Rocky Castle Finance Pty Ltd v Taylor - [2014] SASCFC 1

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
ROCKY CASTLE FINANCE PTY LTD v TAYLOR; ROCKY CASTLE FINANCE PTY LTD v GILLEN
[2014] SASCFC 1
Judgment of The Full Court
(The Honourable Justice Vanstone, The Honourable Justice Blue and The Honourable Justice Stanley)
23 January 2014
BANKING AND FINANCE - INSTRUMENTS - PROMISSORY NOTES - LIABILITIES OF PARTIES
INTERPRETATION - GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS - COMMERCIAL AND BUSINESS TRANSACTIONS - PARTICULAR TRANSACTIONS
MONEY - PAYMENT - PAYMENT BY BILL, NOTE OR CHEQUE
RESTITUTION - GENERAL PRINCIPLES
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN NOT ALLOWED TO BE RAISED ON APPEAL
BANKING AND FINANCE - INSTRUMENTS - PROMISSORY NOTES
This is an appeal against an order by a single Judge on appeal allowing an appeal by the defendants against a judgment granted in the Magistrates Court.
Rocky Castle Finance Pty Ltd sued Mr Taylor and Mr Gillen in the Magistrates Court for monies lent pursuant to loan deeds. Rocky Castle claimed that monies were advanced by the issue of a succession of promissory notes to the manager of a managed investment scheme in which Mr Taylor and Mr Gillen invested. The Magistrate granted judgment in favour of Rocky Castle for the principal and simple interest and declarations that Mr Taylor and Mr Gillen were liable to Rocky Castle for its enforcement expenses.
On appeal by Messrs Taylor and Gillen, a single Judge set aside the Magistrate's judgments and substituted orders dismissing Rocky Castle’s actions.
Rocky Castle contends on appeal that the Judge erred in his construction of the loan deeds such that the issue of the promissory notes did not constitute advances or payments within the meaning of the loan deeds. Rocky Castle makes an alternative contention that it should be permitted to amend its claim to rely upon a cause of action in restitution and the matter should be remitted to the Magistrates Court for trial on that cause of action.
Held by the Court dismissing the appeals:
1.       The issue of and dealings with the promissory notes did not comprise advances or payments within the meaning of the loan deeds (at [20] per Vanstone J and [135] per Blue J, Stanley J agreeing).
2.       Rocky Castle did not pursue a case in restitution in the courts below and cannot now pursue such a case (at [25] per Vanstone J and [153] per Blue J, Stanley J agreeing).
3.       The Magistrate correctly rejected Rocky Castle’s claim for compound interest (at [27] per Vanstone J and [161] per Blue J, Stanley J agreeing).
4.       The Magistrate erred in granting a declaration that the defendants were liable to Rocky Castle for its enforcement expenses (at [28] per Vanstone J and [172]-[173] per Blue J, Stanley J agreeing).
Bills of Exchange Act 1909 (Cth) s 32, 60(2), 66, 89, 90, 93, 94, 95, 96; Corporations Law s 601GB; Corporations Act 2001 (Cth) s 601GB; District Court Act 1991 (SA) s 8; Environment Resources and Development Act 1993 (SA); Magistrates Court Act 1991 (SA); Supreme Court Act 1935 (SA) s 31, referred to.
Allen v Royal Bank of Canada (1926) 134 LT 194; Equuscorp Pty Ltd & Ors v Glengallen Investments (2004) 218 CLR 471; Mackenzie v Rees (1941) 65 CLR 1; Misa v Currie (1876) LR Spp Cas 554; Owners of the Ship "Shin Cobe Maru" v Empire Shipping Co Inc (1994) 120 ALR 12, discussed.
Currie v Misa (1875) LR 10 Exch 153; Baker v Walker (1814) 14 M and W 465; Holliday v Atkinson (1826) 5 B & C 501; Keane v Salisbury City (1995) 87 LGERA 203; Lumbers v W Cook Builders (in liq) [2008] HCA 27; (2008) 232 CLR 635; Oliver v Davis & Anor [1949] 2 KB 727; Popplewell v Wilson (1720) 1 Str 264; Sim v Goddard [1973] 1 KB 92; Smith v Mt Barker Products Pty Ltd [2000] SASC 164; (2000) 77 SASR 157; Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, considered.

ROCKY CASTLE FINANCE PTY LTD v TAYLOR; ROCKY CASTLE FINANCE PTY LTD v GILLEN
[2014] SASCFC 1
FULL COURT: Vanstone, Blue and Stanley JJ

VANSTONE J: The respondent investors determined to subscribe for units in a managed investment scheme called the “Coonawarra Wine Grape Project”, a joint venture aimed at producing and selling wine and grapes.
The investors took up the option of borrowing most of their financial commitment from the appellant, Rocky Castle Finance Pty Ltd (Rocky Castle). Under the terms of the Loan Deed and other documents constituting the Project the monies were due to Australian Hardwood Management Ltd (Hardwood), the responsible entity and manager. Hardwood was obliged to deal with the monies as provided by the Project documents.
Rocky Castle purported to pay Hardwood by delivery of successive promissory notes in the amounts due, payable on demand. (It suffices for my purposes to treat these as one only.) Hardwood then indorsed the note in favour of Koonara Management Pty Ltd, to whom it had contracted its management responsibilities. In its turn Koonara indorsed the note in favour of Rocky Castle. It is accepted that this had the effect of discharging the promissory note. That Hardwood accepted the promissory note in discharge of that part of each investor’s debt to it was evidenced by invoices issued by Hardwood to the investors, which showed that the “amount financed” had been received and credited against the indebtedness.
The essential question raised in these proceedings is whether delivery by Rocky Castle of a promissory note to Hardwood, and its indorsement by Hardwood in favour of Koonara, together with acceptance by Hardwood that the promissory note discharged the investors’ obligation, constituted an “advance” of the principal in terms of the Loan Deed. The critical clause of the Loan Deed is clause 2.1, which provides as follows:
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:
(a) 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;
(b) 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 payable by the Borrower as a Farmer under the terms of the Joint Venture Agreement;
(Subclauses (c) to (e) follow a similar format to subclause (b). The emphasis above is mine.)
The magistrate who heard the trial resolved the question in favour of Rocky Castle and against the defendant investors. The investors appealed to a judge of this Court. Giving comprehensive reasons: Taylor v Rocky Castle Finance Pty Ltd; Gillen v Rocky Castle Finance Pty Ltd [2013] SASC 27, (2013) 115 SASR 354, the judge reversed the magistrate’s decision, dismissing the claim. He also granted permission to appeal.
