HL (Qld) Nominees Pty Ltd v Jobera Pty Ltd - [2009] SASC 165

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
HL (QLD) NOMINEES PTY LTD v JOBERA PTY LTD & ANOR
[2009] SASC 165
Judgment of The Honourable Justice Layton
5 June 2009
REAL PROPERTY - TORRENS TITLE - INDEFEASIBILITY OF TITLE
REAL PROPERTY - GENERAL PRINCIPLES - REGISTRATION - WHAT IS CAPABLE OF REGISTRATION
SUPERANNUATION - INDUSTRY REGULATION
CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXECUTION OF DOCUMENTS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSIDERATION - FAILURE OF CONSIDERATION
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - RATIFICATION
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - CONFLICT OF INTEREST AND DUTY
EQUITY - GENERAL PRINCIPLES - REMEDIES AND PROCEDURE - RATIFICATION, AFFIRMATION AND WAIVER
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS
EQUITY - GENERAL PRINCIPLES - MISTAKE - EFFECT ON CONTRACTS
EQUITY - GENERAL PRINCIPLES - REMEDIES AND PROCEDURE - FRAUD OR MISREPRESENTATION AS A DEFENCE OR ANSWER
Plaintiff appointed as trustee of a superannuation fund (“the fund”) for employees of a parent company and its subsidiaries pursuant to s 138 of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”) – property vesting order purported to vest the property of the fund in the plaintiff – the property included a second mortgage over land owned by the first defendant – the second mortgage had been granted to the fund as a consequence of a complex transaction comprising five major instruments – the transaction included a loan by the second defendant to the parent company, which loan was effected by a reduction of an amount owed by the first defendant to the second defendant under a first mortgage – the loan was to be repaid by the parent company and secured by a guarantee and indemnity from a subsidiary company – the transaction included an agreement that the second mortgage be given priority over the first mortgage – the plaintiff as a consequence of non-payment of the second mortgage sought to enforce the second mortgage and that it be given priority over the first mortgage – declarations and orders were sought.
Issues: issues included whether the second mortgage and the priority agreement were void and unenforceable – alleged deficiencies in the execution of the documentation – whether any consideration had been given to the first and second defendants – whether consideration had passed from the fund when it was granted the second mortgage with priority – whether a beneficiary who is not a party may enforce a transaction – s 55 of the Property Law Act 1974 (Qld) ("PLA") – whether the property vesting order made pursuant to s 138 of the SIS Act was valid – whether the second mortgage had been validly registered under the Real Property Act 1886 (SA) (“RPA”) – whether the defendants’ claims were defeated by indefeasibility pursuant to s 69 of the RPA – whether there was a requirement to comply with ss 79 and 80 of the Trustee Act 1936 – whether there was constitutional inconsistency between s 69 of the RPA and s 138(4) of the SIS Act – whether there was misrepresentation at common law or contrary to the Trade Practices Act (1974) (Cth) – whether frustration and common mistake applied.
Held: declaration and orders granted - counterclaims dismissed – the overall transaction was comprised of five major instruments – director of first defendant was authorised to execute documents on behalf of first defendant – statutory presumptions apply – indoor management rule applies – execution ratified by conduct of parties – each of the defendants received consideration within context of wider transaction – the trustee of the fund was entitled as a beneficiary of the transaction and pursuant to s 55 of the PLA to enforce the second mortgage and the priority agreement – conduct of office-holders and shareholders of first and second defendants ratified execution of mortgage and priority agreement – defendants estopped from denying enforceability of documents – conduct of director ratified by office-holders and shareholders of first defendant – principle of knowing receipt does not apply in circumstances of breach of fiduciary duty – principle of knowing assistance does not apply in absence of dishonest or fraudulent conduct – no common assumption of effectiveness of contribution made by parties – transaction not frustrated – alleged common assumption depended on future act – no evidence to establish that alleged assumption was erroneous – no common mistake – no evidence that representation made – no evidence that alleged representation relied upon – property vesting order under s 138 of SIS Act was valid – the registration of the second mortgage and the registration of the vesting order in the plaintiff attracts indefeasibility of title pursuant to s 69 of the RPA – no fraud alleged – plaintiff entitled to enforce second mortgage in priority of first mortgage.
Superannuation Industry (Supervision) Act 1993 (Cth) ss 138; Real Property Act 1886 (SA) ss 67, 68, 69, 115A; Trustee Act 1936 ss 79, 80; Property Law Act 1974 (Qld) ss 55; Superannuation Guarantee (Administration) Act 1992 (Cth); Corporations Act 2001 (Cth) ss 126, 127, 128, 129, 601AD; Trade Practices Act 1974 (Cth) ss 51A, 52, 87; Fair Trading Act 1989 (Qld) ss 99, 100, referred to.
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133; Ragless v District Council of Prospect [1922] SASR 299 at 311, applied.
Butler v Fairclough (1917) 23 CLR 78; Bahr v Nicolay (No. 2) (1988) 164 CLR 604; Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248; Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722, 736; Frazer v Walker [1967] 1 AC 569; Mayer v Coe [1968] 2 NSWR 747; Maguire v Makaronis (1997) 188 CLR 449; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; Myt Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; Prime Constructions Pty Ltd v Westbridge Investment Pty Ltd (2004) 22 ACLC 1390; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; Krell v Henry [1903] 2 KB 740; Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1981-1982] 149 CLR 337; Solly v Butcher (1950) 1 KB 671; Rogers v Ingham (1876) 3 Ch D 351, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"acquiring authority", "lesser estate", "original certificate"

HL (QLD) NOMINEES PTY LTD v JOBERA PTY LTD & ANOR
[2009] SASC 165
Introduction
Evidence
Conduct of the trial
Approach to findings of fact
The parties
The Harts Group
Qld Nominees
Jobera
Merrell Associates Ltd
Background
The Kadina property
The Harts Staff Superannuation Fund
The Harts Group decline
The events of 2001
Loan Agreement
Deed of Charge
Guarantee and Indemnity
Second Mortgage
Priority Agreement
APRA inquiries
Arguments of the parties
General introduction to arguments
Nature of the Transaction
Indefeasibility of Title
Want of Execution by Jobera
No consideration from HSS to Jobera
Breach of Fiduciary duty
Estoppel and Ratification by Jobera
Vesting of the Second Mortgage
Was Gole validly delegated pursuant to the SIS Act?
Was there compliance with the provisions of s138 of the SIS Act?
Does s 138 require registration under the Trustee Act?
Was s 115A of the RPA the correct vehicle for registering the vesting of property?
Was the Second Mortgage nonetheless validly registered under the RPA?
What constitutes the certificate for the purposes of s 69?
The constitutional argument
No consideration from HSS to Merrell
Indefeasibility of the Priority Agreement
In specie contribution
Frustration and common mistake
Frustration principles
Common mistake
Estoppel and ratification by Merrell
Misrepresentation
Effect of deregistration of HSS
Conclusion

Introduction

In this action the plaintiff, as its primary claim, seeks an order for possession of land, with related declarations that a registered second mortgage is a valid and binding mortgage, and that a priority agreement which purports to give priority to the second mortgage over a registered first mortgage is also valid and binding. Associated with this order and declaration are injunctions sought against the two defendants to prevent both from restraining the plaintiff’s dealings with the land subject to the two registered mortgages. In the alternative, the plaintiff seeks relief against the defendants by way of damages for misleading and deceptive conduct pursuant to ss 82 and 87 of the Trade Practices Act1974 (Cth) (“TPA”) and ss 99 or 100 of the Fair Trading Act 1989 (Qld), or, alternatively, damages at common law.
The two defendants contend that the plaintiff is not entitled to any of the relief sought. A number of arguments were put by each of them, but essentially both parties challenge the validity of the second mortgage and the priority agreement and allege that both are void and unenforceable. This essential submission involves a number of complex legal and interpretive issues. In addition, the second defendant alleges that it is entitled to damages from the plaintiff for misrepresentation, and also seeks an order pursuant to s 87(2)(a) of the TPA.
At the centre of the dispute are a number of separate transactions, involving five documents, entered into over the course of a few days in July 2001. For ease of comprehension of these reasons, I reproduce herein relevant extracts from the five documents, along with extracts from other documents relevant to the claim.
Evidence
The evidence largely consisted of documentary material of some six volumes, together with additional documentary exhibits. The plaintiff, in support of its case, called three witnesses, Mr Ian Stevens (“Stevens”), Mr Graham Stewart (“Stewart”) and Mr Bruce McDonald (“McDonald”). The first defendant called no witnesses, and the second defendant called Mr Michael Horne (“Horne”).
Conduct of the trial
On the first day of trial the first defendant made an application for the Court to deliver a ruling on the standing of the plaintiff to bring the action. After some discussion it was conceded by counsel for the first defendant that the application ought not to be framed in the terms of a standing argument, but rather as an application pursuant to Rule 75.02 of the Supreme Court Rules (1987), whereby the Court may address a preliminary question of fact before the trial proper. Submissions regarding the application were made by all parties on 1 July 2008, after which I delivered a ruling rejecting the application for the issue to be dealt with as a preliminary point.
Following the 1 July 2008 ruling, the first defendant through its counsel sought and obtained leave to withdraw prior to the evidence stage of the proceedings. The first defendant had already provided extensive written submissions; many arguments sought to be addressed by the first defendant were similar to those of the second defendant; the outcome of the major issues did not so directly affect the rights of the first defendant as it did the second; and there was no counterclaim by the first defendant. It was therefore submitted by counsel for the first defendant that it was commercially pragmatic and in his client’s interest for him to withdraw until the time came for closing submissions. For the above reasons I gave that leave.
Approach to findings of fact
The approach that I have taken to findings of fact relies essentially upon documents supplemented by oral evidence. On the whole there were very few contested areas of fact. I set out hereafter my findings on the balance of probabilities and indicate, where relevant, areas in which I have made findings on contested facts.
The parties
The plaintiff, HL (Qld) Nominees Pty Ltd (“Qld Nominees”) is incorporated pursuant to the Corporations Act 2001 (Cth) (“Corporations Act”). Qld Nominees was appointed the trustee for Harts Australia Staff Superannuation Fund (“the Fund”) by the Australian Prudential Regulation Authority (“APRA”) on 25 October 2001. Qld Nominees claims to be vested with the benefit of the second mortgage pursuant to s 138 of the Superannuation Industry (Supervision) Act 1993 (Cth) (“the SIS Act”) and also with the benefit of the priority agreement.
The first defendant, Jobera Pty Ltd (“Jobera”) is incorporated pursuant to the Corporations Act. Jobera was appointed trustee of the Telecom Kadina Trust by Trust Deed dated 5 December 1994. On 4 January 1996 Jobera became the registered proprietor of two portions of land located at 14 Taylor Street Kadina, South Australia (“the Kadina property”). The two portions of land are contained within Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876. For convenience, I have considered Certificate of Title Volume 5316 Folio 674 in my reasons for judgment as representative of both titles. The Kadina property has been mortgaged twice by Jobera, and it is the second mortgage which forms the subject of dispute in this action.
The second defendant, Merrell Associates Ltd (“Merrell”), is an investment business incorporated in the British Virgin Islands and its business is administered in Hong Kong. Merrell is the registered mortgagee of the first registered mortgage over the Kadina property.
