Equuscorp Pty Ltd v Haxton Equuscorp Pty Ltd v Bassat Equuscorp Pty Ltd v Cunningham's Warehouse Sales Pty Ltd [2012] HCA 7 8 March 2012 M128/2010, M129/2010, M130/2010, M131/2010 & M132/2010
ORDER
In each appeal, the order of the Court is:
Appeal dismissed with costs.
On appeal from the Supreme Court of Victoria
Representation
B W Walker SC with R M Peters for the appellant in each matter (instructed by Lander & Rogers Lawyers)
J D Merralls QC with M D Rush for the respondents in M129/2010, M131/2010 and M132/2010 (instructed by Hillhouse Burrough McKeown Pty Ltd)
M R Pearce SC with M J Campbell for the respondents in M128/2010 and M130/2010 (instructed by Hillhouse Burrough McKeown Pty Ltd)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Equuscorp Pty Ltd v Haxton Equuscorp Pty Ltd v Bassat Equuscorp Pty Ltd v Cunningham's Warehouse Sales Pty Ltd
Restitution − Restitution of benefits derived from unenforceable or illegal contracts − Recovery of money paid as money had and received − Respondents invested in tax driven blueberry farming schemes − Respondents borrowed funds to pay farm management fees − Each investment a "prescribed interest" under Companies Code of each respondent's home State ("Code") − Contrary to s 170(1) of Code, no valid prospectus registered when prescribed interests offered − Farming schemes collapsed − Respondents did not repay loan funds − Loan agreements unenforceable against respondents due to illegality − Whether restitution of loan funds available − Whether failure of consideration − Whether respondents' retention of loan funds unjust.
Personal property − Alienation of personal property − Assignment of choses in action − Assignment of right to restitution − Deed of assignment included assignment of legal right to debts and "all legal and other remedies" − Whether right to restitution capable of assignment − Whether deed of assignment assigned right to restitution.
Words and phrases – "bare right of action", "chose in action", "failure of consideration", "legal and other remedies", "money had and received", "prescribed interest", "unjust enrichment".
Equuscorp Pty Ltd ("Equuscorp"), the appellant in these appeals, seeks the assistance of this Court to recover money advanced under loan agreements which were made in furtherance of an illegal purpose. They were an important part of a number of failed tax driven investment schemes in which members of the public were invited to invest in…
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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AGLC
Equuscorp Pty Ltd v Haxton [2012] HCA 7
Case
[2012] HCA 7
Decision Date
CaseChat Overview and Summary
These appeals concerned five actions brought by Equuscorp Pty Limited against various respondents, seeking to recover moneys advanced under loan agreements. The respondents had invested in tax-driven blueberry farming schemes, borrowing funds from Rural Finance Pty Limited ("Rural") to pay farm management fees. These investments constituted "prescribed interests" under state Companies Codes, and the offers were made without a registered prospectus, rendering the loan agreements unenforceable due to illegality. Equuscorp claimed as assignee of Rural's rights under these loan agreements.
The High Court was required to determine whether Equuscorp, as assignee of Rural, could recover the loan funds from the respondents. Specifically, the court had to consider whether Rural had a right to claim restitution for money had and received, notwithstanding the unenforceability of the loan agreements due to illegality. Further, the court needed to assess whether such a restitutionary right was assignable and, if so, whether the deed of assignment effectively transferred this right to Equuscorp.
The High Court held that the illegality which rendered the loan agreements unenforceable also deprived Rural of any right to claim restitution for money had and received by way of advances under those agreements. The court reasoned that the respondents' retention of the loan funds was not unjust in these circumstances, as the illegality permeated the entire transaction. While the court acknowledged that restitutionary rights, had they existed, would generally be assignable, it found that on the proper construction of the deed of assignment, the right to claim restitution was not assigned to Equuscorp.
Consequently, the High Court dismissed the appeals. The court concluded that Equuscorp failed on the first and third propositions it advanced: the illegality precluded Rural from claiming restitution, and even if such a claim were available, the assignment did not extend to it. The appeals were dismissed with costs.
Orders
Orders of the court
In each appeal, the order of the Court is:
Appeal dismissed with costs.
