Koonara Management Pty Ltd v Rockliff (No 2)

[2019] FCA 808

FEDERAL COURT OF AUSTRALIA

Koonara Management Pty Ltd v Rockliff (No 2) [2019] FCA 808

File number:

NSD 1357 of 2016

Judge:

GLEESON J

Date of judgment:

31 May 2019

Catchwords:

CONTRACTS – managed investment scheme – claims for payment of outstanding invoices and loans – whether alleged debts proved – whether loan deeds enforceable without registration of power of attorney – whether funds advanced under loan deed – where the scheme constitution makes no provision for payment of invoices following winding up of the project – application dismissed

CORPORATIONS – cross-claim – misleading and deceptive conduct – whether cross-respondents engaged or were involved in contraventions of ss 12DA, 12DB, 12DC and 12DF of Div 2 of the Australian Securities and Investment Commission Act 1989 (Cth) (ASIC Act 1989) and s 995 and s 999 of the Corporations Act 1989 (Cth) (Corporations Law) by statements in prospectus – where second and third cross-respondent each contravened s 995 of the Corporations Law – whether loss or damage “because of” contraventions – claim dismissed

CORPORATIONS – cross-claim – unconscionable conduct – whether cross-respondents contravened s 12CA and s 12CB of the ASIC Act 1989 by statements in prospectus – whether cross-claimant was placed in a position of special disadvantage – whether, in all the circumstances, the cross-respondents engaged in unconscionable conduct in connection with the supply of financial services – claim dismissed

CORPORATIONS – cross-claim – unconscionable conduct – whether cross-respondents contravened s 12CA of the Australian Securities and Investment Commission Act 2001 (Cth) or the general law by operation of scheme – whether cross-claimant was placed in a position of special disadvantage – claim dismissed

Legislation:

Corporations Act 2001 (Cth) ss 79, 601FC(1) 1325, 1400

Australian Securities and Investments Commission Act 2001 (Cth) ss 5(2), 12CA, 12CB, 12GF 12GM, 276

Australian Securities and Investments Commission Act 1989 (Cth) ss 12CA, 12CB, 12DA, 12DB, 12DC, 12DF

Corporations Act 1989 (Cth) ss 9, 601FC(1), 995, 999

Conveyancing Act 1919 (NSW) s 163(2)

Cases cited:

Attorney-General (NSW) v World Best Holdings Ltd [2015] NSWCA 261; (2005) 63 NSWLR 557

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51

Australian Competition and Consumer Commission v Chen [2003] FCA 897; (2003) 132 FCR 309

Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; (2002) 117 FCR 301

Australian Securities and Investments Corporation v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132

Australian Securities and Investments Corporation v Westpac Banking Corporation (No 2)  [2018] FCA 751; (2018) 357 ALR 240

Barnes v Addy (1874) 9 Ch App 244

Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193

F.Y.D Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097

Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421

Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1

Horwath Corporate Pty Ltd v Huie [1999] NSWSC 583; (1999) 32 ACSR 413

Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440

New Cap Reinsurance Corporation v Daya [2008] NSWSC 64; (2008) 66 ACSR 95

Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199

Rocky Castle Finance Pty Ltd v Taylor [2014] SASCFC 1; (2014) 118 SASR 349

Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46

Soar v Ashwell [1893] 2 QB 390

Tobacco Institute of Australia v Australian Federation of Consumer Organisations Inc (No 2) [1993] FCA 105; (1993) 41 FCR 89

Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699

Tracy v Mandalay Pty Ltd [1953] HCA 9; (1953) 88 CLR 215

Violet Homes Loan Pty Ltd v Schmidt [2013] VSCA 56

Warramunda Village Inc v Pryde [2001] FCA 61; (2001) 105 FCR 437

Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661

Carter JW, Breach of Contract (2nd ed, LexisNexis Butterworths, 2011)

Edgeworth B, Butt’s Land Law (7th ed, Thomson Reuters, 2017)

Finn P, Fiduciary Obligations: 40th Anniversary Republication with Additional Essays (The Federation Press, 2016)      

Shepherd JC, Law of Fiduciaries (The Carswell Company Ltd, 1981)

Young PW, Croft C, Smith ML, On Equity (Thomson Reuters, 2009)

Date of hearing:

4, 5, 6, 7, 8, 11, 12 and 14 December 2017, 1 and 3 May 2018, 6 and 20 September 2018

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

672

Counsel for the Applicants/ Cross-Respondents:

Ms M Painter SC with Mr GW Stapleton and Mr C Keane on 4 December 2017

Solicitor for the Applicants/ Cross-Respondents:

MinterEllison

Counsel for the Respondents/ Cross-Claimants:

Mr JR Clarke SC with Mr TL Hollo

Solicitor for the Respondents/ Cross-Claimants:

Curwoods Lawyers

ORDERS

NSD 1357 of 2016

BETWEEN:

KOONARA MANAGEMENT PTY LTD (ACN 082 883 323)

First Applicant

ROCKY CASTLE FINANCE PTY LTD (ACN 082 858 160)

Second Applicant

AND:

STEPHEN JOHN ROCKLIFF

First Respondent

MICHELLE RENEE ROCKLIFF

Second Respondent

AND BETWEEN:

STEPHEN JOHN ROCKLIFF

Cross-Claimant

AND:

BURKE ROBERT STANLEY RESCHKE (and another named in the Schedule)

First Cross-Respondent

JUDGE:	GLEESON J
DATE OF ORDER:	31 MAY 2019

THE COURT ORDERS THAT:

1.The first applicant’s claim be dismissed with costs.

2.The second applicant’s claim be dismissed with costs.

3.The further amended statement of cross-claim dated 29 September 2017 be dismissed with costs.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GLEESON J:

INDEX

Introduction	[1]
Koonara’s claims	[14]
2010 invoices	[20]
2011 invoices	[32]
2014 invoices	[42]
Framework governing the winding up of the Project	[46]
Conclusion	[56]
Other matters	[57]
Defence based on breach of fiduciary duty	[58]
Rockliffs’ claim that they had no obligation to pay fees	[60]
RCF’s claims	[68]
Efficacy of loan deeds	[69]
Alleged advances	[80]
Conclusion	[107]
Mr Rockliff’s cross claim	[109]
Claims for declaratory relief	[111]
Claims for monetary relief	[117]
Relief sought pursuant to s 12GM of ASIC Act 2001	[126]
Claims for repayment, refund or return of monies	[131]
Claims for compensation	[138]
Relief sought pursuant to s 1325 of the Corporations Act	[142]
Claim for repayment, refund or return of money	[147]
Claim for compensation	[149]
Claim based on contravention of s 995 of the Corporations Law	[151]
Equitable compensation	[154]
Damages	[156]
Conclusion	[159]
Introduction to findings and detailed analysis of cross-claim	[160]
Background to the establishment of the Coonawarra Wine- grape Project	[165]
Land and ownership	[165]
Henry Albert Project	[170]
Development of the Project	[171]
June 1998: Incorporation of Koonara, RCF and Reschke Vineyards	[174]
Initial approach to AHM	[184]
August 1998: Financing arrangements	[189]
September 1998 and March 1999: Appointment of additional directors of Koonara	[191]
Late 1998/ early 1999: Development of structure of the Project	[193]
February 1999: Agreement between Koonara and AHM to establish Project	[202]
February – April 1999: Land and soil surveys, viticultural report and valuation; product ruling application and drafting prospectus	[206]
March and April 1999: Incorporation of CPH and Reschke Pty Ltd	[213]
April 1999: Approval of Project Constitution	[223]
May 1999: Agreement between Koonara and AHM to sub-contract management services	[224]
May 1999: Project registration and constituent documents	[233]
Project Constitution	[235]
Scheme Property	[246]
Duties and obligations of RE	[252]
Joint Venture Agreement	[254]
Lease Rent Contribution Fee	[262]
Winery Expenses	[269]
Compliance Plan	[273]
Arrangements for financing investments in the Project	[275]
June 1999: Appointment of Custodian and “lease” of sections 226, 227 and 228	[277]
CPH’s interest in the Project Land	[283]
June 1999: First Prospectus	[292]
March 2000: Product ruling	[299]
Marketing the first prospectus	[308]
Increase in units offered under first prospectus	[311]
Units purchased under first prospectus	[314]
“Round robin”	[318]
2000: Establishment of Reg Reschke 1 vineyard	[325]
May 2001: Second Prospectus	[330]
June 2001: product ruling	[342]
Marketing the second prospectus	[349]
Units purchased under second prospectus prior to 30 June 2001	[351]
Extension of second prospectus	[352]
June 2001 to 30 June 2008: Rockliffs’ investments in the Project	[356]
Payments made by the Rockliffs	[362]
First group of Mr Rockliff’s claims: misconduct in connection with second prospectus	[364]
Koonara and RCF did not issue the second prospectus	[367]
Did Koonara or RCF make or cause to be published and disseminated statements contained in the second prospectus?	[369]
Koonara and Mr Reschke, but not RCF, were involved in contraventions by the publication of the second prospectus	[372]
Did the second prospectus convey the alleged misrepresentations?	[380]
Ownership of the Project Land and lease of the Project Land to ARG	[381]
Frost protection	[388]
The intention to pay “Gross Income” into a “Scheme Bank Account”	[393]
Project would be conducted in accordance with law, including under the Compliance Plan and the duties imposed by the Corporations Law, and the RE would make full disclosure of material matters	[398]
Minimum subscription in the Project	[401]
Whether Mr Reschke had no interest in property proposed to be acquired for the purposes of CPH	[410]
Role of RCF	[418]
Does the conduct of Koonara and RCF in connection with the second prospectus constitute a relevant contravention of the ASIC Act 1989 or the Corporations Law?	[428]
Section 12DA	[428]
Section 12DB	[432]
Section 12DC	[434]
Section 12DF	[439]
Section 995	[445]
Section 999	[449]
Section 12CA	[451]
Section 12CB	[471]
Did Mr Rockliff suffer loss or damage “because of” the conduct in contravention of s 995 of the Corporations Law?	[481]
Operation of the Project following the Rockliffs’ investment	[496]
Establishment of Reg Reschke 2 vineyard and frost protection	[496]
Vineyard management	[502]
Blending of “Project wine”	[518]
Project finances	[520]
Invoices to Project investors	[528]
Scheme Bank Account	[530]
Change of custodian	[533]
Litigation against Thomson Playford	[535]
October 2005: amendment to Project Constitution	[537]
Events from October 2005 including change of responsible entity	[539]
Loss of 2007 crop	[543]
2009 and following	[564]
Winding up of the Scheme	[576]
Assignment of debt claims from Huntley to Koonara	[580]
“Control” of the Project	[585]
Control of the Reschke companies	[586]
Control of the operation of the Scheme including relationship between Reschke parties and AHM	[587]
Role of Reschke Pty Ltd	[604]
Control of the assets of the Scheme	[611]
Second group of claims: misconduct in operation of the Project	[615]
Unconscionable conduct	[615]
Failure to fulfil representations made in the second prospectus and use of “round-robin” promissory notes	[620]
Events occurring during the operation of the Scheme and non-disclosures	[623]
Failure by Koonara to comply with its obligations to the RE and to protect investors	[624]
Koonara’s obligations	[624]
Failure to protect scheme property	[640]
Maintenance of financial records and provision of information	[647]
Operation of Scheme not in best interests of members	[649]
Failure to conduct Scheme in accordance with the Product Ruling PR2001/93	[652]
Improper issuing of invoices	[654]
Consideration	[656]
Involvement in breaches by the RE	[662]
Conclusion and costs	[671]

INTRODUCTION

1. This proceeding concerns a vastly over-complicated dispute arising out of the failed Coonawarra Wine-Grape Project (Project or Scheme), an agricultural managed investment scheme established to develop and operate a vineyard on land in the Coonawarra wine-producing region of South Australia. Investors were invited to invest in the Project by two prospectuses, issued in 1999 and 2001 (first prospectus and second prospectus, respectively).

