When is an assigned loan, not a loan?

The recent appeal decision in Bendigo and Adelaide Bank Ltd v Howard¹  may have significant precedent in relation to the enforceability of thousands of loan documents, and represents another hit to a bank’s attempts to recover loans related to a collapsed managed investment scheme. 

The decision of a single judge of the New South Wales Supreme Court rejected all 23 grounds of appeal advanced by the bank.

The borrower’s strategy of putting the bank to proof in relation to the making of a loan advance and the assignment of the debt from a predecessor bank to the plaintiff proved to be very effective in circumstances where, at first instance inadequate evidence had been adduced by the bank and the documents relied upon were not sufficient to establish the fact of:

• a loan being advanced by the plaintiff to the borrower due to a lack of clarity on the documents about whether that specific loan between the predecessor bank and the borrower was in fact assigned to the plaintiff; and
• the loan deed (entered into by the predecessor bank in reliance of the power of attorney contained in an application form) was entered validly.  This issue arose due to an error made by the borrower on the application form leading to the circumstance where his application could not be funded the way he requested on the form (and specifically, not by the predecessor to the plaintiff but rather by another lender).

The impact of this decision

This decision shows the importance of ensuring evidence is carefully considered prior to the commencement of enforcement action against borrowers and raises questions about the enforcement action taken against borrowers whose loans were governed by the same or similar documentation which, as the plaintiff’s Senior Counsel identified in a hearing for the matter there are “many thousands of transactions”.²

The decision is also a reminder to practitioners to carefully consider the efficacy of any purported assignment of debt prior to enforcement, or else the assignor may find that, what they thought was an enforceable loan is not actually even a loan.