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Permanent Trustee Co Ltd v O'Donnell

Permanent Trustee Co Ltd v O'Donnell

Case [2009] NSWSC 902 4 September 2009

Contract Formation

Unconscionable Conduct

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CITATION: Permanent Trustee Company Limited v Gillian O'Donnell Permanent Trustee Company Limited v Di Benedetto Tonto Home Loans Australia Pty Ltd v Tavares [2009] NSWSC 902

HEARING DATE(S): 23 March 2009 ; 24 March 2009; 26 March 2009; 27 March 2009; 30 March 2009; 31 March 2009; 1April; 6 April 2009; 7 April 2009; 8 April 2009; 21 April 2009

JUDGMENT DATE :
4 September 2009

JUDGMENT OF: Price J at 1

DECISION: See paragraphs 446
447 and 448

CATCHWORDS: CONTRACTS - loan contracts and mortgages - Lo Doc loans - fraud of finance broker and property developer - borrowers persuaded to sign blank or partially completed loan application forms - borrowers persuaded not to obtain independent legal advice - carelessness of borrowers - loans approved on fraudulent financial information inserted by finance broker without knowledge of borrowers - purported use of loan funds for joint ventures - ASIC intervention - public interest - lending guidelines - panel lawyer's guidelines - mortgage insurance - special condition as to cash out - prudent lending practice - PRINCIPAL and AGENT - conflict of interest - whether broker acting for borrowers or lender - Introduction Deed - terms of agreement - true nature of relationship - attribution of knowledge of broker to mortgage manager and lender - asset lending - conduct of business by mortgage manager - risk of serious fraud to borrowers - UNJUST CONTRACTS - Contracts Review Act - consideration of relevant circumstances - lenders guidelines not followed - whether unjust asset lending - consideration of public interest - exercise of discretion.

LEGISLATION CITED: Australian Securities and Investments Commission Act 2001 (Cth)
Contracts Review Act 1980 s 7(1)(d)
Fair Trading Act 1987
Trade Practices Act 1974
Real Property Act 1900 s 57(2)(b)

CATEGORY: Principal judgment

CASES CITED: Baltic Shipping Co v Dillon (1991) 22 NSWLR 1
Beach Petroleum NL & Claremont Petroleum NL v Johnson (1993) 115 ALR 411
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250
Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552
CIT Credit Pty Ltd v Keable [2006] NSWCA 130
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Custom Credit Corporation v Lynch [1993] 2 VR 469
JC Houghton & Co Pty Ltd v Nothard
Lowe & Wills Ltd [1928] AC 1
Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55
Lloyd v Grace
Smith & Co [1912] AC 716
Micarone v Perpetual Trustees Austalia Ltd (1999) 75 SASR 1
Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284
Nathan v Dollars & Sense Finance Ltd [2007] 2 NZLR 747
Nguyen v Taylor (1992) 27 NSWLR 48
NMFM Property v Citibank (2000) 107 FCR 270
Octapon Pty Ltd v Esanda Finance Corporation Ltd (Supreme Court of New South Wales
3 February 1989

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Permanent Trustee Co Ltd v O'Donnell

Details

AGLC: Permanent Trustee Co Ltd v O'Donnell [2009] NSWSC 902
Case: [2009] NSWSC 902
Decision Date: 4 September 2009

CaseChat Overview and Summary

The case of Permanent Trustee Co Ltd v O'Donnell involved a dispute concerning loan contracts and mortgages, specifically relating to Lo Doc loans. The borrowers, represented by Mr. and Mrs. O'Donnell, had been persuaded to sign blank or partially completed loan application forms by a finance broker and a property developer. The borrowers were led to believe that the loans were being used for joint ventures, without their knowledge that the broker had inserted fraudulent financial information to secure the loans. The broker and developer had a conflict of interest, as they were acting for both the borrowers and the lender. The court was required to determine whether the broker acted as an agent for the borrowers or the lender, and if the loan contracts were unjust under the Contracts Review Act.

The primary legal issues in the case were the characterisation of the broker's role and the potential unconscionability of the loan contracts under the Contracts Review Act. The court had to consider the true nature of the relationship between the broker, borrower, and lender, as well as whether the broker's knowledge could be attributed to the lender. Additionally, the court needed to examine whether the lenders had followed prudent lending practices and lending guidelines set by ASIC, and whether the loans were unjust under the relevant legislation. The court also considered the public interest in exercising its discretion to review and potentially declare the contracts unjust.

The court found that the broker acted as an agent for the lender, rather than the borrowers, and that the broker's knowledge could be attributed to the lender. The court determined that the loans were unjust due to the lender's failure to follow prudent lending practices and ASIC guidelines. The court considered the public interest in exercising its discretion under the Contracts Review Act, and ultimately decided to declare the loan contracts unjust. The court's decision was influenced by the significant risk of serious fraud to the borrowers, the lender's non-compliance with lending guidelines, and the overall circumstances of the case.

The final orders of the court included the declaration that the loan contracts were unjust, the setting aside of the mortgages, and the requirement for the lender to refund the principal amount of the loans, plus interest. The court's decision emphasised the importance of prudent lending practices and the need for lenders to adhere to ASIC guidelines to protect borrowers from potential fraud and injustice.

Orders