In the expanding field of mortgagee litigation, where a
mortgagee sues a borrower, there is an increasing trend for
allege that the mortgage is unenforceable as it is unjust under
the Contracts Review Act and/or was entered into as a
result of unconscionable conduct
join prior discharged mortgagees and frequently professional
advisers (such as brokers and solicitors) involved in the prior
Prior discharged mortgagees are joined to proceedings by
borrowers in order to seek to avoid a liability for any sums paid
to discharge a pre-existing obligation.
Justice Davies delivered judgment in the Supreme Court case of
Bank of Western Australia Limited v Tannous  NSWSC
1319 on 3 December 2010.
Bank of Western Australia Limited (Bankwest)
brought proceedings claiming possession of land against Mr and Mrs
Tannous arising out of loan agreements entered into in December
Mr and Mrs Tannous defended the proceedings on the basis that
the loan agreements entered into in December 2006 were fraudulently
entered into, or alternatively, that the loan agreements were
unjust under the Contracts Review Act 1980 (the
Mr and Mrs Tannous joined to the proceedings (amongst others) a
prior discharged mortgagee whose mortgage was paid out in full from
the funds obtained from Bankwest (ie: the earlier mortgage was
discharged and replaced by the present mortgage to Bankwest).
It is commonly submitted by mortgagees that borrowers who are
successful in challenging a mortgage as fraudulent or unjust should
not get the benefit of sums paid by the mortgagee to discharge a
In this case, Mr and Mrs Tannous alleged that the prior
discharged mortgage was also fraudulently entered into. They argued
that they joined the prior discharged mortgagee in order to prove
that the prior discharged mortgage was fraudulently entered into so
that they would not have a liability to the mortgagee for sums paid
to discharge the prior mortgage (as in such cases as Collier v
Morlend Finance Corporation (Victoria) Pty Limited (1989) 6
The prior mortgagee brought an application seeking to dismiss
the cross claim against it.
Justice Davies dismissed the cross-claim on the following
where there is an issue about whether a borrower has a
liability to a mortgagee for sums paid to discharge a prior
mortgage, in circumstances where it is alleged that the prior
discharged mortgage was unjust, the prior discharged mortgagee need
not be joined to the proceedings in order for the issue to be
the issue of whether a borrower has a liability to a mortgagee
for sums paid to discharge a prior mortgage is to be determined in
the context of the exercise by the Court of its discretion to grant
Justice Davies noted that with respect to the exercise of
discretion to grant relief it is likely that borrowers will seek to
establish that the prior mortgage was unjust in order to argue that
the discharge of that prior mortgage was not a benefit to the
borrower. Similarly, the incoming mortgagee will seek to establish
that the prior mortgage was not unjust in order to argue that the
discharge of the prior mortgage was a benefit to the borrower.
However, Justice Davies stated that it is not necessary for the
prior discharged mortgagee to be a party to the proceedings for a
determination of this issue to be made.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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