion of 15 July 2011 which came on for hearing before Associate Justice Harrison. In support of the motion Mr Khalid relied on the four affidavits he had sworn.

32. Associate Justice Harrison delivered a reserved judgment dated 18 August 2011. Her Honour made orders that Mr Khalid be joined as a second defendant, that the default judgment for possession be set aside and that Mr Khalid file and serve a defence within 14 days.

33. In her judgment Associate Justice Harrison summarised the background facts, referred to Uniform Civil Procedure Rules 6.24 and 6.27, referred to Uniform Civil Procedure Rule 36.16 (setting aside default judgments) and summarised or quoted parts of the proposed defence.

34. Her Honour noted in her judgment that it was common ground that, if Mr Khalid did not have an arguable defence, the default judgment should not be set aside and Mr Khalid should not be joined as a second defendant in the proceedings.

35. Paragraphs 26 to 32 of her Honour's judgment appear under the heading "The proposed defence".

36. Paragraph 26 was in the following terms:-

" The proposed defence raises four main issues. They are, firstly, past performance of a contract of sale between himself and Mrs Dilati; two redraws were not authorised by Mrs Dilati, service of notice as to occupier; and the validity of the s 57(2)(b) notice . "

37. In para 27 her Honour quoted parts of the draft defence. In para 28 her Honour referred to Mr Khalid's allegations that the two redraws were not made at the request of Mrs Dilati or with her authority.

38. In para 29 her Honour said that there was evidence of a contract between Mrs Dilati and Mr Khalid, which had been part performed. Her Honour noted that by entering into the agreement with Mr Khalid Mrs Dilati had breached obligations under her mortgage to Perpetual.

39. Paragraphs 30 to 32 of her Honour's judgment were in the following terms:

" [30] Perpetual also holds a registered first mortgage over the property and in the absence of fraud, with that comes indefeasibility of title. Perpetual argued that it has a superior legal right to possession, whereas at best Mr Khalid has an equitable interest in the land since Perpetual possibly had constructive notice of Mr Khalid's possession of the property. There can be competing interests in the land and it may be that Perpetual is entitled to legal possession but not so as to disturb the occupation of Mr Khalid.

[31] Mr Khalid also argued that the s 57(2) notice issued by Perpetual is invalid and it is not entitled to possession. It is not necessary on this application for this court to determine these issues other than to find that they are arguable.

[32] It is my view that Mr Khalid has an arguable defence that he may be entitled to remain in possession of the property. He should be given the opportunity to argue this matter at trial."

40. In succeeding parts of her judgment her Honour held that Mr Khalid was an "occupier" of the property within the meaning of that expression in the Uniform Civil Procedure Rules and that, contrary to Mr Khalid's assertion, a notice to occupier had been served on behalf of Perpetual.

This appeal

41. The present appeal was instituted by a notice of motion dated 15 September 2011. In the notice of motion it was asserted that the primary judge had erred in what she had held in paras 30 and 32 of her judgment; that Perpetual's mortgage pre-dated any interest Mr Khalid might have acquired in the property; that Perpetual's mortgage had been registered before Mr Khalid had acquired any interest in the property; that there was no evidence that Perpetual had consented to Mr Khalid acquiring any interest in the property; and that it was not arguable that any interest Mr Khalid might have in the property was superior to Perpetual's interest under its registered mortgage.

42. It was also asserted in the notice of motion that the primary judge had erred in holding that Mr Khalid had an arguable defence on the basis that the default notice was invalid, because Mr Khalid had no standing to make such a claim and Mrs Dilati, by consenting to Perpetual obtaining a judgment against her for the entire balance claimed by Perpetual, had admitted that she was in default and that, in any event, the amount claimed in the default notice was correct.

Nature of the appeal

43. The present appeal is brought pursuant to r 49.4 of the Uniform Civil Procedure Rules which provides that an appeal lies to the Supreme Court from any decision of an Associate Judge of the Supreme Court, except in any case where an appeal lies to the Court of Appeal. It was not suggested by either party that an appeal lay to the Court of Appeal from Associate Justice Harrison's decision.