The more detailed facts of the matter – including the effect of the salient features of the documents constituting the scheme – are clearly set out in the judge’s reasons, particularly at [3] to [25]. There is no need for me to rehearse those matters.
The judge found that the delivery of the promissory note amounted neither to an “advance [of] the Principal to the Borrower” (clause 2.1 Loan Deed) nor to a “part payment” to the Manager (clause 2.1(a) Loan Deed): [98]. He found that Rocky Castle could have satisfied the obligation involved in making an advance or payment in various ways; but irrespective of the method, it would have needed to demonstrate a material change in its position. This had not occurred, as its indebtedness to Hardwood (and then Koonara) was discharged before any such change could occur: [99]. He rejected Rocky Castle’s argument that Hardwood’s acceptance of the promissory note in satisfaction of the obligation under each Loan Deed achieved a discharge of the obligation; finding that this “was only the expected consequence of that which [Rocky Castle] promised to do, which was to “advance the principal”: [77].
Appellant’s arguments
Mr Whitington QC for the appellant argued that the judge was wrong to find that anything more was required of Rocky Castle than that it secure Hardwood’s acknowledgment that the obligation to Hardwood had been met. A “payment” or “advance” regarded by Hardwood as acceptable and as payment discharging the obligation was sufficient. Nothing in the Loan Deed required that the advance be in any particular form. The terms “payment” and “advance [of] the Principal” used in the Loan Deed did not connote any particular type of payment or any particular manner of discharging an obligation. There was no reason to read those terms narrowly. Acknowledgment of receipt of payment in the invoices of Hardwood to the investors was sufficient acknowledgment. It was not necessary that there be journal entries in Hardwood’s books of account referring to the promissory notes. Therefore, it was neither necessary nor appropriate to go behind the transaction to look to see whether Rocky Castle had ultimately changed its position. The proper focus had to be on the state of Rocky Castle’s indebtedness to Hardwood.
Mr Whitington argued that the judge’s evaluation of the transaction was flawed. The promissory note was not a mere promise to pay. It was accepted by Hardwood in satisfaction of the obligations. It was executed by its negotiation and subsequent discharge. It was not to the point that it was never presented for payment and paid upon.
Mr Whitington submitted that the judge was in error in distinguishing Equuscorp Pty Ltd & Ors v Glengallen Investments (2004) 218 CLR 471. He put that there were no material differences between the facts in that case and the present one. He submitted that, contrary to the judge’s assessment, the High Court did not place emphasis on the fact that the initial transactions were reflected in bank account entries. He pointed out that there, the debits and credits making up the “round robin” transaction “never left the room”. The High Court did not require a change in the position of the lender, although there was one in that case. Mr Whitington relied on Equuscorp for the proposition that if a party further on in the “round robin” acted improvidently – as Koonara arguably had here – that could not alter the character of the original transaction.
It is convenient to turn to Equuscorp, the facts of which do indeed bear a marked similarity to the matter under consideration.
Investors bought units in a partnership involving a “general partner” (Forestell) which was to manage an aquaculture farm in Queensland and a representative of the investors (Eagle). Forestell retained John Farm Management Pty Ltd (JFM) to manage the project for which a fee was fixed and struck an agreement with Farmer Johnson Aquaculture Limited (FJA) to provide access to a grow out pond and facilities licence, again for a price. The respondent investors agreed to borrow almost the entire purchase price from Rural Finance, which was, under the terms of the loan agreements, to apply it “in payment of the Application Monies and otherwise in accordance with the Borrowers’ obligations under the [partnership] Deed”: [15]. The respondents did not make repayments in accordance with the loan agreements and were sued on those agreements.
In defending the suit one argument mounted by the respondents was that Rural Finance had never advanced monies in accordance with the agreements so to give rise to the obligation to repay. What had occurred was not in dispute. Rural Finance’s bank account had been debited with amounts corresponding to the management fee and the amounts owing to FJA. Eagle’s account was credited with those amounts. These transactions showed as debit and credit notes in the relevant accounts. Then, cheques were drawn on Eagle’s account in favour of Forestell which in turn drew cheques in favour of JFM and FJA. The funds received were then to be transferred to Rural Finance pursuant to written authorities from those companies, to be held by Rural Finance as interest bearing deposits.
Reversing the decisions in the Court below and at the first instance, the High Court held that each of these transactions was legally effective. It held that the trial judge was wrong to characterise them as a “sham”, that word being properly reserved for “a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences”: [46]. Importantly, from the viewpoint of the investors, Rural Finance had applied the monies it advanced in accordance with the arrangements described in the prospectus and the relevant agreements, thereby giving rise to each investor’s expected tax deduction. The Court characterised the investors’ argument as one concerned with the economic rather than the legal effect of the transactions: the underlying complaint being that no “real money” was brought into the partnerships, so to provide working capital: [48]. Even assuming that premise was sound, the Court said it would not deny the legal effect of the transactions: [54]. Therefore, questions about whether capital flowed to the partnerships and thence to the project and whether Rural Finance would have had funds sufficient to meet a call for the amounts on deposit, were beside the point; which was that effective transactions complying with the requirements of the agreements referred to in the prospectus had occurred.
Analysis
The argument that Rocky Castle needed to do no more than secure Hardwood’s acknowledgment that the investors’ obligations to it had been satisfied must be rejected. What the Loan Deed required was that Rocky Castle advance the principal as directed in (part) payment of the investors’ obligations to Hardwood. 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.
A promissory note is an unconditional promise made by one person to another, signed by the maker, engaging to pay on demand or at a determinable future time a certain sum of money to or to the order of a specified person: s 89(1) Bills of Exchange Act 1909 (Cth). There is no issue here but that the note was an effective instrument. The question is what was the effect of its delivery.
It seems to be clear that acceptance of a promissory note in payment of a debt has the effect of suspending the cause of action in relation to the debt; as opposed to satisfying it. Byles on Bills of Exchange and Cheques (27^th ed, Sweet & Maxwell, 2002) at [14-06] describes the situation as follows:
If a bill or note is taken on account of a debt and nothing is said at the time, the legal effect of the transaction is that the original debt still remains, but the remedy for it is suspended till maturity of the instrument in the hands of the creditor. The effect of giving the bill has also been described as a conditional payment.