2. On 9 March 2012, after finding that it was “abundantly clear” that the Project would not be profitable, Emmett J directed the then responsible entity (RE) for the Scheme, Huntley Management Limited (Huntley), to wind up the Project: Huntley Management Ltd, in the matter of Huntley Management Ltd as responsible entity for the Coonawarra Winegrape Project [2012] FCA 330. The winding up was completed on 31 December 2014 and the Australian Securities and Investment Commission (ASIC) deregistered the Project on 5 February 2018.

3. The respondents (Rockliffs) lost all of the monies that they invested in the Project. In the case of the first respondent/cross-claimant (Mr Rockliff), this amount is claimed to be $125,967.80.

4. The first applicant/second cross-respondent (Koonara) is a company that was incorporated in June 1998 by Burke Reschke (Mr Reschke), the first cross-respondent, for the purpose of his proposed business of vineyard development and management and sale of wine from those vineyards. Koonara is referred to in the Project prospectuses as the “Vineyard Manager”. Koonara’s claims in the proceeding are made as assignee of debts allegedly due to Huntley by each of the Rockliffs. The debts were allegedly assigned by Huntley to Koonara by deeds of assignment dated 27 November 2014, shortly prior to the completion of the winding up of the Project.

5. Mr Rockliff was the holder of three “participations” in the Project. The second respondent (Ms Rockliff) is Mr Rockliff’s daughter and was the holder of one “participation” in the Project. Both invested in the Project pursuant to the second prospectus.

6. Koonara’s principal claim against Mr Rockliff is for a total amount of $62,861.99 plus interest. Its principal claim against Ms Rockliff is for a total of $20,954.00 plus interest.

7. The second applicant/third cross-respondent (RCF) is another company that was incorporated by Mr Reschke in June 1998. RCF was identified as the “Lender” in the Project prospectuses.

8. RCF principally seeks to recover amounts from the Rockliffs pursuant to loan deeds allegedly entered into when they invested in the Project in late June 2001. The amount claimed by RCF against Mr Rockliff is $37,440.00 plus interest. The amount claimed by RCF against Ms Rockliff is $12,480.00 plus interest.

9. The Rockliffs filed an elaborate and convoluted defence to the claims made by Koonara and RCF. In closing addresses, the Rockliffs submitted that it was not possible to make a proper assessment of the claims without understanding the entire conduct and operation of the scheme. I do not accept that submission. In my view, the claims made by Koonara fail simply because they were not proved. The claims made by RCF fail because RCF did not make the loans to the Rockliffs upon which the claims were based.

10. By further amended statement of cross-claim dated 29 September 2017 (cross-claim), Mr Rockliff seeks a multiplicity of relief including on the basis of alleged misrepresentations contained in the second prospectus upon which he relied to invest in the Project and misconduct in the operation of the Scheme. Mr Rockliff also seeks orders to the effect that the Reschke parties repay or provide compensation for all monies paid by Mr Rockliff in connection with the Scheme.

11. Ultimately, Mr Rockliff’s cross-claim is based on the following three broad propositions:

    (1)Mr Reschke and his corporate entities were responsible for, and substantially and relevantly controlled the entire setting up, conduct and operation of the Scheme;

    (2)the Scheme was misconducted at all stages; and

    (3)the outcome of the Scheme involved Mr Reschke and his corporate entities taking “unconscientious commercial advantage of investors, receiving benefits they were not entitled to (including the obtaining of purported rights to sue in debt) and causing loss and other detriment to [Mr Rockliff]”.

12. The Rockliffs argued that an appreciation of that involvement and control was “critical” to their case because it constituted misconduct by Mr Reschke or his companies, or their involvement in relevant misconduct, and it led to and caused the REs of the Project not to be able to meet their obligations to investors.

13. Although I accept many of the criticisms made by the Rockliffs as to the conduct of the Reschke parties, in the end those criticisms go nowhere. That is because, firstly, the principal claims were not proved by Koonara and RCF and, secondly, I am not persuaded that Mr Rockliff is entitled to any of the relief sought in the cross‑claim.

    KOONARA’S CLAIMS

14. Koonara’s claims against Mr Rockliff are based on the following invoices issued by Huntley:

    (1)Invoice 2011182 dated 7 December 2010 for $6,300;

    (2)Invoice 120317 dated 8 November 2011 for $35,784.18;

    (3)Invoice 140359 dated 10 February 2014 for $3,192.90; and

    (4)Invoice 015177 dated 27 November 2014 for $3,192.90 plus interest on the earlier invoices.

15. Koonara’s claims against Ms Rockliff are based on four invoices issued by Huntley on the same dates as the invoices set out above, for lower amounts corresponding to her single participation in the Project.

16. Koonara alleged that the amounts claimed in the invoices were due pursuant to the provisions of the “Constitution for the Coonawarra Winegrape Project” (Project Constitution) and the joint venture agreements (JVAs) which, Koonara alleged and the Rockliffs disputed, were agreed between the Rockliffs, the “Manager”, and the “Land Owner” at the time of their initial investment in the Project. The relevant provisions of the Project Constitution and the JVAs are set out in full later in these reasons.

17. Koonara relied on the following terms of the Project Constitution to support the invoices:

    (1)Clause 3, by which the Constitution had effect as a contract between, relevantly, Huntley as “Manager” and the Rockliffs each as a “Member”, and the Rockliffs agreed to observe and perform the Constitution insofar as it applied to them.

    (2)Clause 4.2, by which the Rockliffs were obliged to pay the “Manager” certain “Annual Management Fees”.

    (3)Clause 4.4, by which the Rockliffs were obliged to pay the “Manager” a “Lease Rent Contribution Fee”.

    (4)Clause 4.5, by which the “Manager” was entitled to be paid “Winery Expenses” and a “Winery Fee”. As amended in October 2005, cl 4.5 permitted the “Manager” to require the Rockliffs to pay the Winery Expenses annually in advance at the same time and in the same manner as the Annual Management Fees, if there was insufficient “Gross Estate Wine Proceeds” or “Gross Income”.

    (5)Clause 4.6, by which the “Manager” was entitled to be paid a “Harvest Fee”.

    (6)Clause 4.7, by which the “Manager” was entitled to be paid “any other expenses required to be paid by the Member as provided in this Constitution”.

1. Additionally, Koonara relied on the following terms of the JVAs:

   (1)Clause 2.9, by which the Rockliffs each became a member of the Scheme and were bound by the terms of the Project Constitution.

   (2)Clause 5.1, by which the “Manager” was entitled to be paid certain “Annual Management Fees” by the Rockliffs.

   (3)Clause 5.4, by which certain expenses of the Project not to be borne by the “Manager” were to be borne by the Rockliffs “in proportion to their interest in the Joint Venture out of the Gross Income of the Joint Venture”.

   (4)Clause 6.1, by which the Rockliffs were required to pay the “Lease Rent Contribution Fee” to the “Manager”.

   (5)Clause 9, by which the Rockliffs bore liabilities for goods and services tax or taxes.

2. In addressing Koonara’s claims, I proceed upon assumptions (in Koonara’s favour) that the Rockliffs were bound by the terms of the Project Constitution and the JVAs, that Huntley was the “Manager” who was entitled to be paid any amounts owing by the Rockliffs pursuant to the Project Constitution and the JVAs, and that any debts owed by the Rockliffs to Huntley pursuant to the invoices were validly assigned to Koonara.

   2010 invoices

3. The 2010 invoices are expressed to be for “Various Fees and charges”. Although they include the words, “[p]lease refer to the attached sheet listing the fees and charges”, no sheet was attached to the invoices that were in evidence.

4. In closing submissions in reply, Koonara sought leave to re-open its evidence to tender a chain of emails, the last of which was sent by John Knox, the managing director of Huntley, to Mr Reschke. The emails were sent between 18 February and 8 March 2011. The final email contained two attachments, including one described as “CWGP Invoicing 2008-2010-P2 debtor sheet.pdf”. Other emails in the chain show that Mr Knox had asked Therese Melville to review an attached schedule and say if “these amounts are those that would be invoiced if Burke was to purchase the wine stocks on the original basis of his proposal”. Ms Melville appears to have been Huntley’s accountant.

5. In response, Ms Melville stated, relevantly, that she had prepared invoices “for P1 $3,179.22 (BR $3,179.18) & P2 $2,100 (BR $2,102.70)”. The references to “P1” and “P2” are probably a single participation pursuant to the first and second prospectuses respectively.

6. The second attachment to the email chain is entitled “Coonawarra Wine Grape Project Combined Invoice P2”, which sets out a list of 23 items totalling $2,100.00 next to the words “Total Invoice Amount Per Lot - P2”. The 23 items include 15 itemised fees and charges and eight deductions. The deductions are expressed to be referrable to particular project years and comprise two refunds and six amounts for sales, variously of stock, bottled wine and bulk wine.

7. Koonara sought to tender the documents to prove the fees and charges that were the subject of the 2010 invoices.

8. I indicated that I would rule on Koonara’s application for leave in these reasons.

9. In F.Y.D Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097 at [30]-[33], White J set out the relevant principles on an application for leave to re-open as follows:

   [30]     The principles upon which the Court acts on applications of the present kind are settled. The overriding principle is the interests of the administration of justice having regard to all the circumstances of the case: Inspector General in Bankruptcy v Bradshaw [2006] FCA 22 at [24], [26]; Brown v Petranker (1991) 22 NSWLR 717 at 728; Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 at 478; Harrington Smith (on behalf of the Wongatha People) v Western Australia (No 8) [2004] FCA 338, (2004) 207 ALR 483 at [121]; Walsh v Greater Metropolitan Cemeteries Trust (No 2) [2014] FCA 456, (2014) 243 IR 468 at [48].

   [31]     In Bradshaw, Kenny J identified at [24] four overlapping classes of cases in which a court may grant leave to reopen: fresh evidence; inadvertent error; mistaken apprehension of the facts; and mistaken apprehension of the law. Although it is not necessary to categorise the present case into any of those classes, the second and fourth seem to be the most apt.

   [32]     The matters bearing on the interests of justice in a case like the present are various. They include:

   Ÿthe public interest (and the interest of the particular parties) in litigation being conducted efficiently and expeditiously;

   Ÿthe public interest in the finality of litigation, with the consequent expectation that litigants will present all their evidence and submissions at the one hearing;

   Ÿthe significance of the proposed new evidence and submissions in the context of the trial;

   Ÿthe explanation for the evidence not having been led at the trial;

   Ÿthe likely prejudice to the opposing party if the application is allowed;

   Ÿthe potential detriment to the applying party if the application is refused, and;

   Ÿany delay by an applicant in seeking leave to reopen.

   [33] Regard should be had generally to the overarching purpose stated in ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). It is a relevant consideration that evidence was not led, or submissions were not made, at trial because of a tactical decision from which the applying party wishes to resile. It is also relevant that a mistake leading to the matter not having been agitated at trial is attributable to the litigant’s legal representatives and not to the litigant personally. However, the circumstance that the evidence was not led, or the submissions were not made, by reason of the negligence of the party or its legal representatives, is not necessarily fatal to an application for reopening being allowed. In LED Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 1141 at [34] Lindgren J said:

   Clearly, the fact that a failure to make submissions on a point is, as here, solely attributable to the neglect or default of the party seeking leave will militate against the granting of the application for leave. But it will not necessarily defeat the application in all cases.

10. I will not grant leave to Koonara to re-open to tender the chain of emails and accompanying attachment for the following reasons:

    (1)The significance of the proposed new evidence is uncertain. Although it may provide some explanation of the fees and charges referred to in the 2010 invoices, the email chain post-dates the invoices by some months and refers to invoices yet to be sent. Accordingly, it is not clear that the email chain relates to the 2010 invoices. More importantly, the relationship between the 15 itemised fees and charges and the amounts liable to be paid by the Rockliffs under the Project Constitution and the JVAs is unclear. There is no evidence explaining how the 15 items were calculated or verifying that the 15 items are proper charges under the Project Constitution and the JVAs. Further, there is no supporting documentation for the 15 items.

