Business Finance Pty Ltd (receiver and manager appointed) v Partner Invest Pty Ltd (in liquidation)

Case •

[2022] NSWSC 1

•

07 January 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Business Finance Pty Ltd (receiver and manager appointed) v Partner Invest Pty Ltd (in liquidation) [2022] NSWSC 1
Hearing dates: 12 July 2021
Decision date: 07 January 2022
Jurisdiction:Equity
Before: Rees J
Decision:

Declare equitable assignment of mortgage; consequential relief.

Catchwords:

EQUITY – principles on equitable assignment at [64] – Statute of Frauds at [67] – fraud on statute at [74] – part performance at [76] – assignment of loan and mortgage security between related entities – formal documentation not executed.

Legislation Cited:

Conveyancing Act 1919 (NSW), ss 23C, 54A

Instruments Act 1958 (Vic), s 126

Property Law Act 1958 (Vic), s 53

Cases Cited:

Adamson v Hayes (1973) 130 CLR 276; [1973] HCA 6

Australian & New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21

Baloglow v Konstantinidis [2001] NSWCA 451; (2001) 11 BPR 20,721

Brown, Shipley & Co v Kough (1885) 29 Ch D 848

Ciaglia v Ciaglia [2010] NSWSC 341; (2010) 269 ALR 175

Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018] NSWSC 761

Dunphy v Russell [2018] NSWSC 721

Harvey v Edwards Dunlop and Co Ltd (1927) 39 CLR 302 at 307; [1927] HCA 13

Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211

Kation Pty Ltd v Lamru Pty Ltd (No 2) [2012] NSWSC 356

Metha v J Pereira Fernandes SA [2006] EWHC 813

Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak (2006) 67 NSWLR 569; [2006] NSWSC 844

Norman v Federal Commissioner of Taxation (1963) 109 CLR 9; [1963] HCA 21

Phung v Phung [2019] NSWSC 117; (2019) 19 BPR 39107

Pipikos v Trayans (2018) 265 CLR 522; [2018] HCA 39

Pirie v Saunders (1961) 104 CLR 149; [1961] HCA 4

Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51; (2004) 11 BPR 21,429

Primary Yield Finance Pty Ltd v Meyer [2012] VSC 595

Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385; [1965] HCA 70

Stuart v Hishon [2013] NSWSC 766

Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562

William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454

Category:Principal judgment
Parties: Business Finance Pty Ltd (Receiver and Manager appointed) (First Plaintiff)
Marcus Ayres in his capacity as Receiver and Manager of Business Finance Pty Ltd (Second Plaintiff)
Partner Invest Pty Ltd (in liquidation) (Defendant)
Representation:

Counsel:
Mr S Ipp (Plaintiffs)
Mr J Entwisle (Defendant)

Solicitors:
Corrs Chambers Westgarth (Plaintiffs)
DLA Piper (Defendant)
File Number(s): 2020/123260

Judgment

  1. HER HONOUR: This is a dispute between the external administrators of related companies – Marcus Ayres as receiver and manager of Business Finance Pty Ltd and Andrew Sallway as liquidator of Partner Invest Pty Ltd – in respect of the consequences of a transaction between the companies before their appointment.

  2. The question is whether, on 2 January 2018, Partner Invest assigned to Business Finance – by an equitable assignment for value – its rights as lender, mortgagee and secured party in a loan to JML Property Group Pty Ltd (the JML loan) such that Business Finance now holds an equitable interest in two properties (in Kangaroo Flat and Bendigo). Or, as Partner Invest would have it, were the funds simply transferred from one related entity to another to be used for the JML loan such that Business Finance is an unsecured creditor in the liquidation of Partner Invest.

  3. The receiver relied on his evidence together with that of Neil Sutton and Jay Mertens of MH Carnegie & Co, who supervised a syndicated loan facility which may have provided the funds for the JML loan. The liquidator relied on his evidence. There was no cross examination.

  4. The common director of the companies, Frankie McDad (also known as Remi Moqdad and Franco Al-Moqdad) and employee, his wife Regina Ko, did not give evidence and I draw no adverse inference either way in this regard. Documents obtained from the books and records of Business Finance and Partner Invest were tendered; the records were incomplete and in a poor state.

FACTS

  1. As will become apparent, the steps taken by Mr McDad and Ms Ko in respect of the JML loan did not align with the requirements of a syndicated finance facility. The quality of the remaining documentation is poor. Contemporaneous explanations by Mr McDad and Ms Ko contain inconsistencies. The records of the solicitors for Partner Invest and Business Finance, Summer Lawyers, appear less than comprehensive. In short, it is something of a mess.

Partner Invest

  1. In 2010, Partner Invest was incorporated by Mr McDad. The directors and shareholders changed thereafter with reasonable frequency between Mr McDad, Ms Ko and Bradley Bilbie and their corporate entities. By the time of these events, however:

  1. Mr McDad was sole director.

  2. Partner Invest was wholly owned by Al–Moqdad Tribe Pty Ltd, of which Mr McDad was sole director and owned the shares with Ms Ko.

After Partner Invest got into trouble, Mr McDad lodged a Form 484 with the Australian Securities & Investments Commission (ASIC) purporting to re-instate Mr Bilbie as a director back-dated to the time of these events, but I have put that document to one side for present purposes: see [57].

  1. The primary business of Partner Invest was to raise funds from private investors and then use those funds to provide non-bank business loans, secured by mortgages (often second ranking), caveats, general security agreements and personal guarantees. Loans were advanced to Partner Invest on a regular basis by private investors, in most cases, on an unsecured basis with varying guaranteed monthly returns. The loans were usually paid into trust accounts maintained by Summer Lawyers, which appears to have been used, effectively, as Partner Invest’s bank account.

Business Finance

  1. In September 2016, Business Finance was incorporated, wholly owned by Partner Invest. At the time of the JML loan, Mr McDad and Mr Bilbie were directors. Ms Ko was an employee of Business Finance and, according to its profit and loss statement, in receipt of wages. Business Finance was in the same line of business as Partner Invest.

  2. On 14 September 2016, Business Finance opened a business everyday account ending “9052" with National Australia Bank (Operating Account).

  3. On 28 September 2016, Partner Invest and Business Finance executed an Administrative Services Agreement under which Partner Invest agreed to provide “Services" including “Portfolio Loan origination and management”, described as follows:

(a)   Assistance where required in origination of Portfolio Loans including provision of all credit and analytical assessment.

(b)   Management of all Portfolio Loans, documentation, registration and perfection of loan securities, loan administration and, when necessary, implementation of recovery of Portfolio Loans.

(I take “credit” in sub-paragraph (a) to be “credit … assessment” rather than the provision of credit.)

  1. Consistently with this agreement, Partner Invest appears to have undertaken the task of administering Business Finance’s loans. In particular, Ms Ko appears to have been involved in day-to-day communications with Summer Lawyers. Whilst Ms Ko had a Partner Invest email address, her email signature (when she used one) noted that she was an executive assistant for Partner invest and Business Finance. Similarly, Mr McDad had a Partner Invest email address but his email signature (when he used one) listed, after his name, both Business Finance and Partner Invest.

Syndicated loan facility

  1. On 14 October 2016, Business Finance entered into a Syndicated Facility and Subscription Agreement by which a syndicate of lenders committed to provide $25.5 million funding. The purpose of the facility was for Business Finance to on-lend the borrowed funds to its own borrowers. Partner Invest was a guarantor of the facility while Perpetual Corporate Trust Ltd was the “Agent" and PT Limited was “Security Trustee". Neil Sutton and Jay Mertens then worked for Gieldan Capital, a joint venture business of MH Carnegie & Co and FIIG Securities (for simplicity, referred to Carnegie), which assisted in establishing the facility.

