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[2026] NSWSC 881
Supreme Court of NSW
2026-07-10
Faulkner J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Baker v Dura [2026] NSWSC 881
Hearing dates: 10 July 2026
Date of orders: 10 July 2026
Decision date: 10 July 2026
Jurisdiction: Common Law
Before: Faulkner J
Decision: 1. Upon the Defendants by their counsel giving an undertaking as to damages, an order pending the determination of these proceedings or further order that the Cross-Defendant be restrained by herself, her servants and agents from:
(a) taking any steps to authorise or proceed with the sale of the second cross-claimant’s property known as 69 Braeside Street, Wahroonga in the state of New South Wales, being the land in Lot 1 DP 534426 and in Folio Identifier 1/534426 (“Wahroonga Property”) at the auction by Ray White Real Estate presently scheduled to take place on Saturday 11 July 2026; or
(b) exchanging or purporting to exchange contracts for the sale of the Wahroonga Property whether by auction, private treaty or otherwise.
2. An order granting leave to the Second Cross-Claimant to pay into court a sum of $130,000 pending determination of these proceedings.
3. The costs of this application be the Defendants’ costs in the cause.
4. Parties are to confer to agree a timetable for the preparation of the case for a final hearing.
5. The proceedings be listed for directions on 23 July 2026.
6. Liberty to apply.
Catchwords: REAL PROPERTY – mortgages – possession of land – mortgagee commenced proceedings seeking order for possession – subsequently enters into possession without order – interlocutory application to restrain auction
REAL PROPERTY – mortgages – default notice under s 57 of the Real Property Act 1900 – validity of notice – amount said to be due may exceed amount actually due by significant order of magnitude
REAL PROPERTY – mortgages – promise to pay daily amount upon default of obligation to pay instalment – high effective rate of interest – whether daily payment is void as a penalty
Legislation Cited: Conveyancing Act 1919 (NSW), s 66R
Real Property Act 1900 (NSW), ss 57, 60
Cases Cited: Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328
Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778
Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1974] HCA 74
Hunter v Hunter [1936] AC 222
Mediservices International Pty Ltd (receivers and managers appointed) v Stocks & Realty (Security Finance) Pty Ltd [1982] 1 NSWLR 516
Category: Principal judgment
Parties: Diana Davina Baker (Plaintiff/Cross-Defendant)
Robert Dura (First Defendant/First Cross-Claimant)
Stacey Jane Lewis (Second Defendant/Second Cross-Claimant)
Representation: Counsel:
J Ireland KC (Defendants/Cross-Claimants)
Solicitors:
Safe Harbour Lawyers (Plaintiff/Cross-Defendant)
McGirr Lawyers (Defendants/Cross-Claimants)
File Number(s): 2026/00219910
This case arises out of a loan of $250,000 made on 28 March 2025 and varied on 7 April 2025. There is an allegation about the circumstances in which the variation occurred and an allegation about a misrepresentation by the lender. Nothing further needs to be said about that particular aspect of the case because there are other issues in the case which are more pertinent to resolving the issue which has come before the Court today as a referral from the Duty Judge.
There is no dispute that the money was advanced under the loan, nor is there any dispute that the Loan Agreement provided for repayment of the principal by twenty-four fortnightly instalments each of $10,420, a payment of interest at the conclusion of the loan in the amount of 7.5% per annum and a loan consideration amount of $10,000, also to be paid at the conclusion of the loan.
The obligations to pay the monthly instalments was set out in cl 4 of the Loan Agreement. Each of the twenty-four instalments was listed in a separate subparagraph from (a) to (x) together with the date by which it had to be paid. The provision of the Loan Agreement which has been the subject of the most focus at today's hearing are the two paragraphs at the conclusion of cl 4 which are in the following terms:
“If the Borrower does not make any of these instalment payments by the required date, the Borrower must pay the Lender $250.00 for each day that any of the instalment amount is overdue. Interest of 7.5% per annum will be incurred on all the above amounts and the interest will be payable on the Repayment Date.
By way of clarification if the payment in paragraph (a) is paid on the due date, the payment in paragraph (b) is not paid by the due date; the payment in paragraph (c) is paid by the due date; and the payment in paragraph (d) is not paid by the due date, then $250 will be paid per day from 24 April 2025 until the paragraph (b) payment is made in full and $250 per day will be payable from 22 May 2025 until the paragraph (d) payment is made in full, which may result in $500 per day being payable if the paragraph (b) payment has not been made in full by 22 May 2025.”
The loan was secured by a Mortgage over a property in the northern suburbs of Sydney. It was also secured by a Mortgage over another property on the main road at Mittagong.
