In this case the lender made a four month loan of $60k (retaining $2k pre-paid interest) to the borrower believing he was going to get a unregistered mortgage over the borrowers property at Yagoona.
The lender sued the broker on the grounds he did not obtain a unregistered mortgage and the borrower was bankrupt. The District Court awarded the lender $60k plus interest.
The Court of Appeal ordered a retrial because:
- The security documents were possibly sufficient to give rise to a charge, depending on whether or not they were signed by the borrower. The trial judge did not ascertain that question. Thus the trial judge’s breach of duty finding was without a basis.
- Even if there was a breach of duty at most that would put the lender in the position he was in prior to the breach ($58k down not $60k). If there was no equity in the property (because there was a registered first mortgage) then the loss could not be said to be caused by the failure to obtain an unregistered mortgage (because even if it had been obtained it would have been worthless)
Lender’s can avoid this problem by using a appropriately qualified solicitor to act on their mortgage advances.