Essential to the understanding of this action is a familiarity with the corporate structure of the Hart’s group of companies (“Harts Group”). Many of the parties to the July 2001 transactions were either part of, or linked with, the Harts Group. This structure is summarised in Exhibit P7 and was supplemented by the oral evidence of Stevens.
The Harts Group
The evolution of the Harts Group commenced in the late 1970s by the establishment of an accounting and tax agency, registered as “Steve Hart and Associates Pty Ltd”. By the 1980s, the group had expanded to provide a “one-stop shop” for small business, with a number of companies involved and with Mr Steven Hart (“Hart”) at the helm.
In 1987 Harts Australia Limited (“HAL”) was formed as the public, unlisted parent company of the group. In May 2000, all of HAL’s shares were acquired by Harts Australasia Limited (“Harts Australasia”). Following the acquisition, Harts Australasia was listed on the Australian Stock Exchange. By late 2001, the businesses of the various companies held in the Harts Group included accounting, finance, property management, investment, insurance, and computer software. The Harts Group structure comprised some 45 companies, a number of which were registered in New Zealand.
As at July 2001, the directors of Harts Australasia were Hart; the solicitor for the Harts Group, Mr Geoffrey Klooger (“Klooger”); and Mr Maurice Hannon. The company secretary was Stevens. Harts Australasia was the holding company of a number of companies relevant to these proceedings: HAL; Cardinal Financial Securities Limited (“Cardinal”); Harts Fidelity Pty Ltd (“Fidelity”); Harts Mortgage Corporation Limited (“HMC”); and Bomilsco Pty Ltd (“Bomilsco”). The directors and secretaries of the subsidiary companies were as follows:
·HAL – Hart (director) and Stevens (director and secretary);
·Cardinal – Hart (director), Mr Nicholas Bahles (director) and Stevens (director and secretary);
·Fidelity – Hart (director) and Stevens (director and secretary);
·HMC – Hart (director) and Stevens (secretary); and
·Bomilsco – Hart (director) and Stevens (director and secretary).
Bomilsco was the service company for the Harts Group and was responsible for paying the majority of the wages and expenses incurred by the Harts Group. Accordingly, Bomilsco was the principal employer of Harts Group staff. Bomilsco’s cash-flow was dependent on each Harts Group entity reimbursing Bomilsco for the expenses incurred for the relevant entity.
The final company relevant to this matter falls outside of the Harts Group structure: Harts Staff Superannuation Pty Ltd (“HSS”). At July 2001 the directors of HSS were Stevens, Stewart and Mr Richard Royle (“Royle”). The secretary was Stevens, and the shareholder was Stewart. HSS was formed in order to act as trustee of the Fund (being the fund to which Qld Nominees is now trustee). HSS was appointed trustee of the Fund on 1 July 1996.
Of the seven companies mentioned above, all but Cardinal are now deregistered. Cardinal remains a registered company, but is under external administration.
I now turn to the relationship between the parties and the Harts Group.
Qld Nominees
Qld Nominees’ only connection with the Harts Group is by virtue of its appointment as the trustee of the Fund. Prior to this appointment, Qld Nominees had no role to play in the development, and eventual collapse, of the Harts Group.
Jobera
As at July 2001 the directors of Jobera were Hart and Stevens and the secretary was Hart. The two men were also the shareholders of the company. As already discussed, Jobera is the trustee of the Telecom Kadina Trust and is the registered proprietor of the Kadina property. Whilst Jobera is not held within the Harts Group structure, the links with the group are apparent. It is also apparent that the Kadina property was repeatedly used by the Harts Group in connection with its financial dealings. As at July 2001 there were eight unit holders in the Telecom Kadina Trust, which appeared on the whole to consist of a number of superannuation funds.
Merrell Associates Ltd
In July 2001 the director of Merrell was Champion Enterprises Limited (“Champion”). The shareholder of Champion was Horne. At all relevant times Horne was responsible for managing the affairs of Merrell on behalf of Merrell’s then owner, the Zetland Financial Group (“Zetland”). Horne is now the owner of Merrell, having purchased the company from Zetland in 2004.
Merrell had a subsidiary company in Australia called Merrell Associates Australia Pty Ltd. Klooger was Merrell’s lawyer in relation to Australian transactions and also was a director and secretary of the Australian subsidiary.
Background
In order to fully appreciate the context in which the dispute between the parties arose, it is necessary to first explain the background to the events of July 2001.
The Kadina property
On 7 November 1995 Jobera, in its own capacity and as trustee of the Telecom Kadina Trust, mortgaged the Kadina property in favour of Perpetual Trustees Australia Limited (“Perpetual”). This mortgage (“the First Mortgage”) was registered as mortgage number 8021269 at the Lands Titles Office on 19 January 1996.
The First Mortgage names six guarantors, one of whom is Hart. The sum of $1,200,000 is secured by the mortgage and guarantees, and a due date of 15 September 1998 is provided. Of particular relevance are clauses 1.2 and 2 of Annexure A to the First Mortgage which provide as follows:
1.2The Mortgagor acknowledges that for reasons given in clause 1.1 the Mortgagee and the Investors will suffer damage if the Principal Sum is repaid early or repaid after the Due Date in the circumstances contemplated by clauses 3 and 4 and, accordingly, the provisions of such clauses are essential terms governing the advance of the Principal Sum.
2.HIGHER RATE
For the purposes of this Mortgage the Higher Rate shall be the higher of:
(a)the Lower Rate plus 4% per annum; and
(b)the Bank Bill Rate plus 4% per annum
The “Lower Rate” is prescribed in the Schedule to the First Mortgage as 10.4%. It was common ground between the parties that in respect of monies secured remaining unpaid after the due date, the penalty interest was at least 14.4%.

By Memorandum of Transfer dated 22 December 2000, the First Mortgage was transferred by Perpetual to Cardinal for “valuable consideration”. The Memorandum of Transfer is signed by Hart and Stevens as the director and secretary of Cardinal respectively. On the same date as executing the Memorandum of Transfer, Cardinal assigned its interests under the First Mortgage to Merrell by the execution of a Declaration of Trust, and a second Memorandum of Transfer giving effect to this declaration was later executed. Both Memoranda of Transfer were registered on the title on 13 December 2001, being the same date of the registration of a second mortgage to HSS, details of which are discussed hereafter.
The Harts Staff Superannuation Fund
Prior to the appointment of HSS as trustee, the Fund was a member of a pooled investment arrangement (commonly known as a “23F pool”) along with numerous other superannuation funds related to the Harts Group. The trustee of the pooled arrangement was Fidelity. Following an investigation by the precursor to APRA, the Insurance and Superannuation Commission, the assets held by the pool were frozen, and an agreement was reached whereby the 23F pool arrangement was unwound, and each fund appointed its own trustee. The purpose of this agreement was to ensure the various funds and trustees adhered to the requirements of the SIS Act.
Fidelity resigned as trustee of the Fund effective from 1 July 1996. At a meeting of HSS on 28 June 1996, the directors of HSS resolved to accept Bomilsco’s request (as the principal employer) that HSS be appointed as trustee of the Fund upon Fidelity’s resignation. This appointment was confirmed by a Deed of Appointment executed on 1 July 1996 by HSS, Fidelity and Bomilsco.
At the time of appointment, the directors of HSS were Stewart, Stevens, Royle and Mr Richard Hayter (“Hayter”). Stewart and Royle were the member representatives, and Stevens and Hayter were the employer representatives. The members of the Fund were all employees of the Harts Group, and for the most part were employed by Bomilsco.
Harts Superannuation Pty Ltd was appointed as the company responsible for the general administration of the Fund, and McDonald was the company officer responsible for the management of this service.
Initially the assets of the Fund comprised of shares in HAL; units in the Telecom Kadina Unit Trust; an interest in a shopping centre located in Brisbane; managed investment schemes; and cash.
In anticipation of the lifting of the Insurance and Superannuation Commission freeze on the Fund’s assets, the directors of HSS met in December 1996 to discuss the various administrative issues that needed to be resolved. One of these issues related to the frequency of contribution payments into the Fund.
Bomilsco, being the principal contributor to the Fund, had a history of making late contribution payments. In the first year of HSS’s involvement as trustee, being the 1995/1996 financial year, Bomilsco had difficulty making the required contribution payments. In December 1996, the directors of HSS resolved to impose an interest rate of 10.5 per cent per annum on the outstanding contributions and requested that Bomilsco make future contribution payments on a fortnightly basis. Whilst the Fund’s deed permitted contributions to be paid on an annual basis, the directors hoped to increase this frequency to a fortnightly payment to enable efficient member rollover management, and to explore the option of offering a life or income protection insurance option for members of the Fund.
The request from the HSS directors was communicated by Stewart to the financial controller of the Harts Group, Mr Bob Atkinson (“Atkinson”). Atkinson refused HSS’s request on the basis that Bomilsco did not have sufficient cash flow to enable fortnightly, or even monthly, payments. Atkinson did, however, undertake to use his “best endeavours” to ensure contributions owed to departing Fund members would be paid.
Eventually the 1995/1996 contributions were paid, along with the interest amount imposed by the directors of HSS. Thereafter until 2000 Bomilsco paid the contributions owing on an annual basis at the beginning of each financial year. Atkinson’s “best endeavours” undertaking to increase the frequency of contributions to ensure prompt payment to departing members, did not eventuate.
The Harts Group decline
By 2000, membership of the Fund had increased to over 300 employees. An inevitable consequence of the membership growth was increased movement in and out of the Fund, which in turn amplified the need for HSS to increase the Fund’s cash-flow. Stewart approached the new financial controller of the Hart’s Group and repeated the request for fortnightly payments. While this was not entirely achieved, over a few months, contributions were made when required for departing members.
Also in 2000, Stewart’s role in the audit and superannuation divisions of the Harts Group was expanded to include, inter alia, the preparation of monthly account statements for the entire group of companies. In October or November 2000, Stewart became concerned about the overall financial position of the Hart’s Group. Specifically, Stewart was of the opinion that Bomilsco would be unable to make the 2000/2001 contribution by the due date. In May 2001 Stewart raised his concerns with the then chief financial officer Mr Howard James (“James”) and Stevens. Stewart said that James was initially “non-committal”, but acknowledged that the Hart’s Group was subject to other mounting liabilities, such as unpaid group tax for a similar amount as the outstanding superannuation contributions (approximately $800,000).
McDonald, the company officer responsible for the management and compliance of the various Harts Group superannuation funds, was called to give evidence by the plaintiff. In 2001 he was managing approximately 130 to 150 self-managed superannuation funds including the Fund. His employment required him to set up superannuation funds, include new members, make payout terminations, conduct annual reviews and perform some investment work. This work was mostly under the direction of the trustees.
McDonald gave evidence in respect of a memorandum written by himself to the chief financial officer with regard to the Fund dated 4 May 2001. The memorandum indicated that payment to departing members was currently being held up until such time as contributions were collected. McDonald requested that consideration be given to the payment in order to avoid enquiries from the Superannuation Complaints Tribunal or the Australian Taxation Office (“ATO”). He also attached letters from disgruntled members and commented that:
This is the tip of the iceberg as I have had many irate calls from members who are concerned that they will not be able to collect their benefits as they fear Harts may go into liquidation.
