Primary Yield Finance Pty Ltd v Meyer
[2012] VSC 595
•10 December 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2009 05451
| PRIMARY YIELD FINANCE PTY LTD (in liquidation) (receivers and managers appointed) and others | Plaintiffs |
| – and – | |
| PHILIP MEYER | Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 November 2012 | |
DATE OF JUDGMENT: | 10 December 2012 | |
CASE MAY BE CITED AS: | Primary Yield Finance Pty Ltd and ors v Meyer | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 595 | |
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DEBTS AND CHOSES IN ACTION ― Equitable assignments ― Loan agreement ― Loan to enable participation in managed investment scheme ― First assignment by deed ― Second assignment not by deed ― Related corporations ― Evidence of transfer of debt by book entries ― Sufficient evidence of intention to establish equitable assignment
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C M Scerri QC with Dr O. Bigos | Allens |
| For the Defendant | No appearance |
HIS HONOUR:
This is a claim by a lender ― in congress with two assignees ― for repayment of a loan made to the defendant in March 2000. The loan had an expiration date of July 2010. The principal amount was $4 499 028. The rate of interest was 8.25% payable in advance on 1 July in each year of the loan. The loan enabled the defendant borrower to invest in a registered management investment scheme which subsequently failed. The scheme project was known as The Environinvest Eucalypt Project 2000 in which investors became “Growers” in the forestry industry by taking leasehold allotments in commercial plantations. In this case, it was a plantation of Eucalyptus Globus or Tasmanian Blue Gum.
It is unnecessary to expose the legal or operational elements of the project. These forestry schemes are quite well known as an investment product with tax benefits, and variously as the subject of litigation. It is sufficient to say, in elementary terms only, that under these schemes the grower acquires a proprietary (leasehold) interest in the plantation by leasing allotments with annual payments of rent; the grower can borrow the money to finance the acquisition of allotments; the grower makes a management agreement with the scheme operator for the cultivation and management and eventual felling of trees in the plantation; management and maintenance fees are payable per allotment; the deferred income of the project comes from the eventual harvesting of trees for hardwood or wood chips; there are “upfront” tax deductions for the investment and the charges payable under the various agreements are regarded as being on revenue account and deductible. I mention this only to put the loan agreement and the assignments in commercial context. Otherwise there is nothing at all extraordinary, as a matter of legal features, about the loan agreement on which the plaintiffs sue.
The scheme failed and was eventually wound up by the Court. This case is concerned with nothing more than the repayment of the principal amount of the loan with simple interest at 8.25%. The default was the failure to pay due interest, which was expressly an act of default under the loan agreement and which then accelerated the liability to pay the principal and all other due interest. The final figures up to trial on 20 November were –
Interest Balance Outstanding Principal Outstanding as at September 2008 $4 499 028.00 Interest Outstanding as at September 2008 $1 113 509.43 $5 612 537.43 1 July 2009 $371 169.81 $5 983 707.24 1 July 2010 $371 169.81 $6 354 877.05 1 July 2011 $371 169.81 $6 726 046.86 1 July 2012 $144 399.80 $6 870 446.66 (Interest at $1016.90 per day for 142 days from 1 July 2012 to 19 November 2012)
The trial has proceeded as undefended as a result of Court orders. It is appropriate to record how that came to be. The proceedings were commenced by writ filed 13 March 2009 and advanced to the point where the usual pre-trial directions were made in November 2011 for matters such as the compilation of the Court Book by both sides and the filing of witness statements. The trial was fixed for trial on 16 July 2012. As trial loomed, and with a history of procedural defaults by the defendant and non-responsiveness by him or his lawyers to requests or urgings of the plaintiff’s lawyers to comply with court orders, I made a self-executing order against the defendant. He was required to do no more than would be expected of him if he was genuinely disputing the claim, that is, to provide a list of documents which he intended to tend at trial, and to file his witness statements. These were the elements of his defence filed in August 2011 –
(a)he admitted the loan agreement on which the plaintiff sues;
(b)he admitted he obtained an interest in the plantation, but denied the lender paid any sum to him by way of loan;
(c)he alleged the loan is repayable but not before ten years (which I suppose corresponds with the expected first harvesting of the trees for some other income producing activity);
(d)he denied the validity of the assignments of the debt because no notice of the assignment was given to him under s 134 of the Property Law Act, and because assignment could only occur he said on the conditions stipulated in the loan agreement, which did not occur;
(e)the claim was statute barred or barred in equity “by its laches”.
