HP Mercantile Pty Ltd v Dierickx - [2013] NSWCA 479

Court of Appeal

New South Wales

Case Title: HP Mercantile Pty Ltd v Dierickx

Medium Neutral Citation: [2013] NSWCA 479

Hearing Date(s): 23 and 24 September 2013

Decision Date: 23 December 2013

Before: Beazley P at [1];
Meagher JA at [5];
Emmett JA at [10]

Decision:
1. The appeal be allowed.
2. The orders made by the primary judge on 31 August 2012 be set aside.
3. In lieu of those orders, there be judgment for the appellant against the first and second respondents for the balance of the principal of the loan made under the loan agreement entered into between Tumut River Orchard Management Limited, on the one hand, and Mr Ludo Dierickx and Mrs Wendy Dierickx, on the other hand, together with interest on that balance.
4. The respondents pay the appellant's costs of the appeal and of the proceedings at first instance.
5. The respondents have an order under the Suitor's Fund Act 1951.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: CONTRACT - assignment of debt - debt owed by the respondents - respondents borrowed from manager of managed investment scheme in order to invest in scheme - where appellant was assignee of that debt pursuant to a chain of assignments and sued respondents for debt - whether debt validly assigned to appellant - whether first assignment valid - whether directors of assignor company and assignee company under first assignment validly bound their respective companies under first assignment - where neither board of directors approved transaction - whether absence of directors' authority to bind assignor and assignee companies cured by ratification - whether ratification pleaded

TRADE PRACTICES ACT - misleading and deceptive conduct - prospectus for scheme involving orchards - whether representation made that funds invested by investors, which investors were to borrow from scheme manager, would be used for purpose of orchard expenses - whether, if made, that representation misleading or deceptive - whether scheme involved a "round robin" transaction - whether, if round robin, representation made and misleading and deceptive

TRADE PRACTICES ACT - where limitation period in s 87(1CA) had expired - whether that limitation period is a necessary incident or aspect of the underlying right, under s 87(1A), to damages for misleading and deceptive conduct, such that that right, and not merely the availability of the remedy for that right, is extinguished by effluxion of time

EQUITY - estoppel - whether parties to first assignment estopped from denying validity of first assignment as an equitable assignment - whether appellant, as privy of original creditor that obtained debt pursuant to chain of assignment, entitled to assert that estoppel against respondents - whether a privy by contract of a party that is entitled to enforce a conventional estoppel is itself bound by it

EQUITY - whether breach of fiduciary duty by scheme manager in relation to misrepresentation in respect of round robin - whether, if breach of fiduciary duty, there should be rescission of loan agreement - where loan agreement part of suite of arrangements entered into by investor borrowers in relation to scheme - whether rescission would require restitution of what investor borrowers gained from loan agreement

EQUITY - equitable set-off - whether either misleading and deceptive conduct claim or breach of fiduciary duty claim constituted basis for equitable set-off defence to respondents' obligation to pay debt - whether either claim impeached appellant's title to sue respondents, in that respondents' claim would not exist but for the breaches founding either claim

Legislation Cited: Civil Procedure Act 2005, s 65
Conveyancing Act 1919, s 12
Corporations Act 2001 (Cth), ss 128, 129
Corporations Law, ss 128, 129, Div 2 of Part 7.12 (as at April 1992)
Limitation Act 1969, s 54
Suitor's Fund Act 1951
Trade Practices Act 1974 (Cth), ss 52, 82, 87, 87(1A), 87(1CA), Parts IV, V, VI

Cases Cited: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394
James v Commonwealth Bank of Australia (1992) 37 FCR 445
McKain v RW Miller & Co (SA) Pty Ltd [1991] HCA 56; 174 CLR 1

Category: Principal judgment

Parties: HP Mercantile Pty Limited - appellant
Ludo Victor Dierickx - first respondent
Wendy Anne Dierickx - second respondent
Tumut River Orchard Management Limited (in liq) - third respondent

Representation

- Counsel: Counsel:
BW Walker SC with P Knowles - appellant
IM Jackman SC with S Fendekian - first and second respondents

- Solicitors: Solicitors:
Versace McKenzie Lawyers - appellant
Piper Alderman - first and second respondents

File Number(s): 2012/290553

Decision Under Appeal

- Court / Tribunal: Supreme Court

- Before: White J

- Date of Decision: 31 August 2012

- Citation: [2012] NSWSC 1005

- Court File Number(s): 2006/294773

Publication Restriction: Nil

JUDGMENT

BEAZLEY P: I have had the advantage of reading in draft the reasons of Emmett JA and the additional comments of Meagher JA. I agree with the reasons of Emmett JA, other than in respect of his Honour's reason's relating to the claim for misleading and deceptive conduct: see at [107]-[123] below. See also Meagher JA at [6]-[9].
The respondents applied for two allotments in an investment orchard scheme known as the Tumut River Orchard Project, at a subscription price of $12,000 per allotment. The Prospectus stated, relevantly, that the subscription price "will be paid [for] payment of orchard enhancement and maintenance expenses": Prospectus, cl 5; and that "the expenses associated with the establishment of Farming Allotments are payable out of the initial amounts received from Growers under Farming Agreements": Prospectus, Cash Distribution Estimates, p 29.
The respondents borrowed the entirety of the subscription price from Tumut River Orchard Management Limited (TROM), which was the owner of the land upon which the orchards were located as well as the manager of the cultivation, harvesting and marketing of the fruit under a Farming Agreement which was part of the overall investment scheme. There was no dispute that sitting behind the loan to the respondents (and other investors in the scheme) was a round robin transaction whereby TROM borrowed monies from the Commonwealth Bank. Those monies were repaid immediately upon receipt of the loan monies that had been borrowed by the investors and used to pay TROM for the allotments. The round robin was not disclosed in the prospectus or other material provided to the respondents prior to their entering into the scheme.
In my opinion, the failure to disclose the round robin was misleading and deceptive for the reasons explained by the primary judge at [229]-[245] of his reasons: see HP Mercantile Pty Ltd v Dierickx & Ors [2012] NSWSC 1005. As I would not have reasoned the matter differently from his Honour, I respectfully endorse and adopt his reasons. As my decision on this point is in the minority, it is not necessary that I separately propose orders in the matter.
MEAGHER JA: I agree with the reasons and proposed orders of Emmett JA. I add the following observations in relation to the Borrowers' allegation of misleading or deceptive conduct.
The representation alleged to have been made was that the amount of $12,000 per farming allotment to be borrowed from TROM would be used or would be available for use for the purpose of paying orchard enhancement and maintenance expenses ($11,500) and licence fees ($500). I agree with Emmett JA that no such representation was made by TROM.
Assuming its financial position otherwise remained the same, the cash funds held by TROM before and after its lending transaction with the Borrowers (putting aside pre-payments of interest instalments and subsequent repayments of principal) would not be different because the funds to be advanced by TROM to the Borrowers were to enable them to make payments in an equivalent amount to TROM. Whether after that transaction TROM would retain cash funds at least equal to the amount received from the Borrowers would depend on whether the moneys advanced to them were paid from existing cash funds or from funds which were borrowed. If the latter, whether those funds when received remained available to it depended on the terms of its financing arrangements. Those arrangements could have required that the moneys received be repaid immediately to the financier. Equally, they could have permitted the moneys to be redrawn when needed; or they could have allowed the funds received to be retained by TROM for use as part of its working capital.
None of these possibilities was excluded by any information or statement in the Prospectus. Specifically, TROM did not represent that the advances which it was to make to the Borrowers would be made from existing cash funds rather than from borrowed funds. Nor did the Prospectus disclose, by reference to TROM's balance sheet, that there were cash funds held which were sufficient to make the proposed advances to investors, including the Borrowers.
There was also no representation made that the moneys paid by the Borrowers would be used for a particular purpose and that purpose only. Those moneys were paid, with the exception of the licence fee, in consideration of works "undertaken or to be undertaken". TROM was equally able to satisfy that obligation, to the extent that it remained to be performed, by using borrowed funds rather than any part of the specific moneys received from investors, including the Borrowers.
EMMETT JA: This appeal is concerned with a loan agreement (the Loan Agreement) entered into between the third respondent, Tumut River Orchard Management Limited (TROM), on the one hand, and the first and second respondents, Mr Ludo Dierickx and Mrs Wendy Dierickx (together the Borrowers), on the other. The appellant, HP Mercantile Pty Limited (HPM), claims to be an assignee of the Loan Agreement and sought to enforce it against the Borrowers. The Borrowers say that TROM's alleged contravention of s 52 of the Trade Practices Act1974 (Cth) (the Trade Practices Act) in connection with their entry into the Loan Agreement excuses them from liability to repay the loan made under the Loan Agreement. They also dispute that there has been an effective assignment to HPM of the Loan Agreement. Each of those two issues encompasses several subsidiary issues.
HPM sued the Borrowers in the Local Court. Those proceedings were subsequently transferred to the District Court. The proceedings in the District Court were subsequently transferred to the Supreme Court. TROM, which is now in liquidation, was the third defendant in the proceedings in all three courts. On 31 August 2012, a judge of the Equity Division directed the entry of judgment for the Borrowers and ordered that the proceedings be dismissed. HPM now appeals from those orders.

