BankWest v Luo [2010] NSWSC 733

This was a claim by the lender for possession of the borrowers’ (a husband and wife) property that was secured by a mortgage, following their default in making repayments. The borrowers relied mainly on the defences of non est factum, undue influence, unconscionability (s 51AA of the Trade Practices Act 1974), and misleading and deceptive conduct (s 52 of the TPA).

Justice Einstein set out the law of non est factum as stated in an earlier case:

The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence.

The wife understood English poorly. The non est factum doctrine assists those who do not understand and are not capable of understanding a contractual document, but it does not assist the careless. In not seeking an explanation of the documents she signed, the wife was careless.

The allegations of misrepresentation that the funds would be advanced by a certain time were unfounded. The documents relied on did not contain the alleged misrepresentations and the person who provided the information to the borrowers, the finance broker, was the agent of the borrowers not the lender’s agent. There was also no contractual obligation to advance funds by a particular date.

Justice Einstein quoted an earlier decision which summarised the defence of undue influence as, “some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some personal advantage obtained by’ the guilty party”.

Justice Einstein stated that unconscionability arises where one party takes unfair advantage of another party’s special disadvantage.

Neither defence could be made out for the same reasons that the allegations of misrepresentation failed.

In deciding whether the lender had failed to exercise reasonable skill, care and diligence in making the loan advances the judge quoted form an earlier decision of the House of Lords:

Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, eg in the limitation of action.
It was within the lender’s discretion when to advance the funds. There was no duty of care over and above the obligations under the loan contract. The lender succeeded in obtaining an order for possession of the property.

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