Equus Financial Services Ltd v Beagle Holdings Pty Ltd

[2002] WASCA 273

EQUUS FINANCIAL SERVICES LTD -v- BEAGLE HOLDINGS PTY LTD & ORS [2002] WASCA 273

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2002] WASCA 273
Court:	THE FULL COURT (WA)
Case No:	FUL:158/2001	Heard:	13 AUGUST 2002
Coram:	ANDERSON J PARKER J FITZGERALD AJ	Delivered:	4/10/02
No of pages:	16	Judgment Part:	1 of 1
Result:	Appeal allowed
Category:	B
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Parties:	EQUUS FINANCIAL SERVICES LTD BEAGLE HOLDINGS PTY LTD GREAT SOUTHERN PLANTATIONS LTD JOHN CARLTON YOUNG HELEN MARGARET SEWELL BEAGLE MANAGEMENT LTD REGISTRAR GENERAL OF THE STATE OF NEW SOUTH WALES
Catchwords:	Contracts Construction and interpretation of Finance Provision Agreement and Deed of Variation Whether appellant issued an effective "Payout Notice" Turns on own facts
Legislation:	Nil
Case References:	Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Ellmore (Maitland) Pty Ltd v Tull [1995] NSWCA; 24 July 1995; BC 9505077 Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 Acorn Consolidated Pty Ltd v Hawkeslade Investments Pty Ltd (1999) 21 WAR 425 Ankar v National Westminster Bank Ltd (1987) 162 CLR 549 Australian Broadcasting Commission v Australasian Performing Rights Association (1973) 129 CLR 99 Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 563.7­20 Boranga v Flintoff (1997) 19 WAR 1 Canberra Formwork Pty Ltd v Civil & Civic Ltd (1982) 41 ACTR 1 Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 Commonwealth v Verwayen (1990) 170 CLR 394 Coulton v Holcombe (1986) 162 CLR 1 Davis v Commissioner for Main Roads (1968) 117 CLR 529 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd (1993) 2 VR 343 Fliway Transport Pty Ltd v Soper (1990) 21 NSWLR 19 Greenwell v Matthew Hall Pty Ltd (No 2) (1982) 31 SASR 548 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Investors Compensation Scheme v West Bromwich B.S. [1998] 1 WLR 896 Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 Lyford v Commonwealth Bank (1995) 130 ALR 267 Magill v National Australia Bank Ltd [2001] NSWCA 221 O'Brien v Komesaroff (1982) 150 CLR 310 Paltara Pty Ltd v Dempster (1991) 6 WAR 85 Thompson v Palmer (1933) 49 CLR 507 Tricontinental Corporation v FCT [1988] 1 Qd R 474 Water Board v Moustakas (1988) 180 CLR 491

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : EQUUS FINANCIAL SERVICES LTD -v- BEAGLE HOLDINGS PTY LTD & ORS [2002] WASCA 273 CORAM : ANDERSON J

PARKER J
FITZGERALD AJ

HEARD : 13 AUGUST 2002 DELIVERED : 4 OCTOBER 2002 FILE NO/S : FUL 158 of 2001 BETWEEN : EQUUS FINANCIAL SERVICES LTD

Appellant

AND

BEAGLE HOLDINGS PTY LTD
First Respondent

GREAT SOUTHERN PLANTATIONS LTD
Second Respondent

JOHN CARLTON YOUNG
Third Respondent

HELEN MARGARET SEWELL
Fourth Respondent

BEAGLE MANAGEMENT LTD
Fifth Respondent

REGISTRAR GENERAL OF THE STATE OF NEW SOUTH WALES
Sixth Respondent

(Page 2)

Catchwords:

Contracts - Construction and interpretation of Finance Provision Agreement and Deed of Variation - Whether appellant issued an effective "Payout Notice" - Turns on own facts

Legislation:

Nil

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Appellant : Mr J A Chaney SC & Mr S G Scott
First Respondent : Mr D M Stone
Second Respondent : Mr D M Stone
Third Respondent : Mr D M Stone
Fourth Respondent : Mr D M Stone
Fifth Respondent : Mr D M Stone
Sixth Respondent : In person

Solicitors:

Appellant : Stables Scott
First Respondent : Williams & Hughes
Second Respondent : Williams & Hughes
Third Respondent : Williams & Hughes
Fourth Respondent : Williams & Hughes
Fifth Respondent : Williams & Hughes
Sixth Respondent : In person

(Page 3)

Case(s) referred to in judgment(s):

