Consumer Credit – defects in a default notice

There has been another recent decision where a court held that a defect in a consumer credit notice does not render the notice invalid, and authorisation to commence proceedings can be given retrospectively.

Introduction

We recently issued an alert in respect of a decision of the Victorian Supreme Court in  Silberman v Citigroup Pty Ltd [2011] VSC 514 regarding defects in a consumer credit default notice. Subsequent to that decision, the New South Wales Court of Appeal recently came to the same conclusion as the Victorian Supreme Court in Monas v Perpetual Trustees Victoria Limited [2011] NSWCA 417. The Court of Appeal held that non-compliance with s80 of the Consumer Credit Code (Code) (now sec 88 of the National Credit Code), did not amount to a failure of a condition precedent to litigation.

In particular, failure to state in the notice that a subsequent default of the same kind that occurred in the period given to remedy the default might be the subject of enforcement proceedings without further notice, did not affect the validity of the notice. Authority was granted retrospectively by the Court to begin the enforcement proceedings pursuant to s80(4)(c) of the Code. 

First instance

Perpetual commenced proceedings for debt and possession. Ms Monas defended the proceedings on the basis that the default notice did not comply with s80 of the Code, and also that the loan agreement was unjust and should be reopened under ss70 and 71. Relief was also sought under the Contracts Review Act (NSW) 1980.

The Court held that the default notice was valid, and that a failure to comply exactly with the requirements of s80 of the Code did not make the notice void. The Court could exercise its discretion to allow the proceedings to continue despite procedural irregularity, and accordingly, leave was given to proceed ‘nunc pro tunc’ and an order for possession was made.

On appeal

Ms Monas appealed the decision. The issues on appeal were:

• whether the s80 notice was adequate and complied with the Code
• if it was not adequate, what were the consequences of non-compliance
• whether there is a power under the Code to grant leave to commence proceedings retrospectively if there was non-compliance. 

Ms Monas argued that the absence of the wording: “a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period,” might result in the ‘borrower reasonably assuming that if there is a subsequent default, there would need to be a new notice and the borrower would be given a further 31 days to remedy the subsequent default’.

Ms Monas also argued that as s80(1) states that a credit provider must not begin enforcement proceedings, this showed that the legislature intended that the requirements of s80(3) were mandatory.

The Court of Appeal noted that provisions in legislation to protect borrowers requiring a lender or lessor first to give a notice before taking enforcement action are not new. Such notices are valid so long as they reasonably convey to the recipient the message that the section intends the borrower to receive, and the borrower is not misled.

The Court noted that s80 provides criminal sanctions, and s114 allows the Court to order the credit provider to make restitution. Therefore, these consequences suggest against an interpretation which would impose further consequences.

Further, the Court considered s80(4)(c), which provides that a notice is not required where the court authorises the credit provider to begin the enforcement proceedings. The question was whether the court must give that authorisation before the action begins, or whether it can be given retrospectively. The Court of Appeal held that authority can be given retrospectively.

Conclusion