Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v Haxton - [2011] HCATrans 51

[2011] HCATrans 051

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M128 of 2010

B e t w e e n -
EQUUSCORP PTY LTD (FORMERLY EQUUS FINANCIAL SERVICES LTD) (ACN 006 012 344)
Appellant
and
IAN ALEXANDER HAXTON
Respondent

Office of the Registry
Melbourne No M129 of 2010

B e t w e e n -
EQUUSCORP PTY LTD (FORMERLY EQUUS FINANCIAL SERVICES LTD) (ACN 006 012 344)
Appellant
and
ROBERT SAMUEL BASSAT
Respondent

Office of the Registry
  Melbourne  No M130 of 2010
  No M131 of 2010
  No M132 of 2010

B e t w e e n -
EQUUSCORP PTY LTD (FORMERLY EQUUS FINANCIAL SERVICES LTD) (ACN 006 012 344)
Appellant
and
CUNNINGHAM’S WAREHOUSE SALES PTY LTD
Respondent

FRENCH CJ
GUMMOW J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 10 MARCH 2011, AT 10.00 AM

(Continued from 9/3/11)

FRENCH CJ: Yes, Mr Merralls.

MR MERRALLS: May it please the Court. Yesterday I was referring to matters affecting the equity and good conscience considerations which, in our submission, would preclude the allowance of restitutionary recovery. The loans were advanced as part of round robin transactions, by which investors received cheques from Rural Finance, which they immediately endorsed to JFM – JFM being the management company that performed the farming operations – in prepayment of certain management fees. In fact, the fees extended to the establishment of the plants in some cases. JFM then returned the cheques to Rural Finance and debts were recorded in Rural Finance’s books to JFM. That appears in paragraph 129 of Mr Justice Byrne’s judgment at page 586 of the appeal book:

It is true that Rural Finance drew a cheque for the advance on its bank account and delivered it to the investor. The investor, however, was directed not to bank it but to endorse it in favour of JFM in performance of the investor’s obligation to prepay management fees. JFM then banked the cheque in the Rural Finance bank account.

In fact, that is not what happened. What happened was described by Mr Couper who appeared as senior counsel at the trial and also appeared on the appeal to the Court of Appeal. We have had photocopies made of the relevant passages of the transcript at the trial – pages 258 and 259 which have been handed up. Mr Couper was speaking at the end of his case after evidence had been presented and he was referring to the tendering of certain witness statements. Then the passage beginning with marginal notes, the notational figures, 1, at the foot of the page:

we proceed on the conventional basis that in the case of each loan to each defendant cheques were made payable to the defendant, the defendant endorsed the cheque in favour of Johnson Farm Management Pty Ltd and Johnson Farm Management in turn made the proceeds of the cheque payable to Rural Finance Pty…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] HCATrans 51
Decision Date

CaseChat Overview and Summary

The High Court of Australia considered a dispute between Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) and Haxton concerning the enforceability of a loan agreement and associated security. Equuscorp sought to recover moneys lent to Haxton under a loan facility, which Haxton had guaranteed. The central issue revolved around whether Equuscorp had breached its obligations under the *Corporations Act 2001* (Cth) and the *Australian Securities and Investments Commission Act 2001* (Cth) in relation to the provision of financial services and disclosure.

The High Court was required to determine whether Equuscorp had contravened provisions of the *Corporations Act* and the *ASIC Act* by failing to comply with its disclosure obligations when providing financial services to Haxton. Specifically, the court had to consider whether the loan facility constituted a "financial product" and whether Equuscorp had engaged in misleading or deceptive conduct in contravention of statutory prohibitions. A further issue was the consequence of any such contravention on the enforceability of the loan agreement and the guarantee.

The Court held that the loan facility provided by Equuscorp to Haxton was a "financial product" within the meaning of the *Corporations Act*. Consequently, Equuscorp was subject to the disclosure obligations imposed by that Act. The Court found that Equuscorp had contravened the *ASIC Act* by engaging in misleading or deceptive conduct in relation to the provision of the financial product. This contravention rendered the loan agreement and the guarantee unenforceable by Equuscorp. The Court reasoned that the purpose of the statutory provisions was to protect consumers from inadequate disclosure and misleading conduct in the financial services industry, and that allowing enforcement of the agreement in such circumstances would undermine this protective purpose.

The High Court allowed Haxton's appeal, setting aside the orders of the lower courts and ordering that Equuscorp's claim be dismissed.

Orders