Equuscorp Pty Ltd v Jeffree
[2001] VSC 212
•26 June 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 7811 of 2000
| EQUUSCORP PTY LIMITED (formerly EQUUS FINANCIAL SERVICES LIMITED) ACN 006 012 344 | Appellant |
| v | |
| ANN JEFFREE | Respondent |
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JUDGE: | Balmford J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 & 31 May 2001 |
DATE OF JUDGMENT: | 26 June 2001 |
CASE MAY BE CITED AS: | Equuscorp v Jeffree |
MEDIUM NEUTRAL CITATION: | [2001] VSC 212 |
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A loan contract and a contract for the provision of time share accommodation – An appeal against an order that the respondent was entitled to rescind a loan agreement entered into to pay for a time share accommodation arrangement – Where the respondent stopped repaying the loan when the time share facility remained incomplete – what constitutes the consideration for the payment of the application moneys? – was the failure to complete the complex a failure of consideration entitling the respondent to be released from her obligation to repay the loan?
Magistrates’ Court Act 1989 – section 109.
Trade Practices Act 1974 – section 73(1)(3)(4)(5)(7)(14).
Landy DFK Finance Pty Limited v Rasaratnam [2000] VSC 322 (unreported, decided on 17 August 2000).
McCracken v Equus Financial Services Ltd (unreported, decided on 31 July 1995).
Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr. M.R. Scott | Kelly & Chapman |
| For the Respondent | Mr. C.D. Johnson | Consumer Credit Legal Service |
HER HONOUR:
Introduction
This is an appeal pursuant to section 109 of the Magistrates’ Court Act 1989, which provides that a party to a civil proceeding in the Magistrates’ Court may appeal to this Court, on a question of law, from a final order of the Magistrates’ Court in that proceeding.
The order appealed from is that of Mr Betts, Magistrate, in the Magistrates’ Court of Victoria at Melbourne on 31 October 2000, whereby:
§the appellant’s claim for $18,006.65 pursuant to a loan agreement dated 28 August 1991 was dismissed;
§the respondent’s counterclaim for damages was dismissed; and
§the appellant was ordered to pay the respondent’s costs fixed in the sum of $4510.36.
By order made on 1 February 2001 Master Wheeler found that the questions of law shown by the appellant to be raised by the appeal were (omitting references to exhibits and to the reasons for decision of the Magistrate):
(a)Was there any evidence to support His Worship’s findings that:
(i)there was a partial failure of consideration?
(ii)the value of payments made by the respondent was equal to the value of the consideration received by her?
(b)Was there any evidence which would justify the Magistrate holding that the respondent was entitled to rescind the loan agreement?
(c)Did His Worship give adequate reasons for his decision as (inter alia) it is implicit that judgment was given on the basis that the respondent was entitled to rescind the loan agreement in circumstances where restitutio in integrum is impossible?
The documentary evidence in this matter is contained in the exhibits to the affidavit of Mary Fugaro, a Securities Officer employed by the appellant. Some of the exhibits suffer from the copies exhibited being partially obscured by exhibit notes affixed to the originals in the Magistrates’ Court. Where necessary, I have, when quoting from these exhibits, inserted in square brackets what may be assumed to be the words appearing in the obscured area. No dispute arose at the hearing about the content of those obscured areas. I have adopted the findings of the Magistrate insofar as they are not in dispute.
In August 1991 the respondent attended a sales presentation in Surrey Hills. Her evidence included the following:
In examination in chief:
There were a number of other people there and we listened to and sat through a visual presentation for time share sales. We were shown a model of accommodation to show how luxurious it was and then we were given a sales pitch to purchase it. . . .
There were quite a lot of salespeople there and they spoke to us at fair length about what a good purchase this would be. . . .
[They told us] what a great investment it was, that I could leave it to my family in my will, because it was property it would be constantly appreciating in value, that I could use it to get a small income by renting out my week, that I could purchase other weeks at a discount . . .
In cross-examination:
I thought that I was purchasing a week at Stage 3 in Yarrawonga per year. . .