McDonald gave evidence that at the time of writing the memo he also had a “grave” fear that the Harts Group would soon be in liquidation. The memo went on to say:
We have many more members that have left but not yet told us where to roll their money over to. We don’t have to worry about them until we get their instructions. However, a considerable amount of money will eventually need to be paid to cover these. I will provide updates of the attached listing each fortnight.
The memorandum attached a list of payments owed to members that had departed the Fund and had provided rollover instructions. The total of the payments in this list was $39,791.79. McDonald stated that he discussed the content of the memo with Stewart, and that Stewart’s response was that the payments listed could not be made as the Harts Group did not have the money.
Stevens gave evidence that he had also become concerned as to the ability of Bomilsco to make the required contributions. In June 2001 Stevens approached Hart to discuss the contributions owing for the 2000/2001 financial year, which were estimated to be in the vicinity of $830,000. At that time, Stevens was also attempting to resolve group cash-flow issues, as well as negotiating with the ATO as to the unpaid group tax issue.
Stevens said that when he first raised the question of contributions with Hart, Hart’s response was that he “would make sure it got paid”. Stewart said that in June 2001 James told him that there was going to be “some money coming into the group that was going to be able to satisfy the superannuation liability, the tax liability, and also provide some ongoing cashflow”.
The events of 2001
The situation culminated in mid-July 2001 when Hart asked Stevens to come into his office. Stevens gave evidence about that meeting, which I accept. Stevens said that Hart told him that Bomilsco was not going to be in a position to make the cash contribution because the planned assets sale alluded to by James was not going to be completed in time. Hart told Stevens that he had decided to arrange an in specie contribution to the Fund by way of a mortgage over the Kadina property for the amount owed by Bomilsco. Hart stated that he had spoken with a representative from Merrell, and that Hart would arrange for Merrell to take a security over a Harts Group company so Merrell would be “happy” with the arrangement.
Stevens said he was aware that Merrell held a mortgage over the Kadina property securing a debt in the vicinity of $1.2M. He therefore understood from the discussion with Hart that the mortgage to be taken on behalf of the Fund would be subject to a priority arrangement to enable it to be ranked above Merrell’s interest, and that the security to be arranged over a Harts Group property would effectively be in exchange for this ranking. In examination, Stevens said that he queried why Merrell would agree to the proposed arrangement given the current financial circumstances of the Harts Group, but said that Hart told him not to worry because Hart controlled Merrell, and “although nobody would be able to find the paper trail, he [Hart] would make sure it happened”. Stevens also stated that he expressed concern about the ability to make an in specie contribution, to which Hart responded that it would be “okay” and that he would arrange for Klooger to draw up the documents.
Stewart’s evidence, which I accept, was that he was invited to a meeting between Hart, James, Stevens and himself in James’ office in mid-July. I note that the presence of James is inconsistent with Stevens’ recollection, however this is of no significance to my acceptance of the evidence. Stewart’s evidence about the proposal outlined to him by Hart is consistent with Stevens’ recollection. Stewart’s evidence was that he also expressed concern about why the mortgagee of the Kadina property would agree to have its security ranked below the mortgage that was to be taken on behalf of the Fund. He said that Hart’s reply was that the mortgagee was “a white knight, a friend of the group”. Stewart said that Hart indicated that the arrangement would only be short-term, and that after 12 to 18 months he expected that enough money would be available to pay the contribution owed in cash and therefore release the mortgage.
The meeting ended with the understanding that Stevens and Stewart would consider the Fund’s position. Their discussion occurred immediately following the meeting and included two main issues. The first was whether an in specie contribution was acceptable under the terms of the Fund’s deed and, second, whether under the SIS Act it was a viable contribution strategy. Stevens and Stewart resolved to ask McDonald to investigate both issues, and that they would consider the liquidity of the Fund in the meantime. Of particular concern was the ability to pay the $120,000 (or thereabouts) tax that would likely be imposed upon the acceptance of the $800,000 contribution.
Stewart said he and Stevens also discussed the implications of not accepting Hart’s proposal, given that they both agreed that the Harts Group was in serious financial difficulty. They were both concerned that if the Fund did not receive some form of contribution, its members would be ranked as unsecured creditors if the Harts Group went into liquidation, which, on the figures available, meant that members would receive zero cents in the dollar. As Stewart described it, “the problem was that there was just no cash, there was just nothing available. It [the Fund] was not going to get a brass razoo”.
The implications for the Harts Group were also discussed, with Stevens and Stewart recognising that if no contribution was made to the Fund, HSS as trustee would be required to notify the Fund’s members and also to report the matter to APRA. They agreed that the members’ likely reaction to such news would be an increase in departures from the Fund, which would create further problems given that the Fund was only able to pay departing members’ contributions accrued to July 2000. In relation to notifying APRA, Stevens and Stewart believed that the ATO would also eventually be notified, and that both bodies would launch an investigation into the operations and liabilities of the Fund. Further, if a contribution was not received, the super guarantee charge would come into operation and would result in a large penalty to Bomilsco for an amount that was likely to be double the unpaid contribution.
The current status of the Fund was discussed. Stewart and Stevens were aware that the Fund held liquid assets in the amount of approximately $200,000 and “illiquid” assets in the amount of $220,000 to $240,000. The illiquid assets were the units held in Telecom Kadina Trust and the shopping centre, both of which did not have a secondary market in the view of Stevens and Stewart.
After discussion of all of those issues, Stewart stated they decided that:[1]
A:… [I]n the best interests of the members, that we take this offer, we try and secure the best benefit we could for the members, and thought a mortgage would at least give the members something to fall back on.
And in Stevens’ words:[2]
A:… [W]e believed it’s [the in specie contribution] the only way that the members of the fund would receive their contribution for the 2001 financial year, it was given to us as a fait accompli by Mr Hart there was no other way of receiving the contributions, it was in their best interests.
They decided that Stevens would convey their decision to Hart.
[1] T 227-8.
[2] T 165.
Prior to the communication of the decision, McDonald conducted the inquiries requested. His instructions came from Stewart, and there was differing evidence as to what Stewart precisely requested McDonald to do. Having heard the evidence of Stewart, Stevens and McDonald, I prefer McDonald’s evidence on this particular point.
Stewart requested McDonald to check with the ATO whether an in specie contribution was a legitimate contribution to be received by an employer-sponsored superannuation fund. Stewart did not ask McDonald to make any inquiries with APRA, because Stewart considered that the question was essentially an income tax issue, as the ATO would be responsible for imposing the penalty if the contribution was not received by the due date. Stewart also said he did not go into too much detail with McDonald as to what the in specie contribution consisted of.
McDonald said he obtained the advice needed by telephoning the ATO superannuation helpline. He said that he:[3]
A.Basically just questioned whether an in specie contribution could be made in place of a cash contribution and also outlined that it was a mortgage that they intended to put in to satisfy the guarantee contribution and to get the tax office view as to whether that was an acceptable thing.
Q.What did the person at the end of the help line tell you.
A.He was fairly guarded in his response. Obviously he was a little bit concerned that perhaps it wasn’t a cash contribution, so whilst he said that he didn’t believe it couldn’t be done, he indicated that it probably wasn’t the best solution.
McDonald also said that the ATO employee suggested he obtain an ATO ruling on the issue.
[3] T 245-6.
McDonald orally communicated the results of his inquiry to Stewart, and on 27 July 2001 provided a memorandum recording his actions and the information received. The memorandum was in the following terms:
27 JULY 2001
HARTS AUST STAFF S/F
RE: SUPER GUARANTEE PAYMENT
RANG ATO HELP LINE AND ASKED WHETHER LEGISLATION REQUIRED SGC CONTS TO BE PAID IN CASH.
ATO ADVISED NOT SO FAR AS HE WAS AWARE. WE DISCUSSED IN BRIEF THE CONCEPT OF AN ASSET – BEING A 1^ST MORTGAGE BEING PAID IN AS SETTLEMENT OF THE LIABILITY.
ATO SUGGESTED WE SEND SOMETHING IN WRITING AND GET A RULING. THE PERSON I SPOKE TO THOUGHT IS [SIC] WAS NOT A GOOD IDEA BUT DID NOT SAY IT COULD NOT BE DONE.
I ADVISED GRAHAM OF THIS.
[SIGNATURE]
ROBERT MCDONALD
The confusion about whether inquiries were made directly with APRA arose as a result of the interpretation Stewart applied to the response given to him by McDonald. Stewart appears to have assumed that an ATO response would coincide with the attitude of APRA because of the overlapping issues between both bodies and the consequences of contributions. Stewart said that he understood the position to be that APRA had no problem with the in specie contribution proposal, but that HSS would need to consider the liquidity of the Fund due to the tax liabilities that would arise as a result of the contribution being made. Stewart agreed that if the ATO had said that an in specie contribution was not acceptable, HSS would not have agreed to Hart’s proposal.
Stevens’ evidence, which I accept, was that he understood from Stewart that McDonald had made inquires with APRA and the ATO, and that the only issues were ensuring that the value of the in specie contribution could be identified, and ensuring that there were enough liquid assets in the Fund to cover the liabilities that may arise.
During this period of investigation by McDonald, another issue of importance was being discussed between Stevens and Hart. Hart raised the potential characterisation of the in specie contribution as an in-house asset, and queried what action ought to be taken to avoid this. An in-house asset is an asset controlled by the principal contributor to a fund, and is not considered independent in accordance with SIS Act requirements. If a fund holds an in-house asset, income tax is taxed at a higher level, which Stevens believed to be approximately 15 per cent. In this case, Hart and Stevens were concerned that an in-house asset issue could arise because of the relationship between Hart, Stevens, Bomilsco and Jobera. Specifically, because Hart and Stevens were directors of both Bomilsco and Jobera, and a trust relating to Hart was a unit holder in the Telecom Kadina Trust. Stevens determined that the appropriate way to avoid the issue was to resign as a director of Bomilsco, and for Hart to resign as a director of Jobera. This occurred on 20 July 2001.
On 26 July 2001 a meeting was arranged between Stevens and Stewart, at which Hart and James were invited to be present. It was then that Hart was informed about the inquiry made by McDonald. Stevens said that Hart and James were invited to the meeting so that the proposal for contribution could be outlined again before he and Stewart finally confirmed the proposal. After this occurred Stewart and Stevens advised Hart and James that HSS had decided to accept the contribution. Stevens said:[4]
A.We told Mr Hart that APRA had confirmed that in specie contribution would be acceptable. He said words to the effect of ‘I told you so, I knew it was going to be okay’.
Q.When you say ‘acceptable’, acceptable to whom.
…
A.Acceptable to the trustee that we could receive it and acceptable to APRA once we obviously reported the contribution in our annual returns.
[4] T 164-5.

The formal decision to accept the in specie contribution is recorded in a minute of HSS dated 26 July 2001, which was prepared by Stevens. The relevant extracts of the minutes records that their decisions were as follows:
Contributions for 2000-2001
SH and HJ informed directors that the contribution for the 2000-2001 year estimated at approximately $850,000 could only be satisfied by way of an in specie contribution by way of first mortgage security over property owned by Jobera Pty Ltd providing a 9 per cent return. After discussion with SH and JH, the Directors believed it was in the best interest of the members to accept the in specie contribution as it has been advised that no cash contribution was able to be made by the employer at this time.
Execution of Documents
IT WAS RESOLVED to authorise GS and IRS to execute all relevant documents necessary to facilitate the in specie contribution on behalf of the members on or before the 28^th July 2001.