  2. Clause 2.4 of the Syndicated Facility and Subscription Agreement provided that Business Finance “may only use the Facility to make Qualifying Loans”, being a loan which met the “Qualifying Loan Criteria” in Schedule 8, including that the loan was to be secured by a first or second ranking mortgage: clause 1.1; paragraph 1.3(c) of Schedule 8. Clause 8.1 of the Syndicated Facility and Subscription Agreement required Business Finance to establish and maintain an “Operating Account” with the National Australia Bank. Business Finance was not entitled to open or operate another bank account without the consent of the Agent. Further, clause 8.2(b) provided that Business Finance “may only make withdrawals from the Operating Account to make Qualifying Loans”.

  3. Each month, Business Finance was required to provide a bank statement for the Operating Account together with a “Director’s Certificate” and a “Solicitor’s Certificate” for each Qualifying Loan made during that month: clause 12.2(c), Syndicated Facility and Subscription Agreement. Each quarter, Business Finance was required to provide managements reports, “a report on the Portfolio which itemises each Portfolio Loan and contains full details of any provisions, defaults and delinquencies …” and a compliance certificate: clause 12.2(d), Syndicated Facility and Subscription Agreement.

  4. The schedules to the Syndicated Facility and Subscription Agreement included standard form documents to be utilised by Business Finance in loans to its borrowers. These standard form documents also incorporated a Memorandum of Common Provisions used by Summer Lawyers.

Intercompany transfers

  1. From 27 October 2016, funds began to be credited to the Operating Account. According to a reconciliation recently undertaken by the liquidator of Partner Invest, the first deposits of $1,020,010 were from Partner Invest. By December 2016, the account held some $5 million and Business Finance began making loans. On 11 January 2017, Business Finance opened a second business everyday account with National Australia Bank, ending 7223 (the Cashflow Account). Whether this was opened with the consent of the Agent is not known.

  2. Mr Sallway said that, based on the books and records of the companies and his investigations, it appears that funds were moved between entities controlled by Mr McDad without adequate descriptions or proper records being maintained. The last financial report prepared for Partner Invest was for the financial year ended 30 June 2016; the directors failed to prepare financial reports for subsequent years. Partner Invest’s Xero accounting file had not been reconciled for over two years prior to the appointment of the liquidator and did not include any entries that went through Summer Lawyers’ trust account. Whilst transactions processed through Summer Lawyers’ trust accounts were not recorded accurately in the records of the companies, in Mr Sallway’s view, Mr McDad treated the companies under his control as a pooled group. Funds were transferred between bank accounts and trust accounts controlled by various entities as required to fund new loans, return investor funds and meet interest obligations.

  3. The liquidators' staff have reconstructed the trust accounts. (Regrettably, the liquidators’ efforts were hampered by Summer Lawyers’ failure to deliver up the books and records, requiring the intervention of ASIC to procure compliance with the liquidators’ demand for records. Mr Sallway is also unfunded and was ultimately provided with funding by ASIC to undertake this task.) The reconstruction reveals that by the time the JML loan was made, Business Finance had received some $2.7 million from Partner Invest including $1,988,781.60 into the Operating Account and $231,987.64 into the Cashflow Account. (In total, Partner Invest advanced $4.25 million to Business Finance from October 2016 to August 2018 and received some $1.58 million, including the $830,000 to the subject of these proceedings.) Some light may be shed on these transfers from Mr McDad’s email of 7 December 2018:

There is over 4m of partner invest contributions that was send to BF because we wanted to cross the threshold of 34m so we were able to take dividends. That, as you are well aware. Never transpired.

Similarly, it is apparent from this email exchange that Partner Invest transferred various of its loans to Business Finance “as sponsor equity and to boost [Business Finance] loan book loan amount to become 34m.”

JML loan

  1. The Lowther family owned properties in Kangaroo Flat, Bendigo and Golden Square. Each property was subject to a registered mortgage and, in some cases, caveats were registered on title as well. Jayson Lowther also incorporated a company, JML Property Group Pty Ltd, of which he was sole director and shareholder.

  2. On 21 December 2017, JML Property Group resolved to borrow funds from Partner Invest for the purpose of constructing two townhouses and purchasing a sand quarry. Transaction documents were signed. Whilst there was no "loan agreement" per se, the core documents comprised "Schedule A" and "Schedule B" to Summer Lawyers’ Memorandum of Common Provisions, together with the memorandum.

  1. According to Schedule A, the loan was to commence on 19 December 2017 and be repaid three months later. Interest was payable at 1.5% per month or, in default, 5% per month.

  2. Schedule B set out the fees payable in respect of the loan, including an application and due diligence fee of $27,390, a loan documentation fee of $2,200 and brokerage fee of $18,260, each of which were payable at or prior to entry into the mortgage or the advance.

  1. A cheque direction authorised Summer Lawyers and Partner Invest to pay the loan advance inter alia to the Lender for the loan application and establishment fee ($27,390), to Summer Lawyers for the loan documentation fee ($2,200), brokerage ($18,260) and to pre-pay the first month’s interest ($12,450).

  2. In addition, first-ranking mortgages were executed over the Kangaroo Flat, Bendigo and Golden Square properties in favour of Partner Invest. Personal guarantees were provided by the family members, together with a first-ranking registered "all present and after-acquired property" security interest by JML Property Group, later registered on the Personal Property Securities Register.

  3. On 2 January 2018, Summer Lawyers made preparations for settlement of the transaction, obtaining company searches, PPSR grantor searches (which recorded Partner Invest as a secured party) and bankruptcy searches. In addition, Business Finance transferred the funds for the loan to Summer Lawyers’ trust account, being a trust account in the name of Partner Invest. More particularly:

  1. Business Finance transferred $101,867.91 from the Cashflow Account to the Operating Account. The details on the bank statements record “Sponsor Equity Jml". Until receipt of these funds, the Operating Account had a credit balance of some $730,000, that is, insufficient funds to advance the loan in full.

  2. Then, $830,000 was transferred from the Operating Account to Summer Lawyers’ trust account, with the description on the bank statement, “Buy Loan 6527".

  3. The funds were recorded in the trust account statement for Partner Invest for matter 6527, being “Mortgage – Advance from Partner Invest to JML Property Group Pty Ltd”. The trust account statement recorded that the funds as have been received from Partner Invest.

It is at this point that, according to Mr Ayers, an equitable assignment or, alternatively, an agreement to assign, came into existence.

  1. On 3 January 2018, preparations for settlement continued. Certificates of insurance were obtained for the security properties. On 5 January 2018, title searches were conducted and Summer Lawyers provided a Solicitor's Certificate to Mr McDad and Ms Lo of Partner Invest, together with a loan summary and copies of the security documents and searches.

  2. On 9 January 2018, the trust funds were used to pay out caveators on the Bendigo and Golden Square properties, totalling $88,121.51, and outstanding rates on the three security properties totalling $3,505.15. Partner Invest lodged a caveat on title of the Golden Square property, claiming an interest as mortgagee. On 11 January 2018, Summer Lawyers used the trust funds to pay the $18,260 brokerage. A further $36,014 to the borrowers’ broker, RMM Advisory.

