Agricultural and Rural Finance Pty Ltd v Atkinson - [2010] NSWSC 635

No judgment structure available for this case.

CITATION: Agricultural and Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors [2010] NSWSC 635

HEARING DATE(S): 6/4/10, 13/4/10 - 16/4/10, 19/4/10, 21/4/10, 22/4/10, 28/4/10, 29/4/10, 3/5/10 - 6/5/10, 10/05/10 - 12/05/10, 18/05/10, 19/05/10

JUDGMENT DATE :
17 June 2010

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Defendants Contract Review Act claims to be dismissed. Defendants punctuality cases to be dismissed

CATCHWORDS: Contract – Unjust contracts - Proceedings constitute residue of test case having travelled through a decision at first instance (Agricultural and Rural Finance Pty Ltd v Atkinson and others) [2006] NSWSC 202, a decision before the New South Wales Court of Appeal (sub nom Gardiner v Agricultural and Rural Finance Pty Ltd) [2007] NSWCA 235 and the decision of the High Court of Australia (sub nom Agricultural and Rural Finance v Gardiner) (2008) 238 CLR 570 - Remaining issues concern defendants’ Contracts Review Act and punctuality cases - Whether Act applies - Whether defendants entered into contracts in the course of or for the purpose of a trade, business or profession within the meaning of s 6(2) - Proper scope of that exclusion - Whether it covers investment contracts entered into as a matter of personal finance - Whether the farming exception contained in s 6(2) applies to the first defendant - Proper scope of that exception - Ellison v Vukicevic (1986) 7 NSWLR 104 at 111 applied - Relevant steps involved in applying s 7(1) of the Act - Framework for determining whether a contract is unjust within the meaning of s 7(1) - Point at which it is determined whether a contract is unjust - Whether the Court focuses on the particular contract or the overall transaction - Principles concerning meaning of ‘unjust’ under the Act - Factors contained in s 9(2) are not exhaustive - Whether, if it is established that provisions of one contract are unjust, it is possible to obtain relief in respect of a related contract - Public interest consideration under s 9(1) - Baltic Shipping Company v Dillon “Mikhail Lermontov” (1991) 22 NSWLR 1 applied - Provisions in question were not subject of negotiation, whether negotiation was reasonably practicable - Purpose of s 9(2)(b), 9(2)(c) - Whether provisions in question were particularly complex - Whether provisions in question reasonably necessary for protection of legitimate interests of second cross defendant, the indemnifier - Whether loss of indemnity was a grossly disproportionate consequence in the event of late payment of interest and principal payments - Contracts Review Act 1980 ss 4, 6, 7, 9,15, 16, Sch 1 - Onus of proof - Whether issue was decided in Gardiner Test Case – Defendants bear onus of proving punctual performance - Evidence - Probative value of evidence substantially outweighed by danger that evidence would if allowed by unfairly prejudicial to the plaintiff and/or be misleading or confusing and/or cause or result in undue waste of time - Evidence Act 1995 s 69(2)

LEGISLATION CITED: Acts Interpretation Act 1901 (Cth)
Australian Postal Corporation (Performance Standards) Regulations 1998 (Cth)
Cheques Act 1986 (Cth)
Cheques and Payment Orders Act 1986 (Cth)
Cheques and Payment Orders Amendment Act 1998 (Cth)
Contracts Review Act 1980
Corporations Law
Evidence Act 1995
Income Tax Assessment Act 1936 (Cth)
Trade Practices Act 1974 (Cth)

CATEGORY: Principal judgment

CASES CITED: Agricultural and Rural Finance Pty Ltd v Atkinson and others [2006] NSWSC 202
Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 42
Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 311
Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 425
Agricultural and Rural Finance v Gardiner (2008) 238 CLR 570
Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1
Antonovic v Volker (1986) 7 NSWLR 151
Australian Guarantee Corporation Ltd v McClelland (1993) ASC 56-230
Baltic Shipping Company, The “Mikhail Lermontov” v Dillon (1991) 22 NSWLR 1
Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256
Borg-Warner Acceptance Corporation (Australia) Ltd v Diprose [1988] ANZ ConvR 57
Bridge Wholesale Acceptance (Australia) Ltd v GVS Associates Pty Ltd (1991) ASC 56-105
Broadlands International Finance Ltd v Sly [1987] ANZ ConvR 328
Central Commodities Services Pty Ltd v Hertzog (1989) ASC 55-706
Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398
Collins v Parker (unreported, Lee J, 11 May 1984)
Commercial Bank Co of Sydney Ltd v Pollard [1983] 1 NSWLR 74
Coombs v Bahama Palm Trading Pty Ltd (1991) ASC 56-097
Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Ellison v Vukicevic (1986) 7 NSWLR 104
Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Limited (2009) 257 ALR 658
Gardiner v Agricultural and Rural Finance Pty Ltd) [2007] NSWCA 235
Hogan v Howard Finance Limited (1987) ASC 55-594
Holman v Deol [1979] 1 NSWLR 640
Horniblow v Napier [1955] NZLR 104
King Mortgages v Satchithanantham; Cash King Pty Ltd v Satchithanantham [2006] NSWSC 1303
Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55
Lander v Trigger [1999] NSWSC 1253
Lowe v JW Ashmore Ltd [1971] Ch 545
Miller Associates (Aust) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506
Nguyen v Taylor (1992) 27 NSWLR 48
Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41
Riz v Perpetual Trustee Australia Ltd (2008) NSW ConvR 56-198; [2007] NSWSC 1153
Roach & Ors v Page & Ors (No. 15) [2003] NSWSC 939
Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923
Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529
Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388
West v AGC (Advances) Limited (1986) 5 NSWLR 610

TEXTS CITED: Peden, The Law of Unjust Contracts (Butterworths, 1982)
Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (Lexis Nexis Butterworths, 9th Aus ed, 2008)
Zipser, ‘Unjust Contracts and the Contracts Review Act 1980 (NSW)’ (2001) 17 Journal of Contract Law 76
Odgers, Uniform Evidence Law, 5th ed
New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 25 March 1980

PARTIES: Agricultural and Rural Finance Pty Limited (Plaintiff)
John Edward Atkinson (1st Defendant)
Peter Brakatselos (14th Defendant)
Geoffrey Nevell Fredericksen (35th Defendant)
Allan Patrick Holmes (52nd Defendant)
Nicholas Charles Rowe (75th Defendant)
Maria Francesca Russo (78th Defendant)
David James Wardle (95th Defendant)
Jennifer Dianne Wallace (124th Defendant)
Franco Giannuzzi (149th Defendant)
Gavin Winston Long (172nd Defendant)
Maria Michael (177th Defendant)
Maria Francesca Russo (189th Defendant)
Christina Spyrakis (193rd Defendant)
Oceania Agriculture Limited (Second Cross Defendant)

FILE NUMBER(S): SC 2003/0092819

COUNSEL: Mr T Hale SC, Mr C Bevan, Mr B Katekar (Plaintiff)
Mr S Epstein SC, Ms A Tsekouras (1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants)
Ms P Conway (Second Cross Defendant)

SOLICITORS: Evangelos Patakas & Associates (Plaintiff)
Abadee Dresdner Freeman ((1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants)
Peter Condon & Associates (Second Cross Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Thursday 17 June 2010

2003/0092819 Agricultural and Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors

JUDGMENT

Background

1 The proceedings presently before the Court constitute the residue of a test case which has already travelled through:

i. a decision at first instance ( Agricultural and Rural FinancePty Ltd v Atkinson and others [2006] NSWSC 202 before Young C J in Eq);

ii. a decision before the Court of Appeal (sub nom Gardiner v Agricultural and Rural Finance Pty Ltd ) [2007] NSWCA 235 before Spigelman CJ, Basten JA and Handley AJA;

Agricultural and Rural Finance v Gardiner

2 The test case was ordered against a background where the plaintiff had commenced proceedings against 216 defendants to recover the balance of principal and interest advanced to those defendants under loan agreements in conjunction with investments made by each of the defendants in one or more of two prescribed interest projects known as the Port Macquarie Tea Tree Plantation Project No 1 and the Port Macquarie Tea Tree Plantation Project No 2.

3 Essentially the instant proceedings are constituted as follows:

i. ARF claims the recovery of loans it provided, under loan agreements into which it entered with the current defendants, in conjunction with the current defendants’ investment in the two prescribed interest projects;

Contracts Review Act

4 Presently ARF has sued 206 defendants for the recovery of a total amount of $11,042,542 under loan agreements made in 1997, 1998 and 1999. Those debts were alleged to have fallen due on 4 January 2003, which was the date of cessation of business of an agricultural investment scheme managed by the second cross-defendant (OAL).

5 The great majority of the claims have been resolved.

The course of the present trial

6 Even before the final hearing of these proceedings commenced two of the borrowers were successful:

i. in obtaining orders discharging an earlier order which had extended by 4½ years that time for service of the summons upon those investors;

Agricultural and Rural Finance Pty Ltd v John Edward Atkinson

& Ors

7 During the trial two further significant judgments were handed down:

i. Agricultural and Rural Finance Pty Ltd v John Edward Atkinson& Ors [2010] NSWSC 311 - the strike out motion;

Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors

8 Both the decision on the strike out motion as well as the decision on the pleading motion require to be closely examined in order for one to become conversant with what amounted to an emasculation of a deal of the defendants Contracts Review Act defences. As the reasons for both those decisions in fact repay that study, it seems to me unnecessary and inefficient to do otherwise than to regard the reader as having closely read both decisions.

9 The plaintiff contended that the defendants’ final submissions had strayed outside the Contract Review Act case which they were permitted to argue in light of the interlocutory judgments which had confined the defendants’ case: T765.16-18. The reasons which follow treat with the defendants’ final submissions as they were made to the Court. However, that should not be taken as detracting in any way from the interlocutory judgments which confined the defendants’ case. To the extent that the defendants final submissions – dealt with in these reasons – go beyond the case they were permitted to argue, those submissions are disregarded.

10 The net result of the plaintiff's successes on the strike out motion and the pleading motion leaves only two real issues for determination:

The case and pursued by reference to the Contracts Review Act

Contracts Review Act

The punctuality case

11 As will be apparent, were the defendants to succeed by dint of their Contracts Review Act defences, such that the Court was to set aside the loan agreements and the indemnity agreements or to rewrite them, this would likely trump the need to deal with the punctuality case.