There is no dispute that the first eighteen of the twenty-four instalments were paid by the Defendants on time, being a total of $187,560. At the time the last instalment was paid, six remaining instalments were yet to be paid which totalled $62,520.
Had the loan been performed to its conclusion, the amount of interest at a rate of 7.5% per annum is not entirely clear on the terms of the Loan Agreement but one figure (of approximately $8,400) appears in the evidence and might be accepted as broadly indicative. As I have said there was also an obligation to pay the $10,000 loan consideration amount. Each of these amounts were to be paid at the end.
On 26 November 2025 the Defendants, who are the borrowers under the Loan Agreement, communicated to the Plaintiff a desire to repay the loan and proposed to pay $74,000 to discharge the debt entirely. It is not exactly clear why, and it is not necessary for current purposes to go into the detail, but the money was not accepted.
On 10 December 2025 the Plaintiff put forward a payout figure of $81,396.78. Again it is not entirely clear why, nor is it necessary to go into the detail, but that payment was not forthcoming. At that point the parties were about $7,500 apart, which is a contrast to their current positions.
Over the following months the Plaintiff made a number of demands, in each instance including a claim for $250 a day for the final six unpaid instalments. The details of the calculations of those demands do not need to be addressed at this stage, but the amount of money that was claimed rapidly escalated. In March 2026 a claim was made for more than $175,000. In June a claim was made for $293,000. As at today the Plaintiff asserts a right to more than $445,000 plus enforcement costs.
In each instance these figures are said to arise and be claimable by virtue of the original amount unpaid in December 2025 which, as I have said, was $62,520. The sheer magnitude of the sums now claimed makes one pause to consider whether the claim can be maintained.
Both sides have put on evidence about correspondence at various times over the last couple of months variously seeking repayment figures and alternatively providing or saying that repayment figures had already been provided. Again, it is not necessary to deal with any of those issues today.
As I have said, repayment of the loan is secured by two Mortgages. On 3 May 2026 the Plaintiff issued a notice of default which purported to be under s 57 of the Real Property Act 1900 (NSW). The notice related to the Mortgage over the property in the northern suburbs of Sydney. It claimed a figure of just over $221,000. The default identified in the notice has not been remedied.
On 28 May 2026 the Plaintiff filed the Statement of Claim by which these proceedings were commenced. The claims made in the Statement of Claim are limited to claims under the Mortgage over the property in the northern suburbs of Sydney. No claim is made in relation to the Mortgage over the Mittagong property. The prayers for relief in the Statement of Claim include first, an order for possession of the property in the northern suburbs of Sydney and secondly, payment of a debt stated in the Statement of Claim to be just over $221,000.
There is some evidence of steps being taken by the Defendants to try to sell the property in the northern suburbs of Sydney. Those steps included the apparent appointment of a real estate agent. As at 9 June 2026 the Defendants had not sold the property.
Despite the claim for an order for possession in Prayer 1 in the Statement of Claim, on 9 June 2026 the Plaintiff purported physically to enter into possession of the property in the northern suburbs of Sydney. There are a number of things to be said about that. First, the property was not occupied at the time. The Defendants do not reside in it and there is no suggestion that anybody else was there so the Plaintiff’s description of the property as “vacant” is apt. Secondly, the evidence indicates that the Plaintiff took steps to change the locks.
The only notice given to the Defendants that the Plaintiff would take this step is a letter dated 8 June 2026 from the solicitor acting for the Plaintiff which, in relatively generic terms, foreshadowed taking possession of the property. In circumstances where the Plaintiff had a Statement of Claim by which she sought an order for possession, the solicitor’s letter lacked specificity and clarity if, by that letter, it was intended to notify the Defendants that the Plaintiff would physically take possession of the property without an order of the Court.
There was some debate at today’s hearing about whether or not the Plaintiff is entitled as the mortgagee to take possession. She originally relied on s 60 of the Real Property Act 1900 but it seems unlikely that that provision applies to this case having regard to s 60(c) which contemplates that possession would be taken by application to the Court for an order for possession, which is the usual procedure. Absent a statutory right, a mortgagee may nonetheless have a contractual right physically to take possession. By reference to the terms of the Plaintiff’s registered Mortgage over the property in the northern suburbs of Sydney, it appears that she does have a contractual right this case.
In any event, the Plaintiff has taken possession of the property and has subsequently excluded the Defendants’ selling agents. The Plaintiff also caused a letter to be sent to the Defendants’ agents on 9 June 2026 asserting that the Defendants are not authorised to sell the property.
