ABL Nominees Pty Ltd v Brakatselos
[2012] VSC 594
•10 December 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2009 04750
| ABL NOMINEES PTY LTD (ACN 106 756 521) (in its capacity as Trustee of the Lighthouse Warehouse Trust No 8 Environinvest Finance) and others | Plaintiffs |
| – and – | |
| PETER BRAKATSELOS | Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 November 2012 | |
DATE OF JUDGMENT: | 10 December 2012 | |
CASE MAY BE CITED AS: | ABL Nominees Pty Ltd and ors v Brakatselos | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 594 | |
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DEBTS AND CHOSES IN ACTION ― Equitable assignments ― Loan agreement ― Loan to enable participation in managed investment scheme ― First assignment by deed ― Second assignment not by deed ― Third assignment by sale and purchase procedure ― Related corporations ― Evidence of transfer of debt by book entries ― Sufficient evidence of intention to establish equitable assignment
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C M Scerri QC with Dr O. Bigos | Allens |
| For the Defendant | No appearance |
HIS HONOUR:
This undefended trial was conducted immediately after the proceeding of Primary Yield Finance Pty Ltd and ors v Philip Meyer.[1] The Court publishes this judgment simultaneously with the judgment in Meyer: see [2012] VSC 595. By their nature, the two cases are identical as claims by a lender, integral or available under the scheme, for recovery of a loan initially taken out by the defendant in order to apply for participation in a forestry managed investment scheme as a “Grower”. The original lender, Blackburn Pty Ltd is a plaintiff in both cases. There is the same first assignment of the debt to Environinvest Limited and the same second assignment to Primary Yield Finance Pty Ltd. But here, there was a third assignment to the first plaintiff, ABL Nominees Pty Ltd. All these companies, now under administration or receivership, are plaintiffs and pursue payment of the debt as a common cause. The borrower here, Mr Peter Brakatselos, invested in two Tasmanian Blue Gum forestry projects, namely, the Environinvest Eucalypt Project 1999 and the Environinvest Eucalypt Project 2000.
[1]S CI 2009 05451.
It is unnecessary to repeat the Court’s opening parts of the judgment given in Meyer which says something of these schemes so as to put the loan transaction in proper context, for these are “tax driven” investment projects. That judgment also exposes how Meyer and likewise how this case came to be decided as an undefended trial. This borrower suffered the same procedural downfall as a result of his non-compliance with a self-executing order, an outcome which was affirmed on two appeals. Like Meyer, the dominant question concerns proof of the advance of the loan moneys for the acquisition of allotments by the borrower in the plantation. In this case, there were two loan agreements under a separate prospectus. And like Meyer, all assignees and intermediate assignors are joined as plaintiffs. All plaintiffs are acting in congress and consent to judgment in favour of the ultimate assignee or any antecedent assignee depending on the Court’s determination of the validity of assignments in the chain. As amongst themselves, the plaintiffs do not question the validity of the assignments at all. Thus if the loans and default are proved there is no escaping liability for the borrower and the assignment question is directed only to ascertaining the right or intended beneficiary of the debt. Like Meyer, proof of the case was made according to business records put into evidence by the controllers of the plaintiffs, the authenticity or source of which should not be in doubt.
The prospectus for the 1999 project stated that Growers would lease an identified allotment in the plantation, each of half a hectare with a minimum of three hectares. The cost of application was $2820 per allotment. The minimum subscription or application was therefore $16 920. Most of that amount was for the cost of plantation, preparation and establishment. A Grower’s Certificate dated 29 June 1999 given by the fourth plaintiff (“Environinvest”) shows that the defendant acquired 102 allotments. At $2820 per allotment, his application cost or investment was therefore $287 640.