The onus of proof born by ARF

12 ARF bears the onus of proof of the following ingredients of its claim:

i. the making of loans to the defendants and their amounts;

ii. the termination of the Projects by virtue of which the loans became repayable and hence termination of the loans (subject to repayment);

iii. the amount owing by each defendant on each loan at the date of termination – involving proof of the receipt of amounts paid in reduction of each loan – and therefore the borrower’s liability on each loan at termination date; and

The onus of proof born by the defendants

13 This may be put in the following fashion:

i. The defendants bear the onus of proving their entitlement to indemnity: see Young CJ in Eq at [43], [44] not appealed to the Court of Appeal but upheld by majority per in curiam by Spigelman CJ at [65]; and Handley AJA at [357]; (Basten JA dissenting at [214]-[217]; an attempt to reverse the finding in the High Court was by implication dismissed: Gardiner sought its reversal in his amended contention [8] in the High Court.

ii. A condition precedent to indemnity is the requirement to establish punctual performance of the interest and principal obligations in the loan agreements under cl. 2.2(a) and 2.2(b): see Young CJ in Eq at [36] (reciting indemnity agreement cl. 2), [44] (the onus of proof is on Gardiner), [52], [53] (characterisation of punctual performance as borrower as a condition precedent to indemnity from OAL).

[It is appropriate to note that in final address before me, Mr Epstein took issue with the proposition that the defendants bore the onus of proving their entitlement to indemnity. The submission is rejected as clearly Young J made a finding on the issue of onus, after referring to the arguments, holding that to his mind the onus of proof was on Mr Gardiner. This could not be regarded as anything other than a positive finding on the issue of onus although he also indicated that he did not consider that it was likely that this was going to affect the result of the litigation.

obiter

(1) The judgment of the Chief Justice at [65]: “I proceed on the assumption that the appellant bore the onus in this respect”;

(2) Handley AJA at [357]: “I am inclined to the view that the appellant bore the onus ... I will assume that this was the position”;

Furthermore the plaintiff had opened its case on the basis that the defendants bore the onus of proof. The plaintiff opened orally on that issue and conducted its case on the basis that the onus lay upon the defendants. The defendants did not appear to dispute this in their opening.]

14 Focusing on the defendants cross claim onus issues [and again subject to those areas which were not pressed by the defendants], the position which obtains may be regarded as follows:

Contracts Review Act

Commercial Bank Co of Sydney Ltd v Pollard

Trade Practices Act

The relief sought by the defendants under the Contracts Review Act

15 Each of the defendants Messrs Atkinson, Michael, Rowe, Wallace, Brakatselos, Fredericksen, Giannuzzi, Holmes, Spyrakis, Wardle, Russo and Long seeks relief under the Contracts Review Act.

16 The relief for each claim is set out in paragraph 31 of Mr Atkinson’s defence which is:

i. The Borrower has paid the interest payable pursuant to Clauses 3.2 and 3.3(a) of the loan agreement which has been accepted by ARF;

17 In substance, the relief sought is that the indemnity agreement be varied so that clause 2 has the effect that the Indemnity is “effective and enforceable” if the Borrower has punctually paid the principal and interest or if paid unpunctually the late payments are accepted by the plaintiff.

18 It is now necessary to examine the Contracts Review Act issues that arise in determining whether the defendants are entitled to the relief claimed.

Contracts Review Act issues

19 The relevant issues include:

i. Whether the Act applies in the present case;

ii. To what matters the Court should have regard in determining whether the contractual provisions in question are unjust and therefore what parts of the evidence led is relevant to this inquiry;

iii. Whether the contractual provisions in question are unjust under the Act;

[Late in its final address the plaintiff was denied leave to plead the limitation issue provided for in section 16 of the Act].

Does the Act apply?

20 S 6(2) of the Act provides:

The challenge to the plaintiff's right to dispute the defendants’ standing under section 6(2)

21 During final addresses the defendants submitted that the plaintiff was unable to raise a standing to claim relief under s. 6(2) of the Contract Review Act because:

i. it should have been pleaded (the first ground); and

22 It does not seem to me appropriate to treat with this issue in terms of an onus argument. It is to the substance of the issue that the Court should turn: cf Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Limited (2009) 257 ALR 658, discussed below per Allsop P and Young JA, Sackville AJA agreeing.

23 To my mind the initial enquiry is for the Court to satisfy itself that on a proper interpretation the Act applies.

24 In the application of s 6(2) there are two questions:

i. are the plaintiff’s within the ‘’trade business or profession’ exclusion,

The ‘‘trade business or profession” exclusion

25 The plaintiff’s submission in relation to this point can be fairly summarised as:

i. the contracts were entered into for the purpose of investment, or some other more precise purpose which would depend upon the nature of the defendants’ income producing activities;

iii. therefore, the exclusion in s 6(2) was engaged.

26 The defendants’ senior counsel appeared to assume during final address that the defendants were engaged in “a trade, business or profession” – insisting that the farming exception applied – however he did not give the matter a detailed treatment.

27 In Ellison v Vukicevic (1986) 7 NSWLR 104 at 111 Young J said that ‘the words “trade, business or profession” are… very wide and cover the whole gamut of professional and commercial activity: see Holman v Deol [1979] 1 NSWLR 640. His Honour then approved the interpretation of Lee J in Collins v Parker (Lee J, 11 May 1984):

28 This interpretation of the Act has been subsequently approved: see, eg, Lander v Trigger [1999] NSWSC 1253 at [53], King Mortgages v Satchithanantham; Cash King v Satchithanantham [2006] NSWSC 1303 at [133] and Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 at p 400 (regarding a slightly different statutory context). Peden, The Law of Unjust Contracts (Butterworths, 1982) (‘Peden’) at 116 comments that the exclusion contained in s 6(2) ‘applies to contracts with a mixed business and private purpose’, giving the example of a motor vehicle used for the dual purpose of business and private use.

29 In the recent case of Ford v Perpetual Trustees, supra, Allsop P and Young JA, Sackville AJA agreeing, at [95] emphasised the need in applying subsection 6(2) to focus on the statutory language contained therein. At [98] their Honours said that ‘[t]he application of s 6(2) should be looked at as a matter of substance and not form’.

30 Of relevance to the present case is Central Commodities Services Pty Ltd v Hertzog (1989) ASC 55-706, where the contract in question was a mortgage entered into to secure a share in the Cypart Trust No 5, [a trust of an investment company]. At p 58, 372, Callaway AJ noted that ‘although the defendant claimed that he wished to become a trader, this wish related to trading on his own account and did not relate to the investment in Cypart No 5’. Accordingly, the exclusion contained in s 6(2) did not apply. This decision provides some support for the proposition that where an investment contract is entered into as a matter of personal finance, rather than in the course of or for the purpose of a ‘trade, business or profession’ that relates to investing, s 6(2) will not apply. The commentary in Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (Lexis Nexis Butterworths, 9^th Aus ed, 2008) (‘Cheshire’) at 779 in relation to the case supports this view.

31 Ultimately, the question to be answered is whether the contracts in question were entered into in the course of or for the purpose of a trade, business or profession carried on by the defendant in question or proposed to be carried on by them. In my view the position is as follows:

i. A different position pertains in relation to Mr Atkinson. Mr Atkinson’s evidence was that part of the business of his company, Structured Securities, was introducing potential subscribers to the scheme: T642.45-47. Mr Atkinson himself also subscribed to the scheme. Mr Atkinson deposed to conversations with Mr Lloyd, of OAL, where he discussed promoting the scheme and also noted that he would be personally subscribing. In my view Mr Atkinson entered the scheme in the course of, or for the purpose of (understood as ‘an ordinary incident of’’) the ‘trade, business, or profession’ he was carrying on.

(b) The fact that the defendants produced the income which motivated them to enter the scheme through their particular ‘trade, business or profession’ does not mean that the contracts were made in the course of or for the purpose of (understood as ‘an ordinary incident of’’) that undertaking. Accordingly, in my view the evidence that many of the defendants had entered the scheme largely to obtain income tax benefits is not decisive of the present question.

32 In summary, only Mr Atkinson comes within the exclusion contained in s 6(2).

33 The above conclusion is consistent with the narrow interpretation that has repeatedly been given to s 6(2): see further Coombs v Bahama Palm Trading Pty Ltd (1991) ASC 56-097 at 57, 025; Zipser, ‘Unjust Contracts and the Contracts Review Act 1980 (NSW)’ (2001) 17 Journal of Contract Law 76 at 76 (‘Zipser’); Cheshire at 778-779.

34 In relation to Mr Atkinson – and if the above be wrong and the s 6(2) exception applies to the other defendants - it is necessary to consider the farming exception.

The farming exception

35 The question that must be answered under s 6(2) is whether the contracts were entered into in the course of or for the purpose of a farming undertaking proposed to be carried on by Mr Atkinson (and if I am wrong as to the application of the ‘trade, business and profession’ exclusion also the other active defendants). (It was uncontroversial that the defendants were not carrying on a farming undertaking at the time of contracting, and that the undertaking had occurred in NSW). The farming exception -‘[c]onsistent with the narrow interpretation of s 6(2) – has been interpreted broadly: Zipser at 76-77. Young J considered the breadth of the exception in Ellison v Vukicevic supra at 111, commenting:

Horniblow v Napier

Lowe v JW Ashmore Ltd

36 In that case Young J held that a landowner’s granting of mining rights to a quarrying company was within the farming exception.

37 The plaintiff advanced detailed submissions to the effect that the contracts were not entered into for the purpose of carrying on a farming undertaking that was carried on by the defendants. The submissions were:

i. Although the licence and management agreement (Orange Tab 1) described each investor as a “Farmer”, in reality the defendants were merely investing in a farming business undertaken by OAL on their behalf (as their manager and licensor of the land (1 hectare allotments) on which the tea trees were growing) and deriving tax benefits from doing so.

ii. The licence and management agreement makes it clear that the “farming undertaking” is to be undertaken exclusively by “the Manager”, OAL, on behalf of each “Farmer”: see clauses 15-18 and 22-25 of the licence and management agreement (Orange Tab 1 pages 13-20).

38 The plaintiff’s submission in this area was essentially that since investors only had a mere license to their allotment(s), and all of the actual operations were carried out by OAL (the manager), there was no farming undertaking proposed to be carried on by the defendants. The plaintiff also contended that the defendants’ were not covered by the policy reasons that underlay the farming exemption. As to the latter point, the relevant second reading speech does not decisively resolve the matter (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 25 March 1980 at 5860-5861). Furthermore, as outlined above, there is persuasive case law as to the scope of the exception.

39 The plaintiff’s submissions in this area were not made in light of the relevant case law regarding the meaning of ‘farming’ under the Act. Vukicevic, extracted above, establishes that a landowner granting mining rights to a quarrying company will come within the expanded definition of ‘farming’ under the Act. Relevantly, there is nothing in that judgment which indicates that the landowner herself needed to engage in any activity on the land in order to come within the exception. This undercuts much of the plaintiff’s submissions, which were made from the premise that the defendants, as licensees of the land who did not engage in any activity on the land themselves, could not come within the farming exception. Furthermore, in Vukicevic the relevant activity on the land was not being carried on by an agent of the landowner. Therefore, the fact that in the present case the manager was not an agent of the farmer does not have the significance contended for by the plaintiff in establishing that the farming exception does not apply.