The Prospectus

The Borrowers entered into the arrangements with TROM on the basis of a prospectus dated 20 April 1992 and issued soon after (the Prospectus). The Prospectus promoted a managed investment scheme known as the Tumut River Orchard Project (the Project), involving the growing of peach or nectarine trees.
The Prospectus stated that the benefit of investing in the Project would depend in part on an investor's capacity to obtain a taxation benefit related to the fact that each investor "ought to be characterised as carrying on a business of primary production in his or her own right". Accordingly, an investor's expenses of a revenue nature incurred in that business were intended to be deductible expenses in relation to income tax. An investor could expect to receive tax deductions, for each $12,000 subscribed, of $9,233 in the first year, $1,224 in the second year and $1,225 in the third year. Where funds were borrowed to finance the investment, the interest expenses were also intended to be tax deductible, as well as the borrowing costs over five years from the borrowing date or over the period of the loan, whichever was less.
Each investor in the Project entered into two agreements with TROM, a farming agreement and a licence agreement. The investors were also referred to as "growers", although I shall refer to them as investors. TROM was to be the manager of the Project.
On 31 December 1990, TROM entered into an investment deed with the company appointed as the investors' representative, Permanent Trustee Company Limited (the Representative). Under the investment deed, the gross sale proceeds that TROM received as manager under the respective farming agreements were to be paid to the Representative. After deducting costs and expenses, the Representative was to credit each investor, in proportion to the investor's respective entitlements, a share of the net income of the Project.
The Project was to be conducted on a property known as Bombowlee, owned by TROM, and on a nearby property known as Riverlea, over which TROM held an option to purchase. The stated object of the Project was to extend existing stonefruit orchards located in the Tumut Valley by establishing new plantings of peach and nectarine trees, and to supply high quality peaches and nectarines to markets on the Australian east coast and, if commercially warranted, to export destinations. The Prospectus was the second prospectus offering farming allotments (allotments) in the Project. At the time of the Prospectus, 322 allotments remained available for subscription.
Some 284 allotments and 11 farms located on Bombowlee had already been sold. Farms were made available under the earlier prospectus, on each of which 900 peach or nectarine trees had been planted. The Prospectus stated that if subscriptions were received for at least 179 allotments, additional allotments would be situated on Riverlea. Bombowlee and Riverlea were referred to collectively as the Land.
The Prospectus stated that defined portions of the Land would be licensed to investors to grow peach or nectarine trees. Each investor was to have the benefit of a profit-à-prendre to enable it to farm the fruit. TROM was to coordinate management of the farming so as to achieve economies of scale in orchard maintenance and in the harvesting and marketing of the fruit.
The Prospectus stated, relevantly, that funds would be raised by each investor subscribing for allotments, which involved the investor entering into both a farming agreement and a licence agreement with TROM. The subscription price was $12,000 per allotment, payable in full on application.
Under each licence agreement, the investor was permitted to use and occupy an allotment, being a defined portion of the Land. Under each farming agreement, TROM was to supply trees to the investor, plant them and erect suitable trellises to supporting them. The agreements would entitle an investor to have 150 peach or nectarine trees cultivated on an allotment and to have the fruit harvested and sold in each fruit-bearing season. Each of the farming and licence agreements was to be for a period of 14 years. An investor was not to obtain a freehold or leasehold interest in the relevant allotment, which was to revert to TROM after the expiry of the agreements.
An investor taking up two or more allotments could apply for an investor loan from TROM. The principal amount of an investor loan was to be $24,050 per two allotments. Each loan was secured by the investor granting a charge over the investor's title and interest in the allotments and farming agreement.

Charges Statement

A section of the Prospectus headed "Charges Payable by Growers" (the Charges Statement) contained the statements set out in Schedule 1 to these reasons. The Charges Statement is of some importance to the Borrowers' case. It stated, in effect, that the subscription price of $12,000 per allotment would be applied as follows:
·orchard enhancement and maintenance expenses (Orchard Expenses) of $11,500 for the period from the date of the licence agreement and the farming agreement to 30 June 1993; and
·a licence fee of $500 for the period from the date of the licence agreement to 30 June 1993.
TROM was not entitled to seek any further payment in respect of Orchard Expenses from the investor and the investor was not entitled to any refund should the Orchard Expenses be less than that sum. The payment of $11,500 covered most, but not all, expenses for the period to 30 June 1993. Other expenses were listed that were to be deducted from the proceeds of the sale of fruit from each allotment.

Distribution Estimates

The Prospectus also contained a section entitled "Estimated Net Cash Distribution to the Grower" (the Distribution Estimates section), which provided an estimate of the net cash distribution for the first five years for each allotment. The estimates were as follows:
·1992/1993: $195
·1993/1994: $1,121
·1994/1995: $3,774
·1995/1996: $4,066
·1996/1997: $4,432
The net cash distributions were expected to be at the 1996/1997 level for five years, with the orchard having reached maturity. Average yields were then expected to decline over the final four years of the Project, reducing the net cash flow to investors by up to 22 per cent.
The Distribution Estimates Section stated that the expenses associated with establishing allotments were payable out of the initial amounts received from investors under the farming agreements. It also stated that TROM prepared the estimates on the basis of estimated orchard operating revenue and costs and price sensitivity analysis reports supplied by consultants. Finally, it stated in capital letters that neither TROM, nor the consultants, nor the Representative could guarantee that the projections would be achieved.

Accountant's Report

The Prospectus also contained a section entitled "Investigating Accountant's Report", consisting of a report by Mr RI Bilton, a partner of Dawson & Partners, chartered accountants (the Accountant's Report). The Accountant's Report was prepared for inclusion in the Prospectus, in accordance with the requirements of Div 2 of Pt 7.12 of the Corporations Law, as in force as at April 1992.
The Accountant's Report stated that TROM's principal activities since incorporation had been agricultural and residential property development and sale, covered by a separate prospectus, and the licensing of allotments, covered by the Prospectus. It summarised TROM's trading results since its incorporation, being some three years prior to 1991.
The Accountant's Report then summarised TROM's assets and liabilities, based on its audited accounts as at 30 June 1991. The statement of assets and liabilities, and certain of the notes relating to receivables and creditors and borrowing, are set out in Schedule 2 to these reasons. More particularly, the Accountant's Report disclosed that TROM's current assets consisted of cash of $189,149, receivables of $3,522,817, inventories of $1,507,690 and prepayments of $16,640. The inventories were stated to be raw materials, land held for resale and development costs, less provision for diminution in value.
The receivables consisted of the following:
·Applications held by the Representative: $192,435
·Loans to other persons: $821,681
·Loans to directors and associates: $2,508,701
The loans to directors and associates included loans to directors of $43,237 and loans advanced to a related company, Tumut River Orchard Finance Pty Limited, formerly Treetop Finance Pty Limited, of $2,445,350. The connection between TROM and Tumut River Orchard Finance Pty Limited and the purpose of the loan is not explained. There was no indication of whether the receivables were readily realisable.

The Accountant's Report showed that TROM has total assets of $6,208,712 and total liabilities of $4,655,971. Thus, TROM has net assets of $1,552,741.
The Accountant's Report disclosed that TROM had current liabilities of $4,591,735, consisting of:
·Trade creditors and accruals: $342,064
·Lease liabilities: $17,268
·Secured bank facilities: $1,239,938
Thus, it was clear from the Accountant's Report, which was set out in the Prospectus, that TROM was significantly dependent upon secured bank borrowings.
A further significant liability disclosed in the Accountant's Report was $2,845,197 for advance payments "received on development and maintenance agreements". That may be a reference to TROM's obligations under the farming agreements to carry out "Enhancement Works and Services" (Enhancement Works) and "Maintenance Works and Services" (Maintenance Works), which are discussed further below. However, no further information was disclosed concerning that liability.
Another liability disclosed in the Accountant's Report was $140,268 for deposits received on land sales. Immediately after the Accountant's Report was set out, the Prospectus disclosed that 37 allotments had been sold at a value of $444,000 under a preceding prospectus and that on 12 July 1991 approximately $400,000 of bank bills had been repaid from the proceeds of settlement of six farms. That suggests that TROM was to a significant extent dependent upon sales of allotments.
The Prospectus disclosed that TROM had acquired an option to purchase an additional 48 hectares for a purchase price of $503,000, which was to expire on 30 June 1992. It also stated that TROM had entered into an agreement to borrow $640,000 from the Commonwealth Development Bank, part of which would be used to finance the acquisition of those 48 hectares. That appears to be a reference to Riverlea.

The Licence Agreement and the Farming Agreement

On 23 June 1992, the Borrowers completed an application form attached to the Prospectus and subscribed for two allotments. At the same time, they applied for an investor loan and attached a cheque for the sum of $3,139, representing prepaid interest in respect of the proposed loan.
TROM issued to the Borrowers a form of licence agreement dated 30 June 1992 in respect of two allotments (the Licence Agreement). Under the Licence Agreement, TROM granted to the Borrowers a licence for 14 years, to commence on 30 June 1992, and the Borrowers agreed to pay an annual licence fee. They also agreed to use the allotments to conduct the business of planting, growing and harvesting stonefruit trees, to cultivate and farm the allotments according to the best methods of husbandry and to keep and to leave the allotments in their improved condition and in a clean state. TROM agreed that it would not interfere with the reasonable use and enjoyment of the allotments by the Borrowers during the term of the Licence Agreement.
TROM also issued to the Borrowers a farming agreement dated 30 June 1992 (the Farming Agreement), containing recitals to the following effect:
A. The Borrowers have acquired an interest or rights in allotments upon which trees have been or are to be planted.
B. The Borrowers wish to develop and enhance farming activities on the allotments by cultivating the trees.
C. The Borrowers wish to minimise the risk of drought and frost affecting the trees by the installation of an irrigation system and associated equipment to convey water for the purposes of their farming activities.
D. The Borrowers wish to ensure that their trees are properly maintained to ensure maximum production of high quality stonefruit.
E. The Borrowers wish to ensure that the fruit produced by the trees is properly harvested in each consecutive fruit-bearing season and sold for the best price that may be achieved.
F. TROM has agreed to undertake the works and to provide the services described in the Farming Agreement.
By the Farming Agreement, TROM agreed to supply for each allotment approximately 150 disease-free peach or nectarine trees. TROM agreed to plant the trees on the allotments, to store them before planting them and to carry out such watering, pruning, fertilising and other measures as required to keep the trees healthy. TROM also agreed to erect on the allotments suitable trellises to support the trees. Under cl 2, TROM was obliged, when required, to prune the trees, train and secure the trees to the trellises and take such other measures as reasonably required to maintain, nourish and tend the trees to a high industry standard. TROM's obligations under cl 2 were entitled "Management of Trees".
The Farming Agreement contained clauses imposing further obligations on TROM in relation to the following subjects:
Clause 3: Water Supply
Clause 4: Fertilisation of Soil
Clause 5: Control of Soil Erosion and Drainage Works
Clause 6: Control of Pests and Diseases
Clause 7: Service Road
Clause 8: General Maintenance
Clause 9: Harvesting
Clause 10: Storage and Packing
Clause 11: Marketing and Sale
Clause 18: Insurances
Clause 17 of the Farming Agreement was entitled "Completion of Works". It provided that within 13 months from the date of the Farming Agreement, TROM was to complete or perform the Enhancement Works as required. The Enhancement Works were distinct from the Maintenance Works. The Maintenance Works involved "Management of Trees", as required by cl 2, irrigation of the trees as required as required by cl 3.4, establishment of a manure crop between the rows of trees as required by cl 4.2 and "General Maintenance" as required by cl 8. The Enhancement Works included the following:
·Supply, planting, storing and trellising of trees.
·Supply and installation of an irrigation system.
·Fertilisation of the soil.
·Construction of buffer strips, excavated channels and the taking of other measures to prevent or minimise the occurrence of soil erosion and land degradation.
·Design of the field layout and carrying out land planing
·Design and construction of drainage works and inter-row channels.
·Supply of materials for and construction of a gravel service road to facilitate access for farming purposes.
·Engagement of the services of an independent horticultural consultant to provide advice as required on the development and enhancement of the allotments and the trees.
Clause 19 of the Farming Agreement dealt with payments. Clause 19.1 provided that in consideration for the Enhancement Works undertaken by TROM, the Borrowers were to pay to TROM on the date of the Farming Agreement the sum of $9,900 in respect of each allotment, made up as follows:
·Design, supply and installation of irrigation system $3,673
·Fertilisation of soil $743
·Control of soil erosion and drainage works $5,296
·Consultancy services $188
·Total $9,900
Clause 19.2 provided that in consideration of the Maintenance Works undertaken by TROM and for the cost of insurance, the Borrowers were, in addition to the payment referred to in cl 19.1, to pay to TROM:
·in respect of the first financial year, the sum of $1,600 payable on or before the date of the Farming Agreement;
·in respect of the second financial year, the sum of $1,800, payable on or before 30 June 1993;
·in respect of the third financial year, the sum of $1,800, payable on or before 30 June 1994; and
·in respect of each financial year thereafter, an amount equivalent to TROM's estimated costs of providing the relevant services, payable on or before 30 June in the immediately preceding financial year.
The effect of cll 19.1 and 19.2 was to require a payment of $11,500 on the date of the Farming Agreement, namely, 30 June 1992.
By cl 19.3, in consideration of harvesting and marketing services to be undertaken by TROM, the Borrowers were to pay to TROM an amount equal to the actual costs and expenses incurred in providing those services. Finally, under cl 19.4, in consideration for management services to be undertaken by TROM, the Borrowers were to pay to TROM an amount equal to five per cent of the gross proceeds, if any, to which the Borrowers were entitled from the sale of fruit pursuant to the Farming Agreement.

