What happens if a lender misleads a borrower or a guarantor?

In Dowdle v Pay Now for Business Pty Ltd & Anor [2012] QSC 272 the guarantor sued the lender alleging misleading and deceptive conduct.

Background 
On 19 February 2003, Pay Now For Business Pty Ltd (Pay Now For Business) offered to lend Mrs Dowdle $50,000 to help fund her spouse’s ongoing litigation (Initial Offer). As a term of the Initial Offer, Pay Now For Business required a guarantee from Mr Dowdle and a supporting mortgage over the family home. 

Unfortunately, 2 days later, Pay Now changed the terms of the Initial Offer, without telling Mrs Dowdle about the changes (which were that Mr Dowdle would be the borrower and Mrs Dowdle would sign the guarantee and mortgage, which would be unlimited).

On 24 February 2003, Mrs Dowdle signed both the guarantee and mortgage. 

Some time later, Mrs Dowdle brought proceedings against Pay Now For Business, on the basis that she signed the guarantee and mortgage believing that  her liability was limited to $50,000 (as per the Initial Offer).

The Court decided that Pay Now For Business had engaged in misleading and deceptive conduct by failing to inform Mrs Dowdle of the change to the structure of the transaction and, in particular, failing to withdraw the Initial Offer. This was particularly relevant in circumstances where Mrs Dowdle did not know of Mr Dowdle’s significant personal indebtedness to Pay Now For Business at the time she signed the guarantee and mortgage.

The Court also considered that, while Mrs Dowdle obtained independent legal advice in relation to the transaction, this was undermined by the failure of Pay Now to notify Mrs Dowdle of the changes to the structure of the transaction.
The Court accordingly limited Mrs Dowdle's guarantee to the amount that she had anticipated would apply when she signed the guarantee ($50,000).

Conclusion 
If it was not already clear, this case confirms that lenders should make any changes in the structure of a proposed financing transaction clear to all potential borrowers and/or guarantors, well before the money actually changes hands. Any acknowledgements provided by the borrowers and guarantors should specifically refer to the alterations made to the initial proposal.

W G Stark
Hayden Starke Chambers