Provident Capital v Naumovski [2013] NSWSC 40

A husband and wife mortgaged their home for the benefit of their daughter and later refinanced these loans twice. The parents did not receive any of the loan monies and claimed they were the victims of their daughter’s fraud.

The lender sued to enforce its mortgage and the borrowers brought a number of defences, including non est factum (not my deed), Contracts Review Act and unconscionability.

The lender and borrowers sued the borrowers solicitors for false and misleading representations and negligence. The borrowers also claimed to be entitled to compensation from the Torrens Assurance Fund because they were defrauded.

The judge did not believe the parents and found that they could speak and understand English. The judge also found that they did know about the mortgage. The judge did not believe the daughter who provided the only corroboration of the alleged fraud.

The defence of non est factum is available to persons who through no fault of their own are unable to understand a particular document and signed it believing it was radically different from what it was in fact and is not generally available in cases of self-generated reliance upon someone trusted.

The court rejected this defence because it found the parents both sufficiently understood the nature and effect of the transaction.

The court found no fraud on the part of their daughter because the parents understood they were signing documents to help her daughter with her shop. The court found that the parents sufficiently understood their solicitor’s advice to understand the nature and effect of the loan and mortgage and it was not inadequate.

The court found that the lender was principally concerned that the property value was sufficient to discharge the loan because they did not seek any information about the capacity of the parents to service the loan from their earnings and assets, other than their home but did not find it to be thereby unjust.

The court found the lender innocent of any unjustness. The court accepted that with a low doc loan, the lender was not required to make further enquiries as to serviceability and that was acceptable commercial practice.

The court gave judgment for the lender for possession.

Alternative cross-claim of the lender
Although strictly unnecessary, the court considered the lender’s claim against the solicitors for the mortgagor for negligent miststatements. The court found the solicitors did not owe the lender any duty of care to protect it from economic loss and even if they did, no breach. The court refused to accept any general rule that a solicitor who provides advice to clients with a limited capacity to speak and understand English without an independent interpreter as opposed to a member of the family acting as interpreter is negligent. The court also found no misleading and deceptive conduct by the solicitors.

Cross-claims of the mortgagors
The court found that the solicitors on the refinanced loan were not negligent because the parents sufficiently understand the nature and effect of the transaction and no fraud was committed by their daughter and no independent interpreter other than the daughter was required. However the court found the solicitor who acted on the original loan and mortgage was negligent for not using an accurate and competent interpreter to explain the principal features of the loan and mortgage but found no damage because those loans were discharged by new mortgages for a higher sum. The court was not satisfied that but for the solicitor’s negligence, the parents would have suffered loss given the loss related to an entirely separate transaction. The court dismissed the negligence claim.

The court also found that the parents failed in the claim for compensation from the Torrens fund because of the absence of fraud in this transaction and also when the original loan and mortgage was entered into.

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