The Loan Agreement

On 30 June 1992, TROM and the Borrowers also entered into the Loan Agreement. The Loan Agreement was executed under TROM's common seal and by the Representative as nominee and agent for the Borrowers. By the Loan Agreement, TROM agreed to advance the sum of $24,050 to the Borrowers, who authorised TROM to remit that sum to the Representative. The maximum term of the loan was to be six years, with interest payable in cash annually in arrears. An initial interest payment of $3,139 per two allotments was payable. As I have said, the Borrowers paid that sum with their application form.
By the Loan Agreement, the Borrowers charged their title and interest in their allotments and the Farming Agreement as security for repayment of the loan made under the Loan Agreement. They agreed to repay the principal sum of the loan as follows:
·as to $1,500, three calendar months after the date of the Loan Agreement;
·as to a further $1,500, six calendar months after the date of the Loan Agreement; and
·as to the balance, by direct deduction from moneys payable by the Representative to the Borrowers, in respect of the income from their allotments, or on expiry or earlier termination of the Loan Agreement.

The Round Robin

The principal sums to be advanced under all of the loan agreements entered into by TROM with investors were to be remitted to the Representative. The Representative was then to apply the principal sums in satisfaction of the investors' obligations under all of their respective licence agreements and farming agreements, amounting to $12,000 per allotment.
That is to say, TROM was to lend to the investors the consideration that the investors had to provide in order to enter into the arrangements, which was $12,000 for each allotment. TROM was to lend them that amount by paying it to the Representative. In turn, the Representative was to pay that amount to TROM, to meet the investors' obligations under their respective licence agreements and farming agreements. The only funds that the investors were to put into the Project were the funds that TROM lent to them. Thus, TROM could not have been placed in any better cash position to manage the Project, so as to ensure its success, than it was already in before it entered into the licence agreements, farming agreements and loan agreements with the investors.
All of the loan applications that TROM accepted from investors were amalgamated. On 30 June 1992, TROM borrowed $3,848,000 from the Commonwealth Bank of Australia (the Bank), by drawing a cheque for that amount on its account with the Bank in favour of the Representative. That cheque was credited to the Representative's account. The payment represented TROM's advances to the investors whose loan applications had been amalgamated, including the loan application on behalf of the Borrowers. The Representative received the advances on behalf of the investors, including $24,000 on behalf of the Borrowers.
The Representative then drew a cheque on its account in favour of TROM in the sum of $3,848,000. That represented the investors' payments of the amounts payable under their respective farming agreements and licence agreements, including $24,000 by the Borrowers. That cheque was credited to TROM's account, thereby enabling TROM, in effect, to repay its loan from the Bank.
The transactions just described, involving TROM, the Representative and the Bank, had no net effect on the cash resources of TROM. After the transactions were completed, TROM had no more and no less cash than it had before the transactions were entered into. However, the nature of its assets and obligations changed. It acquired assets having a value of $3,848,000, being the choses in action consisting of the debts owing by investors, including the Borrowers, in respect of the loans TROM had made to them under the loan agreements. However, TROM also incurred obligations under the farming agreements and the licence agreements, including the Farming Agreement and the Licence Agreement that TROM entered into with the Borrowers. Its obligations were to permit investors to exercise their rights under the licence agreements, in consideration of the licence fee of $500 in respect of each licence agreement, and to carry out the obligations in relation to Enhancements Works under cl 19.1, in consideration of the payment of $9,900 mentioned and the obligations in relation to Maintenance Works under cl 19.2, in consideration of the payment of $1,600, in respect of each allotment.

The Assignments

HPM sued the Borrowers on the Loan Agreement for repayment of the debt the Borrowers owed TROM by reason of the loan made by it to them. HPM relied on three assignments as giving it title to sue. The first was an alleged equitable assignment from TROM to Treetop Projects Limited (Treetop), which HPM says was effected before 3 July 1998 (the First Assignment). The second assignment was from Treetop to Merilbah Investments Pty Limited (Merilbah) on 15 March 2000 (the Second Assignment). The third was an assignment from Merilbah to HPM on 31 August 2001 (the Third Assignment). The Borrowers dispute the effectiveness of the First Assignment.
As a first fallback, HPM relied on a further assignment from Treetop to HPM dated 22 December 2004 (the Fourth Assignment). The Fourth Assignment, however, cannot cure any defect in the First Assignment from TROM to Treetop. Accordingly, as a further fallback, HPM relied on a later assignment direct from TROM to HPM on 1 November 2011 (the Fifth Assignment), which was apparently intended to cure any previous defect in HPM's title. If the First Assignment were found to be effective, the Fifth Assignment would also be irrelevant.
In May 1998, TROM was in serious financial difficulties. On 25 May 1998, it received a notice of assessment in the sum of $5,768,106.45 for income tax, penalties and interest. At that time, TROM was the manager of six managed investment schemes, including the Project, and Treetop was manager of a managed investment scheme known as the Nutrasweet Project.
At some stage, an agreement bearing the date 28 May 1998 was executed under the common seal of both TROM and Treetop (the May Agreement). The May Agreement provided that TROM would pay $18 million to Treetop for it to take over as manager of each of the schemes, including the Project. Treetop would perform the works and services specified in the farming agreements for each of the schemes, including the Project, and would apply to the Representative for its consent to do so. TROM agreed to retire as manager and to do all things desirable to facilitate Treetop's appointment as manager. Shortly after 1 July 1998, deeds of retirement of TROM as manager of those schemes and appointment of Treetop as manager of the schemes were executed with effect as from 30 June 1998.
At some stage, a document entitled "Offer to Transfer Loans, Cash and Equipment to Settle Debt" was prepared (the Offer). The Offer, which also bears the date 28 May 1998, was addressed to Treetop and was signed by Mr Andrew Purcell (Mr Purcell) on behalf of TROM. The Offer contained an acknowledgement by TROM that it owed Treetop $18 million as the consideration for Treetop's agreement to take over TROM's obligations as manager under the six schemes, including the Project. By the Offer, TROM offered to transfer loans having an agreed value of $15,327,081, cash of $1,172,919, and equipment valued at $1,500,000. Details of the loans, cash and equipment were set out in an annexure. The Offer stated that the offer made by it could only be accepted orally, presumably to avoid creating an instrument that might attract a liability for stamp duty.
HPM contends that Treetop accepted the offer orally. HPM relies upon such acceptance as effecting an equitable assignment to Treetop, inter alia, of the benefit of the assets described in the annexure, including the benefit of the Loan Agreement.
At some stage, a document was brought into existence that purported to be minutes of a meeting of Treetop's directors held on 10 July 1998. The document recorded that the following business was conducted at that meeting:
"Richard Moody further confirmed the acceptance by Treetop of the 28 May 1998 offer and of the 1 July 1998 offer to settle debt during this meeting with the following words, in the presence of John Purcell saying:
"I hereby accept on behalf of Treetop Projects Limited, the Offers to Transfer Loans, Cash, land, materials, leases and equipment to settle debt from Tumut River Orchard Management Limited, dated 28 May 1998 and 1 July 1998.".
Andrew Purcell also repeated the words.
There being no further business the meeting closed at 9.30pm."
On 15 March 2000, Treetop entered into an agreement with Merilbah described as the "Asset Sale Agreement". By that agreement, Treetop agreed to sell various assets to Merilbah, including the benefit of loans to persons who had entered into licence agreements and farming agreements with TROM. The assets included the benefit of the Loan Agreement.
On 31 August 2001, Merilbah entered into an agreement with HPM for the assignment of the loan account receivables owned by Merilbah under various managed investment schemes, including the Project. That included any debt owing by the Borrowers under the Loan Agreement.
In its second further amended statement of claim filed on 7 December 2011, HPM sued the Borrowers for recovery of the loan made by TROM under the Loan Agreement, together with interest. HPM's primary case was that by reason of the first three assignments briefly described above, it became entitled, at least in equity, to the benefit of the Loan Agreement. The Borrowers impugn the First Assignment, from TROM to Treetop, and dispute that it was effective. If that is correct, the assignments from Treetop to Merilbah and from Merilbah to HPM would be ineffective to vest the benefit of the Loan Agreement in HPM.
On 1 November 2011, TROM, through its liquidator, entered into the Fifth Assignment, whereby HPM agreed to pay $10,000 in consideration of TROM assigning to HPM any right, title or interest it then had in loans purportedly assigned to Treetop by TROM. HPM says that if for any reason the First Assignment was ineffective, it has nevertheless acquired title to the loans, including the benefit of the Loan Agreement, by reason of the Fifth Assignment.

The Primary Judge's Decision

The primary judge found that TROM purportedly made an offer to Treetop in the terms of the Offer and that Treetop purportedly accepted it. However, his Honour also found that TROM's directors did not authorise TROM's making of the Offer and that Treetop's directors did not authorise Treetop's acceptance of it. Nevertheless, his Honour concluded that TROM was estopped from denying that the First Assignment was effective and concluded that the Borrowers were bound by that estoppel. However, his Honour then found that the Borrowers had been induced to enter into the Loan Agreement by conduct of TROM that contravened the Trade Practices Act and that they were therefore not liable to HPM under the Loan Agreement.

Whether First Assignment Effective

In its second further amended statement of claim (the Amended Statement of Claim), HPM made the following assertions in relation to the First Assignment:
·On or about 29 May 1998 or thereafter, and before entering into liquidation, TROM assigned all its rights under the Loan Agreement to Treetop and issued an assignment notice to the Borrowers.
·TROM and Treetop acted thereafter on the basis that the First Assignment was effective and, in doing so, TROM was estopped from claiming that it was not bound by the First Assignment, since it was for value in equity, notice of it was given, it was substantially performed and there was consideration in respect of it.

