loan programs

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

Bendigo and Adelaide Bank is making progress in recovering loans from Great Southern Plantations investors with one outstanding loan.

He has a head start in recovering loans against class members (class members) because in the settlement deed approved by Judge Croft on December 11, 2014, it is stated that each of the class members “acknowledges and admits its liability to the BEN The parties must pay the balance of the loan under their deed of loan”.

To recap, the class action would have failed overall, as Judge Croft observed in his judgment approving the settlement, in that none of the disputed product disclosure statements in the Plantation Projects’ prospectuses were defective. – see Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (receivers and appointed managers) (in liquidation) [2014] CSV 516.

Anticipating the loss, M+K Lawyers negotiated the settlement for the class members. Great Southern’s insurers have agreed to pay $20 million to reimburse the class members’ legal costs. Bendigo and Adelaide Bank agreed to waive default interest on the loans and not to recover its own legal costs against the class members.

Why was the Bank prepared to be so generous? The reason for this is that the settlement deed contained a sting in the tail – the members of the group acknowledged and admitted their responsibility to repay their loan. As we will see, this recognition was of vital importance to the Bank.

In this article, we examine a futile request by an investor who was a class member to avoid being bound by the settlement deed, and the successful defense of a loan recovery claim by another investor who was not was not a member of the group, which delved into the details of the loan documentation.

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

On December 1, 2017, Judge Edelman dismissed a claim filed in the High Court of Australia by Peter Dimitrov not to be bound by the settlement deed. Dimitrov was a class member who wanted to be able to assert his individual claims and his defenses against the Bendigo and Adelaide Bank loan recovery claim.

The settlement document provided:

The Principal Plaintiffs for and on behalf of themselves and all Class Members acknowledge and agree to the validity and enforceability of the Principal Plaintiffs’ Deeds of Loan and the Class Members’ Deeds of Loan AND

Release Bendigo and Adelaide Bank and their related entities from all claims AND

Each of Bendigo and Adelaide Banks and their related entities may plead this deed as a bar or defense to any claim or action brought by any of the lead plaintiffs or class members.

The request was rejected. Here are some reasons and observations taken from the judgment:

  • Class members could opt out of the class action if they gave notice by April 27, 2012, before the trial began. Dimitrov did not give an exclusion notice despite the warning it contains: “you will be bound by the outcome”.
  • At the settlement approval hearing, Dimitrov and other class members objected to the orders giving effect to the settlement on the grounds that it was patently unfair and unreasonable. They failed and were therefore bound by the act of settlement – in particular the recognition of the validity and enforceability of the acts of loan.
  • Dimitrov and others did not appeal Judge Croft’s decision, which they could have followed.
  • Dimitrov has the opportunity to litigate the issues in these proceedings by pursuing his application to have the default judgment set aside in the District Court of New South Wales.

The successful defense – Bendigo and Adelaide Bank Limited v Mr Howard

On August 23, 2017, Magistrate JA Soars delivered judgment on behalf of the investor, Mr Howard, in a Great Southern Plantations loan recovery claim brought by Bendigo and Adelaide Bank. The case was heard in New South Wales Local Court at Downing Center Sydney.

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

The Bank’s principal claim was under the Deed of Loan. The investor was not a member of the group and could therefore challenge the validity and enforceability of the deed of loan, without being bound by the acknowledgments and admissions in the deed of settlement.

The relevant documents were:

  • A Grovelot Application was signed and submitted by the investor to Great Southern Managers Australia on June 15, 2006 to invest in 3 grovelots at $8,000 each. The investment was a tax-oriented agribusiness investment, with the investor being able to immediately deduct the application fee and receive their money and earn income from olive oil sales over the ten-year life of the project.
  • A request for financing to finance the investment was signed and submitted on June 15, 2006. The investor checked 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 related to groves, which identified ABL Nominees as the lender, as he wanted his loan to be made to Great Southern Finance.
  • The financing application contained a power of attorney in favor of Great Southern Finance to enter into the deed of loan as well as a direct debit request form for loan repayments in favor of Great Southern Finance. Loan repayments were debited until 2009, when the Great Southern Group collapsed, and the project was liquidated as insolvent.
  • The loan was an initiated loan, ie it was initiated by Great Southern Managers Australia as agent for the lender, ABL Nominees. An original notice dated June 22, 2006 was given by Great Southern Managers Australia to ABL Nominees, to initiate the loan.
  • On June 23, 2006, ABL Nominees sold the investor’s loan (as part of a loan portfolio) to Adelaide Bank, which later became Bendigo and Adelaide Bank.
  • The deed of loan was signed on June 20, 2007 (one year later!) by Great Southern Finance on behalf of the investor pursuant to the power of attorney, in favor of ABL Nominees as lender. Loan repayment obligations were independent of the fate of the project.

The investor successfully defended the Bank’s claim for these reasons.

  • The deed of loan was not binding on the investor as the court found that the power of attorney did not authorize Great Southern Finance to sign the deed of loan on behalf of the investor in favor of ABL Nominees as than lender.
  • The Court did not consider that box 2 of the financing application had been checked 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 showed that ABL Nominees advanced a loan of $24,490, or that it was advanced on or about June 15, 2006.
  • The Bank’s request for relief that the debt was owed under a loan agreement was time-barred because more than 6 years had passed since the date of the advance in 2006.

The Court made these observations:

  • No commercial file of the ABL candidates was produced to justify the granting of a loan;
  • The acknowledgment of debt in the deed of loan was not operational because the deed of loan did not bind the investor;
  • There was no evidence that ABL Nominees had accepted the offer to purchase in the original notice, nor that it had paid the purchase amount, the original loan to the loan originator, Great Southern Manager Australia.
  • The Court was not convinced that ABL Nominees had assigned the investor’s loan to Adelaide Bank.
  • The Court was not satisfied from the commercial documents that the Bank of Adelaide had paid ABL Nominees to purchase the investor’s loan.

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

conclusion

It would not have been easy for Great Southern Plantations to maintain good business records, when, according to ASIC, it had 43 managed agricultural investment programs and around 52,000 investors – see Information for producers in the Great South.

It makes sense that the Bank was so generous in the deed of settlement – by getting the loan acknowledgments it takes the guesswork out of whether the deeds of loan / loan documentation was deficient.

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

The Bendigo and Adelaide Bank “inherited” these shortcomings when they purchased the loan books.

Investors who were not members of the group are not bound by the Deed of Settlement. As the Howard case illustrates, they can be rewarded with careful documentation review and can successfully defend a loan debt collection claim if the documentation is deficient.

For all investors, it should be considered that Bendigo and Adelaide Bank must provide formal proof that their loan is an original loan. Otherwise, the Bank may not have acquired the loan and therefore have no title to pursue.