Guarantors win against bank in Great Southern proceeding

By Nicole Jee, Aitken Partners, Solicitors, Melbourne

Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd [2018] VSC 558

On 21 September 2018, in the first Great Southern guarantor case to proceed to trial, Justice Croft in the Supreme Court dismissed the bank’s claims for recovery of two loans against our client, a guarantor.

This decision provides insights into the applicable law for the creation of powers of attorney, use of facsimile (or electronic) signatures by companies and, the obligations of guarantors in settled proceedings.


This proceeding concerned a claim by Bendigo and Adelaide Bank and ABL Nominees Pty Ltd (the Plaintiffs) to recover two loans originally made by Great Southern Finance Pty Ltd (in liquidation) in 2006 to DY Logistics Pty Ltd (formerly known as Container Forwarding Services Pty Ltd) (in liquidation) and guaranteed by Young. The claim was for the sum of approximately $1 million including interest.

The key issues in this proceeding were:

  • whether the powers of attorney granting Great Southern Finance the power to execute loan deeds on behalf of DY Logistics, as borrower, and Young, as guarantor, in the applications for finance were valid;
  • whether Great Southern Finance was acting within the scope of powers conferred on it by the powers of attorney;
  • whether a company may execute a document as a deed under section 127(3) of the Corporations Act 2001 (Cth) if two directors sign the document for the purposes of Section 127(1), by authorising their facsimile signatures to be affixed to the document;
  • whether DY Logistics was a group member and if so the consequences of this on claims against Young.

Validity of powers of attorney

Justice Croft found that the law applicable to the creation of a power of attorney is the law of the jurisdiction in which it was made. Therefore, as Young and the witness to his signature were based in Victoria (as indicated in the finance applications), Croft J found that the powers of attorney were executed within Victoria and Victorian law and section 73A of the Property Law Act 1958 (Vic) govern whether the applications for finance were valid deeds granting powers of attorney. Justice Croft found that the finance applications were not deeds (and so no attorney was appointed) because:

  • they were not expressed to be ‘signed, sealed and delivered’; and
  • words such as ‘agree to appoint an attorney’ or ‘executed as a deed’ were insufficient to meet the requirements.

Scope of powers of attorney

As Justice Croft had found that no powers of attorney had been created, His Honour was not required to rule on whether the scope of the power of attorney had been breached in entering into the loan deeds in a form which varied from the form set out in the applications for finance.  However, Justice Croft did comment that:

  • a power or agency will be strictly construed; and
  • based on an express clauses in the power of attorney which permitted the attorney to complete blank spaces in the loan schedule ‘consistently with the provisions of this finance application’ and  exercise its powers ‘even if the exercise of that power involved a conflict of interest’, the insertion of an overdue interest rate of 3% was within the power of attorney.

Execution of the loan deed pursuant to section 127 

Justice Croft accepted that section 127 of the Corporations Act requires a deed or other instrument of a company to be physically signed by the relevant company officer or for the person to authenticate personally the mark appearing on the document as his or her signature. Although it was common ground that the loan deeds were not physically signed, Justice Croft found that there was no evidence as to which person or persons affixed or personally authenticated the affixing of the purported facsimile signatures and as such the loan deeds had not been validity executed for the purposes of section 127.

Group membership of DY Logistics and consequences

Justice Croft found that DY Logistics was a group member, but that Mr Young was not liable to the Plaintiffs under either the guarantee or indemnity provisions because:

  • Young was not bound by the deed of settlement;
  • the only source of Young’s liability was the loan deeds which were of no effect as they had not been validity executed; and
  • DY Logistics also had no obligations under the loan deeds but still had obligations under the deed of settlement.

Ultimately Justice Croft found that the Plaintiffs had failed to establish the validity of the loan deeds upon which they relied and accordingly their claims under the loan deeds must be dismissed.

Lessons from this proceeding

  1. when appointing an attorney, it is important to consider the jurisdiction in which the power is being created and ensure that the validity requirements of that jurisdiction are met;
  2. when signing a document under section 127 of the Corporations Act using facsimile or electronic signatures, ensure that the signatures are authenticated and authentication is documented (eg. minutes of a meeting or other written authentication);
  3. a guarantor cannot assume obligations of a borrower under a settlement deed to which it is not privy in circumstances where the validity of the underlying loan deed cannot be established.

A copy of the judgement can be viewed here

Contact the author directly by email or by telephone.

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