'PRINCIPLE WRONG'

Evening Post, Volume CXXII, Issue 56, 3 September 1936, Page 14

'PRINCIPLE WRONG'

THE MORTGAGE BILL

CRITICAL EXAMINATION

CHAMBERS' REPORT

With the assistance of members of the special committee of different interests and organisations which examined the 1934-35 nelief legislation, the Associated Chambers of Commerce has carefully considered the Mortgagors and Lessees- Rehabilitation Bill, arid makes the'following statement:— "We see no reason to depart from the view we expressed when the 1934-35 Bill was'under consideration, namely, that legislation of this type'is wrong-in principle. The application of the Bill to mortgages executed since April 1, 1932, is! ijhe most objectionable: feature of the Bill. By comparison, the South Australian Parliament is on the point of repealing the mortgage relief legislation in force in that State. "Our observations on the new Bill are all made subject to the reservation above stated, with the desire to assist the Government to make the new Bill as workable as possible. "Relief legislation having been introduced over ;a year ago in favour of one class of mortgagor, we appreciate that it is only logical now to give other classes of mortgagors similar privileges. ; The privilege given last year to farmer mortgagors to secure a final adjustment of their liabilities has expired arid there does not seem to be any strong; reason why that class of mortgagor should be given a further opportunity of applying for relief. We think it is an established fact that every farmer mortgagor who considered himself in any way entitled to a measure of relief, filed an application under the 1934-35 Act, although in a number of cases these applications have not in the meantime been proceeded with. There does not appear to be any real need to invite farmer mortgagors, who have not hitherto applied for relief, now to make applications for relief. "On behalf of mortgagees generally, we would like to ask whether the Government can now give an assurance that the present Bill represents the final measure of relief which will be afforded to mortgagors. So long as relief legislation is in force, or there is a possibility of further legislation of this type being introduced into Parliament, there is a natural disinclination among investors to advance money on mortgage. It is, we think, in the best interests of the Dominion as a whole that a definite pronouncement be now made that the Government does not,, intend to renew the present Bill after its present expiry date, or to introduce next session further relief legislation. Will the Minister give such an assurance? APPLICATION OF THE BILL. "By Clause 6 it is declared that all mortgages executed prior, to the Bill becoming law shall be subject to its provisions. Such a wide scope is neither equitable nor necessary. As the proposals contained in the Bill are to supersede the provisions both of the Mortgagors Relief Act, 1933, and the Rural Mortgagors Final Adjustment Act, 1934-35. it is reasonable that all securities at present subject to these enactments should come within the scope of the legislation now proposed. It is quite unreasonable that a security given within the last few days in respect ofia new loan should be reviewed and the; mortgagee's principal possibly written down. ■It is ■ grossly. unfair to make this legislation apply to contracts entered into since April 1, 1932. "Under the 1934-35 Act there have been a number of voluntary settlements arranged' under supervision of an Adjustment Commission, and approved by the Court of Review. The terms of these settlements have been given effect to—in some cases a lender has advanced money to the mortgagor to enable him to complete the arranged settlement with his creditors. It appears to us quite unnecessary and most unjust to give such a mortgagor the right to apply again for relief, and in effect ask the Court of Review to say that a settlement which it approved only recently was inequitable. "Clause 8 of the Bill makes the Bill apply to all leases that were executed before the passing of the Bill, and to all leases that have been executed in renewal of such leases. We consider the wording should be: 'All leases that have been executed in pursuance of a right of renewal contained in an earlier lease.' We think that new leases granted since April 1, 1932, should be excluded from the operation of the Bill. COURT OF REVIEW AND ADJUSTMENT COMMISSIONS. "It is proposed to terminate the appointments of two of the three members of the Court of Review, and of all present members of Adjustment Commissions. (It is true that all these gentlemen are eligible for reappointment). We would point out to the Minister that .many of those who will be applicants for relief under the new legislation have already applied for relief under the existing law. In the majority of cases their affairs have already been investigated by Adjustment Commissions. "It appears to us to be nothing less than a disaster if the experience gained over a period of years by the present members of adjustment commissions, and their intimate acquaintance with the circumstances of various applicants, may be lost as a consequence of the Government not reappointing at least the majority of those who have been administering the present legislation. EVIDENCE AND APPEALS. "We regret to see that in two respects the Bill proposes to depart from oldestablished and well-tried principles of British justice. Under clause 18 the Court is authorised to receive any statement, document, or information as evidence although such would not be admissible in a court of law. The rules of evidence in force in all our other courts have been the result of centuries of experience. "Clause 22 declares that no appeal shall lie from any order of the Court of Review. We are aware that a similar provision appears in the 1934-35 Act, and when that measure .was before Parliament we protested strongly against the violation of the constitutional right of appeal. "It is not as though all matters coming before the Court of Review were comparatively trifling. Cases have been dealt with under the existing legislation involving very large sums—as much as £100,000 and over. In any ordinary litigation involving but a fraction of this amount, the parties, as of right, may carry an appeal from an adverse decision not merely to our own Court of Appeal but also to the Privy Council. Not only so, but in any such litigation the strict rules of evidence are applicable. "We protested recently against similar provisions in another Statute. The modern tendency to refuse the usual rights of appeal, and to permit the admission as evidence of matters not admissible in a court of law. is greatly to be deplored. The foregoing comments apply also to sub-section 2 of clause 28. "We doubt whether It Is necessary (as provided in clause 29 (2)) to make use of the post office as a place for filing applications. This is an entire-