Liquidity of Fund
The Directors discussed the current liquidity of the Fund taking into consideration the in specie contribution and RESOLVED to make arrangements to redeem the assets held in the Harts Securities Portfolio Management Service, units in the Telecom Kadina Trust and the units in the Jindalee Shopping Centre Unit Trust so as to assist the liquidity of the Fund.
Members Rollovers
Outstanding rollovers and terminations on behalf of the Fund were discussed and it was anticipated that with the increased liquidity from the sale of the assets referred to above, members payments would be kept up-to-date and would be up-to-date by the end of September 2001.
In cross-examination, Stewart was asked whether James, Hart, Stevens and himself all shared the same concern as to the need for the in specie contribution to be made. Stewart tellingly answered:[5]
A.I don’t believe that we actually did have the same concern. To be quite honest it didn’t matter to me whether Hart’s group went down on 31st July or 28th September. I was focussed on what could be done for the members that we were trying to represent, and that was to secure that contribution if we could.
This answer indicated that the concern of Stevens and Stewart in entering into the arrangement was to try and protect the Fund for the members, whereas, in Stewart’s view, Hart’s interests primarily lay with protecting the Harts Group.
[5] T 238.
At the conclusion of the meeting, Hart stated that Klooger would prepare the documentation required. Later the same day, Klooger attended Stevens’ office with Hart to discuss the transaction. During the meeting Hart outlined again what the transaction would involve, which Stevens described as follows:[6]
A:He outlined that [the Fund] would take a first mortgage or a mortgage over the property at Kadina owned by Jobera to a value of $900,000. It would have first priority over the mortgage of [Merrell] and a loan agreement would be put in place between [Harts Australasia] and [Merrell] with respect to $900,000 and security would be offered by way of debenture charge over Harts Corporation.
[6] T 166.
The transaction needed to be entered into by 27 July 2001. During the meeting Stevens and Klooger telephoned a solicitor from Moody Rossi & Co Solicitors (“Moody Rossi”), in Adelaide, in order to discuss the registration requirements for documents needed to be filed at the South Australian Lands Titles Registration Office (“LTO”).
On or about the same day discussions were also held with Merrell. Horne gave evidence that he was first contacted by Hart on 27 July 2001, however, I consider that it was likely to have been a day earlier because of the timing of other events. Horne said that he received a phone call from Hart, who wanted to discuss what appeared to be a very urgent matter:[7]
A.[H]e [Hart] referred to a very urgent matter that he said needed to be resolved very speedily. In fact I think he said by 28 July, which was the next day, and he went on to describe a payment that had to be made for a pension fund that Harts were not able to provide the funds for. He was asking if Merrell would be agreeable to giving part of the mortgage on the Jobera property in exchange for a guarantee from one of Hart’s subsidiaries and a promise to pay by [Harts Australasia] itself.
[7] T 268.
Shortly after this conversation, Horne received a telephone call from Klooger. Klooger explained the transaction in similar terms to Hart, and then told Horne that further detail would be included in a letter Klooger would send by facsimile that same day. The letter was a draft letter of instruction from Merrell to Klooger, and Horne was asked to return the letter on Merrell letterhead as soon as possible. Horne complied with this request after making one minor amendment to include a reference to his telephone conversation with Klooger. The finalised letter was tendered within a bundle of documents as Exhibit D(2)9 and is in the following terms:
We write to confirm our telephone instructions given to you today, pursuant to our agreement to provide accommodation to Harts Australasia Limited to assist it to make a contribution to its Superannuation Fund of A$900,000.00.
We currently have a 1^st Mortgage Loam [sic] over property owned by Jobera Pty Ltd ACN 067 129 248 in South Australia. The amount owed under that Mortgage is in excess of A$1,200,000.00. Title information may be obtained from Mr. Hart.
We have agreed to the following: -
1. To arrange for Jobera Pty Ltd to grant a 2^nd Mortgage to Harts Staff Superannuation Pty Ltd ACN 073 447 079 as Trustee for the Harts Australia Staff Superannuation Fund in the amount of A$900,000.00, such Mortgage to be for a period of two years and bear interest at 9% payable monthly in arrears. The consideration for this will be our agreeing that the amount owed by Jobera Pty Ltd to us will thereby be reduced by A$900,000.00.
2. We will enter into a Priority Agreement with Harts Staff Superannuation Pty Ltd to allow its Mortgage, although registered second to ours, to take priority to ours to the extent of A$900,000.00 plus interest and charges.
3. Harts Australasia Limited will be responsible for paying us the A$900,000.00 which we will be out of pocket as a result of the above transactions over a two year period with interest at 9%, payable monthly in arrears, secured by a Guarantee by Harts Mortgage Corporation Pty Ltd and a fixed and floating charge over that company to support such Guarantee.
We do not require you to conduct searches and enquiries on our behalf but request that you prepare and put in place the documentation which records that above arrangements at the cost in all matters of Harts.
We note that you have recently been appointed to the Board of Directors of Harts Australasia Limited and we take no objection to that fact provided that you declare your interest at any meeting of Harts Australasia Limited which authorizes this transaction and you do not take part in the voting.
We have agreed to carry out the above transactions as at today. Please prepare and have executed the necessary documents as a matter or [sic] urgency.
On the same day, Horne drew up minutes of a meeting of Merrell confirming the resolution of the company to provide Klooger with the instructions contained within the letter. A copy of the minute was tendered as part of the Exhibit D(2)9 bundle. The relevant passages are as follows.
Merrell Associates Limited
Minutes of the Sole Director’s Meeting of the Company held at 13/F., Silver Fortune Plaza, 1 Wellington Street, Central, Hong Kong on 27^th July 2001
PRESENT Champion Enterprises Limited
- represented by Mr. Michael H. Horne
THE COMPANY’S 1ST MORTGAGE LOAN OVER SOUTH AUSTRALIAN PROPERTY OWNED BY JOBERA PTY LTD
IT IS RESOLVED that Geoff Klooger & Associates, Lawyers, be instructed to take the following action for and on behalf of the Company:
1. To arrange for Jobera Pty Ltd to grant a 2nd Mortgage to Harts Superannuation Pty Ltd as Trustee for the Harts Australia Staff Superannuation Fund in the amount of AU$900,000, such Mortgage to be for a period of two years and bear interest at 9% payable monthly in arrears. The consideration for this will be the Company agreeing that the amount owed by Jobera Pty Ltd to the Company – presently in excess of AU$1,200,000 – will thereby be reduced by AU$900,000.
2. To arrange for the Company to enter into a Priority Agreement with Harts Staff Superannuation Pty Ltd to allow its Mortgage, although registered second to ours, to take priority to ours to the extent of AU$900,000 plus interest and charges.
3. To arrange for Harts Australasia Ltd to assume responsibility for paying us the AU$900,000 which we shall be out of pocket as a result of the above transactions over a two year period with interest at 9%, payable monthly in arrears, secured by a Guarantee from Harts Mortgage Corporation Pty Ltd and a fixed and floating charge over that company to support such Guarantee.
IT WAS FURTHER RESOLVED that all documents necessary for the implementation and registration of these arrangements be executed by Mr. Michael H. Horne, for and on behalf of the Sole Director of the Company.
CLOSE OF MEETING
There being no further business and the meeting was declared closed.
Dated this 27^th July 2001
[Signature]
……………………………
Michael H. Horne
Horne gave evidence that he relied heavily on Klooger in making his decision to agree to the transaction on behalf of Merrell. In Horne’s view, Klooger was Merrell’s lawyer for Australian transactions, and would take care to look after Merrell’s interests. He said that he did not form any view about the adequacy of the security provided by HMC in substitution of the First Mortgage, as he was of the opinion that the promise of Harts Australasia to pay the $900,000 was satisfactory on its own. He acknowledged that he was not aware that the charge over HMC’s assets was to be a second ranking charge until after the transaction was entered into, but stated that he doubted this would have made any difference to his decision because:[8]
… I was really relying on Mr Klooger to look after Merrell’s interests and if he felt that the charge that was put in place over Harts Mortgage Corporation was satisfactory, that it adequately covered Merrell’s security position, then I would have been quite happy to let him look after Merrell’s interests.
[8] T 274.
As to whether Horne formed a view about the likelihood of the transaction achieving its purpose, Horne stated that he assumed at the time that the proposed transaction was valid and effective.
Returning to the activities of Stevens, on 27 July 2001 Klooger sent him drafts of the following five documents:
1A Deed of Loan between Harts Australasia and Merrell (“Loan Agreement”).
2A Deed of Charge between HMC and Merrell (“Deed of Charge”).
3A Guarantee and Indemnity between HMC and Merrell (“Guarantee and Indemnity”).
4A Priority Agreement between Merrell, Jobera and HSS (“Priority Agreement”).
5Memorandum of Mortgage from Jobera to HSS in the sum of $900,000 (“Second Mortgage”).
After Stevens had looked at the documents, he rang Klooger to request a minor amendment to the Deed of Priority. In the afternoon of 27 July 2001, Klooger attended Stevens’ office with final copies of the five documents. In Stevens’ words:[9]
He rushed in, he said ‘I’ve got all the documents’, we laid them out on my desk and I called in Geoff – sorry, Graham Stewart, and Steve Hart to go through and sign them all.
[9] T 169.
Klooger prepared a letter dated 27 July 2001 to accompany the documents which stated:[10]
[10] CD(2) 325.
Harts Australasia Limited
Level 8
171 George Street
BRISBANE Q   4000
Dear Sirs,
re:    MERRELL ASSOCIATES LIMITED
We enclose herewith the following documents which we have been asked to prepare on behalf of Merrell Associates Limited –
1.     Deed of Loan in triplicate
2.     Deed of Guarantee and Indemnity in triplicate
3.     Company Charge
4.     ASIC Forms 309 and 350
5.     Priority Agreement in triplicate
6.Memorandum of Mortgage intriplicate [sic] (to be executed by Harts Staff Superannuation Pty Ltd and passed on to Jobera Pty Ltd)
Please note that as we are acting for Merrell Associates Limited we point out that we are unable to act for you in this regard. Please ensure that the writer’s conflict of interest in this matter is noted at the Board Meeting authorising this transaction and note that the writer will be unable to take part in the voting.
Yours faithfully
GEOFF KLOOGER & ASSOCIATES
Stevens confirmed that the documents delivered by Klooger were the same documents that he had viewed that morning, and then arranged the execution of the documents by Hart, Stewart and himself as required. Stevens also prepared minutes for Jobera, HMC and Harts Australasia to reflect the decision of those companies to enter into the transaction.
I will now discuss each of the five documents executed on 27 July 2001.
Loan Agreement
The parties to the Loan Agreement, which is stated to be a “deed”, are Harts Australasia and Merrell. The relevant portions of the document are as follows:
THIS DEED made the 27[11] day of           July[12] 2001
[11] Handwritten in original.
[12] Handwritten in original.
BETWEEN:HARTS AUSTRALASIA LIMITED ACN 091 395 630 of Level 8, 171 George Street, Brisbane in the State of Queensland, (hereinafter with its successors and permitted assigns called “the borrower”) of the one part
AND:MERRELL ASSOCIATES LIMITED of 13^th Floor, Silver Fortune Plaza, Wellington Street, Central Hong Kong, Hong Kong (hereinafter with its successors and assigns called “the lender”) of the other part.