There is in evidence a loan agreement dated 29 June 1999 between the second plaintiff (“Blackburne”) and the defendant for $258 839 substantially the same in form as the loan agreement in Meyer. That amount is less than the application cost because the borrower paid $28 801 from his own means. The purpose of the loan was stated in the agreement to be for the forestry operation. The expiry date was 30 June 2009. The borrower was obliged to make a partial repayment of $100 637 by 1 September 1999. The rate of interest was 7.25%. Interest was payable in advance on 30 June of each year of the loan. Under the agreement, a failure to pay interest was an event of default which, unless remedied, accelerated the obligation to pay all of the moneys lent. The plaintiffs accept that this borrower did, as obliged, repay $100 637 from his own funds, so what remains owing is $158 202 as principal.
There can be no doubt that Brakatselos became an investor in the project. All of the associated documents for this type of scheme are in evidence, such as, amongst others: the application for a private tax ruling; the management agreement; the lease agreement; and tax invoices.
The plaintiffs cannot produce a typical lender’s statement of loan account. But the receiver and manager for the third plaintiff (“Primary Yield Finance”) has produced a spreadsheet as a business record called a “Sentinel Monthly Portfolio Report”. That document lists the borrowers in the scheme including Brakatselos by name and customer number. For his entry, it shows the reduced loan principal (after partial early repayment) of $158 202 as at 30 September 2008 and interest arrears then of $11 469 calculated at a rate of 7.25% as incurred under the loan agreement. That gives a total of $169 671 as at September 2008.
To augment proof of the fact that the advances were made under the 1999 loan, there is in evidence a “Investor Taxation Statement” under the 1999 prospectus for this borrower’s tax return for the year ended 30 June 1999. It confirms his 102 allotments. That document states that the defendant as taxpayer has prepaid various amounts for management fees, lease fees and interest on the reduced principal. For the following year, there is in evidence a tax invoice to the defendant from Blackburne for $11 470 as interest in advance at 7.25% on a principal of $158 202. The borrower delivered a cheque (copy in evidence) for that interest amount on 21 June 2000. That can only be taken to be in recognition of the reality of the loan agreement and the recognition by the borrower of his obligations under it.
Thus, there is enough here to show that, as in Meyer, the defendant here applied for and got his allotments; he prepaid all fees under the management and lease agreements and paid interest. There has never been a dispute over the execution of the loan agreement or an assertion of some vitiating element to make it unenforceable. And, as was the case in Meyer, the High Court’s analysis in Glengallan[2] dispels any suggestion that there was no “real money” or actual transmission of funds to the borrower for his benefit and for the intended purpose under the prospectus.
[2]Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] 218 CLR 471 at 458.
Proof of the second loan in 2000 follows a similar documentary course. The prospectus for the Environinvest Eucalypt Project 2000 states the minimum application amount to be $5640 for two allotments or one hectare, which is equivalent to $2820 per allotment. A certificate shows that on 18 April 2000 the defendant acquired 353 allotments in the scheme. The cost of application was therefore $995 460. Records show that in April 2000 Brakatselos deposited a cheque for $371 000 and was to make a further payment for $27 184 to make a total of $398 184 which was 40% of the application cost. He borrowed the 60% balance of $597 276. He did that under a written loan agreement dated 18 March 2000 made with Blackburne in the same form as the first loan in 1999. The loan amount was $597 276, expiry date was 18 March 2010; and the rate of interest was 8.25%. The stated purpose was to enable him to carry on forestry operations on the Eucalyptus plantation.
The loan advanced to this and other growers in the scheme is recorded in the general ledger of Blackburne as original lender. It shows a credit to the account of the lessor Burke Bond Securities Ltd for $10 966 653 with another identification of the defendant’s loan of $597 276 in his name as part of that total amount. Consonant with that, a bank statement from the National Australia Bank for an account held by Environinvest as responsible entity for the scheme, shows a credit for a deposit of $10 966 653. Thus there is sufficient in the integrity of the business records I think to show the reality of the advance given under the loan agreement. In any event, there has never been a suggestion that this defendant did not acquire his allotments as grower. To the contrary, there is evidence that he prepaid interest on the loan at least for the opening year. In June 2000 he paid $49 275 (that is $597 276 at 8.25%) in satisfaction of a tax invoice sent to him. Thus, the Court can be satisfied that loan moneys were acquired in the way this borrower sought; he gained the interest in the scheme for which he applied; and he incurred the obligations under the loan agreement which the plaintiffs seek to enforce in this case.
