- Court Sympathy Causes Recovery Rethink
- Personally Known To Me
Court Sympathy Causes Recovery Rethink
Borrowers who took on more debt than they could afford to repay used to obtain little sympathy from the courts. This has now changed.
Borrowers who can show that the lender knew, or ought to have known, that their home loan could not be serviced are with increasing frequency obtaining relief under the 'unjust contract' provisions of the Contracts Review Act. This trend heightens the risk of relief also being afforded to borrowers under the equivalent 'unjust contract' provisions of the Consumer Credit Code.
These cases have had some common threads:
- vulnerable borrowers on fixed income
- incomplete or internally inconsistent loan applications that (with the benefit of hindsight) throw doubt on whether the borrowers understood the transaction or loan purpose
- failure to follow lending guidelines
- providers of legal and financial advice not being truly independent of the lender and otherwise failing to provide adequate advice.
By obtaining the court's sympathy, borrowers, in some instances, have not had to repay the loan. In other instances, the courts have required the borrowers to prepay principal, normal interest but not higher rate interest.
It can be a costly experience for both borrower and lender to partake in litigation when the end result only effects how much interest is repaid.
The challenge for lenders is to identify at an early stage whether:
- the borrowers in fact could not afford the repayments at the loan of the loan
- the borrowers' circumstances are such that they may find sympathy with the courts
- whether there are any third parties such as brokers, financial or legal advisers who may have played a part in facilitating the loan.
Going forward, lenders would be well-advised to ensure that all parties who a borrower maintains were responsible for their excessive debt are present and accounted for, by being joined to the proceedings – especially if a commercial solution to the dispute cannot be found and a final hearing is likely.
By Justin Bates
Personally Known To Me
Have you ever wondered whether a witness who falsely witnesses a mortgagor's signature is liable to the mortgagee?
This question has largely been answered by a recent New South Wales Court of Appeal decision (Graham v Hall).
From Bathurst to the Court of Appeal
Mr and Mrs Hall jointly owned their family home at Bathurst. Mr Hall manufactured water tanks and his business was experiencing financial difficulties.
Unbeknown to his wife, he forged her signature and obtained a loan secured against their family home.
Mr Hall managed to convince a justice of the peace to 'witness' his wife's signature when in fact his wife had not signed the mortgage. Further, Mr Hall was able to retain a local solicitor to act for himself and his wife on the refinance, despite his wife having no dealing with the solicitor and no knowledge of the retainer.
Matters came to a head after Mr Hall had passed away and his wife discovered the existence of the mortgage.
His wife commenced proceedings in the District Court of New South Wales. The witness (Mr Graham) defended the proceedings on the basis that he did not owe any duty of care to Mrs Hall in her capacity as mortgagor.
The District Court Judge disagreed and, in awarding damages to Mrs Hall, apportioned liability 60/40 between the solicitor and Mr Graham.
Onwards and Upwards to the Court of Appeal
Mr Graham appealed the decision and unsuccessfully argued before the New South Wales Court of Appeal that witnesses do not owe duties of care to mortgagors.
The judgment provides a springboard for an extension of the duty of care as between witnesses and mortgagees. It provides a useful avenue of recourse especially given the incidence of identity fraud. We expect that it will only be a matter of time before a mortgagee successfully sues a witness over a false attestation.
Issues to Consider When Joining a Witnesses as a Defendant to Proceedings
When considering whether to join a witness as a defendant to proceedings a lender should have regard to:
- whether it is possible to identify the witness – often, despite the witnesses name and address being provided, the witness may not exist or cannot be located
- whether the witness is a person of any financial substance
- whether the 'impostor defence' is open to the witness.
In regards to the 'Impostor defence', it is usually available to any witness who maintains they were duped, in the sense that the fraudster arranged for a third party to be an impostor, such that they genuinely thought that they were witnessing the mortgagor's signature.
This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.
By Justin Bates
t +61 2 9931 4763
t +61 2 9931 4957
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.