WHEREAS:
A.The borrower has requested the lender to make advances from time to time subject to the terms hereof but not to exceed at any one time the agreed limit as hereinafter defined which the lender has agreed to do upon the security hereinafter detailed.
B.The borrower may hereafter request the lender to make further advances to be secured by the same security as the moneys agreed to be lent hereunder and/or such additional security as the lender may require.
NOW THIS DEED WITNESSES in consideration of the premises the parties HEREBY AGREE:
1.THAT in this deed unless the context otherwise requires the following terms shall have the following meanings designated:
…
“guarantor” means any person who has guaranteed or may hereafter guarantee to the lender payment of the whole or any part of the principal sum and/or interest thereon and/or any person who is jointly or jointly and severally liable with the borrower (with or without other persons) to pay the whole or any part of the principal sum and/or interest thereon;
…
“security” means securities and/or guarantees and/or indemnities referred to in the Schedule as “Specific Securities” or “Specific Securities and Guarantees” together with any security and/or guarantee and/or indemnity hereafter given to or to be held by the lender for the payment of the whole or any part of the principal sum and interest thereon.
…
THE SCHEDULE
1.AGREED LIMIT:
The sum of NINE HUNDRED THOUSAND AUSTRALIAN DOLLARS (A$900,000.00)
2.     REPAYMENT:
The Borrower may repay the loan or part thereof at any time but shall repay the loan or such balance thereof as shall remain unpaid within two (2) years of the date hereof.
3. INTEREST
The Borrower will without any notice whatsoever from the Lender pay to the Lender interest on the Loan or on so much thereof as shall from time to time remain unpaid at the rate of nine percent (9%) per annum calculated and compounded on a monthly basis commencing from the date hereof. Such interest shall be payable monthly in arrears, the first monthly payment to be made one month after the date hereof.
4.    SPECIFIC SECURITIES:
A Deed of Guarantee and Indemnity granted by Harts Mortgage Corporation Limited ACN 010 410 250 supported by a Fixed and Floating Charge over that Company.
5.SPECIAL PROVISIONS
(a)     For the purpose of this Deed the initial advance hereunder is for the agreed limit and is made by way of an accommodation provided by the Lender in favour of Harts Staff Superannuation Pty Ltd ACN 073 447 079 at the request and direction of the Borrower and the Guarantor.
(b)     The accommodation provided by the Lender is by way of the Lender who is owed in excess of the agreed limit by Jobera Pty Ltd ACN 067 129 248 secured by a 1st Mortgage over its South Australian property being the whole of the land contained in Volume 5316 Folio 674 and Volume 5291 Folio 876:-
(i)agreeing to reduce such debt owed to it by Jobera Pty Ltd by the agreed limit (called the “amount foregone”);
(ii)procuring Jobera Pty Ltd to grant a Mortgage in favour of Harts Staff Superannuation Pty Ltd for such amount foregone;
(iii)allowing such Mortgage in favour of Harts Staff Superannuation Pty Ltd to take priority over its existing Mortgage 8021269 to the extent of the amount foregone plus interest and costs.
(c)     The Borrower acknowledges and agrees that the amount foregone by the Lender at the request of the Borrower is for the purpose of this Deed the advance up to the agreed limit lent by the Lender to the Borrower pursuant to clause 2(a) hereof.
IN WITNESS WHEREOF these presents have been executed the day and year first hereinbefore written.
EXECUTED by HARTS AUSTRALASIA      )  Stevens[13]
LIMITED ACN 091 395 630 in accordance     )   SECRETARY[14]
with its Constitution:  )
  Hart[15]
  DIRECTOR[16]
[13] Signature handwritten in original.
[14] Stamped in original.
[15] Signature handwritten in original.
[16] Stamped in original.
EXECUTED by MERRELL ASSOCIATES     )    FOR AND ON BEHALF OF
LIMITED in accordance with its Constitution:     )    MERRELL ASSOCIATES LIMITED[17]
Horne[18]
Authorized Signature(s)
[17] Stamped in original.
[18] Signature handwritten in original.
Matters of note about the Loan Agreement are:
·The document states that the forum of law for the loan is intended to be Queensland.
·The security for the loan is a guarantee granted by HMC, supported by a fixed and floating charge over HMC.
·Merrell agreed to make $900,000 available by way of an “accommodation” in favour of HSS at the request and direction of Harts Australasia and HMC for two years.
·The “accommodation” is effected by Merrell:
-agreeing to reduce the debt by $900,000 owed to it by Jobera and secured by the First Mortgage;
-procuring Jobera to grant a second mortgage over the Kadina property in favour of HSS for $900,000; and
-allowing the second mortgage to take priority over the First Mortgage to the extent of the $900,000, plus interest and costs.
·Stevens and Hart executed the Loan Agreement on behalf of Harts Australasia. The “SECRETARY” and “DIRECTOR” stamps were, according to Stevens, affixed later by a person unknown.
·Horne executed the Loan Agreement on behalf of Merrell.
Deed of Charge
The parties to the Deed of Charge dated 27 July 2001 were HMC and Merrell. The relevant portions of the Deed of Charge are as follows.[19]
[19] CD(2) 327-60.
THIS DEED made the 27th[20] day of July[21] 2001
[20] Handwritten in original.
[21] Handwritten in original.
BETWEEN HARTS MORTGAGE CORPORATION LIMITED ACN 010 410 250 of Level 8, 171 George Street, Brisbane in the State of Queensland (hereinafter with its successors and permitted assigns called “the company”) of the one part AND MERRELL ASSOCIATES LIMITED of 13^th Floor, Silver Fortune Plaza, 1, Wellington Street, Central Hong Kong, Hong Kong (hereinafter with its successors and assigns called “the mortgagee”) of the other part.
WHEREAS the mortgagee has at the request of the company agreed to make available to Harts Australasia Limited ACN 091 395 630 pursuant to the terms of a Deed of Loan of even date certain advances and/or credit accommodation and/or facilities pursuant to the agreement of the company to give this security.
NOW THIS DEED WITNESSES pursuant to the said agreement and in consideration of the premises the company HEREBY COVENANTS with the mortgagee as follows:
1.
(a)That the term “the principal moneys” and/or “the principal sum” shall for the purposes of this deed include the following sums:-
(i)each and all sums of money, interest costs charges damages and expenses as are now or hereafter shall become due and owing or payable by the company either alone or on joint or partnership accounts or on any account whatsoever and whether such sums of money shall be advanced or paid by the mortgagee to or for the company or on the company’s account or otherwise howsoever; and
(ii)all and every sum and sums of money for which a liability (contingent or otherwise) or agreement has been or shall be or may be entered into or incurred by the mortgagee upon or by reason or by means of affording to the company or its receiver any pecuniary assistance or money accommodation or by any of such means; and
…
Thereafter follows a number of clauses defining the term “principal moneys” and “the principal sum”, which are not relevant for the purposes of this action. Further relevant portions are:[22]
[22] CD (2) at 329-30, 333, 359-60.
2.     THAT the provisions of any collateral security given by the company to the mortgagee shall save as the same shall be inconsistent herewith apply hereto mutatis mutandis.
3.THAT the company hereby charges in favour of the mortgagee the undertaking of the company and all its assets rights and property whatsoever and wheresoever both present and future held by it including its uncalled and called but unpaid capital and unpaid premiums for the time being with the payment of the principal sum and all principal interest and other moneys payable hereunder or intended so to be (including any principal sum borrowed by any Receiver hereunder together with all interest and other charges thereon payable by the company or by such Received) and such charge shall be:
(a)as to the uncalled and called but unpaid capital of the company to unpaid premiums and to all shares owned by it in other companies and to its book and other debts (both present and future) and any securities held by the company in relation thereto books of account vouchers and other documents relating in any way to the business transactions of the company and all other contracts, mortgages, deeds, certificates of title, securities negotiable or otherwise and bond and store warrants at any time deposited with the mortgagee by the company and the goods specified in any such bond and/or store warrants now or hereafter the property of the company or lawfully in the possession of the company and to its goodwill and to its business name and as to the whole of its fixed assets (including all freehold and leasehold land and all plant engines machinery other than stock-in-trade licences livestock and furniture which may from time to time belong to the company) – a fixed and specific charge; and
(b)as to the remainder of its assets – a floating charge.
THE charge hereby created insofar as it is a floating charge shall in no way hinder or prevent the company from selling its assets in the ordinary course of its business PROVIDED ALWAYS that the company shall not be at liberty to create nor shall it attempt to create any bill of sale mortgage charge or lien over any part of its undertaking assets rights or property ranking in priority to or pari passu with the charge by this clause created without the written consent of the mortgagee first had and obtained.
4.     THAT all the assets and undertaking rights and property of the company whatsoever and wheresoever both present and future as described in clause 3 hereof shall hereafter be referred to as “the mortgaged premises”.
5.THAT the floating charge hereby created shall immediately become and be a fixed and specific charge on the mortgagee giving notice to the company to that effect pursuant to any default by the company as set forth in clause 2 (a) and 2 (b) of the annexed conditions or, without any such notice, on the occurrence of any of the events specified in paragraphs (c) to (aa) inclusive of the said clause.
…
THE COMPANY has executed these presents as a Deed the day and year first hereinbefore written.
EXECUTED by HARTS MORTGAGE      )              Stevens[23]
        CORPORATION LIMITED                  )              SECRETARY[24]
        ACN 010 410 250 in accordance with its     )              Hart[25]
        Constitution:  )              DIRECTOR[26]
[23] Handwritten signature in original.
[24] Stamped in original.
[25] Handwritten signature in original.
[26] Stamped in original.
…
39.     THESE conditions shall be read and construed not to contravene the law of the State of Queensland to the intent that where any provision of these conditions would but for this clause have been construed as being so in contravention it shall notwithstanding be a valid provision to the extent to which it is not so in contravention.
AND the execution of these presents by the company under its seal is an acknowledgement that this and the preceding pages shall be read with and form part of the debenture to which the same are annexed.
IN WITNESS WHEREOF HARTS MORTGAGE CORPORATION LIMITED ACN 010 410 250 has executed these presents this 27^th [27] day of July[28] 2001
EXECUTED BY HARTS MORTGAGE    )
CORPORATION LIMITED                  )      Stevens [29]           Hart [30]
ACN 010 410 250 in accordance with its     )
Constitution:  )      SECRETARY[31]     DIRECTOR[32]
[27] Handwritten in original.
[28] Handwritten in original.
[29] Handwritten signature in original.
[30] Handwritten in original.
[31] Stamped in original.
[32] Stamped in original.

The salient matters to note about the Deed of Charge at this point are:
·The specific reference to the “Deed of Loan”, being the Loan Agreement.
·The granting by HMC to Merrell of a charge over its assets and property as well as a floating charge, in the event of a default of Harts Australasia in respect of the repayment of the principal sum under the Loan Agreement.
·Stevens and Hart executed the Deed of Charge on behalf of HMC as secretary and director respectively. The stamps delineating these offices were affixed at a later time by an unknown person.
·The applicable State was expressed to be Queensland.
The Deed of Charge was subsequently lodged with the Australian Securities and Investment Commission (“ASIC”) along with a Form 309 “Notification of Details of a Charge” executed by Stevens in his capacity as secretary of HMC.
