Bank of Queensland v Fitzgerald [2014] NSWSC 1599

The borrower raised a Contract’s Review Act arguing the lender engaged in “asset lending”. 

The Bank conceded that this gave rise to a triable issue. However notwithstanding that triable issue, the bank argued it had an alternative basis for obtaining summary judgment, namely subrogation. This argument was, “even if the loan was unjust, you must give us credit for the sum that was refinanced by us.”

The judge noted that a recent Court of Appeal case opened the possibility of there being cases where credit will not be given. In First Mortgage Managed Investments Pty Limited v Pittman [2014] NSWCA110 at [187] where Sackville AJA, with the agreement of Beazley P and Gleeson JA, said at [187]:

I am prepared to accept that there may be circumstances in which an order declaring an unjust loan contract wholly unenforceable is necessary or appropriate to avoid an unjust consequence or result of the loan contract, notwithstanding that the borrower used part of the loan to discharge a valid and enforceable pre-existing loan or mortgage. For example, the lender’s actions may have deprived a vulnerable borrower of the opportunity to take an available course, other than refinancing through the lender, that would have permitted the borrower to pay out the earlier loan. A lender who is aware of a borrower’s financial position might induce the borrower to take on commitments that are so burdensome and commercially unrealistic that the borrower defaults in all his or her obligations. 

The court distinguished a case involving fraud noting:

There, Johnson J was dealing with a matter involving only, the application of general law principles of fraud on the one side and subrogation on the other. Here there is an additional complexity. What the plaintiff relies upon is statute. By that statute he argues that he is entitled to have, what would otherwise be lawful, set aside. Clearly statute law will trump the application of principles derived wholly from the general law. It does not seem plain and obvious to me that if the defendant makes good his claim for relief under the Contracts Review Act about which, as I have said there is no argument that there is a triable issue, that there will be no flow-on from the circumstances established for that purpose capable of undermining what might appear to be a strong case for application of the doctrine of subrogation.

I am not satisfied to the requisite standard, unlike Johnson J in Thirup, that even if this Bank’s registered mortgage is set aside under the Contracts Review Act, it is beyond argument that the plaintiff can rely upon the principle of subrogation as the Bank’s of its entitlement to obtain judgment for possession of the secured property and that part of the plaintiff’s indebtedness referable to the home loan. For these reasons my order is the bank’s application for summary judgment be dismissed.

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