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Ellmore (Maitland) Pty Ltd v Tull [1995] NSWCA; 24 July 1995; BC 9505077
Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1

Case(s) also cited:

Acorn Consolidated Pty Ltd v Hawkeslade Investments Pty Ltd (1999) 21 WAR 425
Ankar v National Westminster Bank Ltd (1987) 162 CLR 549
Australian Broadcasting Commission v Australasian Performing Rights Association (1973) 129 CLR 99
Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 563.7­20
Boranga v Flintoff (1997) 19 WAR 1
Canberra Formwork Pty Ltd v Civil & Civic Ltd (1982) 41 ACTR 1
Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247
Commonwealth v Verwayen (1990) 170 CLR 394
Coulton v Holcombe (1986) 162 CLR 1
Davis v Commissioner for Main Roads (1968) 117 CLR 529
FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd (1993) 2 VR 343
Fliway Transport Pty Ltd v Soper (1990) 21 NSWLR 19
Greenwell v Matthew Hall Pty Ltd (No 2) (1982) 31 SASR 548
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Investors Compensation Scheme v West Bromwich B.S. [1998] 1 WLR 896
Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850
Lyford v Commonwealth Bank (1995) 130 ALR 267
Magill v National Australia Bank Ltd [2001] NSWCA 221
O'Brien v Komesaroff (1982) 150 CLR 310
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Thompson v Palmer (1933) 49 CLR 507
Tricontinental Corporation v FCT [1988] 1 Qd R 474
Water Board v Moustakas (1988) 180 CLR 491

(Page 4)

1 ANDERSON J: I agree with the judgment of Fitzgerald AJ to which there is nothing I can usefully add.

2 PARKER J: I agree with the reasons published by Fitzgerald AJ and the orders proposed by his Honour.

3 FITZGERALD AJ: The issues in this appeal ultimately, concerned only some of the respondents and only one of a number of orders dated 5 October 2001. The appellant, Equus Financial Services Ltd, has challenged an order that it "pay the amount of $260,224.30 to the Loss Reserve Fund (referred to in a Finance Provision Agreement dated 28 June 1988 (as amended))."

4 The parties to the Finance Provision Agreement that is referred to in the order and a Deed of Variation of the Finance Provision Agreement that was entered into in May 1992 were the appellant ("Equus") and the first and second respondents, then known as Templegate Holdings Pty Ltd and Templegate Funds Management Ltd and now known as Beagle Holdings Pty Ltd and Beagle Management Ltd (referred to compendiously as "Beagle"). Beagle promoted investments that were claimed to provide income tax advantages. Equus lent money to approved investors to enable them to finance their investments in Beagle's scheme. The terms of the Finance Provision Agreement, and subsequently the Finance Provision Agreement as varied by the Deed of Variation, governed the relationship between Equus and Beagle in connection with the loans made by Equus to investors.

5 Clause 6.1 of the Finance Provision Agreement required Beagle (there referred to as the "Recipient") to pay an amount equal to a percentage of the principal of each loan advanced by Equus (there referred to as the "Financier") to the Loss Reserve Fund and to ensure that the amount in the Loss Reserve Fund from time to time was not less than a specified percentage of the outstanding loans. After the Deed of Variation, cl 5 of the Finance Provision Agreement provided:

"5. CONSEQUENCES OF DEFAULT BY APPROVED INVESTOR

5.1 If an Approved Investor defaults under the provisions of a Loan Agreement such that the Financier is entitled to require immediate repayment of all moneys owing thereunder then the following rights and obligations as between the Financier and the Recipient shall arise in

(Page 5)

relation to the Defaulting Investor and the moneys owing to the Financier under the Loan Agreement:

(a) Immediately the Financier becomes aware of a default by an Approved Investor under the provisions of the Loan Agreement, the Financier will ensure that notices of default which are required to be issued at law or in equity or pursuant to the Loan Agreement are served upon the Defaulting Investor.

(b) If default continues for not less than forty-five (45) days after the occurrence of the default then the Financier shall as soon as practical thereafter issue a Notice of Default notifying the Recipient in writing that the Defaulting Investor is in default with respect to the Loan Agreement and detailing the particulars of the Defaulting Investor's Indebtedness.

(c) (i) If default continues for not less than fifteen (15) days after issue of the Notice of Default then the Recipient shall deposit with the Financier an amount equal to thirty (30) per cent of the Defaulting Investor's Indebtedness and this deposit shall be known as the Default Deposit and shall be placed into an account to be known as the Templegate No 2 Loss Reserve Account:


(ii) The Recipient shall deposit the Default Deposit into the Templegate No 2 Loss Reserve Account on or before the fifteenth day following issue to the Recipient of the Notice of Default.