Guarantee and Indemnity
The parties to the Guarantee and Indemnity were HMC and Merrell. The relevant paragraphs of the document are as follows.[33]
[33] CD(2) 382-90.
THIS GUARANTEE AND INDEMNITY is made on the date specified in the schedule hereto BETWEEN the person described in the schedule as “the guarantor” of the one part AND the corporation described in the schedule as “the mortgagee” (hereinafter called “the mortgagee” of the other part)
WHEREAS
A.At the request of the guarantor (as testified by its execution hereof) the mortgagee has agreed to enter into the agreement specified in the schedule under the heading “the agreement” (hereinafter called “the agreement”) with the borrower described in the schedule as “the borrower” (hereafter called “the borrower” and has agreed to enter into the transactions provided for in the agreement.
B.The mortgagee and the borrower may agree upon other transactions pursuant to or secured by or contemplated by the agreement.
C.For the consideration aforesaid and for other valuable consideration the guarantor has agreed to execute this guarantee and indemnity.
NOW THIS DEED WITNESSES in consideration of the premises and pursuant to the agreement:
1.      THAT subject only to clause 2 hereof:
(a)the guarantor HEREBY GUARANTEES to the mortgagee each and all sums of money interest and damages whether present future or contingent which the borrower may be or hereafter become liable to pay to the mortgagee under or pursuant to the agreement or arising from any breach of the agreement or on any account which the agreement secures or in respect of any transaction contemplated by the agreement; and
(b)to the extent (if any) that the guarantee set forth in paragraph (a) may be void or unenforceable by reason of the fact that all or any of the obligations of the borrower to the mortgagee to pay money interest or damages according to the purport of the agreement or any alleged oral or written contract or understanding pursuant to or to be secured by or which is contemplated by the agreement may not be or may cease to be enforceable against the borrower the guarantor INDEMNIFIES the mortgagee in respect of any failure of the borrower to make any such payment as would otherwise have formed part of the moneys the subject of the guarantee referred to in paragraph (a).
…
THE SCHEDULE
DATE:The 27[34] day of JULY[35] ~~AUGUST~~ [36] 2001
[34] Handwritten in original.
[35] Handwritten in original.
[36] Amendment initialled in original.
THE BORROWER:       HARTS AUSTRALASIA LIMITED ACN 091 395 630
…
THE MORTGAGEE:     MERRELL ASSOCIATES LIMITED
…
THE GUARANTOR:    HARTS MORTGAGE CORPORATION LIMITED
ACN 010 410 250
…
THE AGREEMENT:     Deed of Loan dated or intended to be dated on even date herewith between the Borrower and the Mortgagee in connection with an advance by way of accommodation of A$900,000.00 to be secured by this Guarantee and the Guarantor’s security as set out hereunder.
GUARANTOR’S SECURITY:
Fixed and Floating Mortgage Debenture Charge over the assets of the Guarantor dated or intended to be dated on the date hereof.
IN WITNESS WHEREOF the guarantor has executed these presents on the date abovementioned.
EXECUTED by HARTS MORTGAGE      )  Stevens[37]
CORPORATION LIMITED                   )  SECRETARY[38]
ACN 010 410 250 in accordance with its      )  Hart[39]
Constitution:  )  DIRECTOR[40]
[37] Handwritten signature in original.
[38] Stamped in original.
[39] Handwritten signature in original.
[40] Stamped in original.
In relation to the Guarantee and Indemnity I note that:
·The Loan Agreement, and the fact that Merrell has agreed to the terms of the Loan Agreement, is specifically referred to.
·The Deed of Charge is specifically referred to as a “Fixed and Floating Mortgage Debenture Charge over the assets of [HMC]”.
·Stevens and Hart executed the Guarantee and Indemnity on behalf of HMC as secretary and director respectively. Again, the stamps delineating the positions of office were affixed at a later time by an unknown person.
Second Mortgage
The second mortgage over the Kadina property is dated 27 July 2001, and is executed by Jobera as mortgagor in favour of HSS as mortgagee. The First Mortgage is noted as an encumbrance, and the consideration is stated to be $900,000, which is repayable in accordance with the terms of the mortgage.
The relevant terms of the Second Mortgage are the following sub-clauses:[41]
1.
(a)That the Mortgagor shall pay to the Mortgagee the Principal Sum or so much thereof as shall then remain outstanding on the 27[42] day of July[43] 2003.
(b)That the Mortgagor shall pay to the Mortgagee interest on the Principal Sum or so much thereof as shall then remain outstanding calculated at the rate of nine per centum (9%) per annum monthly in arrears.
(c)That if a default is made in the payment upon the due date of any sum payable to the Mortgagee under this security the Mortgagee shall be entitled to charge and the Mortgagor will pay simple interest on that sum from the date of the default until the sum is paid at the rate of eleven per centum (11%) per annum.
[41] Copy documents Vol 2, at 364.
[42] Handwritten in original.
[43] Handwritten in original.
Stevens executed the Second Mortgage on behalf of Jobera. He was at that time the sole director, as Hart had resigned on 20 July 2001. A stamp of “SOLE DIRECTOR & SOLE SECRETARY” was inserted next to Stevens’ signature, however, once again, this appears to have been inserted at a later time by a person unknown.
Priority Agreement
The final of the five documents is the Priority Agreement entered into between Merrell, HSS and Jobera. The relevant paragraphs of the document are as follows.
PRIORITY AGREEMENT
THIS AGREEMENT made the 27[44] day of JULY 2001[45]
[44] Handwritten in original.
[45] Handwritten in original.
BETWEEN:        MERRELL ASSOCIATES LIMITED (called “Mortgagee”)
ANDHARTS STAFF SUPERANNUATION PTY LTD ACN 073 447 079 (called “Harts”)
RECITES:
1.JOBERA PTY LTD ACN 067 129 248 (called “Mortgagor”) a mortgage registered no. 8021269 in South Australia, (called “the Mortgagee Security”) over real property described in it to secure repayment of loans, advances, credits or financial accommodation referred to in it together with interest and other moneys mentioned in it and the Mortgagee is the present holder of the benefit of such Mortgage.
2.The Mortgagor also executed another security (being a Mortgage) dated the 27^th day of July 2001 (called “the Subsequent Security”) over that property in favour of Harts to secure repayment to of a loan together with interest and other moneys as mentioned in the Subsequent Security.
3.Harts and the Mortgagee enter into this Agreement to maintain an agreed order of priority as between the Mortgagee Security and the Subsequent Security.
IN CONSIDERATION of their Agreement Harts and the Mortgagee mutually agree and declare between them:
1.In order of priority as between the Mortgagee Security and the Subsequent Security for the moneys secured respectively by them shall be:
FIRSTLYThe Subsequent Security and all moneys from time to time secured by it to the extent of a maximum principal sum of NINE HUNDRED THOUSAND DOLLARS ($900,000.00) and all interest on it (whether capitalised or not) and all customary and other charges, costs, expenses or outlays which Harts may from time to time be entitled to debit and charge under the provisions of the Subsequent Security.
SECONDLY(after satisfaction of the first priority). The Mortgagee Security and all moneys from time to time secured by it remaining unpaid.
2.(No Marshalling) Neither Harts nor the Mortgagee may require the other of them to resort to any other security or right that the other may hold from any person before it has recourse to its security.
3.(Obligations Secured) Each security may secure (among other things) running accounts, continuing and varying obligations from time to time undertaken by Harts and the Mortgagee under their respective securities, and other continuing and varying obligations including contingent obligations of the Mortgagor to each of them under those securities.
4.(Matters Not Affecting Liability) The priorities now established apply despite:
·the dates of execution and registration of the securities;
·Harts or the Mortgagee having notice of the other’s security or the date of that notice;
·the dates on which money is advanced or deemed to be advanced, or becomes owing or payable under a security;
·the repayment from time to time of any money secured by the securities;
·the amount secured by a security fluctuating and in particular being reduced and subsequently increased;
·the re-lending or re-advancing of money, the lending or advancing of additional money or the furnishing of further financial accommodation, secured by a security;
·the partial discharge or release of a security or the receipt of money by Harts or the Mortgagee in consideration of that partial discharge or release;
consideration of that partial discharge or release;
·any amount secured by a security being a contingent liability;
·a security being or becoming at any time and for any reason wholly or partly invalid or unenforceable;
or
·anything contained in the securities or any rule of law or equity to the contrary.
…
EXECUTED by Harts and the Mortgagee on the date first appearing.
EXECUTED by HARTS STAFF             Stevens[46]    DIRECTOR[47]
SUPERANNUATION PTY LTD
ACN 073 447 079 in accordance with
its constitution  Stewart[48]    DIRECTOR[49]
[46] Signature in original.
[47] Stamped in original.
[48] Signature in original.
[49] Stamped in original.
EXECUTED BY MERRELL                  For and on behalf of
ASSOCIATES LIMITED in accordance    MERRELL ASSOCIATES LIMITED[50]
with its constitution  Horne[51]
  Authorized Signature(s)
EXECUTED BY JOBERA PTY LTD
ACN 067 129 248 in accordance with        Stevens[52]  SOLE DIRECTOR &
[50] Stamped in original.
[51] Signature in original.
[52] Signature in original.
[53] Stamped in original.
its constitution  SOLE SECRETARY[53]
Matters I note at this point from the Priority Agreement are:
·The parties are: Jobera as the registered mortgagor of the First and Second Mortgages; Merrell being the present holder of the benefit of the First Mortgage; and HSS as the present holder of the benefit of the Second Mortgage.
·The third recital states that the purpose of the Priority Agreement is to establish between HSS and Merrell an agreed order of priority between the First and Second Mortgages.
·The Second Mortgage to be given priority is expressed to be all moneys from time to time secured by the Second Mortgage up to a maximum of $900,000 and all interest on it whether capitalised or not. The First Mortgage expressed as all moneys from time to time secured by it but remaining unpaid.
·The consideration for the Priority Agreement as expressed is stated to be “In consideration of their Agreement Harts and the Mortgagee (Merrell) mutually agree…” (emphasis added). There is some ambiguity as to the expression “their Agreement”. Elsewhere in the document the Priority Agreement is referred to as “this Agreement”.   I note that the parties to the agreement are Merrell and HSS. The Priority Agreement is executed by Merrell, HSS and Jobera. Both the recital and the terms of the Priority Agreement explicitly refer to the Second Mortgage. In my view the expression “their Agreement” is a reference to agreement reached by Jobera, HSS and Merrell as to the Second Mortgage and the prioritisation of the Second Mortgage over the First Mortgage as identified in the Priority Agreement itself. For reasons which I develop hereafter, in my view the consideration for the Priority Agreement is not contained entirely within the terms of the Priority Agreement but includes also the Loan Agreement.
·The Priority Agreement is executed on behalf of HSS by Stevens and Stewart as director and secretary respectively; on behalf of Merrell by Horne; and on behalf of Jobera by Stevens.
·A stamp of “SOLE DIRECTOR & SOLE SECRETARY” was affixed next to Stevens’ signature in relation to his execution on behalf of Jobera. This stamp (and the others applied next to the HSS execution clause) was applied at an unknown time by an unknown person.