  3. These payments were described by Summer Lawyers collectively as “Tranche 1”. The monies advanced in Tranche 1 were secured by the mortgages: the Memorandum of Common Provisions provided that the mortgagor granted the lender a mortgage of the mortgaged property to secure the payment of the Secured Money (clause 2.1(a)) where “Secured Money" meant the aggregate of all monies which the Debtor was liable to pay to the Lender including the Principal Amount, interest, fees, costs and expenses and “Principal Amount" meant the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor: clause 1.1.

  4. On 23 January 2018, “Tranche 2” was completed when the existing financiers on the Kangaroo Flat and Bendigo properties were paid out with $480,783.83 transferred from the trust account, together with lodgement fees and Pexa fees. Mortgages were registered on the Kangaroo Flat and Bendigo properties. “Tranche 3” remained. The $203,315.51 remaining in the trust account was to be drawdown to pay out the existing financier of the Golden Square property, being Westpac. (This did not eventuate as Westpac took enforcement action and sold the property as mortgagee in possession, receiving the full sale proceeds. Partner Invest’s mortgage over the Golden Square property remained unregistered, with a caveat on title noting Partner Invest's interest as mortgagee.)

Documents provided to syndicate of lenders

  1. After the syndicated loan facility was in place, Carnegie continued to keep the syndicate of lenders informed of the status of the loans and compliance with the loan terms, with an eye to protecting the interests of the syndicate of lenders. Mr Sutton and Mr Mertens reviewed documents, usually uploaded by Mr McDad or Ms Ko to a dropbox link that was accessible to Carnegie and those at Perpetual responsible for the ongoing security trustee functions.

  2. Within the Business Finance dropbox were sub-folders created for current and non-current Portfolio Loans. Within the current Portfolio Loan sub-folder were further sub-folders for each current outstanding Portfolio Loan. Documents available through the dropbox link included director and solicitor certificates and a spreadsheet entitled "BF Loan Book General Info", which contained an ongoing summary of current Portfolio Loans, including details of the amount owing, expected repayment date and any instructions given by Business Finance to its lawyers to enforce loans in default.

  3. In January 2018, Mr Sutton became aware of the JML loan in the course of reviewing the Business Finance spreadsheet. The second column of the spreadsheet is entitled "DocPrep/Open Default/Paid/Close". Each row of the spreadsheet was a separate loan. Several rows had a description in the second column, “Open / Transferring Doc Bought Off From Partner Invest” whilst later rows, including the row relating to JML Property Group, had the description “Doc Prep / Buy off Partner invest”.

  4. On 5 March 2018, Ms Ko of Partner Invest sent an email to Summer Lawyers with the subject, "Loan Cert JML 6527", requesting a copy of the “loan cert for record", which was promptly provided. On 7 March 2018, Ms Ko uploaded a solicitor’s certificate to the sub-folder in the Business Finance dropbox for “JML". On 7 March 2018, Ms Ko of Partner Invest enquired with Summer Lawyers, “have we assigned this loan to business finance yet”. Summer Lawyers advised, “This loan is still not entirely settled and so it has not yet been assigned. We are still waiting to settle in relation to [the Golden Square property]. Partial advancement occurred on 23 January 2018 …”

Thu Van Fashion loan

  1. It is necessary to divert briefly to consider another loan, to which Mr Sallway points as evidence that there was nothing unique about the funding provided by Business Finance for the JML loan, nor was there any equitable assignment of a chose in action. On 27 February 2018, $370,000 was transferred from Business Finance’s Cashflow Account, with the narration “Thu Van Loan". The funds were received into Summer Lawyers’ trust account and recorded as received from Business Finance as “Settlement Funds" in a Partner Invest trust account in matter 6706 in respect of an advance by Partner Invest to Thu Van Fashion. (I note that the bank statement narration does not suggest that Business Finance was transferring the funds to “Buy” this loan, unlike the narration for the JML loan, although does correctly record the source of the funds, again, unlike the JML loan).

  2. On 28 February 2018, Summer Lawyers provided a solicitor's certificate to Partner Invest in respect of a loan from Partner Invest to Thu Van Fashion. According to the accompanying loan summary, the loan was to be secured by various mortgages over property in Marrickville. The mortgages were granted to Partner Invest. The loan was advanced and the broker paid from the trust account, by payments totalling $352,620. On 1 March 2018, a further $11,880 was paid from the trust account to Partner Invest for “Disbursement of Settlement Funds", presumably the Establishment Fee.

  3. Loan repayments began to be received into the trust account and were paid, variously, to Partner Invest and Business Finance. The fact that loan repayments were not consistently remitted to one company or the other makes it difficult to understand what was happening.

  4. In April 2018, Mr McDad signed a director's certificate on behalf of Business Finance, certifying that the loan to Thu Van Fashion was advanced in accordance with the requirements of the syndicated facility agreement. The loan was included in Business Finance’s loan book spreadsheet of April 2018, although the spreadsheet is illegible and I do not have a softcopy so the contents of the second column of the spreadsheet are unknown.

  5. On 18 December 2018, the Thu Van Fashion loan was repaid. The funds were credited to Partner Invest's trust account for matter 6706 and paid partly to Summer Lawyers’ office account (presumably on account of fees) and the balance of $411,105 to Partner Invest. The loan is recorded in Business Finance’s spreadsheet of June 2019 as “paid". Overall, I am not greatly assisted by the Thu Van Fashion loan is decided the position with respect to the JML loan. There are some similarities and some differences. It appears to have been another mess.

JML loan in default

  1. JML never paid any interest, other than for the first month, being prepaid from the loan advance. On 12 March 2018, Summer Lawyers sent an email to the borrowers’ solicitor, noting that the loan facility had not been fully drawn down and “you are waiting on the readiness of the first registered mortgagee of the [Golden Square property] in order to finalise the last drawdown of funds”. However, the loan facility was due for repayment on 19 March 2018 and two interest payments were outstanding. Payment of the outstanding interest was sought. No interest was paid and, on 21 March 2018, Ms Ko instructed Summer Lawyers to advise the borrowers’ solicitor that they had been instructed to issue default notices.

  2. On 15 April 2018, Ms Ko uploaded a director's certificate, signed by Mr McDad for Business Finance, to Business Finance’s dropbox. By the director's certificate, Mr McDad confirmed that the JML loan complied with the requirements of the syndicated facility agreement.

  3. On 7 May 2018, Summer Lawyers served a default notice. On 8 May 2018, the borrowers’ broker informed Summer Lawyers that his clients wished to refinance the facility and requested details of outstanding interest, which were promptly provided. On 9 May 2018, the broker advised that he was getting instructions. Summer Lawyers also transferred $2,200 from its trust account to its office account, presumably the loan documentation fee.

  4. On 10 May 2018, Westpac's solicitors informed Summer Lawyers that Westpac was selling the Golden Square property as mortgagee in possession. On 4 June 2018, Ms Ko sought an update and was informed by Summer Lawyers that payment had not been made and the firm was reviewing the security position with a view to taking possession. In evidence are two documents dated 5 July 2018.

  1. A Business Finance "Loan Accounts List by M/P/Other" provides an account number for an account in the name of JML with a balance as at 30 June 2018 of –$918,449.54. (The Thu Van Fashion loan is also listed).

  2. Amongst Business Finance’s books and records, which include files from Summer Lawyers, is a “Statement of Account” addressed to JML and issued on 5 July 2018. Business Finance is referred to as the Manager (whereas one might expect Partner Invest to bear this title under the Administrative Services Agreement). The statement did not accurately reflect the terms of the JML loan, referring to monthly interest of $41,500 (which did not accord with the interest rate and was not calculated cumulatively) and interest paid from 10 January 2018 totalled $249,000 (where no interest had been paid). (A Statement of Account was also issued for the Thu Van Fashion loan).