(d) (i) If the Approved Investor's default continues for not less than ninety (90) days after the occurrence of the default the Financier may give the Recipient a Payout Notice notifying the Recipient that the Financier requires the Recipient to pay the

(Page 6)

Defaulting Investor's Indebtedness not later than sixty (60) days after service of the Payout Notice on the Recipient has expired.

(ii) If the Recipient gives notice to the Financier that within sixty (60) days of service of the Payout Notice that the Recipient will comply with the Payout Notice then seven (7) days before the last day of the expiry of sixty (60) days after service of the Payout Notice the Financier may give written notice to the Recipient notifying the Recipient of the amount to be paid by the Recipient to satisfy the Defaulting Investor's Indebtedness after deduction of the amount which will be drawn from the Templegate No 2 Loss Reserve Account, which amount will consist of the Default Deposit together with the interest which has accrued on the Default deposit;

(iii) On the expiration of the sixty (60) day period as referred to in clause 5.1(d)(i) and clause 5.1(d)(ii) respectively, the Financier will debit the Templegate No 2 Loss Reserve Account with the Default Deposit and the accrued interest thereon; such amount shall be paid in partial satisfaction of the Defaulting Investor's Indebtedness and the Recipient shall pay to the Financier the outstanding balance being the difference between the amount stated on the Payout Notice and the amount of the Default Deposit and accrued interest thereon.

(iv) If the Recipient does not comply with the Payout Notice then the Financier may:


A. Credit the account of the Defaulting Investor with the

(Page 7)

Default Deposit and accrued interest thereon; and

B. Pay the outstanding balance (if any) of the Defaulting Investor's Indebtedness from the Reserve Fund.

(v) Until the Defaulting Investor's Indebtedness is paid, whether by the Recipient or otherwise:

a. The Defaulting Investor's Indebtedness will continue to accrue interest in the manner provided for in the Loan Agreement; and

b. the Financier shall follow its normal collection procedures and the Financier shall upon request by the Recipient provide to the Recipient proof (including furnishing the Recipient upon its request with copies of any correspondence, file note and documents) as to the use of such collection procedures.

(e) (i) Where any moneys owing by the defaulting Investor to the Financier pursuant to a Loan Agreement are satisfied by the Recipient or pursuant to clause 5.1(d)(iv), the Financial shall, upon request by the Recipient and subject to any applicable laws, execute an assignment of all Financier's right, title and interest in and to the Loan Agreement and any securities held in relation thereto to the Recipient or its nominee for a consideration equal to the Defaulting Investor's Indebtedness.

…

(Page 8)

(f) Where any moneys owing by a Defaulting Investor to the Financier pursuant to a Loan Agreement that is a regulated credit contract (as defined in the Credit Act 1984) are satisfied by the Financier debiting the Reserve Fund pursuant to clause 5.1(d)(iv) (or, if such debit be insufficient then by payment of the shortfall by the Recipient to the Financier) but the Recipient does not request the Financier to execute and assignment of all the Financier right, title and interest in and to such Loan Agreement and any securities held in relation thereto to the Recipient or its nominee, the Recipient shall, in the name of the Financier, be entitled to pursue all or any remedies available to the Financier pursuant to the Loan Agreement and shall be entitled to continue any action previously commenced by the Financier and the Financier shall do all things and sign upon request all documents and give all necessary authorities to the Recipient to give the fullest effect to this clause PROVIDED THAT:

…

(g) Any moneys received by the Financier pursuant to a Loan Agreement subsequent to any moneys owing by a Defaulting Investor to the Financier having been satisfied by the Recipient or otherwise shall be received by the Financier on trust for the Recipient and shall be paid to the Recipient forthwith without deduction or set-off.

(h) Where the Financier debits the Reserve Fund pursuant to clause 5.1(d)(iv) but the amount debited therefrom is not sufficient to satisfy the balance of moneys owing by a Defaulting Investor to the Financier pursuant to a Loan Agreement ("the Shortfall"), the Financier shall not, except as provided in the other provisions of this Agreement including clause 5.2, have any right to recover the Shortfall from the Recipient but shall be entitled and shall at its absolute discretion pursue all and any remedies available to it pursuant to the Loan

(Page 9)

Agreement. Upon recovery, after deduction of the Shortfall and any additional amounts payable to the Financier pursuant to the terms of the Loan Agreement arising since the date that the Financier debited the Reserve Fund (excluding interest on amount so debited) the Financier shall pay from the balance of the recovered amount (but only up to the amount so debited from the Reserve Fund and interest thereon calculated at the rate prescribed in the Loan Agreement) to the Recipient.

