Capital Finance Australia v Smith [2009] NSWSC 249

This case clearly demonstrates why it is important to use experienced lawyers when enforcing your mortgage. Bransgroves always tell lenders that unless a borrower is self-represented never bring an application for summary judgment. The futility of doing so is clearly attested to by the results achieved by everyone who does (in this regard visit see our website / mortgage case law / summary judgment).

Preparing for a summary judgment application is almost as time consuming and costly as preparing for a full blown trial. The difference is that with a full blown trial you at least get closure. With a summary judgment application, if you lose, you end up back where you started having wasted 6-12 months.

Lenders always lose applications for summary judgment when the borrower is represented. This is because a clever lawyer can always think of an arguable defence to amend even the most futile pleadings. Thus the summary judgment motion is typically met by, and heard concurrently with, a motion by the defendant to amend the defence. When this happens the lender inevitably fails.

In this case proceedings were commenced in January 2008. Instead of pushing the matter to an immediate hearing, which would have been concluded within a year, the lender’s solicitors took issue with the defence and forced the guarantors to amend it. Not happy with the amended defence they then brought a summary judgment application in September 2008. As is typical, this took 8 months to be heard. As is typical, the guarantors sought leave to amend their defence. The proposed further-amended-defence alleged a “misrepresentation by silence” – a farcical claim but one which under the law as it currently stands cannot be assailed at the interlocutory stage. As Associate Judge Schmidt put it (emphasis added):

It cannot be concluded that the defendants cannot conceivably succeed or that there is no substantial question to be tried in relation to that claim. Nor could it be concluded that this claim is false or even improbable. That would require an investigation of factual matters which the authorities warn against at this stage of the proceedings.

The lender’s principal in this case was $8 million. At 5% per annum that equates to over $500,000 interest lost by this 16 month detour in the proceedings. This does not include the legal costs of the lender and the legal costs of the borrower which the lender was ordered to pay.

Bransgroves therefore urges all lenders that the next time a lawyer advises you to seek summary judgment (in view of the borrower’s “hopeless defence”) simply lean forward with a pair of scissors and cut off his tie just below the knot. If you are talking to a barrister take off his wig and toss it out the window – they will get the message.

Click here to read the full judgment

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