  1. The first document is consistent with the JML loan forming part of Business Finance’s portfolio of loans. The second document may have emanated from Summer Lawyers as part of its efforts to enforce the loan; I attach little weight to that document as its provenance is unclear.

Enquiries by lenders’ syndicate

  1. On 26 July 2018, Mr Mertens sought an update from Mr McDad and Danny Procopis (who Mr Sutton understood to be an employee or contractor of Business Finance) on “BF Questions”, including the JML loan, and was informed by Mr McDad, “in collection and summer lawyers are going through the process to collect all amounts".

  2. On 9 August 2018, $6,000 was transferred from Summer Lawyers’ trust account for Matter 6527 to Matter 6131, being apparently another Partner Invest matter concerning an investor agreement with Elio Amorim, “To pay for our fees”. The funds appear to have been used for a purpose unrelated to the JML loan. Whatever the answer to the legal questions ahead, this amount cannot be secured over the Kangaroo Flat and Bendigo properties, as it is not “advanced by the Lender to the Debtor” and thus does not form part of the “Principal Amount" and is not “Secured Money".

  3. On 28 September 2018, Mr Bilbie ceased to be a director of Business Finance and Ms Ko was appointed as a director. On 9 October 2018, Al-Moqdad Tribe became the sole shareholder of Business Finance.

  4. In November 2018, Mr Procopis sent an email to Mr Mertens entitled “Business Finance – updated info from Summer Lawyers” attaching a “loan book snapshot” from Summer Lawyers. Attached was a spreadsheet entitled “Business Finance Loan Book Update". In respect of matter 6527, the spreadsheet recorded that Summer Lawyers had put a payout figure to the borrowers’ solicitor and requested confirmation of formal approval; Summer Lawyers was enforcing the facility and reviewing security.

  5. On 5 December 2018, Mr Mertens sent an email to Mr Procopis, attaching a list of questions. Of the JML loan, Mr Mertens enquired, "Loan docs and Summer Lawyers update suggest this is a Partner Invest loan?" On 6 December 2018, Mr Procopis provided "Frankie's comments" on the loans, including, for the JML loan, “It is a business finance loan". Mr Mertens replied “we have not seen any documentation as to Business Finance holding this loan. Can you please send novation certificates?" Mr McDad replied that he recalled Summer Lawyers sending Carnegie an email that the loans were Business Finance "but we haven't changed the security to BF because there is another caveators and we didnt want to lose our priority position”.

  6. On 7 December 2018, Mr Sutton took up the matter with Mr McDad by email, “I'm pretty sure that a loan in one entity and security in another is a disconnect. Doesn't the grantor of the security have to acknowledge the granting of security to BF? I can't see how there is a legal nexus between the security in one entity, and the loan in another and I'd be worried about our ability to legitimately enforce. Why [were] the loans transferred into BF? … The purpose of our facility is not to ‘bail out’ problem loans financed by other (related) entities of Business Finance (such as Partner Invest et al)." Mr McDad replied:

There were no bail outs.

We actually were using these loans as sponsor equity and to boost BF loan book loan amount to become 34m.

These loans were never problematic when we transferred them.

  1. Mr Sutton asked, "So who actually financed these loans? Are you saying BF paid zero consideration for these loans and no cash left BF…" Mr McDad replied, “There was no fund transferred from BF for these loans. We are happy to remove the loans that are a transfer as they are not relevant to BF, as it BF book should be above 30m in principal." Mr Sutton replied, “We're are confused as there was $830k debit which left the account to refinance this loan. What is this?? This is the same amount as the JML loan which hit the BF loan book at $830k.” Mr McDad replied, “but JML is a Business finance loan”.

  2. Unsurprisingly, Mr Sutton found these conflicting remarks confusing, replying, “You[r] lawyers are saying this was a Partner Invest loan. Regina's spreadsheet says ‘Buy off Partner Invest’. You have said it came across as sponsor equity." Mr Sutton suggested that Carnegie meet with Mr McDad and Ms Ko to ascertain the correct position for each loan. Mr McDad replied, "JML should have never been a [P]artner Invest loan." Mr Sutton replied, “It should never have been a Partner Invest loan?????? You have been telling us this is sponsor equity. It is not and has refinanced a related party loan with $830k leaving the BF account. Your story constantly changes and we are extremely concerned that there is not a clear or consistent picture regarding some of these loans … We need to get to the bottom of this very quickly." Mr McDad clarified that the JML loan was not sponsor equity. Further:

JML was a new loan, and it was never sold to BF, this loan was written recently, and it just became problematic just recently, as I remember, it was BF loan.

  1. Ms Ko then replied (and I attach more significance to her answer as she appears to have been more involved in the detail of Business Finance’s transactions):

Re: JML Loan.

The borrower approached us in Nov/Dec2017 for a loan but he was willing to offer us a caveat on the security. Then we replied by saying the only way to consider and approve the loan is to be under entity partner invest with a higher interest.

Once our offer doc was sent out for around 2 weeks, and after the borrower shopped around, he then offered us a better position on the security and more securities for a better rate.

We then continue to negotiate in the name of partner invest without confusing the borrower with all different entities.

We rather do the back end admin work(which is to instruct Summer Lawyers to assign mortgagr) then to confuse the borrower, lose time and lose opportunity.

  1. On 10 December 2018, the remaining funds held in Summer Lawyers trust account for matter 6527, comprising $195,115.51, were transferred to Partner Invest, with the notation being simply “Disbursement of Funds". That is, the funds were not advanced to JML but paid to Partner Invest. For the same reasons advanced at [43], the funds appear to have been used for a purpose unrelated to the JML loan and thus are not secured over the Kangaroo Flat and Bendigo properties.

  2. On 12 December 2018, Ms Ko ceased to be a director of Business Finance. On 6 March 2019, notwithstanding that Ms Ko was no longer a director, Ms Ko forwarded a Compliance Certificate to Carnegie, signed by Mr McDad and herself as directors. According to Mr Ayres, the Compliance Certificate attached a Business Finance Loan Accounts List as at 31 December 2018, which included the loan to JML Property Group with a balance of –$1,303,970.44. In April 2019, Business Finance updated the Loan Book spreadsheet via the dropbox link. Business Finance continued to refer to the JML loan in the spreadsheet as “Doc Prep / Buy off Partner invest”. The notes also recorded enforcement steps taken, “Taken possession on Kangaroo Flat & Bendigo properties. Following up with [W]estpac for the auction result on [G]olden [S]quare property."

  3. On 15 April 2019, Westpac's solicitors advised Summer Lawyers that the Golden Square property had been sold at auction and was due to settle on 27 May 2019, “If there are any surplus funds to that required by our client we will contact you." On 29 April 2019, Ms Ko instructed Summer Lawyers to prepare an assignment of mortgage in respect of JML and assign the mortgage to Business Finance. Ms Ko added: (typed in red text, bolded and with yellow highlighting in the original)

BUT if this will jeopardise our position of claim, please do not do anything and kindly contact us for further discussion.

  1. Summer Lawyers did not produce, in answer to a subpoena, any other documents in relation to Ms Ko's email, such as file notes or correspondence as to why the instructions were not followed. Nor were any draft assignment documents produced. Extensive correspondence between the receiver’s solicitors and Summer Lawyers was not productive of further documents.

