This article looks at the 2011 New South Wales Court of Appeal decision in Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liquidation)  NSWCA 36. This case gives useful insight into how a Court will view the proportionate liability for different causes of the same loss.
Perpetual Trustee Company Ltd (Perpetual) had received a loan application from Milanex Pty Ltd (Milanex) who was acting as a mortgage broker for Mr Kotevski. Mr Kotevski was, at the time of signing the application, a 74 year old pensioner who did not speak English well. In submitting the application ilanex misrepresented that it had verified the orrower’s identity and income.
Before approving the loan application Perpetual required Mr Kotevski to have received independent legal advice and to have signed the loan application freely and voluntarily. Mr Lo was the solicitor who provided that advice and witnessed the application documents. Mr Lo later represented to Perpetual that he was satisfied that he had given Mr Kotevski legal advice and that Mr Kotevski had voluntarily and freely signed the documents.
Perpetual awarded the loan on the basis of these representations. The loan funds were received by a friend of Mr Kotevski. Mr Kotevski did not receive any benefit and ultimately defaulted on the loan.
Perpetual brought proceedings against Milanex for damages for misleading and deceptive conduct in breach of section 42 Fair Trading Act 1987 (NSW) (FTA).
In the first instance the New South Wales Supreme Court found the mortgage to be void pursuant to the Contracts Review Act 1980 (NSW) (CRA) on the basis that the loan agreement was unjust in that Mr Kotevski had been unduly pressured into the loan and that he had received no benefit from it.
The Court also found that any misleading and deceptive conduct on behalf of Milanex had not been causative in Perpetual’s loss.
Decision on Appeal – proportionate liability
Perpetual appealed the decision and, on appeal, the Court found that the conduct of Milanex had been misleading and deceptive and that this conduct had caused Perpetual to suffer loss.
In the appeal proceedings Milanex contended that Mr Lo was a concurrent wrongdoer under the Civil Liability Act 2002 (NSW) (CLA) arguing that his conduct had contributed to Perpetual’s loss.
On the issue of proportionate liability the Court found that Mr Lo had also made misleading and deceptive comments to Perpetual in that he had assured Perpetual that he had provided Mr Kotevski with the appropriate legal advice and that Mr Kotevski had igned the documents freely and voluntarily.
In evidence Mr Lo was unable to rely on records or file notes to demonstrate the nature of the advice he had provided. Furthermore, it was held that a reasonable solicitor would not have formed the view that a 74 year old, who had little understanding of the English language, would freely and voluntarily have signed a 30 year term loan application.
It is noted that despite making this finding against Mr Lo there was never any assertion that Mr Lo had been dishonest in his conduct.
The Court found that Mr Lo was liable to the extent of 35% while Milanex was liable for the remaining 65%. A key consideration in the Court coming to this figure was that there was evidence that Milanex would have proceeded with the loan application even if Mr Kotevski had not sought Mr Lo’s legal advice.
It was found that Mr Lo’s involvement contributed to Perpetual’s loss but was not a causative factor. It is worth further noting that Young JA dissented from this position and was of the view that Mr Lo should have been proportionately liable to the extent of 25%.
What to take away from the decision
There are a number of points that both lawyers and brokers can take away from this decision.
In particular brokers should take away the following points:
- stipulating a requirement of a lawyer’s certificate will likely result in the lawyer bearing the greater proportionate liability;
- the lawyer will bear greater liability if he acts dishonestly; and
- that brokers need to remember that when they submit applications to lenders they are representing to the lenders that the information contained within is true and correct.
Lawyers should take away the following points from this decision:
- that lawyers need to ensure they maintain records and/or file notes to demonstrate the legal advice they provide to borrowers;
- that lawyers need to bear in mind the issue of reasonableness – in particular, is it reasonable to hold the opinion that the borrower has the capacity to understand the legal advice it is being provided with; and
- that the Court is prepared to find lawyers proportionately liable with mortgage brokers and will apportion damages with reference to the individual circumstances of each case.
To help lawyers avoid the situation that Mr Lo found himself in the QLS and Lexon have provided checklists for lawyers to follow when providing independent legal advice to borrowers.1 It is recommended that practitioners follow these guidelines when providing such advice.
The decision in Perpetual Trustee Company Ltd v Milanex Pty Ltd (in liquidation)  NSWCA 36 should act as a warning for lawyers and brokers alike in acting in financial dealings with borrowers and lenders.
A copy of the decision can be found here.