(i) The Financier shall upon request (but not more frequently than once every three months) give to the Recipient full details of all recovery action taken and/or in progress and/or completed pursuant to clause 5.1(h) and upon payment of any moneys to the Recipient pursuant to clause 5.1(h) shall give a full accounting of all moneys received and disbursed by the Financier.

(j) If at any time the Aggregate Defaulting Loans Outstanding exceeds the aggregate total balance of the Templegate No 2 Loss Reserve Account and the Reserve Fund then:


(i) the Financier may, at its absolute discretion, issue to the Recipient written notice stating the amount of the Aggregate Defaulting Loans Outstanding, the aggregate total of the Reserve Fund and the Templegate No 2 Loss Reserve Account and the amount required to be deposited by the Recipient into the Templegate No 2 Loss Reserve Account.

ii. within fourteen (14) days of receipt of the notice referred to in clause 5.1(j)(i), the Recipient will deposit into the Templegate No 2 Loss Reserve Account the amount stated in the notice which will ensure that the aggregate total balance of the Reserve Fund and the Templegate No 2 Loss

(Page 10)

Reserve Account is not less than the Aggregate Defaulting Loans Outstanding.

iii. should the Recipient not comply with the notice referred to in clause 5.1(j)(i) the Financier may, at its absolute discretion, declare the provisions of this Deed of Variation void in its entirety and demand that the Recipient meet all of its obligations under the Finance Provision Agreement.

5.2 Where the Financier proposes to exercise a power of sale under a Loan Agreement or proposes to surrender or terminate a Lease and Management Agreement or proposes to surrender or terminate a Lease and Management Agreement pursuant to a power contained in a Loan Agreement, the Recipient hereby agrees that it will upon request by the Financier do one of the following (at the election of the Recipient), either:

(a) take an assignment of the Lease and Management Agreement for a consideration equal to the current value of the Lease and Management Agreement at the time of the assignment (as determined by an independent valuation) less an amount of 15 per centum thereof being the agreed selling costs of the Recipient of 'on selling' the Lease and Management Agreement and less all stamp duty and registration costs relating to the assignment; or

(b) agree to such surrender and/or termination and to cause Templegate Funds Management Limited to so likewise agree and to pay to the Financier in consideration thereof an amount equal to the current value of the Lease and Management Agreement immediately prior to the surrender and/or termination (as determined by an independent valuation) less an amount of 15% being the agreed selling cost of the Recipient of issuing a new Lease and Management Agreement

(Page 11)

and less all stamp duty and registration fees consequent upon the surrender and/or termination.

5.3 If the Financier exercises a power of sale of or a power to surrender or to terminate the Lease and Management Agreement under a Loan Contract and the amount realised upon sale or termination or surrender is less than the Floor Amount for that Loan Contract, the Recipient will pay to the Financier within 7 days of demand made for payment a sum equal to the difference between the Floor Amount and the amount realised upon sale or termination or surrender.

…"

6 The trial Judge's conclusion that Equus had incorrectly deducted $260,224.30 from the Loss Reserve Fund related to four investors, Mr and Mrs Leeds, Mr Rosenberg and Mr Thomson. Mr and Mrs Leeds defaulted in July 1992, but Equus did not issue a Notice of Default to Beagle in respect of their default until 17 May 1993. Mr Rosenberg defaulted on 11 September 1992. Mr Thomson defaulted no later than 25 September 1992. Equus did not give Beagle a Payout Notice in respect of any of these defaulting investors until 24 February 1994. His Honour held that Equus could only give an effective "Payout Notice" under cl 5(d)(i) if :

(a) it had issued a Notice of Default notifying Beagle in writing that the defaulting investor was in default and detailing the particulars of the defaulting investor's indebtedness "as soon as practical" after an investor's default had continued for not less than 45 days; and

(b) the Payout Notice was given within a reasonable time after the investor's default had continued for not less than 90 days. His Honour considered that seven months was a reasonable time for this purpose.

