Creditor seeks a court order
If you have not paid a debt or come to a satisfactory arrangement after a creditor has requested payment from you, the creditor might sue you to force you to pay the debt. This means the creditor seeks a court order (known as a judgment) that you owe the debt.
The court in which the creditor sues you depends on how much the creditor is claiming from you. The ‘jurisdiction’ of a court is based on the maximum sum that the court can award in an action.
The jurisdiction for debts is as follows:
- Magistrates’ Court: up to $100 000; and
- County Court and Supreme Court: unlimited.
Therefore, if the amount of the alleged debt is $100 000 or less, the creditor will issue a complaint in the Magistrates’ Court. If it is over $100 000, the creditor has a choice between the County Court and the Supreme Court in issuing a writ.
As most consumer debts are less than $100 000, this chapter concentrates on procedures in the Magistrates’ Court.
Civil Procedure Act 2010 (Vic)
On 1 January 2011, the Civil Procedure Act 2010 (Vic) (‘CP Act’) came into operation. The CP Act generally applies to all civil proceedings in a court including the Magistrates’ Court. It does not apply to any proceeding in VCAT (s 4(3)).
The CP Act imposes obligations for all parties involved in civil proceedings and contains the following certification requirements when issuing or defending a proceeding:
- Overarching obligations certification: personal certification by parties at or following the commencement of a court proceeding that they have ‘read and understood the overarching obligations and the paramount duty’ set out in the CP Act (s 41); and
- Proper basis certification: certification by a party’s lawyer or by an unrepresented party, that in relation to ‘the first substantive document’ in a court proceeding and ‘any documentation that contains significant amendments to the first substantive document’, each allegation of fact, denial or non-admission ‘has a proper basis’ (s 42).
The overarching obligations certification and the proper basis certification must be in form 4A and form 4B, respectively, and must be lodged with the court along with your first substantive document of the proceedings (Magistrates’ Court General Civil Procedure Rules 2020 (Vic)) (‘Magistrates’ Court General Rules’).
- a legally represented party does not have to make the overarching obligations certification if they have been involved in more than one civil proceeding and have personally made the certification in other civil proceedings in the same court within two years (or another period specified by court rules) and the party’s lawyer certifies as to these matters. This certification by the party’s lawyer is the certification of prior overarching obligations certification; it must be on form 4AB and lodged with the court; and
- the proper basis certification applies to ‘the first substantive document’ and ‘any subsequent substantive document’ that, for example, adds a party to the proceeding, a claim or a substantive defence, or makes any significant amendment to a first substantive document or a subsequent substantive document.
For a creditor, the first substantive document is a complaint; for you, it is a notice of defence.
The paramount duty to the court of each party involved in a civil proceeding is ‘to further the administration of justice’ (s 16). The overarching obligations of a party are set out in sections 16 to 26 of the CP Act and include obligations to:
- act honestly at all times in relation to the proceeding (s 17);
- not make frivolous or vexatious claims or other claims without a proper basis (s 18);
- only take steps to resolve or determine the dispute (s 19);
- cooperate with other parties (s 20);
- not mislead and deceive (s 21);
- use reasonable endeavours to resolve the dispute by agreement (s 22) or narrow dispute issues (s 23);
- use reasonable endeavours to ensure costs are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute (s 24);
- minimise delay (s 25); and
- disclose the existence of relevant documents (s 26).
These obligations apply equally to parties responding to proceedings and to parties who initiate proceedings.
In the Magistrates’ Court, the first step a creditor takes to sue you for a debt is to file a document called a ‘complaint’, which sets out the creditor’s claim for the debt against you. The complaint document, formally known as ‘form 5A: complaint’, is issued by the registrar of the Magistrates’ Court where the claim is filed.
When the creditor files the complaint with the court, they should also file form 4A (or 4AB) and 4B certifications. There may be consequences for the creditor if they do not file these certifications.
