Bass & Anor v Permanent Trustee

The High Court of Australia, comprising Brennan CJ, considered the dispute between Bass and another party (the appellants) and Permanent Trustee Company (Canberra) Limited (the respondent). The core of the disagreement concerned the validity of a mortgage over certain land, with the appellants seeking to have the mortgage declared void.

The primary legal issue before the Court was whether the respondent, as mortgagee, had discharged its duty to inquire as to the purpose for which the mortgagor intended to use the loan secured by the mortgage. Specifically, the Court had to determine if the respondent had constructive notice of any impropriety in the transaction, which would render the mortgage void.

Brennan CJ reasoned that the respondent's duty to inquire arose from the circumstances surrounding the mortgage. The Court applied the principle that a mortgagee has a duty to inquire when there are circumstances that would put a reasonable person on notice of potential fraud or impropriety by the mortgagor. In this instance, the Court found that the respondent had failed to make sufficient inquiries, thereby acquiring constructive notice of the mortgagor's intended misuse of the loan. This failure meant the respondent could not rely on the mortgage as a valid security against the appellants.

The Court ordered that the appeal be allowed and the mortgage be declared void.