Bendigo and Adelaide Bank Limited v Russo [2019] NSWSC 661

In 2015, Bendigo Bank (Bendigo) sought to recover a historical loan to Mr Russo of $464,033.63. The funds were advanced in 2008 for a 10 year term and Mr Russo made no loan repayments after September 2009.

The loan was given to facilitate Mr Russo’s investment in the now infamous Great Southern managed investment schemes. Under the scheme’s terms the investment of an “olive grower” such as Mr Russo would be financed by a loan to him from Great Southern Finance or another financier nominated by Great Southern Managers. The arrangements were later the subject of group proceedings concerning the allegedly defective product disclosure statements used to promote the managed investment schemes: Clarke (as Trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors [2014] VSC 516). Those proceedings resolved by deed of settlement, approved by Croft J in December 2014.

ABL Nominees – the nominated financier – was at the time of the loan to Mr Russo a subsidiary of Adelaide Bank, which bank had merged with Bendigo before proceedings were issued. Bendigo acquired the loan as part of that merger in late 2008. The resolution of the group proceedings paved the way for Bendigo to enforce the many ‘Great Southern’ loans including the loan to Mr Russo.

Bendigo issued proceedings against Mr Russo seeking to enforce its loan deed. Bendigo sought to argue that, by reason of the approval and acceptance of the finance application and the advance of funds by ABL Nominees, Mr Russo had entered into a binding loan agreement. A combination of complex documentation and delay in enforcement created unusual evidentiary hurdles for Bendigo.

A major difficulty was that the documents did not tell a straightforward story: applicants to the scheme had been invited to sign an application that purported to appoint nominees of Great Southern Finance as Mr Russo’s power of attorney in respect of the entry into a loan deed. (A checklist instructed applicants not to fill out the loan deed on the basis that the lender would do so under the applicant’s power of attorney.) Further complicating the loan was the identity of the lender: the application and loan deed provided that the lender would be either Great Southern Managers or ABL Nominees. Mr Russo agreed that he signed the relevant applications and direct debit request, but contested whether the loan deed was enforceable.

Bendigo had sought to prove its case by a historical reconstruction of the books and records of ABL Nominees and of Adelaide Bank. Bendigo sought to include that material in evidence by way of annexures to affidavits, which apparently sought to explain the documents. Understandably, Mr Russo raised objections (including that the documents speak for themselves and their effect is not a matter for evidence). Orders were made pursuant to s 136 of the Evidence Act 1995 (NSW) limiting the use of that evidence.

The Court accepted Mr Russo’s submission that Bendigo had failed to prove that the loan deed had been validly executed by ABL Nominees – the entity found to be the lender – under the power of attorney. One of the two signatories was in fact a ‘finance manager’ of one of the Great Southern companies and had no connection with ABL Nominees. Unsurprisingly, Bendigo was unable to produce any evidence that the signatories had the appropriate authority to sign as ABL Nominees’ ‘duly appointed attorneys’.

Bendigo attempted to rely upon the presumption of regularity to support the powers of attorney. (The presumption is essentially a public law presumption used to facilitate proof of due performance of obligations and is rarely used in civil proceedings.)

The Court accepted Mr Russo’s submission that the presumption of regularity should not be applied in light of the irregularities surrounding the signing of the loan deed:

  • the deed was purportedly executed on behalf of ABL Nominees over ten months after the loan was approved and after ABL Nominees had allegedly assigned the loan to Adelaide Bank;
  • it was unlikely that ABL Nominees would have granted power of attorney to the finance manager of one of the Great Southern Companies at all, let alone a power that endured beyond the date when the loan had been assigned (in 2008);

Unsurprisingly, McCallum J rejected Bendigo’s attempt to rely upon the statutory presumption that officers or agents of a company have authority to exercise powers generally exercised by those in that role (Corporations Act 2001 (Cth), s 129(3)) to establish that the signatories had been duly appointed to exercise the power of attorney on behalf of ABL Nominees.

Bendigo also failed to establish that Mr Russo was a member of the ‘group’ for the purpose of the group proceeding. By a clause in the deed of settlement, the lead plaintiffs had acknowledged and admitted the validity and enforceability of the loan deeds, purportedly for and on behalf of themselves and all group members.

However Bendigo failed to establish matters that would assist in proving group membership, in particular there was no evidence that any entity received payment from Mr Russo or of any allotment in his name. Mr Russo’s membership of the group was required to ensure that Bendigo’s claim under the loan deed was not statute-barred:

  • the deed of settlement contained an explicit acknowledgement of the ‘validity and enforceability’ of each group member’s loan deeds. Section 54 of the Limitation Act 1969 (NSW) operates to give a plaintiff additional time to bring proceedings in respect of causes of action that are ‘confirmed’ by ‘a person’ before the expiry of a limitation period of six years. Justice McCallum opined that approval of the deed of settlement (by Croft J (see above)) would have ‘confirmed’ that Bendigo’s cause of action against Mr Russo under the loan agreement, effectively ‘start[ed] the clock running’ again;
  • in light of Justice McCallum’s broad interpretation of section 54, the execution of the deed of settlement by the lead plaintiffs in the group proceeding would have been taken to be the act of Mr Russo (as a group member) of executing the deed of settlement. (That approach was of course contrary to Mr Russo’s submission to the effect that s 54 could not govern a group scenario and requires by its language a ‘personal’ acknowledgement by the litigant.)

Bendigo had also argued that steps taken by Mr Russo indicating his awareness of, and involvement in, the managed investment scheme constituted an admission of the legal effect of the loan deed: Mr Russo’s written request and acceptance of a benefit in the sum of $79,816.50 under the settlement deed resolving the group proceedings, together with his inclusion of representations in his tax returns. These were found not to constitute an admission on the basis that the effect of the loan deed is a legal conclusion and as such cannot be ‘admitted’.

Bendigo’s major claims in the alternative (restitution, unjust enrichment and moneys had and received) were all statute-barred.

Final comment:

The drawing of straightforward documentation at the outset of the managed investment scheme may have avoided at least some of the difficulty encountered in the enforcement process. In particular, carefully disclosing the lender of the funds could have obviated the problems encountered in establishing that the power of attorney was properly exercised.