40 In determining whether Mr Atkinson was engaged in a farming undertaking it is relevant to consider the nature of the interest that he gained upon investing in the project, bearing in mind that the relevant case law concerns a landowner granting rights to her land. The plaintiff made its final submissions (against application of the farming exception) on the basis that the defendants gained a mere license to their allotments. This follows from clause 2.1 of the license and management agreement. Other clauses of the agreement that are relevant to the present issue are as follows:

(a) Under cl 8 the farmer is to peaceably surrender and yield up the allotment to the licensor at the termination date or sooner determination of the agreement.

(b) Under cl 10.1, subject to the agreement, and the farmer paying the license fee and duly and punctually observing his or her covenants, a right of quiet enjoyment to the allotment is granted to the farmer.

(c) Under cl 11(a), the farmer has full title to the allotment produce (the tea tree oil produced from the allotment) and the right to have it sold for his or her benefit. This is subject to clause 9 (relating to default and termination) and clause 19.3 (under which in paragraph (c) a charge is granted to the Manager over the income of the Farmer’s business to the extent required to pay fees due to the manager under the agreement). The farmer’s title to the oil is also subject to clause 18.3 under which the manager may pool the produce from allotments and divide the proceeds pro rata. Additionally, clause 11(b) serves to restrict the farmer’s title to only the oil produced by the trees.

(d) Under cl 18.2 the farmer could elect to take in kind the oil attributable to the farmer’s business.

(e) Under cl 13 the farmer appointed the manager to manage the farmer’s business (defined as the long term commercial tea tree oil production business of the farmer).

41 See also:

i. The decision of Basten JA in the Gardiner Test Case at [178] where his Honour explained the way in which cl 19.3 of the license and management agreement operated so that, after the initial period, investors would only be liable contingently for license and management fees to the extent that the income from the project attributable to the investor allowed for such payment.

42 In my view the above is consistent with a characterisation that investors, by entering the scheme, gained the right to the tea tree oil produced on their allotment(s) and accordingly the resulting proceeds. In one sense this is the converse of Vukicevic where the landowner was selling the right to mine for sand and sandstone on her land. In my view the present case has an equally strong connection to the definition of farming under the Act. The finding is that Mr Atkinson is within the farming exception.

43 Accordingly, the position is that the Act applies to all of the active defendants.

Turning to the substantive application of the Contracts Review Act

44 It is first necessary to examine the relevant principles which inform the application of the Act.

The relevant steps in applying section 7(1) of the Act

45 As the plaintiff contended the critical provision of the Act is s 7(1). That section provides:

46 As Campbell JA, Hodgson JA and McColl JA agreeing, said in Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 at [87[, ‘in applying the Contracts Review Act, two distinct steps are involved’. Cambell JA then approved the following useful summary by Brereton J in Riz v Perpetual Trustee Australia Ltd (2008) NSW ConvR 56-198; [2007] NSWSC 1153 at [51]:

Antonovic v Volker

Beneficial Finance Corporation Ltd v Karavas

Perpetual Trustee Company Ltd v Khoshaba

Khoshaba

The framework for determining whether a contract was unjust in the circumstances in which it was made

47 In Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 at [70] Campbell JA, Hodgson JA and McColl JA agreeing, outlined the framework of the Act with regard to the question of a contract is unjust:

unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner.

(a) compliance with any or all of the provisions of the contract, or

(b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of:

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

The point at which it is determined whether a contract is unjust

48 The parties have advanced various submissions concerning factors to which the Court was to have regard in determining whether a contract was unjust within the meaning of the Act. In this context, a debate arose as to whether it was legitimate to have regard to post-contract date conduct.

49 The words in s. 7(1), “in the circumstances relating to the contract at the time it was made” make it clear that the standpoint in determining whether the contract is unjust is the time at which the contract was made. This is reinforced by the terms of 9(1) – set out above - under which the Court must look to the consequences or results “in the event” of the matters referred to in (a) and (b). This is looked at from the standpoint of foresight. S 9(4) – which prevents the Court from having regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made – also reinforces the conclusion.

50 Furthermore, the words of s 9(5) – set out above – make clear that the parties’ conduct after the contract was made is only to be considered at the second stage of analysis, that is in considering whether it is just to grant relief in respect of contract or provision of a contract that is found to be unjust.

51 In West v AGC Advances Ltd (1986) 5 NSWLR 610 at 620 McHugh JA held that:

52 The above construction is consistent with authorities that have addressed this discrete point. In Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296, Mahoney P at 297 noted ‘The central question to be addressed in any application under the Act is whether the contract or a provision of it … was, at the relevant time, unjust’. The analysis engaged in by Mahoney P at 298-299 and Handley JA at 309-310 bears out this approach. See also Sheller JA in Nguyen v Taylor (1992) 27 NSWLR 48 at 71 and Peden at 122.

Does the Court focus on the particular contract or the overall transaction?

53 The authorities have considered this question at some length. Mention has already been made of West v AGC, which was certainly an early and extensive treatment of the Act. McHugh JA at 621 noted that the Act ‘regulates contracts not investments’: West v AGC Advances Ltd (1986) 5 NSWLR 610 at 621, approved in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 419 (Sheller JA, Meagher JA and Abadee AJA agreeing) and Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 304-305 (Meagher JA). See also Cheshire at 781.

54 However, it is necessary to read McHugh JA’s statement in West in light of the recent decision in Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41, where it was held that the purpose for a which a loan is obtained is a relevant circumstance in applying ss 7 and 9 of the Act. In that case, Spigelman CJ said:

[67] Nothing McHugh JA said in West suggests that the purpose for which a loan is obtained is not one of the relevant “circumstances”. His Honour was drawing attention to the fact that the ultimate focal point of consideration under s 7(1) must be the contract sought to be set aside or varied.

[68] In my opinion, the purpose for which a loan is advanced is a relevant circumstance. This is confirmed by s 9(2)(l) which includes, amongst the matters to which a Court shall have regard in determining whether a contract is unjust: “The commercial or other setting, purpose and effect of the contract.” …

55 Basten JA likewise agreed that the wider transaction may be a relevant consideration:

West

Principles concerning the meaning of 'unjust' under the Act

56 In Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Campbell JA, Hodgson JA and McColl JA agreeing, provided the following useful summary of the overarching principles which inform whether a contract is unjust within the meaning of the Act:

West v AGC (Advances) Ltd

… is revolutionary legislation whose evident purpose is to overcome the common law’s failure to provide a comprehensive doctrinal framework to deal with “unjust” contracts.

57 At [88] Campbell JA continued:

58 In its final submissions the plaintiff emphasised the following comments of McHugh JA in West:

ii. “A contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it [the Act] stands in marked contrast with the provisions of the Industrial Arbitration Act, 1940, s.88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are ‘unfair’”. At 622B.

59 In this area it is necessary to bear in mind the point made by Spigelman CJ in Perpetual Trustee v Khoshaba supra at [73]:

The factors contained in s 9(2) of the Act are not exhaustive

60 Recently in Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923, Young JA, Tobias and Campbell JJA agreeing, noted at [80] that ‘… in making its decision, s 9(1) of the Contracts Review Act mandates the Court have regard to the public interest and to all the circumstances of the case. Subsection (2) is merely a list of the major factors to be considered’. See further Cheshire at 779 where the s 9(2) cases are described as ‘a guide rather than an exhaustive definition’, citing substantial authority.

61 Notwithstanding this, analogous situations are a useful guide in determining whether a contract is unjust, and in maintaining consistency in the application of the Act: Spina at [105].

62 It is also necessary to remember that the mere fact that a party to a contract can point to circumstances that fall within the words of one or more paragraphs in s 9(2) of the Act does not mean that there is an arguable case for relief under the Act: Hogan v Howard Finance Limited (1987) ASC 55-594 at 57, 539 (Hope JA, Street CJ agreeing); Australian Guarantee Corporation v McClelland (1993) ASC 56-230 at 58, 389.

The “agreements” in respect of which relief is sought and their operation

63 In this part of the case it is necessary to bear in mind the precise contractual provisions in respect of which relief is sought. The defendants plead that each of clauses 2(a) and 2(b) of the indemnity agreement was “a provision of a contract” which was unjust at the time it was made within the meaning of s. 7(1). Relief is also sought with respect to clause 7 of the loan agreement (Atkinson defence [31(b)].

64 It is instructive to review how the relevant provisions operated. Using the loan agreement of Mr Atkinson dated 26 June 1997 as an example, Orange Tab 5, it can be seen that:

i. Clause 3.2 made provision for the payment of the first year’s interest on the Principal sum upon execution of the agreement.

ii. Clause 3.3(a)(i) made provision for the payment of interest in the second year of the agreement, providing that the borrower would pay on or before 30 ^th June 1998 interest for 12 months in advance on the principal sum then outstanding.

“The Borrower will repay to the Lender the sum of $8,750 per Allotment in respect of the Principal Sum on or before 31 October 1997 or, if this agreement is executed after 31 October 1997, the date which is three calendar months after the date of such execution.”

65 Clauses 3.2, 3.3 and 4.1 in the loan agreement executed by Mr Atkinson in respect of Project No. 2 on 10 May 1999 (Orange Tab 8) are in similar terms. The amount of the payment and date of payment is clearly stated.

66 Clause 7 of the loan agreements was in these terms:

67 Clause 7 is clear in its terms. The Borrower shall have no liability to repay the sums if the indemnity agreement “is effective and enforceable in accordance with clause 2 of the indemnity agreement”. The indemnity agreement executed by Mr Atkinson on 26 June 1997 is at Orange Tab 6. Clause 2 is in the same terms in each indemnity agreement signed by the defendants. It provides:

“The Indemnity referred to in Clause 1 shall be effective and enforceable if:

(a) The Borrower has punctually paid the interest payable pursuant to clauses 3.2 and 3.3(a) of the loan agreement; and

68 Clauses 2(a) and (b) are clear in their terms and provide that the indemnity is only “effective and enforceable if the Borrower has ‘punctually paid’ the interest and reductions of principal pursuant to Clauses 3.2, 3.3(a) and 4.1 of the loan agreement”.

69 If this occurred the indemnity agreement would be “effective and enforceable”, and accordingly, under Clause 7 of the loan agreement, the Borrower would have no liability to repay any outstanding principal or interest. Conversely, if the relevant payments were not ‘punctually paid’ the indemnity would not be ‘effective and enforceable’.

70 I accept the plaintiff’s submission that while the detail of Projects 1 and 2 might have some complexity attached to them, there was nothing particularly complex about clauses 2(a) and (b) of the indemnity agreement and clauses 3.2, 3.3, 4.1 and 7 of the loan agreement.