In their amended defence to the Amended Statement of Claim, filed on 15 December 2011 (the Amended Defence), the Borrowers denied the First Assignment and relevantly asserted that:
·to the extent that HPM relied on the Offer and Treetop's oral acceptance of it, no such offer was made on behalf of TROM and no oral acceptance of it was given by or on behalf of Treetop;
·Treetop had actual or constructive knowledge of the fact that the Offer was not made and that no oral acceptance was given, in that Mr Purcell, a director of TROM at relevant times, knew of those facts and HPM had actual or constructive knowledge of the facts, insofar as Mr Ross Chapman, a consultant to HPM and project manager of the debt portfolio comprising the assets the subject of the First Assignment, was informed of those facts by Mr Purcell in August 2000, which was before the third assignment between Merilbah and HPM;
·the First Assignment does not satisfy the requirements of s 12 of the Conveyancing Act1919, insofar as it involved an oral acceptance of a written offer without the required assignment under the hand of TROM; and
·the First Assignment did not satisfy the requirements of an assignment in equity because no consideration was given, insofar as the alleged debt of $18 million was illusory, TROM did not then owe any moneys to Treetop, TROM had no ability to repay the debt and did not intend to do so, and Treetop never intended to seek or enforce payment of the debt.
As at May, June and July 1998, TROM was an unlisted public company. Accordingly, it was required by the Corporations Law to have three directors. As at that time, its directors were Mr Purcell, Mr Peter Forsyth and Mr Benjamin John Purcell. Treetop was also a public company. At the relevant time, its directors were Mr Purcell, Mr Richard Moody and Mr Jim Howson.
Mr Purcell gave evidence that the May Agreement was not brought into existence until some time after 28 May 1998. He said that the reason he prepared the document was to create a debt owing from TROM to Treetop that could subsequently be forgiven by an offer from TROM to Treetop to settle the debt in exchange for the assets described in the Offer. Mr Purcell said that the Offer was prepared after TROM was placed in administration on 20 July 1998. He said that there never was any oral acceptance of the Offer and that a purported meeting of the directors of Treetop, which is described in minutes dated 10 July 1998, never occurred.
Mr Moody gave evidence that he signed the May Agreement between TROM and Treetop. Mr Moody said that Mr Purcell told him that TROM would pay $18 million if Treetop took over management of various managed investment schemes. Mr Moody was agreeable to Treetop's taking on TROM's orchard schemes if TROM paid $18 million. He said that Treetop needed that money if it were to do the necessary work under TROM's orchard schemes.
Mr Moody also said that the sum of $18 million was never paid and that the May Agreement "never came into effect". He said that the first time he saw the Offer was in 2006 and that he was unaware of the Offer while a director of Treetop. He denied that he accepted any such offer on behalf of Treetop. He also said that the purported meeting of the Treetop directors held on 10 July 1998 did not take place.
Mr Benjamin John Purcell, who was a director of TROM at the relevant time, was not capable of giving evidence. Mr Peter Forsyth gave evidence that he ceased to hold office as a director of TROM on 11 July 1998 and had no involvement with TROM after 29 March 1998. He said that he did not know of any contract between TROM and Treetop to take over TROM's functions as manager of TROM's six investment schemes. He said that he had no knowledge of the Offer and was not involved in any discussions relating to Treetop.
Mr James Howson gave evidence that he assisted Mr Purcell with respect to the marketing and exporting of fruit from a managed investment scheme at Coonabarabran and from the Project. Mr Howson said that in about May 1998 he discussed the restructuring of TROM's managed investment schemes with Mr Purcell, who told him that TROM was not performing well financially. Mr Purcell said that the schemes needed to be restructured "otherwise we'll lose the lot". Mr Howson said that in about June 1998 Mr Purcell told him that the Australian Taxation Office was chasing TROM, which owed about $6 million. Mr Purcell asked him whether Treetop would agree to taking over TROM's managed investment schemes.
Mr Howson said that he would think about it and subsequently sought legal advice. He said that he subsequently told Mr Purcell on 30 June 1998 that he did not agree with what Mr Purcell was doing with the schemes. He said he did not want to be involved in taking on any of the schemes and was going to resign as a director of Treetop. Mr Howson resigned as a director of Treetop on 2 July 1998. He said that it was not until some two years later that he became aware of the existence of the May Agreement, the Offer and the minutes of the purported meeting of the Treetop directors held on 10 July 1998. Mr Howson said that no mention of any assignment, nor the existence of those documents, was made to him at any of his meetings with Mr Purcell or Mr Moody prior to 30 June 1998.
Neither Mr Howson nor Mr Forsyth was cross-examined. The primary judge accepted their evidence. On the other hand, his Honour concluded that Mr Purcell was totally without credit.
The primary judge concluded that Mr Purcell and Mr Moody intended that Treetop take over TROM's role as manager of the Project because TROM's financial position meant that it was no longer qualified to hold a dealer's licence, which was a prerequisite of being manager of the Project. By May 1998, it was contemplated that TROM would be placed into administration. Mr Purcell knew that if assets were to be transferred from TROM, it would have to be done before TROM went into administration. On the other hand, Treetop would not be prepared to take over the management responsibilities of the various schemes, including the Project, without payment or the transfer of assets. His Honour considered that there were persuasive objective factors that rendered questionable the denials by Mr Moody and Mr Purcell of the oral acceptance of the Offer and also rendered questionable Mr Purcell's evidence that the documentation was not created until after TROM went into administration. Nonetheless, his Honour accepted that there was some objective support for their denials.
Ultimately, the primary judge was satisfied from the evidence of Mr Forsyth and Mr Howson that the directors of TROM and Treetop did not consider, or agree to, the assignment of TROM's assets. His Honour held that it was not within Mr Purcell's authority as managing director of TROM and Treetop to have bound either company to the assignment without the approval of the respective boards of directors. On the other hand, if there had been a purported offer and acceptance of an assignment of TROM's assets, the absence of authority could have been cured by ratification, which might be able to be inferred from the subsequent conduct of TROM and Treetop. However, ratification was not pleaded by HPM. Accordingly, his Honour found that there had been no ratification.
The primary judge observed that there was no direct evidence that Treetop, through Mr Moody, had accepted the offer made by the Offer. His Honour considered that the objective probabilities were that the Offer was brought into existence, and that there was an oral acceptance of the offer made by it, before Treetop assumed the obligations of manager of the six schemes of which TROM was the manager. While his Honour accepted that the Offer might not have been brought into existence on 28 May 1998, his Honour found that there was clearly a draft of it in existence. His Honour considered that it was unlikely that the Offer was brought into existence after TROM went into administration, since Mr Purcell knew that any assignment had to take effect before an administrator was appointed.
The primary judge observed that Mr Purcell subsequently acted as if the intended assignment, the First Assignment, had taken effect, even though there was no evidence of an independent valuation of TROM's assets having been obtained. Mr Purcell and Mr Moody allowed Treetop to assume the role of manager of the schemes formerly managed by TROM, including the Project. His Honour considered that they could not properly have allowed Treetop to assume such liabilities unless Treetop was adequately remunerated. They had no basis to think that TROM had paid, or would pay, the sum of $18 million. Further, both subsequently acknowledged to the Australian Securities and Investments Commission that such an assignment had taken place. His Honour concluded that the objective probabilities were that by early June 1998 Mr Moody had purportedly accepted the offer made by TROM on behalf of Treetop.
There was no evidence of an acceptance in writing. Notwithstanding his denial in the present proceedings, Mr Purcell swore in other litigation that there had been an oral acceptance. As I have said, the primary judge found that neither Mr Purcell nor Mr Moody was a reliable witness. His Honour concluded that, on the balance of probabilities, the Offer was prepared before 3 July 1998 and that the offer made by it was accepted orally by Mr Moody before then. His Honour concluded that there was an agreement between Mr Purcell on behalf of TROM, and Messrs Purcell and Moody on behalf of Treetop, for the assignment of the loan debts, including the Loan Agreement, no later than 8 July 1998. On that date, Mr Purcell wrote to the investors, including the Borrowers, informing them of the transfer of their loans to Treetop.
The primary judge concluded that neither the Offer, nor the acceptance of the offer made by it, was considered by the directors of TROM or Treetop acting as a board. In that regard, his Honour accepted the evidence of Messrs Forsyth and Howson. Thus, the primary judge held that there was no binding agreement between TROM and Treetop.
Accordingly, the question arose as to whether any agreement purportedly entered into by Messrs Purcell and Moody nevertheless bound TROM and Treetop. His Honour considered that that question was raised in the Amended Defence, insofar as it denied that any offer was made on behalf of TROM and that any oral acceptance of it was given on behalf of Treetop.
However, there was no allegation in the Amended Defence that any offer and acceptance was not authorised by the directors of TROM and Treetop. The Amended Defence did not expressly raise that question. In effect, his Honour found that an offer, purportedly made on behalf of TROM, was purportedly accepted on behalf of Treetop. Thus, his Honour rejected the assertion made in the Amended Defence that there was no offer or acceptance. However, his Honour did not deal with the question of whether, if there were an offer and acceptance, the Amended Defence also raised the question of lack of authority.
As I have said, the primary judge concluded that no binding agreement was reached before TROM went into administration. However, his Honour considered that if had there been an agreement binding on TROM and Treetop, there would have been an effective assignment in equity, irrespective of whether the agreement was specifically enforceable. Such an assignment in equity would have been effective because the consideration, being release of the debt of $18 million, was executed. His Honour concluded that there was no agreement binding on TROM, and ratification was not pleaded. However, though his Honour held that the First Assignment was ineffective legally and in equity, he concluded that TROM and Treetop were nevertheless bound by virtue of a conventional estoppel, such that neither TROM nor Treetop, nor any of their privies, could deny the validity of the First Assignment as an assignment in equity.
TROM, which was a defendant in the proceedings below and is a respondent in the appeal, did not dispute and has not disputed the validity of the First Assignment. Rather, it is the Borrowers who seek to dispute the validity of the First Assignment. His Honour considered that there was clearly a conventional estoppel. That is to say, each of TROM and Treetop acted to its detriment, on the basis that the First Assignment was effective.

