Where loan terms are to be varied, failure by a lender to
inform all guarantors of the altered terms can amount to misleading
and deceptive conduct, and may also free those guarantors from
liability to a lender under a contract, as per the recent decision
of Adisan Pty Ltd v Irwin  NSWCA 217 .
Adisan concerned a loan agreement between a lender and
two companies engaged in property development, guaranteed by six
co-guarantors. An advance of $600,000.00 was made to the borrowers,
with the principal and capitalised interest to be repaid by 12
January 2009. When the borrowers defaulted, the parties then agreed
to amend the terms of the facility.
The proposed amendments included extending the time to repay the
principal and accrued interest, increasing the interest rate
payable, and the provision of further security. That security
encompassed a first priority mortgage over an apartment owned by
another company, Bingemann Holdings Pty Ltd
(Bingemann), and a guarantee from that same
company. It was also agreed by the lender, the borrower, and
Bingemann, that Bingemann's liability would be limited to the
amount released from the sale of the secured property. A Deed of
Variation was executed by the lender, both borrowers, Bingemann and
all other six guarantors, however, that Deed of Variation did not
disclose the agreement that Bingemann's liability was to be
limited, nor was it otherwise drawn to the attention of the other
Thereafter, the borrowers failed to pay the monies due under the
amended terms of the loan. On 26 May 2011, the lender served
default notices in the amount of $1,190,696.52 on the guarantors,
demanding payment. Another guarantor denied liability on the basis
of the undisclosed limitation on Bingemann.
The matter was eventually taken to the New South Wales Court of
Appeal. The Court of Appeal closely examined the terms of both the
original and varied loan contracts and scrutinised the terms of the
variation as to what precisely had been disclosed. The Court
characterised the matter as effectively a "new loan
contract", with a contractual obligation to disclose as much
to the guarantors. The Court held that the cap to liability granted
by the variation altered the terms of the facility sufficiently to
mean that the guarantee which had been provided with the initial
facility did not extend to the amended facility.
What can be gleaned from this decision is that lenders and
guarantors must carefully consider whether any variations on
amendment to the terms of the loan agreements are fully disclosed,
as insufficient disclosure may curtail the contractual ambit of any
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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