29/03/2012

In a recent NSW Court of Appeal decision, the Court held that a decision in 2009 which held a mortgage introducer (effectively a loan broker) to be an agent of the lender was incorrect.

In our November 2009 BLB Newsletter we reported on the original decision of the NSW Supreme Court.  We reported that in three cases heard together [Permanent Trustee Company Limited v O'Donnell; Permanent Trustee Company Limited v Di Benedetto; Tonto Home Loans Australia Pty ltd v Tavares [2009] NSWSC 902] the Supreme Court held that the broker was the agent of the lender and in the circumstances of these cases the contracts were unjust within the meaning of the Contracts Review Act 1980 (NSW) and declared void.

The recent case involved allegations that the mortgage introducer engaged in conduct of completing application forms without the borrowers’ knowledge and mislead the lender.  The result was that the loans were made available in circumstances where if the true information was given the loan applications would have been rejected.  The Court of Appeal has now held that the mortgage introducer was not the agent of the lender.  The Court held that the arrangement between the lender and the introducer did not provide that the introducer would "act on behalf, and in the interests of" the lender and therefore the introducer was not the agent of the lender.  The Court said:

"Agency is to be determined by an analysis of the consensual legal relations between the parties…..  The primary judge was wrong to characterise the relationship between [the lender] and [the introducer] as agency."

Although the introducer was not an agent of the lender, the Court of Appeal still held that the mortgages were unjust pursuant to the Contracts Review Act 1980 (NSW) and ordered the mortgages be discharged.  The decision states:

"The degree of unjustness here stems primarily from the fraud and procedural injustice of [the introducer].  Though not the agent in law of [the lender], it was…  the link in the business enterprise for which … the lenders ….. should take significant responsibility."

The effect of the Court of Appeal’s decision is that the mortgages were still unjust even though it did not find that the mortgage introducer was an agent of the lender.
The moral of this story is then that if you use a loan broker be sure you understand just who he’s acting for and what your responsibilities might be for his actions.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.