It is Stevens’ understanding that after all five documents were executed where required by Stevens, Hart and Stewart, Klooger took the documents back to his office to arrange execution by Merrell. Following that, Klooger was to arrange for lodgement of the Second Mortgage and the Priority Agreement at the LTO by Moody Rossi. On 28 July 2001 the receipt of $900,000 was acknowledged by the Fund from Bomilsco.[54]
[54] CD(2) 302.
Klooger did not send Merrell the documentation until 16 August 2001. On that date a letter was sent to Merrell by Klooger enclosing the Loan Agreement and Priority Agreement in triplicate, and a Memorandum of Transfer between Cardinal and Merrell. The letter requests the urgent execution of the enclosed documents, and confirms that other documentation had also been prepared, but was not enclosed, as no signature by Merrell was required. Horne returned the executed documents on 21 August 2001.
On 4 September 2001 Klooger sent Moody Rossi the Second Mortgage, the Priority Agreement, and two Memoranda of Transfer for lodgement in South Australia. The two Memoranda of Transfer were in relation to the transfer of the First Mortgage from Perpetual to Cardinal, and from Cardinal to Merrell, as already described in paragraph [27] above. The Second Mortgage and the two Memoranda of Transfer were registered on the titles of the Kadina property on 13 December 2001.
APRA inquiries
The first Notice of Inquiry from APRA arrived on 6 August 2001. The Notice was addressed to HSS, and required the provision of a statement by 9am on 9 August 2001 signed by a director of HSS, addressing the following information:
1The superannuation guarantee contributions received by the Fund from all sources between 1 July 2000 and 28 July 2001.
2The number of roll-over and benefit payment requests received by the Fund, and the number processed to completion, since May 2001.
3Whether the Fund is in a position to pay all roll-over and benefit payment requests as at 3 August 2001 from cash funds or their equivalent.
4The Fund’s position with regard to assets represented by “cash at bank” as at 31 July 2001.
The response to this letter was prepared by Stevens and sent by facsimile on the morning of 9 August 2001. With regard to item 1, Stevens stated that a statement of contributions had been prepared by Stewart, but that Stewart was required to attend a medical appointment that day and therefore the statement could not be forwarded until his return. This statement was eventually provided by facsimile to APRA in the afternoon of 9 August 2001, and lists the $900,000 contribution payment from Bomilsco as being received on 28 July 2001. In relation to item 2, Stevens stated that 87 requests were pending, and that these would be processed upon McDonald’s return from annual leave. Item 3 was answered with the assurance that the Fund was able to pay all 87 requests from cash funds as at 3 August 2001, and item 4 with the statement that the Fund currently had $79,676.64 “held in Bankers Trust and Macquarie Bank Cash Management Accounts”.
The first Notice Requiring Production of Books from APRA was also received by HSS on 6 August 2001. The Notice requested the production of the Fund’s bank statements; documents evidencing roll-over and benefit payments; documents evidencing receipt of contributions; and a trial balance for the Fund for the 2000/2001 financial year. HSS’s response to this Notice was provided on 14 August 2001 by letter enclosing bank statements, an outline of roll-over and benefit payments for the time period requested, and copies of receipts for employer contributions.
On 22 August 2001 APRA sent a letter to HSS acknowledging receipt of Stevens’ response to the two 6 August 2001 Notices, but noting that a number of items requested remained outstanding. The letter also enclosed two further Notices. The first requested further detail about the 87 requests for roll-over and benefit payments and, notably, requested details of all contributions received since 1 July 2000, including whether the contributions were received in cash form. The second Notice requested the production of a detailed statement as to the assets of the Fund, and specifically requested a copy of the relevant bank statement evidencing the $900,000 contribution from Bomilsco to the Fund on 28 July 2001.
Stevens sent a letter in response on 30 August 2001. Stevens advised APRA that the $900,000 contribution from Bomilsco was made by way of an in specie contribution, and stated that this information had been communicated to APRA previously. In response to questions asked during cross-examination, Stevens stated that at that stage of events his understanding of the purpose of the APRA inquiries was to satisfy APRA that the contribution owed by Bomilsco had been made. In Stevens’ view the issue was only due to complaints received by APRA from members of the Fund as to delayed roll-over payments. The question of whether the in specie contribution was a permitted contribution under the SIS Act had not, in Stevens’ view, arisen.
On 4 September 2001 two further Notices were issued by APRA to HSS. The topic of both was the in specie contribution. The Notices required, amongst other matters: particulars as to what form the contribution was in; an explanation as to how the trustee assessed the in specie contribution value at $900,000; information as to whether the contribution was an in-house asset pursuant to s 71 of the SIS Act; and all books, records, correspondence and agreements in relation to the $900,000 contribution.
HSS’s response to the two 4 September 2001 Notices was sent on 5 September 2001. Stevens provided the following information in regard to the in specie contribution:[55]
1.(a) I advise the contribution received from Bomilsco Pty Ltd to the Fund was in the form of an in specie contribution being first ranking security to the value of $900,000 by way of mortgage over property situated in South Australia. This mortgage returns to the Fund an annual rate of return of 9 per cent (11 per cent if in default) and has a fixed term until 27 July 2003.
(b)The Trustee has assessed the value of the mortgage at its face value of $900,000 as outlined in the Memorandum of Mortgage, attached.
(c)I have attached a copy of details of employees of Bomilsco to which the said contribution is relevant. This information has previously been provided to the Australian Taxation Office. The period of the contribution is 1 July 2000 to 31 July 2001 (a thirteen month period). The contribution amount was by way of employer contribution only.
(d)In the opinion of the Trustee it is not an in-house asset under Section 71 of the Act.
[55] CD(2) 458.

In relation to Merrell, I am not satisfied that Merrell made any assumptions as to whether or not the in specie contribution would be effective for the purposes of the Administration Act or that it made any assumption as to whether Bomilsco would be relieved of the imposition of a charge. Its concern related to the adequacy of the security provided by HMC. I am not satisfied that Merrell would thereby regard the failure of the in specie contribution as of any relevance to it. If the security from HMC had been adequate, then Merrell would have been satisfied.
Therefore, for multiple reasons, I am not satisfied that the doctrine of frustration applies either in relation to the Priority Agreement, the Second Mortgage or indeed the entire transaction concerning all five agreements. I reject the application of frustration as a defence to the claim.
Common mistake
It has often been said that the concepts of common mistake and frustration are related. The common feature is that they both deal with the impact of events which were unknown to the parties when they entered into the contract. The difference is that common mistake applies to a contractual assumption of a present fact, whilst frustration applies to the assumption of a future act. Common mistake is generally confined to mistakes of fact, but this is not invariable.[115]
[115] Solly v Butcher [1950] 1 KB 671; Cf Rogers v Ingham (1876) 3 Ch D 351.
All of the impediments discussed above to the application of frustration in this matter also apply to common mistake. In addition, even if there was a common assumption, it related to a future matter and not a present matter. It was a future matter, because it was dependent upon a decision being made by APRA and/or the ATO as to whether or not the in specie contribution would be accepted and whether or not there would be an imposition of a charge.
I am also not satisfied, for reasons that I have expressed earlier, that an in specie contribution could not be made under the Administration Act. Therefore, a mistake was not made as to an assumption that such a contribution could be made successfully.
Even if common mistake was made out and I held that the contract was, as a consequence, void at common law and equity, the contract would then be the subject of a recision argument.[116] So far as recision is concerned, this is dependent upon there being some form of unconscionability or fraud or misrepresentation. No such characterisation applies in this case.
[116] Carter, Peden and Tolhurst, Contract Law in Australia (5th ed, 2007) 449 [20] – [29].
For the above reasons, I reject Merrell’s submission that the doctrine of common mistake ought to operate to vitiate the agreement.
Estoppel and ratification by Merrell
Qld Nominees submitted that, even if deficiencies were evident with regard to the execution of the Second Mortgage or the Priority Agreement, Merrell is estopped from denying the effectiveness of both documents because of the actions of its officers and shareholders. The circumstances relied upon in support of this submission was the knowledge of Horne, who was the operating mind of Merrell at the time and the operating mind of Champion, Merrell’s director.
I have already briefly discussed the principles relating to ratification within my consideration of the similar submission led with regard to Jobera’s conduct. I repeat only that it must be shown by Qld Nominees that the actions of those in control of Merrell must be consistent with a finding that they agreed to take the action which is now in dispute.
The director of Merrell was Champion, and the director and shareholder of Champion was Horne. The following action was taken by Horne in relation to the decision to enter into the transaction:
·On 27 July 2001 Horne sent a letter to Klooger confirming Merrell’s agreement to the transaction, and instructing Klooger to prepare the necessary documentation;
·Horne drew up minutes of a meeting of Merrell confirming the resolution of the company to instruct Klooger to take the action requested in the 27 July 2001 letter, and resolving that all documents necessary for the transaction be executed by Horne for and on behalf of Champion as sole director of Merrell;
·Horne executed the Priority Agreement and the Loan Agreement, and also executed the Memorandum of Transfer of Mortgage between Cardinal and Merrell in order to facilitate the registration of the Second Mortgage and the proper operation of the Priority Agreement.
At a later stage, Merrell, through Klooger on 2 October 2001, assisted Stevens with regard to answering APRA’s inquiries into the conduct of the Fund and the effectiveness of the transaction.[117]
[117] CD(2) 525.
In short, I am satisfied that Merrell knew the nature of the transaction and endorsed the transaction. The fact that the security it obtained by the Loan Agreement was deficient is a matter that lies against HMC, as well as Harts Australasia. Merrell is therefore estopped from denying the validity of the documents.
Misrepresentation
Merrell pleads innocent misrepresentation and/or misleading and deceptive conduct both as a defence and also a counterclaim.[118] These claims rely on the same two representations, which are alleged to have been made orally. The pleading is somewhat unusual in that the oral representations are alleged to have been made by HSS to Merrell, by Stevens and/or Stewart making representations to Hart who in turn relayed the representations to Merrell, with the knowledge of HSS.[119] Hart is pivotal and he is not a party to the action and he was not called to give evidence.
[118] Second defendant’s Further Amended Defence & Counterclaim, paragraphs 5(c) and 6.
[119] Second defendant’s Further Amended Defence & Counterclaim, paragraphs 11-22 and 34-42.
The first representation is set out in precise terms in [16] of the Further Amended Defence and Counterclaim:
16.     On or about 18 July 2001, HSS represented (“the first representation”) that:
(a)     if by 28 July 2001 Jobera undertook to pay $900,000 plus interest to HSS, secured by a mortgage to HSS over the Kadina land; and
(b)     if by 28 July 2001 Merrell entered into a priority agreement with HSS whereby Merrell gave priority to the mortgage to be given by Jobera over the first mortgage to the extent of $900,000 plus interest;
(c)     then there would be a contribution of the Fund (as “the Fund” is defined in paragraph 8 of the statement of claim) which would prevent a SGC being imposed on Bomilsco in respect of the 2001 year.
Particulars
(d)     The representation was oral and was made by Stewart and Stevens on behalf of HSS:
(i)    directly to Steven Irvine Hart (“Hart’) at a meeting on or about 18 July 2001; or, in the alternative
(ii)     directly to Hart by Stevens alone on or about 18 July 2001.
The second representation is set out in [17] of the Further Amended Defence and Counterclaim:
17.On or about 18 July 2001, HSS represented (“the second representation”) that there was no substantial doubt or realistic risk that the first representation was incorrect.
