The Timbercorp Group invested in agribusiness Managed Investment Schemes on behalf of some 18,500 investors. Many investors in the schemes entered into loan agreements with Timbercorp Finance to finance their investments.
When the Timbercorp Group was put into liquidation in June 2009, the investor loan book totalled $477.8 million, comprising 14,500 loans to over 7,500 borrowers.
The investment schemes have failed and the investments are now worthless. Nonetheless, Timbercorp Finance is now pursuing loan recovery claims.
Two loan recovery claims made by Timbercorp Finance
On 13 June 2014, Timbercorp Finance commenced proceedings against Mr & Mrs Collins to recover an alleged loan of $90,501.68 plus interest. On 12 September 2014, Timbercorp Finance commenced proceedings against Mr Tomes to recover alleged loans of $1,760,378.34 and $448,260.00 plus interest.
Both proceedings were defended.
The Collins defence contained these claims:
“they did not acquire an interest in the project [operated by Timbercorp Securities] in which they sought to invest [i.e. 10 grove lots in the ‘2008 Olive Early Project’] and no loan was advanced to them by [Timbercorp Finance] for that purpose.”
The Tomes defence contained these claims:
“no loan agreement was concluded [because] the person who purported to execute the loan documentation on his behalf had not been appointed as his attorney [and] that monies were not applied [to the ‘2008 Olive Early Project’ as well as the ‘2007 Almond Post June Project’] as the loan agreement required, but rather for the purposes of the Timbercorp Group [in contravention of the Corporations Act 2001 (Cth)].” Tomes also relied upon a representation made that in the event of default, the financier would have no recourse against him.
Timbercorp Finance challenged these defences because both Collins and Tomes had been members of a group proceeding which was unsuccessful.
In the group proceeding, the Court found that Timbercorp Group had not failed to disclose information about investment risks and that it had not represented that investor funds would be quarantined for the project. The Court made orders dismissing the group proceeding.
The High Court Decision upon the Timbercorp Finance loan recovery proceedings
In Timbercorp Finance Pty Ltd (in liquidation) v Collins; Timbercorp Finance Pty Ltd (in liquidation) v Tomes  HCA 44 (9 November 2016) (the loan recovery proceedings), the High Court of Australia decided unanimously that Collins and Tomes had the right to defend the loan recovery proceedings against them, even though they had been members of the unsuccessful group proceeding.
Essentially, Timbercorp Finance argued that the defences in the loan recovery proceedings were intended to achieve the same result as the group proceeding, “namely avoiding payment of the loan obligations”. It argued that the group proceeding had proceeded on the assumption that the loan agreements existed, and that the investors should have raised these defences to the loan recovery in that proceeding but did not do so. As a result, they were now precluded from defending the loan recovery claims.
In legal terms, Timbercorp Finance relied upon an “Anshun estoppel” to preclude Collins and Tomes from relying upon a claim or issue connected with the group proceeding, which should have been raised in that proceeding; or in more general terms, that the defences were an abuse of process.
In its reasons for decision, the High Court examined whether or not an Anshun estoppel applied, taking into account the Victorian Rules for conduct of a group proceeding, relevance and reasonableness, inconsistency; and whether or not it was an abuse of process to allow the investors to raise their defences.
The High Court found that:
- It was not unreasonable for the [Collins and Tomes] not to have raised their individual issues concerning the loan agreements in the group proceeding, in circumstances where: the issues in the group proceeding concerned undisclosed risks and the making of misrepresentations; there was no issue in the group proceeding as to the validity of the loan agreements; and they had limited control over the group proceeding.
- Nor was it unreasonable…for [Collins and Tomes] not to have opted out of the group proceeding.
- Further, [Collins’ and Tomes’] failure in the group proceeding to bring their claims to the attention of the Court did not affect the case management decisions open to the Court, and thus raising the defences in these proceedings did not amount to an abuse of process.
The High Court concluded that Collins and Tomes had the right to raise defences in the loan recovery proceedings, other than defences which relied upon issues which had been decided in the group proceeding. The High Court added that it made no difference to its decision whether the investors had given opt in notices or opt out notices for the group proceeding.
How does the High Court Decision help investors facing loan recovery claims by Timbercorp Finance?
The High Court Decision is a welcome ‘win’ for investors in the Timbercorp Group Managed Investment Schemes in defending loan recovery claims.
In the case of the Timbercorp schemes, the High Court Decision clears the way for investors to defend claims, on grounds such as: the loan documentation was not properly entered into; the loan funds were applied to fund the Group, not the investor’s agricultural project; and the Group collapsed before any preparation or planting work was carried out (particularly the 2007 and 2008 projects).
Does the High Court Decision help investors facing loan recovery claims in the Great Southern Plantations Schemes?
The Great Southern Plantations schemes were similar to the Timbercorp schemes. After the Great Southern Plantations Group was put into receivership in May 2009, investors commenced a group proceeding similar to the group proceeding brought by the investors in the Timbercorp Group.
In December 2014, the group proceeding was concluded by a Deed of Settlement approved by the Court. Bendigo and Adelaide Bank Limited have purchased the loan book and have undertaken loan recovery proceedings.
The Bendigo and Adelaide Bank Limited relies upon the assumption that Deed of Settlement is binding upon all investors who participated in the group proceeding to preclude those investors from defending loan recovery proceedings. In particular, they rely on findings made by Justice Croft that: “the [Bank’s] claims to recover these debts is established and now admitted [and] it would be unjust for the [investors] to retain the benefits obtained from the use of the loan moneys without a commensurate obligation to repay the loans.”
This reliance may be misplaced. In the Timbercorp loan recovery proceedings, the High Court stated that the lead plaintiff’s representation of group members was limited to common questions, and that group members were not a ‘privy’ to any other claim.
By analogy, the reliance by Adelaide and Bendigo Bank Limited upon the Deed of Settlement might well be confined to the Lead Plaintiffs, even though the it is stated in the Deed that “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.”
Therefore all of the investors (except for the Lead Plaintiffs) in the Great Southern Plantation schemes would appear to have the right to raise their own defences to loan recovery proceedings, unaffected by the Deed of Settlement.