    (2)No explanation was given for why the evidence had not been adduced earlier including following a claim made by senior counsel for the Rockliffs, Mr Clarke SC, from the bar table that his instructors had previously requested the “attached sheet” referred to in the 2010 invoices.

    (3)If the evidence was admitted, the Rockliffs would be entitled to an opportunity to make inquiries to test the evidence. It would be contrary to the public interest in the efficient and expeditious conduct of litigation to delay the resolution of this matter for further inquiries to be made on the issue of proof of debt, which has been central to Koonara’s claim from the time that it was made.

11. If I am wrong in the exercise of my discretion to refuse leave, I note that I would not have been satisfied on the balance of probabilities from that material, taken together with the 2010 invoices, that the amounts claimed were due by the Rockliffs in the absence of evidence verifying the Rockliffs’ liabilities to pay the amounts claimed or contemporaneous financial records supporting the existence of the liabilities.

12. Finally, I note that Koonara submitted a schedule containing a statement about the 2010 invoices that “Huntley calculated the Invoices by reconciling prior invoices issued for the years 2007, 2008, 2009, 2010”. There was no evidence given by any person to verify that statement. Although the Rockliffs agreed in cross-examination that they had ceased making payments in relation to invoices issued by the previous RE, Koonara did not point to particular amounts that were admitted by the Rockliffs to have been owing and that were included in the 2010 invoices.

13. The evidence is manifestly insufficient to prove that the Rockliffs owed any liability pursuant to the 2010 invoices.

14. Accordingly, Koonara’s claim based on those invoices fails.

    2011 invoices

15. The 2011 invoices include amounts described as:

    (1)“Annual Vineyard Management Fees” for 2010-2011 and 2011-2012.

    (2)“Lease Payment” for 2010-2011 and 2011-2012.

    (3)Selling Costs for 2008 Vintage.

    (4)Bottling Expenses for 2008 Vintage adjustment.

    (5)Winery Fee (bottle sales) 2011.

    (6)“Sale of Stock – did not proceed as Project not wound up”.

16. Again, the amounts claimed by Huntley in the invoices are unverified and are not supported by contemporaneous records.

17. Koonara’s submissions acknowledged that, insofar as the claims were for the Manager’s remuneration payable pursuant to cl 5.1 of the JVAs and the “Lease Rent Contribution Fee” payable pursuant to cl 6.1 of the JVAs, they could not be explained by simple calculations in accordance with the formulae set out in those clauses. Rather, they simply noted that the differences between the invoiced amounts and the projected figures in the second prospectus were relatively small amounts (in the order of about $300 per participation for the Manager’s remuneration and less than $50 per participation for the “Lease Payment” charges).

18. Without more evidence, I am not satisfied on the balance of probabilities that Huntley was entitled to charge the “Annual Vineyard Management Fees” and the “Lease Payment” charges in the amounts claimed.

19. Nor am I satisfied that Huntley was entitled to charge the other amounts included in the invoices. The evidence does not disclose how the amounts were calculated, or satisfy me on the balance of probabilities that Huntley was entitled to charge them under the JVAs.

20. There is, however, a further question: to what extent does the evidence prove that Huntley was entitled to charge a portion of the “Annual Vineyard Management Fees” and the “Lease Payment” amounts pursuant to the entitlements to charge amounts under cl 5.1 and cl 6.1 of the JVAs (together with cl 4.2 and cl 4.4 of the Project Constitution)?

21. As to cl 5.1, the “Annual Management Fees” were required to be paid “[i]n consideration of the Manager carrying out the Management Services”. Koonara did not seek to prove that Huntley had provided the necessary consideration for the relevant periods. I infer from the invoices that the relevant periods were 1 July 2010 to 30 June 2011 and 1 July 2011 to 30 June 2012. As to the former period, the evidence as to what services were performed that fall within the meaning of “Management Services” in the JVAs is sparse. However, I note that the Reschke parties sought a finding, which I make, that no wines were produced by the Project in 2011. As to the latter period, Huntley was directed to wind up the Project on 9 March 2012. Without more evidence, I am not satisfied, on the balance of probabilities, that the necessary consideration was provided to support an entitlement on the part of Huntley to receive from the Rockliffs any amount pursuant to cl 5.1 of the JVAs for the periods 1 July 2010 to 30 June 2011 and 1 July 2011 to 30 June 2012.

22. As to cl 6.1, that clause requires payment of the “Lease Rent Contribution Fee”, which is defined in cl 1.1 of the JVAs as the “annual amount that the Farmer must pay to the Manager in accordance with clause 6 hereof as the Farmer’s contribution to the Lease Rent for that year”. The “Lease Rent” is also defined in cl 1.1 to mean the “annual rental payable by the Manager to the Land Owner under the Lease”. In turn, “Lease” is defined in cl 1.1 to mean “the lease of the Land entered into between the Land Owner as Lessor and the Custodian as agent for the Manager as Lessee for a period of twenty (20) years commencing on the Commencement Date”.

23. As explained below, there was no “Lease” within the meaning of the JVAs, although that is not to say that the Project did not have access to land for its purposes. Thus, there was no “Lease Rent” within the meaning of the JVAs. It follows that cl 6.1 does not provide a basis for the charges described as “Lease Payments” in the 2011 invoices.

24. For these reasons, Koonara’s claims based on the 2011 invoices also fail.

    2014 invoices

25. The February 2014 invoices are for items described as:

    (1)Responsible Entity Fee 1/7/2010 - 31/12/2013;

    (2)Responsible Entity Expense Recovery; and

    (3)Winery Fee (Bottle Sales).

26. The November 2014 invoices are for items described as:

    (1)Interest payable on outstanding amounts in accordance with the Constitution;

    (2)Annual management fees for the 2012/2013 and 2013/2014 financial years;

    (3)Annual vineyard lease fees for the 2012/2013 and 2013/2014 financial years;

    (4)Winery expenses for 2012 vintage;

    (5)Winery expenses for 2008, 2009 and 2010 vintages – adjustment for undercharged fees; and

    (6)Responsible Entity Expense Recovery.

27. As for the earlier invoices, Koonara did not adduce evidence from Huntley to verify its entitlements to charge the various amounts in the invoices, or other evidence to prove those entitlements, apart from the Project Constitution and the JVAs. As for the 2011 invoices, I am not satisfied, on the balance of probabilities, that any of the amounts charged was a proper charge under the Project Constitution and the JVAs.

28. Accordingly, Koonara’s claims based on Huntley’s February and November 2014 invoices must fail.

    Framework governing the winding up of the Project

29. There is an additional reason why I am not satisfied that Huntley was entitled to the amounts claimed in the 2014 invoices, arising out of the fact that the Project was being wound up when the invoices were issued.

30. Clause 7.7 of the Project Constitution provides that the Scheme must be wound up by the Manager if the Court makes an order directing the Manager to wind up the Scheme. As noted above, an order in those terms was made in March 2012.

31. Clause 7.11 provides:

    Subject to clause 7.13, the Law and any orders of any relevant court, as soon as practicable after determination of the scheme, the Manager must on behalf of the Members:

    a)sell, call in and convert into money or cause to be sold, called in and converted into money, that part of the scheme property which does not consist of ready money;

    b)pay thereout all proper costs and disbursements commissions brokerage fees legal fees and other outgoings required of the Manager and all proper provisions for liabilities; and,

    c)pay the balance to each Member in proportion to each Member’s interest therein subject to deduction therefrom of any monies required to be paid to the Manager ... that are owed at that date by that Member ... AND PROVIDED ALWAYS that the Manager is entitled to retain its respective costs charges and expenses and such further amount for such reasonable period of time which in its opinion may be required to meet all claims demands and expenses incurred or expected to be incurred by the scheme.”

32. The Rockliffs submitted, based on cl 7.11, that the process of winding up the Project involved only the three steps set out in that clause.

33. The Rockliffs noted that cl 7.11(c) provides for the deduction from any final distribution to Members of any amounts owed at that date by the Member. The Rockliffs submitted that amounts owed must be amounts that had become payable to the Manager as at the date of the winding up order. I accept this general proposition, although the fact that they have not been invoiced prior to the date of the winding up order would not prevent an amount from being payable if otherwise payable under the Project Constitution and the JVAs.

34. However, cl 7.11 does not contemplate the making of claims for payments by Members in the course of the winding up. Rather, any outstanding liabilities of Members are to be deducted from the payments to Members in accordance with cl 7.11(c).

35. Clause 9 of the Project Constitution is also relevant. It provides:

    9.1The Manager is hereby indemnified only out of the assets for the time being comprising the Scheme Property against liabilities incurred by it in the proper performance of its duties as the responsible entity.

    9.2The liability of any Member hereunder is limited to the amount unpaid (if any) and payable by him under the Scheme Agreement and to any other amounts he may become liable to pay under the terms of this Constitution.

36. Having regard to cl 9 and cl 11, I accept that the Constitution makes no provision for the rendering of invoices by the Manager to Members once the winding up of the Project has commenced, including in respect of expenses that may be incurred during the winding up or expenses that may otherwise have been referable to the operation of the Scheme.

37. Support for this interpretation of the Project Constitution is found in Young J’s description of the nature of a winding up of a trust in Horwath Corporate Pty Ltd v Huie [1999] NSWSC 583; (1999) 32 ACSR 413 at [16] to [18], as follows:

    [16]     One must also focus on what a winding up really is. Traditionally it has been described by saying that it is the process of turning the horse around and leading him back to the stable; that is, that the corporation, figured by the horse, makes its way out of the stable, goes about its business, at the moment of winding up the horse turns around and starts moving back towards the stable. Thus the horse is still there, it is the same animal, it has got the same burdens, but it gradually releases its burdens until the moment of dissolution when it gets put back in the stable and dies. Thus winding up or liquidation is a process whereby assets are realised, claims are assessed and the assets cease to be assets of the corporation, the claims are satisfied, as much as they can be, and then the company dies.

    [17]     Putting that concept into the realm of trust law is rather difficult. As Grbich and others say in Winding Up Trusts (CCH, Sydney, 1984) at p 28 and following, it is very difficult indeed to release the equitable obligations and fiduciary duties that flow between trustees and beneficiaries, and to a more limited extent in the reverse direction. It is not feasible just to say that a trust comes to an end. One has not only got to deal with the assets and liabilities, one has also got to consider what is to happen to the equitable obligations.

    [18]     Thus when looking at the word “termination” in cl 23.1 of the trust deed there is a lot to be said for the proposition that the word merely means that the business of the trust is to terminate. It cannot mean that the equitable obligation of trustee to beneficiaries, or beneficiaries to trustee ceases. In fact the opposite must be the case. The trustee in realising the assets will have expended money. There will be some implied right, at least prima facie, for the money to be reimbursed, which there would not be if the trust as a whole had come to an end.

38. Based on the framework I have set out above, I do not accept that Huntley was entitled to issue invoices to the Rockliffs after the commencement of the winding up of the Project. In respect of amounts owing to it by the Rockliffs as Members, it was entitled only to deduct those amounts in accordance with cl 7.11.

    Conclusion

1. Koonara’s claims must be dismissed.

   Other matters

2. In case I am wrong, I have considered the following defences raised by the Rockliffs.

   Defence based on breach of fiduciary duty

3. The Rockliffs contended that Koonara breached a fiduciary duty owed to them by procuring Huntley to issue the invoices the subject of Koonara’s claim. Except to the extent that Huntley’s invoices charged fees for its expenses, it is fair to say that they were issued at Koonara’s request (although not on their instructions).

4. In making those requests and in subsequently obtaining an assignment of Huntley’s rights under the invoices, Koonara was undoubtedly acting in its own interests and preferring its interests to those of the Rockliffs, but I do not accept that this involved any breach of fiduciary duty. Koonara’s fiduciary duties did not extend to refraining from seeking to exercise rights acquired by assignment. Nor is that conduct fairly characterised as an attempt to profit from Koonara’s position at the expense of the Rockliffs.