ly new development in Court procedure. . "Copies of the statements of assets and liabilities should be served on the interested parties—not merely a copy of the application as proposed in subclause 4 and sub-clause 3 of clause 30, and the same should apply to amended statements filed under clause 32. "In sub-clause 5 of this clause there should be a proviso that whatever has I lawfully been "done .by a mortgagee shall not be prejudiced. "Regarding Clause 31 (2) we think a right of relief should not be granted ' in respect of mortgages not subject - to the Rural Mortgagors Final Adjust- - ment Act, 1934-35, but if this sub-clause , is retained, it should be qualified by I requiring that regard must be had to - recommendations previously made by - adjustment commissions, orders of the , Court of Review, and voluntary settle-. : ments entered into pursuant to that 1 Act. . . ■•'•"■ '. ' 2 VALUATIONS AND ASSESSORS. j "We suggest that- when -the Court i of Review is dealing with questions > of valuations, a 'right of appointing > assessors: should 'be conferred as was " done by section 56, sub-section 4, of I the 1934-35 Act. This is the accepted :. method of dealing with valuation ' questions for all other purposes, as, 1 for instance, under the Public Works ! Act. t "On the question of valuation, the 1 Court should be enabled to take into account any neglect by the mortgagor which has resulted in the mortgaged I property becoming unnecessarily de- > preciated. Cases are not unknown I where mortgagors have deliberately or negligently failed to effect essential - repairs. , "We consider that when rates of interest are fixed by order in council ' for the purposes of clauses 39 and 43, \ the rates fixed for payment of inter- , est should be the same rate as is used for capitalisation purposes. - SUBSEQUENT SALES BY MORTGAGORS. "The provision that after adjustment the moneys secured on mortgaged property may be made repayable on a sale of the relative property by the applicant, should, in our opinion, be mandatory instead of permissive. We think the Government should consider giving creditors some further payment if, after adjustment, a property is within say five years sold at. a'price in excess of the valuation on which the adjustment was based. It would be quite reasonable and only bare justice for 50 per cent, of any such surplus to be paid to the creditors, as was provided in the 1934-35 Act. The mortgagor's title should be caveated. "We consider that when dealing with leases, covenants by the lessee, other than the covenant to pay rent, should not be interfered with, that is, that valuations in rent should be the only matter dealt with by the Commissions and the Court. SALES BY ADJUSTMENT COMMISSIONS. "Clause 46 empowers the Adjustment, Commission to make an order for the sale of any property of ■ an'"" applicant, in certain cases.' The clause should, in our opinion, include some provision enabling the Court of Review to make an order for the mortgagor to give up possession of the relative property. As the clause stands, if the mortgagor is recalcitrant and refuses to go out of occupation, it will apparently be necessary to commence an action for possession in the Supreme Court, with the attendant expense and delay. "No stamp duty should be charged on transfers executed under Clause 47. Clause 72 exempts from duty most of the documents required under the Bill. Transfers should be added to the list in this clause. ABANDONED PROPERTIES. "As the expressed purpose of the Bill is to retain worthy mortgagors in occupation' of the mortgaged properties, we consider that clause 48 (which makes an "adjustable dj^bt" of moneys secured on an abandoned, property) should authorise the mortgagee of a property, when the mortgagor has abandoned it, to proceed with all or any of his rights, power, and remedies. In any event, when the mortgagor has abandoned a property, there is no equity in the proposal that the mortgagee should be treated as an unsecured creditor and ranked pari passu with those other creditors who have never held any security. We consider this' clause quite unnecessary and unfair. "In any case where a mortgagor has financial expectations ■ from outside sources, we consider that those should be among the matters considered by the Commission in terms of the proviso to sub-clause 3 of clause 49, with regard to orders for the payment of adjustable debts. ADVANCES FOR FARMING EXPENSES. "The power conferred by clause 30 to order repayment of advances (made in anticipation of seasonal returns coming to hand) for purchases of seeds, manures, etc., should be extended to cover storekeepers, and merchants who have supplied seeds, manure, or stock within 12 months 'before the passing of the Act. It seems to us only logical that the • supplier of these commodi % ties should be treated as a preferential creditor, when a lender for that purpose is so treated. We think that any preference granted should be as against income only, and that the reference to' the giving of security in this section should be deleted. INCREASING FARM PRODUCTION. "The principle of clause 52 (enabling the provision of moneys for increasing the productive capacity of farm lands) is, we think, vicious. The bulk of the expenditure contemplated by this clause will no doubt be for top-dress-ing. Such expenditure, in our opinion, should be treated as a charge against income and not as a capital expenditure. In any event, a first mortgagee should not be summarily relegated to an inferior position. "Clause 53 provides that relief of a mortgagor or lessee is not to relieve a guarantor. The clause should make it quite clear that any concession or relief granted to a principal debtor should not enure for the benefit of the guarantor. We consider there should be no interference in the contract between a guarantor and the principal creditor unless the guarantor himself specifically applies for relief; in that event, he should furnish the same information regarding his assets and liabilities as must a mortgagor applicant. RESTRICTIONS ON CREDITORS. "Clause 55, as drawn, is extraordinarily wide, in its limitation of creditors' rights until December 31. In actual practice it means a debtor's holiday until December 31. While we appreciate that when an application for relief is pending, legal proceedings against the applicant should be stayed, this clause provides that no legal action can be taken against any debtor who is a mortgagor. In effect, no trader can safely take action against any person indebted to him unless and until he has ascertained that that person is not a mortgagor. It is surely not the intention of the Minister to suspend until the end of the year all civil proceedings in the Supreme Court and the Magistrate's Court? "With regard to clause 56 (giving power to the Court to reopen transactions in certain cases where creditors have exercised their rights) and also as regards clause 58, there should be a proviso saving the rights of third parties, similar to the saving provision in the 1934-35 Act. "Clause CO, which provides that an application for adjustment is not

