A 74 year old man pensioner who spoke little English was hoodwinked into signing a mortgage. The money went to the fraudster and the court set aside the mortgage under the Contracts Review Act. The lender sued the mortgage broker alleging that the broker had verified the borrower’s identity and that the borrower was a builder with an annual income of $75,000 who wished to borrow up to 80 per cent of the value of his home property for investment purposes. The trial judge held:
It would be unreal to conclude that the broker was merely acting as a ‘conduit’ or ‘post box’. While it did not represent the truth of the statements in the documents, of many of which it could have had no knowledge, in my opinion, it plainly represented that the borrower had signed those documents which purported to be signed by him and that the source of the information in the documents was the borrower himself.
Notwithstanding, the trial judge found that the lender did not rely on the misrepresentations of the broker and therefore could not claim damages. This was because the lender’s underwriting rules required it to make enquiries that would have revealed that the borrower was a pensioner. The Court of Appeal overturned the trial judge. They noted that for there to be reliance, the lender did not need to wholly rely on the misleading representation but it was sufficient if it partly relied.
The question to be addressed is whether the representations that the broker made played a part in causing the lender to act as it did. The fact that the lender might have discovered the falsity of the representations, or some of them, if it had been more astute, is not to the point. In my view it is clear that those representations did play a role in inducing the lender to advance the money.
Although the broker was unsuccessful on appeal, on the question of liability, it was successful in raising a partial defence of proportionate liability. The solicitor who witnessed the documents also caused the loss. In deciding how to apportion the blame between the broker and the solicitor, the Court of Appeal held that the solicitor’s role was less significant because had the borrower declined independent legal advice, the lender would still have done the loan.
The next question to be decided was the exact sharing of the blame between the broker and the solicitors. Two of the judges held 65% of the loss was attributable to the broker and 35% to the solicitor. The dissenting judge held that it should be 75% attributable to the broker and 25% to the solicitor.