Great Southern investors try on second bank suit

INVESTORS who lost money when Great Southern collapsed in 2009 have launched a fresh attempt in the New South Wales Supreme Court to set aside loans from Bendigo and Adelaide Bank.

By InvestSMART · 19 Sep 2011

By InvestSMART ·
19 Sep 2011

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INVESTORS who lost money when Great Southern collapsed in 2009 have launched a fresh attempt in the New South Wales Supreme Court to set aside loans from Bendigo and Adelaide Bank.

The bank is suing a large group of its customers who stopped paying interest on loans they took out for investments in agricultural schemes. The customers want to cross-claim against the bank and allege that its links with Great Southern make it liable for claimed misleading and deceptive conduct by Great Southern.

In June, Justice Clifford Einstein summarily dismissed cross-claims by two borrowers, Adam Cairncross and Elite Advertising Group Pty Ltd.

On Friday, Mr Cairncross and Elite, who lead a group of 300 borrowers advised by solicitors ERA Legal, applied for leave to file reformulated cross-claims.

Their barrister, Robert Newlinds, SC, told Associate Justice Richard Macready that the matter had "an unfortunate history".

Not only had Justice Einstein dismissed their attempt to bring cross-claims, but another group of ERA clients in substantially the same position "made a similar application to the County Court in Victoria and lost", Mr Newlinds said.

The Victorian decision was handed down on August 26.

There were "large differences" between the pleadings in the dismissed cross-claims and the new ones, he said.

Mr Cairncross and Elite each borrowed about $500,000 in 2007 from Adelaide Bank, which later merged with Bendigo Bank, for

tax-effective investments in Great Southern wine-grape and olive schemes. The bank sued in September 2010 and the borrowers filed cross-claims in December, which were amended several times before Justice Einstein dismissed them.

Mr Newlinds said Great Southern referred prospective investors to the bank, a "preferred financier", and the bank knew or ought to have known that the product disclosure statements for the schemes were misleading or deceptive.

A feature of his clients' case was "a rather complicated and surprising power-of-attorney system" under which Mr Cairncross's loan agreement with the bank was signed on his behalf by Great Southern executives.

Nicholas Kidd, barrister for the bank, said that after "propounding claims which the court has found to be untenable", the borrowers were "now seeking in effect to commence the procedure again".

"In our submission, the borrowers have had their opportunity and there's no justification in anything that's before your honour today for why yet a further indulgence should be given to the borrowers a year after the proceedings were commenced," Mr Kidd

said.

Associate Justice Macready reserved his decision.

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Frequently Asked Questions about this Article…

What is the Great Southern investors court case against Bendigo and Adelaide Bank about?

The case involves investors who lost money when Great Southern collapsed in 2009. They have applied in the New South Wales Supreme Court to set aside loans from Bendigo and Adelaide Bank and to file cross-claims alleging the bank is liable for misleading and deceptive conduct related to Great Southern’s agricultural investment schemes.

Who are the borrowers mounting cross-claims against the bank?

The lead applicants named in the article are Adam Cairncross and Elite Advertising Group Pty Ltd. They are part of a broader group of about 300 borrowers advised by law firm ERA Legal who seek to cross-claim against the bank.

Why is Bendigo and Adelaide Bank suing its customers in this matter?

The bank sued a large group of customers who stopped paying interest on loans they took out to fund tax-effective investments in Great Southern agricultural schemes. The bank’s action began after borrowers defaulted on those loan repayments.

What do the borrowers allege about the bank’s relationship with Great Southern?

Borrowers allege Great Southern referred prospective investors to the bank as a ‘preferred financier’ and that the bank knew or ought to have known the product disclosure statements for the schemes were misleading or deceptive, making the bank potentially liable for misleading conduct.

What happened in earlier stages of these cross-claims?

In June, Justice Clifford Einstein summarily dismissed cross-claims by two borrowers (Cairncross and Elite). Another group of ERA clients lost a similar application in the County Court in Victoria on August 26. The current applicants are asking permission to file reformulated cross-claims after previous versions were dismissed or amended.

How do power-of-attorney issues feature in the borrowers’ case?

A notable element of the borrowers’ case is that some loan paperwork was signed under a ‘power-of-attorney’ system—specifically, Cairncross’s loan agreement was signed on his behalf by Great Southern executives, which the borrowers say is relevant to the bank’s connection to the scheme.

How much did the example borrowers borrow and what were the loans used for?

Adam Cairncross and Elite Advertising Group each borrowed about $500,000 in 2007 from Adelaide Bank (which later merged with Bendigo Bank) to fund tax-effective investments in Great Southern wine-grape and olive schemes.

What is the current status and next step in the legal proceedings?

Cairncross, Elite and their group applied for leave to file reformulated cross-claims in the NSW Supreme Court. At the hearing reported in the article, Associate Justice Richard Macready reserved his decision on whether to allow the new pleadings.