Perpetual Trustee v Bowie [2015] NSWSC 328

The lender sought possession and the borrower, who was on a disability pension claimed that the loan and mortgage were unjust under the Contracts Review Act and that the lender was negligent in advancing the loan. The borrower obtained a no doc loan to purchase a second residence while her house was being renovated on the basis that she was self employed and the loan was for investment purposes, both incorrect and signed a declaration that she was able to meet the repayments and the lender had not reviewed her finances to verify this and certified that she had been given the opportunity but had chosen not to obtain legal advice. 

The court believed the mortgage broker that had he known that the borrower was receiving a disability pension, he would not have submitted the loan application. The court did not accept that the borrower’s obsessive compulsive disorder or her depression affected her ability to look after her own interests. The court noted that the borrower had a plan to buy a new home because her mental illness prevented her from repairing her existing home while she occupied it and although the plan may have been risky it was not irrational. The court noted that a contract will not be unjust merely because it was not in the interests of the borrower to enter it. 

The court found it likely that the broker knew that the borrower suffered from obsessive compulsive disorder but not that she may be incapable of protecting her own interests or servicing the loan. The court found that the lender did not know of the borrower’s mental condition and refused to impute the broker’s knowledge to the lender. The court found the broker to be the borrower’s agent not the lender’s agent. 

The court made a number of comments about no doc loans. The court found that the lender was not required to investigate the borrower’s financial position and the borrower understood this and signed a declaration to this effect and an acknowledgement that she had decided not to obtain legal advice. The court noted the inequality of bargaining power but did not find that inequality to be a factor that made the loan unjust. The court also found that the fact that the borrower was not specifically advised to obtain legal advice did not make the loan unjust because the borrower understood the documents and that the lender would not review her ability to repay the loan. 

The court did not find the loan and mortgage to be unjust. 

The court also found no duty of care owed by the lender to the borrower to assess whether or not to grant a loan to the borrower. The court said even if a duty was owed, it was a duty to assess the application in the context of it being a no doc loan application, which does not require the borrower to provide any financial information. The court found the lender considered the declaration, did a credit check and obtained a valuation.

The court found no negligence and granted possession.

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