A judge in Sydney has upheld a bank’s right to repossess a multi-million dollar north Sydney home despite the borrower claiming no personal benefit came out of the $3.6m loan, and lawyers say this reinforces how difficult it is for borrowers to say they did not obtain any loan benefit when corporate entities are involved.
The Supreme Court of NSW rejected a claim by borrower Vicki Londish last Wednesday after she argued she received no benefit from a loan advance in 2009 from ANZ
Bank of $3.6m, secured by a mortgage over her family home at Warrawee, Sydney.
Of this loan, $3.2m was used to refinance an earlier loan given to Londish and her husband by Challenger
in 2003, also secured over the Warrawee property. Challenger’s mortgage was discharged after the refinancing from ANZ.
The balance of the loan funds, $588,000, was paid to a corporate entity which Londish was a shareholder and director of for capital expenditure purposes.
Londish argued funds advanced under the loan agreement were not advanced directly to her but rather to the benefit of corporate entities associated with her and her husband.
Justice Adamson found ANZ’s loan transaction was not unjust, because even though the ‘benefit’ of the loan went to corporate entities, the borrower’s family income came substantially from rental returns from properties owned by the family group of companies. Therefore Londish derived a real benefit from the loan, he said.
Justice Adamson said the borrower understood the nature of a loan and mortgage and that the bank had a right to take possession of the security property in the case of mortgage repayment default.
Gadens Lawyers said the decision reinforces it is difficult for borrowers to say they did not get any benefit of a loan even where the benefit of the loan appears to have been to a third party, such as a corporate entity.
“In circumstances where the borrower derives a benefit from the conduct of the business of the corporate entity the court will be reluctant to accept a volunteer argument.”
However, issues regarding ANZ’s entitlement to step into the shoes of Challenger or the question of the ANZ’s entitlement to recover the amount of the refinanced debt from Challenger remain unsettled by the courts, Gadens said.