On 17 June 2026 the Plaintiff appointed her own selling agents to sell the property and they have subsequently marketed it. The property is currently scheduled for an auction to occur on 11 July 2026, which is tomorrow. A number of observations ought to be made. First, the evidence shows that the Plaintiff’s selling agent has marketed the property as “mortgagee in possession”, including on the Domain website. Having regard to the date of appointment of the Plaintiff’s selling agents and the date of the auction, the marketing campaign has only run for twenty-four days. In fact it seems that it would have been shorter than that because as at 17 June 2026 the selling agents did not yet have a contract for sale of the property and in those circumstances they would not have been able to market it: Conveyancing Act 1919 (NSW), s 66R.
On 6 July 2026 the Defendants filed a Defence in these proceedings. There is no dispute about the loan, the Mortgage, the advance or the repayment nor is there any dispute that the last six instalments have not been paid. The Defendants do not admit the validity of the s 57 notice and they contend that the obligation to pay $250 a day when instalments have not been paid is a penalty which is, for that reason, void. They further contend that there was a pre-contractual misrepresentation in relation to the variation on 7 April 2025 which entitles them to rescind the clause requiring them to pay $250 a day where instalments are not paid. As I have indicated above I am not going to say anything further about that.
On 9 July 2026 the Defendants filed a Cross-Claim seeking to vindicate the rights for which they contend and which are reflected in the Defence.
The matter came before me today in the following circumstances. On 8 July 2026 the Defendants made an ex parte application before the Duty Judge seeking short service of a Notice of Motion which was filed on that day. The Notice of Motion was returnable before me today. By that Notice of Motion the Defendants seek an interlocutory restraint on the auction taking place tomorrow. The matter was debated before me this morning.
There is no dispute about the principles. The first question that arises is whether or not the Defendants have a prima facie case.
My view is that the Defendants have a prima facie case in relation to their contention that the clause requiring them to pay $250 a day for instalments that have not been paid is a penalty and that is so whether it is construed as the Defendants contend or as the Plaintiff contends.
There was no attempt by the Plaintiff to contend that the $250 per day payment obligation was a genuine pre‑estimate of damage, nor could there be in circumstances where the Plaintiff’s evidence is that the advance of $250,000 in March 2025 was funded by a drawdown on her Resimac home loan. Whatever interest the Plaintiff may be paying for that source of funds, it will not be 876% per annum.
A contractual obligation will be void as a penalty where it is, in substance, stipulated in terrorem of the party on whom it is imposed. The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract, not at the time of the breach. A payment obligation will be held to be a penalty if the sum stipulated is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach: A**rab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328 at [72] (McDougall J, Gleeson JA agreeing).
An example of a case where the imposition of an obligation to pay penalty interest upon default in the mortgagor’s payment obligations is Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 where Ward CJ in Eq found at [2835] and [2856]-[2859] that a penalty interest rate of 108% was out of all proportion to the legitimate interest sought to be protected and to be so to such an extent that it was extravagant and unconscionable. Of course, every case needs to be considered based on the terms of the particular loan agreement and the permissible material for the construction of those terms but, for the purposes of the issue before the Court today, all I need to be satisfied of is that the Defendants have a prima facie case. I am satisfied that they do in relation to the contention that the promise to pay $250 a day when instalments are unpaid is a penalty and is void.
Having said that, the Plaintiff correctly submits that the validity of the $250 a day payment obligation only goes to the quantum. Even if the Defendants are successful on that argument, there is no dispute that money is owing to the Plaintiff.
However, the Defence identifies other issues in the case including the non-admission that the notice issued under s 57 of the Real Property Act 1900 is valid. This issue goes to the question whether the Plaintiff has any right to sell the property, whether it be at an auction tomorrow or at any other time.
I have referred above to the notice purported to be issued under s 57 which claimed an amount of $221,000. To put that in context, if the payment obligation in relation to $250 a day when instalments are not paid is void as a penalty then the amount actually due by the Defendants differs by an order of magnitude to that asserted in the notice. Whether it is $60,000, $70,000 or $80,000, it is materially less than asserted in the notice.
I am not required nor am I able finally to decide today whether the notice is valid. The question is whether there is a prima facie case that the notice is invalid.