44. It was common ground on the appeal that the power which Associate Justice Harrison had exercised under Pt 36 r 16 of the Uniform Civil Procedure Rules to set aside a default judgment was a discretionary power and, as such, an appeal from the exercise of the power was governed by the well known principles in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504-505. At 504-505 Dixon, Evatt and McTiernan JJ said:-

"The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, it if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistake the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."

45. At the hearing of the appeal it was submitted by counsel for Mr Khalid that the nature of the proceedings (an appeal against a discretionary decision) and the principles governing an appeal against a discretionary decision of a primary judge had been lost sight of, in the written and oral submissions of counsel for Perpetual. It was pointed out that a number of submissions had been made on the appeal on behalf of Perpetual, which had not been made or had not fully been made before the primary judge. It was submitted that it could not be an error within House v The King for the primary judge not to have addressed in her judgment submissions which had never been made to her. I accept that it is the case that a number of submissions were made to me on behalf of Perpetual which had not been made to Associate Justice Harrison.

46. It was submitted by counsel for Perpetual that the primary judge had made errors within House v The King in exercising her discretion and, according, I could exercise my own discretion in substitution for the primary judge's discretion and for the purpose of exercising my own discretion I could entertain submissions which had not been made to the primary judge.

47. It is important that I resolve this issue immediately, because the approach I should adopt in determining the appeal depends on how I resolve this issue.

48. In my opinion, the primary judge did make at least one error within House v The King in the exercise of her discretion.

49. I have already quoted paras 30 to 32 of her Honour's judgment, which contain a large part of her Honour's reasoning in finding for Mr Khalid. In the second sentence of para 30 her Honour set out as being Perpetual's argument, that "it has a superior legal right to possession, whereas at best Mr Khalid has an equitable interest in the land, since Perpetual possibly had constructive notice of Mr Khalid's possession of the property". The final sentence in para 30 of her Honour's judgment appears to be a rejection of this argument, which had been attributed by her Honour to Perpetual.

50. However, it was accepted on the hearing of this appeal that neither party had submitted before her Honour that Mr Khalid might have an equitable interest in the property on the basis that Perpetual had constructive notice of Mr Khalid's possession of the property. It was accepted by both parties that Perpetual had obtained a registered mortgage giving it indefeasibility, before Mr Khalid had entered into possession of the property or had any connection with the property.

51. In attributing to Perpetual a submission it had never made and then using a rejection of that submission as a principal reason for holding that Mr Khalid should succeed, I consider that the primary judge allowed an extraneous or irrelevant matter to guide or affect her and thereby her Honour erred in the exercise of her discretion. Accordingly, I should exercise my own discretion in substitution for the primary judge's exercise of discretion and, for the purpose of exercising my discretion, I can entertain submissions which were not made or not fully made before the primary judge.

52. A number of issues were raised on the appeal, including whether Mr Khalid had an arguable defence on the basis that a valid notice of default had not been given, whether there was a basis on which Perpetual would be entitled to possession without any need to serve a notice of default, whether Mr Khalid as an occupier of the property had standing to assert rights of Mrs Dilati against Perpetual which Mrs Dilati herself had not asserted or was prevented by the principles relating to privity of contract from asserting such rights; and whether Mr Khalid would have standing under s 65 of the Supreme Court Act as being a person personally interested in the fulfilment of a duty on the part of Perpetual.

53. I do not consider that it is necessary to deal with all of the various issues which were raised on the hearing of the appeal. I propose to address only the first two issues I have mentioned, the determination of which will, in my opinion, be sufficient to determine the appeal.

Whether there was an invalid notice of default

54. The loan documents, that is the loan agreement and the General Conditions applicable to it and the mortgage with the memorandum incorporated in it contain many provisions of the kind usually found in such documents, to which it is unnecessary expressly to refer. However, it is necessary to refer to parts of clause 5 of the memorandum incorporated in the mortgage, which is headed "Default".

