Credit and Debt

Credit and Debt

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Defending a claim

This table sets out a list of defences that might be available to your client.

Lodging a defence

If legal proceedings have been commenced against your client, a defence must be lodged or an application for a stay of proceedings while you negotiate with the creditor must be made within the required timeframe (21 days in the Magistrates' Court of Victoria - refer to What Stage is the Matter At). 

If this is not done, upon application by the creditor, default judgment will be entered against your client (i.e. an order that the client pay the debt, plus costs and interest starting from the date of the court proceedings without a hearing).   

A number of the defences listed in the table can also be relied on as causes of action (or cross-claims) to claim compensation against the creditor.  It is, however, most likely that we will rely on them in our negotiations with the creditor or complaints to an ombudsman, rather than before court.   

If it looks like you will need to enter a defence for a client in a credit or debt matter, you should contact the HPLC.  Depending on the risk and complexity of the matter, it may be necessary to brief counsel to advise on the merits of the matter; prepare submissions; and / or do the appearance.

Does your client have a defence?

Further to Things to Look Out For, if your client is being sued by a credit provider to recover a debt, your client may have a defence if, for example:

  • the debt is statute barred i.e. the court action against the client started outside the time limit allowed for the creditor to take action;
  • the client was not provided with required information before entering into a credit contract;
  • representations were made to the client at the time of entering the contract that were false, misleading or deceptive (for example, in relation to low costs, no fees or caps);
  • the contract is a standard form contract and it has unfair terms;
  • the creditor acted unconscionably in relation to the client and any disadvantage or vulnerability experienced by the client;
  • when the client agreed to the credit contract he/she could not afford to repay it and the creditor knew this;
  • the client is under 18 years of age or was under 18 years of age when the debt was created;
  • the client did not have the mental capacity at the time the debt was created to enter into a credit or consumer contract;
  • the client felt he/she had no choice but to sign, for example, he/she was threatened; and/or
  • the amount the client owes is incorrect (keeping in mind that the court will allow the creditor to amend the amount if there is an accidental error).

These defences are summarised in more detail in the table, including the legislation that contains the defence, what the key elements of the defence are and what the impact of relying on the defence will be.

The process

If the client enters a defence, the matter will generally be referred by the court to dispute resolution to try to come to an agreement with the creditor.  A time will be set for a pre-hearing conference or mediation.  If the client and the creditor are able to come to an agreement, this is likely to be quicker and less costly than proceeding to a hearing.

If either party does not attend the mediation or pre-hearing conference, a magistrate or registrar may make an order against the party that does not attend.

  • Pre-hearing conference - a pre-hearing conference is an informal meeting between the debtor, the creditor (and their legal representatives) and the registrar of the Magistrates' Court. The aim is for the parties to reach an agreement to resolve the dispute.
  • Mediation - for matters over $30,000, the Magistrates' Court may refer the proceeding to mediation, with or without the consent of the debtor and creditor. The mediator has no power to make orders in the proceeding.

If an agreement cannot be reached at the pre-hearing conference or by mediation, the issues in dispute will be identified and the matter will be listed for hearing.

If you successfully negotiate with the creditor to get a waiver or manageable payment plan for your client, make sure this is recorded in a written agreement.  You should also make sure that the creditor files a Notice of Discontinuance to stop the court action against your client.