Lenders will be interested in the decision recently delivered by Justice Hall in the NSW Supreme Court in ANZ v. Londish

ANZ commenced proceedings to enforce a loan of $3.27m made to Mrs Londish in 2009, secured over the family home at Warrawee.

Mrs Londish is defending the proceedings under the Contracts Review Act and under general law claiming that the loan and mortgage were unjust and unconscionable.

ANZ sought to be subrogated to the rights of the previous mortgagee, Perpetual, as ANZ’s loan was applied to re-finance the prior Perpetual loan and mortgage.

Mrs Londish asserted that ANZ cannot be subrogated to the rights of Perpetual, as the Perpetual loan and mortgage were also unjust.

ANZ  then sought leave of the court, to join Perpetual as a defendant to the proceedings. 

This is because if Perpetual’s loan and mortgage are found to have been unjust then ANZ will argue that Perpetual should make restitution to ANZ for the amount paid by ANZ to Perpetual to discharge its mortgage.  This is based on an argument that Perpetual would be unjustly enriched if it were to retain the re-finance money paid to it by ANZ as ANZ proceeded to settlement on the mistaken belief that the Perpetual mortgage was valid and enforceable.

Court’s decision on ANZ’s application for leave to join Perpetual

Justice Hall gave Judgment in favour of ANZ to allow ANZ to join Perpetual to the proceedings.

Whilst ANZ’s claims against Perpetual for mistake giving rise to restitution are novel in possession matters, the Court found these claims are properly made and need to be determined at a hearing.

The Court has not finally determined whether Perpetual will be liable to re-pay to ANZ the re-finance money, if Mrs Londish is successful in her defence.

The claim against Perpetual is only an alternative claim, that is, if ANZ loses against Mrs Londish then, ANZ will claim against Perpetual in the alternative. 

If ANZ is successful against Mrs Londish then the matter with Perpetual, will not need to be considered by the Court, save to the question of a costs claim by Perpetual.

In dealing with any costs claims of Perpetual, ANZ can assert that Mrs Londish should have to pay any costs ordered against ANZ.  This is because ANZ only claimed against Perpetual due to issues raised by Mrs Londish, when ANZ enforced its security.

Perpetual’s claim that re-finance not paid to Perpetual,  rather paid to Mrs Londish by ANZ , as agent of Mrs Londish

In resisting ANZ’s application for leave to join Perpetual, Perpetual submitted that Mrs Londish, not Perpetual received the benefit of the re-finance.

Accordingly  it was claimed by Perpetual that ANZ had no arguable claim for restitution against Perpetual.

The Court noted difficulties with this proposition.

The Court held that it is at least implied that both Mrs Londish and Perpetual secured a mutual benefit from ANZ re-financing the Perpetual loan and that ANZ was not aware at the time of the loan that Mrs Londish had a claim that the Perpetual loan and mortgage was unenforceable.

The court noted that the final determination of which party received the benefit and at whose detriment requires detailed consideration at a final Hearing and was not something that was appropriate to determine on an interlocutory basis.  This was particularly the case where a substantial number of the facts regarding the loans intersected and would need factual findings to be made by a Court before a Court could finally determine which party might be liable.

Observations of impact on Lenders more generally

The decision is not a final determination of the issues of subrogation, mistake and restitution that arise when a borrower challenges both the current, and previous mortgages.

These are complex matters that require to be determined at a Hearing.

This is a developing area of the law.

One practical issue that will impact all lenders in dealing with restitution claims, is the prejudice a previous mortgagee will suffer in being joined to proceedings concerning a loan and mortgage that it may have discharged many years earlier.

The Courts will need to weigh up various mattes, including:

  1. the merits of a borrower’s credibility in being dilatory in bringing its claimsagainst mortgagees, many years after the mortgage has been discharged;
  2. the prejudice to the previous mortgagee, if, due to its document management system, ithas destroyed files and records that are more than seven years old - and is unable toeven identify the previous loan documents; and
  3. bank witnesses no longer being employed or, indeed being contactable, in ordertorespond to borrower allegations of unfair or unconscionable lending.