Background
Background to the litigation
The Court of Appeal of the Supreme Court of Victoria held that the right to claim for restitution had not been available to Rural and, therefore, was not available to Equuscorp and that, in any event, the assignment of the loan agreements did not extend to the right to claim such relief. Equuscorp has appealed to this Court against the decisions of the Court of Appeal in five cases affecting three investors in the schemes. Its argument in support of the appeals involved the following propositions: (i)That Rural had a right to claim against the respondents for money had and received on account of the receipt by them of advances under the loan agreements notwithstanding the unenforceability of those agreements.(ii)That if Rural had a right to claim for money had and received, that right could be assigned – this proposition was in answer to notices of contention filed by the respondents asserting that the restitutionary claims were not assignable. (iii)That, if a cause of action for money had and received as against each of the respondents was assignable, it had been assigned to Equuscorp.For the reasons that follow the first and third of those propositions fail. The illegality that rendered the loan agreements unenforceable also deprived Rural of the right to claim for money had and received by way of advances under those agreements. The restitutionary rights, had they existed, would have been assignable but on the proper construction of the deed of assignment ("the Deed") were not assigned to Equuscorp. The appeals should be dismissed with costs. Factual background Each of the respondents invested in the schemes promoted over the course of several financial years during the mid to late 1980s by brothers Anthony and Francis Johnson. The farming activities were conducted on land at Blueberry Hill, between Coffs Harbour and Grafton in the north-east of New South Wales ("the land"). The registered proprietor of the land was Corindi Blueberry Growers Pty Ltd ("CBG") which was controlled by the Johnson brothers. Over the course of time investments were made in the schemes in five separate tranches in June 1987, January 1988, June 1988, March 1989 and May 1989. Each of the respondents in these matters invested in at least one of these tranches. Despite some differences in relevant documentation the schemes contained common elements. They were: .investors were invited to execute a farm agreement with CBG, whereby each investor acquired rights in respect of a part of the land ("the farm") for a consideration of $1 per annum for six years and 35% of the net profit of the farm for the seventh to 12th years inclusive. The investor was obliged to maintain the plants on its farm and to harvest the blueberry crop; .to discharge those obligations investors entered into a management agreement with Johnson Farm Management Pty Ltd ("JFM") which would perform the investor's maintenance and harvesting obligations for an annual fee fixed for the first six years and thereafter calculated on a recovery plus profit-share basis. JFM, like CBG, was controlled by the Johnson brothers[1]. Fees could be prepaid in whole or in part. Prepayment attracted a discount and it was expected that management fees were tax deductible expenditure; .investors could, at their option, enter into a loan agreement with Rural whereby Rural would finance the investor's prepayment of management fees to JFM under the relevant management agreement; .each investor also entered into a sale agreement with another company controlled by the Johnson brothers, Kathleen Drive Stone Fruit Growers Syndicate No 1 Pty Ltd ("the buyer"), whereby the first five years' produce from the blueberry farms was presold to the buyer at a guaranteed price. The schemes were designed so that – upon entering into a farm agreement, a management agreement, a loan agreement and a sale agreement, each with a counterparty controlled by the Johnson brothers – an investor obtained an interest in a blueberry farm and the blueberry farming business, with the hope of future profits and capital appreciation, together with the immediate benefit of a significant tax deduction which could be claimed against non-farming income. [1]Francis Johnson ceased formally to be a director of JFM on 24 June 1988. However, the litigation was conducted on the agreed basis that the Johnson brothers controlled all relevant companies at all material times.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
FRENCH CJ, CRENNAN AND KIEFEL JJ
GUMMOW AND BELL JJ
The question whether the asset sale agreement and the Deed made pursuant to it may be said to amount to an assignment, for value, of restitutionary rights which may arise in the future in connection with the monies advanced under the loan agreements, and thus amount to an agreement to assign them, which equity would recognise[122], was not considered in the court below and was not raised in argument on these appeals.[122]Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 24, 33 per Windeyer J.Conclusion For the preceding reasons the appeals should be dismissed with costs. These five appeals by Equuscorp Pty Limited ("Equuscorp") were heard together and are brought against decisions of the Victorian Court of Appeal (Ashley, Neave and Dodds‑Streeton JJA)[123] in related appeals. The Court of Appeal dealt with eight appeals, the decisions in three of which are not before this Court.[123]Haxton v Equuscorp Pty Ltd (2010) 265 ALR 336. In 1998, Equuscorp sued the respondents in the Supreme Court of Victoria as assignee of Rural Finance Pty Limited ("Rural") under a written assignment for value ("the Assignment") which was dated 30 October 1997 and executed on behalf of Rural by its receivers and managers. Written notice of the Assignment had been given by Equuscorp to the respondents in November 1997. The Assignment was executed in performance of what in substance was a covenant for further assurance in an asset sale agreement dated 16 May 1997, the governing law of which was stated in cl 13 thereof to be that of Queensland. The litigation has been conducted on the footing that: (i) this also was the proper law of the Assignment, (ii) the intrinsic validity of the Assignment was governed by its proper law[124], and (iii) s 199 of the Property Law Act 1974 (Q) selected for its operation instruments with a Queensland proper law. Section 199 is modelled on the familiar provision made in s 25(6) of the Judicature Act 1873 (UK)[125] for absolute assignments of presently existing debts and other legal choses in action[126].[124]This view of the appropriate choice of law rule has strong support: Dicey, Morris and Collins on the Conflict of Laws, 14th ed (2006), vol 2 at 1184 [24‑054].[125]36 & 37 Vict c 66.[126]Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at 617‑618 [50]‑[51]; [2007] HCA 54. The receivers and managers had been appointed to Rural by Equuscorp in 1991 under a registered charge it held over the assets of Rural. Rural was wound up on 6 March 1996 pursuant to the resolution of its creditors at a meeting convened under s 439A of the Corporations Law. Neither the liquidator nor the receivers were joined as parties to the litigation. The objective sought to be achieved by Equuscorp in the Supreme Court litigation was the recovery of: (i) moneys representing principal and interest Equuscorp claimed to be due and owing by the respondents under written loan agreements which they had made with Rural in the period 1987‑1989, and which had been assigned to Equuscorp as described above; and (ii) interest on that outstanding balance at the rate of 17 percent per annum as provided in the loan agreements.
Ratio Decidendi
Legal Principle Established
Established by:
FRENCH CJ, CRENNAN AND KIEFEL JJ,
GUMMOW AND BELL JJ