What is the best way for a Great Southern Plantations investor to defeat a loan recovery claim by the Bendigo and Adelaide Bank?

The Bendigo and Adelaide Bank is progressing with loan recoveries against investors in Great Southern Plantations with an outstanding loan.

It has a head start in loan recoveries against the members of the class action (the Group Members) because in the settlement deed approved by Justice Croft on 11 December 2014 it states that each of the Group Members “acknowledges and admits their liability to the BEN Parties to pay the Loan Balance under their Loan Deed”.

To re-cap, the class action would have failed comprehensively, as Justice Croft observed in his judgment approving the settlement, in that none of the impugned product disclosure statements in the prospectuses for the plantation projects were defective – see Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (Receivers and Managers Appointed)(In liquidation) [2014] VSC 516.

Anticipating defeat, M + K Lawyers negotiated the settlement for the group members. The insurers of Great Southern agreed to pay $20 million to reimburse the group members legal costs. The Bendigo and Adelaide Bank agreed to waive overdue interest on the loans and not to recover its own legal costs against the Group Members.

Why was the Bank prepared to be so generous? The reason is that the Settlement Deed contained a sting in the tail - the group members acknowledged and admitted their liability to pay their loan. As we will see, this acknowledgment was of vital importance to the Bank.

In this article, we examine a futile application by an investor who was group member to avoid being bound by the Settlement Deed, and the successful defence of a loan recovery claim by another investor who was not a group member, who drilled into the detail of the loan documentation.

The futile application – Dimitrov v The Supreme Court of Victoria [2017] HCA 51

On 1 December 2017, Justice Edelman dismissed an application made in the High Court of Australia by Peter Dimitrov to not be bound by the Settlement Deed. Dimitrov was a group member who wanted to be able to raise his individual claims and defences against the loan recovery claim by the Bendigo and Adelaide Bank.

The Settlement Deed provided:

The Lead Plaintiffs for and on behalf of themselves and all Group Members acknowledge and admit the validity and enforceability of the Lead Plaintiffs’ Loan Deeds and the Group Members’ Loan Deeds AND
Release the Bendigo and Adelaide Bank and their Related Entities from all Claims AND
Each of the Bendigo and Adelaide Bank and their Related entities may plead this Deed as a bar or defence to any claim or action brought by any of the Lead Plaintiffs or the Group Members

The application was dismissed. These are some reasons and observations from the judgment:

Group members could opt out of the class action if they gave notice by 27 April 2012, before the trial commenced. Dimitrov did not give an Opt Out notice despite the warning in it: “you will be bound by the outcome”.
At the hearing approving the settlement, Dimitrov and other group members opposed the orders giving effect to the settlement on the grounds that it was manifestly unfair and unreasonable. They failed, and so were bound by the Settlement Deed – in particular the acknowledgment of the validity and enforceability of the Loan Deeds.
Dimitrov and others failed to appeal from the decision of Justice Croft, which was a course they could have taken.
Dimitrov has the opportunity to argue the issues in these proceedings by proceeding with his application to set aside default judgment in the District Court of New South Wales.

The successful defence – Bendigo and Adelaide Bank Limited v M Howard Click for the pdf of the Howard judgment

On 23 August 2017, Magistrate JA Soars gave judgment for the investor, M Howard, in a Great Southern Plantations loan recovery claim made by Bendigo and Adelaide Bank. The case was heard in the Local Court of New South Wales at the Downing Centre Sydney.

The Bank claimed $24,490 together with interest of $42,079.32 (to 1 June 2016) and ongoing interest at the rate of 14.5% on the total, under a loan to fund the investment in the Great Southern 2006 Organic Olives Income Project.

The Bank’s primary claim was under the Loan Deed. The investor was not a group member and so was able to contest the validity and enforceability of the Loan Deed, without being bound by the acknowledgements and admissions in the Settlement Deed.