Allen v Royal Bank of Canada (1926) 134 LT 194, 196 was cited. In Mackenzie v Rees (1941) 65 CLR 1, Rich ACJ at 6 referred to the same case and stated the principle in similar terms. Williams J at 20 expressly approved an almost identical statement in an earlier edition of Byles.
That a promissory note is regarded as a conditional payment, having the effect of suspending the cause of action, but not discharging the original debt, is instructive.
Delivery of the promissory note gave rise to an enforceable obligation by Rocky Castle to pay Hardwood the balance of the management fee due by the investors to Hardwood. But Hardwood already had a right of action against the investors in respect of the same obligation. In terms of legal effect Hardwood was no better off. Rocky Castle’s promise to pay – which was not performed – was not equivalent to payment.
In my view the judge was correct in finding that no payment had been made. The critical distinction between the present case and Equuscorp is that there, what the Court called “legally effective” transactions in the form of debit and credit entries with a licensed retail bank took place. The Court stated at [46]:
In this case, debts were created and satisfied^{- 18} at all points in the chain until, at its end, Rural Finance owed JFM and FJA certain sums, and the respondents owed Rural Finance certain sums. And of most particular relevance to the present matters, in accordance with its obligations under the written loan agreements, Rural Finance had applied the money it lent in payment of the application moneys due from the respondents for the units being bought.
By contrast, the promise to pay represented by the promissory note was not called upon. It was not performed or executed by Hardwood and there was no evidence that it was subsequently. Indeed, it was ultimately discharged. The lack of evidence that there was ever any payment on the note, rather than any examination of how entities further on in the round robin might have acted – improvidently or not – is the critical issue. (If delivery operated to suspend the remedy in respect of the original debt then the failure to perform the promise embodied in the note must have rescinded that suspension.) In those circumstances there was no legally effective payment by Rocky Castle; merely a promise to pay which was not performed.
I cannot agree with Mr Whitington that the High Court in Equuscorp placed no emphasis on the debits and credits which there made up part of the series of transactions. In the paragraph just reproduced it is clear that the Court treated the bank account entries as evidence of debts being created and satisfied. It noted at [45] that there had been an assumption throughout the proceedings that the cheques had been met and the transfer from JFM and FJA to Rural Finance had taken place. That the debits and credits “never left the room”, even if true in any meaningful sense, is not to the point. The manner in which the Equuscorp round robin proceeded was, as the judge held, materially different from the present situation.
I do not consider that the criticism of the judge for his requirement that Rocky Castle demonstrate a change of position is warranted. As I observed, this discussion was introduced in the context of agreeing with Rocky Castle’s argument that a “payment” or “advance” could have been demonstrated in a number of ways. It is hard to envisage a payment or advance which would not be accompanied by a material change of position. In any event, this decision turns on the lack of payment.
I consider that the judge’s analysis was correct and the appellant’s principal arguments should be rejected.
Further issues
In the event that Rocky Castle fails in its claims under the Loan Deed it seeks to have the matter remitted to the Magistrates Court so that it can pursue a claim in restitution. It has not previously raised such a claim. New evidentiary matters could well arise. The explanation proffered by Rocky Castle for the fact that such a claim does not appear in its pleadings (or even in any notice of contention) is that it was unaware at trial that the investors would argue that no payment or advance had been made. That assertion is contested.

I consider it would be quite unfair to allow the appellants to now make such a claim. In any event, as the respondents argue, the hurdles which would face such a claim appear to be formidable. The argument that the rights and obligations of the parties are exclusively dictated by the terms of the Loan Deed appears to me to be unanswerable: see Lumbers v W Cook Builders (in liq) (2008) 232 CLR 635 at 674. A claim on this basis should not now be entertained.
The appellant raises two further matters which only arise if it succeeds on the main argument. These matters were dealt with by the magistrate. Although they were the subject of appeal and cross-appeal before the judge, they were not dealt with by him, being seen by him as hypothetical having regard to his order allowing the appeal and dismissing Rocky Castle’s claim. I shall deal with them briefly.
Rocky Castle argues that, if successful in its claim, it should be awarded compound interest on outstanding amounts. It relies on the conjunction of clause 3.1 of the Loan Deed, which embodies the entitlement to interest, and the definitions of “Principal” and “Reduced Principal” in clause 1.1. The magistrate was not persuaded by this argument. As he observed, none of the operative provisions of the Deed provide for compound interest. Had the parties intended that compound interest be payable it is to be expected that this obligation would have been contained in clause 3.1. I would uphold the magistrate’s decision to the extent that interest, if payable at all, would be simple interest only.
Clause 7.1 of the Loan Deed provides that the investors are liable for Rocky Castle’s “… expenses and costs of and incidental to the enforcement of this Deed on a full indemnity basis …”. The magistrate made a declaration to that effect which was set aside by the judge. While Rocky Castle did not appeal against the judge’s order, it asks that this Court reinstate the order if it is otherwise successful. The respondents argue that the magistrate had no power to make such a declaration and that, in any event, it is of no utility because there are no means by which such a declaration could be enforced. In my view the respondents are correct. It is sufficient to indicate that the magistrate should not have made the declaration.
Conclusion
The appeals should be dismissed.
BLUE J:
The appellant Rocky Castle Finance Pty Ltd (“Rocky Castle”) sued the respondents Mr Taylor and Mr Gillen, by separate actions in the Magistrates Court, for monies lent pursuant to loan deeds dated 30 June 2000.
The principal issue at trial was whether the provision by Rocky Castle of a series of promissory notes to a creditor of Mr Taylor and Mr Gillen comprised “payments” for the purposes of the loans for which they had applied. Subsidiary issues were whether Rocky Castle was entitled to compound interest and to a declaration of entitlement to enforcement expenses.
The Magistrate upheld Rocky Castle’s claims on the principal issue. He awarded judgment against Mr Taylor for $29,972.62 and against Mr Gillen for $36,573.10 inclusive of simple interest. He rejected the claims for compound interest. He granted declarations that each defendant was liable to Rocky Castle for its enforcement expenses.
Mr Taylor and Mr Gillen appealed. Rocky Castle cross-appealed against the refusal of the Magistrate to award compound interest. A Judge of this Court allowed the appeals, set aside the judgments, substituted orders dismissing the actions and made no order on the cross-appeals.
Rocky Castle appeals, with permission, to this Court against the orders of the Judge on appeal.
