Borrowers have limited rights against a lender once their mortgage has been discharged, the Supreme Court of New South Wales has found.
In the recent case Australian Securities Ltd v Borina Pty Ltd, the Supreme Court found that after borrowers have paid out their mortgage, the only recourse they are entitled to is an ‘accounting’ between parties should there be a dispute.
Phil Kaunitz is partner at Kemp Strang, the law firm that acted for Australian Securities Limited (ASL). He told The Adviser: “The judgment is the most recent in a series of cases in which courts have found that, once a lender has discharged its mortgage, the borrower has limited rights against the lender.
“Specifically, the borrower can seek an accounting (which is a process by which the court considers any issues raised by the borrower and the lender and determines what is owing between them) but not any other remedy.”
In this case in particular, Borina Pty Ltd and ASL had a dispute over the expiry date of the loan, but before the dispute was heard, Borina refinanced its debt with ASL in return for a discharge of the mortgage.
Justice Davies did not grant Borina leave to pursue damages and held that, according to Kemp Strang: “The only right available to a borrower after redemption of its mortgage (excluding statutory rights) is for an accounting.”
Mr Kaunitz said that this finding, and similar findings in prior cases, are significant for lenders as they “limit” borrowers’ rights to a specific claim structure and “prevent the borrower from bringing other claims usually available to parties to a contract such as damages”.
Further: “The cases are significant for borrowers firstly because they prevent a borrower from bringing more than one claim against the lender, and secondly because, as seen in the Borina case, they demonstrate that bringing the wrong type of claim will cause the claim to fail.”
Kemp Strang noted that the finding highlighted that borrowers may not select certain aspects of the accounting and litigate only those, instead an account must be taken on a final basis.
Mr Kaunitz explained: “The cases have also held that a mortgagor cannot mount several different cases against a lender, raising various complaints about the lender's conduct throughout the course of the loan or its conduct in enforcing its mortgage. All issues must be resolved in a single 'accounting' process at the same time.”