I thought that I did get some percentage of interest in the land, yes.
The Magistrate summarised her position as follows:
The Defendant was told that the usual price for a week’s time share was $13,000, but that it was available at the presentation for $10,500. As she did not have sufficient funds to make a purchase, she was told that finance was available to her on the security of her interest in the project. It is fair to say that the Defendant was, at that time, totally unsophisticated when it came to matters of investment and finance. Whether any attempt was made by the sales personnel to properly explain the corporate structure of the project and the relationship of the developer to the entity providing the finances, is not clear. Had [she] taken an interest in the prospectus and other documents provided, she would have had some chance of understanding the scheme. However, what is certain is that, at the time of committing herself to this substantial financial undertaking, the Defendant had not the slightest idea of its structure.
It was not suggested that those findings were unsupported by evidence.
The respondent signed two documents, both dated 14 August 1991, the effect of which is in dispute. The first document (“the application for units”) was headed “The Club Yarrawonga Trust Number Th[ree]: Application for Units”. The operative part of the application for units reads:
I/We hereby apply to Vacation Ownership Resorts Limited for One Unit(s) with a view to obtaining a Fractional Interest in a Lot(s) (as chosen by the Manager in its absolute discretion) in Plan of Subdivision No. 300942 and the following shares in the Club: One floating week.
After setting out that the Total Application Moneys amounted to $10,503, with a deposit of $303, the application for units continued:
I/We agree to be bound by the provisions of the Trust Deed dated the 22nd day of October 1990 as amended from time to time constituting the Trust.
and concluded:
Important: Before signing the Application Form applicants should read the Prospectus to which this application relates.
It appears that the respondent was given a copy of the prospectus, although her belief was that it was mailed to her after the presentation. The prospectus provided under the heading “Key Data” that:
“1.. . . For each unit purchased a purchaser obtains a Resort Ownership Interval which consists of a 1/51st undivided interest as tenant in common in the land upon which that Condo in the resort is situated . . . and a share in Club Yarrawonga Limited . . . ”.
I note that there is no earlier reference to a “Condo” to which the expression “that Condo” could be taken to relate.
“2.Owners . . . can exchange into approximately 1800 resorts in over 53 countries. . . ”.
“3.There is a once only capital payment and an annual maintenance fee . . .”.
“8.On signing the Application Form, paying a deposit and being accepted by the Manager, purchasers obtain a unit in the Trust. After payment of the balance of Application Moneys and the application of those moneys pursuant to the Trust Deed this unit is extinguished in return for the Resort Ownership Interval . . .”.
“9.The Condos of the resort are anticipated to be constructed and available for use as set out below:
Condos 1-530th June 1991
Condos 6-1030th June 1992
Condos 11-15 30th June 1993 . . . ”.
“Resort Ownership Interval” is defined on page 3 as “a part interest in land and a share in the Club which provides you your legal entitlement to the week(s) you have purchased”.
“Condo” is there defined as “an apartment at Club Yarrawonga”.
The prospectus also contained, as well as statutory and financial information, details relating to what it described as “Resort Ownership” at Yarrawonga. It described the qualities of Yarrawonga as a tourist area, the plans to develop the Club as “a first class holiday resort”, the manner in which the “condos” were to be constructed and furnished, and the arrangements by which “the week(s) you have purchased” were to be available to the purchaser. It explained that Vacation Ownership Resorts Limited and the developer, Vacation Ownership Pty Ltd, were both subsidiaries of Club Resorts Limited.
The trust deed of Club Yarrawonga Trust Number Three (“the Trust”), the trustee being Permanent Trustee Australia Limited, was before this Court, but there was no evidence that the respondent had seen or received a copy of that document.
In return for payment of the “Total Application Moneys” the respondent received:
One unit in the Trust (“the unit”) (as to which see paragraph 8.8 above);
One floating class share (“the share”) in Club Yarrawonga Limited (“the Club”); and
Certificates of Title to two equal undivided one hundred and second parts or shares (“the land”) in Lot 8 on Plan of Subdivision 300942X Parish of Yarrawonga which were subject to a registered lease for 99 years from 1 February 1991 to the Club.