The appeals raise the following issues:
1.     did the provision by Rocky Castle of the promissory notes comprise       “advances “ and “payments” for the purposes of the loan deeds?
2.     alternatively, is Rocky Castle entitled to restitution of the amount of      the promissory notes?
3.     was Rocky Castle entitled to compound interest?
4.     was Rocky Castle entitled to a declaration of entitlement to    enforcement expenses?
Background
The Reschke family owned 180 hectares of land in the Coonawarra. Burke Reschke and others decided to create and promote a managed investment scheme as a vehicle to establish and operate a vineyard on the land. They incorporated three companies for the purposes of the scheme:
·    Coonawarra Property Holdings Ltd (“Coonawarra Property”) was incorporated to purchase as much of the 180 hectares as should be required for the scheme;
·    Koonara Management Pty Ltd (“Koonara”), of which Burke Reschke was the sole shareholder and one of the directors, was incorporated to sub-contract with the manager of the scheme to provide management services; and
·    Rocky Castle, of which Burke Reschke was the sole shareholder and director, was incorporated to provide finance to participants.
Two independent companies agreed to perform a role in the scheme:
· Australian Hardwood Management Ltd (“AHM”) agreed to become the responsible entity and manager (“the Manager”) of the scheme; and
· Australian Rural Group Ltd agreed to act as the custodian (“the Custodian”) to hold a lease of the land and bank accounts as agent for the manager of the scheme.
The Joint Venture
The managed investment scheme was entitled the Coonawarra Winegrape Project (“the Joint Venture”) and referred to variously in the scheme documentation as the Joint Venture, the Scheme or the Project. It was a joint venture between participants who invested in the scheme, who were described variously in the scheme documentation as Participants, Farmers, Growers or Members (“the Participants”). It was constituted by a Constitution (“the Constitution”).
The Joint Venture involved the establishment and operation over 20 years of a vineyard on up to 180 hectares of the Reschke family land.
Coonawarra Property was to acquire sufficient land depending on the number of interests taken up in the Joint Venture and lease that land (“the Vineyard”) to the Custodian as agent for the Manager. Revenue was to be generated from the sale of grapes grown in the Vineyard and possibly the production and sale of wine made from the grapes.
Koonara entered into a sub-contract with AHM to provide management services in connection with the management of the Joint Venture (“the Sub-contract”).
Rocky Castle agreed to provide finance to participants to fund partially their investment in the Joint Venture.
The Joint Venture was promoted by a prospectus dated 11 June 1999 which was relevantly amended by supplementary prospectuses dated 2 August 1999 and 17 April 2000 (“the Prospectus”). The Prospectus offered up to 900 interests in the Joint Venture, with each interest representing an unallocated 1/5 of a hectare.
The Manager was to be responsible for the establishment, maintenance and operation of the Vineyard on behalf of the Participants. The Manager was to be entitled to payment by each Participant in respect of each interest of:
·    $17,000 for the first year;
·    $5,000 for the second year;
·    $5,000 for the third year;
·    $1,300 thereafter[1];
(“Participation Fees”).
[1]    Adjusted for movements in the consumer price index.
The initial payment of $17,000 comprised fees encompassing both establishment (capital) costs and management (revenue) costs.
The Manager was also entitled to be paid by each Participant, in respect of each interest, a contribution towards rent payable to Coonawarra Property of $300 per annum[2] (“Lease Fees”).
[2] Adjusted for movements in the consumer price index after the first year.
Under the Sub-contract, AHM engaged Koonara to establish and operate the Vineyard and sell grapes and any wine. The Manager agreed to pay Koonara a fee based on the amount of Participation Fees received from the Participants.
The Prospectus offered interests in the Joint Venture. It also offered finance from Rocky Castle to assist in the payment of the first five years’ Participation Fees, namely:
·    $8,000 for the first year;
·    $2,500 for the second year;
·    $2,500 for the third year;
·    $1,500 for the fourth year;
·    $1,100 for the fifth year.
Interest at 8.5 per cent was payable yearly for the first five years. The loans were then repayable by 10 annual instalments of $1,560 each.
The Prospectus included a summary of the principal provisions of the Constitution together with the wording of the standard form Joint Venture Agreement and standard form Loan Deed. It also included a Participation Application Form and Power of Attorney (“Application Form”). Persons applying to become Participants were required to complete and execute the Application Form and submit it together with payment of $17,300, or if selecting the loan option, $9,300 for the first year’s fees. The Application Form incorporated a power of attorney authorising persons to be nominated by the Manager to execute on behalf of the applicant, the standard form Joint Venture Agreement and, if the applicant applied for a loan, the standard form Loan Deed.
Under the Constitution, an Applications Bank Account was required to be established by the Custodian as agent for the Manager. All application monies received by the Manager were required to be paid into the Applications Bank Account pending acceptance or rejection of the application by the Manager.
Under the Constitution, a Scheme Bank Account was required to be established by the Custodian as agent for the Manager. All monies received by the Manager for or on behalf of Participants were required to be paid into the Scheme Bank Account other than monies required to be paid into the Applications Bank Account. Upon acceptance of an application, the relevant application monies were required to be transferred into the Scheme Bank Account. All gross income received with respect to the Joint Venture was to be paid into the Scheme Bank Account. The Manager was entitled to pay out of the Scheme Bank Account all monies required to be paid by or for and on behalf of Participants, including Participation Fees and Lease Fees.
Between 3 March and 13 September 2000, Participation Fees, Lease Fees and in some cases prepaid interest under the loan option received from 32 Participants for a total of 102 interests in the Joint Venture were paid into a bank account established by the Custodian as agent for the Manager. The Manager accepted applications from the 32 Participants for a total of 102 interests in the Joint Venture. As a result, the Vineyard comprised 20.4 hectares and each interest comprised a 1/102 interest in the Joint Venture.
The Prospectus stipulated that the minimum subscription for the Joint Venture to proceed was 100 interests. Burke Reschke acquired 42 interests, presumably to ensure that the minimum subscription was achieved. Of the balance of 60 interests, two were acquired by Mr Taylor and two by Mr Gillen. Of the total of 102 interests acquired, finance from Rocky Castle was sought and approved for 92 interests.
The Joint Venture was treated as having commenced on 30 June 2000.
In May 2007, AHM retired and Huntley Management Ltd was appointed as responsible entity and the Manager in its place.
In March 2012, the Federal Court ordered that the Joint Venture be wound up.