The defendant did not take the mandated steps with the result that, by operation of the self-executing order, his defence was struck out and the matter was ordered to proceed as an undefended proceeding. Under rule 21.02(3) the striking out of a defence attracts the Court’s power to give default judgment. That is, to treat the case as one of default of pleading; treat all allegations as therefore admitted; and give final relief according to the claim as pleaded. The plaintiff sought default judgment on that basis by summons filed in May 2012 which I declined on the ground that by the nature of the case, the amount involved, and the advanced stage of litigation, the plaintiff ought not be relieved of the need to prove its case which it could presumably do according to business records and transactional documents.
It is part of the unstable history of the case that the defendant subsequently applied to set aside the self-executing order, which I refused to do. An appeal from that order was dismissed by Pagone J. Leave to appeal that order was refused by the Court of Appeal: see [2012] VSC 265.
Although this trial now requires the plaintiff to prove its case, I cannot really ignore the merits of the elements of the defence as previously pleaded to understand what was in controversy, although I cannot of course assess the merits of the asserted defences, now struck out. The defendant has never denied the loan agreement. Nor has he asserted some vitiating element to make it unenforceable. Nor, more pertinently, has he ever denied becoming an investor in the forestry project which could only have occurred if the loan money was somehow applied for him to gain the allotments and the leasehold interest in the plantation. Nor has there ever been an assertion by him that he was not in default of annual interest payments. As for the assignments, the plaintiff does not contend, and never has, that it gave notice of the assignment to him as is required for a legal assignment under s 134 of the Property Law Act. The plaintiffs’ case is that the assignments were valid in equity. Even then, it seems to be of no practical significance. At common law and in equity the law of assignment is all about joining the assignor as a party, as plaintiff or defendant, or permitting the assignee to sue in the name of the assignor. In this case, the original lender, Blackburne Pty Ltd plus the “downstream” assignees have been joined as plaintiffs. And there is no doubt the debt is a legal chose in action capable of assignment.
The proof of the case has occurred entirely by business records (see s 69 of the Evidence Act) and has been necessary because of the passage of time and the external administration of the three plaintiffs. The original lender, Blackburne (the second plaintiff), is in liquidation and receivership. It is the same for the first assignee and third plaintiff (“Environinvest”) and the second assignee and first plaintiff (“Primary Yield Finance”). A substantial volume of documents has been produced to the Court, not all of which has had to be tendered in evidence. But affidavits from the controllers of Blackburne and Environinvest verify that the documents were created or kept for business purposes, as they appear to be. From what I have seen, there is no reason to doubt the authenticity or proper source of the documents or the compilation of the information in them. It is unnecessary to copiously recite the contents of the documents as tendered. I shall confine myself to the essential facts as exposed by senior counsel from the documents tendered.
The starting point is the prospectus. There was a two allotment (one hectare) minimum subscription in the plantation. The minimum application amount for two allotments was $5640, which is equivalent to $2820 per allotment. I would think most of that went to the cost of plantation clearing, preparation and establishment. On 8 March 2000, the plantation operator acknowledged that the defendant had acquired 2659 allotments which equates to an application amount of $7 498 380 payable by the defendant as Grower. Bank statements show that on 8 March 2000 he transferred funds of $2 999 352 (being 40% of the application moneys payable) to the plantation lessor, presumably from his own means. He borrowed the balance from Blackburne. He did this under a loan agreement dated 8 March 2000 which he signed. Recital B of that loan agreement states:
The Borrower has requested that Lender and the Lender has agreed to provide to the Borrower a loan on the terms and conditions hereof for the purposes of enabling the Borrower to carry on forestry operations and develop a plantation of Eucalyptus globulus.
The essential terms were –
(a)commencement date of 8 March 2000;
(b)expiry date of 1 July 2010;
(c)interest payable at 8.5%, payable annually in advance on the loan as outstanding, and payable on 1 July in each year;
(d)the loan and interest was “Secured Money” and the failure to pay was an Event of Default, the occurrence of which meant the whole of the secured money became due and payable.
