Koonara Management Pty Ltd v Rockliff (No 2)

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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…

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Details
Case
[2019] FCA 808
Decision Date

CaseChat Overview and Summary

The case of Koonara Management Pty Ltd v Rockliff (No 2) involved claims by Koonara Management against the Rockliffs for outstanding invoices and loans. The claims were contested by the Rockliffs, who argued that the invoices were issued in breach of fiduciary duty and that they were not obligated to pay fees until the project was ready for performance. The Rockliffs also brought cross-claims against Koonara, alleging misleading and deceptive conduct, unconscionable conduct, and contraventions of various statutory provisions. The court was required to determine whether the Rockliffs were liable for the alleged debts, whether the loan deeds were enforceable, and whether the cross-claims against Koonara were valid.

The court dismissed Koonara’s claims against the Rockliffs, finding that the invoices were issued after the winding up of the project and that the Rockliffs were not obligated to pay fees until the project was ready for performance. The court found that Koonara did not breach any fiduciary duty by seeking to exercise rights acquired by assignment and that the Rockliffs’ reference to Professor Carter’s text did not support their argument. The court also found that the Rockliffs’ cross-claims were without merit, as there was no evidence of misleading or deceptive conduct, unconscionable conduct, or contraventions of statutory provisions. The court held that the balance sheets and bank statements provided by Koonara did not support the claim that Rocky Castle Finance had the financial capacity to honour the promissory notes. The court concluded that the loan deeds did not permit the Rockliffs’ liabilities to be satisfied by the mode adopted.

In summary, the court dismissed Koonara’s claims against the Rockliffs and the Rockliffs’ cross-claims against Koonara. The first applicant’s claim, the second applicant’s claim, and the further amended statement of cross-claim were all dismissed with costs.

Orders

Orders of the court

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.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

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 Koonara’s claims must be dismissed.Other matters In case I am wrong, I have considered the following defences raised by the Rockliffs.Defence based on breach of fiduciary duty 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). 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 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. 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. 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. 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. 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.

Ratio Decidendi

Legal Principle Established

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). 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. 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. 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. 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. 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. 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. 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. LOAN2.1The 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.