Misleading and Deceptive Conduct and Breach of Fiduciary Duty

In the Amended Defence, apart from putting in issue the effectiveness of the First Assignment, the Borrowers relied on several alternative matters, on the assumption that the First Assignment was effective. First, they said that the Loan Agreement should be set aside ab initio, pursuant to s 87(1) or s 87(2)(a) of the Trade Practices Act, with the result that HPM cannot sue on the Loan Agreement. They also say that if the Loan Agreement is not to be set aside, they are entitled to set off, against the amount claimed by HPM, the amount of any claim for damages that they have against TROM, in equity for breach of fiduciary duty or under s 87(1) of the Trade Practices Act for misleading conduct. The effect would be to extinguish any liability that they would otherwise have to HPM.
Those assertions we based on three alleged contraventions of s 52 of the Trade Practices Act by TROM. At relevant times, s 52 provided that a corporation must not, in trade or commerce, engage in conduct that was misleading or deceptive or likely to mislead or deceive. The Borrowers alleged in the Amended Defence that TROM committed three contraventions of s 52 by making three different representations, each of which was alleged to have been misleading and deceptive or had the tendency to mislead or deceive. They alleged that, in reliance upon those representations, they entered into the Loan Agreement and that, by reason of those matters, they suffered loss and damage. They say that their loss arose because, but for those contraventions, they would not have entered into the Loan Agreement and therefore would not have been exposed to HPM's claim.
The first two representations are no longer pressed. However, they are relevant as they have a bearing on the representation that is still pressed, which was the only representation that the primary judge found had been made and which his Honour found was misleading or deceptive.
The first representation was that the Borrowers' liability for the balance of the principal of the loan made under the Loan Agreement, and interest and other costs, should be paid only out of orchard income and that their liability for those amounts was limited to the net proceeds of their investment in the Project. The second representation was that the investment by the Borrowers would result in gross sales proceeds sufficient to cover all such amounts and would result in net cash distributions to them. They alleged that they relied on those representations in entering into the arrangements with TROM. However, the primary judge found that neither of those representations was made.
The allegations made in the Amended Defence in relation to the third representation may be summarised as follows:
·TROM represented "that the Principal Sum of $24,000 ($12,000 per farming allotment) under the [Loan] Agreement would be used, or would be available for use, for the purpose of orchard enhancement and maintenance expenses ($11,500 per allotment) and payment of a Licence fee of $500 per allotment" (the Funds Available Representation).
·The Funds Available Representation was partly in writing, being contained in the material in the Prospectus under the heading "Charges Payable by Growers" set out in Schedule 1 to these reasons, and was partly implied by various provisions of the Prospectus and the Farming Agreement, summarised above, as well as from the nature and character of the Project, which was initially funded by the investors' contributions.
·In reliance upon the Funds Available Representation, the Borrowers entered into the Loan Agreement.
·The Funds Available Representation was misleading or deceptive, or had a tendency to mislead or deceive, in that the principal sum advanced under the Loan Agreement was not used, or available for use, for the purpose of orchard enhancement or maintenance expenses and payment of licence fees in relation to the Borrowers' allotment, since the principal sum formed part of a "round-robin transaction".
·The Borrowers suffered loss and damage to the extent of any award made in favour of HPM and HPM was liable to them for such loss and damage on the basis that, but for the contravention of s 52 by TROM, they would not have entered into the Loan Agreement and therefore would not have been exposed to HPM's claim.
In addition, the Borrowers alleged in the Amended Defence that they would be entitled to equitable damages against TROM and so were entitled to set off such damages against HPM in extinguishment of its claim. The allegations made in that regard may be summarised as follows:
·By reason of its position as the promoter of the Project and lender under the Loan Agreement, TROM owed fiduciary duties to the Borrowers, as prospective investors in the Project:
·to act with the utmost candour and honesty in respect of publications concerning the Project, including the Prospectus;
·to disclose in the Prospectus all material information that would, or might reasonably be expected to, influence the decision of the Borrowers to invest in the Project and enter into the Loan Agreement; and
·to act honestly in the establishment and management of the Project and of the performance of its obligations under it.
·TROM breached those fiduciary duties, in that it failed to disclose to the Borrowers that the principal sum would not be used, and would not be available for use, for the purpose of orchard enhancement or maintenance expenses or payment of licence fees in relation to their allotments and failed to disclose that the principal sum would form part of a round robin transaction.
·As a result of TROM's breach of fiduciary duty, they suffered the loss and damage described above.
·HPM, as assignee and successor in title to TROM, acquired its rights from TROM subject to all equities as between TROM and the Borrowers, including the Borrowers' right to set off any damages against any liabilities under the Loan Agreement.
·In the circumstances alleged, the Borrowers would be entitled to equitable damages against TROM and can therefore set off such damages against HPM in extinguishment of its claim against them.
Finally, there is a somewhat obscure allegation in the Amended Defence that, by reason of all of the matters described above, together with other matters alleged elsewhere in the Amended Defence, which appear no longer to be pressed, the Borrowers have suffered loss and damage to the extent of any award made in favour of HPM for the sum and interest claimed by it from them, such that they would be entitled to set aside the Loan Agreement in equity by reason of that conduct or set off such damages in equity.
That last series of allegations is made under the heading "Estoppel". The Amended Defence first alleges that TROM would be estopped from denying that the Borrowers' obligations under the Loan Agreement had been discharged. However, it is by no means clear that the Amended Defence alleges an entitlement to have the Loan Agreement set aside in equity or an entitlement to set off damages in equity independently of the alleged estoppel.
It is necessary to consider the evidence in relation to those assertions in the Amended Defence. Mrs Dierickx gave evidence that she left the question of investment to her husband. Mr Dierickx swore affidavits on 13 October 2008 and 23 September 2011. Neither of the Borrowers was cross-examined in relation to that evidence.

In his affidavits, Mr Dierickx said that it was his understanding from reading the Prospectus that the cost of investing in the Project was $12,000 for each allotment and that $11,500 of that amount would be used by TROM for orchard enhancement and maintenance expenses for the first year of the investment and for payment of the first year's licence fee required for each allotment. He also said that he understood that by entering into the Loan Agreement, that cost of $12,000 for each allotment would be advanced by TROM.
Mr Dierickx decided that he and Mrs Dierickx should invest in the Project by acquiring an interest in two allotments, based on that understanding, together with his understanding that:
·by investing in the Project, he and his wife would become primary producers of stonefruit and would be entitled to certain tax deductions for expenses associated with that business;
·as investors, they would be required to make two payments of $3,000, one after three months and one after six months, being principal repayments under the investor loan;
·they would be required to pay interest on the balance of the loan calculated at the rate of 15 per cent per annum;
·all other obligations that they would take on by investing in the Project would be deducted from the proceeds of their investment, until paid off;
·the Project would generate sufficient proceeds from the sale of fruit to pay off the loan balance and would, after six years, allow recoupment of the initial payments and would provide good returns; and
·the only risk that they would take by investing in the Project, if the investment failed, was loss of $6,000 and interest payments and that they would not otherwise be liable for any other payments.
Mr Dierickx said that the financial success of the Project was particularly important to him and his wife, as their level of income was not in the highest income tax bracket. As a result, merely investing in the Project, without looking to the future, was not cash flow positive as it might have been for other investors on higher tax rates. He said that he was impressed by the potential future success of the Project, given the information in the Prospectus.
Mr Dierickx also said that had he known that none of the $24,000 that TROM would advance under the Loan Agreement would be used for orchard enhancement and maintenance expenses or licence fees, and that the only money that would be used in relation to their allotments would be the two repayments of principal of $3,000 and payments of interest, such that the Project would be funded primarily through the investors' loan repayments and interest payments, he would have thought differently about the Project and would not have invested in it. He said that he would not have agreed to enter into the Loan Agreement for an amount of money that was never to be used for the benefit of the allotments.
Mr Dierickx said that he believed that the success of the Project, and therefore their investment, depended on the future sales of fruit from the allotments and that cash flow was important for the Project to be successful. He also said in his affidavit that had he known that his and his wife's obligations under the Project were not limited to the two repayments of principal of $3,000 and interest, and that there was a real risk that future proceeds from the sale of fruit would not cover all other liabilities relating to their investment, including the balance of the loan, he would not have entered into the Loan Agreement.

Whether claims of misleading and deceptive conduct and breach of fiduciary duty were statute-barred

In its amended reply of 4 November 2011, which was treated as a reply to the Amended Defence, HPM:
·denied that any liability of TROM in respect of a contravention of s 52 of the Trade Practices Act was passed, or was capable of being passed, to HPM;
·denied that the Borrowers were entitled to the relief sought, as any order setting aside the Loan Agreement in whole or in part, under s 87(1) or s 87(2)(a) of the Trade Practices Act, would be an order against HPM and HPM did not engage in the alleged contravention and was not a person involved in the alleged contravention;
·denied that the Borrowers were entitled to any set off against HPM's claim; and
·alleged that any such claim for relief against TROM was statute- barred by the operation of s 87(1CA) and s 82(2) of the Trade Practices Act.
Section 82(1) of the Trade Practices Act relevantly provided that a person who suffers loss or damage by conduct of another person that was done in contravention of s 52 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. Section 82(2) originally provided that an action under s 82(1) may be commenced at any time within three years after the date on which the cause of action accrued. Section 82(2) was subsequently amended to provide that an action under s 82(1) may be commenced at any time within six years after the day on which the cause of action that related to the conduct accrued.
Section 87(1A) relevantly provided that the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in contravention of s 52, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention, if the Court consider that the order or orders concerned will compensate the person who makes the application in whole or in part for the loss or damage or will prevent or reduce the loss or damage suffered or likely to be suffered by such a person. Section 87(1CA) relevantly provided that an application under s 87(1A) may be commenced at any time within three years after the day on which the cause of action accrued. Section 87(1CA) was subsequently amended to provide that an application under s 87(1A) may be made at any time within six years after the day on which the cause of action that relates to the conduct accrued.

Conclusion of the primary judge

The primary judge concluded that HPM was entitled to sue for the debt consisting of the balance of the principal of the loan made by TROM to the Borrowers under the Loan Agreement. While his Honour found that there was a deficiency in the purported assignment from TROM to Treetop, because of the lack of proper authorisation by the directors, his Honour concluded that TROM was estopped from denying that HPM was an equitable assignee of the benefit of the Loan Agreement, so that the Borrowers were not entitled to rely on any defect in the First Assignment. His Honour also concluded that HPM's claim against the Borrowers was not barred by the Limitation Act 1969.
However, the primary judge concluded that TROM's failure to disclose in the Prospectus its funding arrangements for the making of loans to investors, which required immediate repayment of the loans to the Bank, without provision to it of additional working capital to pay for the enhancement and maintenance costs, was misleading and deceptive. His Honour concluded that the Borrowers were not barred by any limitation provision in relation to that allegation.
Accordingly, the primary judge considered that the Borrowers were entitled to say, as a matter of defence, that because they were induced to enter into the Loan Agreement by TROM's misleading and deceptive conduct and breach of fiduciary duty, they were not liable for the debt. His Honour concluded that it was therefore not necessary to make an order for rescission in equity of the Loan Agreement but that, if it were necessary, he would give leave to amend to seek such an order. His Honour found that there was nothing for the Borrowers to restore, if rescission were granted, such that the contract was set aside ab initio.
The primary judge therefore directed the entry of judgment for Mr and Mrs Dierickx. His Honour ordered that the proceedings be dismissed.