  2. On 27 May 2019, completion of the sale of the Golden Square property took place. Partner Invest’s caveat was withdrawn to permit settlement to occur. Westpac retained the whole proceeds of sale. On 1 July 2019, PT Limited appointed Mr Ayres and Adam Nikitins as joint and several receivers and managers of the assets and undertaking of Business Finance and Partner Invest. Mr Ayres made a trace request to National Australia Bank in respect of the $830,000 paid from the Operating Account and lodged a caveat over the Kangaroo Flat and Bendigo properties on behalf of Business Finance, asserting an interest as mortgagee on the basis of a part performed oral agreement between Business Finance and Partner Invest.

Requests for transfer of mortgages

  1. The receiver's solicitors wrote to Summer Lawyers advising that, based on the books and records of Business Finance, it appeared that, on or around 2 January 2018, Business Finance had purchased the debt and security in relation to the JML loan from Partner Invest for $830,000 but, notwithstanding that the purchase of the loan was completed, a transfer of mortgage was not provided by Partner Invest at the time; Partner Invest remained the registered mortgagee notwithstanding that the securities and underlying debt had been assigned to and paid for by Business Finance. The receivers requested that Partner Invest complete and lodge a transfer of mortgage in respect of the Kangaroo Flat and Bendigo mortgages and enter into any necessary documents to confirm the purchase of the JML loan.

  2. Summer Lawyers advised that they did not have instructions from Partner Invest to respond to the receivers’ letter. On 22 July 2019, the receivers’ solicitor made the same request directly to Mr McDad of Partner Invest, who promptly replied – albeit inconsistently with earlier email communications on the subject – “We do not agree that JML loan belongs to business finance and it is under the ownership of partner invest as it is outlined in the loan agreement…" On 25 July 2019, Mr McDad lodged a Form 484 Change to Company Details form with ASIC, notifying that Mr Bilbie had been appointed as director of Partner Invest some two years earlier on 27 September 2019. On 19 August 2019, the receivers’ solicitors wrote to Partner Invest’s new solicitors, again requesting a transfer of mortgage. There was no response.

  3. On 19 September 2019, Partner Invest went into liquidation. Mr Sallway and Duncan Clubb were appointed as liquidators. The receivers wrote to the liquidators requesting a transfer of mortgage, but the liquidators advised that they were not in a position to consent as, based on the incomplete documentation then to hand, their preliminary view was that even if Business Finance advanced $830,000 to Partner Invest, this presented an unsecured claim in the liquidation; the liquidators offered to review the position once all books and records were obtained.

  4. On 26 November 2019, having obtained additional information, the liquidators advised that they continued to doubt whether there had been sale of the debt and assignment of security. As the liquidators had a duty to act in the interests of the creditors of Partner Invest, they were not prepared to execute a transfer of mortgage where the facts were not clear, the liquidators’ investigations were ongoing and executing a transfer would be to the detriment of Partner Invest’s creditors. On 29 November 2019, Mr Ayres and Mr Nikitins were appointed as investigating accountants to the guarantors of the Syndicated Facility and Subscription Agreement, in particular, to Partner Invest. On 2 December 2019, the receivers pressed their claim to the liquidators of Partner Invest. On 24 April 2020, these proceedings commenced.

  5. In May 2020, the receivers’ solicitors wrote to Mr McDad's solicitors, seeking clarification in respect of the various inconsistent statements made by Mr McDad about the JML loan. In July 2020, Mr McDad's solicitor advised that they were instructed that the loan to JML was intended to be made as a secured loan from Business Finance to JML. “Original paperwork prepared for an alternate arrangement (Partner Invest to lend to JML the sum of $220,000) was intended to be amended upon a request by JML to increase the amount of the loan (to $830,000)." Mr McDad's email of 22 July 2019 was said to have "incorrectly interpreted the legal implication of the erroneous paperwork" and Mr McDad considered that the appropriate course was for formal documentation to be put in place to ensure that Business Finance was properly secured. Mr Ayres has not been able to identify the earlier proposed loan of $220,000 or documents in relation to such a loan during the course of his investigations.

  6. Mr Sallway is not satisfied, based on the evidence provided by Business Finance, that there was an agreement to assign the JML loan and associated security. Based on his investigations, it was common practice for Partner Invest to receive sums from investors and then use those funds to provide loans to other borrowers. Some of the funds advanced to Partner Invest were treated as unsecured loans and the investors did not typically receive any form of security for that advance. Other advances were noted as secured loans and security interests were registered against Partner Invest in respect of specific loan advances to borrowers. Examples were given, although I note in each case that the investor was an unrelated party and thus may not be relevantly similar to the transaction at hand.

  7. In addition, Mr Sallway pointed to the loan to Thu Van Fashion: there was no assignment of security or debt and, when the loan was repaid, the funds were transferred from Summer Lawyers to Partner Invest’s bank account. This suggested to Mr Sallway that Business Finance’s funding of this loan, and indeed the JML loan, was similar to any other unsecured investor. Business Finance’s advance of $830,000, some of which was used to make various payments to the borrower under the JML loan, was not unique. Nor has Mr Sallway found any documents in the books and records of Partner Invest which record an agreement to assign, or novation of, or show any intention to assign or transfer the JML loan and its associated securities to Business Finance. Mr Sallway has not seen any deed of assignment or sale agreement, nor seen any documents containing instructions to Summer Lawyers to take steps to assign the JML loan and securities to Business Finance.

  1. Mr Ayres agrees that there are a number of similarities between the JML loan and Thu Van Fashion loan. The lender for each of the loans was listed as Partner Invest, however, Business Finance advanced the funds which were used to advance funds to the borrowers under the loans. There appears to have been a shared intention of Business Finance and Partner Invest that Business Finance would “buy” both loans from Partner Invest. Business Finance represented to the Agent, the Security Trustee, Carnegie and the lending syndicate that each of the loans were loans which Business Finance had the benefit of as lender for the purposes of the syndicated facility agreement. In Mr Ayres’ view, the Thu Van Fashion loan should not be viewed as an example of an "investment" made by Business Finance with Partner Invest but another transaction where it was intended that Business Finance would purchase the debt and security from Partner Invest but, for reasons unknown, the relevant documentation to perfect the assignment of the Thu Van Fashion loan did not occur either.

PRINCIPLES

Equitable Assignment

  1. Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; [1963] HCA 21 (Windeyer J). If the interest being assigned is an equitable interest, then an assignment of it can only be effected in equity, “It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it”: Norman at 30-31. “All that is required for an equitable assignment is a manifestation by the assignor of an intention to transfer the [equitable interest] to the assignees in a manner binding upon himself, as distinguished from an intention merely to give a revocable mandate while retaining ownership” of the equitable interest: Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 at 397; [1965] HCA 70 (Kitto J). The effect of a valid equitable assignment of a legal interest in property after payment of the consideration is to constitute the assignor a trustee of the property for the benefit of the assignee: Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak (2006) 67 NSWLR 569; [2006] NSWSC 844 at [185] per Campbell J.

  2. In equity, except where writing is required by the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition; “It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain”: William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462; Norman at 30. An equitable assignment may occur orally or from a course of dealing: Brown, Shipley & Co v Kough (1885) 29 Ch D 848 at 854.

  3. In a case not dissimilar to that at hand, where related companies were in external administration, an equitable assignment of a debt, albeit not a mortgage, was established in the absence of a deed or evidence from the companies’ officers by reliance on reciprocal book entries in the general journal of both companies: Primary Yield Finance Pty Ltd v Meyer [2012] VSC 595 at [24]. There, Mukhtar AsJ observed at [29]: (emphasis in original)

I have had my apprehensions on this question because there is no extrinsic evidence for the assertion that the making of reciprocal book was the manner by which these companies transferred debts between them. The most the controller can say is that it appears that way. What I must accept though is that, exiguous as the narration is in the general journal, the intention is to effect a “transfer” of a “loan asset” which has all the similitude of an assignment, and nothing to suggest it is conditional or not absolute. Transfer means a parting with property. The right to receive payment has been transferred to someone else. In addition I must give recognition to the prevalence of the commercial reality. These are companies within a corporate group and [later] it was [the assignee company] that created a statement of account … and pursued payment. I am willing to conclude that the evidence is good enough to establish an assignment in equity.