Clause 8.2 of the loan agreement ought be mentioned, and dealt with at the outset. It states: “The Lender may assign the benefit of this Agreement with all the obligations of the Lender hereunder”. The only obligation of the lender, once and for all, was to lend the money. Of course, it is not possible under Australian law to assign contractual obligations of an obligor, at least not without the consent of the obligee which is something usually done by a novation and the release of the original obligor. If the argument is that clause 2 of the agreement means that the lender could only assign the benefit and the burden, and that the absence of an assignment of the burden to lend meant that any assignment was invalid, then I would reject it. That is because, first, I think the clause is permissive. The lender can assign anyway under the law. I would not construe the clause as prohibiting an assignment unless it is of both a benefit and a burden. Secondly, unless the clause be viewed as a consent by the borrower to an implied novation, it is not possible at law to assign the burden anyway. Thirdly, the clause is of no consequence or utility because the lender’s only obligation in which the borrower may be interested in enforcing is the obligation to lend, and as is about to be shown, the loan moneys were advanced to satisfy the express purpose of the loan to enable the defendant to become a grower in the project.
Business records show that the loan money (60% of the application cost), was recognised or recorded as having been deposited with the project operator, Environinvest. Indeed the defendant has never denied becoming a grower, yet he had sought to make the plaintiff prove that loan money was in truth advanced. This was called the “real money point” in Equuscorp Pty Ltd v Glengallan Investments.[1] It might be accepted, or supposed, that the moneys here never passed through the defendant’s hands. But that was all by design as the money was directed to the project operator for the acquisition of the allotments, all in the manner prescribed in the prospectus. The defendant got his allotments. As was held in Glengallan there is no basis for saying that the borrowing of the money and the application of the loan funds was not legally effective. Whether the money came out of an investor’s pocket, or was borrowed, there was “real” money here. That is, there was reality to the phenomenon of the loan transaction because the investor gained, as he sought, the allotment in the plantation, the right to participate in the forestry scheme, and the right to claim tax benefits.
[1](2004) 218 CLR 471 at 485 ff .
There is in evidence the general ledger of Blackburne from 1 January 2000 to 31 August 2011. On 29 June 2000, a debt of $10 966 653 was recorded and allocated to various borrowers (names redacted) including a debit to the account of Philip Meyer for $4 499 028 being the opening balance of the loan debt under the agreement. There is also in evidence a bank statement of a “Business Management Account” held by Environinvest with the National Australia Bank showing a credit of a deposit of $10 966 653 on 29 June 2000. That is, a transmission of the amount of the borrowing from a group of Growers, including Meyer, to Environinvest to enable the acquisition of the allotments in the plantation. For the same day, that bank statement shows a payment to Blackburne of the same amount ($10 966 653) as does an entry in the general ledger of Environinvest. This dealing goes to the question of the assignment of the loan debt from Blackburne to Environinvest, to be considered later.
The project operator Environinvest gave to Meyer an “Investor Taxation Statement 2000 Tax Return” for the year ended 30 June 2000. The document said: “This Statement contains Environinvest Limited anticipated tax treatment for expenditure under the product for the year ended 30 June 2000 based on Product Ruling 1999/69”. That document acknowledged that: Meyer had 2,659 allotments; his total prepaid management fees of $7 259 070 (60% of which were borrowed); prepaid lease fees; and prepaid interest calculated at 8.25% on the borrowed amount of $4 499 028.
The only other document to which I was taken was a statement of account to Meyer from Primary Yield Finance Pty Ltd dated 12 December 2008, well after the loan agreement was made. It shows an opening balance of $4 499 028 and interest charged at 8.25% for five financial years from 2000 to 2005 for a total of $2 227 018 which was then credited as an adjustment on 31 March 2006. I take that to mean a payment made or otherwise to be treated as made. The Court is not given an explanation for that adjustment, but it certainly forms no part of the claim and as a credit it works for the benefit of the borrower. Thereafter, the statement shows interest charged for the 2006, 2007 and 2008 financial years at 8.25% which is the rate under the loan agreement.
That is the evidence to prove the advance of funds. There is naturally a need to take care even in an undefended proceeding when proof of an advance of loan money has to depend on journal entries and by inference. But what prevails, certainly to inform the balance of probabilities is that the purpose of the loan was avowedly to enable Meyer to acquire his allotments and to participate in the scheme. The loan agreements were all made as part of the scheme. He acquired those allotments to consummate his investment. He could not have got his interest but for the application of money to acquire that interest in accordance with the prospectus. Thus, this case can proceed on the basis, as I would find, that there was a valid loan agreement and the money was advanced to be applied in the way planned.