Dealings with Mr Taylor and Mr Gillen
On 20 June 2000, Mr Taylor sent to AHM an Application Form applying for two interests in the Joint Venture and for a loan from Rocky Castle. He irrevocably authorised and directed Rocky Castle to apply the proceeds of the loan to be advanced to him in payment of Participation Fees. He enclosed a cheque for the first year’s Participation Fees not to be funded by Rocky Castle together with the first year’s Lease Fee and prepaid interest. He appointed a person to be nominated by AHM as his attorney to execute the Joint Venture Agreement and Loan Deed on his behalf.
On 30 June 2000, Mr Gillen sent to AHM an Application Form. He also applied for two interests in the Project and a loan from Rocky Castle. His application was in materially identical terms to Mr Taylor’s application. He posted to AHM a cheque for the first year’s Participation Fees not to be funded by the loan together with the first year’s Lease Fee and prepaid interest.
Subsequently AHM, Coonawarra Property and an attorney of behalf of Mr Taylor and Mr Gillen respectively executed Joint Venture Agreements dated 30 June 2000. Rocky Castle and an attorney on behalf of Mr Taylor and Mr Gillen respectively executed Loan Deeds dated 30 June 2000.
For each of the first five years, AHM issued tax invoices to Mr Taylor and Mr Gillen for the Participation Fees and Lease Fees payable for that year together with prepaid interest for that year. Each tax invoice deducted as paid an amount shown as financed by Rocky Castle. For the sixth year, AHM issued tax invoices for the Participation Fees and Lease Fees as well as principal repayments and interest due on the Rocky Castle loan. Thereafter, Rocky Castle issued its own tax invoices for principal repayments and interest but did not require payment in view of the poorer than expected Joint Venture performance.
Between September 2010 and January 2011, Rocky Castle wrote to Mr Taylor and Mr Gillen stating that its loan book associated with the Joint Venture had closed and demanding payment of outstanding principal and interest. Each of Mr Taylor and Mr Gillen wrote in reply seeking confirmation that the monies were actually loaned by Rocky Castle for the purposes of the Joint Venture. No substantive response was received from Rocky Castle.
In February 2011, Rocky Castle issued the actions in the Magistrates Court against Mr Taylor and Mr Gillen.
In March 2011, Mr Taylor’s and Mr Gillen’s solicitors wrote to Rocky Castle’s solicitors requesting discovery of, inter alia, records documenting the advance of all monies by Rocky Castle in favour of AHM purportedly in accordance with the Loan Deeds and how such monies were applied by the Manager in furtherance of the Joint Venture.
In June 2011, Burke Reschke swore an affidavit making discovery of all such documents within Rocky Castle’s possession. He discovered two, and only two, promissory notes from Rocky Castle to AHM. Both were dated 30 June 2000. They were for $998,000 and $800,000, making a total of $1,798,000.
In May 2012, five days before the commencement of trial, Rocky Castle discovered five promissory notes by Rocky Castle in favour of AHM (“the Promissory Notes”) as follows:
·    Promissory Note dated 30 June 2000 for $736,000 executed by Burke Reschke on behalf of Rocky Castle;
·    Promissory Note dated 30 June 2001 for $230,000 executed by Burke Reschke on behalf of Rocky Castle;
·    Promissory Note dated 30 June 2002 for $230,000 executed by Burke Reschke on behalf of Rocky Castle;
·    Promissory Note dated 30 June 2003 for $138,000 unexecuted;
·    Promissory Note dated 30 June 2004 for $101,200 unexecuted.
The total of the five Promissory Notes was $1,435,200.
At trial, Rocky Castle tendered the five Promissory Notes. Notwithstanding that the Promissory Notes for the last two years were not executed and there was no evidence that they had been executed, the Magistrate inferred from the subsequent crediting by AHM in its tax invoices issued to Mr Taylor and Mr Gillen of the amounts required to be advanced for those years that valid promissory notes had been made for those two years. The two promissory notes dated 30 June 2000 which had originally been discovered by Mr Burke in June 2011 were not tendered at the trial.
Each of the five Promissory Notes contained provision for indorsement by AHM in favour of Koonara and in turn indorsement by Koonara in favour of Rocky Castle. These indorsements were executed in the case of the first three Promissory Notes but not in the case of the last two Promissory Notes.
By way of example, the Promissory Note bearing the date 30 June 2000 read as follows:
PROMISERY NOTE
(Coonawarra Wine-Grape Project Investment)
(Prospectus 1)
30^th June 2000
Rocky Castle Finance Pty Ltd (ABN 44 758 401 975) hereby unconditionally promises to pay Australian Hardwood Management Limited (ABN 35 079 695 051) on demand the sum of:
Amount:  $736,000
Amount in words:         Seven hundred and thirty six thousand dollars
Date:        30/6/00
Executed by Burke Reschke of Rocky Castle Finance Pty Ltd by its duly authorised Signatory
(Signature)
ENDORSEMENT
Please pay to the order of Koonara Management Pty Ltd (ABN 54 411 757 190) the sum of: $736,000
Amount in words:         Seven hundred and thirty six thousand dollars.
Date:        30/6/00
Executed F McLaughlan of Australian Hardwood Management Limited by its duly authorised Signatory
(Signature)
ENDORSEMENT
Please pay to the order of Rocky Castle Finance Pty Ltd the sum of $736,000.
Amount in words:         Seven hundred and thirty six thousand dollars.
Date:        30/6/00
Executed Burke Reschke of Koonara Management Pty Ltd by its duly authorised Signatory
(Signature)
Rocky Castle did not call Mr Reschke or any other person to give evidence at the trial. Its case was entirely documentary.
There is considerable reason to suspect that the Promissory Notes were backdated. However, the defendants accepted those promissory notes at face value as having been created and executed on the dates which they bore. The defendants made no challenge to the authenticity of the Promissory Notes, nor any contention that they constituted a sham. The defendants adopted the same attitude on appeal. In those circumstances, I proceed on the assumption that the Promissory Notes are genuine documents which were executed on the dates which they bear and genuinely reflect transactions which they purport to effect on their face.
For convenience, I designate the making in each Promissory Note by Rocky Castle in favour of AHM as transaction A, the indorsement by AHM in favour of Koonara as transaction B and the indorsement by Koonara in favour of Rocky Castle as transaction C.