The Appeal

HPM filed an amended notice of appeal on 27 December 2012 in which it relied on five grounds. HPM subsequently filed an application for leave to file a further amended notice of appeal raising two additional grounds. The Borrowers have filed a notice of contention and have foreshadowed an amended notice of contention raising four issues.
At the invitation of the Court, HPM prepared a list of issues arising from the grounds of appeal and the notice of contention. The issues may be summarised as follows:
1. Effectiveness of the First Assignment (Ground 1 of the Amended Notice of Appeal):
1.1: Was the question of whether the First Assignment was authorised by the directors of TROM and Treetop put in issue by the Amended Defence?
1.2: If so, did TROM and Treetop authorise the First Assignment?
1.2.1 Did meetings of TROM's directors and Treetop's directors occur on 25 May 1998 and 10 July 1998 respectively?
1.2.2 If so, was entry into the First Assignment authorised at those meetings?
1.2.3 Were the meetings properly constituted and did that affect the validity of any purported authorisation of the First Assignment?
1.3: If not, did TROM and Treetop subsequently ratify the First Assignment and, if so, should the primary judge have granted leave to HPM to plead ratification?
1.4: If the First Assignment was not authorised or ratified by TROM and Treetop, is HPM entitled to assume authorisation by virtue of s 128 and s 129 of the Corporations Act 2001 (Cth)?
2. Conventional estoppel (Ground 2 of the Amended Notice of Contention). If the Borrowers succeed on issue 1:
2.1: Are the Borrowers "bound" by the conventional estoppel that binds TROM and Treetop?
2.2: Is the effect of the conventional estoppel to complete an equitable assignment from TROM to Treetops?
3. The Fifth Assignment (Ground 4 of the Amended Notice of Contention and Ground 7 of the Proposed Further Amended Notice of Appeal). If the Borrowers succeed on issues 1 and 2:
3.1: Did Mr Dierickx give a confirmation of the debt under the Loan Agreement within the meaning of s 54 of the Limitation Act 1969?
3.2: Did the new cause of action, introduced by the amendment to plead the Fifth Assignment, arise from the same or substantially the same facts as those giving rise to the existing cause of action and claim for relief and therefore take effect from the date when the proceedings were commenced, pursuant to s 65 of the Civil Procedure Act 2005?
4. Misleading and deceptive conduct (Grounds 2 and 3 of the Amended Notice of Appeal). If the Borrowers succeed on issues 1, 2 and 3:
4.1: Was the Funds Available Representation made by TROM?
4.2: If so, was the Funds Available Representation misleading and deceptive?
5. Breach of fiduciary duty (Ground 5(a) of the Amended Notice of Appeal). If the Borrowers fail on issue 4:
5.1: If the Funds Available Representation was made, was it a material misrepresentation?
5.2: Was the round robin disclosed to potential investors and, if not, was it a material matter that TROM was required to disclose?
6. Causation (Ground 6 of the Proposed Further Amended Notice of Appeal). If the Borrowers succeed on issue 4 or issue 5, did the Borrowers establish, or was it conceded in the proceedings, that any misleading and deceptive conduct or breach of fiduciary duty by TROM caused or materially contributed to any loss or damage that they suffered?
7. Relief (Grounds 4, 5(b) and 5(c) of the Amended Notice of Appeal and Ground 1 of the Amended Notice of Contention). If the Borrowers succeed on issue 6:
7.1: Did the limitation period in s 87(1CA) preclude relief under s 87 of the Trade Practices Act?
7.2: Is relief other than relief under s 87 (or some other provision of Pt VI of the Trade Practices Act) available for breach of s 52?
7.3: Does the contravention of s 52 or the breach of fiduciary duty establish an equitable set-off that impeaches HPM's title to sue?
7.3.1: Does any equitable set-off impeach HPM's title to sue?
7.3.2: If rescission not be possible, is equitable set-off available against HPM as assignee?
7.4: Are the Borrowers entitled to an order for rescission?
7.4.1: Is rescission of the Loan Agreement available and, if so, is it necessary to also rescind any related agreements?
7.4.2: Is rescission conditional on restitution and, if so, is restitution possible?

First Assignment

Under the terms of the Offer, TROM was required to transfer its cash of $461,000 to Treetop. TROM in fact transferred $310,000 to Treetop on 24 June 1998 and transferred a further $150,000 on 8 July 1998. In addition, TROM and Treetop agreed that Treetop would take over TROM's role as manager. Deeds of retirement of TROM and appointment of Treetop as manager of the six managed investment schemes were executed with effect as from 30 June 1998. Taking over the role as manager necessarily involved the incurring of the expenses of managing the schemes without payment, except for the assignment of the assets. Treetop undertook the task of management without any further payment.
After TROM and Treetop had both gone into liquidation, TROM commenced proceedings to set aside the assignment as an uncommercial transaction. Such a claim must be premised on the assumption that there had been a valid assignment. The claim was ultimately settled by TROM being admitted as a creditor in the winding-up of Treetop. That is consistent only with an assignment being effective.
A conventional estoppel arises where parties have dealt with each other on the basis of certain facts that they both accepted as true, whether or not they were in fact true (Coghlan v SH Locke (Australia) Ltd (1985) 4 NSWLR 158). Further, a privy by contract, of a party entitled to enforce an estoppel, can, in effect, step into the shoes of the entitled party and enforce that estoppel against the estopped party (Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 at 444). However, as well as being able to enforce that estoppel, a privy by contract of a party entitled to enforce the estoppel is itself bound by it. By reason of the estoppel, TROM would hold the proceeds of any recovery it obtained from the Borrowers on behalf of Treetop. Treetop, by reason of its assignment to Merilbah, would hold such proceeds for Merilbah. Thus, Merilbah could enforce the estoppel against TROM. Similarly, HPM can enforce, as against TROM, the rights that Treetop has by estoppel.
If HPM can establish that TROM assigned the Loan Agreement to Treetop, or that TROM is estopped from denying that it assigned the Loan Agreement to Treetop, which would have a similar effect, it would not be open to the Borrowers to dispute HPM's title to sue on the ground that the loan is owed not to HPM but to TROM. HPM is a privy of Treetop through a chain of assignments and can therefore take advantage of the estoppel binding TROM. HPM need only demonstrate that TROM is bound, such that the Borrowers' defence, relying on TROM still having title to the debt, must fail. The Borrowers are TROM's privies in a relevant sense, insofar as they seek to assert TROM's rights under the Loan Agreement, which TROM itself is estopped from asserting. Accordingly, the Borrowers are estopped from denying, as against HPM, that the First Assignment was not effective.
There was no error in the primary judge's reasoning that led to his Honour's conclusion that it was not open to the Borrowers to assert that the First Assignment was ineffective because it was not authorised by the respective boards of TROM and Treetop. Accordingly, it is not necessary to deal with HPM's alternative contentions concerning the Fifth Assignment. Nor is it necessary to deal with the alternative contentions based on s 128 and s 129 of the Corporations Law.

Misleading and deceptive conduct

However, in the light of the conclusion that HPM is entitled to sue the Borrowers on the Loan Agreement, it is necessary to consider their alternative contention that they have an equitable set-off defence based on contravention of s 52 of the Trade Practices Act or breach of a fiduciary duty in relation to the Funds Availability Representation.
The Borrowers' complaint is that the provisions of the Prospectus and the Farming Agreement conveyed to them that $9,900 of the $12,000 to be paid in respect of each allotment would be applied towards orchard enhancement and maintenance expenses whereas, in the light of the round robin described above, that was not so. The primary judge accepted that contention.
However, it must have been obvious to any prospective investor, such as the Borrowers, who read the Prospectus and the terms of the form of farming agreement and licence agreement included in the Prospectus, that TROM would receive no injection of funds as a result of the initial investments by investors such as the Borrowers. That must be so because the only new funds that investors contributed consisted of the prepayment of interest and the two repayments of principal after three and six months.
TROM was funding the investment by investors who were taking on investor loans. The only new funds that could possibly be available for enhancement and maintenance expenses were the cash that was actually provided by investors, namely, the repayments of principal and the payments of interest. It must have been apparent to any investor who read the materials in question that no part of the sum of $24,000 that they borrowed from TROM would provide additional cash resources to TROM that would be available for expenditure on Enhancement Works or Maintenance Works.
Clause 19.1 of the Farming Agreement provided that the sum of $9,900 was to be provided in consideration of the Enhancement Works "undertaken or to be undertaken" by TROM. Clause 19.1 may well constitute a promise by TROM that the Enhancement Works would be completed in consideration of the payment of $9,900. However, the Borrowers did not suggest that the Enhancement Works were not actually carried out by TROM.
The Borrowers knew that they were not contributing any funds other than funds borrowed from TROM. The Prospectus disclosed that TROM's current assets consisted of cash of $189,149, receivables of $3,552,087 and inventories of $1,507,690, as well as prepayments of $16,640. It was patently obvious to any investor who read the Prospectus that the only funds being subscribed by any investor that would be available for expenditure by TROM would be the two repayments of principal, of $3,000 after three months and six months respectively, together with the prepayment of interest.
Clause 19.1 recognised that some of the Enhancement Works had already been undertaken. A reasonable investor would not draw an inference from the terms of the form of farming agreement that there were funds of $12,000 available to carry out the works, in circumstances where at least some of those works had already been completed. In all of the circumstances, the language of cl 19 and the Prospectus does not give rise to a representation that funds provided by investors, as the proceeds of loans by TROM, would be used or would be available for use for Enhancement Works. I do not consider that the provisions of the Prospectus or the terms of the Farming Agreement constitute a representation that a payment of $12,000 being made by an investor, funded by a loan made by TROM, would give rise to funds that would be used or would be available for use to complete the Enhancement Works.
The essence of the Borrowers' complaint appears to be that there was an implied representation that TROM had available, for future expenditure on Enhancement Works, a sum of $24,000, being the equivalent to the amount that was to be lent to them under the Loan Agreement. However, there was no complaint by them that they understood from the Prospectus and other materials that TROM had funds available to it to expend on Enhancement Works. The financial position of TROM disclosed in the Prospectus indicated that that was not so. In any event, as I have said, there was no suggestion that those works were not carried out.