That is, Mukhtar AsJ relied on the contemporaneous business records and subsequent conduct of the parties, which was consistent with an assignment having occurred as the accounting entries suggested.

Statute of Frauds

  1. Where the equitable assignment is of an interest in land, the Statute of Frauds, being sections 23C and 54A of the Conveyancing Act 1919 (NSW) and, in Victoria, section 53 of the Property Law Act 1958 (Vic) and section 126 of the Instruments Act 1958 (Vic) applies to the creation or disposal of equitable interests in land: Adamson v Hayes (1973) 130 CLR 276 at 296-297; [1973] HCA 6 (Walsh J) and 302-304 (Gibbs J). As the borrowers and security properties are in Victoria, and the registered office address of Partner Invest and Business Finance were also in Victoria at the relevant time, it is likely that the Victorian statutes applied, although the provisions are materially the same and have a common genesis, being section 4 of the Statute of Frauds 29 Car II cap 3. As Giles JA (with whom Meagher and Santow JJA agreed) explained in Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51; (2004) 11 BPR 21,429 at [29]:

The Statute of Frauds laid down formal requirements for a number of transactions, not only contracts for the sale of land. The purpose, as the title "A Statute for the Prevention of Frauds and Perjuries" indicates, was guarding against fraud by insisting on a written record. It has often been observed that the requirement of a written record can itself become an instrument of fraud. Equity has devised the doctrine of part performance as a basis of equitable relief in the absence of a written record … Although criticised, the requirement of a written record for contracts for the sale of land has been retained. That must be because certainty in dealings with land is thought to be fostered by insistence on a written record.

  1. Section 126 of the Instruments Act (the equivalent of section 54A of the Conveyancing Act) applies at the stage of an agreement to dispose of an interest in land and provides: (emphasis added)

An action must not be brought to charge a person … upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.

  1. A note or memorandum of the agreement is sufficient and the signing agent need not be authorized in writing: Baloglow v Konstantinidis [2001] NSWCA 451; (2001) 11 BPR 20,721 at [162]. In Harvey v Edwards Dunlop and Co Ltd (1927) 39 CLR 302 at 307; [1927] HCA 13, Knox CJ, Gavan Duffy and Starke JJ said:

… It is also well settled that the memorandum “need not be contained in one document; it may be made out from several documents if they can be connected together.” They may be connected by reference one to the other; but further; “if you can spell out of the document a reference in it to some other transaction, you are at liberty to give evidence as to what that other transaction is, and, if that other transaction contains all the terms in writing, then you get a sufficient memorandum within the statute by reading the two together” (Stokes v Whicher [1920] 1 Ch 411 at 418).

See likewise Baloglow, where evidence additional to the note or memorandum was taken into account in order to identify the note as satisfying the requirement of the Statute of Frauds: at [156] per Giles JA.

  1. In Pirie v Saunders (1961) 104 CLR 149; [1961] HCA 4, the Court considered that a solicitor’s file note was not sufficient to satisfy the requirements of section 54A of the Conveyancing Act, although this appears to have been referable to the contents of the file note itself, which did not recognise the existence of a binding agreement to grant a lease but simply instructions to prepare a formal lease. The Court however recognised that a written proposal may by its subsequent acceptance become by the conduct of the parties recognizable as a sufficient note or memorandum of the resulting contract: at 154.

  2. Section 53 of the Property Law Act (the equivalent of section 23C of the Conveyancing Act) is more stringent and applies at the stage of conveyance of an interest in land, “in keeping with the importance attached to property rights … the creative or dispositive instrument itself must be in writing”: Baloglow at [162]. Section 53 relevantly provides: (emphasis added)

(1)   Subject to the provisions hereinafter contained with respect to the creation of interest in land by parol-

…

(c)   a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will.

(2)   This section shall not affect the creation or operation of resulting, implied or constructive trusts.

  1. The writing required necessarily must show an intention to create an interest in land; the intention to create it must appear clearly: Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 at [50] (Bryson AJ).

  2. An email is writing and an email signature may suffice as a signature. In Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211, Brereton J (as his Honour then was) observed, “the word ‘Ramzi’ was subscribed to the email with the intent of authenticating the communications, and constitutes a signature notwithstanding that it appears in typewritten and not handwritten form:” at [22]. See also Kation Pty Ltd v Lamru Pty Ltd (No 2) [2012] NSWSC 356 at [32] per Ball J; Stuart v Hishon [2013] NSWSC 766 at [31] per Harrison J; Metha v J Pereira Fernandes SA [2006] EWHC 813.

Fraud on the Statute

  1. Equity will not permit the Statute of Frauds to be used as an instrument of fraud. This doctrine applies to section 54A as well as to section 23C of the Conveyancing Act: Ciaglia v Ciaglia [2010] NSWSC 341; (2010) 269 ALR 175 at [65] to [84] per White J. As Sackville AJA explained in Dunphy v Russell [2018] NSWSC 721 at [128]:

As Hope J pointed out in Last v Rosenfeld [1972] 2 NSWLR 923, no sooner had the Statute of Frauds … been enacted in 1677 than the courts set about ameliorating its effect in circumstances where it was thought that the legislation could not be intended to apply. The principle was stated in the leading case of Rochefoucauld v Boustead [1897] 1 Ch 196 at 206 as follows:

the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself.

  1. In that case, the defendant acquired a property using funds provided by the plaintiff, having agreed that the plaintiff would be entitled to a one-third share in return for his contribution. The defendant then denied the plaintiff’s entitlement to a share in the property. It was held that the defendant could not invoke section 23C(1) of the Conveyancing Act to defeat the plaintiff’s claim to an equitable interest: at [130]. As Parker J observed in Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018] NSWSC 761, the fraud lay in taking advantage of an agreement to acquire the title and then seeking to use the Statute to escape from obligations under that same agreement: at [208].

  2. Further, where there is part performance, the Statute of Frauds does not apply, this exception being the result of the intervention of the Court of Chancery to prevent the Statute of Frauds being used as an instrument of fraud: Ciaglia v Ciaglia at [82], [84]; Australian & New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21 at 33 per Hill J. The acts relied upon as part performance must be “unequivocally referable” to the alleged agreement: Pipikos v Trayans (2018) 265 CLR 522; [2018] HCA 39 at [43], [103]–[104] and [157]. As Darke J explained in Phung v Phung [2019] NSWSC 117; (2019) 19 BPR 39107, in applying the test of “unequivocal referability”, the Court is concerned with whether the acts are unequivocally referable to some contract of the general nature alleged: at [65], see likewise Pipikos at [159].

  3. The payment of money, at least on its own, is not a sufficient act of part performance as it is an equivocal act not in itself indicative of a contract concerning land: Pipikos at [89] per Nettle and Gordon JJ. The payments may nonetheless be considered, including in conjunction with other acts of part performance: Ciaglia v Ciaglia at [95]; Phung v Phung at [71]. It ultimately depends on evaluative conclusions based upon all the circumstances surrounding the act: Pipikos at [158] per Edelman J.

