Dowdle v Pay Now For Business [2012] QSC 272

A wife mortgaged her home to secure a $50,000 loan to fund her husband’s litigation thinking her liability was limited to $50,000 where in fact, the lender changed the loan documentation to secure the husband’s entire indebtedness of $500,000 and made her a guarantor. The wife applied to have the mortgage and guarantee set aside on the grounds of misleading and deceptive conduct or unconscionability on the part of the lender or alternatively that her liability under the guarantee and mortgage was limited to the balance outstanding of the specific loan of $50,000. The lender counterclaimed for the total debt of $500,000.

The court believed the wife and found the lender to be an unimpressive witness. The court found that the wife did not know of her husband’s prior indebtedness, she was prepared to help her husband by allowing her home to secure a $50,000 loan, she was not aware of the change in structure and security for the loan from the loan offer of $50,000, she assumed the guarantee was linked to the mortgage, and she took her solicitor’s advice to conform with her understanding of the loan offer.

The court found Garcia unconscionability because:

  1. The wife did not understand the effect of the transaction because she thought it put into effect the loan offer she had accepted.
  2. The transaction was voluntary because it was to fund the husband’s litigation and not for her benefit.
  3. The lender knew that the wife placed trust in her husband as to business matters and he might not have explained the transaction fully.
  4. The lender took no steps to explain the transaction to the wife or ensure that a third party did. The advice she did receive was undermined by the lender’s failure to notify her of the change.

The court also found that the lender misrepresented the nature of the transaction and this was misleading conduct under section 12DA of the ASIC Act. The court found the lender’s representative was knowingly concerned in that contravention (section 79(c) Corporations Act) because he knew of the essential facts. Any damages against the lender were also recoverable against the representative. The court noted that Amadio unconscionability was not proved because the wife did not show that she was in a position of special disadvantage.

The court refused to set aside the mortgage and guarantee but limited both to $50,000. The court ordered the lender to repay the wife the excess of the loan balance that had been paid to the lender.

The court refused to award damages for the loss of the sale of the wife’s house because the reason for the sale falling through was not due solely to the dispute about what was owed to the lender but also because the wife had defaulted under the first mortgage.

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