The cost of the Enhancement Works, listed in schedule 2 of the Farming Agreement, is properly understood as the cost to the investor of acquiring the benefit of a licence over an allotment improved by the Enhancement Works having been or being performed by TROM. Schedule 2 states the price to be paid by an investor for those works, not the costs that were going to be incurred in the future by TROM. There is no representation to be found in the relevant materials that TROM would only charge investors a fee equal to the costs that it incurred in performing the Enhancement Works. There was no representation to be implied from cl 19.1, or schedule 2 referred to in cl 19.1, that TROM was giving an estimate of the costs that it would incur in the future in providing the Enhancement Works.
The Prospectus clearly disclosed that TROM might well receive a benefit, if the subscriptions to the Project exceeded the costs incurred in establishing and managing the Project. That is apparent from the provisions of the Prospectus that state that the investor will not be entitled to any refund should the costs and expenses be less than the sum of $11,500 referred to in cl 19.1 of the Farming Agreement. The Prospectus discloses that TROM stood to benefit from any subscription to the extent that net proceeds exceeded the expenses incurred in establishing and managing orchards on behalf of investors.
The financial information disclosed in the Accountant's Report makes clear that TROM did not have the cash resources to finance loans to investors. A person reading the Prospectus must have understood that TROM could only finance investors' loans from its borrowings, which it would clearly have to repay. In all of the circumstances, the Funds Available Representation does not arise from the Prospectus or the provisions of the Farming Agreement relied on by the Borrowers.
While the Prospectus and the Farming Agreement may contain a representation, or indeed a promise, that the Enhancement Works would be completed, that is a totally different proposition from a representation that particular funds would be used, or would be available for use, for that purpose. That is particularly so where it must have been apparent to any prospective investor who read the Prospectus that there were no funds available for that purpose. Once the Borrowers had invested in the Project, they had no entitlement to determine how the funds that they had borrowed from TROM to make their investment would be used. It was for TROM to determine how particular resources available to it would be allocated.
There was no implied representation that the funds notionally subscribed by the Borrowers, and other investors, would be used for a particular purpose and for that purpose only. Such a representation would be akin to a declaration of trust, in the nature of a Quistclose trust (see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567), requiring that moneys be quarantined for the Enhancement Works irrespective of any other commercial imperative of the Project. No such representation was made. The Funds Available Representation was not made.
In the light of that conclusion, it is not strictly necessary to deal with the question of whether it was misleading or deceptive to make such a representation although, in one sense, that question is answered by the analysis set out above. That is to say, the complaint by the Borrowers is that the Funds Available Representation was misleading and deceptive because the principal sum advanced by TROM to them to enable them to subscribe to the Project was not available for use by TROM, but was simply part of the round robin arrangement. Their complaint assumes that the existence of the round robin arrangement demonstrated that the funds were not available to TROM. However, that does not follow. There was no evidence that the change in TROM's assets and liabilities affected the availability of resources that would enable it to comply with its obligations to provide the Enhancement Works.
That is to say, the mere fact of the round robin described above does not of itself demonstrate that funds were not available to TROM. There was no evidence that TROM was unable to raise funds from the assets that it had following investors' subscriptions, albeit the subscriptions were funded by loans made by TROM to investors. While TROM incurred an obligation to ensure that the Enhancement Works and the Maintenance Works had been or would be provided, in accordance with cll 19.1 and 19.2 of the Farming Agreement, TROM also acquired substantial assets, being the choses in action consisting of the debts due by investors, including the Borrowers, that arose by reason of the loans TROM made to the investors. There was no evidence that TROM could not borrow against the very substantial assets that it had acquired by reason of the loans that it had made to investors.
The Borrowers could not have thought that TROM acquired additional cash resources by reason of the transactions to which they were parties. They understood that they were providing no cash resources to TROM, other than the two repayments of principal of $3,000 and the prepayment of interest. Once it is accepted that the round robin arrangements constituted valid transactions, which took effect according to their terms, it must follow that the Funds Available Representation was not misleading or deceptive. As a result of the arrangements, TROM had funds. There was no suggestion that the Enhancement Works and Maintenance Works were not in fact undertaken or otherwise performed by TROM. There was no evidence to indicate that TROM did not have funds available to it at the time when the Enhancement Works and Maintenance Works were required to be performed by it under the Farming Agreement. The Farming Agreement provided that those works were to be carried out within 13 months. There was no evidence to support the conclusion that funds were not available to TROM to discharge those obligations.
Indeed, the primary judge found that the orchard contemplated by the Project was in fact established and productive. The fact that the orchard contemplated by the Project was established and productive demonstrates that the Enhancement Works and Maintenance Works were indeed undertaken and carried out by TROM. In all of the circumstances, I do not consider, assuming that the Funds Available Representation was made, that the representation was misleading or deceptive or likely to mislead or deceive. There was no contravention of s 52 of the Trade Practices Act.

Breach of fiduciary duty

It follows that there was no breach of fiduciary duty as alleged by the Borrowers. The alleged breach of fiduciary duty is that TROM failed to disclose that the moneys subscribed by the Borrowers, by means of the advance of the principal sum under the Loan Agreement, would not be used, and would not be available for use, for the purposes of Enhancement Works and Maintenance Works, or for the payment of licence fees under the Licence Agreement. For the reasons indicated above, there was no failure to disclose any material fact to that effect. TROM did not breach its fiduciary duty in failing to disclose the details of the round robin described above.

Relief

Having regard to the conclusion reached above, that there was no contravention of s 52 of the Trade Practices Act and no breach of fiduciary duty by TROM, the question of relief does not arise. However, it is desirable to say something about the questions raised by the parties' contentions.
A distinction must be drawn between limitation provisions that deny the remedy but leave the underlying right intact and those that also extinguish the underlying right, either expressly or impliedly. Some destroy the underlying right and some do not. Limitation provisions that do not destroy the underlying right are more procedural in nature, simply denying a remedy even while the right that has been breached still subsists. Whether a limitation provision is of one kind or the other is a matter of statutory construction. It is necessary to determine whether the limitation provision in question affects the existence of the right, and thus limits the liability itself, or whether it merely restricts the availability of the remedy for breach of that right, and so only restricts the relief available in relation to that liability.
When a limitation provision is a necessary incident or aspect of the underlying right, the nominated effluxion of time extinguishes that right. A limitation provision may be a necessary incident or aspect of the underlying right, whether or not contained in the same statute creating the right. Where it is, time will be of the essence in relation to the underlying right. The limitation provision will constitute a condition essential to the enjoyment of the right, rather than merely barring an existing cause of action. The time limit will then limit the liability itself, rather than just the availability of the remedy. Thus the right to sue is lost if the time is disregarded (McKain v R W Miller & Co (SA) Pty Ltd [1991] HCA 56; 174 CLR 1 at [17] - [20]).
The limitation in s 87(1CA) of the Trade Practices Act is a necessary incident of the right created by s 87(1A). Once the time limited by s 87(1CA) has expired, the right created by s 87(1A) is extinguished, not just the remedy for breach of that right. While the Borrowers may have been entitled to raise a contravention of s 52 as an answer to a claim for enforcement of their obligations under the Loan Agreement, it was necessary to make such a claim within the time limited by s 87(1CA), insofar as they rely on s 87(1A). Insofar as they rely on s 82 of the Trade Practices Act, they must comply with the time limit specified in s 82(2). There is no provision for the extension of the time limits specified in s 82 and s 87 for the making of a claim for relief under those provisions.
Further, there is no juridical consequence of contravention of s 52 other than the remedies conferred by s 82 and s 87. Contravention of s 52 does not have any consequence so far as the validity of any contravening conduct engaged in. In that sense, the prohibition in s 52, and the prohibitions in Pt V generally, are to be contrasted with the provisions of Pt IV of the Trade Practices Act. Those provisions render unlawful conduct that is engaged in in contravention of the prohibitions. The fact that conduct in contravention of a provision of Pt IV is unlawful may well have the consequence that a contract entered into in contravention will be unlawful and therefore will not be enforceable. Such a principle, however, has no application in relation to a contravention of Pt V. The only juridical consequences of such a contravention are those provided for in Pt VI, namely s 82 and s 87. The Borrowers would have no right of set-off arising under the Trade Practices Act in relation to HPM's claim based on the Loan Agreement.
As indicated above, there was no breach of fiduciary duty by TROM. Insofar as the Borrowers rely upon such a breach as giving right to an entitlement to rescind the Loan Agreement, they must deal with the circumstances that the Loan Agreement was part of a suite of arrangements entered into, which included the Licence Agreement and the Farming Agreement. There can be no rescission of the Loan Agreement without rescission of the Farming Agreement and the Licence Agreement. The Borrowers have not proffered restitution. There is a question as to whether the Borrowers could proffer restitution, as a condition of rescission of the arrangements.
Even in the case of breach of fiduciary duty, rescission should be conditioned on the parties being returned to their original positions. The Borrowers derived a benefit from their investment in the Project. They received distributions of income, albeit distributions that were applied in payment of expenses incurred in deriving the income. They must be taken to have derived the benefit of treating the payments that they made as allowable deductions for the purposes of income tax. They had the benefit of the licence of their allotments and the opportunity of deriving income from the trees planted on their allotments. The question of what benefits they acquired as a consequence of their investment has not been adequately explored for the purposes of determining whether restitution should be imposed as a term of any entitlement to rescind.

Equitable set-off

The primary judge found that the Borrowers were entitled to rely upon the non-disclosure of material facts that induced them to enter into the Loan Agreement, as a ground that impeached TROM's, and thus HPM's, title to sue. His Honour considered that that was sufficient to establish an equitable set-off.
For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary's demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced (James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 457 - 458).
For example, where a mortgage is granted to a solicitor as security for costs and the mortgagor client has a cross-claim against the solicitor asserting that the costs would not have been incurred had the solicitor conducted himself with integrity, skill and attention, there will be a clear case of equitable set-off. Similarly, a court of equity may recognise a set-off of an unliquidated claim for damages for breach of a building contract against claims for money due under the contract. Again, where a lender promises to provide further advances for a development project and the borrower is unable to complete the development project and repay the advances actually made, equity would allow a set-off of the borrower's damages caused by the lender's failure to make the further advances before the lender would be permitted to enforce its security against the borrower (see James v Commonwealth Bank at 458 - 459).
It is not, of itself, an objection to the availability of equitable set-off that either or both of the legal demands is made pursuant to a statute that creates new obligations and rights that give rise to debts or liabilities in unliquidated damages. The question is whether the statute excludes what otherwise would be the operation of equitable set-off upon those statutory debts and liabilities. The claim to set-off must involve an impeachment of the title to the claimant's demand, and not merely the right to obtain judgment on the demand. It is sufficient that the existence of the claimant's demand would not have come about but for the claimant's breaches of duty. It is sufficient if the defendant's set-off complaint against the claimant goes directly to impeach the claimant's demand (see James v Commonwealth Bank at 459).
The Borrowers' claim under s 52 of the Trade Practices Act and TROM's alleged breach of fiduciary duty, if successful, would impeach TROM's title to sue. That is to say, the Borrowers assert that, but for the alleged misleading conduct, they would not have entered into the suite of agreements with TROM, including the Loan Agreement. Similarly, they say that, had there been disclosure of the round robin arrangement, in satisfaction of the fiduciary obligation owed by TROM, they would not have entered into the suite of agreements, including the Loan Agreement. I consider that, if the Borrowers had established that there was a contravention of s 52 as alleged, or that there was a breach of fiduciary duty as alleged, those claims would relevantly impeach the entitlement of TROM and, therefore, the entitlement of HPM, to sue on the Loan Agreement.