I am satisfied that there is a prima facie case given the sheer extravagance of the amount claimed in the notice. A notice under s 57 is not invalid simply because it claims more than the amount actually due or claims money which is not due: Mediservices International Pty Ltd (receivers and managers appointed) v Stocks & Realty (Security Finance) Pty Ltd [1982] 1 NSWLR 516 at 521 (Wootten J). However, that principal is not without limits and this may be a case where the limits are reached. In Clark**e v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404 at 412 the Full Court of the Supreme Court of Queensland (Thomas J, Campbell CJ and Senior Judge Andrews agreeing) considered the limit of the principle in the case of a notice which claimed an amount due of approximately $95,000 when only $5,583.70 was the subject of a lawful demand. Having regard to the disparity between the amount claimed and the amount actually due, the notice was considered by the Full Court to be invalid. There is also a real risk that such a notice may be misleading and therefore not in conformity with the requirements of s 57: Clark**e v Japan Machines (Australia) Pty Ltd at 413.
A further potential problem with the notice served by the Plaintiff in this case is that s 57 relevantly requires the notice to require the mortgagor to observe the covenant, agreement or condition in respect of the observance of which the mortgagor has made default, or to pay the principal, interest or other money in respect of the payment of which the mortgagor made default: Mediservices International at 522. In this case, the notice did not identify any particular provisions of the Loan Agreement. In paragraph 2, the notice said:
"You have defaulted in payment of principal and interest agreed to be paid under the mortgage to the mortgagee, and there is now owing to the mortgagee in respect of such default the sum of $221,194.80 as at 30 April 2026.”
It will ultimately be a question for the final hearing, but the largest part of the amount claimed is said by the Plaintiff to be due under the penultimate paragraph in cl 4 which is set out above. It will be a question of construction at the final hearing, but there is a serious question to be tried as to whether the payment obligation imposed by that paragraph is properly described as either "principal" or "interest" as referred to in paragraph 2 of the notice. An argument may be put that the paragraph in cl 4 imposes an obligation which is either a penalty or a pre-estimate of liquidated damages, neither of which is the subject of the default notice which has been served.
Exactly what consequences might flow from such a conclusion, having regard to the obligation in s 57 about the notice, and the undisputed principles that the notice is to be construed strictly because exercising the power for sale is a drastic remedy and it is essential for the due protection of mortgagors that the conditions of the exercise of the power of sale should be strictly complied with (Hunter v Hunter [1936] AC 222 at 247), will be questions for final hearing. It may be that the Plaintiff is not entitled to sell the property.
It follows that the Defendants have a prima facie case which extends beyond the quantum of the amount due and goes to the validity of the mortgagee's entitlement to enforce the Mortgage by way of a power of sale.
The next question is whether, if the auction is not restrained tomorrow, damages will be an adequate remedy. It is relevant that the Defendants are evidently wanting to sell the property themselves, which might suggest that any loss they suffer if the auction goes ahead tomorrow will be readily quantifiable as an economic loss. This is not a case where the Defendants live in the property so their residency will not be interrupted by the auction.
On the other hand, the evidence shows that the market is declining and the question of the price to be achieved is problematic in the true sense of that word. It may be that it would be very difficult to assess any loss caused to the Defendants if the property does sell at the auction tomorrow.
However, the real problem with damages is that if the auction proceeds the interests of third parties may be affected, in particular anyone who successfully bids at the auction. There is every prospect that a transaction resulting from the auction and a successful bid may subsequently give rise to further litigation between a prospective purchaser, the Plaintiff as a purported vendor and possibly some real estate agents. The cost, delay and aggravation of further litigation is a matter to be taken into account as to whether damages will be an adequate remedy.
On the whole I am satisfied that damages are unlikely to be an adequate remedy.
Turning to the balance of convenience, the Defendants’ position is that they want to sell the property. It is common ground that there is a declining market and that the timing of the sale is important. It is a valuable property. There is evidence before the Court which gives some indications of value, which do not need to be recorded in publicly-available reasons for judgment, but the sale of the property is a transaction which is fairly described as being important for the Defendants. If their contentions are right, they are entitled to control the sale process.
I am concerned about the marketing of a property described as "mortgagee in possession". There is no evidence of any interest in the property. I have been told from the Bar table that there are two registered bidders but without more that does not allow me to form a view one way or the other about whether the marketing campaign over the last twenty-four days has properly interested the market in this property. The Defendants are entitled to the residue on realisation of the property and they are the party most concerned with how the sale proceeds.
From the Plaintiff's point of view, there is no evidence that any prejudice will be suffered if the auction does not proceed tomorrow. The Plaintiff has other security for payment of amounts properly due under the Loan Agreement, namely the Mortgage over the Mittagong property. There is no evidence about whether that other security is likely to be sufficient or not.