SUBMISSIONS

  1. Mr Ayres submitted that, by transferring the $830,000 from the Operating Account to Summer Lawyers’ trust account, Business Finance obtained an equitable assignment from Partner Invest of a legal chose in action and security that included a mortgage over real property. This was confirmed by “Buy Loan 6527” in the Operating Account bank statement, being a contemporaneous business record of Business Finance recording its acquisition of the JML Loan in unequivocal terms. The reference the trust account to the funds being received from Partner Invest was said to be an error.

  2. The inclusion of the JML loan in Business Finance’s spreadsheet and the Director’s Certificate of 1 April 2018 were said to confirm the true position. The Director’s Certificate certified that the JML loan was a debt owed to Business Finance secured by a mortgage, said to be subsequent conduct consistent with the fact that Partner Invest assigned the JML loan and security to Business Finance. So too did the emails in December 2018 and the Compliance Certificate provided in March 2019, which listed the JML loan was part of Business Finance’s “funds to borrowers”. The accompanying management reports showed that Business Finance recorded the JML loan as an asset. This was said to be subsequent conduct by Business Finance that supported the assignment.

  3. The emails sent by Mr McDad and Ms Ko in December 2018 were said to be a memorandum or note signed by the party to be charged, satisfying the requirements of section 54A of the Conveyancing Act (albeit I note that these emails were sent ten months after the agreement to assign is said to be come into existence). The contemporaneous documents, read together, showed what the terms of the transaction were. The documents were the Business Finance spreadsheet, the Director’s Certificate, the Compliance Certificate and attached “Loans Account List” and Ms Ko emails with Summer Lawyers. (It was not suggested that these documents satisfied the requirements in section 23C of the Conveyancing Act).

  4. Mr Ayres submitted that transfer of the $830,000 was an act of part performance by Business Finance. Partner Invest then used $621,013 of those funds in Tranche 1 and Tranche 2. It was that Business Finance was the manager of the JML loan and administered the loan, being unequivocally referable to the agreement to assign. Further, it was submitted that Partner Invest should not be permitted to rely on the Statute of Frauds where it only acquired a registered mortgage over the security properties by using Business Finance’s money and should not be permitted to thereby defeat Business Finance’s claim to an equitable interest.

  5. Mr Sallway submitted that the documents do not disclose a present intention on the part of Partner Invest to part with its equitable interest in the JML loan and securities. Mr Sallway submitted that a party cannot evidence a disposition of an interest in land by cobbling together miscellaneous, unsigned correspondence from which it is said the transaction should be inferred. To proceed on this basis would be contrary to the express public policy embodied in the Statute of Frauds, to ensure certainty in dealings in land. The evidence relied upon by Business Finance did not establish a clear expression of Partner Invest’s intention to make an immediate disposition of the chose in action or proprietary interests. The fact of the $830,000 transfer was not evidence of a present intention to assign but equally explicable as an inter-company loan from Business Finance to Partner Invest, being related entities involved in the same line of business. The Thu Van Fashion loan was another example of Business Finance providing funds to Partner Invest that were then used to make a loan to a third party without any form of assignment occurring. There was a constant flow of funds between Business Finance and Partner Invest.

  6. As to the notation “Buy Loan 6527” in Business Finance’s bank statement, Mr Sallway submitted that there was no evidence as to who included that notation, which was inconsistent with the notation in Summer Lawyers’ trust account statement which recorded receipt of the $830,000 as “Received from Partner Invest Pty Ltd”. Representations in in Director’s Certificates and Compliance Certificates were representations by Business Finance and were said not to provide evidence of Partner Invest’s intention. The repeated reference to “Buy off Partner invest” in the Loan Book spreadsheet suggested that the purchase of the JML loan and securities had still not occurred.

  7. Mr Sallway submitted that the December 2018 emails from Mr McDad and Ms Ko were made in their capacity as representatives of Business Finance, not Partner Invest; it was said to be difficult to see how these emails constituted “clear” evidence of Partner Invest’s present intention to assign. The upshot of the email exchange was that Mr McDad said that the JML loan was not sold to Business Finance. Rather, he organised for Business Finance to provide the funds for the JML loan that was ultimately advanced by Partner Invest. Mr McDad and Ms Ko appear to have then contemplated (at an unspecified time) instructing their lawyers to do the “admin work” to have that loan assigned to Business Finance, but they never did so. The mere contemplation than an assignment may occur in the future is not sufficient to establish an equitable assignment. The requisite intention must be to effect an immediate disposition of the property. Further, it was said to be an alarming result if an instruction to a lawyer to prepare documentation to effect a transaction was sufficient to make that contemplated transaction effective in equity. None of the documents relied upon constituted the conveyance that purportedly created or disposed of the interest, or clearly disclose the intention to create the interest in land. They were, at most, circumstantial evidence from which Business Finance sought to draw an inference that a conveyance had occurred in the past.

  8. Mr Sallway also submitted that, although the principal amount of the JML loan was $830,000, the mortgage only secured the monies advanced to the borrower which was, in reality, about $600,000 with Partner Invest receiving the balance. Further, it was not until 23 January 2018 that JML became indebted to Partner Invest, when loan funds were advanced, secured by the mortgages over the property (As already mentioned, I consider that this occurred much earlier, on 9 January 2018: see [25]-[26]). The curious manner in which the loan funds were disbursed suggested that there was no contract between Business Finance and Partner Invest. Rather, money was simply moved from one account to another to be used for a particular purpose. Whilst it was contemplated that the mortgage may be transferred at some point, that never happened and one would not infer, in the absence of writing, a contract to assign.

  1. Mr Sallway submitted that the doctrine of part performance did not apply. As the contention based on an immediate assignment or assurance was not based on an agreement between Partner Invest and Business Finance, it could not be said that the payment of $830,000 was “unequivocally referable” to an agreement: Pipikos v Trayans at [43] and [158]. Payment of money towards the purchase price for property on its own is not a sufficient act of part performance, this being “an equivocal act not in itself indicative of a contract concerning land”: Phung v Phung at [71]; Pipikos v Trayans at [89]. Therefore, putting the $830,000 payment to one side there is no other act of part performance that can be said to be referrable to any contract (let alone “unequivocally” so). As such, the Court would not be satisfied that there was an equitable assignment of the JML Property. The evidentiary record does not support an inference that Partner Invest expressed a clear intention to assign the property, and even if it did that intention was ineffective as it was not recorded in writing and signed.

CONCLUSION

  1. Putting to one side, for the moment, the requirements of the Statute of Frauds, was there a manifestation by Partner Invest of an intention to transfer the equitable interest in the JML loan and associated security to Business Finance in a manner binding upon itself; was there a clear expression of an intention to make an immediate disposition? As in Primary Yield v Meyer, there is no evidence from Mr McDad or Ms Ko, and the business records are poor. That said, it is apparent that Partner Invest, as the more established enterprise, wanted to support the establishment of Business Finance’s portfolio of loans, including by guaranteeing the syndicated facility agreement, providing funds to Business Finance and transferring its loans to Business Finance “as sponsor equity and to boost [Business Finance] loan book loan amount to become 34m.”

