Supreme Court confirms that finance brokers are the agent of the borrower not the lender.
In Secure Funding Pty Ltd v Moon & Anor Justice Lyons of the Supreme Court of Queensland upheld the general principle that a finance broker is not the agent of the lender even if the lender pays a fee to the broker.
Mr Stevenson, a mortgage broker, assisted Mr and Mrs Moon to apply for a loan from Secure Funding Pty Ltd. After the advance was made, Mr and Mrs Moon defaulted. Secure Funding sought to recover possession of the security property and the balance of the loan as mortgagee in possession.
By way of counter-claim, Mr and Mrs Moon alleged that others, including Mr Stevenson, were agents for Secure Funding. And that they had breached duties owed to Mr and Mrs Moon. They argued that Mr Stevenson and Concate carried on the business of mortgage broking in conjunction with Secure Funding.
Mr and Mrs Moon sought damages and for the loan and mortgage to be set aside. They alleged that at a meeting with Mr Stevenson on about 3 September 2007, they signed a blank loan application. And that later Mr Stevenson completed it. Mr and Mrs Moon claimed there was a breach of duty and a failure to exercise due care, diligence and competence. As well as a failure to advise them of all matters relevant to the loan application. Mr and Mrs Moon sought to sheet home the alleged conduct of Mr Stevenson to Secure Funding as lender.
Justice Lyons focused on the issues arising out of the meeting with Mr Stevenson and Mr and Mrs Moon, where Mr Moon alleged he had told Mr Stevenson he was unemployed with no income. His Honour accepted the evidence given by Mr Stevenson to that effect that prior to the advance to Mr and Mrs Moon he was not told that Mr Moon was unemployed without income. Mr Stevenson’s evidence was supported by contemporary documents.
In addition, Justice Lyons stated:
It is plain from Mr Moon’s own evidence that he was prepared to be dishonest to obtain finance. Indeed, he had strong motive to do so: he described his financial position at that time as “very desperate”… Frankness would have been inconsistent with his dealings with Mr Stevenson…
Because of these findings, the allegations that Mr Stevenson and Concate acted without proper instructions and authority were not upheld. His Honour found that Mr Moon had been dishonest about his income. And he had lied in order to receive additional finance.
Also, Justice Lyons found that Mr Stevenson did not ask Mr and Mrs Moon to sign a blank loan application. Nor did Mr Stevenson indicate that he would provide all of the information required to ensure that the loan application was successful. Mr Stevenson communicated to Mr and Mrs Moon that the application was for a loan with the interest rate fixed for three years. At no time did Mr Moon suggest that he did not appreciate the consequences of earlier payment of such a loan.
Broker the agent of the borrower
Even if paid a commission by a lender, a broker is considered the agent of the borrower. The onus was on Mr and Mrs Moon to displace this general principle. Justice Lyons found there was nothing in the evidence given to suggest Mr Stevenson acted as the agent for Secure Funding in relation to the loan application made by Mr and Mrs Moon. Mr Moon understood that Mr Stevenson might make an application for finance to one of a number of potential lenders. It was therefore found that neither Mr Stevenson nor Concate acted as the agent for Secure Funding.
In a general sense, a lender owes no duty to a borrower to give commercial advice. Or to investigate the ability of the borrower to make repayments of the loan, or verify information provided by the borrower. His honour stated:
It would be remarkable if a lender owed a duty to a borrower to investigate an untrue statement about the borrower’s income, for which statement the borrower was dishonestly responsible.
The counter-claim filed by Mr and Mrs Moon was dismissed accordingly. Secure Funding as mortgagee recovered possession of the security property. Mr and Mrs Moon were ordered to pay the amount owing.
The decision of Justice Lyons may be read in full by following the link below:
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