Another loan deed for a Great Southern Plantations Project investment has been found to be invalid, relieving the personal guarantors from liability to repay the loan.

The loan in this case financed an investment of 100 “droves” of cattle in the Great Southern 2007 Beef Cattle Project. The total investment was $505,250 (each “drove” of 4 cows cost $5,000).

The circumstances

The loan was made in June 2007. The term was five years. The loan deed was electronically “signed” in November 2008.

The borrower was Kenrop Pty Ltd as trustee for the K & A Pickard Family Trust. The lender was ABL Nominees Pty Ltd, a subsidiary of the Bendigo and Adelaide Bank Limited. Kenneth and Ann Pickard (“K & A Pickard”) were the personal guarantors of the obligations of Kenrop to repay the loan.

Kenrop ceased loan repayments on 30 June 2009, when it became apparent that the cattle scheme had failed.

On 11 August 2015, ABL Nominees demanded repayment of the loan. Not long afterwards, Kenrop was wound up by its directors, K & A Pickard.

In 2016, ABL Nominees commenced proceedings against K & A Pickard personally, pursuant to their personal guarantees of the loan.

K & A Pickard defended the proceedings by disputing the validity of the documents constituting the loan and guarantee. They were successful in proving that the loan deed was not validly executed on their behalf, and therefore their personal guarantees were not enforceable.

The decision is Bendigo and Adelaide Bank Limited (ACN 068 049 178) & ors v Kenneth Ross Pickard & anor [2019] SASC 123, (16 July 2019), a decision of Justice Stanley in the Supreme Court of South Australia.

The execution of the Loan Deed

The loan deed, which contained the personal guarantees, was signed on behalf of K & A Pickard by Great Southern Finance (GSF) under a power of attorney contained in the loan application. It was signed by GSF by the affixation of electronic signatures of two of its officers to an electronic version of the document.

The first question was what law applied to the execution of the loan deed, GSF being a company: Did s 127 of the Corporations Act 2001 (Cth) apply, overriding all other requirements for a deed, including the common law requirement that it be written on ‘paper, parchment or vellum’?

The Court applied Bendigo and Adelaide Bank v Laszczuk [2018] VSC 399, a decision of Justice Croft in the Supreme Court of Victoria to hold that s 127 did override the common law, and was the relevant provision because the Corporations Act excludes the operation of s 10 of the Electronic Transactions Act 1999 (Cth).

The second question was did GSF comply with the law when it executed the loan deed: Was the loan deed signed in accordance with s 127?

Under s 127(1),

  1. A company may execute a document without using a common seal if the document is signed by:
  1. 2 directors of the company; or
  2. A director and a company secretary of the company;

The Court applied Bendigo and Adelaide Bank Limited & Anor v DY Logistics Pty Ltd [2018] VSC 558, a decision of Justice Croft in the Supreme Court of Victoria. In that case:

  • The two directors did not physically sign; they authorised their facsimile signatures on the loan deeds. There was no evidence as to who affixed or personally authenticated the affixing of the officer’s facsimile signatures on the loan deeds.
  • Croft J held that s 127 requires a deed to be physically signed by the relevant company officer or for that person to authenticate personally the mark appearing on the document as his or her signature. Accordingly, the copying and pasting of a facsimile signature by a person unknown is not sufficient for the purposes of s 127.
  • According to Croft J: “The officer did not intend to authenticate the document by authorising the affixing of the facsimile to that particular document and, indeed, had no involvement in the production or authentication of the particular document” [paragraph 54]

In this case, Justice Stanley found:

  • The Great Southern Finance (GSF) board resolutions were limited to formally accepting various loan and finance applications, and did not go so far as authorising the placement of signatures on loan deeds.
  • The officers did not turn their attention to and approve a particular loan document to which their signatures were required.
  • For these reasons, ABL Nominees cannot rely upon the provisions of s 127 to prove that the loan deed was validly executed. It follows that the guarantees contained in the loan deed are invalid.

Other questions raised

The other questions raised for determination were:

The authority of GSF to enter into a deed of guarantee on behalf of K & A Pickard, as their attorney?

The Court held that K & A Pickard intended that their loan application authorise GSF to enter into the loan deed as their attorney. Even though they only signed once, they intended to be bound in their personal capacities as well as binding their company.

Were the guarantees within the limited scope of the power of attorney?

The Court held that the power of attorney permitted the attorney to date the loan deed (a copy of which was attached to the loan application) and complete the blank spaces was consistent with the loan application. This included the insertion of an interest rate which was not specified in the loan application.

Nonetheless, did the loan take effect as a contract?

The Court held that while a deed not executed by a party can become binding as a contract in an appropriate case, in this case it fails for want of consideration. “A guarantee given to secure a debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration.”

Ratification

In 2009, K & A Pickard signed a Mortgage and Amendment Deed as part of “Project Transform”, a restructure of certain Great Southern schemes. The Court rejected that these were acts of ratification which rendered them liable as guarantors of Kenrop’s debts because these acts cannot validate the ineffective execution of the loan deed.

Conclusions

This decision is the second decision, after DY Logistics, where ABL Nominees has failed to recover a Great Southern Plantations loan from a personal guarantor because the loan deed was not validly executed.

It shows how important it is for a guarantor to challenge the way in which the loan deed is executed, and to challenge each other link in the chain of liability that the Bendigo Bank must prove to recover a loan debt, because it is rarely obvious where the weak link is to be found until the case is before the court.

For an illustration of another weak link see Bendigo Bank fails in loan recovery action against a Great Southern Plantations investor because it did not make the loan advance