55. Clause 5.1 of the memorandum provides that "default generally occurs if you fail to do something you are obliged to do, if you do something you are obliged not to do..." and then provides that if any one or more of a number of specified events occur, the mortgagee may decide that default has occurred.

56. Clause 5.2, which is headed "the mortgagee's rights on default" provides in part as follows:-

"At any time after default occurs, the mortgagee can take any of the actions listed below provided notice has been given in accordance with laws governing the exercise of power of sale as mortgagee..."

57. The actions listed below in clause 5.2 of the memorandum include the actions in clause 5.2(b) (i), which provides:-

"Deal in any way the Mortgagee considers fit with the Land....For example, the Mortgagee may:-

(i) eject You or any other occupants from the Land and take possession of the Land..."

58. It was accepted by counsel for Perpetual that clause 5.2 required Perpetual to give notice "in accordance with laws governing the exercise of power of sale as mortgagee", before it could eject Mrs Dilati or any other occupant from the property.

59. The laws governing the exercise of a power of sale by a mortgagee requiring the giving of a notice are to be found in s 57(2) of the Real Property Act. Section 57(2) provides in part as follows:-

" A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if:

(a) in the case of a mortgage or charge, default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or charge or in the payment, in accordance with the terms of the mortgage or charge, of the principal, interest, annuity, rent-charge or other money the payment of which is secured by the mortgage or charge or of any part of that principal, interest, annuity, rent-charge or other money,

....

(b) where:

(i) the default relates to that payment, or

(ii) in the case of a mortgage, the default does not relate to that payment and notice or lapse of time has not been dispensed with under section 58A,

a written notice that complies with subsection (3) has been served on the mortgagor, charger or covenant charger in the manner authorised by section 170 of the Conveyancing Act 1919 ,

...

(c) where such a notice is so served, the requirements of the notice are not complied with within the time notified pursuant to subsection (3) (d)."

60. Section 57(3) of the Real Property Act sets out requirements a notice given under s 57(2) must comply with. It was not suggested that the notice given by Perpetual failed to comply with any of these requirements.

61. In determining the present issue it is unnecessary to refer to s 58A of the Real Property Act but that section will play an important part in the determination of another, separate, issue between the parties.

62. The notice which was given by Perpetual to Mrs Dilati on 17 September 2009 pursuant to s 57(2)(b) of the Real Property Act was in the following terms:-

"DEFAULT NOTICE

Notice pursuant to section 80 of the Consumer Credit Code and section 57(2)(b) of the Real Property Act 1900

To: Marwa Dilati

42 Banksia Road

Greenacre NSW 2190

Facility Perpetual Limited ACN 000 431 827 (formerly Perpetual Trustee Australia Limited) loan agreement

Account Number 37101621

Borrower/s Marwa Dilati of 42 Banksia Road, Greenacre NSW 2190

Security Property 42 Banksia Road, Greenacre NSW 2190

Mortgage AA442117J dated 1 October 2003

Mortgagor/s Marwa Dilati of 42 Banksia Road, Greenacre NSW 2190

Overdue Amount $7,506.68

Enforcement expenses $ 450.00

Account balance $546,500.19 (as at 16 September 2009) including Enforcement Expenses

1. This notice is given by Perpetual Limited ACN 000 431 827 (formerly Perpetual Trustees Australia Limited) of Angel Place, 123 Pitt Street, Sydney in the State of New South Wales ("Perpetual") as credit provider under the Facility and as mortgagee under the Mortgage.

2. The total amount has not been paid as follows:

Account Number Date Due Particulars Amount

37101621 3 August 2009 Outstanding amount $3,753.34

1 September 2009 Outstanding amount $3,753.34

Subtotal $7,506.38

Enforcement expenses $ 450.00

Total amount due $7,956.68

3. An event of default has therefore occurred under the Facility and the Mortgage.

4. The Total Amount Due must be paid to Perpetual no later than 30 days from the date of receipt of this notice. Interest, fees and charges will continue to accrue on this amount until paid in accordance with the terms and conditions of the Facility.