The complaint is then served on the debtor. This is done by delivering an approved copy of the complaint together with two blank notices of defence (see ‘Notice of Defence’, below) to:
- the debtor personally; or
- the debtor’s usual residence: in this case the complaint must be delivered to someone apparently over the age of 16, but where the usual residence is a hotel, boarding house or similar establishment, only to a person over 16 who is apparently in charge of the establishment or engaged in the office of the establishment; or
- a business where the debtor is the owner or one of the owners of the business name: here the complaint must be delivered to someone apparently over the age of 16 who is apparently in charge of the business or is employed in the office of the business.
The creditor or a process server acting for the creditor must sign an affidavit or declaration (form 6A) stating that they served the complaint at a particular address. The complaint not reaching the debtor is grounds for a rehearing of any order (see ‘Applying for a rehearing’).
What to do with a complaint
If you receive a complaint, act immediately. It will not show a date for a hearing, because a complaint allows for automatic judgment to be made against you unless you lodge a notice of defence within the required timeframe of receiving the complaint (usually 21 days). This means that the court can make an order against you without you having to appear in court. It is called ‘judgment in default of defence’ (see ‘No defence’ in ‘Defences if you are sued‘).
Seek legal advice as soon as possible to decide whether or not to lodge a notice of defence. You may contact a private solicitor, a legal service or financial counsellor for advice. See Chapter 5.4 for a list of financial counselling services, and Chapter 2.4 for legal advice services.
Notice of Defence
A Notice of Defence is a document informing the court and the creditor that you will defend the matter. It must be on the appropriate court form (form 8A). A Notice of Defence should be lodged within 21 days of receiving the complaint (if you are in Victoria) to avoid judgment being entered against you. Therefore, it is vital that you make a note of the date on which you were served with the complaint. However, note that you may still lodge a defence after the 21-day time period has expired if the creditor has not entered judgment against you.
Do not lodge a Notice of Defence automatically; first, seek advice from a lawyer or financial counsellor. They can advise on any defences available to you. See Chapter 5.4 for a list of financial counselling services.
If you have not done so in the context of the proceedings, you need to comply with the requirements of the CP Act, and file the form 4A (or 4AB) and form 4B certifications with a Notice of Defence.
If you lodge a defence without good reason, the creditor may seek an order for summary judgment, which could overcome your defence.
Before you lodge a Notice of Defence check:
- at which court the hearing will be held;
- the amount being claimed; and
- whether any defences exist (see ‘Defences if you are sued’, below).
Inappropriate court venue
If the complaint has not been issued at the court nearest to your address, you may apply for a transfer under rule 47.01 of the Magistrates’ Court General Rules. You must lodge a Notice of Defence at the court where the complaint was issued. You must then give to the creditor a written objection to the venue within 14 days of lodging a Notice of Defence. If the creditor does not agree to a change of venue after receiving the written objection, you may apply to the court for the venue change within 14 days of giving the written objection.
Transferring the hearing to the appropriate court venue causes delays and may result in an order for costs against the creditor.
If the complaint arises out of a consumer and trader dispute, you may be able to transfer the matter to the Victorian Civil and Administrative Tribunal (VCAT) under section 188 of the Australian Consumer Law and Fair Trading Act 2012 (Vic). VCAT is a cheaper and less formal forum that can resolve disputes comparatively quickly. (See ‘Court or tribunal help’ in Chapter 7.4: Taking action as a consumer.)
It is essential to make sure the amount claimed in the complaint is correct. If the account is long and includes interest and insurance charges, or is complicated, double check the amount or get an accountant, a financial counsellor or a legal adviser to check it.
If you have any questions about the amount, send a letter asking the creditor to explain the areas of uncertainty (see ‘Your rights and options’, above, for what you should do when contacting a creditor). If this takes longer than 21 days, you should seek advice about lodging a notice of defence to give you time to check the amount properly.
