Bidmonta v McMillan [2010] NSWSC 580

The second defendant (“Mr McMillan”) caused $127,000 to be borrowed for three months from Bidmonta at 15 percent per month interest, reducing to 10 percent per month if promptly paid. Mr McMillan used his mother’s home at Mt Druitt as security for the loan. He signed the mortgage and related documents. He was unable to repay the loan. He gained an extension of time by signing his name to the mortgage as guarantor. The memorandum incorporated into the mortgage a term that he agreed to mortgage any real property he owned, which included two properties he owned with his wife.

His rights and obligations as guarantor were not explained to Mr McMillan and he was not provided with a copy of the memorandum in breach of the Consumer Credit Code.

The loan was not repaid and proceedings were commenced against Mr McMillan and his mother, for possession of the three mortgaged properties and an order for payment of the sum of $273,616. One of the properties was sold by the mortgagee in possession and the mortgage over it was discharged, with the surplus funds placed in a controlled money account. 

To set aside the default judgement is was necessary for Mr McMillan to show he had an arguable defence. His defence was based mainly on the Consumer Credit Code as follows:

(a) the guarantee was unenforceable by reason of a failure of the plaintiff to comply with s 51 of the Code;
(b) clauses 101 and 102 of the memorandum incorporated into the mortgage were rendered void by s 40 of the Code;
(c) the transaction was unjust and liable to be set aside or varied under ss 70 or 71 of the Code as: 

  • a copy of the memorandum containing cls 101 and 102 was not provided or explained to the second defendant;
  •  the rate of interest was penal and was capitalised if unpaid;
  • the second defendant’s financial situation was known to the broker;

(d) The Consumer Credit Code applied to the transaction because the borrower was an individual, a charge was made for the provision of the credit and the credit was provided in the course of the business of the credit provider, and

  • there was a statutory presumption that the funds would be used for personal, domestic or household purposes unless the contrary was established;
  •  the funds in fact were used for personal, domestic or household purposes;
  •  the declaration of purpose to the contrary was not effective as:
             1. it was not signed by the first defendant; and/or
             2. the broker, through whom credit was obtained, knew the purpose of the loan was personal, domestic or household.

Justice Hislop found there was an arguable defence and a sufficient explanation for delay which rested largely with Mr McMillan’s legal representatives. Default judgement was set aside and Mr McMillan allowed to defend the proceedings. 

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