Two recent decisions of the Supreme Court of New South Wales provide welcome news for brokers with the court finding that:

  • brokers do not owe a duty to borrowers to investigate the information provided to them by borrowers
  • it is not unconscionable for a broker not to ensure that a borrower receives independent advice about a loan
  • it is not unconscionable for a broker to leave the explanation of loan documents to a lender.

The decisions

Both cases involved similar facts; parents from non-English speaking backgrounds entering into loans to provide funds for their children.

In the first case, RHG Mortgage Corporation Limited v Baira [2011] NSWSC 520 Ms Baira and Mr and Mrs Ianni signed loan and mortgage documents for the purpose of assisting Mrs Baira's daughter and her husband (Mr and Mrs Ianni's son) to purchase a property and reorganise business loans. Ms Baira and Mr and Mrs Ianni apparently provided false information to the broker in support of the loan applications.
 
Grove AJ found that the broker had no duty to investigate the borrowers or to challenge or investigate the truth of what he was told by them. His Honour also rejected a contention that the broker was liable for having failed to notice an anomaly in documents provided to him by the borrowers.

In the second case, Westpac Banking Corporation v Velingos [2011] NSWSC 607 Mr and Mrs Velingos signed loan and mortgage documents in the presence of a Westpac officer and a broker for the purpose of refinancing an existing loan and providing funds to their son for investment. Mr and Mrs Velingos' son acted as translator for his parents during the meeting. Schmidt J found that what the bank officer said at the meeting to Mr and Mrs Velingos with respect to obtaining independent advice was not translated to them.

Her Honour found that there was nothing unconscionable in the broker leaving the explanation of the loan documents to the bank officer and nothing which could have indicated to the broker that Mr and Mrs Velingos' son was not translating accurately what the bank officer said. Her Honour also found that although it was possible that there was undue influence occurring, the broker did not act unconscionably in not ensuring that Mr and Mrs Velingos received independent legal advice.

Comment

The decisions highlight the more onerous duties imposed on solicitors when acting for borrowers. In past cases, the Supreme Court has found that solicitors owe a duty to borrowers to enquire into information provided by co-borrowers (including conducting company and property searches) and has found solicitors liable for failing to advise borrowers separately from loan beneficiaries.

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