If you do lodge a notice of defence, seek legal advice immediately. Rule 13.05 of the Magistrates’ Court General Rules allows you to request further details (called ‘further particulars’) of the creditor’s claim. However, the request must be in writing and specify the details being sought. A solicitor can assist you in this.
Offer of compromise
If you acknowledge the debt but have a significant dispute as to the amount claimed, the appropriate course of action may be to lodge a defence and make an offer of compromise under order 26 of the Magistrates’ Court General Rules.
An offer of compromise is a formal offer of settlement made to the creditor. It must be made in writing in accordance with rules 26.02–26.04 of the Magistrates’ Court General Rules. It must contain a statement to the effect that it is served in accordance with order 26. An offer of compromise must also state whether it is inclusive of costs or whether costs are to be paid or received in addition to the offer of compromise.
If the creditor rejects the offer, the dispute will be heard by the court. If the court makes an order for an amount lower than the offer, standard costs incurred after the date of the offer must be paid by the creditor.
The offer of compromise does not involve the payment of money (unless the offer is accepted), but only a statement of the amount admitted to be owed to the creditor. This means you can potentially avoid liability for some of the costs of a hearing by making a prudent offer of payment to the creditor at the earliest opportunity prior to the hearing.
Instruments Act 1958 (Vic) complaints
If you are being sued over a failure to honour a cheque you have written, you may be served with a complaint under the Instruments Act 1958 (Vic) (‘Instruments Act’).
The procedure is slightly different from a standard suit for a debt. You will receive form 9A: complaint (Magistrates’ Court (Miscellaneous Civil Proceedings) Rules 2020 (Vic)), which gives only 16 days to file a defence (unless you live more than 80 km from the GPO, in which case it will be 21 days).
Filing a defence to an Instruments Act complaint is more complicated than for a normal form 5A: complaint (Magistrates’ Court General Rules). Leave to file a defence must be obtained, and will only be granted by the court if you pay the disputed sum into court beforehand, or satisfy the court by affidavit that you have a defence. If you wish to defend an Instruments Act complaint you should see a solicitor first.
Apart from these differences, the court proceeding will generally proceed as with a normal form 5A: complaint and any resulting court order is enforced in the same way.
Home loan default
If you fall behind with payments on your home loan (or any loan secured over real property) the lender has a right as a mortgagee to take possession of the mortgaged property. Certain events have to occur before the mortgagee can gain possession.
You must have been in default for the amount of time specified in your mortgage document as the period after which the mortgagee can take possession. This period can be as brief as one day. If no period is specified, that period will be one month.
After this period has elapsed, the mortgagee must send you a notice to pay. This notice will specify the period in which the default must be rectified. This period will be disclosed in the mortgage or, if not specified, will be one month.
Once this second default period has elapsed the mortgagee has power to enter into possession of the property, or apply to the court for a writ of possession. The power to enter into possession can be enforced immediately on expiration of the period specified in the notice to pay.
No court action is required to take possession. The mortgagee can assert this right unassisted by just changing the locks. However, in order to avoid a suit for forcible entry, most mortgagees prefer to apply for a writ of possession.
A writ of possession must be brought in the Supreme Court or County Court. Once you are served with the writ you usually only have 10 days in which to enter an appearance, and usually a further 30 days to enter a defence.
No enforcement action can be taken by the mortgagee during these periods. If you do not enter an appearance, however, the court may by default enter judgment upon expiration of those 10 days.
This judgment will be enforced by the court issuing a warrant of possession, which is passed to the Sheriff’s Office. The warrant of possession gives the sheriff a right to take possession of the property immediately.
However, standard procedure is for the sheriff to notify you of the need to vacate the premises (taking all of your belongings with you) before a certain date. The deadline is usually a Friday three weeks after the sheriff’s notification to you. The day before the deadline the Sheriff’s Office will telephone all parties to confirm that the sheriff is to go ahead with taking possession of the property or that the parties may have resolved the matter between themselves.