5. Any amount paid which is less than the Total Amount Due, if accepted .by Perpetual, will be accepted without prejudice to its rights under the Facility and the Mortgage.

6. If the Total Amount Due is not paid as required by this notice then (without the need for Perpetual to give further notice):

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 more Enforcement Expenses may also be incurred and added to the Account Balance; and

Perpetual may start proceedings in a court to recover any payment due to Perpetual under the Facility and the Mortgage; and

Perpetual may exercise its power of sale in relation to the Security Property and sell the Security Property, and

Perpetual may exercise all or any of the other rights given by the Mortgagee or the Property Law Act 1974 (as amended).

7. If another default of the same kind occurs during the 30 day period, it may also be the subject of enforcement proceedings without further notice if it is not remedied within this period (unless the law provides otherwise).

8. The giving of this notice shall not in any way prejudice or affect the rights of PERPETUAL to exercise at any time any powers which are by law permitted to be exercised by it prior to the expiration of such period.

Dated: 17/9/2009

For and on behalf of Perpetual Limited ACN 000 431 827

(formerly Perpetual Trustees Australia Limited)"

63. It was submitted by counsel for Mr Khalid that the notice of default which had been given by Perpetual to Mrs Dilati was invalid, because it overstated the amount of the monthly payments and the amount of the account balance. The calculation of these amounts had included the amounts of the two redraws. However, for the purposes of the present application the redraws were to be taken as not having been requested or authorised by Mrs Dilati.

64. In support of a submission that a notice to a debtor may be invalidated by an incorrect statement of the amount due, counsel referred to Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 (Young J, as his Honour then was). At [376-377] Young J said:-

"There have been a series of cases dealing with the significance of a misstatement in a notice under s 111 of the amount which needs to be paid by the mortgagor to remedy his default, see eg Campbell v Commercial Banking Co of Sydney (1879) 2 LR (NSW) 375; Mir Bros Projects Pty Ltd v 1924 Pty [1980] 2 NSWLR 907 and Clarke v Japan Machines (Australia) Pty Ltd [ 1984] 1 Qd R 404. All the relevant cases in this State elsewhere in Australia and New Zealand were reviewed in Clarke's case, and the conclusion reached by the Queensland Full Court (at 413) is:

"... An error in specification of the appropriate sum will not be the end of the matter. A question of fact and degree is involved in every case. The most relevant factors determining validity will be the extent of the error, and the capacity of the notice to give the mortgagor a reasonable opportunity to do what he is obliged to do."

65. Young J's remarks in Manton v Parabolic were clearly dicta. His Honour went on immediately to say:-

"Of course, the line of cases culminating in Clarke's case have little to do with the instant problem".

66. The conclusion reached by the Full Court of the Queensland Supreme Court in Clarke , after a survey of a number of cases, was accurately stated by Young J in Manton v Parabolic . The last New South Wales case referred to in the survey was Mir Bros Projects Pty Ltd v 1924 Pty Ltd in which Powell J held at 925-926 that a notice which must be given to a mortgagor as a condition precedent to the exercise of a power of sale, if otherwise valid, is not invalidated because it includes a requirement to make a payment or to do an act in respect of which payment or in respect of the doing of which act the mortgagor has not made default or because of demands for payment of more than is due.

67. Similar submissions to those made before me were made by counsel for Mr Khalid before the primary judge. The primary judge, without giving reasons, found the submissions to be arguable (at para 31 of the primary judge's judgment).

68. In opposing these submissions by counsel for Mr Khalid, counsel for Perpetual submitted that Mr Khalid did not have any standing to challenge the amounts alleged by Perpetual to be due by Mrs Dilati to Perpetual, particularly when Mrs Dilati herself had not challenged the amounts and had, indeed, by her conduct admitted the amounts to be correct. It was also submitted that, if there had been any overstatement in the notice of the amounts due by Mrs Dilati, that did not invalidate the notice.

