Mortgagee lender does not have duty of care to ensure that a loan is appropriate for borrower

  • Author : Robert Hay QC - 01-07-2014

Defaulting mortgagor borrowers defending court proceedings by the mortgagee lender often allege that the lender owed them a duty to investigate their income and assets and liabilities to determine whether the loan could be serviced.

The legal basis for such a claim was recently rejected by the Supreme Court of New South Wales in Westpac Banking Corporation v Diagne [2014] NSWSC 822. Among the many claims made by the defaulting mortgagor borrowers was that the lender had a duty to "[p]rudently investigate the income, assets and liabilities of [the borrowers] and the proposed business plan of [the borrowers] in order to determine serviceability" and "[t]o take reasonable remedial action when the loans fell into arrears, including investigating the causes of the arrears, working with [the borrowers] to remedy the problems identified and continuing to monitor the ability of the borrowers and guarantors to adequately service the facilities". Included in the alleged duty was a duty "to appropriately set and alter limits on overdraft facilities".

Ball J rejected the borrower’s claims. His Honour applied Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80  and held that the lender did not have a duty of care to investigate the borrower’s circumstances to determine whether the loan that was made was appropriate for them.


 

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Robert Hay QC

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