In Perpetual Trustees Victoria Ltd v Burns
 WASC 234, the Court considered the enforceability of loans
granted by a lender through intermediaries in circumstances of
The plaintiff lent the defendants, each on a disability pension,
over $840,000 in a series of six "low doc" loans used to
purchase a number of properties over a period of several years.
Both defendants had significant disabilities and it was
contentious whether either defendant fully appreciated and
understood the nature of the security arrangements and
documentation they had entered into.
Various intermediaries assisted the defendants in applying for
and obtaining their loans. The agreements between the
intermediaries and the plaintiff purported to deny the existence of
any "agency" type arrangement.
By April 2011, the defendants had defaulted and the plaintiff
sought an order that the defendants give vacant possession of their
Armadale property, being their residence and only significant
Alternatively, the plaintiff sought an order that the defendants
pay an amount of approximately $267,000 plus interest for money had
and received and/or as restitution for unjust enrichment.
Amongst other things, the defendants counterclaimed for a
declaration that the mortgage and its associated loan were void and
unenforceable. Further, the defendants sought an order that the
mortgage over the Armadale property be discharged by the
Justice Heenan dismissed the plaintiff's claim for
possession of the Armadale property, holding that a form of limited
agency or authority existed between the plaintiff and the
intermediaries. His Honour found that the intermediaries had
express authority to evaluate and consider mortgage applications
and to administer the criteria for "low doc" loans on the
Although the terms of the contracts between the plaintiff and
the intermediaries denied the existence of an agency relationship,
Justice Heenan focused on the substance, rather than the form of
the arrangements and held that the private instructions from the
plaintiff to its intermediaries were not effective in renouncing an
The defendants, through their previous dealings with the
intermediaries and previous loan history with the plaintiff,
understood that by dealing with the intermediaries they were
dealing with representatives of the plaintiff.
Having established that an agency relationship existed, Justice
Heenan went on to hold that the plaintiff, through its
intermediaries, had acted unconscionably. His Honour said:
"[t]he knowledge of [the intermediaries] meant that the
extent of the [defendants] disabilities, both physical and
financial, were known to the plaintiff which, also, had at its
disposal details of all the earlier loans then outstanding and
aggregating $844,200, bearing interest at 9.97%, with an aggregate
monthly interest bill on all loans of $6,380, well in excess of any
rent which the [defendants] could expect to derive from the
properties and when they had no other source of income save for
Justice Heenan ordered that the mortgage and loan agreement be
set aside and sought to return the parties to their original
Accordingly, the defendants were ordered to pay restitution to
the plaintiff for the original principal advanced under the loan
for the Armadale property, plus simple interest calculated at the
Reserve Bank of Australia cash rate (being significantly less than
the interest rate under the "low doc" loans) as a debt
due and payable, but unsecured.
Justice Heenan also ordered that interest and costs paid under
the earlier loans (which had already been paid out) be payable as
restitution by the plaintiff to the defendants. This amount could
be offset against the debt owed to the plaintiff in respect of the
This decision demonstrates that lenders remain responsible for
the actions of intermediaries, even where an agency relationship is
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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