Permanent Custodians v Upston [2007] NSWSC 223

In this case the borrower took out a loan secured against her home which she used to repay an existing mortgage and to purchase a small business. The business failed and she was unable to meet her mortgage repayments. The Lender served a notice of default and after 30 days declared the whole loan payable and then sued for possession of the land.

The borrower cross-claimed for relief under the hardship provisions of the Consumer Credit Code. S.66 states that a debtor who is unable to meet their obligations due to “illness, unemployment or other reasonable cause” may make an application to the court for the agreement to be varied. The Lender argued that the hardship provisions did not apply as the loan was for business purposes (and therefore the provision of the code did not apply).

The Court had to determine whether the code applied. Firstly the court noted there was no business purposes declaration accordingly the conclusive presumption under s 11(2) of the Code does not arise. Secondly the court determined:

$180,000 of the funds raised was to provide the plaintiff with a house and is therefore a personal use. $84,000 was provided for business purposes.

As the greater amount (more than 50%) was for personal purposes the code applied. The lender had mailed a s80 notice but the borrower denied receiving it. The Court noted however that she had admitted receiving it a week later when the bank telephoned her (and so found against her).

On the hardship claim the Court held that the service and expiry of a s80 notice was no bar to relief and made the following orders re-writing the contract on the grounds of hardship:

  1. Postponing until 22 March 2007 the payments due on 22 December 2005 and 22 January 2006 and 22 February 2006.
  2. The total amount of those three payments plus interest and charges caused by the failure to make those three payments to be capitalised.
  3. The period of the contract is extended for a term of thirty (30) years commencing on 22 March 2007 during which the defendant is to pay the said capitalised sum of $293,318.85 together with interest thereon by monthly installments without a change being made to the rates provided in the contract.

Order 3 was required because the lender had already accelerated payment.

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