In this case Perpetual Trustee and Challenger Managed Investments (the lender) sought possession of the security from McAndrew (the borrower). McAndrew raised a Contracts Review Act defence claiming the mortgage should be set aside (and he should not have to repay the loan) on the grounds that a “pre-existing mood disorder, exacerbated by a motor traffic injury, rendered him more susceptible to: sustained mood disturbances centred on impulsiveness and variability of mood; the intoxicating effects of alcohol, marijuana or other psychoactive substances”.
The lender brought an application for summary judgement arguing that there was no serious case to be tried. The court was shown documents indicating the McAndrew has sought the loan to refinance an existing business loan and to raise working capital. The court cited with approval the decision of Rogers J in Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 that generally where a Contracts Review Act defence is raised the matter cannot be dealt with summarily and must go to a full blown trial. The lender’s application was rejected and the lender was ordered to pay the borrower’s costs.
This case and preceding authority shows that the Contracts Review Act (which only applies in NSW) effectively allows any borrower to stall repossession proceedings for a year. Accordingly lenders should adjust their LVR’s downward and interest rates upwards in NSW to reflect the added risk.