69. I do not propose to attempt to resolve the issue of Mr Khalid's standing as an occupier of the property to assert that the amounts claimed in the default notice from Perpetual to Mrs Dilati were incorrectly stated. This seems to me to be an arguable issue unsuitable for resolution in a proceeding of the present kind. I will, however, seek to resolve counsel for Perpetual's second submission.

70. As to the effect of any incorrect statement of the amount alleged to be due in a notice required by legislation such as s 57(2) of the Real Property Act I have already referred to Manton v Parabolic, Clarke v Japan Machines (Australia) Pty Ltd and Mir Bros Projects Pty Ltd v 1924 Pty Ltd .

71. After the decision in Clarke v Japan Machines (Australia) Pty Ltd, although before the decision in Manton v Parabolic , the High Court handed down its decision in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1983-1984) 153 CLR 491. In Bunbury Foods the Bank had given a notice to a company indebted to the bank. The notice did not specify the amount due and the Bank later sent a letter to an officer of the company giving details of the debt, which overstated the amount due.

72. At 503-504 a unanimous High Court said:-

"It is of some materiality to note that it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt. Even a notice given to the mortgagor by the mortgagee as a condition precedent of a power of sale is not rendered invalid because it demands payment of more than is due".

73. Among the authorities cited by the High Court as supporting this statement of the law was Mir Bros Projects Pty Ltd v 1924 Pty Ltd .

74. Bunbury Foods has been consistently followed by New South Wales courts. In Notaras v Sly & Weigall [2005] NSWCA 275 Mason P, with whose judgment the other members of the Court agreed, said in part at [73]:-

"...an overstatement in the amount asserted to be payable does not invalidate a s 57 notice ( Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491 at 504; Websdale v S & JD Investments Pty Ltd (1991) 24 NSWLR 573 at 578-9; Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,529 and 13,532-3). Aliter , if a non-existent default is specified ( Websdale at 578)."

75. There is no suggestion in the present case that there had not been some default in the payment of money on the part of Mrs Dilati.

76. Counsel for Mr Khalid referred to Cosmedia Productions Pty Ltd v Australia and New Zealand Banking Group Limited (Federal Court of Australia Sheppard J 22 January 1997) in which Sheppard J stated that the law in the area of the statement of the amount of an indebtedness in a demand is "not settled". However, the only two authorities (apart from textbook writers) actually referred to by Sheppard J were Bunbury Foods and Bond v Hong Kong Bank of Australia Ltd (1991) 25 NSWLR 286 . In Bond v Hong Kong Bank of Australia Ltd Bunbury Foods was referred to by Gleeson CJ at 294 and by Kirby P at 316 but no doubt was cast by either judge on the part of the judgment of the High Court in Bunbury Foods which I have quoted.

77. I am, accordingly, of the opinion that, even if the amount due was overstated in the notice of default, there is no arguable defence that the overstatement of the amount invalidated the notice.

78. Even if the effect of an overstatement of the amount due on the validity of a notice to a debtor was a question of fact and degree, what the present notice required was payment of two amounts of $3,753.34 together with enforcement expenses, not payment of the asserted account balance of $546,500.19. I note that under the loan contract the amount of the first monthly payment was to be $3,722.08. I do not consider that it would be arguable that any error in the determination of two such small amounts would be sufficiently substantial to warrant a finding that the notice was thereby invalidated, even assuming, contrary to what I have decided, that it was arguable that an overstatement of the amount due is capable of invalidating a notice.

Whether Perpetual would be entitled to possession without any need to give a notice of default

79. My conclusion that any overstatement in the default notice of the amounts due did not invalidate the notice is sufficient to dispose of the appeal. However, I will also consider a submission made by counsel for Perpetual that Perpetual would be unarguably entitled to possession on a basis which would not require Perpetual to have served any default notice, so that any error in the default notice served would be immaterial.