The reasoning of the Magistrate
The Magistrate considered that the principal issue turned upon the proper construction of clause 2.1 of the Loan Deed. In turn, that construction was informed by the relevant contractual documents between the parties, which he considered to be the Joint Venture Agreement and the Constitution as well as the Sub-contract notwithstanding that the Participants were not parties to the Sub-contract.
Clause 2.1 of the Loan Deed provided:
The 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:
(a)     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;
(b)     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        payable by the Borrower as a Farmer under the terms of the Joint Venture         Agreement;
(c)     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 payment of the third year’s Annual Management Fee payable by     the Borrower as a Farmer under the terms of the Joint Venture Agreement;
(d)     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 payment of the fourth year’s Annual Management Fee payable by     the Borrower as a Farmer under the terms of the Joint Venture Agreement; and,
(e)     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 payment of the fifth year’s Annual Management Fee payable by the       Borrower as a Farmer under the terms of the Joint Venture Agreement.

The Magistrate construed clause 2.1 of the Loan Deed such that the making of an advance and payment by Rocky Castle could be undertaken by delivery of a promissory note to AHM and AHM accepting the note in discharge of the Participant’s obligation. The essence of the Magistrate’s reasoning was as follows:
Upon the delivery of any of the notes to Australian Hardwood Management Limited the Manager could have presented that note for payment. Had Rocky Castle Finance Pty Ltd then delivered cash or a bank cheque to Australian Hardwood Management Limited, it would be difficult to argue that part-payment of the relevant annual management fee had not been made.
…
On all of the evidence the only reasonable inference to draw is that by indorsing and delivering the note to Koonara Management, Australian Hardwood Management met in part, to Koonara Management’s satisfaction, its obligation to pay fees to Koonara Management pursuant to Clause 2.1.2 of the Sub-Contract Agreement.
…
The evidence discloses that each defendant fully participated in the Project as contemplated by the Project documentation. Australian Hardwood Manager, the entity responsible for the Project’s accounting, accepted that the loan advances had been made by Rocky Castle in discharge of each defendant’s obligation under the Joint Venture Agreement. The various entities involved in the project discharged all the fiscal obligations imposed on them by the Project documentation. Each of the defendants has received everything he contracted to received under the Loan Deed.[3]
[3] Reasons of Mr Milazzo SM on 20 July 2012 at [31], [33] and [38].
The Magistrate referred to the final indorsement of each Promissory Note by Koonara to Rocky Castle. After observing that Burke Reschke was the owner and director of both entities, he said that it did not matter on what basis the indorsement was made as between Koonara and Rocky Castle because the money belonged to Koonara absolutely as income earned by it under the Sub-contract and it could use that money as it saw fit.
The reasoning of the Appeal Judge
On the appeal before the Judge, Rocky Castle relied upon the decision of the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd[4] and contended that it was materially indistinguishable from the present case. In Equuscorp, the borrower executed a loan agreement to borrow from Rural Finance the whole purchase price of the units. The lender, Rural Finance, signed a written authority authorising Westpac to transfer sums representing the amount of the loans from its bank account to the bank account of the representative Eagle Star and the amount was credited by Westpac to Eagle Star’s account. Eagle Star drew cheques on its bank account with Westpac in favour of the manager Forestell which were credited by Westpac to Forestell’s bank account with Westpac. In turn Forestell drew cheques in favour of the sub-contractor and lessor, which were deposited into their bank accounts with Westpac. Finally, the sub-contractor and lessor signed authorities authorising the transfer of the funds from their bank accounts into the bank account of Rural Finance. The High Court held that, by the transfer of funds from Rural Finance’s account with Westpac to Eagle Star’s account with Westpac and in turn to Forestell’s account with Westpac, Rural Finance performed its obligations to lend to the borrowers the sums referred to in the loan agreements.
[4] [2004] HCA 55; (2005) 218 CLR 471.
The Judge distinguished the High Court’s decision in Equuscorp because in the present case there was no debit to or payment out of Rocky Castle’s bank account and there was no credit to or payment into AHM’s bank account. The Judge’s reasoning was as follows:
The essence of the High Court’s reasoning in Equuscorp is the finding that each of the component transactions was legally effective and that debts were created and satisfied at all points in the chain as a consequence of the series of round-robin transactions. However, it will be helpful to identify, precisely, the nature of the transactions that the court was so characterising.
…
The first (and most significant) transaction was the debiting of the lender’s bank account with its banker, Westpac, and the corresponding crediting of the representative’s bank account with its banker, also Westpac, of the amounts said to have been lent. According to the High Court these were legally effective transactions. At the instant the bank identified in its records the debit and corresponding credit, Rural Finance had obtained a financial accommodation from Westpac and had become its debtor for the amount of the accommodation. At the same time, Eagle Star had become the bank’s creditor in the same amount. Rural Finance had procured the transfer to Eagle Star of a money fund made available to it by Westpac. This was so, albeit only in the sense that Westpac participated in “fractional reserve banking” and had lent its credit at Rural Finance’s request. It was this transfer of a money fund by Rural Finance that constituted the payment made on behalf of the loan to the relevant investor borrowers.
…
In my view, the circumstances in the present case are distinguishable from those in Equuscorp on two bases.
First, the transactions engaged in by RCF as “lender” and AHM, as Manager (the provision of the promissory notes) were of a character different from the cognate transactions in Equuscorp and materially so. RCF pledged its own credit in favour of AHM and, ultimately, Koonara, when it gave no more than an unconditional promise to pay money on demand. A critical distinction is that in Equuscorp the “credit” that was lent was that of Westpac, albeit on the facts in Equuscorp, only momentarily. Westpac was a third party vis a vis Rural Finance and Eagle Star and it was Westpac that provided the money fund, albeit by way of lending its credit.
There is no evidence before the court that RCF was, like Westpac, a participant in the country’s “fractional reserve banking” system and able to “create” money in the manner discussed in Arnold. It was RCF that directly promised to pay on demand. It did not procure a lending of its banker’s credit. To this point, there had been no change to RCF’s financial position apart from the accretion of a contingent liability. There would be no such change unless and until a promissory note were to be presented and met.
…
In short, the RCF, AHM, Koonara and back to RCF series of round-robin transactions did not involve a series of credits and debits in bank accounts held with a third party banking institution as was the case in Equuscorp.[5]
(Footnotes omitted)
[5] [2013] SASC 27 at [80], [81], [85], [86], [87] and [89].