   Rockliffs’ claim that they had no obligation to pay fees

5. The proposition was that the Rockliffs had no obligation to pay until the RE was “ready and willing” to perform its obligations, which the Rockliffs say was never the case.

6. The starting point for this argument was that, in the absence of an express provision, a right to withhold performance may arise as a matter of contractual construction or implication. The Rockliffs noted that “[w]here A’s obligation to perform is dependent on prior performance by B, A is entitled to withhold its performance until B has performed”: Carter JW, Breach of Contract (2nd ed, LexisNexis Butterworths, 2011) at [33-32]. The Rockliffs did not identify any relevant dependency in this case.

7. Next, the Rockliffs referred to Professor Carter’s observation (at [29-28]) that:

   It might be argued that where A must perform prior to B, but A reasonably doubts the ability of B to perform, A should be permitted both to demand an assurance of performance from B and to suspend its own performance in the meantime.

8. In that passage, Professor Carter continues:

   However, the common law does not recognise any general right to demand an assurance or to suspend performance until resolution of an apparent doubt as to a promisor’s ability to perform. The most that can be said is that if a promise demands an assurance, the failure of the promisor to provide a satisfactory response may be taken into account when deciding whether the promisor is able to perform.

9. The Rockliff’s reference to Professor Carter’s text does not advance their case in any respect, whether or not it is read in its proper context.

10. The Rockliffs next identified several obligations imposed upon the “Manager” under the JVAs and observed that the remuneration of the “Manager” was payable by way of “Annual Management Fees” in advance “in consideration of the Manager carrying out the Management Services”.

11. The next proposition was that, by at least 2007, after Huntley became the RE, it “admitted that it did not stand ready and willing to perform its obligations as RE and Manager going forward, through the fault of Koonara as the true manager of the Scheme”. The label “true manager” is not useful. Based on the evidence set out below, after its appointment as RE, Huntley expended significant effort seeking to discharge its roles as RE and Manager. In December 2007, Huntley had formed the view that Koonara’s failures were placing Huntley in default of its own obligations. However, it continued to seek to perform its obligations under the Scheme.

12. I accept that Huntley found itself in a position where it was unable to perform all of its obligations under the Scheme. However, I do not accept that Huntley’s inability to perform all of its obligations had the consequence that investors were entitled to withhold performance of their own obligations. The only legal basis apparently identified for that contention is set out above and is no basis at all.

    RCF’S CLAIMS

13. As set out in more detail below, investors in the Project had an option to finance their investment by way of a loan from RCF. RCF’s claims are based upon the following allegations:

    (1)The Rockliffs each entered into an agreement with RCF on terms contained in a “loan deed” in a form that appears in the second prospectus (loan deeds), described in more detail below.

    (2)By cl 3.1 and cl 4.1 of the loan deeds which RCF alleged, and the Rockliffs disputed, were entered into between them around the time of the Rockliffs’ initial investments, the Rockliffs agreed to repay funds advanced to them by payments of $1,560 per participation per annum each commencing on the fifth anniversary of the “Settlement Date” and thereafter on each anniversary of the Settlement Date until the principal was repaid in full, as well as payments of interest.

    (3)RCF advanced to Mr Rockliff five amounts totalling $46,800 between 30 June 2001 and 30 June 2005, which were paid to the then RE, Australian Hardwood Management Ltd (AHM) in discharge of Mr Rockliff’s obligations to AHM.

    (4)Similarly, RCF advanced to Ms Rockliff five amounts totalling $15,600 between 30 June 2001 and 30 June 2005, which were paid to AHM in discharge of Ms Rockliff’s obligations to AHM.

    (5)By cl 5.1 of the loan deeds, the whole of the amount outstanding became repayable on the happening of certain events and without the necessity of any notice of demand.

    (6)By cl 7.1 of the loan deeds, the Rockliffs were also liable to pay RCF’s expenses and costs of and incidental to enforcement of the loan deeds.

    (7)A certificate complying with cl 7.2 of the loan deeds would be prima facie evidence of the facts stated therein.

    (8)Between 2001 and 2007, the Rockliffs made partial repayments of amounts due and owing to RCF.

    (9)Those payments are admissions of the Rockliffs’ liabilities under the loan deeds and confirmation of those liabilities.

    (10)In breach of their respective obligations under the loan deeds, the Rockliffs failed to make payments owing to RCF and, consequently, the whole of the remaining amounts owing became immediately due and payable.

    Efficacy of loan deeds

14. By their defence, the Rockliffs admitted only that the loan deeds were “purported to be entered into” between them, RCF and Mr Reschke.

15. The loan deeds relied upon by RCF were in evidence. Both are dated 30 June 2001 and are signed “for and on behalf of” each of the Rockliffs by Alan Jessup as the borrower’s attorney under an undated power of attorney.

16. Mr Jessup was a solicitor who was also a director of AHM as at 30 June 2001.

17. Participation application forms signed by the Rockliffs in connection with the Project contained the following words:

    D.       Power of Attorney

    This section of the form comprises a Power of Attorney made on the day specified at the end of the form, by the person or company that executes the Application Form.

    Who and how you appoint

    1.You hereby appoint Australian Hardwood Management Limited ACN 079 695 051 and each of its directors, company secretary and such other person as that company may nominate separately as your attorneys. Specifically and only for the purposes of executing the Management Agreement with the annexed Licence Agreement and where applicable, the Loan Deed on your behalf.

    2.You agree to formally approve what the attorney does under this Power of Attorney. You agree and declare that this Power of Attorney is given for valuable consideration and agree that you may not revoke the appointment. The powers you give under the Power of Attorney.

    3.Your attorney may, in your name:

    a]do everything required to sign, seal and deliver the Coonawarra Winegrape Project Joint Venture Agreement and the Loan Deed, if a loan has been applied for under the Application Form.

    b]do anything that you can do as a participant in the Coonawarra Winegrape Project or anything that you can do or are obliged to do in relation to the transactions contemplated by the Coonawarra Winegrape Project Joint Venture. Agreement and the Loan Deed, if a loan has been applied for under the Application Form;

    c]stamp and register this Power of Attorney and any of those documents if necessary.

18. The Rockliffs contended that, as the forms were signed in Sydney, the powers of attorney were governed by New South Wales law. The Reschke parties did not dispute this, or that the relevant law was the common law and any applicable provisions in the Conveyancing Act 1919 (NSW).

19. At the time that the Rockliffs signed the participation application forms, s 163(2) of the Conveyancing Act provided that, where an instrument is executed creating a power of attorney, any deed (not being a lease or agreement for a lease for a term not exceeding three years) executed by the attorney under the power in pursuance of the power was not of any force or validity whatsoever unless the instrument creating the power had been registered. RCF did not dispute that the loan deed was a deed. Section 163(2) was subject to a proviso that relevantly, on registration of the instrument creating the power, every deed executed by the attorney under the power shall take effect as if the instrument creating the power had been registered before the execution of the deed.

20. There was no evidence that the powers of attorney in the Rockliffs’ participation application forms were ever registered.

21. The Reschke parties’ submissions concerning the efficacy of the powers of attorney were as follows:

    (1)Mr Rockliff acknowledged that he understood that he had appointed certain people as his attorneys when he signed the participation application form and he was familiar with how powers of attorney operated and that it was not “controversial” to him;

    (2)Mr Rockliff acknowledged various other facts concerning his appointment of attorneys, including that the power was given for valuable consideration and was not revoked, and that anything done in exercising the power would be binding on him; and

    (3)accordingly, the claim that the power of attorney had no relevant effect could not be seriously advanced.

22. These submissions do not engage with the effect of s 163(2). Based on that provision, I accept that the loan deeds purportedly executed by Mr Jessup on behalf of the Rockliffs were of no force or validity whatsoever.

23. It follows that RCF is not entitled to relief against the Rockliffs pursuant to the loan deeds and its claims made pursuant to the loan deeds must fail.

24. The Rockliffs also contended that in the absence of evidence that AHM separately nominated Mr Jessup as the attorney of each of the Rockliffs, the Court should not be satisfied that Mr Jessup’s execution of the loan deed was a valid exercise of the power of attorney. This submission involves a misinterpretation of the form of the power of attorney set out above. The form has the effect of appointing each of AHM’s directors (including Mr Jessup) as an attorney of the Rockliffs and “such other person as [AHM] may nominate separately”.

    Alleged advances

25. In their opening written submissions, the Reschke parties stated that RCF made the relevant advances to the Rockliffs by promissory notes issued by it to AHM and endorsed by AHM to Koonara.

26. Mr Reschke acknowledged that, on or before 30 June of each of 2001-2005 (and 2000), he arranged for RCF to draw, execute and deliver to Fergus McLachlan, one of the original directors of AHM, on behalf of AHM, promissory notes for the total amounts lent by RCF to borrower-investors in each of the first five years of the Project under both the first and second prospectuses. The notes contained provisions for subsequent endorsements by AHM to Koonara and by Koonara to RCF.

27. In Rocky Castle Finance Pty Ltd v Taylor [2014] SASCFC 1; (2014) 118 SASR 349 (Taylor), the Full Court of the Supreme Court held that the issue of and dealings with promissory notes in connection with the Project did not comprise advances or payments within the meaning of loan deeds in the same terms as the loan deeds in this case. As explained below, the Reschke parties contended that the “factual landscape” presented to this Court is materially different from the facts in Taylor. However, on its face, the reasoning in Taylor applies to the effect of the promissory notes relied upon by RCF to make its claims against the Rockliffs.

28. Taylor concerned claims by RCF against two investors pursuant to the first prospectus. RCF relied on different promissory notes but the transaction relied upon by RCF was similar in nature to the transactions upon which it now seeks to rely. That is, the relevant transaction (as identified by Blue J (Stanley J agreeing) at [79]) was the delivery of a promissory note by RCF to AHM and the acceptance of the note by AHM as evidenced by its endorsement in favour of Koonara. As Blue J recorded at [79], RCF contended that, by this transaction, advances and payments within the meaning of cl 2.1 of the relevant loan deeds were effected.

29. In their closing submissions, the Reschke parties contended that, through the use of the promissory notes, debts were created and satisfied including the Rockliffs’ liabilities to AHM for management fees. The latter submission corresponds with RCF’s argument in Taylor, referred to by Blue J at [82], that “the discharge pro tanto by AHM, procured by Rocky Castle, of the obligations of Mr Taylor and Mr Gillen to pay Participation Fees was sufficient by itself to establish the defendants’ liability under the Loan Deeds and that ‘payment’ may extend to any form of discharge of a pecuniary obligation”.

30. At [19] and [20], Vanstone J concluded that RCF did not make any payment to AHM but only made a promise to pay, which was not performed. At [15], her Honour observed:

    It is true that the Loan Deed did not specify in what form the advance was to be made; but neither did it purport to redefine the words advance or payment in such a way as to rob the words of their usual meaning. The Loan Deed required no less than a payment. While Hardwood’s acknowledgment that the obligation had been met might affect legal relations between Hardwood and the investors, it could not affect the question whether or not an advance of the balance of the management fee had been made, which is a question of fact.

31. At [135], Blue J concluded that there was no “advance” or “payment” within the meaning of cl 2.1 of the loan deed, construed in accordance with the relevant participation application forms and the Project Constitution. At [115], his Honour accepted that the Constitution required that all “Participation Fees” and “Lease Fees” received from Participants be paid into the Scheme Bank Account, whether paid directly by a Participant to AHM or paid on behalf of a Participant by a lender. At [117] and [118], Blue J referred to terms of the first prospectus, which his Honour concluded:

    … explicitly contemplate that AHM will utilise the funds received by way of Participation Fees to pay the viticulture, establishment and maintenance expenses and lease rent. They contemplate that the Participants have an interest in AHM having adequate funds to meet those expenses and completing the tasks required of it. The Other Undertakings section discloses that AHM was the manager of two other managed investment schemes. The Participants had an interest in AHM keeping its activities and funds for their Joint Venture separate from its other activities.

