Defences if you are sued may include:
1. the contract or agreement does not comply with the appropriate legislation;
2. you are not a party to the contract;
3. you were not correctly informed about promised goods or services (misrepresentation);
4. you were under the age of 18 when you allegedly entered into the contract with the creditor;
5. the debt is too old and therefore statute barred (see ‘Statute-barred debts’, above); or
6. the contract is unfair or unconscionable.
There may be other defences in your particular case. If you think that there are, seek legal advice.

Defences in detail

You may have a defence if the contract or other related documents do not comply with the appropriate legislation. Seek legal advice to check this (see Chapter 2.3: Legal services that can help).
Debts are not necessarily transferable from one person (or company) to another. If, for example, your father bought a car on credit and he died or disappeared before paying off the total amount, you would not be expected to pay off his debt. The debt is your father’s, and if you were sued you would have a defence. If you have not entered into a contract with the creditor that makes you personally liable for the debt, you are not liable and would have a defence.
If you agreed to buy goods or services on the basis of information that was supplied to you by the creditor or trader, and that information has turned out to be incorrect or inaccurate, you may have a defence.
If you are under 18 years old, a contract cannot be enforced unless it is for ‘necessary’ goods (i.e. food, clothing or transport) (see ‘Young people’ in Chapter 7.1: How contract law works).
If the debt is more than six years old, you may have a complete defence to the creditor’s claim (see ‘Statute-barred debts’, above).
You may have entered into the contract in circumstances that make the contract unfair or unconscionable. This can be a defence to an action by the creditor. Ask yourself:
1. Did you understand the nature of the contract? (i.e. do you understand English, or the details of how the contract works?)
2. Were you subjected to undue influence from the creditor? This may occur especially where the two parties to the contract have a particular relationship (e.g. doctor–patient, parent–child), or if there were threats of unlawful acts (i.e. a threat of violence used to coerce a person to make the agreement).
3. Did you think part of the contract was unfair?
In addition to a possible defence, an unfair credit contract may be reopened in the Federal Court, or the Federal Circuit and Family Court of Australia, or the Supreme, County or Magistrates’ Courts of Victoria.
If you think that you may have an unfair contract, contact a private solicitor, community legal centre (see Chapter 2.3: Legal services that can help) or ASIC (see ‘Queries about your credit report’ above).

Procedure after defence is filed

In general, all defended matters, except smaller claims (e.g. those for less than $10 000 or claims for motor vehicle collisions), are referred to a pre-hearing conference or mediation. Mediation is ordinarily reserved for more complex matters, where the amount in dispute is $30 000 or more. In proceedings where the amount in dispute is less than $10 000, the matter may proceed straight to arbitration (Magistrates’ Court Act 1989 (Vic) (‘MC Act’) s 102).