7 Subject to an estoppel argument that is referred to below, Equus accepted that it had no right to deduct any amount from the Loss Reserve Fund in relation to a "Defaulting Investor" under cl 5(d)(iv) unless Beagle had failed to comply with an effective "Payout Notice" in respect of that investor. However, Equus challenged the trial Judge's conclusion that the material Payout Notice and, in the case of Mr and Mrs Leeds, the Notice of Default, were given out of time. Its alternative argument was that Beagle was estopped fromasserting that the notices were out of time.
(Page 12)

8 The material notices were given after the parties had entered the Deed of Variation. Prior to the Deed of Variation, they had consensually departed from the operation of the original Finance Provision Agreement on a number of occasions and entered into negotiations to vary it that led to the Deed of Variation. According to Equus, that conduct, and/or an associated common assumption that Equus would not comply with contractual time requirements, precluded Beagle from insisting on those requirements after the Deed of Variation was executed.

9 Equus also sought to introduce the parties' conduct and/or subjective intentions into the construction of the new cl 5 that was inserted into the Finance Provision Agreement by the Deed of Variation. Its argument appeared to be that time requirements that would otherwise contractually apply to its exercise of its rights were inapplicable because it had not complied, and/or Beagle did not expect that it would comply, with time obligations even after the Deed of Variation.

10 No authority provides any support for these unconventional propositions, which should be rejected.

11 Beagle's primary case in support of the order under appeal is that Equus could only give Beagle an effective Payout Notice within a reasonable time after it first became entitled to do so and that the material Payout Notice was out of time.

12 The question whether Equus' right to give Beagle a Payout Notice was restricted in that manner depends on ordinary principles of construction, including those which control the implication of terms. Broadly stated, a term will only be implied if it is reasonable and equitable, consistent with express terms, so obvious it goes without saying, capable of clear expression and necessary to give business efficacy to the contract: see, for example, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347, 404.

13 In Reid v Moreland Timber Co Pty Ltd(1946) 73 CLR 1, 13, the view was expressed that "an implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary". Generally, it is obvious that it is necessary to give business efficacy to a contract that a right provided by the contract not continue indefinitely.

14 Ellmore (Maitland) Pty Ltd v Tull [1995] NSWCA; 24 July 1995; BC 9505077; Butterworths Property Reports 97552 provides an example. The New South Wales Court of Appeal held that a vendor had lost a

(Page 13)

contractual right to require the purchaser to subdivide the property and transfer one lot to the vendor because it had not exercised the right within a reasonable time. Mahoney JA, with whom Priestley and Sheller JJA agreed, referred to the " .. practical difficulties involved in the continued existence indefinitely of rights of the present kind ..".

15 The "practical difficulties" which the existence of a contractual right and/or uncertainty as to whether the right is to be exercised present to the other party to a contract are also material in determining what is a reasonable time if an implication is made that the right must be exercised within a reasonable time. However, those "practical difficulties" are not the only matter to be considered for that purpose. If a time limit is implied, an assessment of the reasonable time that was available to Equus to give a Payout Notice must take account of both parties' rights, interests and conduct.

16 Equus' right to give Beagle a Payout Notice formed part of a complex of provisions which dealt with the respective rights and obligations of Equus and Beagle on default by an investor who had borrowed from Equus to invest in Beagle's scheme.

17 Equus was required to give notice of default to the defaulting investor "[i]mmediately", (cl 5(1)(a)), and, until the investor's indebtedness was paid, to "follow its normal collection procedures and … upon request … provide [Beagle] with proof … as to the use of such collection procedures", (cl 5(1)(v)(b)). If the investor's default continued for 45 days, Equus was required to notify Beagle "as soon as practical", (cl 5(1)(b)).

18 Beagle was then obliged to pay 30 per cent of the investor's indebtedness into a reserve account within 15 days, (cl 5(1)(c)).

19 Under cl 5(1)(d)(i) - (iv), if the investor's default continued for 90 days, Equus could by a Payout Notice acquire rights to withdraw the amount paid by Beagle into the reserve account in partial satisfaction of the investor's indebtedness and to request Beagle to pay the balance within 60 days. Beagle was not obliged to pay that balance but, if it did not do so, Equus was entitled to deduct the amount from the Loss Reserve Fund, which, subject to a presently immaterial qualification, Beagle was required to replenish.

20 If Equus resorted to the Loss Reserve Fund and it was insufficient to satisfy the amount owed to Equus, Beagle was generally not responsible for the shortfall, but Equus was "entitled … at its absolute discretion [to]

(Page 14)

pursue all and any remedies available to it" against the investor, (cl 5(1)(h)), and required, on request, to give Beagle "full details of all recovery action taken and/or in progress and/or completed", (cl 5(1)(i)).