71 The plaintiff submitted that although it was not pleaded, the defendants’ case involved an implicit contention that clauses 3.2, 3.3(a), 4.1 and 7 of the loan agreement were, in combination with clause 2(a) and 2(b) of the indemnity agreement, also unjust at the time the loan agreement was made. The real issue here appears to be that the defendants only pleaded that clauses 2(a) and 2(b) of the indemnity agreement were unjust, but then sought relief in respect of clause 7 of the loan agreement. It would ordinarily seem proper for the defendants to plead that all the provisions in respect of which they sought relief were unjust (that finding being a pre-requisite to the gaining of relief). The fact that, as these reasons outline, it is permissible to have regard to the wider transaction in determining whether a provision of a contract is unjust, does not alter this position. Furthermore, on one reading of s 15 of the Act, which allows the Court to have regard to other contracts which in combination with the impugned contract constitute an arrangement, it is still necessary to plead the specific contract(s) in respect of which an application for relief under the Act is made. Against this, it may be possible to grant relief in respect of one contract where another contract has been held unjust under the ancillary powers available under s 8 and Sch 1, paragraph 1, of the Act: see Peden at 147-148. It is this possibility that the defendants’ case – contending that the indemnity and loan agreements should both be rewritten because clauses 2(a) and 2(b) of the indemnity agreement are unjust- seems to rely on.

72 However, ultimately this issue does not affect the final result, since even on the broadest possible reach of the defendants pleadings, it has not been established that any of the provisions in question were unjust.

The Contracts Review Act case as pleaded

73 Of course the active defendants were selective in determining which of the matters identified in section 9 of the Act were relied upon. These matters were carefully chronicled in the 10 May reasons [at 15 and following].

74 Additionally the defendants’ final submissions on a number of occasions blithely eschewed the fact that a large number of those submissions in relation to the Contracts Review Act were simply outside the scope of the pleading and were contrary to the rulings of 21 April and 10 May. An example is to be seen in the section entitled ‘the Penal Operation of the scheme’, at paragraph 216-and following.

75 Dealing with the permissible pleaded defences it seems clear enough that they were only reliant on the matters in ss. 9(1)(b), 9(2)(b), (c), (d), (g) and (l) of the Contracts Review Act.

Application of the relevant parts of s 9 in the facts of the present case

76 I now turn to examine the relevant considerations under s 9 in light of the facts of the present case in order to determine whether the provisions in question were unjust.

The public interest: Section 9(1)

77 In relation to the requirement under s 9(1) for the Court to have regard to the public interest in determining whether the relevant provisions are unjust, the plaintiff made its final submissions on the basis that this was fairly within the defendants’ pleaded case: T710.40-711.10. Accordingly, I proceed on that basis.

78 The plaintiff’s essential submission in this area was that the relevant parameter for the public interest was to hold sophisticated, high-income investors to their obligations to repay the monies which generated the tax benefits. Here, the plaintiff drew on the comment of Spigelman CJ in the Gardiner Test Case at [140].

79 The defendants’ essential submission in this area was that the relevant public interest parameter was investor protection.

80 It is instructive to note the interpretation of the public interest concept in Baltic Shipping Company v Dillon “Mikhail Lermontov” (1991) 22 NSWLR 1. At 20 Kirby P noted:

81 Similarly, Gleeson CJ, at p 9 said:

[See further Cheshire at 780 and Peden at 122-123].

82 As these reasons make clear, I do not accept that the provisions in question were unjust upon a proper application of the Act. Accordingly, the public interest parameter requires that the defendants be kept to their agreements.

83 The remainder of the Contracts Review Act analysis is organised by reference to the relevant paragraphs of Mr Atkinson’s defence. As was made clear in the interlocutory judgments, the defendants Contracts Review Act defences were generic, the defences of each of the defendants being almost identical. For that reason it is convenient to use Mr Atkinson's relevant defence as an example.

Sub paragraph 30(a)

84 Paragraph (a) pleads that clauses 2(a) and 2(b) of the indemnity agreement were unjust in the circumstances at the time it was made for the reason that:

85 This sub paragraph relies upon the terms of s. 9(2)(b) and (c) of the Act.

86 In relation to this issue, the plaintiff’s essential submission was that due to the relevant regulatory requirements – such as registration of the prospectus with ASC (as ASIC then was), and complying with the ATO product ruling - it was not possible to individually negotiate the terms of the contracts in question. Potential investors either subscribed to the scheme in the terms offered or they did not. The defendants each chose to subscribe to it on the terms offered. In my view this submission is of substance.

87 The cases relevant to this provide little support to the defendants’ contentions as they are very fact specific. Although there are cases where the indicia under ss 9(2)(b) and 9(2)(c) were present and contributed to a finding that a contract was unjust, those cases involved other substantial factors contributing to a finding of unjustness, such as that the parties seeking relief were not able to protect their interests: Broadlands International Finance Ltd v Sly [1987] ANZ ConvR 328; Borg-Warner Acceptance Corp (Australia) Ltd v Diprose [1988] ANZ ConvR 57. The further cases cited in Zipser at 82 likewise do not assist the defendants.

88 It is useful in understanding the purpose of ss 9(2)(b) and 9(2)(c) to again consider Professor Peden’s work. At 126 the learned Professor noted:

89 The contractual terms in this case were by the plaintiff’s own admission essentially dictated to the defendants on a take it or leave it basis. However, they do not truly fit the mischief to which s 9(2)(b) and 9(2)(c) are directed. Fundamentally, the contracts were entered into for taxation or other personal financial benefits by investors who were able to protect their own interests. There was no necessity or other factor compelling them to enter the project, such that they did not have a real choice as to whether to contract.

90 As the plaintiff contended, there is no basis for the defendants’ allegation of procedural injustice in relation to this issue.

Sub paragraph 30(b)

91 Paragraph 30(b) of the defence pleads that:

92 Those features were set out at paragraph 15(v)-(x) of the judgment of 10 May 2010.

93 This part of the pleading raises subsections 9(2)(g) and 9(2)(l) of the Act. In my view there is substance in the plaintiff’s submission that while the scheme as a whole may have been complex, there was nothing particularly complex about the provisions relevant to this case (being clauses 2(a) and (b) of the indemnity agreement and clauses 3.2, 3.3(a), 4.1 and 7 of the loan agreement, as outlined above).

94 Furthermore, Bridge Wholesale Acceptance (Australia) Ltd v GVS Associates Pty Ltd (1991) ASC 56-105 – which involved a contract of significant complexity, the meaning of which was unintelligible to a lay person (see 57, 121)– does not assist the defendants’ case in this area.

95 Furthermore, none of the defendants pleaded that they did not understand the provisions of the contract and their affect within the meaning of s. 9(2)(i). Accordingly, in the interlocutory judgment on the pleading motion at paragraph 26(vi)-(vii), the defendants were prevented from leading evidence regarding the extent of any explanation of the legal and practical effect of the contracts and whether or not the defendants understood the provisions and their effect.

Sub paragraphs 30(c), (d) and (e)

96 Each of these sub paragraphs are grouped under the heading:

97 In pleading sub paragraphs (c), (d) and (e) the pleader is relying upon the second part of subsection 9(2)(d).

98 The defendants contended that the interests of OAL and ARF could have been legitimately protected by a requirement that the defendant paying late where ARF accepted such late payment and did not terminate the loan agreement should pay interest on any late payment but otherwise the indemnity should apply.

99 Relevant here is the High Court’s judgment in the Gardiner Test Case at [37]. In that paragraph, the High Court accepted that OAL had a direct financial interest in punctuality on the basis that this determined whether it was liable on the indemnity, and therefore whether or not it had a contingent liability on its balance sheet.

100 The High Court was not considering the present issue as required by s 9(2)(d) of the Act. However, in light of the High Court’s finding, it is appropriate to regard one of OAL’s legitimate interests – when applying s 9(2)(d) of the Act - as whether it remained liable on the indemnity. To protect this interest OAL needed to set criteria by which its liability under the indemnity would be determined. On one view, the chosen criteria of the indemnity being conditional on punctual payment was reasonably necessary for the protection of OAL’s legitimate interest in ensuring certainty as to its contingent liabilities. As the plaintiff contended, under the alternative way in which the defendants suggested the indemnity could have operated, OAL’s contingent liabilities would be determined by ARF’s discretion.

101 It is useful here to consider Peden who notes at 128 that ‘the [s 9(2)(d)] criterion contemplates a balancing of the protection of the legitimate interests of all parties to the contract’. He further notes that conditions which may be not reasonably necessary included ‘penalty provisions which impose additional obligations upon a party for breach which are wholly disproportionate to the loss or damage caused by the breach’.

102 As outlined above, the defendants pleaded that ARF and OAL’s interests could have been legitimately protected if the borrower paid interest for the period in which a payment was late, and the indemnity remained enforceable. Implicitly, this was a contention that arrangement would be more proportionate to the loss suffered by OAL and ARF (which was characterised as being out of funds for the relevant period).

103 The defendants’ contentions give no weight to the legitimate interest of OAL in whether it remained contingently liable under the indemnity. Ultimately, it cannot be said that the relevant provisions were not reasonably necessary for the protection of the legitimate interests of OAL.

104 Furthermore, it seems straightforward that both OAL and ARF and the investors had a legitimate interest in the scheme being tax deductible. The plaintiff essentially submitted that the structure of the indemnity agreement as interpreted in the Gardiner Test Case – which meant that the loans were not ‘non-recourse' - was necessary in order to protect this interest.

105 On the issue of tax deductibility in the Gardiner Test Case the High Court at [38] left Spigelman CJ’s observations in place. At [89] Spigelman CJ noted that the characterisation of the loans as ‘non-recourse’ would increase the risk of rejection of tax deductibility but would not be determinative. However, the observations of Spigelman CJ at [81] make clear that the characterisation as ‘non-recourse’ did not simply turn on whether the investors could be held personally liable for repayment of the loans. Accordingly, this point does not appear to assist the plaintiff’s case in this area. In any case, it does not alter the overall conclusion in relation to this part of the pleading.

Sub paragraphs 30(f) and (g)

106 Here it was pleaded that in the event of non-compliance with the clauses (2)(a) and/or (b) of the indemnity agreement, the loss of the indemnity was a grossly disproportionate consequence to OAL’s detriment. The defendants’ contended that OAL’s only legitimate detriment was that it was out of the funds that ought to have been paid to it by ARF pursuant to its back-to-back loan arrangement during the late payment.

107 This part of the pleading relies on subsections 9(1)(b) and 9(2)(d) of the Act. (Subsection 9(1)(b) being directed to the results arising in the event of non-compliance with contractual provisions, and Subsection 9(2)(d), as outlined above, involving an inherent concept of proportionality).

108 In my view the defendants’ argument in this area fails because the relevant contractual provisions cannot be said to be unnecessary for the protection of OAL’s legitimate interest as indemnifier.

