Permanent Mortgages v MacFadyen [2012] NSWSC 130

The borrower sought construction finance, relying on the strength of pre-sales of units she proposed to construct. The pre-sales fell through, and the loan defaulted. The borrower argued at trial that the lender owed her a duty of care to inspect the contracts for the pre-sales, and was negligent because the lender did not review them properly. The judge rejected this argument, saying:

A lender cannot be liable for failing to advise a customer if he owes the customer no duty to do so. Generally speaking, lenders do not owe their customers a duty to advise them on the wisdom of commercial projects for the purpose of which the lender is asked to lend them money. If the lender is to be placed under such a duty, there must be a request from the customer, accepted by the lender, under which the advice is to be given.

The next argument the borrower made was that the lender had acted unconscionably in lending the money to the borrower. The judge found that there was no evidence of any disadvantage the borrower had, or any superior position the lender exploited to their advantage. The borrower was able to manager her business affairs on her own, and was not pressured or rushed by the lender. The argument was rejected.

The third argument was that the loan was unjust under the Contracts Review Act. The borrower argued that it was common practice for borrowers to present an inaccurate or incomplete picture in an application to ensure success, based on the expectation that a lender would investigate the matter fully and not lend if the proposed development was improvident. This proposition was rejected with indignation by the judge.

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