The second document (“the loan contract”) was headed “Club Resorts (Finance) Pty Ltd . . . Loan Contract (Offer)”. The loan contract is expressed as an offer by the respondent to enter into a loan contract with Club Resorts (Finance) Pty Ltd (“Finance”) for a loan of $10,200 to be repaid, together with interest at 23.4% per annum, in 84 monthly instalments totalling $21,784.80. The loan was to be secured by a mortgage over the unit, the share and the land (despite the fact that the unit was to be extinguished on receipt of the share and the land, see paragraph 8.8 above). The offer was accepted by Finance by its authorised officer on 28 August 1991. The loan contract was assigned by Finance to the appellant on or about 30 June 1992.
The loan was used for the purpose of paying the balance of the Total Application Moneys of $10,503 which was payable by the respondent under the application for units.
The evidence of the respondent was that her accommodation was to be in “Stage 3 – Vistana (misspelt in the transcript) Annex”. It is so described in letters from the solicitors for the appellant, and in the Originating Motion which led to the Court order referred to in the following paragraph.
In the events which occurred, construction of the resort, including “Vistana Annex”, as a time share facility did not proceed. Initially the respondent made payments as required under the loan agreement. When the facility had not been completed by 1993 she had objected to paying a maintenance fee for an uncompleted facility and did so no longer. In 1993 the Club Resorts group of companies was placed in liquidation on the petition of the Australian Taxation Office. An order of this Court in June 1994 authorised the appellant to sell the land, on the grounds that it was more beneficial for the interested parties to sell the property than to effect a division amongst them. The construction of the buildings on the property was ultimately completed, but at the date of the hearing before the Magistrate they had not been sold.
The respondent decided to discontinue repayments of the loan in March 1996 by which time she had paid a total of $13,408 under the loan contract. The appellant brought proceedings in the Magistrates’ Court for the recovery of $18,006.65 said by it to be owing under that contract.
Questions (a)(i) and (ii)
The principle applicable in determining whether there is evidence to support the finding of a Magistrate was concisely set out by Stephen J in Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 at 11 where he said:
In the case of decisions of magistrates the position in Victoria is well established by a line of decisions culminating in Taylor v Armour & Co. Pty. Ltd., [1962] VR 346, in which the Full Court of this State held that in the case of any question of fact the Court should treat the matter as an appeal from the verdict of a jury and should not make up its own mind upon the evidence but rather confine itself to seeing whether there was evidence upon which the magistrate might, as a reasonable man, come to the conclusion to which he did come. In saying this the Full Court stated that it was following the view of Herring, CJ, in Young v Paddle Bros. Pty. Ltd., [1956] VLR 38; [1956] ALR 301. The Chief Justice, in that case, adopted as the test whether "on any reasonable view of the evidence that decision can be supported"; a party aggrieved can thus only succeed if a decision contrary to the view of the magistrate is "the only possible decision that the evidence on any reasonable view can support" (see at VLR p. 41).
Section 73 of the Trade Practices Act 1974 (“the Act”) in part reads as follows:
73Liability for loss or damage from breach of certain contracts
(1)Where:
(a). . . ; or
(b)a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer;
and the consumer suffers loss or damage as a result of . . . failure of consideration in relation to the contract, . . . the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.
.. .