109 For all of the above reasons, the defendants have failed to establish the Contracts Review Act defence put forward. It is now necessary to deal with the punctuality defence contended for by some defendants.

Evidentiary issues regarding the punctual payment case

110 As outlined above the defendants have the onus of establishing that they were punctual in their payments. In regard to the punctual payment case there were various categories of evidence with which the Court had to deal. The plaintiff’s evidence was made up of its business records contained in exhibits VAE1 and VAE2, and the evidence of Ms Vanessa Edwards. The evidence sought to be adduced by the defendants was multifaceted:

i. The defendants sought to lead various evidence that was referred to as the Australia Post material;

ii. The defendants sought to drawn an inference regarding the plaintiff’s collection of post;

111 The ultimate point of the defendants’ evidence was to support a finding that the plaintiff’s records, which showed them as not paying punctually, were unreliable.

112 The various evidentiary matters are addressed below.

The plaintiff’s borrower payments recording system

113 The plaintiff contended that Ms Vanessa Edwards was responsible for the maintenance of the plaintiff’s borrower records.

114 Ms Edwards was employed on a casual basis from 1993 to 1997 by the company known as Gerard Cassegrain and Co: T322.50. This was while she was studying for her degrees of Master of Letters and Master of Arts from the University of New England: T323. In August 1997 she was made a permanent employee. She was employed by Gerard Cassegrain and Co. She continued in that employment until 21 June 1999 when she was employed by OAL after Gerard Cassegrain and Co was placed into receivership by the Commonwealth Development Bank of Australia.

115 Exhibit VAE1 contains borrower files for certain of the defendants in the proceedings. Although employed by Gerard Cassegrain and Co. and later OAL, Ms Edwards maintained the borrower files and accounting records of the plaintiff.

116 Ms Edwards deposed that when working for the plaintiff she was given no direction on a day-to-day basis and held a reasonably autonomous role in maintaining its borrower records and receipting and banking payments from borrowers.

117 In regard to the spreadsheets, Ms Edwards’ evidence was that:

i. The primary accounting record was the electronic record kept in the Excel Spreadsheet of when payments were received by the plaintiff from borrowers and the date and the manner of those payments;

ii. She created the Excel Spreadsheet and recorded the dates on which the plaintiff received payment from borrowers;

iii. On occasions when payments by borrowers were made by direct deposit she obtained some assistance from Mark Stoker to marry-up those payments from borrowers as recorded in the plaintiff’s ANZ bank statements which needed to be allocated on the Excel Spreadsheet to the specific borrowers who had made those direct payments;

118 A copy of the Excel Spreadsheet on which Ms Edwards created and maintained in respect of both Project No. 1 and Project No. 2 is Exhibit VAE2. As the plaintiff submitted, this is the primary evidence of the date on which cheques posted by defendants were received by the plaintiff. This primary record is supported by secondary records such as copies of either cheques or letters which have been stamped by the plaintiff’s staff with a date received stamp or recorded with a notation of the date of receipt.

119 On Ms Edwards’ evidence, the usual procedure for the collection of post and the recording of borrowers’ cheques in the records was as follows:

(a) Ms Edwards lived at Port Macquarie. The plaintiff had a Post Office box in Port Macquarie. Ms Edwards usually collected the mail on a daily basis on her way to work. If she was unavailable then Robert Henry would collect the mail: Edwards affidavit (sworn 26 March 2010) [22], T392.15, T394.05;

(b) she usually did not open the mail. She delivered it to the receptionist’s desk: Edwards affidavit [23], T392.20-.35, 394.09;

(c) the mail was opened and date stamped and then distributed: Edwards affidavit [24] T366.20, T394.12;

(d) ARF cheques and correspondence were always given to Ms Edwards: T392.41, T394.18; If people had queries about where mail was to be distributed they would have come and asked her: 392.45;

(e) cheques received from borrowers were then recorded in the Excel Spreadsheet as having been received that day: [20], Edwards affidavit [23], [28], T393.05, T393.30, T394.35-.40;

(f) Ms Edwards invariably recorded the receipt of payments in the Excel Spreadsheet: Edwards affidavit [28]. It was rare that any other people entered information onto the Spreadsheet: T393.09;

(g) After recording payment on the Excel Spreadsheet a receipt was prepared to confirm the receipt of payment. This was usually done the same day, although sometimes the following day. Some receipts were written by Ms Edwards. Others were written by Mr Henry or Lisa O’Neill: [26], T394.45; The cheques and accompanying correspondence would then have been given back to the administrative staff who would have photocopied both the cheque and the receipt for filing in the relevant file;

(h) The cheques were then placed in the deposit book for banking: Edwards affidavit [27] T394.45-395.04;

(i) The banking was usually done by Robert Henry or Lisa O’Neill. Vanessa Edwards did not do the banking: Edwards affidavit [27], T395.10;

(j) the banking was done regularly but not necessarily on a daily basis: Edwards affidavit [27], T395.15;

(k) the administrative staff would usually photocopy the receipt and the cheque: T394.45;

120 In her affidavit at [29] Ms Edwards deposed that: “The only errors I have been able to find in the Excel Spreadsheet on a recent review of it are typographical errors. These arose from the Excel program stating US dates (months/day/year) as a default program and my not noticing it in order to manually reverse the transposition of dates (day/months/year)”. In relation to this evidence, the defendants submitted that Ms Edwards would not have had any occasion or ability to detect errors given the manner in which she prepared the document. The defendants drew on the absence of any occasion to check the document contemporaneously or any means of identifying errors beyond the contents of the document itself. As these reasons make plain, the defendants’ attack on the spreadsheet document and the evidence of Ms Edwards is rejected.

The evidence of Mr Lloyd

121 Mr Lloyd gave evidence about the procedures in recording information on the Excel Spreadsheet. Mr Lloyd agreed upon the importance of the Excel Spreadsheet as an accounting record.

122 Mr Lloyd’s evidence differed from Ms Edwards’ evidence in several respects. There were two differences which appeared of substance:

a. Ms Edwards deposed that she created the Excel Spreadsheets (she was not cross-examined on this), whereas Mr Lloyd deposed that he set it up, and he maintained this in cross-examination: T640.

123 In regard to difference b) Mr Lloyd conceded under cross-examination that the mail was only not collected until mid-morning on days when Ms Edwards was not at work. Ultimately, difference b) is not relevant because these reasons reject the inference the defendants sought to draw regarding the plaintiff’s collection of post.

124 Difference (a) is of substance as it goes to the production of the spreadsheets upon which the plaintiff relies. Mr Lloyd deposed that he set up and maintained the schedule, that he later instructed Lisa O’Neil (an administrative assistant) on how to make entries into it, and after a while it was maintained at the reception computer by Lisa or Vanessa. Under cross-examination, Mr Lloyd denied the suggestion that Ms Edwards had set up the spreadsheets, responding that he had the only computer in the office when ARF began. He rejected the suggestion that this was wrong. The plaintiff contended that Mr Lloyd was unable to say he had the requisite computer skills which Ms Edwards had.

125 A further difference between Mr Lloyd and Ms Edwards’ evidence concerned Ms Edwards’ location. Ms Edwards deposed that she had an office (see annexure C to her affidavit), whereas Mr Lloyd testified that Ms Edwards spent most of her time at reception T639.12-.19. The relevance of this point was not made clear but it appeared to go to establishing whether Ms Edwards performed the role regarding the spreadsheets that she claimed.

Dealing with the differences between Ms Edwards’ evidence and that of Mr Lloyd

126 The plaintiff contended that Ms Edwards evidence should be preferred because:

i. She was the person primarily responsible for the maintenance of the ARF records;

127 The plaintiff also submitted that Ms Edwards was unlikely to be wrong as to the matters concerned because she was so specific.

128 Ultimately, the plaintiff’s submissions in this area are of substance. Ms Edwards, who, as outlined in these reasons, is accepted as a witness of credit, gave detailed evidence. In contrast, Mr Lloyd’s evidence was brief, he had to admit he was wrong in certain respects and he was often unable to recall.

Decision regarding the reliability of the evidence of Ms Edward

129 It has to be recalled that Ms Edwards was cross-examined in relation to matters which had taken place approximately 10 years ago.

248 The plaintiff alleged that Ms Russo did not fulfil her punctuality obligations under the loan agreement entered into on 30 June 1997 (TT068).

249 The plaintiff claimed repayment from Ms Russo of the outstanding principal and interest accrued on loan TT068 in the also set out in Annexure B to its closing submissions, namely, as at 1 May 2010 the sums of $31,708 for principal and $56,657.49 for interest.

250 The plaintiff says that Ms Russo did not pay the following payment punctually, details of which are:

251 Ms Russo was required to pay interest of $2,696 ($1,348 per farm) on or before 30 June 1998.

252 The Excel Spreadsheet (Exhibit VAE2) records the date of receipt by ARF of that payment as 1 July 1998.

253 On 18 June 1998 the plaintiff wrote to Ms Russo and her then partner, Mr Thompson, reminding them that the payment of interest of $2,696 was due and payable on or before 30 June 1998. 30 June 1998 was a Tuesday.

254 At VAE1 p. 596 is a copy of the letter by ARF to Ms Russo of 18 June 1998 bearing a date received stamp of “1 July 1998”, which was stamped by the plaintiff’s staff to record that it was received on that day. Ms Russo did not know whether the cheque was sent with the letter: T452.50. However, she admitted that would be in her ordinary course of practice. Therefore, it obviously was so sent.

255 The plaintiff issued a receipt for this payment dated 1 July 1998: VAE1 p. 598.

256 The cheque was dated 26 June 1998 which was a Friday. Payment was due on Tuesday, 30 June.

257 In her affidavit of 4 September 2008 Ms Russo said that, “On or about 26 June 1998 I sent by post” the cheque to the plaintiff.

258 During the initial part of Ms Russo’s cross-examination on 3 May 2010 she produced the reminder letter of 18 June 1998 with the notation “Posted 26-6-98”. The letter was released upon request into the custody of Senior Counsel for the plaintiff, and he informed the Court that it never left his custody. From this the active defendants’ counsel sought to drawn an inference that the letter was authentic and contemporaneous (the possibility of forensic testing having been mooted by the plaintiff). The Court does not need to enter into these matters since as is made plain below, with or without the letter Ms Russo’s case relies on impermissible speculation regarding the course of post.

259 There was further controversy between the parties regarding when Ms Russo first became aware that the letter with the notation had not been included in her affidavits. She testified that she became so aware when preparing to give evidence on 3 May 2010. Ms Russo’s then deposed in her affidavit of 6 May 2010 at paragraph 11 that she sent a copy of the letter of 18 June 1998 with the notation on it to Clayton Utz (her former solicitors) with the faxed cover sheet which was at Annexure “C” to her affidavit. The plaintiff pointed out that this statement was wrong, as is revealed in her affidavit of 11 May 2010. The plaintiff’s contended that the error was detected only after it contacted Clayton Utz. Again, for reasons outlined below, these arguments need not be resolved by the Court.