  2. The transaction documents in respect of the JML loan were executed in December 2017, where Partner Invest was the lender and mortgagee. However, when time came to complete the transaction, it is apparent that it was intended that the loan would be a Business Finance loan, forming part of its portfolio. This is apparent from both funds transfers, being the transfer of $101,867.91 from the Cashflow Account to the Operating Account, with the description on the bank statement, “Sponsor Equity Jml" (explained by Mr McDad’s later email, “We actually were using these loans as sponsor equity and to boost BF loan book loan amount”) and the subsequent transfer of $830,000 from the Operating Account to Summer Lawyers’ trust account, with the description on the bank statement, “Buy Loan 6527". I am less interested in how Summer Lawyers recorded the source of the funds in its trust account statement; I am more interested in how the parties to the transaction viewed the matter. Whilst it is true that both bank statements were for Business Finance’s bank accounts, whoever made the notations – likely Ms Ko – was intimately involved in both companies and the narrations can be taken to record Partner Invest’s view of the matter as well. I consider that Partner Invest intended to immediately sell and Business Finance intended to immediately buy the JML loan and associated securities.

  3. Summer Lawyers proceeded to certify and complete the transaction using the documents already executed such that Partner Invest became the registered mortgagee on the Kangaroo Flat and Bendigo properties. As Ms Ko later explained, this was to avoid “confusing the borrower with all different entities”, with the mortgage to be assigned as part of “the back end admin work [rather than] confuse the borrower, lose time and lose opportunity.” In parallel, Business Finance proceeded to represent to the lenders’ syndicate that the JML loan formed part of its portfolio, by creating a sub-folder in the Business Finance dropbox link for the JML loan and including it in the Business Finance spreadsheet.

  4. Although the precise date of the January 2018 spreadsheet is not known, it would appear that, from Business Finance’s perspective, it then intended to buy the loan from Partner Invest but had not yet done so: the second column had the description “Doc Prep / Buy off Partner invest” rather than other rows which stated, “Open / Transferring Doc Bought Off From Partner Invest”. This abbreviated entry in a spreadsheet likely reflected the extent to which efforts to acquire the legal interest had been completed. Mr Sallway relied on the fact that this entry in subsequent versions of this spreadsheet never changed as indicating that the intention to buy the loan from Partner Invest never progressed. I note, however, that other cells in the spreadsheet for the JML loan were not updated either, notwithstanding events warranting amendment to the spreadsheet. The fact that the entry remained “Doc Prep / Buy off Partner invest” throughout is more likely due to poor record keeping.

  5. The fact that Ms Ko uploaded the solicitor’s certificate to Business Finance’s dropbox on 7 March 2018 indicates that, in her mind at least, this was a Business Finance loan and not a Partner Invest loan. Consistently with this, Ms Ko followed up Summer Lawyers, “have we assigned this loan to business finance yet”. Whilst Summer Lawyers replied that they were waiting to complete Tranche 3 before doing so – and that certainly reflected how Summer Lawyers saw the matter unfolding – the solicitor’s reply does not reveal the intention of the parties to the assignment, being Partner Invest and Business Finance. That intention may be found in Ms Ko’s email, which indicates that Ms Ko was following up what she understood should have already occurred, being the assignment of the loan to Business Finance. There can be no doubt that this is what Partner Invest intended should occur, if it had not already.

  6. Consistently with this, in April 2018, Ms Ko uploaded a director's certificate to Business Finance’s dropbox, confirming that the JML loan complied with the requirements of the syndicated facility agreement. The JML loan was included in a Business Finance “Loan Accounts List” printed in July 2018. The December 2018 emails from Mr McDad and Ms Ko maintained that the JML loan was a Business Finance loan and also explained why the transaction had been completed at the time in the name of Partner Invest (so as not to confuse the borrowers) and why the mortgages had not since been transferred from Partner Invest (as it may lead to a loss of priority). The compliance certificate provided in March 2019 confirmed that the JML loan was a Business Finance loan. In April 2019, Ms Ko instructed Summer Lawyers (again) to assign the mortgage to Business Finance, but was obviously concerned to ensure that doing so would not result in any loss of priority to the security property. The only contrary statement was by Mr McDad on 22 July 2019, after receivers had been appointed and later retracted by Mr McDad via his solicitors. Despite the poor quality of the documentation, it is largely consistent: Partner Invest did intend to transfer the equitable interest in the JML loan and associated security to Business Finance at the time that the Business Finance provided the funds for the loan.

  7. Turning then to the Statute of Frauds, it is the requirements described at [71]-[72] which apply, being those which apply at the stage of conveyance of an interest in land. The assignment is not “in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing”. There are only two bank statements and a trust account statement.

  8. However, I consider that permitting Partner Invest to rely on the requirements of section 53 of the Property Law Act to defeat Business Finance’s claim to an equitable interest in the JML loan and associated securities would amount to a fraud in the relevant sense, where Partner Invest acquired the registered mortgage using funds provided by Business Finance (accepting, of course, that it is possible although unclear that the funds originally came from Partner Invest) and having agreed that Business Finance would be entitled to an assignment of the chose in action and mortgages in return for its contribution. Further, having regard to the payment of the $830,000 together with the surrounding circumstances described at [88]-[92], I consider that the payment of the $830,000 was an act of part performance which satisfied the test of “unequivocal referability”.

  9. As such, Business Finance is entitled to relief sought. It is thus not necessary to consider whether there was, in alternative, an agreement to assign, although it follows from my findings that I would have been so satisfied. The parties agreed that if I found there was an equitable assignment they did not require me to determine whether there was a constructive trust.

ORDERS

  1. The parties have each agreed to bear their own costs of the proceedings. For these reasons, I make the following orders and declarations:

  1. Declare that, on 2 January 2018, by an equitable assignment for value, Partner Invest Pty Ltd (Partner Invest) assigned to Business Finance Pty Ltd (Receiver and Manager Appointed) (Business Finance) all its rights as:

  1. the lender under the loan agreement between Partner Invest and JML Property Group Pty Ltd (JML) (JML Loan Agreement) dated 21 December 2017;

  2. the lender under the guarantees and indemnities provided by Jayson Lowther, Vicki Lowther, Caroline Ethelda Lowther and Raymond Francis Lowther (together, the Guarantors) and contained in the JML Loan Agreement;

  3. the mortgagee under registered mortgage AQ659453Y dated 23 January 2018 over the property located at 571 Hargreaves Street, Bendigo, Victoria 3550 (being volume 10691 in folio 249) (Bendigo Property) (Bendigo Mortgage);

  4. the secured party in relation to the “all present and after-acquired property” secured interest granted by JML and the Guarantors and registered on the Personal Property Securities Register bearing registration number 2018 010 200 212 21 (PPSR Security).

  1. Declare that, as a result of the assignment referred to in Order 1, Business Finance holds an equitable:

  1. mortgage over each of the Kangaroo Flat Property and the Bendigo Property; and

  2. charge over the property the subject of the PPSR Security,

which secure the payment by Partner Invest to Business Finance of all moneys under the JML Loan Agreement.

  1. Order that Partner Invest specifically perform the Agreement to Assign (as defined in the plaintiffs’ Further Amended Points of Claim).

  2. Order that Partner Invest transfer to Business Finance, all right, property and entitlement held by it in relation to each interest set out in Order 1(a) to (e) above and execute any document required to give effect to such a transfer, within 28 days of the date of these orders.

  3. Order that Partner Invest deliver up to Business Finance, the certificate of title for each of the Kangaroo Flat Property and the Bendigo Property, whether in physical or electronic format, together with all ancillary documents or consents, within 28 days of the date of these orders.

  4. Parties’ to notify any errors or omissions within 14 days.

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Decision last updated: 07 January 2022

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Cases Citing This Decision

1

Maxworthy v Maxworthy [2023] NSWSC 927
Cases Cited

19

Statutory Material Cited

3

Adamson v Hayes [1973] HCA 6
Adamson v Hayes [1973] HCA 6
Adamson v Hayes [1973] HCA 6