32. The second prospectus, pursuant to which the Rockliffs invested in the Project, contained most of the terms identified by Blue J, although it did not contain a similar breakdown of the expenses of the RE that referred explicitly to expenditure on “viticulture, establishment and maintenance expenses and lease rent”.

33. Blue J concluded:

    (1)“The delivery and acceptance of each Promissory Note was not in accordance with, and was contrary to, the mandate by the Borrowers to Rocky Castle contained in clause 2.1 of the Loan Deed and section B clause 2 of the Application Form. It did not comprise a “payment” within the meaning of clause 2.1(a)-(e) or form part of an “advance” within the meaning of clause 2.1 of the Loan Deed” (at [119]).

    (2)It followed “that the indebtedness of Mr Taylor and Mr Gillen to AHM was not affected by the making or the indorsement of the Promissory Notes. As the transaction involving each Promissory Note was outside the mandate conferred by Mr Taylor and Mr Gillen on Rocky Castle, their indebtedness to the Manager remained the same as it had been before the transactions” (at [121]).

    (3)As a matter of construction of cll 4.2, 4.3, and 4.4 of the Project Constitution and cll 5.1, 6.1, and 7.1 of the JVAs, participants were not entitled to effect “payment” by the delivery of a promissory note to the Manager (at [124]).

    (4)“Given the wording, context and apparent purpose of clause 2.1 of the Loan Deeds and the overall context of the Joint Venture, the references to “advance” and “payment” are to payments capable of being banked into a bank account of the Manager. A promissory note does not qualify” (at [127]).

34. The Reschke parties’ argument that RCF advanced funds to the Rockliffs relied on the following matters of fact:

    (1)RCF’s balance sheet as at 30 June 2001 included a current asset described as “Loan –Various External Investors” in an amount of $1,437,000. This asset, in different amounts, appears in later balance sheets, as at 30 June 2003, 30 June 2004 and 30 June 2005.

    (2)AHM issued invoices to the borrowers recording receipt of the full amount of the management fees and showing that part of the required fees had been paid by RCF by way of advance or loans.

    (3)As between RCF and AHM, it was agreed and acknowledged that the delivery of the promissory note by RCF to AHM would be accepted as part payment of the management fees of the borrowers on the understanding that Koonara would accept AHM’s subsequent endorsement of the note.

35. RCF’s balance sheets record that RCF had made loans to investors and the “Various External Investors” probably include the Rockliffs. The balance sheets are prima facie evidence of the matters they record: s 1305 of the Corporations Act 2001 (Cth) (Corporations Act).

36. AHM’s invoices record amounts paid on account of fees due by the Rockliffs pursuant to the Project Constitution and the JVAs. They also record amounts “financed” in reduction of the fees due.

37. Based on Mr Reschke’s evidence, I also accept that, as between RCF and AHM, it was agreed and acknowledged that the delivery of the promissory note by RCF to AHM would be accepted as part payment of the management fees of the borrowers on the understanding that Koonara would accept AHM’s subsequent endorsement of the note.

38. In oral evidence, Mr Reschke maintained that RCF had funds available to it in the ANZ account to support its promissory notes issued in June 2001. He said that, to ensure the amounts on the notes fitted within RCF’s capacity, he cancelled a promissory note in the sum of $912,000 and replaced it with the two notes for $456,000 each.

39. However, the only relevant bank statements in evidence were for a fully drawn advance account with a debit balance of $3,391,286 as at 29 June 2001 and a cheque account with a balance of $255.19 as at 29 June 2001. In the face of those bank statements, I do not accept that RCF had the requisite funds available to it at that time in the ANZ account or at all.

40. Concerning the financial position of RCF as at 30 June 2001, the parties agreed that RCF had fully drawn its advance facility of $3.33 million from ANZ and had on-lent funds to Koonara of approximately $969,000 and had loaned Reschke Vineyards Pty Ltd (Reschke Vineyards) (another company associated with Mr Rescke) over $400,000 and Mr Reschke himself over $440,000. The balance sheet referred to by RCF shows that the Rocky Castle Finance Trust had net assets of $10.00.

1. The significance for the Reschke parties’ case of RCF’s asserted capacity to support its promissory notes was not immediately obvious. It may have related to advice given by Mr Jessup in July 2000 referred to at [318] below. In any event, on the facts set out above and in the absence of any other identified source of funds, I do not accept that RCF had the financial capacity to honour the promissory notes by which it purported to advance funds to the Rockliffs in June 2001.

2. The Reschke parties argued that, on the proper interpretation of the loan deeds, the words “payment” and “advance” permitted the Rockliffs’ liabilities to AHM to be satisfied by the mode adopted. That submission is contrary to the conclusion of the Full Court in Taylor. The relevant provision of the loan deeds is cl 2, which provides:

   2.        LOAN

   2.1The Lender hereby agrees to advance the Principal to the Borrower or as he may direct, and the borrower hereby authorises and directs the Lender to so advance the Principal as follows:

   (o)no later than the Settlement Date to the Manager the sum of $8,000.00 per Participation in part payment of the first year’s Annual Management Fee payable by the Borrower as a Farmer under the terms of the Joint Venture Agreement;

   (p)provided that the Borrower is not in default under this Loan Deed, no later than the first anniversary of the Settlement Date to the Manager the sum of $2,500.00 per Participation in part payment of the second year’s Annual Management Fee payment by the Borrower as a Farmer under the terms of the Joint Venture Agreement;

   (q)provided that the Borrower is not in default under this Loan Deed, no later than the second anniversary of the Settlement Date to the Manager the sum of $2,500.00 per Participation in part payment of the third year’s Annual Management Fee payment by the Borrower as a Farmer under the terms of the Joint Venture Agreement;

   (r)provided that the Borrower is not in default under this Loan Deed, no later than the third anniversary of the Settlement Date to the Manager the sum of $1,500.00 per Participation in part payment of the third year’s Annual Management Fee payment by the Borrower as a Farmer under the terms of the Joint Venture Agreement; and

   (s)provided that the Borrower is not in default under this Loan Deed, no later than the fourth anniversary of the Settlement Date to the Manager the sum of $1,100.00 per Participation in part payment of the fourth year’s Annual Management Fee payment by the Borrower as a Farmer under the terms of the Joint Venture Agreement.

3. For the same reasons given by their Honours in Taylor, set out above, I do not accept that RCF advanced funds to the Rockcliffs by means of the promissory note transactions.

4. In particular, I do not accept the Reschke parties’ contention that the meaning and purpose of the loan deeds was that, if the creditor AHM accepted that the borrower’s debt to AHM was discharged by the financial transaction with RCF, there was a “payment” to AHM sufficient to achieve satisfaction of RCF’s loan deed obligation to make an “advance” to that extent.

5. The premise of the argument is that the promissory notes transactions had the effect of satisfying Rockliffs’ liabilities to AHM for management fees, as evidenced by AHM’s invoices. However, as Vanstone J observed in Taylor at [15], while AHM’s acknowledgements that the investors’ obligations had been met might affect the relationship between the Rockliffs and AHM, they do not prove that an “advance” or a “payment” was made.

6. As part of their argument, the Reschke parties submitted that each borrower directed RCF “to apply the proceeds of the loan to be advanced” to AHM towards payment of the total liability of each investor for management fees payable to AHM. The relevant direction is contained in the participation application form and is the same language that Blue J found gave rise to the mandate by the borrowers to RCF. It is a direction “to apply the proceeds of the loan to be advanced to you to payment of the Management Fees for each such Participation”.

7. Thus, it is not a direction to pay a “liability”, but rather a direction to pay “Management Fees”. The direction reveals that the purpose of the loan deeds was to enable payment of fees for participation in the Project.

8. Accordingly, even if the Rockliffs’ liabilities to AHM were satisfied by the promissory note transactions, those transactions did not involve any advance of monies by RCF to the Rockcliffs in the absence of any payment which, as Blue J put it, was capable of being banked into a bank account held by AHM.

9. Thus, I find that RCF did not advance funds to the Rockliffs in about June 2001 pursuant to the relevant loan deeds. Further, RCF did not provide funds to AHM in about June 2001 pursuant to the loan deeds for the purposes of the Project.

10. In the light of these findings, it is not necessary to make findings concerning the authenticity of various promissory notes relied upon by RCF or whether they were created on the dates they bear. It is also unnecessary to make detailed findings about the “round robin” transactions involving promissory notes, which took place around 30 June 2002, 30 June 2003, 30 June 2004 and 30 June 2005, except to find that they are not relevantly different to the 30 June 2001 “round robin” transaction. Consequently, I find that RCF did not advance funds to the Rockliffs by any of these transactions.

11. Finally, I do not accept that the Rockliffs’ payments to RCF between 2001 and 2007 are admissions of the Rockliffs’ liabilities under the loan deeds in the absence of evidence that they were aware that RCF had purported to advance funds to them by way of the promissory note transactions, and not by way of actual funds paid to AHM. Similarly, I do not accept that the Rockliffs’ payments can give rise to an estoppel in RCF’s favour concerning the effect of the promissory note transactions or that the Rockliffs were unjustly enriched by the promissory note transactions in which RCF chose to participate.

    Conclusion

12. RCF’s claims fail because the loan deeds are unenforceable or, alternatively, because it did not make the pleaded advances to the Rockliffs.

13. RCF’s claims must be dismissed. Costs should follow the event.

    MR ROCKLIFF’S CROSS CLAIM

14. Before entering into the detail of the cross-claim, it is appropriate to consider what Mr Rockliff seeks to achieve by the cross-claim. As ultimately formulated, the principal relief sought was recorded in a seven page proposed short minute of orders. The short minute contains 43 separate orders, although they are not numbered consecutively. The proposed orders are organised under the following headings and sub-headings:

    (1)Misleading and deceptive conduct:

    (a)Section 12DA of the Australian Securities and Investments Commission Act 1989 (Cth) (ASIC Act 1989) and s 995 Corporations Act 1989 (Cth) (Corporations Law).

    (b)Section 12DB ASIC Act 1989.

    (c)Section 12DC ASIC Act 1989.

    (d)Section 12DF ASIC Act 1989.

    (e)Section 999 Corporations Law.

    (2)Unconscionable conduct in respect of the second prospectus: ss 12CA and 12CB ASIC Act 1989.

    (3)Unconscionable conduct in operation of the Scheme: s 12CA Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act 2001).

    (4)Unconscionable conduct in operation of the Scheme: equity.

    (5)JVA not to be enforced.

    (6)Loan Deed not to be enforced.

    (7)Involvement in breaches by RE.

    (8)Breach of fiduciary duty.

15. On examining the precise relief sought, it is apparent that some claims fall away as a result of the failure of the claims made by Koonara and RCF. These claims are:

    (1)Ten proposed orders expressed to be sought “to the extent that” amounts are claimed or continued to be claimed against Mr Rockliff by the Reschke parties (proposed orders 4, 4A, 4B, 5, 5A, 8, 8A, 9, 13 and 14). The closing submissions did not identify the relevant amounts or explain the basis upon which orders to this effect might be made. There was no evidence of any amount claimed by Mr Reschke against Mr Rockliff. Nor was there evidence of claims by Koonara and RCF against Mr Rockliff apart from the claims that have failed in this proceeding. Assuming that the orders sought were intended to operate against the failed claims made by Koonara and RCF, there is no basis for the proposed orders. I note that proposed orders 4A, 4B and, implicitly, proposed orders 4 and 14, are predicated on the misconception that the Reschke parties might seek to enforce the JVA to which Mr Rockliff is a party. None of the Reschke parties were a party to the JVA with any right to enforce the JVA.

    (2)Three proposed orders that concern the debts claimed by Koonara (proposed orders 17, 18 and 19). Proposed order 17 seeks a complicated form of declaration directed to Koonara’s alleged instructions to charge fees to investors and the 2014 deed of assignment from Huntley. Since I have dismissed Koonara’s claims, it is unnecessary to address the proposed relief in any detail. There is also no outstanding issue concerning the enforceability of the November 2014 invoice rendered to Mr Rockliff (proposed order 18) or whether the deed of assignment between Huntley and Koonara was “voidable and unenforceable and should be set aside” (proposed order 19).

