Background

In Baker v Dura [2026] NSWSC 881, borrowers obtained a $250,000 loan from the lender, secured by mortgages over two properties. The loan required 24 fortnightly instalments of $10,420 each. Critically, the loan agreement imposed a $250-per-day charge for each day any instalment remained unpaid – an effective penalty interest rate of 876% per annum on the Defendants’ construction.

The borrowers paid 18 of 24 instalments ($187,560) before defaulting. When they sought to repay the outstanding balance of approximately $74,000 in November 2025, negotiations broke down. By July 2026, the lender claimed over $445,000 was owing, driven almost entirely by the daily $250 charges.

The lender issued a section 57 default notice claiming $221,000, physically entered possession of the Wahroonga property without a court order, and scheduled an auction for 11 July 2026 after only 24 days of marketing. The borrowers urgently sought an interlocutory injunction to restrain the sale.

Decision

The Court granted the injunction, restraining the auction and any sale pending final hearing, on condition that the borrowers pay $130,000 into court and provide an undertaking as to damages.

Key Findings

The Court found the borrowers had a ‘prima facie’ case on two grounds:

1. Penalty Clause: The $250-per-day payment obligation was likely void as a penalty, being extravagant and unconscionable compared to any genuine pre-estimate of loss. The lender’s own evidence showed she funded the loan by drawing on her home loan, which would not attract interest anywhere near 876% per annum.

   
   

2. Invalid Section 57 Notice: The notice claimed $221,000 when the actual amount due (excluding the disputed penalty charges) was likely $60,000–$80,000. This disparity raised a serious question whether the notice was misleading or failed to comply with section 57 requirements. The notice also failed to identify the specific contractual provisions breached, which may be required under the statute.

   
   

The Court held damages were inadequate given the risk of third-party complications and the difficulty quantifying loss in a declining market. The balance of convenience favoured the borrowers, who had other security and would suffer no prejudice from a short delay, whereas the borrowers risked losing control of a valuable asset based on a potentially invalid enforcement process.

Implications for Lenders

This decision underscores three critical points:

• Penalty clauses imposing grossly disproportionate charges risk being struck down, undermining enforcement rights.

  
  

• Section 57 notices must accurately state amounts due; significant overstatement may invalidate the notice and the power of sale.

  
  

• Premature enforcement – especially taking possession and scheduling rushed auctions before disputes are resolved – may be restrained where borrowers demonstrate serious questions about validity.

  
  

Lenders should ensure default interest provisions are commercially justifiable, section 57 notices are precise, and enforcement timelines allow proper marketing and dispute resolution.

DISCLAIMER: This article is current as at September 2026. It is general in nature and does not constitute legal advice. Specific advice should be obtained for your particular circumstances.