Conclusion

It follows that the appeal should be allowed. The orders made by the primary judge should be set aside. In lieu of those orders, there should be judgment for HPM against the Borrowers for the balance of the principal of the loan made under the Loan Agreement, together with interest. The Borrowers should pay HPM's costs of the proceedings below and the appeal. They should have an order under the Suitor's Fund Act 1951.
Accordingly, I propose the following orders:
1. The appeal be allowed.
2. The orders made by the primary judge on 31 August 2012 be set aside.
3. In lieu of those orders, there be judgment for the appellant against the first and second respondents for the balance of the principal of the loan made under the loan agreement entered into between Tumut River Orchard Management Limited, on the one hand, and Mr Ludo Dierickx and Mrs Wendy Dierickx, on the other hand, together with interest on that balance.
4. The respondents pay the appellant's costs of the appeal and of the proceedings at first instance.
5. The respondents have an order under the Suitor's Fund Act 1951.

Schedule 1

Charges Payable by Growers
Payment of the subscription price of $12,000 per Farming Allotment is to accompany each Application. On issuing the Licence and Farming Agreement this amount will be paid as follows:
a) payment of orchard enhancement and maintenance expenses of $11,500 for the period from the date of issue of the Licence and Farming Agreement to 30 June 1993, including the fees of experts, consultants and contractors engaged by the Manager, (refer clauses 19.1(b) and 19.2(b)(i) of the Farming Agreement ... ). The Manager shall not be entitled to seek any further payment in respect of such orchard enhancement and management expenses from the Grower and the Grower shall not be entitled to any refund should the costs and expenses be less than that sum;
b) payment of a Licence fee of $500 for the period from the date of issue of the Licence to 30 June 1993.
The payment of $11,500 covers most but not all expenses for the period to 30 June 1993. There are other expenses which are deductible from the Gross Sale Proceeds of the Fruit, as follows.
i) the Representative's remuneration for its services is a fee of $15,000 per annum calculated and payable on a proportionate daily basis as at 30 June and 31 December of each financial year for the term of the Deed.
(ii) The Manager and the Representative are entitled to reimbursement for all reasonable costs and expenses properly incurred for and on behalf of the Growers in respect of such items as printing and postage, stamp duty on cheques, bank charges, costs of maintaining administrative records, and fees for professional advisers ... .
(iii) The Deed contains certain indemnities for the Manager and the Representative in respect of liabilities which may be incurred by them on behalf of the Growers, such as the costs of litigation, in circumstances where the Manager and the Representative are not guilty of any neglect or default.
In the event that the Gross Sale Proceeds and other income of the Growers is insufficient to cover the expenses described in paragraphs (i) to (iii), the Manager shall pay to the Representative the amount required to enable payment thereof.

Schedule 2

ASSETS AND LIABILITIES
The following statement of assets and liabilities are based on the Manager's last audited accounts as at 30 June , 1991. In my opinion no adjustments to these are necessary.

CURRENT ASSETS

Cash $ 189,149

Receivables $ 3,522,817

Inventories $ 1,507,690

TOTAL CURRENT ASSETS $ 5,236,296

NON-CURRENT ASSETS

Property, plant and equipment $ 717,796

Intangibles $ 793

Other $ 253,827

TOTAL NON-CURRENT ASSETS $ 972,416

TOTAL ASSETS $ 6,208,712

CURRENT LIABILITIES

Creditors and borrowings $ 1,599,270

Provisions $ 7,000

Other $ 2,985,465

TOTAL CURRENT LIABILITIES $ 4,591,735

NON-CURRENT LIABILITIES

Creditors and borrowings $ 64,236

TOTAL LIABILITIES $ 4,655,971

NET ASSETS $ 1,552,741

SHAREHOLDERS EQUITY

Share capital $ 2,689,000

Accumulated losses ($ 1,136,259)

TOTAL SHAREHOLDERS EQUITY $ 1,552,741

NOTE 1: RECEIVABLES

Current

Applications held by Trustee $ 192,435

Loans to other persons $ 821,681

Loans to Directors & Associates $ 2,508,701

NOTE 2: INVENTORIES

Raw materials - at cost $ 283,032

Work in Progress

Land held for resale

- Cost of acquisition $ 1,102,243

- Development Costs (roads,

drainage and water supplies, surveys) $ 572,415

$1,674,658

Less: Provision for diminution in vale ($ 450,000)

$1,224,658

$1,507,690

NOTE 6: CREDITORS AND BORROWINGS

Current - (unsecured)

Trade creditors and accruals $ 342,064

Lease liabilities $ 17,268

$ 359,332

Current - (secured)

Bank overdraft $ 36,830

Bank bills $ 406,496

Bank loan $ 796,612

$1,239,938

$1,599,270

Non-Current - unsecured

Lease liabilities $ 64,236

The bank overdraft and bank bills are secured by first mortgage over all of the company's freehold land and personal guarantees of the Directors ...
The bank loan is secured by second mortgages over all of the Company's freehold land, second mortgages over properties owned by the Directors and a registered equitable mortgage over the assets and undertakings of the Company.
**********

Case Title:	HP Mercantile Pty Ltd v Dierickx
Medium Neutral Citation:	[2013] NSWCA 479
Hearing Date(s):	23 and 24 September 2013
Decision Date:	23 December 2013
Before:	Beazley P at [1]; Meagher JA at [5]; Emmett JA at [10]
Decision:	1. The appeal be allowed. 2. The orders made by the primary judge on 31 August 2012 be set aside. 3. In lieu of those orders, there be judgment for the appellant against the first and second respondents for the balance of the principal of the loan made under the loan agreement entered into between Tumut River Orchard Management Limited, on the one hand, and Mr Ludo Dierickx and Mrs Wendy Dierickx, on the other hand, together with interest on that balance. 4. The respondents pay the appellant's costs of the appeal and of the proceedings at first instance. 5. The respondents have an order under the Suitor's Fund Act 1951. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	CONTRACT - assignment of debt - debt owed by the respondents - respondents borrowed from manager of managed investment scheme in order to invest in scheme - where appellant was assignee of that debt pursuant to a chain of assignments and sued respondents for debt - whether debt validly assigned to appellant - whether first assignment valid - whether directors of assignor company and assignee company under first assignment validly bound their respective companies under first assignment - where neither board of directors approved transaction - whether absence of directors' authority to bind assignor and assignee companies cured by ratification - whether ratification pleaded TRADE PRACTICES ACT - misleading and deceptive conduct - prospectus for scheme involving orchards - whether representation made that funds invested by investors, which investors were to borrow from scheme manager, would be used for purpose of orchard expenses - whether, if made, that representation misleading or deceptive - whether scheme involved a "round robin" transaction - whether, if round robin, representation made and misleading and deceptive TRADE PRACTICES ACT - where limitation period in s 87(1CA) had expired - whether that limitation period is a necessary incident or aspect of the underlying right, under s 87(1A), to damages for misleading and deceptive conduct, such that that right, and not merely the availability of the remedy for that right, is extinguished by effluxion of time EQUITY - estoppel - whether parties to first assignment estopped from denying validity of first assignment as an equitable assignment - whether appellant, as privy of original creditor that obtained debt pursuant to chain of assignment, entitled to assert that estoppel against respondents - whether a privy by contract of a party that is entitled to enforce a conventional estoppel is itself bound by it EQUITY - whether breach of fiduciary duty by scheme manager in relation to misrepresentation in respect of round robin - whether, if breach of fiduciary duty, there should be rescission of loan agreement - where loan agreement part of suite of arrangements entered into by investor borrowers in relation to scheme - whether rescission would require restitution of what investor borrowers gained from loan agreement EQUITY - equitable set-off - whether either misleading and deceptive conduct claim or breach of fiduciary duty claim constituted basis for equitable set-off defence to respondents' obligation to pay debt - whether either claim impeached appellant's title to sue respondents, in that respondents' claim would not exist but for the breaches founding either claim
Legislation Cited:	Civil Procedure Act 2005, s 65 Conveyancing Act 1919, s 12 Corporations Act 2001 (Cth), ss 128, 129 Corporations Law, ss 128, 129, Div 2 of Part 7.12 (as at April 1992) Limitation Act 1969, s 54 Suitor's Fund Act 1951 Trade Practices Act 1974 (Cth), ss 52, 82, 87, 87(1A), 87(1CA), Parts IV, V, VI
Cases Cited:	Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 James v Commonwealth Bank of Australia (1992) 37 FCR 445 McKain v RW Miller & Co (SA) Pty Ltd [1991] HCA 56; 174 CLR 1
Category:	Principal judgment
Parties:	HP Mercantile Pty Limited - appellant Ludo Victor Dierickx - first respondent Wendy Anne Dierickx - second respondent Tumut River Orchard Management Limited (in liq) - third respondent
Representation
- Counsel:	Counsel: BW Walker SC with P Knowles - appellant IM Jackman SC with S Fendekian - first and second respondents
- Solicitors:	Solicitors: Versace McKenzie Lawyers - appellant Piper Alderman - first and second respondents
File Number(s):	2012/290553
Decision Under Appeal
- Court / Tribunal:	Supreme Court
- Before:	White J
- Date of Decision:	31 August 2012
- Citation:	[2012] NSWSC 1005
- Court File Number(s):	2006/294773
Publication Restriction:	Nil

CURRENT ASSETS
Cash	$ 189,149
Receivables	$ 3,522,817
Inventories	$ 1,507,690
TOTAL CURRENT ASSETS	$ 5,236,296
NON-CURRENT ASSETS
Property, plant and equipment	$ 717,796
Intangibles	$ 793
Other	$ 253,827
TOTAL NON-CURRENT ASSETS	$ 972,416
TOTAL ASSETS	$ 6,208,712
CURRENT LIABILITIES
Creditors and borrowings	$ 1,599,270
Provisions	$ 7,000
Other	$ 2,985,465
TOTAL CURRENT LIABILITIES	$ 4,591,735
NON-CURRENT LIABILITIES
Creditors and borrowings	$ 64,236
TOTAL LIABILITIES	$ 4,655,971
NET ASSETS	$ 1,552,741
SHAREHOLDERS EQUITY
Share capital	$ 2,689,000
Accumulated losses	($ 1,136,259)
TOTAL SHAREHOLDERS EQUITY	$ 1,552,741
NOTE 1: RECEIVABLES
Current
Applications held by Trustee	$ 192,435
Loans to other persons	$ 821,681
Loans to Directors & Associates	$ 2,508,701
NOTE 2: INVENTORIES
Raw materials - at cost	$ 283,032
Work in Progress
Land held for resale
- Cost of acquisition	$ 1,102,243
- Development Costs (roads,
drainage and water supplies, surveys)	$ 572,415
$1,674,658
Less: Provision for diminution in vale	($ 450,000)
$1,224,658
$1,507,690
NOTE 6: CREDITORS AND BORROWINGS
Current - (unsecured)
Trade creditors and accruals	$ 342,064
Lease liabilities	$ 17,268
$ 359,332
Current - (secured)
Bank overdraft	$ 36,830
Bank bills	$ 406,496
Bank loan	$ 796,612
$1,239,938
$1,599,270
Non-Current - unsecured
Lease liabilities	$ 64,236