The Judge concluded that, by Rocky Castle delivering each Promissory Note and AHM accepting and endorsing the Promissory Note, there was no “advance” or “payment” within the meaning of clause 2.1 of the Loan Deeds.
The contentions on appeal
It is common ground on appeal that the relevant transaction involving each Promissory Note was transaction A, namely the delivery of each Promissory Note by Rocky Castle to AHM and the acceptance of the note by AHM as evidenced by its indorsement in favour of Koonara. Rocky Castle contends and the defendants deny that, by this transaction, advances and payments within the meaning of clause 2.1 of the Loan Deeds were effected. It is common ground that transaction B, namely the indorsement of each note by AHM to Koonara per se did not constitute or form part of the advance or payment and neither did transaction C, namely the indorsement of each note by Koonara to Rocky Castle.
As observed at [70] above, it is common ground on appeal that the transactions purportedly constituted or recorded in the Promissory Notes actually took place between the immediate parties on the dates recorded.
Rocky Castle contends that the Judge erred in distinguishing the decision of the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd.[6] It contends that there is nothing in the High Court’s reasons for judgment which confines its reasoning to round robin transactions effected by debits and credits to a bank account and that reasoning is equally applicable to round robin transactions effected by the issue, acceptance and indorsement of promissory notes.
[6] (2005) 218 CLR 471.
Rocky Castle contends that the Judge erred in rejecting its contention 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.
Rocky Castle contends that the Judge wrongly required that it should have changed its financial position by delivery of the Promissory Notes and wrongly concluded that it had not so changed its financial position. The Judge erred by accepting in effect the “real money” contention which was rejected by the High Court in Equuscorp.
Rocky Castle contends that the Judge erred by failing to take into account provisions of the Loan Deed and of cognate documents including the Application Form and the Constitution.
Rocky Castle contends that the Judge erred by failing to give effect to clause 7.2 of the Loan Deeds which rendered statements contained in certificates signed by Burke Reschke on behalf of Rocky Castle as prima facie evidence of the facts stated therein.
The defendants contend that the Judge was correct in distinguishing the decision of the High Court in Equuscorp.They contend that the Constitution required payment of all Participation Fees into the Scheme Bank Account and that, on their proper construction, the Loan Deeds and Applications Forms mandated that the “advances” and “payments” be in the form of payments into the Scheme Bank Account. They contend that a promissory note is not a payment but rather an unconditional promise to pay which cannot be equated with a payment.
The law as to promissory notes
Section 91(1) of the Bills of Exchange Act 1909 (Cth) (“the Act”) provides:
(1) A promissory note may be made by two or more makers, and they may be liable thereon jointly, or jointly and severally, according to its tenor.
A promissory note is a species of bills of exchange. The provisions of the Act applying to bills of exchange apply to promissory notes subject to qualifications.[7] Promissory notes were recognised and governed by the common law before they were governed by statute. The Act is not a complete codification of the law relating to bills of exchange but rather a digest of the law on the subject in the context of the broader common law.[8]
[7] Bills of Exchange Act 1909 (Cth) s 95.
[8] Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128 at 137 per Dixon J.
A promissory note is inchoate until delivery to the payee.[9] The maker of a promissory note engages that he or she will pay it according to its tenor and is liable to the payee or a holder to whom the bill has been indorsed.[10]
[9] Bills of Exchange Act 1909 (Cth) s 90.
[10] Bills of Exchange Act 1909 (Cth) s 94.
An indorser of a promissory note engages that on due presentment it will be paid according to its tenor.[11] Presentment for payment within a reasonable time is necessary to render the indorser liable, but the maker is liable regardless of presentment.[12]
[11] Bills of Exchange Act 1909 (Cth) s 95 and s 60(2).
[12] Bills of Exchange Act 1909 (Cth) s 93.
If a promissory note is indorsed to the maker, the note is discharged.[13]
[13] Bills of Exchange Act 1909 (Cth) s 95 and s 66.
The Act does not explicitly require that consideration be provided by the payee for the engagement by the maker of the promissory note to pay the sum stipulated therein. However, the common law applied ordinary contractual principles to bills of exchange and required consideration for the engagement unless under deed.[14] Section 32 of the Act assumes that consideration is required for a bill of exchange. Section 32(1) provides:
Valuable consideration for a bill may be constituted by:
(a) any consideration sufficient to support a simple contract; or
(b) an antecedent debt or liability. Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.
[14] Holliday v Atkinson (1826) 5 B & C 501; Churchill & Sim v Goddard [1937] 1 KB 92 at 109-110 per Scott LJ.
The common law as to what constitutes consideration is modified by section 32(1)(b) in that “past” consideration is good consideration for a bill of exchange.[15]
[15] Oliver v Davis & Anor [1949] 2 KB 727 at 735 per Evershed MR.
Under the common law prior to the statute, it was held that, if a creditor took a bill of exchange from a debtor in respect of an antecedent debt owed by the maker of the promissory note or person liable on the bill of exchange, there was an implied agreement by the creditor to suspend enforcement of the antecedent debt until the bill of exchange became payable and this constituted good consideration.[16] In Currie v Misa,[17] the Court of Exchequer held that it was implied that the bill of exchange was accepted in conditional payment of the debt, the condition being that the debt revives if the security is not realised.[18] On appeal, the House of Lords held that consideration in that case was provided on a different basis, namely forbearance by the creditor in pressing for payment of the antecedent debt.[19] The specific rationale adopted by the Court of Exchequer in Currie v Misa for implying conditional discharge no longer applies by reason of section 32(1)(b) of the Act.
[16] Popplewell v Wilson (1795) 1 Str 264; Baker v Walker (1845) 14 M and W 465.
[17] (1875) LR 10 Exch 153.
[18] Currie v Misa (1875) LR 10 Exch 153 at 163-164 per Lush J (Keating, Quain & Archibald JJ agreeing).
[19] Misa v Currie (1876) 1 App Cas 554.
Where a creditor takes from a debtor a bill of exchange in respect of an antecedent debt, general contractual principles applying to implied contracts and implied terms dictate whether in all the circumstances it should be implied that the underlying debt is to be regarded as discharged absolutely, discharged conditionally upon payment being made, suspended or unaffected.
Whatever might be the position in a case in which the creditor and the debtor are the parties to the promissory note, the position is fundamentally different when it is provided to a creditor by a third party in respect of an antecedent debt due by the debtor to the creditor. In the latter case, the question whether the antecedent debt is discharged, either absolutely or conditionally, does not depend merely upon the agreement or intention of the maker and payee of the promissory note. It also depends fundamentally on the agreement between the creditor and debtor as the parties to the loan or other transaction giving rise to the debt.
