Farmers able to sue banks?

Press, 30 August 1986, Page 6

Farmers able to sue banks?

Some New Zealand farmers might be able to sue their bankers for negligence in lending them too much money, said Federated Farmers’ legal adviser, Mr Ewan Chapman, yesterday.; There were possibly instances where banks and other lenders had advanced too much seasonal finance to farmers without proper regard for their legal “duty of care” to make the lending realistic to changed farming circumstances.

A similar case was proceeding in the High Court at Palmerston North over an unrealistic farm valuation. In that instance a valuer and not a banker was being challenged over the duty of care. In Britain a Shropshire man who lost his farm when Lloyds Bank foreclosed on his mortgage plans to sue the bank for lending him too much money. The Dean of the University of Canterbury’s law faculty, Professor John Burrows, said it was a novel case and would be watched with great interest.

“On the face of it the farmer himself would be guilty of contributory negligence, to some degree, for accepting the money from the bank. “After all, he was in a better position than the bank to assess the farm's potential and his ability to repay the loan. ‘There is a chance he might be able to persuade the court the bank was at least partly negligent,” Professor Burrows said. The executive director of the Bankers’ Association, Mr Max Bradford, said that he was aware of civil actions against bankers overseas, but there had never been such a case in New Zealand.

New Zealand trading banks did not try to “push’ money down people’s, throats.” They simply reacted to propositions from customers, on the understanding that the borrower bore the risk of the project being financed.

If such an action was brought “it would raise very serious questions about the whole relationship between borrower and lender.”

The implicit notion was that the risk rested solely with the lender.

Farmers were not the only ones to lose money when their debt and equity positions got so bad that banks had to foreclose mortgages. “It’s not a one-way street by any means,” Mr Bradford said. Banks often had to take a loss on a mortgage sale, but they did not share in capital gains when land prices rose dramatically.