affected by the death of the applicant, should not be indefinite in point of time. The Bill is to protect mortga-' gors in occupation of their properties. It is quite unnecessary to make provision to cover cases in which the mortgagor is dead and there is neither child nor widow living on or dependent upon the mortgaged property. . PUBLICITY. ; "We recently called the Minister's attention to certain disadvantages arising from the lack of publicity attaching to applications for relief under the 1934-35 Act. It has happened, through inadvertence on the part of.a. mortgagor or possibly an officer of the Court of Review, that the affairs of a mortgagor have been/dealt with without any notices being given to one or some of his creditors. Not only so, but cases have,, arisen' where mortgagors have quite improperly obtained credit from an innocent party while subject to a stay order, or have represented untruly that a stay order has been made in order to delay and possibly defeat a creditor wh6 proposed to take action . for recovery of his. debt. We appreciate^ the inclusion of clause 64 in the present Bill, ;wtiich provides for publication in the Gazette of lists of applicants for adjustment,, but would suggest that it be made mandatory in form rather than permissive. Under the Bankruptcy Act, Section ,52 (2), notices, of, every adjudication arid of the date thereof must be advertised forthwith by the Assignee. We would suggest that clause 64 be couched in somewhat similar language, ■so that a creditor whose; claim might quite inadvertently have been overlooked by a mortgagor when compiling his statement of liabilities, would have an opportunity of discovering that the mortgagor's affairs were to be investigated by the Adjustment Commission. NOTICE TO PARTIES. "One of the principles of British justice is that no one's case should be adjudicated upon without his having an opportunity of being heard. Subclause 2 of clause 69 violates this by providing that the Court and the commissions may on their own initiative,. and with such notice as they think fit, possibly without notice, exercise their respective jurisdictions. No decision should be made by a Commission or the Court until those to be affected thereby have been heard. "Concerning clause 43 (for the enforcement of orders) these orders should be enforceable without the payment ofany further fees; "The prohibition imposed by clause 77 against parties contracting out of the Statute should be modified. It is one of the basic principles of our law that a person may waive any right introduced for his own benefit. It would not be unreasonable to modify this clause by prefacing it by the words, 'except with the prior consent of an adjustment commission.' REDUCTION OF INTEREST. J "Clause 78 empowers the mortgagor to declare his own rate of interest to the mortgagee. We think it should not be possible for .• a mortgagor to nominate a rate which is , absurdly low, as, for ■ instance, one farthing per cent. A minimum rate should be stated, say 4£ per cent. "In connection with clause 83 (providing for. the continuance of stay orders and surplus sharing schemes until December 31) we would point out that all these arrangements are for periods of twelve calendar months, terrnihating usually on or about June 30. In many cases farmers, other than dairy farmers, will have, by December .31, little or nothing of this season's revenue. The status; quo in these cases should continue until June 30, 1937* and this should be definitely provided for in this clause. "It.-appe.ars to us illogical that while in the case of a farmer applicant all his liabilities are dealt with by the commission and the Court, the home mortgagor's total liabilities do not necessarily come before the commission. Accordingly, a mortgagee of a home may have his debt extinguished, while the unsecured creditor of that applicant is free to exercise his remedies in full. Any reduction in the mortgage debt on a home should rank pari passu with the mortgagor's other liabilities. •'lt should be provided that when a mortgagee shows to the Court that in all the circumstances of the particular case the application of this Act will impose greater hardship on the mortgagee than upon the mortgagor, in such case the Act shall only apply to the extent that the Court may in such case order and direct, notwithstanding anything to the contrary contained in the Act. "There are old age pensioners and others in frugal circumstances whose rights ought to be given more con-' sideration than the Act appears to give."