21 If Equus did not recover a specified minimum when it exercised a power of sale or terminated an investor's lease or management agreement, Beagle was required to make up the shortfall, (cl 5(3)). Instead of exercising a power of sale or terminating an investor's lease and management agreement, Equus could require Beagle to acquire the material rights at an agreed discount of 15 per cent, (cl 5(2)).

22 When Equus was paid what it was owed, Beagle was entitled to its rights against the defaulting investor, (cl 5(1)(e) and (f)).

23 If Equus received more than it was owed, it was required to account to Beagle for the excess, (cl 5(1)(g), (h) and (i)).

24 Many of those clauses contained express provisions with respect to time, including cl 5(1)(d). However, no time limit was set for a Payout Notice under that clause. Further, although both Equus and Beagle were potentially affected by actions taken by Equus in connection with its rights against defaulting investors, a Payout Notice did not involve Equus in a choice between mutually exclusive options. Equus remained obliged, and entitled, to "follow its normal collection procedures" in relation to the defaulting investor, to keep Beagle informed, and entitled to exercise other rights vis-a-vis Beagle, including those provided by cl 5(2) and (3). Although a Payout Notice provided Beagle with information, that was not its principal purpose. Other provisions, for example cl 5(1)(b) and (i) were directed to that end.

25 Beagle argued that Equus' delay in giving a Payout Notice involved disadvantages for it. The debts of the defaulting investors increased through interest continuing to accrue, and the passage of time made it more difficult to enforce the investors' liabilities. However, Beagle could have remedied these disadvantages. It was aware of the defaults and could, if it wished, have taken steps that would have enabled it to assume control of the debt recovery process. Equus was not under an obligation to oblige Beagle to act in what, on Beagle's argument, would have been its best interests. Further, a Payout Notice imposed significant financial disadvantages on Beagle. Beagle's acquisition of rights against a defaulting investor when the investor's debt to Equus was paid out diminished those disadvantages, but did not make it desirable for Beagle

(Page 15)

to be obliged to pay, or contribute to funds from which Equus was paid, earlier than Beagle chose to do so.

26 Even if there was a time limit on Equus' right to give a Payout Notice, there is no satisfactory basis for a conclusion that Equus could only give a Payout Notice within seven months of its acquisition of that right. While the implication of a term that prevented Equus from inordinate delay in giving a Payout Notice irrespective of the circumstances might be justified, a requirement that Equus expedite a Payout Notice in order to avoid the loss of the right to do so was not in the business interests of either party.

27 As Beagle pointed out, Equus gave the material Payout Notice about 19 months after default by some of the relevant investors and about 17 months after default by others; that is, about 16 months or 14 months after it first could have done so. However, in the absence of particular circumstances which necessitated an earlier notice, those periods are compatible with Equus' reasonable exercise of its contractual rights consistently with both its own interests and Beagle's contractual entitlements.

28 Beagle also relied on the trial Judge's conclusion that, in the case of Mr and Mrs Leeds, the Payout Notice was also ineffective because the Notice of Default under cl 5(1)(b) was given out of time. Equus needs leave to amend its notice of appeal to challenge that conclusion, which is not covered by its grounds of appeal. Leave should be granted and the issue decided. As Beagle fairly conceded, it only involves the construction of cl 5 and "was fairly raised below".

29 Equus' breach of cl 5(1)(b) entitled Beagle to at least nominal damages and, in consequence of Equus' breach, Beagle might not have been required to make a Default Deposit in respect of Mr and Mrs Leeds under cl 5(1)(c). Further, although Cl 5(1)(b) and (d) are not expressly connected, in combination they envisage that an investor's default will have continued for a further 45 days after Beagle was given a Default Notice before it is given a Payout Notice. However, on its proper construction, cl 5 does not expressly or impliedly make Equus' right to give a Payout Notice under cl 5(1)(d) conditional on its earlier timely compliance with cl 5(1)(b), and the 45 day period expired between the Default Notice in respect of Mr and Mrs Leeds and the Payout Notice.

30 The trial Judge's conclusion that Equus' Payout Notice was ineffective cannot be sustained. Its appeal should therefore be allowed,

(Page 16)

with costs, and the order that it "pay the amount of $260,224.30 to the Loss Reserve Fund (referred to in a Finance Provision Agreement dated 28 June 1988 (as amended))" should be set aside. The trial Judge's costs orders, which required Equus to pay a proportion of the costs of the action and the counterclaim and the costs of some issues, should be remitted to his Honour for reconsideration.