80. It was submitted by counsel for Perpetual and not disputed by counsel for Mr Khalid, that by selling the property to Mr Khalid, without obtaining Perpetual's written consent, Mrs Dilati had committed a default under the memorandum incorporated in the mortgage (clause 3.6(e), clause 5.1(b) and (e) of the memorandum).

81. A default having occurred, Perpetual under clause 5.2 of the memorandum could eject Mrs Dilati and any other occupant and take possession of the property, "provided notice has been given in accordance with laws governing the exercise of power of sale as mortgagee".

82. Earlier in this judgment I set out the provisions of s 57(2) of the Real Property Act. I will now set out the provisions of s 58A(1) of the Act.

"Any notice or lapse of time prescribed by section 57 (not being notice or lapse of time relating to default in the payment, in accordance with the terms of the mortgage or charge, of any principal, interest, annuity, rent-charge or other money) may, by agreement expressed in the mortgage or charge, be dispensed with, and in such case section 58 shall operate as if no notice or lapse of time were thereby required."

83. It was submitted by counsel for Perpetual that a default constituted by the selling of the property to Mr Khalid without obtaining Perpertual's prior written consent was not a default in the payment of any money the payment of which was secured by the mortgage and, hence, the requirement to give a notice under s 57(2) could be dispensed with by an agreement within s 58A. It was contended that clause 8.2 of the memorandum incorporated in the mortgage was an agreement that the notice prescribed by s 57(2) be dispensed with and, accordingly, no notice was required under the laws governing the exercise of a power of sale as mortgagee.

84. Clause 8.2 of the memorandum incorporating the mortgage is in the following terms:-

"There may be some statutes (ie. laws passed by parliament) or other law (usually called the common law) intended to limit mortgagees' rights. Subject to clause 8.9, 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 to 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. If any of the provisions of the Mortgage are illegal or become illegal at any time, the affected provisions will cease to have effect, but the balance of the Mortgage will remain in full force and effect."

85. Counsel for Mr Khalid pointed out that this basis on which Perpetual was claiming to be entitled to possession without having to give a notice, had not been put to the primary judge and had not been pleaded in Perpetual's statement of claim.

86. As I am now exercising my own discretion, as distinct from simply reviewing the exercise by the primary judge of her discretion, I can entertain counsel for Perpetual's submissions, even though they were not put to the primary judge. It is true that this basis on which Perpetual might be entitled to possession was not pleaded in the statement of claim. However, it was fully argued before me and I consider that it is properly before me. I grant Perpetual leave to make the necessary amendments to its statement of claim.

87. The principal submission made by counsel for Mr Khalid was that clause 8.2 of the memorandum incorporated in the mortgage was not an agreement dispensing with notice within s 58A of the Real Property Act . Counsel for Mr Khalid relied particularly on the judgment of Giles J (as his Honour then was) in Farrow Mortgage Services Pty Ltd v Ragata Developments Pty Ltd (1993) 32 NSWLR 333.

88. In Farrow the two clauses in the relevant memorandum which were sought to be relied on as dispensing clauses within s 58A were clauses 40 and 42, which were in the following terms:-

"40. Upon default being made by the Mortgagor, in payment at the respective times and in the manner herein mentioned, of the principal sum or any part thereof or of the interest thereon or any part thereof or of any other moneys owing and secured hereunder, or upon default being made or breach occurring in the observance or performance of any of the provisions, agreements and covenants on the part of the Mortgagor herein contained or implied, the Mortgagee shall (notwithstanding any omission, neglect or waiver of the right to exercise any or all of such powers on any former occasion) be at liberty to exercise any or all of the powers of a Mortgagee under the Real Property Act , 1900 and the Conveyancing Act, 1919 and in addition the same powers in respect of any default whatsoever in the observance or performance of any such covenants as those given to a Mortgagee under Section 60 of the Real Property Act, 1900 . The said powers may be exercised immediately upon or at any time after default as hereinbefore mentioned, without the necessity of giving the Mortgagor any notice whatsoever (except as may be required by the said Acts or otherwise)."