(3)A linked credit provider of a particular supplier is not liable to a consumer by virtue of subsection (1) in proceedings arising under that subsection if the credit provider establishes:
(a)that the credit provided by the credit provider to the consumer was the result of an approach made to the credit provider by the consumer that was not induced by the supplier;
(b)where the proceedings relate to the supply by way of lease, hire or hire-purchase of goods by the linked credit provider to the consumer, that:
(i)after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good; and
(ii)after becoming a linked credit provider of the supplier, the credit provider had not had cause to suspect that:
(A)the consumer might be entitled to recover an amount of loss or damage suffered as a result of misrepresentation or breach of a condition or warranty referred to in subsection (1); and
(B)the supplier might be unable to meet the supplier’s liabilities as and when they fall due;
(c)where the proceedings relate to a contract of sale with respect to which a tied loan contract applies, that:
(i)after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good; and
(ii)after becoming a linked credit provider of the supplier, but before the tied loan contract was entered into, the linked credit provider had not had cause to suspect that:
(A)the consumer might, if the contract was entered into, be entitled to recover an amount of loss or damage suffered as a result of misrepresentation, breach of contract or failure of consideration in relation to the contract or as a result of a breach of a condition or warranty referred to in subsection (1); and
(B)the supplier might be unable to meet the supplier’s liabilities as and when they fall due; or
(d)where the proceedings relate to a contract of sale with respect to which a tied continuing credit contract entered into by the linked credit provider applies, that, having regard to:
(i)the nature and volume of business carried on by the linked credit provider; and
(ii)such other matters as appear to be relevant in the circumstances of the case;
the linked credit provider, before becoming aware of the contract of sale or of proposals for the making of the contract of sale (whichever the linked credit provider first became aware of), had not had cause to suspect that a person entering into such a contract with the supplier might be entitled to claim damages against, or recover a sum of money from, the supplier for misrepresentation, breach of contract, failure of consideration, breach of a condition or breach of a warranty as referred to in subsection (1).
(4)Subject to subsection (5), in any proceedings in relation to a contract referred to in paragraph (1) (a) or (b) in which a credit provider claims damages or an amount of money from a consumer, the consumer may set up the liability of the credit provider under subsection (1) in diminution or extinction of the consumer’s liability.
(5)Subject to subsection (6), a consumer may not, in respect of a liability for which, by reason of this section, a supplier and a linked credit provider are jointly and severally liable:
(a)bring proceedings to recover an amount of loss or damage from the credit provider; or
(b)where proceedings are brought against the consumer by the credit provider, make a counter-claim or exercise the right conferred by subsection (4) against the credit provider;
unless the consumer brings the action against the supplier and the credit provider jointly or, in the case of a counter-claim or right conferred by subsection (4), claims in the proceedings against the supplier in respect of the liability by third-party proceedings or otherwise.
.. .
(7)The liability of a linked credit provider to a consumer for damages or a sum of money in respect of a contract referred to in subsection (1) does not exceed the sum of:
(a)the amount financed under the tied loan contract, tied continuing credit contract, lease contract, contract of hire or contract of hire-purchase;
(b)the amount of interest (if any) or damages in the nature of interest allowed or awarded against the linked credit provider by the court; and
(c)the amount of costs (if any) awarded by the court against the linked credit provider or supplier or both.
.. .
(14)In this section:
credit provider means a corporation providing, or proposing to provide, in the course of a business carried on by the corporation, credit to consumers in relation to the acquisition of goods or services;
linked credit provider, in relation to a supplier, means a credit provider:
(a)with whom the supplier has a contract, arrangement or understanding relating to:
(i)the supply to the supplier of goods in which the supplier deals;
(ii)the business carried on by the supplier of supplying goods or services; or
(iii)the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services;
(b)to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit;
(c)whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or
(d)with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier;
.. .
tied loan contract means a loan contract entered into between a credit provider and a consumer where:
(a)the credit provider knows or ought reasonably to know that the consumer enters into the loan contract wholly or partly for the purposes of payment for goods or services supplied by a supplier; and
(b)at the time the loan contract is entered into the credit provider is a linked credit provider of the supplier.
The Magistrate found that Finance was a “linked credit provider”, as defined in sub-section 73(14), of Vacation Ownership Resorts Limited and Vacation Ownership Pty Ltd and that by virtue of my decision in Landy DFK Finance Pty Limited v Rasaratnam [2000] VSC 322 (unreported, decided on 17 August 2000) the appellant, as assignee of Finance, took its interest subject to equities against Finance. He referred to the finding of Ryan J in the Federal Court in McCracken v Equus Financial Services Ltd (unreported, decided on 31 July 1995) that a contract for the provision of time share accommodation amounted to a contract for “the supply of goods or services” by way of enjoyment of facilities for recreation so as to come within section 73(1)(b).