Pre-hearing conferences are scheduled to take place approximately 8–12 weeks after lodging a defence. Either party can request, or object to, an order to set the matter down for a pre-hearing conference. The advantage of a pre-hearing conference is that if a resolution is reached, the time and expense of the dispute are greatly reduced.
A pre-hearing conference is an informal conference between the parties (and their legal representatives) and a Magistrates’ Court registrar. The aim of this conference is to promote a settlement or clarify the issues that are in dispute. It is recommended that you attend a pre-hearing conference with an adviser.
The process is informal and discussions are confidential, so no answers given, or admissions made in the pre-hearing conference can be used as evidence in any subsequent hearing. There are no costs payable to the court for a pre-hearing conference, unless the costs are payable in relation to an adjournment of the conference.
If either party fails to attend a pre-hearing conference, the other party may ask the registrar for an order, resulting in that party winning the case.
By Practice Direction No. 2 of 2011 the court may, if requested by a party to the proceeding, conduct the pre-hearing conference by telephone where the location of a party or other relevant person will cause unreasonable expense or inconvenience to that party or person in attending a pre-hearing conference personally.
If the dispute is not resolved at the pre-hearing conference, it will be set down for arbitration or hearing, as discussed below.
Following receiving a defence, the Magistrates’ Court may, with or without the consent of the parties, refer the proceeding to mediation. Before mediation is ordered, however, the registrar will inform the parties by written notice that the matter appears to be suitable for mediation. Unless a party raises an issue for consideration, a mediation referral order will be made after 21 days from the date of the notice.
Mediation is an informal process where both parties sit down with an independent third party (mediator) to try and reach a resolution to their dispute. The mediator is nominated by the parties, is impartial and assists the negotiation process. The advantage of mediation is that it can resolve the matter relatively quickly while keeping costs to a minimum.
Except as all the parties who attend the mediation in writing agree, no evidence can be admitted of anything said or done by any person at the mediation.
If either party fails to attend mediation, a magistrate or registrar may make an order, resulting in the defaulting party losing the case.
Within seven days of the completion of mediation, the mediator must file a mediation report in form 50A and provide a copy of the report to each party who attended the mediation.
Note that with the exception of the Melbourne Magistrates’ Court, if the amount sought against you in the complaint is less than $40 000, the proceeding will be automatically referred to mediation. Mediation takes place at the Dispute Settlement Centre of Victoria (DSCV).
At the Melbourne Magistrates’ Court, when a notice of defence is filed, the parties are notified in writing that mediation is proposed and, barring any objections, a mediation order will be made. Within 14 days after the mediation order is made, the parties must nominate a mediator and inform the court. The mediator may be a registrar of the court, a nationally accredited mediator, or a mediator from the DSCV. Where the parties cannot agree on a mediator, the Magistrates’ Court will select a mediator and appoint the day of mediation. Fees apply to mediation.
This process does not apply to claims for damage to property arising out of motor vehicle accidents (where the amount sought is less than $10 000) and claims for the recovery of hire car costs only (irrespective of the amount) because these matters are unlikely to be resolved at mediation (see Practice Direction No. 7 of 2016).
If the amount the creditor has claimed from you in the Magistrates’ Court is less than $10 000 and the dispute has not settled at the pre-hearing conference or mediation, the matter will be set down for arbitration, unless you are being sued for non-payment of local council or water rates.
In matters referred to arbitration, further particulars of the creditor’s claim are not allowed. Arbitration also dispenses with a number of procedural steps, including the right to serve and file the following documents: a reply, a notice to admit any fact or the authenticity of any document, notice for discovery, interrogatories or an expert witness statement. Previously, the creditor could not seek an order for summary judgment in a matter referred to arbitration, however, it now appears that the creditor can apply for summary judgment.
Where the amount of the claim is $5000 or more, each party is required to serve on the other party a list of documents that identifies each document in that party’s possession that supports the claim or defence or is injurious to the claim or defence. This must be done not less than 14 days before the date fixed for the pre-hearing conference or the date fixed for the arbitration if there was no pre-hearing conference (Magistrates’ Court (Miscellaneous Civil Proceedings) Rules 2020 (Vic) r 2.05).
An arbitration is generally an informal court hearing conducted by a magistrate. However, the way the arbitration is run will depend on the individual magistrate hearing the matter; some magistrates run arbitrations in much the same way that they run hearings. The rules of evidence which usually apply to a hearing do not apply to arbitrations. A decision made by the court in arbitration has the same effect as if it were made at an ordinary hearing.
If you are going to arbitration, you may still need to seek legal advice.
The major advantage of arbitration is that it is sometimes informally conducted and the costs which may be awarded are limited by legislation.
However, in some circumstances, such as where the matter involves complex legal issues, a party may apply to have the dispute heard in a conventional hearing rather than through arbitration.
If the dispute is not able to be settled at a pre-hearing conference or mediation, it will be set down for hearing. A hearing is conducted before a magistrate and the plaintiff must prove all the elements of its case. You must then rebut the plaintiff’s case (provide it to be untrue). The rules of evidence apply.
If your matter goes to hearing, you will probably need legal assistance to help you prepare and run the hearing. Legal costs can be very high. If you lose, it is likely that you will be ordered to pay the creditor’s costs as well. See ‘Interest and costs on judgment’, below, for further information.

If you do not lodge a defence and there is nothing apparently incorrect about the complaint, the court will make an order against you at the request of the creditor. This decision is a court order and can be enforced in the same way as any court order. It is often called ‘judgment in default of defence’ because you have not filed a defence. The order usually includes an award of costs and may include interest (see ‘Interest and costs on judgment’ below).
When a court enters a judgment against you in favour of a creditor, the court makes an order stating the amount owing for the debt, plus any interest the creditor may be entitled to claim (depending on their contract with you), plus the creditor’s legal costs.
The creditor’s legal costs are calculated in accordance with the scale of costs in appendix A to the Magistrates’ Court General Rules.
The amount awarded in a court order following an action for recovery of a debt is referred to as a ‘judgment debt’.
Once an order is made against you, interest will begin to accrue on the debt from the date of judgment, calculated at a rate of interest set down by the Penalty Interest Rates Act 1983 (Vic). The applicable interest rate is currently 10 per cent (which it has been since 1 February 2017). Prior to this, the rate had been 9.50 per cent per annum since 1 June 2015. The rate varies from time to time (and may be found on the Magistrates’ Court website).
As an example, if your judgment debt is $1000, the interest that would accrue on this amount in one year, at 10 per cent, is $100. Any offer to pay by instalments made would need to be sufficient to cover this amount.
See ‘Enforcement of court orders’, in this chapter, for information about court action a creditor may take to recover the judgment debt.

Defences if you are sued

Summary

Defences in detail

Procedure after defence is filed

No defence

Interest and costs on judgment

If you are sued

Applying for a rehearing