"42. The principal sum together with interest and all other moneys owing and secured hereunder shall, at the option of the Mortgagee (and notwithstanding any delay or previous omission, neglect or waiver of the right to exercise such option), become immediately due and payable without any demand or notice, and this security shall become immediately enforceable, upon the happening of (inter alia) any of the following events..."

89. In his judgment in Farrow Giles J referred to the decision of the Court of Appeal in Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 in the following terms:-

"In Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363, it was argued that the appointment of receivers was ineffective because, amongst other reasons, the money secured under the deed of charge had not become payable. The deed of charge included a condition:

"F. That notwithstanding that a receiver may or may not have been appointed as aforesaid the mortgagee shall have the right at any time after the moneys hereby secured have become payable without any consent on the part of the mortgagor and without the necessity for any demand or notice to exercise all or any of the powers authorities and discretions conferred on the receiver by these presents. ..."

The defaults on which the appointor relied were non-monetary defaults. McHugh JA, with whom Glass JA agreed, said (at 384) that "the mortgage had dispensed with the requirement of a notice under s 111(3) (Condition F)". His Honour went on to hold, differing in the result from Kearney J at first instance, that the default in the non-monetary covenants could and did enliven an immediately effective power of sale and that the money secured had become payable.

This must have turned upon the words in condition F, "without the necessity for any demand or notice", and Farrow submitted that the case demonstrated that general words can constitute a dispensation by agreement expressed in the mortgage, and supported the adequacy of the concluding sentence of cl 40 (albeit subject to the effect of the words in brackets) or the introductory words in cl 42.

The dissent of Priestley JA in Isherwood v Butler Pollnow Pty Ltd did not involve any view in relation to dispensation, but his Honour did question (at 381) "whether the assumption that the dispensation clause was effective was a sound one". From his Honour's remark that the point was "not discussed before us in any way", and from Kearney J's bald statement (at 371) that each of the deeds of charge in question contained provisions dispensing with notice or lapse of time, it seems that the matter was not argued. What McHugh JA said must be viewed accordingly."

90. In his judgment in Farrow Giles J also referred to the decision of Hodgson J (as his Honour then was) in Abalcheck Pty Ltd v Pullen (Hodgson J 26 June 1990) in which Hodgson J, with some reluctance, followed the majority of the Court of Appeal in Isherwood . In that case the clause submitted to be a dispensing clause within s 58A of the Real Property Act was in the following terms:-

"19.1 At any time after this Charge becomes enforceable and from time to time thereafter and notwithstanding that a receiver may or may not have been appointed as aforesaid the Lender without giving any notice shall have and shall be entitled to exercise the same powers authorities and discretions as a receiver would have had and been entitled to exercise if such receiver had been appointed under this Charge...."

91. At pp 340-341 Giles J said:-

"For reasons which will appear, unlike Hodgson J, I do not think that I am bound by what was said by McHugh JA in Isherwood v Butler Pollnow Pty Ltd , although of course I pay regard to the view upon which his Honour seems to have proceeded. I would respectfully agree with the view which Hodgson J apparently held, but did not feel able to apply, that there should be something in the mortgage directed to dispensation with the notice or with the lapse of time otherwise required by s 57 or s 111, from which it can be seen that the parties had the requirements of those sections in mind rather than a general exclusion of notice which might apply to notice of some other kind. The statutory scheme, by which the mortgagor must be given a period of grace in which to remedy his monetary default and is to be given a period of grace in which to remedy his non-monetary default unless he has "by agreement expressed in the mortgage" dispensed with provisions intended for his protection, would seem to require a relatively clear agreement, although, of course, that does not mean there has to be unmistakable recitation of the provisions in question. Given that the notice required by s 57(3) and s 111(3) is of a particular kind, identifying the default, giving a period to rectify it, and stating that the power of sale can be exercised if the default is not rectified, the need for some relatively clear agreement seems to me to follow. A notice of that kind can be a very different thing from simply informing the mortgagor that the mortgagee has elected to exercise the power of sale or, being free to do so, will exercise it at some particular time."