Particulars
(a) The representation was implied from the matters that:
(i)the first representation was made without any qualification or warning that it might be incorrect;
(ii)each of Stewart and Stevens had particular knowledge and skill such that it would be expected that they would provide such a warning if it were necessary;
(iii)in respect of Stewart, that knowledge and skill arose from his position as a senior financial officer in the Harts Group with special responsibility for superannuation matters;
(iv)in respect of Stevens, that knowledge and skill arose from his position as de facto legal counsel for the Harts Group;
(v)Hart knew each of the matters pleaded in subparagraphs (iii) and (iv) hereof.
Paragraph 18 alleges that both representations were then made to Merrell and is inferred by reason of the matters set out in [19] as follows:
19. The matter in the previous paragraph is to be inferred from the facts that:
(a) Stewart and Stevens were directors of HSS as at July 2001;
(b)At a meeting occurring on or about 17 July 2001 Hart asked Stewart and Stevens to consider, in their capacity as directors of HSS, whether they thought that the matter pleaded in paragraph 16(a) to (c) was correct;
(c)Each of Stewart and Stevens knew that:
(i)Hart was relying on them to advise whether that matter was correct; and
(ii)Hart was communicating with Merrell about that matter and would communicate the substance of their advice to Merrell.
Finally, it is asserted in [22] that Hart communicated the representations to Merrell on 27 July 2001.[120]
[120] Second defendant’s Further Amended Defence & Counterclaim, paragraph 22.
In my view the alleged misrepresentations as either a defence or counterclaim cannot be made out; primarily for lack of an evidentiary foundation.
I make the following preliminary observations about the alleged representations.
The pleading of misrepresentation contrary to the TPA is at best minimalist. There is reference to s 51A of the TPA and relief is sought pursuant to s 87(2)(a) of the TPA, but there is no pleading as to which section of the TPA is claimed to have been contravened. It is an offence or contravention of the TPA which must enliven the application of sections 51A and 87(2)(a). I am assuming that it was intended to rely on a contravention of s 52 of the TPA in relation to misleading or deceptive conduct.
The “first representation” contains two representations, the first from Stevens and/or Stewart (on behalf of HSS) to Hart and, the second, the reconveying of the alleged representation from Hart to Merrell. The nub of the “first representation” is contained in paragraph 16(c), which itself contains two parts, first that there would be a contribution to the Fund and second that the contribution would prevent a Superannuation Guarantee Charge from being imposed on Bomilsco for the 2001 financial year.
The “second representation”, which is an alleged implied representation, is dependant upon making out the first representation as can be seen from the opening sentence of [17] and also the content of [19(b)]. It particularly builds upon [16(c)] and is confusingly couched in the double negative. The effect of which I understood from submissions to be that Stevens and/or Stewart impliedly represented to Hart, who in turn represented to Merrell, that there was “no substantial doubt or realistic risk” that the in specie contribution would be ineffective in preventing the imposition of a Superannuation Guarantee Charge on Bomilsco.
The evidence fell well short of providing a foundation for the alleged misrepresentations.
First, there is no evidence that the oral representations were made to Merrell at all either by Hart, let alone by HSS through Hart.
Second, the evidence of Stevens and Stewart did not support that they made the alleged oral representation to Hart as set out in [16(c)] either expressly or implicitly. Neither Stevens nor Stewart were cross-examined on the specific representations alleged against them. The evidence of Stevens and Stewart, such that it was, suggested to the contrary. Their evidence was that their concern was to secure a contribution in specie for the members of the Fund and was not whether a Superannuation Guarantee Charge would be imposed on Bomilsco. Therefore, this essential representation fails, from the start, as not being made out on the evidence.
Third, the evidence of Horne as discussed in paragraphs [65] – [69] does not support that he was told by Hart that the contribution to the Fund would “prevent a Superannuation Guarantee Charge being imposed on Bomilsco in respect of the 2001 year”. Horne stated that although Hart explained that there would be “serious consequences” if payment was not made by a certain date, he did not explain those consequences. In particular, Horne said that he had no view about the effectiveness of providing the contribution in specie or about the effectiveness of the transaction as a whole. The transaction as he saw it was in accordance with what Klooger was asking and recommending him to do. The letter from Klooger which Horne said reflected the information conveyed by Klooger, makes no mention of a Superannuation Guarantee Charge. Therefore Horne’s evidence does not support the representations alleged in para 16(c). Also, it does not support the implied second representation set out in para 17, namely that there was no substantial doubt or realistic risk that the first representation was incorrect.
Fourth, there was no evidence which would support reliance by Merrell on any such representations. Even if one of the representations had included that the contribution would prevent a Superannuation Guarantee Charge being imposed on Bomilsco, but that contrary to that representation a penalty was later imposed on Bomilsco, there is no evidence given by Horne which indicated that such a representation was relied on by him in entering into the Priority Agreement.
For these reasons, I therefore reject the claim of either innocent misrepresentation or misleading and deceptive conduct as pleaded.
It is not necessary for me to delve into the complexities as to whether the alleged representations were the conveyance of opinion rather than a predictive representation which would attract the evidentiary provisions of s 51A of the TPA. Nor is it necessary for me to discuss the complexities of the conveyance of information through intermediaries. The argument of Merrell fails from the outset.
Effect of deregistration of HSS
This final submission of Merrell’s, as with the majority of the others, depends on my determination as to whether the Second Mortgage vested in law in Qld Nominees. Although I have found that this was the case, I will consider Merrell’s final argument for the sake of completeness.
Merrell submitted that, assuming Qld Nominees had at best an equitable interest in the Second Mortgage under s 138 of the SIS Act, this interest was extinguished when HSS was deregistered because at that point HSS’s interest in the Second Mortgage vested in the Crown pursuant to s 601AD of the Corporations Act. Counsel for Merrell submitted that this gave the Crown a legal title over the property and that this was superior to Qld Nominees’ equitable title, and therefore Qld Nominees was unable to enforce the Second Mortgage. A discussion of this argument renders it necessary to ignore the fact that I have found that the Second Mortgage vested in law in Qld Nominees by virtue of the Property Vesting Order issued by a delegate of APRA on 25 October 2001, perfected by the subsequent registration of the vesting in accordance with the RPA.
The relevant dates for consideration of this order are as follows. Qld Nominees was appointed trustee of the Fund on 25 October 2001. On the same date the property of the Fund was vested in Qld Nominees by virtue of the Property Vesting Order issued by a delegate of APRA. The Property Vesting Order was registered on the title on 4 June 2003. HSS was not deregistered until 25 August 2003.
Merrell submitted that the Property Vesting Order provided Qld Nominees with at best an equitable interest in the Second Mortgage, and that HSS maintained its legal title to the Second Mortgage until its deregistration on 25 August 2003. At that time, Merrell submitted that the Crown obtained legal title or at least an equitable title to the Second Mortgage pursuant to s 601AD. Section 601AD(1A) provides:
On deregistration, all property that the company held on trust immediately before deregistration vests in the Commonwealth…
Section 601AD(3) provides that upon deregistration, the Crown takes only the same property rights as the company itself held, subject to any security, interest or claim already existing over the property at the time of the company’s deregistration.
The Property Vesting Order imposed by APRA on 25 October 2001 was a vesting of the whole of the property held by HSS in Qld Nominees. In this respect the wording of s 138 of the SIS Act is the same as s 601AD(1A). In my view, this vesting order altered the property rights of HSS over the second mortgage. HSS no longer had any beneficial interest in the Second Mortgage.
Even assuming that Qld Nominees did not ever obtain a legal interest in the Second Mortgage and that the Crown obtained the legal interest upon HSS’s deregistration, the Property Vesting Order became registered on the Certificate of Title on 4 June 2003 which was prior to HSS’s deregistration on 23 August 2003. This registration defeated any interest of HSS in the Second Mortgage, there was therefore no property to vest in the Crown as the property was already vested in another entity.
Therefore this argument also fails for other reasons apart from its foundation being incorrect.
Conclusion
For the reasons set out above, I reject all of the arguments of the defendants as to their defence and their counterclaims.
I am satisfied on the evidence that Qld Nominees is the registered mortgagee of the Second Mortgage on the Kadina property and is entitled to enforce the Second Mortgage.
I am also satisfied that Qld Nominees is entitled to enforce the Second Mortgage in the terms in which it is expressed in the document dated 27 July 2001.[121]
[121] Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1,17; Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423, 434-435; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643,681; Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81, 100.
I am also satisfied that the Priority Agreement is valid and binding in accordance with its terms and that Qld Nominees is entitled to have the Second Mortgage given priority over the First Mortgage registered on the Kadina property. As a consequence Qld Nominees is entitled to certain declarations. In addition, Qld Nominees has sought an order that it is at liberty to take and enter into possession of the Kadina property.
This order is sought by reason of the following facts which were largely admitted by the defendants in their defences.
By letter dated 11 March 2002 Qld Nominees served a Notice of Default on Jobera, pursuant to the Second Mortgage.[122] In a letter dated 22 March 2002, Jobera advised Qld Nominees that Merrell intended to contest the Priority Agreement and the Second Mortgage and proposed payment of interest into a solicitor’s trust account, pending resolution of the dispute. I do not know whether this has occurred.
[122] CD(4) 1135-6.
On 22 July 2003, Qld Nominees by letter demanded that Jobera pay the principal sum of $900,000 together with outstanding interest of $179,345.64. By letter dated 25 July 2003 Jobera rejected Qld Nominees’s claim.[123] On 29 July 2003 Merrell, through its solicitor, advised Qld Nominees that it regarded the Second Mortgage as unenforceable.[124]
[123] CD(5) Tab 15.
[124] CD(5) Tab 16.
It is common ground that Jobera has not paid either the capital sum or the interest due under the Second Mortgage.
Section 137 of the RPA permits a mortgagee to enter, take possession or bring an action for recovery of land for non-payment of a principal and interest. Qld Nominees has sought relief which is expressed as though it was seeking a declaration, without so specifying it.
By reason of matters indicated earlier, I consider that Qld Nominees is entitled, pursuant to s 137 of the RPA to enter into possession of the Kadina property as sought. It does not have to obtain a court order before it can take this action, however it appears that it wished to obtain a court assurance that this action would be valid given the overall issues in the case. I regard this as being an appropriate subject for a declaration.
I therefore make the following orders:
1A declaration that Mortgage No 9189316 registered on Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876 is a valid and binding Mortgage and enforceable according to its terms.
2A declaration that Mortgage No 9189316 on Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876 became vested in HL (Qld) Nominees Pty Ltd, which vesting is validly registered on the said Certificates of Title by instrument No 9597989.
3A declaration that the Priority Agreement dated 27 July 2001 is valid and binding on the parties in accordance with its terms. Further that HL (Qld) Nominees Pty Ltd is entitled to have Mortgage No 9189316 registered on Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876, and given priority over Mortgage No 8021269 which was transferred to Merrell Associates and registered by instrument No 9189315.
4A declaration that Qld Nominees is entitled pursuant to s 137 of the Real Property Act 1886, to enter into possession of the land contained in Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876.
5A injunction restraining Jobera Pty Ltd and/or Merrell Associates Ltd from dealing with the land comprised in Certificates of Title Volume 5316 Folio 674 and Volume 5291 Folio 876.
6I dismiss each of the counterclaims of the defendants.

I will hear the parties as to other consequential orders sought as a result of my decision.