The borrower claimed he intended to sell an exisiting property to fund the purchase and development of an additional property. However, the bank’s loan officer advised him:
- the lender would be in a position to fund both the acquisition and redevelopment of the additional property and the construction planned for an exisiting security.
- the facility for the additional property was for a period of 12 months only because at the expiration of that period he would have the approval for the 20 town houses.
- the lender would then review the position and provide the finance needed to proceed with the additional project.
The claim against the bank was one of misleading and deceptive conduct. The bank, noting that the claim related to the mortgage over the additional property, sought summary judgement against the borrower in relation to the exisiting security.
The judge noted:
The bank chose to link the facilities together and put in place cross-guarantees to enhance its security position. The question now is whether it is entitled to untangle that arrangement and treat the original facility as a stand-alone facility in default, such that it is entitled to an immediate order for possession.
Ultimately, the judge decided:
In my view, the justice of the situation requires that the position of all of the facilities and guarantees be dealt with together. It would be an injustice to grant possession at the moment and allow the bank to sell the original property, only to find later that the account was never in default and that the amount actually owing on that facility was significantly less than claimed by the bank. No injustice will be occasioned by allowing all matters to proceed together. The bank remains protected by its position as a mortgagee.
Of course, what the judge has overlooked, is the fact that the bank is not protected by its position as mortgagee for the simple reason that:
On the bank’s figures, even if it obtained possession of the properties and was able to obtain the expected sale prices, it will suffer a significant shortfall.
There was an interesting discussion by the judge of the applicability of the High Court decision in Inglis v Commonwealth Trading Bank of Australia to a mortgagor resisting an application for summary judgement.