Going South(ern): Summary enforcement of loans after Great Southern

This week’s TGIF considers the decision in Bendigo and Adelaide Bank Ltd v Lonergan [2018] VSC 357, which concerns an increasingly common issue – how to conduct enforcement proceedings where a borrower’s loan is part of concluded group proceedings like those in Great Southern and Timbercorp.

WHAT HAPPENED

In 2017, Bendigo and Adelaide Bank commenced proceedings to enforce loans that a borrower took out to invest in projects that were part of the Great Southern Group of agribusiness managed investment schemes.

After the Great Southern Group collapsed in 2009, each of the projects was the subject of group proceedings in the Supreme Court of Victoria. Those proceedings were settled in 2014 on terms that the group members would be bound by a detailed deed of settlement, which included terms that:

• The group members acknowledged that their loans were valid and binding; and
• The group members otherwise released any “Claims” (as broadly defined) that they might have against the Bank, including defences to the enforceability of their loans.

The borrower in this case did not opt out of the group proceeding settlement, with the consequence that he was bound by the terms of the deed of settlement.

THE SUMMARY PROCEDURE

The Bank brought its 2017 application for judgment pursuant to an established summary procedure to enforce the terms of a settlement, which has been well-recognised since the decision in Roberts v Gippsland Agricultural & Earthmoving Contracting Co Pty Ltd [1956] VLR 555.

That procedure provides, in its most simple form, that an agreement for compromising or settling proceedings may be summarily enforced as an order of the court if the plaintiff can prove that:

• The claim in the action is for payment of a sum of money;
• There has been a compromise on terms that the defendant pay the plaintiff and that judgment be entered if there is a default on that agreement; and
• The defendant has subsequently defaulted on the agreement to compromise the proceeding.

Importantly, the Court has a residual discretion to refuse to follow the summary procedure (and so have a full trial) where the Court is not “clearly satisfied that justice can be done” in the summary procedure. Factors relevant to that discretion include whether there are substantial defences that might be raised.

THE ISSUE, THE DECISION AND THE PRINCIPLES

The key issue in Lonergan was whether it was appropriate that the Court follow the summary procedure, having regard to the defences the borrower had raised in his defence.

Croft J held that it was appropriate that he exercise the discretion to follow the summary procedure and so enter judgment for the Bank.

His Honour held that the scope of defences available to the borrower depended upon construing the terms of the deed of settlement. Upon a close examination of the defences raised, his Honour found that they were forestalled by the deed of settlement, such that the borrower was not able to dispute or deny the validity or enforceability of his loans.

With the defences available to the borrower “severely constrained”, Croft J held that a trial was not justified and entering judgment for the Bank pursuant to the summary procedure in Roberts v Gippsland Agricultural was appropriate.

As a matter of principle, his Honour noted that in this case the process of assessing the defences available to the borrower was different to the process that would be followed for borrowers who were group members in similar group proceedings relating to the collapse of Timbercorp, another agribusiness managed investment scheme.

In the Timbercorp case, the group proceedings proceeded to a final judgment[1]. This meant that the group members in that case were only bound to the extent of common issues that were finally decided – not the definition of “Claims” in a deed of settlement. Accordingly, to the extent that Timbercorp group members had individual defences outside those common issues (such as misrepresentations made to them individually), they could still raise those defences to resist enforcement of their loans.

As this and a number of other recent cases demonstrate[2], the end of group proceedings in Great Southern, Timbercorp and other group proceedings has been, in a sense, just the beginning of other proceedings.

But it is important to note the critical differences in how subsequent proceedings to enforce loan agreements will progress, depending on whether group proceedings have been finally decided by a Court or settled pursuant to a deed of settlement.

As it stands, if you act for lenders or are involved in managing and instructing claims on behalf of entities in external administration, the volume of likely litigation means that investigating efficient ways to conduct enforcement proceedings will pay significant dividends.