There is no doubt that Blackburne’s rights under the loan agreement are an assignable legal chose in action. By a deed made on 1 July 2000, Blackburne assigned to Environinvest a multitude or tranche of debts owed to it by growers including, explicitly, a debt owed by Meyer for $4 499 028. It was part of the tranche of debts comprising a total of $15 397 892. Under the deed, the assignor covenanted that the debts were still due and owing in full.
The recital of the deed says:
A.Those persons named and described in Item 2 of the Schedule (collectively “the Debtors”) are respectively indebted to the Assignor in those amounts set out alongside their respective names (“the Debts”) under agreements entered into by each of the Debtors with the Assignor whereby the Assignor advanced funds to the Debtors to enable those Debtors to subscribe for interests pursuant to a prospectus relating to the Environinvest Eucalyptus Project which was issued by the Assignee.
B.The Assignor is indebted to the Assignee in the amount of $15 397 892 (the “Amount Owing”).
The assignment was made under Clause 1 of the deed which said:
In consideration of the forgiveness by the Assignee of the Amount Owing to the Assignee by the Assignor, the Assignor as beneficial owner assigns to the Assignee absolutely all of the Assignor’s right title and inters in the Debt, together with all interest which has accrued or which may accrue in the future on the Debt.
Consonant with that deed, the general journal for Environinvest for 1 July 2000 makes a narration “TAKE UP GROWER LOANS TRF FROM BLACKBURNE” with a specific identification of the loan to Meyer of $4 499 028 as part of a larger credit for “Loans Transferred” of $15 397 892.
There was no assignment at law, that is, no statutory assignment under of s 134 of the Property Law Act because written notice was not given to the debtor. Otherwise there should be no doubt the assignment was within the scope of the statute and satisfied its two other requirements. That is, the assignment was absolute in that the debt in its entirety was transferred unconditionally to Environinvest, and the assignment was written and “under the hand” of the assignor.
But, an imperfect legal assignment can be effective in equity. I take the principle to be that an absolute equitable assignment of a legal or equitable chose in action within the meaning of the statute made for good consideration will be treated as a valid assignment in equity, although the assignment does not comply with the statutory requirements.[2] The question is whether it is clear that the assignor intends to divest itself of the contractual right so that it becomes the property of the assignee, rather than, for example, only an authorisation or a security interest. The authors of Meagher Gummow & Lehane’s Equity Doctrines and Remedies put it precisely:
A purported assignment, for value, of legal property which fails at law, or a contract, for value, to assign legal property, effects an equitable assignment when the consideration is paid or executed; this is a case which equity regards as done which ought to be done.[3]
[2]See Chesire and Fifoot’s Law of Contract (9th Australian ed. at [8.39].
[3]4th ed. at [6-050].
The clear effect of the deed here means there is no legal impediment in my view in Environinvest enforcing the debt as assignee in equity. There is stated to be consideration. The assignor and legal owner of the debt Blackburne is a co-plaintiff. This part of the case is straightforward.
The situation is less clear in the subsequent assignment alleged to have occurred between Environinvest and Primary Yield Finance for which there was no deed. It is said Environinvest assigned the debt to Primary Yield on 31 March 2006 as manifested by the following reciprocal book entries in the general journal of both companies on that date. The journal of course is a book of account which records accounting transactions. In the general journal of Primary Yield Finance under the narration “Receipt of transfer of Loan Assets from ENV Ltd” the account of Environinvest was credited in the sum of $4 824 099.13 which included explicitly as a debit the sum of $4 499 028 as the loan to Meyer. In the general journal of Environinvest the putative assignor under a narration “Transfer of Loan Assets from entities other than PY Fin”, the account of Primary Yield Finance is debited in the sum of $4 824 099. That figure includes explicitly the loan of $4 499 028 for Philip Meyer which is a debit. That means Meyer no longer owes that money to Environinvest because, it appears by book entry at least, he now owes it to Primary Yield. The journal also shows a debit of $4 824 099 as a debit to Primary Yield Finance under the narration “Transfer of loan assets…”
The plaintiffs cannot cite any legal authority which recognises that an assignment can be effected solely by book entries. They submit the reference to “transfer” in the book entries is the language of assignment. They submit that the sums debited and credited in the book entries between Environinvest and Primary Yield show that consideration was present. They submit –
There was no need or expectation for this transfer between two related companies to be expressed in a more formal way. The making of reciprocal book entries appears to have been the manner by which these companies transferred debts between them. There is no reason in principle why that cannot constitute an equitable assignment. There is no reason in this case why the Court should not give full effect to the parties’ clear intention.