260 Mr Russo testified in cross-examination that it was Mr Thompson, her former partner, who wrote out the cheque and signed it: Mr Thomson had also written the words” “Posted 26.6.98” on the letter: T 625. Ms Russo further testified that she would interpret the word “Posted” as indicating that the posting had already been undertaken when the word was written: T625.49.

261 On this basis, the plaintiff contended that, sometime after he wrote the cheque, Mr Thompson wrote the ”Posted” notation on the letter. There was no evidence as to when this occurred or in what circumstances. Mr Thompson was not called to give evidence. Ms Russo agreed that it would not be “terribly difficult” for Mr Thompson to swear an affidavit in the proceedings: T629.11. He would have been available to come to Sydney if necessary: T629.30.

262 Ultimately, as touched on above, the controversy regarding the letter can be put to one side. Ms Russo’s attempt to discharge the burden of proving punctuality relies on the Court making an inference as to the usual course of post. That inference would be speculative and impermissible. The plaintiff has extensive documentary evidence that has been accepted as reliable, including a date received stamp on the covering letter, the entry in the Excel Spreadsheet and the receipt all dated 1 July 1998.

Jennifer Wallace – 124^th defendant

263 Mr Atkinson’s company, Structured Securities, introduced Ms Wallace to the Projects in respect of which Ms Wallace borrowed the monies from the plaintiff which are the subject of loan TT276.

264 Ms Wallace identified her occupation as “company secretary”.

265 Dr Wallace testified that he was the driving force behind the investments made by himself and his wife and that she was a “completely passive investor and had no direct knowledge” of the arrangements: T472.16-18. Mrs Wallace’s counsel therefore submitted that it was entirely consistent with this position that Dr Wallace dealt with the two investments at the same time and essentially as one transaction. In particular, this submission was relevant to Dr Wallace’s contention, outlined below, that he posted he and his wife’s cheques together in relation to both payments in issue.

266 The plaintiff contended that Ms Wallace did not fulfil her punctuality obligations under the loan agreement entered into on 3 June 1999 (TT276).

267 The plaintiff claims repayment from Ms Wallace of the outstanding principal and interest accrued on loan TT276 in the amounts set out in Annexure B of its closing submissions, namely, as at 1 May 2010 the sums of $14,108 for principal and $21,145.25 for interest.

268 The plaintiff says that Ms Wallace did not pay the following payments punctually, details of which are:

Principal instalment of $9,800 under loan TT276
Date Due: Thursday, 30 September 1999
Received by ARF: Wednesday, 6 October 1999 (6 days late)

269 Ms Wallace did not read an affidavit of her own, but read two affidavits sworn by Dr Wallace, her husband. Dr Wallace gave evidence in defence of the claim against his wife.

270 In regard to Ms Wallace’s loan (TT276), an instalment payment of principal of $9,800 was due on Thursday, 30 September 1998.

271 The Excel Spreadsheet, VAE2 records the payment of that principal as received on Wednesday, 6 October 1999, namely, 6 days late. Monday, 4 October was a Labour Day holiday in South Australia, ACT and NSW.

272 The payment of the interest instalment of $1,229 was due on Wednesday, 31 May 2000.

273 The Excel Spreadsheet, VAE2, records the date of receipt by the plaintiff of payment of that interest instalment on Thursday, 1 June 2000, namely, one day late.

274 Dr Wallace had entered into loan agreement TT277 on the same date as Mrs Wallace, namely, 3 June 1999. His payments of principal and interest were due on the same day as Mrs Wallace, namely, 30 September 1999 and 31 May 2000. Dr Wallace’s payments were recorded as being received on or before the due date.

275 In his affidavit of 15 September 2008 at [15]-[16] he swore that the cheques in respect of both his own loan and his wife’s loan were sent by his wife. Mrs Wallace did not give evidence of having posted the cheques for her and Dr Wallace’s’ loans.

276 In his affidavit of 5 May 2010 Dr Wallace changed his evidence in this regard and said at [4] and [6] that it was he who posted the letter.

277 At T470 he said that, in swearing his affidavit of 15 September 2008, he “understood at the time of the significance of an affidavit”: T470.06. Given his understanding of an affidavit, he “read over the affidavit carefully” when swearing it T470.18. The draft affidavit was prepared by his solicitors, Clayton Utz, and he had a number of discussions with them in the preparation of the affidavit: T470.20.40.

278 Dr Wallace’s explanation for the inconsistency between his affidavit of 15 September 2008 and his affidavit of 5 May 2010 was that, in fact, he had not carefully checked the affidavit: T471.20.

279 The plaintiff submitted that the likelihood was that Dr Wallace’s affidavit of 15 September 2008 accurately recorded his belief at the time and that on 5 May 2010, served on the day he came to be cross examined, he had come to a different view.

280 Dr Wallace’s counsel submitted that he was candid as to his failure to pay the requisite attention to the details of paragraph 15 of his earlier affidavit and in particular his explanation that he believed that the error was corrected because after he discovered the error in the affidavit of 15 September 2008, he sought to have that error corrected through the medium of the defences which were then being prepared, not appreciating the necessity to swear an additional affidavit T473.45-474.09. Furthermore, it was submitted that in re-examination this matter was further explored and by reference to the defence which had been prepared, it was made manifest that the earlier error had been corrected: T487, lines 9-35; Exhibit D5).

281 The cheque to pay the instalment of interest of $9,800 due to be paid by Mrs Wallace was dated 29 September 1999. The plaintiff relied on the fact that its records showed Ms Wallace’s cheque and three others were all received on 6 October 1999 and were shown in the plaintiff’s deposit slip to all have been entered into the deposit book on the same date and then banked the following day.

282 The plaintiff further relied on the fact that the first of the cheques in this group was that of Mr Gardiner which was held in the Gardiner Test Case to have been received on 6 October 1999 and, therefore, late.

The possibilities in relation to Dr Wallace’s behaviour

283 Under cross-examination, Dr Wallace contended that since his cheques were recorded as being received on time, Mrs Wallace’s cheques must also have been received on time because he claimed that they had been posted together. Accordingly, Dr Wallace suggested that the plaintiff had received the cheques in question together but then banked them on different dates. The active defendants’ counsel took this position in their final submissions, contending that it should be accepted that the cheques were posted together and had both arrived on time.

284 Dr Wallace accepted that another logically possible explanation was that he may have sent the cheques relating to his loan first and the cheques relating to his wife’s loan later. However, he rejected the suggestion he had in fact done this in relation to the two payments in question: T481.16. He further rejected the related suggestion that he had drawn the cheque relating to his own payment of principal at a different time to the cheque relating to his wife’s payment of principal: T476.5ff. Mrs Wallace’s counsel refuted the proposition that the cheques were posted separately in two ways:

i. Firstly, it was submitted that it would be illogical and improbable for Dr Wallace to have done this given that the payments had the same due date, were drawn from the same account, and made using consecutive cheques. Here the active defendants’ counsel referred to the dates of the cheques and cheque butts, and the plaintiff’s counsel did likewise in their submissions, both parties contending for various inferences as to when the relevant cheques were drawn and therefore posted. It can be noted here that the cheque drawn to pay the principal owed by Mrs Wallace was dated 29 September 1999 but the cheque butt bore the date 30 September 1999. Dr Wallace’s cross-examination travelled through the possible explanations for this difference.

285 The second point relies on an impermissible inference as to the usual course of post (and was based on the rejected Australia Post material).

286 Dr Wallace appeared to further accept that a third possible explanation was that the he and his wife’s cheques were received together after the due date, meaning his own payments had been wrongly recorded as punctual: T481.29-32, 482.30.

287 The first and third mentioned explanations, if correct, potentially call into question ARF’s records upon which its case was conducted. However, there is an insufficient basis for the Court to accept that ARF’s records were so badly kept as is suggested. Mrs Wallace’s counsel utilised Dr Wallace’s evidence, in combination with the documentary evidence, in contending that ARF’s records were unreliable. It should be remembered that Dr Wallace conceded he gave his evidence from the standpoint of his usual practice rather than actual recollection of the events in question: T482.10. The possibility that Dr Wallace posted the cheques separately remained open on his own case (although Dr Wallace denied doing this and it was said to be improbable). Furthermore, it must be remembered that the plaintiff’s records were supported by the detailed evidence of Ms Edwards, a witness of credit. In all the circumstances, Mrs Wallace has not discharged the burden of proving punctuality.

David James Wardle – 95th defendant

288 Although in his application for TT308, exhibit VAE1 p. 714, Mr Wardle described himself as an investor he did so because he was investing in the project: T534.03. He conceded that this was not an accurate description of his occupation. At the time of the investment Mr Wardle was a consultant in the computer software company. Mr Wardle is and was clearly a man of substantial means. In TT125 he subscribed to 25 farms and in TT308 ten farms. He read the application before signing it: T534.

289 Mr Giannuzzi was Mr Wardle’s accountant at the relevant time: T533.50-534.16. Mr Atkinson’s company, Structured Securities, introduced Mr Wardle to the Projects in respect of which he borrowed the monies from the plaintiff which are the subject of loan TT125 and 308.

290 The plaintiff contended that Mr Wardle did not fulfil his punctuality obligations under the following loans entered into on the following dates:

(a) loan agreement entered into on 25 June 1998 (TT125) in respect of his investment in 25 farms; and

291 The plaintiff claimed repayment from Mr Wardle of the outstanding principal and interest accrued on loan TT125 and TT308 in the amounts set out in Annexure B to its closing submissions, namely, as at 1 May 2010:

(a) for loan TT125, the sums of $396,450 for principal and $603,820.63 for interest; and

292 The plaintiff says that Mr Wardle did not pay the following payments punctually, details of which are:

Principal instalment of $245,000 under loan TT125
Date Due: 30 October 1998
Received by ARF: 3 November 1998 (4 days late)

293 Mr Wardle does not put in issue that the relevant instalment payment obligations in loans TT125 and TT308 were not punctually paid by him and as such his defence relies only upon the Contracts Review Act.

294 The receipt by the plaintiff of Mr Wardle’s late instalments for principal in respect of each of the above loans is set out in the Excel Spreadsheet (Ex VAE2). The plaintiff’s secondary records which are in Exhibit VAE1 show that:

(a) the principal instalment payment of $245,000 in respect of loan TT125 was transferred by funds transfer from Wardle’s account into the plaintiff’s bank account on 2 November 1998;

Franco Giannuzzi – 149th defendant

295 Mr Giannuzzi has identified his occupation as “Chartered Accountant”.

296 Mr Atkinson’s company, Structured Securities, introduced Mr Giannuzzi to the Projects in respect of which he borrowed the monies from the plaintiff which are the subject of loans TT123 and TT245.

