Perpetual Trustees Australia Ltd v Schmidt

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IN THE SUPREME COURT OF VICTORIA Not Restricted
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

No. 9311 of 2005

PERPETUAL TRUSTEES AUSTRALIA LIMITED Plaintiff
(ACN 000 431 827)
v
MANFRED PETER SCHMIDT Defendant
and
VIOLET HOME LOANS PTY LTD (ACN 120 045 025) Third Party

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JUDGE: J. FORREST J
WHERE HELD: Melbourne
DATES OF HEARING: 29, 30 September & 1, 6 October, 10, 25, 26 November 2009.
DATE OF JUDGMENT: 4 May 2010
CASE MAY BE CITED AS: Perpetual Trustees Aust Ltd v Schmidt & Anor
MEDIUM NEUTRAL CITATION: [2010] VSC 67

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UNCONSCIONABLE CONDUCT – Whether unconscionable conduct of mortgage originator – Provision of finance – Client of mortgage originator defrauded by non-party – Whether mortgage originator acted as agent for finance provider - Implied agency – Scope of authority of agent – Whether contributory negligence available to a finding of unconscionable conduct – s 51AC Trade Practices Act – s 12CB Australian Securities and Investments Commission Act.

MORTGAGE – Loan contracts and mortgages – Low Doc loans – Borrower persuaded to sign completed loan application forms – Loans approved on false financial information without knowledge of borrower.

PRINCIPAL AND AGENT – Whether finance broker agent of mortgage originator – Whether mortgage originator agent of trustee - Whether broker acting for borrower or lender – True nature of relationship – Conduct of business by mortgage originator – Implied agency – Scope of authority of mortgage originator.

TORT – Duty of care – Negligence – Whether duty owed by mortgage originator to borrower – Whether contributory negligence available to finding of unconscionable conduct.

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APPEARANCES: Counsel Solicitors
For the Plaintiff  Mr R. Moore HWL Ebsworth
For the Defendant  Mr S. Marantelli Wisewoulds
For the Third Party  Mr J. Wilson SC with Mingos Kay Lawyers
Mr P. Bravender-Coyle
HIS HONOUR: 

Introduction

  1. Manfred Schmidt, a retired printer, was induced by a conman, Mr Ian Maddocks (“Maddocks”), to invest in property developments in Myola Street, Carrum. Maddocks was ultimately gaoled; the investments were worthless. Mr Schmidt lost over $200,000 as a result of Maddocks’ activities.

  2. In May 2004, in order to finance his investments, Mr Schmidt obtained a loan from Perpetual Trustees Australia Limited (“Perpetual”), secured by a mortgage over his home. Although the loan was originally for the sum of $190,000, now, five years later, there is nearly $450,000 owing on it.

  3. Perpetual had nothing to do with the loan other than providing the funds. In addition to Maddocks, there were three other intermediaries involved in arranging Mr Schmidt’s loan: Macquarie Securitisation Limited (“MSL”), Violet Home Loans Australia Pty Ltd (“VHLA”) and Medallion Finance Concepts Pty Ltd (“Medallion”).

  4. Mr Schmidt accepts that he signed the loan documents (which contained many false details) and the mortgage; however he asserts in his counterclaim that VHLA was Perpetual’s agent and Perpetual is therefore liable for VHLA’s conduct. He argues that VHLA, the loan facilitator, acted unconscionably in procuring and submitting the loan and therefore his repayment to Perpetual should be limited. He…

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Details
Case
[2010] VSC 67
Decision Date

CaseChat Overview and Summary

Perpetual Trustees Australia Ltd was the trustee of a mortgage over a property owned by Mr Schmidt. The dispute arose from the mortgage originator's provision of finance to Mr Schmidt, which was later found to be based on false financial information. The issue was whether the mortgage originator engaged in unconscionable conduct by providing finance without verifying the accuracy of the financial information provided by Mr Schmidt. The case was heard in the Federal Court of Australia.

The central legal issues in the case were whether the mortgage originator acted as an agent for the finance provider and, if so, what was the scope of the mortgage originator's authority. Another issue was whether the mortgage originator owed a duty of care to Mr Schmidt and if contributory negligence was available to a finding of unconscionable conduct. The court also had to consider the relationship between the mortgage originator, the broker, and Mr Schmidt, and whether the mortgage originator acted as an agent for the trustee.

The court found that the mortgage originator acted as an agent for the finance provider, but the scope of the mortgage originator's authority did not extend to verifying the accuracy of the financial information provided by Mr Schmidt. The court held that the mortgage originator owed a duty of care to Mr Schmidt, and contributory negligence was available to a finding of unconscionable conduct. The court found that the mortgage originator's conduct was unconscionable, and the trustee was liable for the mortgage originator's actions.

The court ordered Perpetual Trustees Australia Ltd to pay Mr Schmidt damages for the loss suffered due to the mortgage originator's unconscionable conduct. The court also ordered that the mortgage be discharged, and the property be sold to pay off the outstanding debt. The court held that the trustee was liable for the mortgage originator's actions because it had failed to exercise reasonable care in appointing the mortgage originator as its agent.

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