    Claims for declaratory relief

16. Mr Rockliff seeks 17 declarations that various of the Reschke parties contravened various laws or were involved in contraventions of various laws.

17. As appears below, with one exception, I have not found any relevant contravention.

18. However, in any event, I do not consider that this is an appropriate case for the exercise of the power to make a declaration in relation to the conduct of a party in contravention of the law.

19. Such orders may be made to mark disapproval of a party’s conduct: Australian Competition and Consumer Commission v Chen [2003] FCA 897; (2003) 132 FCR 309 at [35] and [36], and are frequently made in cases brought in the public interest by a regulator. It is necessary to consider whether the party seeking the declaration has a real interest in obtaining that relief and that sufficient consequences flow from the making of the declaration so that it is appropriate for the Court to exercise its discretion: Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at 437.

20. In Warramunda Village Inc v Pryde [2001] FCA 61; (2001) 105 FCR 437 at [8], the Full Court said:

    The remedy of a declaration of right is ordinarily granted as final relief in a proceeding. It is intended to state the rights of the parties with respect to a particular matter with precision, and in a binding way. The remedy of a declaration is not an appropriate way of recording in a summary form, conclusions reached by the Court in reasons for judgment. This is even more strongly the case when the conclusion is not one from which any right or liability necessarily flows.

21. Mr Rockliff submitted that it was appropriate in the circumstances of this case to make a declaration to mark disapproval of the contravening conduct. I am not satisfied that Mr Rockliff has any real interest in obtaining such relief or that there is any utility in making a declaration to record a contravention in the circumstances of this case, which is essentially a commercial dispute between private litigants. Further, Mr Rockliff did not identify any significant public interest in making such a declaration: cf. Tobacco Institute of Australia v Australian Federation of Consumer Organisations Inc (No 2) [1993] FCA 105; (1993) 41 FCR 89 at 94 (Sheppard J), 106 (Foster J) and 107 (Hill J).

    Claims for monetary relief

22. Although the cross-claim refers to a claim for loss “by not obtaining the income and benefits which should have been received from participation in the Project”, ultimately Mr Rockliff essentially sought to be put in the same monetary position as if he had never invested in the Project.

23. Proposed order 21 of the short minutes is an order for payment of damages in the sum of $125,967.80, comprising seven amounts paid by Mr Rockliff between 26 June 2001 and 30 June 2008, and any further amount Mr Rockliff is required to pay as a result of or arising from an undertaking given to lodge amended personal income tax returns. As particularised in the cross-claim, the total of $125,967.80 comprises:

    (1)$35,130.00 paid to Australian Rural Group Limited (ARG), which had been appointed as the “Custodian” for the Project, on or about 26 June 2001;

    (2)$12,697.20 to ARG on or about 28 June 2002;

    (3)$13,365.30 to AHM on or about 29 June 2003;

    (4)$14,948.39 to AHM on or about 30 June 2004;

    (5)$11,899.56 to AHM on or about 29 June 2005;

    (6)$14,555.31 to AHM on or about 1 June 2006;

    (7)$13,754.76 to Huntley on or about 30 June 2007;

    (8)$7,862.40 to RCF on or about 30 June 2007; and

    (9)$1,754.88 to Huntley on or about 30 June 2008.

24. These payments were not admitted in the defence to the cross-claim and were not agreed in the parties’ agreed narrative of facts. Despite its length, Mr Rockliff’s affidavit proves the payment of only the first amount in terms. As for the others, he merely says: “I subsequently paid monies from time to time to AHM following receipt of invoices relating to the Project from AHM and subsequently to Huntley …”.

25. Specifically, Mr Rockliff did not give evidence of his asserted payment of $7,862.60 to RCF.

26. In accordance with Mr Rockliff’s affidavit evidence, the parties agreed only that Mr Rockliff paid monies from time to time to AHM and then to Huntley following receipt of invoices of the Project.

27. The evidence included several invoices issued to Ms Rockliff (including an invoice from RCF), but not the invoices allegedly paid by Mr Rockliff.

28. Without more evidence, I am not satisfied that Mr Rockliff made payments in the amounts asserted except for the payment of $35,130.00 in June 2001.

29. In oral closing submissions, Mr Clarke SC clarified that the amount claimed by way of equitable compensation (proposed order 20 in the short minutes) corresponds to the damages claim in proposed order 21.

30. The amounts sought by way of repayment, refund or return in proposed orders 6, 6A, 10 and 15 and the amounts sought by way of compensation in proposed orders 7, 7A, 11 and 16 are also amounts included in the total claim of $125,967.80. The orders refer to various different legal bases for the making of the orders, namely, ss 12GM(1), (2) and (7) and s 12GF of the ASIC Act 2001, equity and ss 1325(1), (2) and (5) of the Corporations Act.

    Relief sought pursuant to s 12GM of ASIC Act 2001

31. Section 12GM provides relevantly:

    (1)Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

    (2)Without limiting the generality of section 12GD or 12GNB, the Court may, on the application of:

    (a)a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; …

    (b)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 (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will:

    (c)compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or

    …

    (7)Without limiting the generality of subsections (1) and (2), the orders referred to in those subsections include the following:

    …

    (d)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;

    (e)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;

    …

32. The power conferred by s 12GM(1) is engaged where the following pre-conditions are satisfied:

    (1)There is a proceeding instituted under or for an offence against Div 2 of Pt 2 of the ASIC Act 2001;

    (2)The court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person; and

    (3)The relevant conduct was engaged in in contravention of a provision of Div 2 of Pt 2 of the ASIC Act 2001.

33. In this case, the cross-claim satisfies the first requirement because it includes a claim for damages under s 12GF: cf. New Cap Reinsurance Corporation v Daya [2008] NSWSC 64; (2008) 66 ACSR 95 at [38].

34. The power conferred by s 12GM(2) is engaged where the following pre-conditions are satisfied:

    (1)There is an application by a person who has suffered loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; and

    (2)The court considers that an order will compensate the person who made the application in whole or in part for the loss or damage.

35. Division 2, entitled “Unconscionable conduct and consumer protection in relation to financial services” includes, relevantly, ss 12CA, 12CB, 12DA, 12DB, 12DC and 12DF of the ASIC Act 2001.

    Claims for repayment, refund or return of monies

36. The relief sought by Mr Rockliff includes orders, expressed to be pursuant to s 12GM(1) or s 12GM(7) of the ASIC Act 2001, that:

    (1)Koonara and Mr Reschke repay, refund or return all moneys paid by Mr Rockliff under the JVA (proposed order 6); and

    (2)RCF and Mr Rescke repay, refund or return all moneys paid by Mr Rockliff under the purported loan deed between RCF and Mr Rockliff (proposed order 10).

37. These proposed orders broadly reflect the terms of s 12GM(7)(d).

38. However, Mr Rockliff did not pay any sums to Koonara or Mr Reschke pursuant to the JVA and there is no evidence that money paid by Mr Rockliff pursuant to the JVA was transferred to Koonara or Mr Reschke. Any monies payable by Mr Rockliff pursuant to the JVA were payable to AHM or Huntley. On his own case, Mr Rockliff did not pay any amount to either Koonara or Mr Reschke. 

39. Nor did Mr Rockliff pay any amount to Mr Reschke pursuant to the loan deed.

40. Finally, there is no evidence that Mr Rockliff made the alleged payment of $7,862.40 to RCF.

41. It follows that there is no basis upon which any of the Reschke parties can be ordered to “repay, refund or return” monies paid by Mr Rockliff.

42. By parity of reasoning, there can be no basis for making such an order by reference to equitable principles (proposed order 6A) or pursuant to s 1325 of the Corporations Act (proposed order 15).

    Claims for compensation

43. The relief sought by Mr Rockliff includes orders, expressed to be pursuant to s 12GM(1) or s 12GM(2) of the ASIC Act 2001, that:

    (1)Koonara and Mr Reschke compensate Mr Rockliff for all loss and damage suffered by him “by reason of participating as an investor in the Scheme” (proposed order 7).

    (2)RCF and Mr Reschke compensate Mr Rockliff for all loss and damage suffered by him “by reason of participating as an investor in the Scheme” (proposed order 11).

1. As to (1), this allegation was made by reference to the representations that I have addressed earlier in these reasons. Of those representations, I have found two representations to be false. Of those, it is fair to say that RCF failed to fulfil the representation that it would advance funds to investors to finance their participation in the Project.

2. The complaint of a failure to fulfil a representation may suggest that Mr Rockliff’s complaint here goes beyond the falsity of the representations, or whether they were misleading or deceptive, to the facts concerning whether representations (even if not misleading or deceptive) were fulfilled. Broadly, I accept that there were representations that were unfulfilled. An example is the representation identified above concerning the installation of frost protection. However, the allegation of “failure” to fulfil a representation seems to imply a duty of fulfilment. Except in relation to the two false representations, I do not accept that any of the Reschke parties owed any such duty.

3. As to (4), I have made findings above concerning the “round-robin” transactions that occurred and I have found that the Rockliffs were not advanced funds pursuant to those transactions. Despite this, in 2007, RCF sought repayment from Ms Rockliff on the false premise that it had advanced funds to her and she paid $2,620.80 to RCF. Mr Rockliff asserted but did not prove payment to RCF of $7,862.40.

   Events occurring during the operation of the Scheme and non-disclosures

4. As to (2) and (6), the relevant events were:

   (1)The appointment of an administrator of ARG, the Project’s custodian, in September 2002, which was not reported to investors in the Project including Mr Rockliff.

   (2)The subsequent winding up of ARG and the appointment of a liquidator which was not reported to investors including Mr Rockliff.

   (3)The appointment of Huntley as custodian for the Project in about 2003.

   (4)The cessation of Messrs Mollison, Tolley and Gawel as directors of CPH, Koonara and Reschke Pty Ltd in October 2003, leaving Mr Reschke as the sole director of each company, which was not reported to investors including Mr Rockliff.

   (5)The appointment of Fergus McLachlan and Guy Stratford as directors of CPH on 9 December 2003, which was not reported to investors including Mr Rockliff.

   (6)The commencement of the Thomson Playford proceeding without that matter being reported to investors including Mr Rockliff.

   (7)AHM did not provide members with reports for a financial year within 3 months after the end of the financial year, in accordance with clause 25.7 of the Project Constitution.

   (8)From time to time members made complaints to AHM, both verbally and in writing, prior to its ceasing to be the RE for the Project on 28 May 2007, and subsequently made complaints, verbally and in writing to Huntley, regarding lack of financial reports and information regarding the Project.

   (9)The change of CPH’s status from an unlisted public company to a proprietary company in 2004, which was not reported to some investors, including Mr Rockliff.

   (10)The retirement of Fergus McLachlan as a director of CPH in May 2005 which was not reported to investors including Mr Rockliff.

   (11)The retirement of Guy Stratford was a director of CPH, leaving Mr Reschke as sole director, which was not reported to investors in the Project, including Mr Rockliff.

   (12)The retirement of Ian McLachlan as a director of AHM on 5 October 2005, about which AHM did not inform investors including Mr Rockliff.

   (13)The suspension of Mr Cameron as a registered company auditor in September 2006.

   (14)On or about 13 April 2007, Mark Taylor, an investor in the Project pursuant to the first prospectus, sent an email to Mr Reschke with a copy to Fergus McLachlan stating, relevantly, that he had not received the 2001, 2002, 2003, or 2004 financial statements for CPH.

   (15)On or about 1 May 2007, AHM sent a letter to investors in the Project including Mr Rockliff, signed by Fergus Mclachlan, purporting to explain the proposal to change the RE for the Project from AHM to Huntley. The letter is set out at [545] above.