The relevant documents were:

A Grovelot Application was signed and submitted by the investor to Great Southern Managers Australia on 15 June 2006 to invest in 3 grovelots at $8,000 each. The investment was a tax-driven agri-business investment, with the investor able to deduct the application fee immediately and to receive their money back and derive income from olive oil sales over the ten year term of the project.
A Finance Application to fund the investment was signed and submitted on 15 June 2006. The investor ticked box 2 (even though box 2 was for woodlots), which identified Great Southern Finance as the lender. The investor did not tick box 3, which was for grovelots, which identified ABL Nominees as the lender, because he wanted his loan to be with Great Southern Finance.
The Finance Application contained a Power of Attorney in favour of Great Southern Finance to enter into the Loan Deed and also a direct debit request form for the loan repayments in favour of Great Southern Finance. The loan repayments were debited until 2009, when the Great Southern Group collapsed, and the project was wound up because it was insolvent.
The loan was an originated loan, that is, it was originated by Great Southern Managers Australia as agent of the lender, ABL Nominees. An Origination Notice dated 22 June 2006 was given by Great Southern Managers Australia to ABL Nominees, to originate the loan.
On 23 June 2006, ABL Nominees sold the investor’s loan (as part of a loan portfolio) to the Adelaide Bank, which later became the Bendigo and Adelaide Bank.
The Loan Deed was signed on 20 June 2007 (a year later!) by Great Southern Finance on behalf of the investor pursuant to the Power of Attorney, in favour of ABL Nominees as lender. The loan repayment obligations were independent of the fate of the project.

The investor was successful in defending the Bank’s claim for these reasons.

The Loan Deed was not binding on the investor because the Court found that the Power of Attorney did not authorize Great Southern Finance to sign the Loan Deed on behalf of the investor in favour of ABL Nominees as lender.
The Court did not consider that box 2 in the Finance Application had been ticked in error, and refused to ‘correct the error’ to recognize ABL Nominees as the lender instead of Great Southern Finance.
The Court was not satisfied that the documents demonstrated that ABL Nominees had advanced a loan of $24,490, or that it was advanced on or about 15 June 2006.
The Bank’s fall-back claim, that the debt was due under a loan agreement, was statute-barred because more than 6 years had elapsed since the date of advance in 2006.

The Court made these observations:

No business records of ABL Nominees were produced to support the making of a loan;
The acknowledgement of debt in the Loan Deed was not operative because the Loan Deed was not binding on the investor;
There was no evidence that ABL Nominees had accepted the offer in the Origination Notice to purchase, nor that it had paid the amount to purchase, the originated loan to the loan originator, Great Southern Managers Australia.
The Court was not satisfied that ABL Nominees had assigned the investor’s loan to the Adelaide Bank.
The Court was not satisfied from the business records that the Adelaide Bank had paid ABL Nominees to purchase the investor’s loan.

The Bendigo and Adelaide Bank is vigorously pursuing an appeal from this decision to the Supreme Court of New South Wales. The appeal is set down for hearing on 1 March 2018. A more definitive decision can therefore be expected in a matter of months.

Conclusions

It would not have been easy for Great Southern Plantations to maintain good business records, when according to ASIC, it had 43 agricultural managed investment schemes and about 52,000 investors.

It makes sense why the Bank was so generous in the Settlement Deed – by obtaining the loan acknowledgments, it avoids argument on whether the Loan Deeds / loan documentation were deficient.

The deficiencies in record keeping were exposed in the Howard Case.

The Bendigo and Adelaide Bank ‘inherited’ these deficiencies when it purchased the loan books.

Investors who were not group members are not bound by the Settlement Deed. As the Howard Case illustrates, they may be rewarded by a careful examination of the documentation, and may successfully defend a claim for recovery of a loan debt if the documentation is deficient.

For all investors, it is worth consideration that the Bendigo and Adelaide Bank be put to formal proof that their loan is an originated loan. If not, the Bank may not have acquired the loan and therefore have no title to sue.