The question then was whether there had been a “failure of consideration” in terms of sub-section 73(1) so that sub-section 73(4) would enable the respondent to set up the liability under sub-section 73(1) of the appellant, as successor to the credit provider, in diminution or extinction of her liability to it. As to that his Worship said:
In this contract of sale, the consideration to the Defendant was the provision of time share accommodation at Yarrawonga. What was presented for sale to the Defendant was time share accommodation which, through no neglect on her part, she has not obtained. The Defendant had a right to a refund from the trustee in the event that the complex was not finished in time. However, by the time it became obvious that the complex had not been completed, the trustee had disbursed the funds. The trust deed provides that the trustee has no further obligations after this step has been taken. The consideration has not produced the advantage to the Defendant, which was contemplated by the parties, so accordingly it has failed. There has not been an entire failure of consideration, as there is a prospect that the Defendant will receive some financial benefits from the sale of the original complex by the Plaintiff. However, there is no evidence that the proceeds of sale would return to her a sum approaching the funds she has already invested and the amount sought in these proceedings.
The provisions of the trust deed there referred to appear in clause 10 of that document.
The principal submission of Mr Scott, for the appellant, was that the findings of the Magistrate that “the consideration to the Defendant was the provision of time share accommodation at Yarrawonga” and that that consideration had failed in part, were not correct. In his submission, the respondent had contracted to receive the land and the share, and had received both (see paragraphs 7, 8 and 11 above). The land and the share were the consideration for the payment of the Total Application Moneys and that consideration was received in full. It was the ownership of the share which entitled the respondent to the use of one week’s accommodation in each year. She had received the share, and accordingly the failure to complete the building and operate it as a time share did not amount to a failure of consideration.
However, the question before the Court is not whether those findings of the Magistrate were correct. The question is whether there was any evidence to support those findings, and the principle applicable in determining that question is set out in paragraph 17 above.
It is important, and was regarded as important by those who drafted the documents, that a prospective purchaser should have read the prospectus before signing the application for units (see paragraph 7 above). The application for units sets out that the application is made “with a view to obtaining” the land and the share, and the prospectus, which the applicant is directed to read before signing, makes clear that the land and the share constitute a “Resort Ownership Interval” which “provides you your legal entitlement to the week(s) you have purchased”. On page 4 there appears the expression “When you purchase one or more weeks at Club Yarrawonga you are permitted to participate in the exchange network . . .”.
Also on page 4 appears “When you purchase at Club Yarrawonga you obtain two things for each week that you buy. Firstly, a share in the Condo as tenant-in-common in the title of that Condo. In fact the Land Titles Office of Victoria will issue you with a Certificate of Title to prove your ownership.” On page 5 is a heading “Protection of your Condo”. Later on page 5, the description of the effect of the trust deed refers to “the receipt of a transfer into your name of your interest in the Condo for each week you have purchased . . .”.
Taking into account the material to which I have referred throughout these reasons, I am satisfied that there was evidence before the Magistrate upon which he might, as a reasonable man, find that in the failure to provide time share accommodation to the respondent there was a partial failure of consideration. The answer to question (a)(i) is accordingly Yes.
As to question (a)(ii), the Magistrate made no express finding that the value of payments made by the respondent was equal to the value of the consideration received by her. His relevant findings are set out in paragraph 20 above. The appellant sued for the balance outstanding on the loan, and his Worship found that the respondent had a defence to that claim under section 73, by virtue of the failure of consideration. This question is, as Mr Johnson for the respondent submitted, merely a restatement of question (a)(i), and accordingly it is not necessary to answer it.
Questions (b) and (c)
As Mr Johnson submitted, the respondent’s decision to make no more payments under the loan contract, whatever its effect may have been, was not relevant to the decision of the Magistrate. This proceeding is an appeal from that decision. Accordingly, it is not necessary to answer these questions.
Conclusion
For these reasons, the appeal is dismissed. Counsel may wish to make submissions as to costs.
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