Introduction
In two recent decisions, the NSW Supreme Court set aside default judgments for possession and debt in Commonwealth Bank of Australia v Wales [1] and Commonwealth Bank of Australia v Larsen [2], despite the customers’ failure to demonstrate a defence on the merits, because:
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on the evidence the bank has inadequately dealt with the defendant’s claim for hardship where the defendant had sought, in good faith, to invoke the National Credit Code ("NCC") hardship remedies; and
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the bank had also failed to give notice of its intention to seek default judgment.
The NCC allows a debtor in financial hardship to apply to the credit provider to change the terms of the credit contract to enable the debtor to discharge his or her obligations under the credit contract.
The decisions
In both cases, the Court thought that it was appropriate to set aside default judgment where the debtor:
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appeared to be eligible to make an application to change the terms of the credit contract on the grounds of hardship;
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had telephoned the bank to discuss these circumstances, which arguably amounted to them being in financial hardship;
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was not directed by the bank officer to the bank’s formal hardship application procedures;
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took steps to rectify default, but subsequently defaulted under the terms of the credit contract;
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was notified over the phone that the bank would continue with its enforcement action, but was not otherwise given notice of the bank’s motion for default judgment; and
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conceded there was no defence on the merits to the bank’s claim for possession and debt.
Proposed hardship amendments
Parliament is currently considering amendments to the NCC hardship provisions which, if passed, will from April 2013:
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extend remedies under the NCC hardship provisions to credit contracts exceeding $500,000;
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remove limitations as to the form of a request for a hardship variation;
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introduce a new section which provides that:
- a customer may notify the credit provider of their inability to meet their repayment obligations;
- the credit provider is prevented from commencing enforcement proceedings for 10 days after the credit provider’s written response to the customer’s notification;
- the restriction on the credit provider does not apply if the customer has provided another notification in the 3 months prior to the current notification; and
- the credit provider is entitled to take possession of mortgaged goods if the goods will otherwise be damaged or disposed of.
Conclusion
These decisions demonstrate that the Court will ensure strict compliance by credit providers with a customer’s right to make an application for hardship. Also, that the Court is willing to set aside a default judgment, despite there being no defence to the claim, to ensure proper consideration is given by a credit provider to whether a customer qualifies for relief on the grounds of financial hardship.
For more information, please contact:
Emma Hodgman | Partner
T +61 2 8233 9650
F +61 2 8233 9555
Footnotes
2. [2012] NSWSC 408
