Lenders should make any changes in the structure of a financing transaction clear to potential borrowers and/or guarantors. This includes expressly withdrawing any previous offers for financing that have been made and are no longer valid. Failure to do so may result in a finding that the lender engaged in misleading and deceptive conduct.

On 19 February 2003, Pay Now For Business Pty Ltd (Pay Now) offered to lend Mrs Dowdle $50,000 to help fund Mr Dowdle’s ongoing litigation (Initial Offer). In return, Pay Now required a guarantee from Mr Dowdle and a supporting mortgage over the Dowdles’ home. Pay Now subsequently changed the terms of the Initial Offer in a letter dated 21 February 2003, which provided for the borrower to be Mr Dowdle and for Mrs Dowdle to sign the guarantee and mortgage.

On 24 February 2003, Mrs Dowdle signed both the guarantee and mortgage. Mrs Dowdle then brought proceedings claiming that she signed the guarantee and mortgage under the belief that her liability was limited to $50,000 (as per the Initial Offer), and that she did not understand that the guarantee included an “all moneys” clause making her liable for the total amount of Mr Dowdle’s indebtedness to Pay Now - approximately $500,000.

The Court accepted Mrs Dowdle’s claims and held that Pay Now 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 personal indebtedness to Pay Now 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 ordered that the guarantee should be modified to give effect to the limitation on liability that Mrs Dowdle anticipated would apply when she signed the guarantee.

See the case.