297 The plaintiff alleged that Mr Giannuzzi did not fulfil his punctuality obligations under the following loans entered into on the following dates:

i. loan agreement entered into on 25 June 1998 (TT123); and

298 The plaintiff claimed repayment from Mr Giannuzzi of the outstanding principal and interest accrued on loan TT123 and TT245 in the amounts set out in Annexure B to its closing submissions, namely, as at 1 May 2010 the following:

(a) for loan TT123, the sums of $15,858 for principal and $24,152.81 for interest; and

299 The plaintiff says that Mr Giannuzzi did not pay the following payments punctually, details of which are:

Principal instalment of $9,800 under loan TT123
Date Due: 30 October 1998
Received by ARF: 17 November 1998 (18 days late)

Interest instalment of $1,229 under loan TT123
Date Due: 30 June 1999
Received by ARF: 19 July 1999 (19 days late)

300 Mr Giannuzzi does not put in issue that his instalment payment obligations in loans TT123 and TT245 were not punctually paid by him and as such his defence relies only upon the Contracts Review Act.

301 The receipt by the plaintiff of Mr Giannuzzi’s late instalments for principal in respect of each of the above loans is set out in the Excel Spreadsheet (Ex VAE2). The plaintiff’s secondary records, which are in Exhibit VAE1, show that:

(a) the principal instalment payment of $9,800 in respect of loan TT123 due on 30 October 1998 was paid by him by way of a cheque dated 12 November 1998 (VAE1 p. 916) which received on 17 November 1998;

(b) the principal instalment payment of $19,600 in respect of loan TT245 which was due on 30 September 1999 was paid by cheque dated 30 September 1999 (VAE1 p. 944) which was received by the plaintiff on 6 October 1999;

302 All the above payments were recorded as having been received in the Excel Spreadsheet after the respective payments’ due dates. There is nothing to suggest that this cheque was processed otherwise than in accordance with the normal procedure of which Ms Edwards gave evidence.

Mr Holmes

303 Insofar as the circumstances concerning Mr Holmes are concerned, an issue not otherwise raised in relation to other of the defendants becomes of importance.

i. Mr Holmes read his affidavit sworn 4 September 2008 (punctuality).

ii. Paragraphs 5 to 16 of Mr Holmes’s affidavit sworn 4 September 2008 relate to the punctuality of his unpunctual loan TT006.

Loan TT006

304 Mr Holmes entered into loan agreement TT006 on 26 June 1997 for one farm.

305 The loan agreement required that there be a repayment of principal of $8,750 on or before 31 October 1997.

306 The Excel Spreadsheet (Ex VAE2) shows that a cheque was received by the plaintiff on 24 October 1997. That, however, is the date of the receipt of a bank cheque which when the plaintiff sought to deposit it into its ANZ bank account was not capable of being paid into that account without an authority by Mr Holmes.

307 The circumstances are unusual and are as follows:

i. Mr Holmes obtained a Westpac Banking Corporation bank cheque dated 20 October 1997 which was drawn in favour of “AP & AM Holmes or bearer”.

ii. On the back of the cheque were the words “Please pay into the account of Agricultural and Rural Finance Pty Limited”. Under those words appear the signatures of Mr and Mrs Holmes. There were no other endorsements on the cheque.

iii. In her affidavit of 26 March 2010 at paras. 31, 32 and 33, Ms Edwards explained that the plaintiff received the cheque on 24 October 1997: ie prior to the punctual date for the payment, and on that day she made arrangements for the cheque to be banked with other borrowers with the ANZ Bank Port Macquarie. However in the events narrated below the payment was treated by the plaintiff as being late.

iv. A few days later the ANZ Bank returned the cheque “because the bank cheque had been endorsed by Mr Holmes and his wife in the way it had and ANZ would not accept the cheque for payment into ARF’s account”. The bank provided the plaintiff with a form which is at VAE1 p. 377.

“We acknowledge receipt of your cheque for $8,750 being a principal reduction payment. Unfortunately this bank cheque has been drawn in favour of AP and AM Holmes and we are unable to deposit the bunds into our own account without further authorisation from yourselves.
We have enclosed an ANZ bank form which needs to be completed, signed and returned to us in the enclosed envelope.

Please note that the form must be completed by both persons (AP and AM Holmes).

vi. The 27 October was a Monday Mr Holmes agrees that if the letter was posted on 27 October he would have received it at home by the Thursday: T415.40-.46.

vii. At VAE1 p. 379 is the authority signed by Mr and Mrs Holmes. The form is dated “2.11.97”. The 2 ^nd November 1997 was a Sunday. He clearly had received the letter of the 27 ^th October 1997 before the weekend. The likelihood is that he received the letter by Thursday 30 October 1997. Mr Holmes does not dispute the fact that he received the letter by the Thursday.

viii. It was not until Monday 3 November 1997 that he returned the authority to the plaintiff. He sent a faxed copy of the authority to the plaintiff on Monday 3 November 1997. He faxed it from his office at Legal & General: T415.09-.15. He also sent the authority by mail. This is why it bears a received stamp VAE1 p. 379. Having received the signed authority on 3 November 1997 the cheque was banked that day: see Ms Edwards’ affidavit at [35]-[36]. Mr Holmes conceded that he could have faxed the authority on the Friday. Had he done so the cheque would have been deposited by the due date.

“Q: Yes, so it was apparent to you on Monday 3 November 1997 that you could send this authority to Mr Henry by fax. Agreed?
A: Well it was my decision to send it by fax.

Q: Yes:
A: As well as post the original.

Q: Yes, and it was apparent isn’t it, that you could equally have faxed the authority on the Friday?
A: Yes.

Q: And you chose not to do it.
A: It wasn’t faxed on Friday. That’s true sir.

The issue which separates the parties

308 The plaintiff contends that in the above-described circumstances, payment had not been made by the due date. Their proposition is that had Mr Holmes faxed the signed authority to the plaintiff by Friday, 31 October 1997 the payment would have been punctually made. They contend that in fact it was not paid until the plaintiff was able to bank it upon receipt of the signed authority which he did on Monday 3 November 1997.

The propositions put forward by the plaintiff

309 As already made clear the plaintiff contends that the cheque was not punctually paid.

310 The plaintiff categorises the defendant’s argument as flying in the face of that which was said to constitute punctual payment by reference to the ultimate finding in the test case.

311 The plaintiff thumbnail sketches the defendants’ argument as attributing no relevance to the ANZ's rejection of the purported endorsement.

The propositions put forward by Mr Holmes

312 Mr Holmes submits that an error was made by the ANZ Bank and that it was entitled to receive the proceeds of the cheque.

313 Mr Holmes puts forward inter alia the following propositions:

i. It is irrelevant that ARF’s own bank, the ANZ, imposed procedural requirements for verification of the Holmes’ indorsement, as a pre-condition to its willingness to act as the collecting bank on behalf of ARF for the funds which the Westpac bank cheque represented. The ANZ Bank would obviously need to have standard procedures, designed to protect its own position, whether or not those procedures were particularly apt for the specific circumstances of the Westpac bank cheque furnished by Mr Holmes.

ii. Ms Edwards’ affidavit attributed the ANZ Bank’s request for the completion of the authorisation form to the proposition that the cheque had not been “properly endorsed” (affidavit sworn 26 March 2010 [33] and [36]). This did not correctly characterise the position (see transcript page 389, lines 1-31) and is yet another example of Ms Edwards having taken up an untenable position in her evidence in chief.

iii. “Payment” , in the manner which the law recognises (when made by the tender of a cheque for which there are available funds for payment), was made “punctually” , at the time of Mr Holmes’ sending of the cheque to ARF (see Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529 (esp per Dixon J at 532-3 and Kitto J at 535)).

iv. It is beyond doubt that, prior to the date for the “punctual” payment required from Mr Holmes, ARF had in its possession and had acquired immediate rights under the bank cheque which Westpac had provided, for the necessary payment by Mr Holmes. As the holder and indorsee of the cheque it could sue (Westpac) on the cheque in its own name (section 49(1) Cheques Act 1986) and could further negotiate the cheque to another transferee (section 39(1)).

v. The ARF submissions do not take account of the fact that the heading to s.23 derives from the original s.23(1), to what was then the Cheques and Payment Orders Act. The sub-section was repealed in 1998 – Cheques and Payment Orders Amendment Act 1998: Schedule 2. The repeal had the effect of restoring the pre-1986 position, that a bearer cheque could not be converted into an order cheque by being indorsed: Miller Associates (Aust) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506.

vi. The obsolete heading to s.23 is not part of the Act: s.13(3) Acts Interpretation Act 1901.

vii. The cheque, because it was “expressed to be payable to bearer” never changed from being a bearer cheque: Cheques Act s.3(1A) (definition of the expression “to or to the order of” ), sections 20, 21 and 22.

viii. In cross examination it was suggested that Mr Holmes had brought his present problems on himself by having “sat on” the authorisation form which may have been received on a Thursday or Friday (30 or 31 October 1997), until the following Monday (3 November, 1997) (see transcript page 415, line 9- page 416, line 35). It was suggested that if Mr Holmes had sent the authorisation form on Friday 31 October 1997, it may have been possible to regard the payment as having been made on that date, which was the due date.

Decision

314 The problem faced by Mr Holmes inheres in the fact that an intermediate step was necessary before the bank cheque could be of utility to ARF. It was necessary for Mr and Mrs Holmes to further satisfy the ANZ and New Zealand Banking group that the cheque payable to them could be deposited into the account of the plaintiff.

315 In short it seems clear that prior to the date for the “punctual” payment required from Mr Holmes, ARF did not have in its possession [and had not acquired] immediate rights under the Bank cheque which Westpac had provided, for the necessary payment by Mr Holmes.

316 For those reasons the finding is that with respect to the above-described loan agreement relating to Mr Holmes, he is not seen to have been punctual.

Maria Michael – 177th defendant

Accountant/Introducer and Occupation

317 Mr Atkinson’s company, Structured Securities, introduced Ms Michael to the Projects in respect of which she borrowed the monies from the plaintiff which are the subject of loan TT327: see Ms Michael’s loan application form (VAE1 pp 1112).

318 Ms Michael has identified his occupation as follows:

(a) In her loan and investment application form in respect of TT327 as: “Marketing Manager” (VAE1 pp. 1113);

319 The plaintiff alleged Ms Michael did not fulfil her punctuality obligations under a loan agreement entered into on 30 June 1999 (TT327).

320 The plaintiff claimed repayment from Ms Michael of the outstanding principal and interest accrued on loan TT327 in the amounts set out in Annexure B to its closing submissions, namely, the sums of $42,324 for principal and $64,462.36 for interest.