92. Giles J proceeded to hold that neither clause 40 nor clause 42 amounted to a dispensing agreement within s 58A of the Real Property Act . His Honour said:-

"It seems to me where there is such a general doing away with notice applicable to a host of powers arising on default said to be exercisable at any time (from which it might be thought that some notice of when any was proposed to be exercised might be called for), followed by an equally general saving of notice required by law, there is not any agreement to dispense with the particular kind of notice with which an agreement allowed by s 58 A must deal. Reading the provisions together, in my opinion there is recognition of the continued application of a requirement of notice, such as that in s 57(2)(b), and in this respect cl 42 is to be distinguished from condition F in Isherwood v Butler Pollnow Pty Ltd ."

93. It was submitted by counsel for Mr Khalid that clause 8.2 of the memorandum in the present case was similar to clause 40 in Farrow .

94. In Notaras v Sly & Weigall the provisions in the memorandum asserted to be a dispensing agreement within s 58A of the Real Property Act were as follows:-

"18.2 Upon the occurrence of an Event of Default, the Mortgagee may in its absolute discretion and at any time and from time to time and without giving any notice to the Mortgagor, do all or any one or more of the following in such manner as the Mortgagee shall think fit -

18.2.1 sell the mortgaged premises ..."

95. In para 83 of his judgment Mason P said in part:-

"Clause 18.2 with its reference to exercise of rights "without giving notice to the Mortgagor" appears to have been drawn with s 58A in direct contemplation. Clause 18.2 was not materially different from the provisions upheld by the Court of Appeal in Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 and by Hodgson J in Abalcheck Pty Ltd v Pullen , 26 June 1990 unreported."

96. In para 84 of his judgment Mason P said:-

" The appellants placed considerable reliance upon the reasoning of Giles J in Farrow Mortgage Services Pty Ltd v Ragata Developments Pty Ltd (1993) 32 NSWLR 333. Although the case was decided after July 1992 it was said to be a pointer to difficulties that the Bank would have encountered in 1992 if it had invoked s 58 A. However, the clauses in the Farrow mortgage were decidedly ambiguous as to intent to invoke the right conferred by s 58 A. The mortgagee was empowered to exercise its power of sale without the necessity of giving notice to the mortgagor, but there was an express saving in relation to notice "as may be required by the [ Real Property Act or Conveyancing Act ] or otherwise" and of notice "as is required by law". These provisions were seen by Giles J to distinguish the mortgage from that addressed by the Court of Appeal in Isherwood and by Hodgson J in Abalcheck . Giles J correctly interpreted Isherwood as establishing that it was not essential for there to be express recitation of s 57 of the Real Property Act or s 111 of the Conveyancing Act for the relevant provision to be displaced. What was needed was a relatively clear agreement that the protection had been bargained away. In my opinion, the instant provision did so."

97. In my opinion, clause 8.2 in the present memorandum is clearly a dispensing agreement within s 58A. Unlike the clauses in Farrow , clause 8.2 expressly refers to a mortgagee's power of sale. Accordingly, even adopting Giles J's reasoning in Farrow , there is something in the mortgage directed to dispensation with the notice otherwise required by s 57, from which it can be seen that the parties had the requirement of s 57 in mind, rather than simply a general exclusion of notice. Adopting the test stated by Mason P in Notaras v Sly & Weigall , there was a relatively clear agreement that the protection had been bargained away.

98. Unlike the clause in Farrow , clause 8.2 is to apply so that the mortgagee's rights would not be limited "unless by law those rights cannot be negated".

99. I uphold counsel for Perpetual's submissions and on this basis also hold that Mr Khalid does not have any arguable defence to Perpetual's claim to possession.

100. I conclude that the appeal by Perpetual should be allowed and the orders made by the primary judge should be set aside, that is the orders that the default judgment for possession be set aside and that Mr Khalid be joined as a second defendant.

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