2006 was a boom year for Great Southern Plantations: it raised $1.141 billion from selling cattle droves, olive groves and woodlots to 25,800 investors in its Managed Investment Schemes (MIS) (source: Australian Agribusiness reports).

Mrs Govindasamy was one of these investors. She purchased 10 droves in the 2006 Beef Cattle MIS (cost: $50,000), 7 Grovelots in the 2006 Organic Olives MIS (cost: $56,000) and 33 Woodlots in the 2006 Plantations MIS (cost: $99,000).

Term finance arranged through Great Southern Finance funded the full cost of the investments. She made loan payments until November 2009.

The Bendigo and Adelaide Bank Ltd (the Bendigo Bank) brought loan recovery proceedings against the investor claiming that a total of $413,505.64 was due and payable as at 1 January 2016.

On 24 January 2019, Judge Hatzistergos dismissed the Bank’s loan recovery action, with costs. The decision is ABL Nominees Pty Limited (ACN 106 756 521), ABL Custodian Service Pty Ltd (ACN 097899720) and Bendigo and Adelaide Bank Ltd (ACN 068 049 178) v Vijayalatshimi Govindasamy [2019] NSWDC 5, a decision of the District Court of New South Wales.

The decision has favourable implications for all investors in those schemes who are still defending loan recovery claims by the Bendigo Bank, and who are not group members.

Features of the Loan Arrangements

The loans were made and documented as follows –

1) On 4 June 2006, applications for the three investments were made to Great Southern Managers Australia Limited (GSMAL), including the number of lots to be acquired, the relevant agricultural product and the finance option preferred.

2) At the same time, applications for term finance were made to Great Southern Finance Pty Ltd (GSF), including the finance terms selected. The investor granted a power of attorney to GSF to execute the Loan Deeds on their behalf.

3) On 8/9 June 2006, GSF approved the applications for term finance.

4) On 15 June 2006, GSMAL sent tax invoices to the investor for the investments which noted “Payment by deposit or term finance” of $50,000 for the 10 Droves and $56,000 for 7 Grovelots. On 30 June 2006, GSMAL sent a tax invoice for $99,000 for the 33 Woodlots.

5) The Bendigo Bank treated all three loans as Originated loans. This means that the Bendigo Bank was the lender, as opposed to the Bendigo Bank being the purchaser of a loan originated by GSF.

The procedure was:

  1. The Bendigo Bank would inform GSMAL that it was prepared to lend to the relevant borrowers in the scheme.
  2. GSMAL would then issue an “Origination” Notice that it intended to originate the loan in the name of ABL Nominees Pty Ltd (ABL) (a subsidiary of the Bendigo Bank).
  3. The Bendigo Bank would then transfer the funds on behalf of ABL to GSMAL.
  4. Loan Deeds for each loan were entered into between ABL as lender and the investor as borrower. Note: GSF signed the Loan Deeds as the attorney of the investor, under a power of attorney contained in the application for finance.

6) On 15 June 2006, Loan Deeds for the Droves and the Grovelots were signed by ABL as lender and by Great Southern Finance Pty Ltd (GSF) as attorney for the investor. The Loan Deed for the Woodlots was signed later in the same way, on 1 July 2006.

7) On 22 June 2006, ABL approved the loan as an Originating loan. On 23 June 2006, the Bendigo Bank transferred funds to GSMAL for the investor’s loans for the Droves and the Grovelots on behalf of ABL, as part of a larger funds transfer. The funds for the Woodlots were transferred on 14 August 2006.

8) Significantly, each of the Loan Deeds contained these clauses:

Clause 2(a) The parties agree that the lender will lend funds to the borrower on the date on which the fees are payable

Clause 2(b) The borrowers irrevocably direct the lender to advance the funds on the date of advance

date of advance was defined in the Loan Deeds as the date of the Lease Management and Agistment Agreement. This date was 15 June 2006 for the Beef Cattle MIS and the Organic Olives MIS Loan Deeds (the First and Second Loan Deeds) and 30 June 2006 for the Plantations MIS Loan Deed (the Third Loan Deed) – being the date the tax invoices were issued (and the fees were payable).

9) In the books and bank statements of GSMAL, deposits were recorded on 15 June 2006 for the funds advanced under the First and Second Loan Deeds, and on 1 July 2006 for the funds advanced under the Third Loan Deed.  

10) From 31 July 2006 until November 2009, the investor made loan repayments under all three Loan Deeds by direct debit authority.

Did ABL/Bendigo Bank make the loan advances?

The Court drew the inference from the evidence that the first and second loan advances were made on 15 June 2006, but were not from ABL/Bendigo Bank because the funds transfer to GSMAL was not made until 23 June 2006. Similarly with the third loan advance which was made on 1 July 2006, yet the funds transfer to GSMAL was not made until 14 August 2006.

The Court stated: No relevant banking or financial records have been produced in relation to the funding of the loans on these earlier occasions … in the circumstances … an inference is not open that the funder was any of the Plaintiffs. (judgement, paragraph 115)

Did the Mortgage and Amendment Deed validate the first loan?

The Bendigo Bank sought to rely on the Mortgage and Amendment Deed for the First Loan executed in 2009 to cure defects in the loan origination.  The Court ruled that because ABL was not the lender under the First Loan Deed, the Mortgage and Amendment deed had no effect.

The Bendigo Bank also sought to rely on the “Dobbs Certificate” it issued under that Mortgage and Amendment Deed as conclusive evidence of the loan amount due and payable. The Court ruled that the Certificate was invalid because the amount included the Bendigo Bank’s legal costs which Bank had added to the debt, without having a court order against the investor to pay the legal costs.

Did the investor intend to select ABL as lender in the second and third loans?

In the applications for investments, the investor ticked “finance option to obtain the loan with GSF”.  The direct debit authorities were in favour of GSF.

The Court read the documentation objectively and found that the lender from which the investor intended to obtain the second and third loans was  GSF, not ABL.

ABL sought to rely upon the Power of Attorney granted by the investor to GSF in the applications for term finance to enter into the Second and Third Loan Deeds with ABL as lender.

The Court ruled: I do not accept that the Power of Attorney operated to permit GSF the discretion to enter into the Loan Deed with the Lender of its choice [or to ratify it] (paragraph 172). The Court adopted the analysis of Davies J in Bendigo v Adelaide Bank v Howard [2018] NSWSC 383 (a NSW Supreme Court decision), in dealing with similar documentation.

The Court did not rule upon whether the loans had been validly assigned to Bendigo Bank because ABL had not established it was the lender.

Conclusions

  • The outcome was that the investor, Mrs Govindasamy was relieved from all obligation to repay the loans: the Bendigo Bank’s loan recovery action was dismissed and the Bank is to pay her legal costs.
  • The fatal flaw in the Bendigo Bank’s case was that the loans were made before ABL/Bendigo Bank transferred funds. So it could not be the case that ABL/Bendigo Bank made the loan advance of the loans it took action to recover. As Loan Originator, the Bendigo Bank had to advance the loan funds to the investor. It was not purchasing an existing loan.
  • The same factual scenario could apply to many loans made for schemes in 2006. The First and Second Loans were identified as part of “Tranche 15”, in which $21,182,262.23 was transferred by ABL/Bendigo Bank on 23 June 2006; the Third Loan was part of “Tranche 17” in which $4,493,06.31 was transferred on 14 August 2006.