02 July 2014


A sister suffering from schizophrenia provided a guarantee and mortgage for her sister's loan and received none of the proceeds. The borrower defaulted and the lender sought possession. The sister's lawyer filed a submitting appearance by mistake and the lender obtained default judgment in her absence. The sister had been notified of the proceedings before final judgment was given. The sister then sought to withdraw her appearance and have the judgments set aside.

The court permitted the sister to withdraw her original submitting appearance because it was filed by mistake and the interests of justice demanded that she be given an opportunity to run her arguable defences based upon the Contracts Review Act and unconscionability. The court held that the party seeking final judgment in the absence of a party who has filed a submitting appearance has a duty to draw matters to the court which the court ought properly to have before it and found that the sister's schizophrenia was such a matter. The court found that the lender was on notice of her illness even if he disputed her claims and said:

Unfortunately, the alleged illness assumes a potential significance at two distinct but independently critical stages. The first is at the meeting when the fateful guarantees were provided. The establishment of the claimed mental illness at that time would arguably vitiate the guarantee without more. Secondly, the [sister's] curious disregard for her own interests is arguably referable to the same condition, and to her associated determination to avoid courts and litigation. In my opinion, it was incumbent upon [the lender] in good faith to address the possibility that [the sister] was affected by a mental condition that she claimed vitiated her liability in the first place and may have influenced her attitude to defending the claim against her in the second place.

The court held that the lender's failure to draw the court's attention to the possibility of a defence based upon the sister's illness was not in good faith. The judgment was set aside and the sister was directed to file her defence.

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Matthew Bransgrove, Partner

Matthew Bransgrove has practised exclusively in the field of mortgage law and mortgage related litigation since 1998. He is author of Avoiding Mortgage Fraud in Australia (2015) Lexis Nexis. He is co-author of The Essential Guide to Mortgage Law in NSW (2008) Lexis Nexis and its successor The Essential Guide to Mortgage Law in Australia (2013) Lexis Nexis.

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