A husband and wife owned three properties, living on one and operating a flower farming business on the other two. They borrowed money from the bank. There was a dispute with the bank which ultimately resolved at farm debt mediation, the bank reducing the debt from $6M to $2M and releasing their home. They allowed the discharge of mortgage and CT for their home to be held by their solicitor because they wanted to use it to obtain short term finance to payout the bank on the other properties.
The CT and discharge were then passed on to their accountants who were seeking the refinance. $1M was then paid to the bank for a discharge and CT over one of the other properties, raised by using the house as security.
The accountant, now in possession of the two CTs, securing a total debt of $1M, incorporated a company and sought finance from the bank to purchase an investment property. The bank received directions that the sums advanced should be paid into the accountant’s trust account as they would be used for discharge. Presumably, that was a reference to the $1M short term loan which needed to be discharged.
Accordingly, the bank paid $123k in fees to the accountant, and $1.9M to the accountant’s trust account. The borrowers did not see that money.
Some time later, the company defaulted on the loan from the bank and the bank obtained orders for possession. The borrower sought to be joined to the proceedings and for a stay to be granted.
The application was rejected because the Court could not see that the case against the bank was sufficiently pleaded and no proper explanation for the delay in joining the proceedings was given.
The borrowers appealed, seeking leave to file a more properly pleaded claim which set out a claim that the bank was involved in fraud, or that the transfers had been handed over by mistake. The key issue being that they did not receive about $1M from the sale.
The appeal Court was satisfied that there was at least an arguable case that the bank was aware of circumstances which would put it on further enquiry. On that basis, the Court granted leave to appeal and granted a stay pending the hearing of the appeal.
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