I turn now to the assignments of the 1999 and 2000 loan. Both loan agreements contained a clause permitting the lender to assign the debt as well as the obligation of the lender: see clause 8.2. I refer and repeat what the Court said in Meyer about the meaning and construction of this clause. I concluded, as I would here, that the clause does not in any way adversely affect the legal efficacy of the assignments in this case.
By a deed expressed to be made on 1 July 2000, Blackburne assigned to the fourth plaintiff (“Environinvest”) both loans made to the defendant. Clause 1 of the deed says:
In consideration of the forgiveness by the Assignee of the Amount Owing to the Assignee by the Assignor, the Assignor as beneficial owner assigns to the Assignee absolutely all of the Assignor’s right title and interest in the Debt, together with all interest which has accrued or which may accrue in the future on a Debt.
A schedule to the deed identifies each loan to the defendant for the correct amount of $158 202 and $597 276 as part of the total tranche of $15 397 892. This transaction is recorded in the general journal of the assignee under a narration on 1 July 2000 which says: “TAKE UP GROWER LOANS TRF FROM BLACKBURNE”. Both loans to the defendant are identified for the correct amount as is the total amount of the tranche of loans transferred.
The assignee gave notice of this assignment to the borrower by separate letters in identical form each dated 3 July 2003 for each loan. The letter also demanded payment of moneys due under each loan, saying:
You are hereby notified that by an agreement dated 1 July 2000 between Blackburne Pty Ltd and Environinvest Ltd, all right and title to the debt owed by you under the above agreement and all other money secured, as defined by the agreement, was assigned absolutely to Environinvest Ltd.
An ‘Event of Default’ as defined by the agreement has occurred and subsists.
Pursuant to clause 6.1 of the agreement Environinvest Ltd hereby elects to make all of the ‘Secured Money’ as defined by the agreement immediately payable.
It is correct to conclude, as was submitted, that all of the requirements of an effective legal assignment from Blackburne to Environinvest under s 134 of the Property Law Act were satisfied.
The next assignment of the debt was to Primary Yield Finance, the third plaintiff. There is no deed of assignment. But as in Meyer this and the following assignment came within the scope of s 134 of the Property Law Act. That is they were absolute transfers of the entire interest. But they were not “under the hand” of the assignor nor was notice given to the debtor. But it was submitted they were made for consideration (forgiveness of debt between associated companies in the project) and were effective in equity. The plaintiffs rely upon the book entries in a general journal to prove this.
In Meyer, the Court considered the question whether a transfer of debts, as so narrated in the general ledger of the companies concerned, was sufficient evidence of an intention to assign to which equity, concerned as it is with substance and not form, would give recognition. The Court concluded, in the circumstances of this scheme amongst related companies, the reciprocal book entries were sufficient manifestation of an intention to assign and that the commercial reality prevailed to inform the situation to overcome the absence of a formal documented assignment. And so it was here. There is in evidence the general ledger of Environinvest Finance Pty Ltd (now Primary Yield Finance) on 14 March 2005 showing under the narration “T/FER OF LOANS FOR SALE FROM ENV LTD”, a reference to each of the two loans to the defendant with the correct figure as part of the tranche of $12 880 162. There are corresponding entries in the general ledger of Environinvest (the fourth plaintiff) under the narration “Assign Loans to ENV FINANACE (sic) – ABL”.
The ultimate assignment was to ABL Nominees Pty Ltd in a more overt form than manifestation by book entries. It occurred on 14 March 2005 (the same date as the preceding assignment) under a Loan Sale and Servicing Deed dated 3 December 2004. The first, third and fourth plaintiffs (all assignees “downstream” of the original lender) were parties to this deed. It is a substantial legal document effecting a securitisation and I shall only refer to its contents selectively. What matters for present purposes is that Environinvest or Primary Yield Finance (each designated as a “Seller” under the agreement) could deliver to ABL Nominees (designated as “Purchaser”) a Sale Notice. Such a notice, the deed said, constituted an offer to assign to the Purchaser. Under clause 2.4 of the deed, the offer could only be accepted by payment of the Purchase Price by a closing date. That is, payment was the mode of acceptance. Clause 2.5 of the deed said:
Acceptance by the Purchaser, in accordance with this Deed, of the offer contained in a Sale Notice delivered to the Purchaser … constitutes an immediate assignment … of the entire right, title and interest in the Loan Rights for each Loan … free from all Encumbrances, Adverse Claims and other third party rights and interests whatsoever, whereupon the relevant Loans shall constitute Purchase Loans.