   (16)On or about 1 May 2007, AHM sent to investors in the Project including Mr Rockliff the Notice of Meeting of Growers dated 30 April 2007 and Explanatory Memorandum – Notice of Retirement of Responsible Entity, referred to above.

   (17)On 28 May 2007, AHM was replaced by Huntley as the RE for the Project. Subsequently, a notice of change of responsible entity of a registered scheme was lodged with ASIC, signed by Mr Jessup.

   (18)Prior to 29 May 2007, AHM “as agents for the cross defendants” did not report to investors in the Project including Mr Rockliff “as required under the Constitution, Compliance Plan and Joint Venture Agreement for the Project and as represented in” the second prospectus.

   (19)Mr Finall’s qualified audit opinion for the Project for the year ended 30 June 2006, dated 25 September 2008.

   (20)On about 1 April 2008, Huntley sent a letter to investors in the Project including the Rockliffs “which contained, inter alia, a number of statements relating to the Project, concerning the conduct of Mr Reschke and Koonara”.

   (21)AHM did not report to investors in the Project, including Mr Rockliff, matters that were disclosed in Huntley’s 1 April 2008 letter.

   (22)Huntley’s lodgement of financial statements and reports for the year ended 30 June 2008 with ASIC by Huntley, in which under item 7 under the heading “DIRECTORS REPORT’ there was a sub heading “Material uncertainty in financial information” and under Note 14 there was a heading “Issues relating to sub-contract of management services and project Under lease”.

   (23)The death of Trevor Reschke, the owner of the land on which the Reg Reschke vineyards were located, on 21 June 2008.

   (24)The transfer of ownership of sections 226, 227 and 228 (on which the Reg Reschke vineyards were located) to Reschke Vineyards on 27 September 2010.

   Failure by Koonara to comply with its obligations to the RE and to protect investors

   Koonara’s obligations

5. Mr Rockliff made complex and lengthy submissions directed to the existence of obligations owed to him by Koonara.

6. Those submissions implicitly recognised that Koonara did not have a contractual relationship with Mr Rockliff.

7. Koonara had a contractual relationship with AHM under each of the First AHM/Koonara agreement and the AHM/Koonara management services agreement. The evidence was not clear as to whether Huntley ever obtained the benefit of the AHM/Koonara management services agreement or whether that agreement was replaced by an agreement between Koonara and Huntley.

8. Mr Rockliff argued that Koonara was “in substance” the “Manager” of the Scheme. This contention was made in support of the existence of a duty of care owed by Koonara to Mr Rockliff and in support of the existence of fiduciary obligations owed by Koonara to Mr Rockliff.

9. The reference to “Manager” appears to be a reference to that term in the Project Constitution and the JVAs. Mr Rockliff noted that Koonara performed many of the functions of “Manager” within those two documents pursuant to the AHM/Koonara management services agreement. Mr Rockliff also observed that the RE was “dependent” on Koonara for financial information. 

10. AHM was defined to be the “Manager” of the Project under the Constitution. By recital E to the AHM/Koonara management services agreement, AHM states its wish to engage Koonara to perform its management obligations under the JVAs. The Rockliffs noted that, by cl 3.1 of the First AHM/Koonara agreement, AHM agreed to sub-contract the “management and conduct of the operations of the Scheme” to Koonara. The Rockliffs referred again to cl 6 of the First AHM/Koonara agreement, by which AHM agreed that Koonara would be solely responsible for “Commercial Decisions”.

11. Mr Rockliff contended that the services to be performed by Koonara under cl 1.2 of the AHM/Koonara management services agreement were “almost a complete sub-set” of the services AHM was obliged to provide members under the Constitution as “Manager”. He noted that the services to be provided under cl 1.2.12 comprised “all other things that are necessary or incidental to the carrying out of the Project to produce a viable business of growing, marketing and sale of wine grapes, bulk wine of bottled wine”.

12. In addition, Koonara agreed to perform the following service, which was not specified as one of the “Management Services” as defined by the Constitution:

    1.2.1ensuring that the Land Owner carries out the Land Owner’s obligations under the Underleases in a proper and workmanlike manner and in an efficacious and timely manner;

13. However, Koonara was not engaged to perform the following “Management Services” as defined by the JVA:

    l.carrying out the accounting, financial control and reporting needs and functions of the Joint Venture;

    m.       keeping of proper books of account for the Joint Venture;

14. Further, AHM could not contract out of its statutory duties as RE. Mr Rockliff did not suggest that Koonara was, or acted as, the RE of the Project. Rather, he argued that Koonara “undertook to act in the role of de facto RE of the Scheme; and thereby in the interests of the members of the Scheme.

15. In my view, there is no relevant sense in which Koonara was “in substance” the “Manager” of the Project. Koonara’s role in the Scheme was primarily determined by its contractual relationship with AHM. In particular, the evidence does not support a finding that Koonara undertook to act in the role of “de facto RE”. As evidenced by the AHM/Koonara management agreement, it undertook to perform the functions stipulated in that contract.

16. Thus, I do not accept that Koonara owed a duty of care to Mr Rockliff “to manage the Scheme and Project in the interests of the investors and to hold and/or protect and secure Scheme Property for the interests of investors in the Scheme (other than by the legitimate charging of fees for its services …)”. Such a duty does not reflect Koonara’s true role in the Project.

17. Similarly, to the extent that Mr Rockliff relied upon Koonara’s situation as de facto “Manager” or RE to contend that Koonara owed him fiduciary obligations, I do not accept that contention.

18. Mr Rockliff also pointed to the fact that Koonara controlled and was responsible for scheme property and the assets of the Scheme. It is true that Koonara had actual control over important elements of the scheme property, particularly the grape vines and the grapes grown pursuant to the Project, and the wine produced from those grapes. Knowing that those assets were scheme property, Koonara was obliged to deal with those assets on the terms of the Project Constitution: Barnes v Addy (1874) 9 Ch App 244 at 251. Mr Rockliff contended that Koonara owed fiduciary duties in respect of trust property held by him citing Shepherd JC, Law of Fiduciaries (The Carswell Company Ltd, 1981) at pp 22-25; Finn P, Fiduciary Obligations: 40th Anniversary Republication with Additional Essays (The Federation Press, 2016) at [184], [187] and [194] and Soar v Ashwell [1893] 2 QB 390 at 397 per Bowen LJ.

19. Mr Rockliff contended that Koonara owed a fiduciary duty to Scheme members to ensure that CPH carried its obligations, but pointed only to a contractual obligation to do that very thing in cl 1.2.1 of the AHM/Koonara management agreement. I do not accept that Koonara owed such a fiduciary duty to Mr Rockliff.

20. Finally, Mr Rockliff contended that Koonara and Mr Reschke owed a fiduciary duty to the investors as the promoters of the Scheme and the Project, citing Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 at 227-229; and see Tracy v Mandalay Pty Ltd [1953] HCA 9; (1953) 88 CLR 215 at 241-242; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 at 10. The duty was said to include a requirement to ensure that representations as to how the Scheme and Project would be conducted were made good and carried through.

    Failure to protect scheme property

21. Mr Rockliff contended that Koonara and Mr Reschke failed:

    (1)to ensure the members had a secured interest in the Land and the Vineyard upon which the Joint Venture was to be carried on;

    (2)to protect moneys released inappropriately from the Scheme Bank Account;

    (3)to keep Project wine and grapes separate from wine and grapes from other projects operated by Mr Reschke;

    (4)to bank proceeds on the sale of grapes and wine into the Scheme Bank Account, which was to be maintained by the Custodian; and

    (5)to take adequate measures to ensure frost protection.

22. As to (1), it is plain that Mr Rockliff and other investors did not have a secured interest in the Project Land at any time, but not that either Koonara or Mr Reschke “failed to ensure” that they had such an interest. Mr Rockliff did not explain the basis on which it was suggested that either Koonara or Mr Reschke ought to have ensured the creation of such an interest. Nor did they suggest that Koonara, Mr Reschke, or any other entity deprived the investors of access to or use of land in a manner that was inconsistent with the proper operation of the Project.

23. As to (2), Mr Rockliff claimed that money was released from the Scheme Bank Account without a lease to the Custodian in registrable form. I have assumed that the relevant lease is the lease contemplated by the Constitution and the JVAs. As there was no such lease, it necessarily follows that any money released from the Scheme Bank Account was released without a lease to the Custodian in registrable form. However, Mr Rockliff did not explain why a lease in registrable form was a precondition to the release of money from the Scheme Bank Account.

24. Without more, I am not persuaded that money was “released inappropriately” from the Scheme Bank Account, or that Koonara or Mr Reschke “failed to protect moneys released inappropriately from” that account.

25. As to (3), based on the findings above, at least some of the wine produced from grapes grown pursuant to the Project was not kept separate but was blended with wine produced by Mr Reschke or his entities from other vineyards. The evidence does not reveal whether grapes were kept separate. The wine grapes produced pursuant to the Project and the wine produced from those grapes was “Scheme Property” and, accordingly, to the extent that Koonara received that property as agent for the Manager of the Project, it was required to deal with the property in accordance with the terms of the Constitution and the JVAs. Although the precise extent is unclear, there is ample evidence that Koonara did not deal with scheme property in the form of grapes and wine in accordance with the terms of the Project documents, and in accordance with its fiduciary duty to protect scheme property. However, as I have explained above, Mr Rockliff did not bring a case for relief based on this breach of fiduciary duty.

26. As to (4), Mr Rockliff did not identify any sales of grapes. However, based on Mr Reschke’s evidence, proceeds of the sale of wine by Reschke (and, perhaps, Koonara) were not banked into the Scheme Bank Account. This was a breach of Koonara’s fiduciary duty to protect scheme property.

27. As to (5), I have made findings above concerning the extent of frost protection. The complaint begs the question as to what were “adequate measures” and whether Koonara or Mr Reschke had an obligation to take such measures. 

    Maintenance of financial records and provision of information

28. Mr Rockliff contended that Koonara and Mr Reschke failed:

    (1)to provide budgets of expenditure and income;

    (2)to provide financial information to enable Project accounts to be prepared and/or audits to be conducted;

    (3)to provide a proper account of the Scheme Property and income, including failure to provide accounts and documentation supporting the price and quantity of bulk and bottled wine sales, bottled wine stock and failure to account for a shortfall discrepancy between vintage reports and stock reports; and

    (4)to account for litres of wine.

29. Broadly, the findings above support a conclusion that Koonara failed to discharge contractual obligations to AHM and Huntley to do these kinds of things.

    Operation of Scheme not in best interests of members

30. Mr Rockliff contended that Mr Reschke and Koonara preferred their respective interests to the interests of investors by:

    (1)determining which grapes, from which projects, would be allocated to bulk wine or to bottled wine, which had different sales outcomes for the respective projects depending on such allocation;

    (2)adopting viticultural practices to depress the yields of grapes that would otherwise be obtained from the projects;

    (3)determined which wine from wines blended from all of the projects would be allocated to investors in the Project;

    (4)generating invoices with retailers themselves, so the RE had to take Koonara’s “word” in relation to Scheme income;

    (5)determining how to allocate profits and losses between Reschke Pty Ltd and Koonara “in circumstances directly impacting on outcomes for investors, by determining what income to be allocated to Koonara on behalf of investors or to Reschke Pty Ltd, as  Mr  Reschke chose in his absolute discretion, having regard primarily to his own interests and taxation considerations”;

    (6)failed to keep management accounts for each individual vineyard project including as to which sales were made;

    (7)determining what income and expenses to be allocated to investors in the Project in invoices sent to investors, by mere estimation and where the creator of the invoices could not vouch for their accuracy;

    (8)charged for bottling and labelling of a significantly higher tonnage of grapes than actually bottled and overcharging investors;

    (9)failing to provide a reconciliation of units held by Reschke Vineyards  in the Project and fees payable by Reschke Vineyards as a member of the Project; and

    (10)proceeding with the harvest of the 2010 vintage and wine production without consultation with Huntley and despite it being uneconomical.