321 The plaintiff said that Ms Michael did not pay the following payment punctually, details of which are:

322 Ms Michael did not put in issue that her instalment payment obligations in loans TT327 were not punctually paid by her and as such her defence relies only upon the Contracts Review Act.

323 The receipt of the cheque from Ms Michael in respect of her principal instalment is recorded in the Excel Spreadsheet (Ex VAE2) to have occurred on 2 November 1999, namely, 33 days after the due date. There is also a copy of a letter from the plaintiff to Ms Michael in the plaintiff’s borrower file (Ex VAE1 p 1133) with a handwritten notation:

324 There is nothing to suggest that this cheque was processed otherwise than in accordance with the normal procedure of which Ms Edwards gave evidence. The evidence of Ms Michael cannot be said to cast doubt upon the accuracy of the plaintiff’s records.

Christina Spyrakis – 193rd defendant

325 Mr Atkinson’s company, Structured Securities, introduced Ms Spyrakis to the Projects in respect of which she borrowed the monies from the plaintiff which are the subject of loan TT079 and TT298.

326 Ms Spyrakis has identified her occupation as follows:

327 The plaintiff alleged that Ms Spyrakis did not fulfil her punctuality obligations under the following loans entered into on the following dates:

a) loan agreement entered into on 15 October 1997 (TT079); and

328 The plaintiff claimed repayment from Ms Spyrakis of the outstanding principal and interest accrued on loan TT079 and TT298 in the amounts set out in Annexure B to its closing submissions, namely, as at 1 May 2010 the following:

(a) for loan TT079, the sums of $15,854 for principal and $27,178.93 for interest; and

329 The plaintiff said that Ms Spyrakis did not pay the following payments punctually, details of which are:

1st principal instalment of $2,187.50 under loan TT079
Date Due: 31 January 1998
Received by ARF: 11 February 1998 (11 days late)

3rd principal instalment of $2,187.50 under loan TT079
Date Due: 31 July 1998
Received by ARF: 6 August 1998 (6 days late)

4th principal instalment of $2,187.50 under loan TT079
Date Due: 31 October 1998
Received by ARF: 4 November 1998 (4 days late)

Interest instalment of $1,348 under loan TT079
Date Due: 15 October 1998
Received by ARF: 4 November 1998 (20 days late)

Principal instalment of $19,600 under loan TT298
Date Due: 30 September 1999
Received by ARF: 11 October 1999 (11 days late)

330 Ms Spyrakis did not put in issue that her instalment payment obligations under these loans were not punctually paid by her and, as such, her defence relies only upon the Contracts Review Act.

331 The receipt of the cheques from Ms Spyrakis in respect of her instalment payments are recorded in the Excel Spreadsheet (Ex VAE2) to have occurred after the due dates for each payment listed above and there are other secondary documents in the plaintiff’s borrow files which is exhibit VAE1 to support this record. There is nothing to suggest that Ms Spyrakis’ payment cheques were processed otherwise than in accordance with the normal procedure of which Ms Edwards gave evidence.

The overall result

332 In the event, the defendants’ cases - based on the Contracts Review Act and claims of punctuality - are dismissed.

Short minutes of order

333 The parties are directed to bring in short minutes of order to give effect to these reasons. The parties will be given an opportunity to address in relation to costs.

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Citations

Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635

Most Recent Citation

Bank of Western Australia Limited v Maia Primanzon; Bank of Western Australia Limited v Violetta Primanzon and Alexandre Pachkovski [2010] NSWSC 862

Cases Citing This Decision

10

Wardle v Agricultural and Rural Finance Pty Ltd (No 2) [2012] NSWCA 388

Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107

Agricultural and Rural Finance Pty Ltd v Atkinson (No 3) [2014] NSWSC 1627

Cases Cited

21

Statutory Material Cited

10

Agricultural and Rural Finance Pty Ltd v Atkinson [2006] NSWSC 202

Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235

Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 311

CITATION:	Agricultural and Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors [2010] NSWSC 635
HEARING DATE(S):	6/4/10, 13/4/10 - 16/4/10, 19/4/10, 21/4/10, 22/4/10, 28/4/10, 29/4/10, 3/5/10 - 6/5/10, 10/05/10 - 12/05/10, 18/05/10, 19/05/10
JUDGMENT DATE :	17 June 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Defendants Contract Review Act claims to be dismissed. Defendants punctuality cases to be dismissed
CATCHWORDS:	Contract – Unjust contracts - Proceedings constitute residue of test case having travelled through a decision at first instance (Agricultural and Rural Finance Pty Ltd v Atkinson and others) [2006] NSWSC 202, a decision before the New South Wales Court of Appeal (sub nom Gardiner v Agricultural and Rural Finance Pty Ltd) [2007] NSWCA 235 and the decision of the High Court of Australia (sub nom Agricultural and Rural Finance v Gardiner) (2008) 238 CLR 570 - Remaining issues concern defendants’ Contracts Review Act and punctuality cases - Whether Act applies - Whether defendants entered into contracts in the course of or for the purpose of a trade, business or profession within the meaning of s 6(2) - Proper scope of that exclusion - Whether it covers investment contracts entered into as a matter of personal finance - Whether the farming exception contained in s 6(2) applies to the first defendant - Proper scope of that exception - Ellison v Vukicevic (1986) 7 NSWLR 104 at 111 applied - Relevant steps involved in applying s 7(1) of the Act - Framework for determining whether a contract is unjust within the meaning of s 7(1) - Point at which it is determined whether a contract is unjust - Whether the Court focuses on the particular contract or the overall transaction - Principles concerning meaning of ‘unjust’ under the Act - Factors contained in s 9(2) are not exhaustive - Whether, if it is established that provisions of one contract are unjust, it is possible to obtain relief in respect of a related contract - Public interest consideration under s 9(1) - Baltic Shipping Company v Dillon “Mikhail Lermontov” (1991) 22 NSWLR 1 applied - Provisions in question were not subject of negotiation, whether negotiation was reasonably practicable - Purpose of s 9(2)(b), 9(2)(c) - Whether provisions in question were particularly complex - Whether provisions in question reasonably necessary for protection of legitimate interests of second cross defendant, the indemnifier - Whether loss of indemnity was a grossly disproportionate consequence in the event of late payment of interest and principal payments - Contracts Review Act 1980 ss 4, 6, 7, 9,15, 16, Sch 1 - Onus of proof - Whether issue was decided in Gardiner Test Case – Defendants bear onus of proving punctual performance - Evidence - Probative value of evidence substantially outweighed by danger that evidence would if allowed by unfairly prejudicial to the plaintiff and/or be misleading or confusing and/or cause or result in undue waste of time - Evidence Act 1995 s 69(2)
LEGISLATION CITED:	Acts Interpretation Act 1901 (Cth) Australian Postal Corporation (Performance Standards) Regulations 1998 (Cth) Cheques Act 1986 (Cth) Cheques and Payment Orders Act 1986 (Cth) Cheques and Payment Orders Amendment Act 1998 (Cth) Contracts Review Act 1980 Corporations Law Evidence Act 1995 Income Tax Assessment Act 1936 (Cth) Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Agricultural and Rural Finance Pty Ltd v Atkinson and others [2006] NSWSC 202 Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 42 Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 311 Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 425 Agricultural and Rural Finance v Gardiner (2008) 238 CLR 570 Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 Antonovic v Volker (1986) 7 NSWLR 151 Australian Guarantee Corporation Ltd v McClelland (1993) ASC 56-230 Baltic Shipping Company, The “Mikhail Lermontov” v Dillon (1991) 22 NSWLR 1 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Borg-Warner Acceptance Corporation (Australia) Ltd v Diprose [1988] ANZ ConvR 57 Bridge Wholesale Acceptance (Australia) Ltd v GVS Associates Pty Ltd (1991) ASC 56-105 Broadlands International Finance Ltd v Sly [1987] ANZ ConvR 328 Central Commodities Services Pty Ltd v Hertzog (1989) ASC 55-706 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Collins v Parker (unreported, Lee J, 11 May 1984) Commercial Bank Co of Sydney Ltd v Pollard [1983] 1 NSWLR 74 Coombs v Bahama Palm Trading Pty Ltd (1991) ASC 56-097 Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Ellison v Vukicevic (1986) 7 NSWLR 104 Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Limited (2009) 257 ALR 658 Gardiner v Agricultural and Rural Finance Pty Ltd) [2007] NSWCA 235 Hogan v Howard Finance Limited (1987) ASC 55-594 Holman v Deol [1979] 1 NSWLR 640 Horniblow v Napier [1955] NZLR 104 King Mortgages v Satchithanantham; Cash King Pty Ltd v Satchithanantham [2006] NSWSC 1303 Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Lander v Trigger [1999] NSWSC 1253 Lowe v JW Ashmore Ltd [1971] Ch 545 Miller Associates (Aust) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506 Nguyen v Taylor (1992) 27 NSWLR 48 Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 Riz v Perpetual Trustee Australia Ltd (2008) NSW ConvR 56-198; [2007] NSWSC 1153 Roach & Ors v Page & Ors (No. 15) [2003] NSWSC 939 Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923 Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529 Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 West v AGC (Advances) Limited (1986) 5 NSWLR 610
TEXTS CITED:	Peden, The Law of Unjust Contracts (Butterworths, 1982) Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (Lexis Nexis Butterworths, 9th Aus ed, 2008) Zipser, ‘Unjust Contracts and the Contracts Review Act 1980 (NSW)’ (2001) 17 Journal of Contract Law 76 Odgers, Uniform Evidence Law, 5th ed New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 25 March 1980
PARTIES:	Agricultural and Rural Finance Pty Limited (Plaintiff) John Edward Atkinson (1st Defendant) Peter Brakatselos (14th Defendant) Geoffrey Nevell Fredericksen (35th Defendant) Allan Patrick Holmes (52nd Defendant) Nicholas Charles Rowe (75th Defendant) Maria Francesca Russo (78th Defendant) David James Wardle (95th Defendant) Jennifer Dianne Wallace (124th Defendant) Franco Giannuzzi (149th Defendant) Gavin Winston Long (172nd Defendant) Maria Michael (177th Defendant) Maria Francesca Russo (189th Defendant) Christina Spyrakis (193rd Defendant) Oceania Agriculture Limited (Second Cross Defendant)
FILE NUMBER(S):	SC 2003/0092819
COUNSEL:	Mr T Hale SC, Mr C Bevan, Mr B Katekar (Plaintiff) Mr S Epstein SC, Ms A Tsekouras (1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants) Ms P Conway (Second Cross Defendant)
SOLICITORS:	Evangelos Patakas & Associates (Plaintiff) Abadee Dresdner Freeman ((1st, 14th, 35th, 52nd, 75th, 78th, 95th, 124th, 149th, 172nd, 177th, 189th, 193rd Defendants) Peter Condon & Associates (Second Cross Defendant)