Some reassurance for lenders

A recent decision of the Supreme Court of New South Wales in Bank of Western Australia Limited v Phil Lou & Anor [2010] NSWSC 733 (Phil Lou) should provide some comfort to lenders faced with increasingly fanciful defences from borrowers attempting to avoid giving up possession of secured properties.

In the Phil Lou decision, Einstein J of the NSW Supreme Court, seemingly conscious of the amount of wasted time and resources associated with hearing unmeritorious defences, dismissed all of the defences raised by the borrowers. Some of the defences are set out below.

Non est factum

The defendants pleaded that they were unaware of the true nature of the loan agreement which they signed.

Einstein J commented that this defence assists only those who do not understand or are incapable of understanding a contractual document. It does not assist ‘carelessness’ and the defendants had not discharged the heavy onus of showing that the document they believed they signed was radically different from what it was in fact.

Misleading or deceptive conduct

The defendants alleged that the lender, through a finance broker, made various misrepresentations including as to when loan funds would become available.

The defendants failed in this defence as they were unable to establish that the misrepresentations were made and they were unable to establish, based on the facts presented, that the finance broker making the representations was the lender’s agent.

Breach of Duty of Care

The defendants alleged that the lender breached a duty of skill, care and diligence in and around providing the loan.

Einstein J relied upon various authorities in which it had been held that a duty of care is not imposed in a banker-customer relationship. It is only where a lender has undertaken the additional role of a financial adviser where a duty may arise, but that was not the case here. As there was no duty of care, any breach could only arise under the terms of the contract.

Implied term to exercise reasonable skill, care and diligence

The defendants argued that there was an implied term in the loan contract that required the lender to exercise reasonable care and skill.

Einstein J stated ‘an implied warranty to exercise reasonable care and skill cannot be elevated to a requirement on a bank to make available loan funds at a time demanded by a customer’.

Lavan Legal comment

Ultimately, Einstein J comprehensively dismissed each of the defences raised in this case. The ongoing challenge for lenders faced with unmeritorious (and sometimes numerous) defences is to deal with them as quickly and as cost efficiently as possible, particularly where the lender is already contemplating a shortfall.

If you have any questions about this case or its implications please do not hesitate to contact Alison Robertson, Partner, on (08) 9288 6872 alison.robertson@lavanlegal.com.au or Simon Majteles, Senior Associate, on (08) 9288 6763 simon.majteles@lavanlegal.com.au.