Claims made by mortgagor against bank thrown out by court

In this case¹, a mortgagor tried to avoid liability to his lender by contending that the loans were not made in cash, that the loans were securitised, that disclosure was not properly made under the Credit Contracts Act and that the contracts were oppressive.

The case was brought by a borrower who owned three properties in Auckland and gave mortgages over them to a bank as security for several loans.

When the borrower failed to make payments due under the loans, the bank demanded payment and issued notices under the Property Law Act 1952.

The borrower issued proceedings claiming that the loans and mortgages were void and sought relief accordingly.

The borrower's arguments are summarised below.

Loan not in "hard" currency

The borrower claimed that advancing the loan by way of credit was misleading as he had never been told that he was not receiving the advance in the form of "hard" currency, and argued that it was unreasonable for the bank to demand repayment in "hard" currency when it had only provided the funds by way of credit.

The court pointed out that the law has long recognised that banks maintain accounts on the basis of entries into books, not the amount of physical cash they hold and that the borrower's argument was untenable considering the fact that he had no difficulty drawing the loan money.

Securitisation of the loans

The borrower alleged that the bank securitised the loans and mortgages by on-selling them without his knowledge or consent. This allegation was based solely on the bank's disclosure statement that "certain customers'" assets have been securitised.

The Judge accepted the bank's submissions that this borrower's loans had not been securitised but that, even if they had, this would not have affected his obligation to repay the amounts owed.

Disclosure under the Credit Contracts Act

The court found that the loan documents informed the borrower that his account would be credited, which was sufficient disclosure under the Credit Contracts Act. (Note, however, that more comprehensive disclosure is now required under the Credit Contracts and Consumer Finance Act).

Oppression

The borrower further claimed that the bank's standard mortgage terms were oppressive under section 9 of the Credit Contracts Act.

The court determined that there was no evidence to draw such a conclusion given that the mortgage fits within the reasonable standards of commercial practice and that such terms and conditions have been in regular use since 1996.

Unsurprisingly, all of the borrower's claims failed.

¹ Rupa v Bank of New Zealand, High Court, Auckland, 31 January 2008, CIV 2006-404-5881

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