It has not been demonstrated to the Court one way or another about whether there is even likely to be a sale as a result of the auction tomorrow. If the auction were to proceed and there is no sale, it is difficult to see how the Plaintiff would suffer any prejudice by the auction being restrained today. There is no evidence which allows the Court to draw an inference about whether the sale will allow the Plaintiff to recover the money claimed. The evidence indicates a prior mortgagee registered on the title, and there's no evidence about whether a sale at any particular price will benefit the Plaintiff even if the sale is achieved.
The submission is made that the Plaintiff is prejudiced by delay in circumstances where the amount claimed by the Plaintiff is escalating dramatically. That submission is based on the efficacy of the $250 a day payment which is referred to above. As I have said, I am not able today to make a final decision in relation to the efficacy of that payment obligation but, for the purposes of balancing the convenience, I can have regard to whether the Plaintiff would be prejudiced by not being able to continue to claim that payment in the future. The degree of doubt about the efficacy of the $250 a day payment undermines any concern for prejudice to the Plaintiff if there is a delay.
It should also be recorded that, as a condition of the auction being restrained, the Defendants will pay into Court $130,000. If the $250 a day payment is not valid then the payment-in is likely to ensure that the Plaintiff does not suffer any loss as a result of the auction not proceeding. Indeed, it may be that the Plaintiff will be in a superior position in circumstances where there is no guarantee the property will sell tomorrow, or if it does sell, there is no guarantee that it will sell at a price that will ensure the Plaintiff is repaid.
I have been referred quite properly by the Plaintiff to the High Court's decision in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1972] HCA 74 (Barwick CJ, Menzies and Gibbs JJ). That decision established the principle that a mortgagor who seeks to dispute the amount due to the mortgagee will not be permitted to interfere with the mortgagee’s enforcement of its security interest unless the mortgagor first pays into Court the amount claimed by the mortgagee. In this case the Plaintiff claims to be entitled to more than $440,000 which is more than the $130,000 which the Defendants have offered to pay into Court. However, it is accepted by the Plaintiff that an exception to the usual principle is where there is a dispute about the validity of the mortgagee's entitlement to enforce the mortgage by selling the property. That exception applies in this case because of the prima facie dispute about the validity of a s 57 notice.
Upon $130,000 being paid into Court, and having regard to all these matters, I am satisfied that the balance of convenience is in favour of preserving the status quo by the grant of an interlocutory injunction to restrain the auction proceeding tomorrow. In this respect I note the following. First, the Defendants will give an undertaking as to damages. Secondly, a condition to the injunction is that there be a timetable for the prompt preparation of the real issues for final hearing. A lot of evidence has already been put on. It should be something that is capable of being dealt with quickly.
Thirdly, in the Notice of Motion the Defendants seek an order that possession of the property be restored to them. In my view, that order goes beyond preserving the status quo, and ought not be made until the issues in the case are decided on a final basis. Today is not the day for that so I will not make that order.
In reaching this conclusion I have had regard to the Plaintiff's submission that the Defendants have delayed in bringing the application. There are a number of things to be said about that. First, the Defendants cannot be criticised for not taking action until they became aware of the auction. Although the proceedings were commenced in May and were preceded by a number of written demands for significant amounts of money, once the proceedings commenced the Plaintiff made a claim for an order for possession in conventional terms. That approach would reasonably have given rise to an expectation that the Plaintiff would not seek to obtain possession otherwise. It is not exactly clear when the Defendants became aware that the Plaintiff was taking a different approach, but the different approach did not start until 9 June 2026 when the Plaintiff physically entered into possession without an order of the Court.
The evidence is that the Defendants retained their current solicitor on 16 June 2026, and on 8 July 2026 they approached the Duty Judge as the first step in making this application. The Defendants by their counsel properly accept that there has been some delay and that it is not ideal. In view of the matters addressed above, I do not consider that there is sufficient delay so as to decline relief in the exercise of my discretion.
In light of my reasons I make the following orders:
Upon the Defendants by their counsel giving an undertaking as to damages, an order pending the determination of these proceedings or further order that the Cross-Defendant be restrained by herself, her servants and agents from:
(a) taking any steps to authorise or proceed with the sale of the second cross-claimant’s property known as 69 Braeside Street, Wahroonga in the state of New South Wales, being the land in Lot 1 DP 534426 and in Folio Identifier 1/534426 (“Wahroonga Property”) at the auction by Ray White Real Estate presently scheduled to take place on Saturday 11 July 2026; or (b) exchanging or purporting to exchange contracts for the sale of the Wahroonga Property whether by auction, private treaty or otherwise.
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Baker
Dura