31. Broadly speaking, the findings I have made above support the allegations at (1) to (7) above. Allegations (8) to (10) are allegations that were made by Huntley against Koonara but which were not proved by Mr Rockliff.

32. It is not obvious that Mr Reschke and Koonara owed a fiduciary duty to investors in relation to each of (1) to (7) above. In any event, the evidence does not support a conclusion that Mr Reschke and Koonara preferred their interests over the interests of investors by the conduct at (1) to (3) above. I accept that the conduct at (4) to (7) involved a failure to act in the best interests of the investors in relation to scheme property.

    Failure to conduct Scheme in accordance with the Product Ruling PR2001/93

33. The relevant provisions of the product ruling are set out above. The “round-robin” transactions did not comply with the product ruling, although Mr Rockliff did not enter into the loan deed with RCF on the express basis that it included the impermissible feature that “funds borrowed … [were] not available for the conduct of the Project” and were arguably (to the extent that there was any transfer) “transferred … back to the lender”.

34. Contrary to Mr Rockliff’s contention, I do not accept that, to the extent that the Scheme was not conducted in accordance with the product ruling, that was a failure on the part of Koonara.

    Improper issuing of invoices

35. Neither Koonara nor Mr Reschke issued any invoice to the Rockliffs. For the reasons given above, I accept that any invoices issued by RCF were improperly issued. There is only one such invoice in evidence: the invoice issued by RCF to Ms Rockliff in about June 2007.

1. Based on the findings above, I accept that there is a real doubt as to whether invoices issued by AHM were for amounts properly due by Mr Rockliff and Ms Rockliff.

   Consideration

2. This aspect of Mr Rockliff’s cross-claim is misconceived: even assuming that the various Reschke parties did and failed to do all of the things alleged by Mr Rockliff, that conduct was not relevantly “unconscionable”.

3. I have set out above relevant principles concerning the nature of conduct that is “unconscionable within the meaning of the unwritten law”. As Gleeson CJ noted in Berbatis at [7] (set out at [462] above), “[i]n everyday speech, “unconscionable” may be merely an emphatic method of expressing disapproval of someone’s behaviour, but its legal meaning is considerably more precise”.

4. The primary way that Mr Rockliff put his case on unconscionability was based on the proposition that he was in a position of “special disadvantage” in relation to the Reschke parties. A position of “special disadvantage” may establish a claim of unconscionable conduct where a party who knows or ought to know of that disability takes advantage of it: Berbatis at [55]. But Mr Rockliff did not attempt to make a case that his manifold complaints concerning the operation of the Scheme involved the Reschke parties in taking advantage of an opportunity created by virtue of Mr Rockliff’s vulnerability or weakness. None of the matters complained of involved any relevant exploitation that amounts to unconscionable conduct in this sense.

5. Mr Rockliff put an alternative argument that, as a result of non-disclosures during the course of the Project, the investors were unable to consider and exercise rights available to them. In particular, Mr Rockliff contended that the Scheme ought to have been wound up on the just and equitable ground prior to March 2012. Mr Rockliff submitted that “it is to be inferred that the only reason that did not occur was because material omissions and misconduct was not properly disclosed to members”. Mr Rockliff argued that the members were placed in a position of special disadvantage to exercise their rights to determine the Scheme and “it is unconscionable for Koonara, Mr Reschke and RCF to purport to rely on their strict legal rights and by so doing continue to take advantage of the position in which the members of the Scheme were placed (i.e. of disadvantage) by reason of the very conduct of Koonara, Mr Reschke and RCF”.

6. This contention is expressed as though it is based on the species of unconscionable conduct that is unconscionable insistence on strict legal rights. However, there was no relevant insistence on legal rights by the Reschke parties. To the extent that Koonara and RCF’s claims in debt might have been relevant, those claims have failed.

7. Accordingly, Mr Rockliff’s claims that the Reschke parties contravened s 12CA of the ASIC Act 2001 or engaged in unconscionable conduct under the general law by their operation of the Scheme must fail.

   Involvement in breaches by the RE

8. In his cross-claim, Mr Rockliff alleged that AHM, as RE, contravened ss 601FC(1)(a), (b), (c), (h) and (i) of the Corporations Act. He also alleged that Koonara was involved in those contraventions.

9. The relevant pleading is as follows:

   114Further and in the alternative, Koonara acted in breach of the Management Agreement, as set out at paragraph 68A above, and further:

   …

   114.8Reaching an agreement with AHM involving RCF for advances pursuant to Loan Deeds to be provided by way of round robin of promissory notes, in breach of the provisions of the Product Rulings for the Project, and the Loan Deeds purported to be entered into by RCF, with those investors electing to take up the finance option offered by RCF under both Prospectus 1 and Prospectus 2;

   114.9Being a party to the purported advance of monies by RCF pursuant to clause 2.1 of the Loan Deeds in respect to those Investors electing to take up the finance offer under both Prospectus 1 and Prospectus 2, by way of round robin of promissory notes which were backdated and/or fabricated;

   114.10AHM, as agent for Koonara and Burke Reschke on 1 July 2002, instructing the Custodian for the Project. Australian Rural Group Limited to close the Scheme Bank Account and remit the balance of the account to AHM in breach of the Constitution, Compliance Plan for the Project and the Joint Venture Agreements and Sub-contract.

   114.11Causing AHM, as agent for Koonara and Burke Reschke from 2003, submitting invoices to Farmers/Investors directing payment not to the Scheme Bank Account conducted by the Custodian for the Project but to AHM, in breach of the Compliance Plan and Constitution for the Project.

   115     AHM as agents for the cross defendants:

   115.1Failed to take action against Koonara to enforce Koonara’s obligations under the Management Agreement;

   115.2Failed to enforce CPH’s obligations under the Constitution, Compliance Plan and Joint Venture Agreements to:

   115.2.1Exercise the option to purchase the Land the subject of the Project;

   115.2.2Execute the Memorandum of Lease purported to be granted by Trevor Stanley Reschke, Burke Reschke’s father to CPH, which contained a covenant in accordance with clause 28 of the Constitution for the Project to have Memorandum of Lease stamped and registered and have the mortgagee of the Land, ANZ Bank, to enter into a Deed in accordance with clause 28 of the Constitution for the Project;

   115.2.3To have the Memorandum of Underlease purported to be granted by CPH in favour of Australian Rural Property Limited, to be in registrable form, stamped and registered, which contained a covenant in accordance with clause 28 of the Constitution for the Project, by the mortgagee of the Land the subject of the Project, ANZ Bank and for ANZ Bank to enter into a Deed as required by clause 28 of the Constitution for Project;

   115.3Failed to do all things and sign all necessary documents to assign the Memorandum of Underlease to the new Responsible Entity for the Project to be held by the new Responsible Entity for the Project on trust for the members of the Project in accordance with clause 28.6 of the Constitution for the Project and clause 14.1 of the Joint Venture Agreements, after AHM was replaced as the Responsible Entity for the Project by Huntley Management Limited on 28 May 2007;

   115.4Failed to ensure the implementation of the Scheme or Project was in accordance with the provisions of Product Rulings PR 2000/10 and PR 2001/93;

   115AIn the premises, AHM as Responsible Entity of the Scheme contravened s 601FC(i) (a), (b), (c), (h), (i) and Koonara was thereby involved in such contraventions.

   116The cross claimant has as a result of Koonara’s conduct suffered loss and damages.

   Particulars

   The cross claimant repeats the particulars to paragraph 44.

10. Paragraph 68A of the cross-claim is in the following terms:

    68A.During the course of the Project, Koonara breached the provisions of the Management Agreement and caused the Responsible Entity for the Project, AHM, to be in breach of its obligations to investors:

    68A.1Failed by 31 May of each year of the term of the Project, to submit an annual budget and operational plan to AHM, in its role as Responsible Entity for the Project for the next financial year showing cash projections including Project income and expenses in accordance with cl 3A.1 of the Management Agreement;

    68A.2Failed to furnish AHM with all reports, accounts and information in its possession or power necessary to enable the RE to comply with its obligations under the Constitution, the Compliance Plan and the Corporations Law in accordance with cl 3A.6 (second clause with that number);

    68A.3Failed to fully account for the proceeds of the sale of grapes, bottled wine and bulk wine of the Project and expenses in regard thereto;

    68A.4Failed to conduct the Project in a commercial manner in accordance with cl 1.1.4;

    68A.5Failed to require the purchaser of grapes, bulk wine, and bottled wine to make all cheques payable to “Coonawarra  Winegrape  Project –  Scheme   Bank Account” and bank the proceeds into the Scheme Bank Account conducted by the Custodian for the Project, in accordance with cl 1.9;

    68A.6Thereby failed to do all acts, matters or things under the AHM/Koonara management services agreement in breach of cl 3A.6 (First clause with that number), and failed to use reasonable endeavours to assist the RE for the Project, in accordance with cl 1.1.3, causing the RE to be in default of its obligations under the Compliance Plan and Constitution for the Project and the JVAs.

11. In his written submissions, Mr Rockliff extended his claim to contend that Mr Reschke and RCF were involved in contraventions by AHM of s 601FC(l) of the Corporations Act.

12. Section 601FC(1) provides relevantly:

    (1)In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

    (a)       act honestly; and

    (b)exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position; and

    (c)act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests; and

    ….

    (h)       comply with the scheme’s compliance plan; and

    (i)        ensure that scheme property is:

    (i)clearly identified as scheme property; and

    (ii)held separately from property of the responsible entity and property of any other scheme; and

13. Mr Rockliff’s case did not make any attempt to explain how each alleged breach constituted a contravention of s 601FC(1). To take as an example, Mr Rockliff did not explain how the agreement pleaded in para 114.8 contravened the separate duties in ss 601FC(1)(a), (b), (c), (h) and (i). The allegation that there was a contravention of s 601FC(1) by the pleaded agreement is a serious allegation. Mr Rockliff did not plead facts to support an alleged failure on the part of AHM to act honestly and nor did he make submissions to explain the basis of that allegation.  Mr Rockliff did not explain how the pleaded agreement offended either of the duties in s 601FC(1)(b) and (c). Mr Rockliff did not identify how the agreement failed to comply with the Scheme’s Compliance Plan, contrary to s 601FC(1)(h). It is self-evident that the pleaded agreement has nothing to do with the duty in s 601FC(1)(i).

14. However, even if the facts pleaded are proved, even if one or more of them constitute a breach of one or more of the RE’s duties under s 601FC(1), and even if one of the Reschke parties contravened s 601FC(5) by involvement in the contravention, this aspect of Mr Rockliff’s case goes nowhere because the evidence did not demonstrate that Mr Rockliff suffered any loss or damage because of the conduct that allegedly contravened s 601FC.

15. As noted above, Mr Rockliff has no basis for relief based on loss of income or profits. Mr Rockliff made no attempt to explain how any of the payments that he made during the course of the Project was a loss suffered “because of” any relevant conduct on the part of AHM.

16. Accordingly, this aspect of Mr Rockliff’s claim is not proved and must fail.

    CONCLUSION AND COSTS

17. All parties have failed in their respective claims.

18. In the ordinary course, cost should follow the event. I have considered whether there is any basis for a different order. Towards the very end of the trial in this matter, the Rockliffs made an open offer that the proceedings be dismissed with each party to bear its own costs. In my view, that offer came too late to warrant a departure from the ordinary course. Accordingly, I will order the applicants to pay the costs of their respective claims and Mr Rockliff to pay the costs of the cross-claim.

I certify that the preceding six hundred and seventy-two (672) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Associate:

Dated:       31 May 2019

SCHEDULE OF PARTIES

NSD 1357 of 2016
Cross-Respondents
Second Cross-Respondent	KOONARA MANAGEMENT PTY LTD (ACN 082 863 323) ATF KOONARA MANAGEMENT TRUST
Third Cross-Respondent	ROCKY CASTLE FINANCE PTY LTD (ACN 082 858 160) ATF ROCKY CASTLE FINANCE TRUST