What is the principle governing the mode or form of equitable assignment? It is a generous one that looks to substance, not form. The renowned work of J.G. Starke Assignments of Choses in Action in Australia[4] states (omitting references to authority):
18.No particular form of words is required for an equitable assignment; it is however essential that the meaning be plain, or that the words used sufficiently express an intention to assign. The transaction upon which the assignee relies need not even purport to be an assignment, nor need it use the language of a formal assignment or employ words expressive of a transfer of interest. The assignment may be by word of mouth, unless in the particular case writing is required by law, but it must nevertheless appear that the assignee is to have the benefit of the chose in action. … Although, normally, an agreement amounting to an equitable assignment is express and written, such an assignment may be even spelled out from a course of dealing between the parties.
19.In principle, absence of communication of the purported assignment may weigh against the transaction having the character and validity of an equitable assignment. Not only may absence of communication leave the assignment revocable at any time before communication, but as the rationale of the enforceability in equity of an assignment of a chose in action is primarily the operation of such assignment by way of agreement, there can hardly be anything in the nature of an agreement inter partes without communication to the assignee.
[4](Butterworths 1972) paras 18 – 20.
To similar effect is this statement by Dal Pont and Chalmers Equity and Trusts in Australia:[5]
An assignment … may be enforceable in equity on proof of an intention to assign by the assignor. Reflecting the maxim “equity looks to intent rather than form”, no particular form is required for an equitable assignment. An intention to assign may appear on the face of the document, or it may be proved by extrinsic circumstances. It follows that a valid equitable assignment need not necessarily on its face purport to be an assignment, or use the language of assignment. If the transaction is in substance an assignment the courts will treat it so; the parties cannot effectually agree that what is in law an assignment shall not be an assignment. Conversely a transaction not in the form of an assignment cannot operate as an assignment pursuant to an agreement between the parties that it constitutes an assignment.
[5](4th ed. Law Book Company 2007) at 3.45.
Thus, what the law looks for in a transaction is sufficient manifestation of an intention to assign. The language is immaterial if the intention is plain: William Brandt’s Sons & Co v Dunlop Rubber Co.[6]
[6][1905] AC 454 at 462.
I have had my apprehensions on this question because there is no extrinsic evidence for the assertion that the making of reciprocal book was the manner by which these companies transferred debts between them. The most the controller can say is that it appears that way. What I must accept though is that, exiguous as the narration is in the general journal, the intention is to effect a “transfer” of a “loan asset” which has all the similitude of an assignment, and nothing to suggest it is conditional or not absolute. Transfer means a parting with property. The right to receive payment has been transferred to someone else. In addition I must give recognition to the prevalence of the commercial reality. These are companies within a corporate group and come 12 December 2008 it was Primary Yield Finance that created a statement of account for Meyer and pursued payment. I am willing to conclude that the evidence is good enough to establish an assignment in equity.
That leaves the question of default. The receivers of Primary Yield Finance served the borrower with a Notice of Default and Demand dated 25 February 2009. A demand was not necessary under the loan agreement – see clause 6.1. The default is the failure to pay interest which was an event of default. On the principal sum of $4 400 028 an application of an annual interest rate of 8.25% gives a yearly interest figure of $371 169.81. The figures in the table at paragraph 3 of this judgment shall form the basis of the computation of judgment of this case, adjusted to take the daily rate up to the date of judgment. On my calculations, the interest as from 1 July 2012 should be adjusted so as to based on an effluxion of 162 days to today. At a daily rate of $1016.91 I believe the interest figure to be $164 689.20. This should be checked.
I ask the plaintiffs’ solicitors to prepare and submit to my Associate a form of judgment in favour of the first plaintiff for settling and authentication.
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