Clause 2.6 stated that the assignment of the loan under the deed took effect initially in equity only until the assignee took certain steps to perfect legal title.
There is in evidence such a sale notice dated 9 March 2005 given by Primary Yield Finance to ABL Nominees as purchaser. That notice identifies a multitude of loans including the two loans to the defendant for the correct amount. The sales notice was accepted by payments made on 14 March 2005. Those payments are recorded in a general journal of Primary Yield Finance under the narration: “ABL Tranche 2 – Funds Receipt and Deductions”.
On the principles concerning the recognition of an assignment in equity as considered in the Court’s judgment in Meyer, which are informed by a need to show an intention to assign a transfer of the debt absolutely, I think there is sufficient here to show such an intention. The Loan Sale and Servicing Deed describes an articulated mode of assignment which was carried out. The outcome is that ABL Nominees is the beneficial owner of the debt incurred by the defendant to the original lender Blackburne and it is entitled to sue for it.
By letter to the defendant dated 11 December 2008, ABL Nominees gave notice of a default under the 1999 loan agreement in the payment of interest. Curiously, paragraph 1 refers to a notice of assignment saying: “We refer to the Notice of Assignment dated 14/03/2005. As stated in the Notice of Assignment, ABL Nominees Pty Ltd … is the lender under the loan agreement.” There is not in evidence any such notice of assignment but it matters not as the plaintiffs here propound this case as one of an equitable assignment. The demand though referred correctly to the principal sum owing of $158 202. In identical form and on the same date, a notice of default and demand was also sent to the borrower for the second loan of $597 276. It also relied upon the borrower’s default in the payment of interest.
Under both loan agreements, the borrower was liable to pay interest on unpaid interest. The plaintiffs say they are not concerned to enforce that “interest on interest” clause. They say that confidence on the accuracy of the Sentinel Report (to which I have already made reference) as a business records leads them to isolate the principal and interest due as at 30 September 2008 under each loan agreement and then seek simple interest on the constant principal at the contracted rate of 7.25% under the first loan agreement and 8.25% under the second loan agreement for the three plus years since then. On that basis, the Court accepts that the debt on each loan may be separately calculated according to the following two tables. As the figure for prepaid interest on 30 June 2012 involves a recalculation since judgment was reserved, I would ask for the computation of that figure to be checked.
THE FIRST LOAN Interest Balance outstanding Principal outstanding as at September 2008 $158 202.00 Interest outstanding as at September 2008 $11 469.65 $169 671.65 30 June 2009 $11 469.65 $181 141.30 30 June 2010 $11 469.65 $192 610.95 30 June 2011 $11 469.65 $204 080.60 30 June 2012 $5090.04 $209 170.64 (Interest at $31.42 per day for 162 days from 1 July 2012 to 10 December 2012) THE SECOND LOAN Interest Balance outstanding Principal outstanding as at September 2008 $597 276 Interest outstanding as at September 2008 $49 275.27 $646 551.27 30 June 2009 $49 275.27 $695 826.54 30 June 2010 $49 275.27 $745 101.81 30 June 2011 $49 275.27 $794 377.08 30 June 2012 $21 870 $816 247.08 (Interest at $135 per day for 162 days from 1 July 2012 to 10 December 2012)
Subject to these figures being checked, the Court will give judgment for the combined amount of $1 025 417.72. I see no reason why costs should not follow the event. I would ask the plaintiffs’ lawyers to prepare a form of judgment to be submitted to my Associate for settling and authentication.
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