Permanent Custodians v McLanders [2013] NSWSC 627

The borrower took the loan on the advice of Mr Kumar – a man that she had met on the internet and had formed an intimate relationship with. She had understood that the man was a finance broker. Mr Kumar had recommended the she use the equity in her house to invest funds with him and she had agreed. The borrower was unsophisticated with regard to finance matters and Mr Kumar organised the loan, mortgage and paperwork (which she signed). The borrower also signed an authorisation for funds to be deposited into an account owned by Mr Kumar and trusted him to invest those funds. Mr Kumar then disappeared.

The borrower defended the lender’s claim for possession on the basis that the funds had never in fact been paid to her, and the terms of the loan were unjust under the Contracts Review Act. She also believed that Mr Kumar was the agent of mortgage originator, who was in turn the agent of the lender. The borrower also brought a claim against Mr Kumar for the amount of the liability to the lender.

The judge concluded that, although he had much sympathy for the predicament of the borrower, it was her own conduct in trusting Mr Kumar that had facilitated the fraud; and that Mr Kumar had acted as her agent in the transaction and so she should be bound by his conduct. The lender had not facilitated an obvious risk of fraud, induced or misled the borrower.

The judge concluded that the borrower’s claim under the Contracts Review Act failed, and ordered that the lender was entitled to possession and payment of the debt under the loan agreement. The judge did also order that the borrower was entitled to succeed in her claim against Mr Kumar (although he did not appear at the hearing and there did not seem to be strong prospects of recovering any funds from him).

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