Payment into bank account or by promissory note
The terms of each Application Form included the following:
By completing and signing this form you achieve the following:
1.You apply to participate in the Project in the Coonawarra Winegrape Project Prospectus to the extent nominated;
…
3.If you do not delete paragraph 2 of section E herein, you apply for a loan to fund your participation in the Project in the Coonawarra Wingegrape Project Prospectus as set out in section B below
…
B     Loan Application [optional]
If you have decided to take up the Loan Option by not deleting paragraph 2 of Section E herein then by completing and signing this form you:
1.Apply for a loan from Rocky Castle Finance Pty Ltd … [“the Lender”] to fund the payment of your Management Fees for each Participation in the Project in the Coonawarra Winegrape Project Prospectus; and
2.Irrevocably Authorise and Direct the Lender to apply the proceeds of the loan to be advanced to you to payment of the Management Fees for each such Participation.
…
E     Terms of Application and Execution Clause
I have read the Coonawarra Winegrape Project Application form and the Power of Attorney herein and:
1.     I hereby apply to enter into the Coonwarra Winegrape Project Joint Venture Agreement and the Loan Deed if I have applied for a loan in the application forms;
2.     I hereby appoint the attorneys for these purposes in accordance with section D above.
Taking the first advance as an example of the provisions of the Loan Deed for all five advances, the terms of the Loan Deed relevantly provided as follows:
1.1     In this Deed, unless there is something in the subject matter or context inconsistent therewith, the following words or expressions shall have the meanings respectively        assigned to them:
“Annual Management Fees” means the annual fees payable by the Borrower as a       Farmer to the Manager pursuant to the Joint Venture Agreement for the provision        of certain Management Services referred to therein.
…
“Principal” means the sum of $15,600.00 per Participation advanced by the Lender to the Borrower as provided in Clause 2 herein.
…
“Settlement Date” means the date that the Manager and the Lender have accepted      the Farmer/Borrower’s application form.
…
2.1     The 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:
(a)     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;
…
The chapeau to clause 2.1 performs two concurrent functions:
1.an agreement by Rocky Castle to “advance” the Principal (instalments totalling $15,600 per participation “advanced” by the Lender) to the Borrower or as the Borrower may direct; and
2.an authority and direction by the Borrower to the Lender to make such advances.
In respect of the first payment, clause 2.1(a) performs two concurrent functions:
1.an agreement by the Lender to make part “payment” of the first year’s Annual Management Fee payable by the Borrower as a Participant under the Joint Venture Agreement in the sum of $8,000; and
2.an authority and direction by the Borrower to make such payment.
As appears from [97] above, section B clause 2 of each Application Form contains its own irrevocable authority and direction by the Borrower to the Lender:
to apply the proceeds of the loan to be advanced to you to payment of the Management Fees for each such Participation.
On the proper construction of clause 2.1 of the Loan Deed, did the delivery by Rocky Castle and acceptance by AHM of each Promissory Note comprise an “advance” within the meaning of clause 2.1 and “payment” within the meaning of clause 2.1(a) of the Loan Deed? On the proper construction of section B clause 2 of the Application Form, did the delivery by Rocky Castle and acceptance by AHM of each Promissory Note comprise an “advance” within the meaning of clause 2 and “payment” and “proceeds of the loan” within the meaning of clauses 1 and 2 of section B respectively?
As observed by the appeal Judge, and as is common ground on appeal, the meaning of the words “advance” and “payment” is protean.
The authority and direction contained in the Loan Deed, and the irrevocable authority and direction contained in the Application Form, comprised a mandate by the Borrower to Rocky Castle to make the contractual advance in a specific manner and form.
If Rocky Castle effected payments in accordance with the terms of the mandate by the delivery and acceptance of each Promissory Note, Rocky Castle made the advances contemplated and authorised by each Loan Deed and Application Form and is entitled to repayment of principal and interest thereon. Conversely, if Rocky Castle did not act in accordance with the mandate from the Borrower, the delivery and acceptance of each Promissory Note did not constitute an advance within the meaning of the Loan Deeds and Rocky Castle is not entitled to payment of principal or interest.
Approach to construction

The Application Form and Loan Deed cross refer to each other. It is common ground that it is appropriate to read them as cognate documents.
The Loan Deed refers to the Joint Venture Agreement and the Constitution. The Joint Venture Agreement and the Constitution cross refer to each other. Each participant, Coonawarra Property and AHM is a party to and bound by the Joint Venture Agreement[20] and the Constitution.[21] It is common ground that it is appropriate to refer to the Joint Venture Agreement and the Constitution in construing the Loan Deed and Application Form.
[20] Joint Venture Agreement recitals A, B and C and clause 2.
[21] Constitution clauses 2 and 3; Corporations Law s 601GB; Corporations Act 2001 (Cth) s 601GB.
The Prospectus includes the Joint Venture Agreement, Loan Deed and the Application Form and a summary of the Constitution. Both the Loan Deed and the Application Form refer to the Prospectus. It is appropriate to refer to the terms of the Prospectus in construing the provisions of the Loan Deed, Application Form, Joint Venture Agreement and Constitution.
Rocky Castle contends that it is also appropriate to refer to the Sub-contract in construing the Loan Deed and Application Form. Unlike the Joint Venture Agreement and the Constitution, Participants were not parties to the Sub-contract. Participants were not given or offered a copy of the Sub-contract and had no means of knowing its terms. Reference to the terms of the Sub-contract is impermissible in construing the documents to which the Participants were parties. However, disclosure was made in the Prospectus of the bare fact that AHM had entered into a sub-contract with Koonara (which was owned by Burke Reschke) as Vineyard Manager “to carry out the Management Services relating in particular to the establishment, maintenance and operation of the vineyard”. Accordingly, it is appropriate to refer to the bare fact that Koonara had been sub-contracted on undisclosed terms to carry out management services relating to the establishment, maintenance and operation of the vineyard.
The Applications Bank Account and Scheme Bank Account
Sub-clauses 4.2, 4.3 and 4.4 of the Constitution required each Participant to “pay to the Manager” the prescribed annual management fees, vineyard establishment fee and annual lease rent contribution fees respectively.
Clause 30.1 of the Constitution defined the Applications Bank Account to mean:
the bank account into which the application monies are to be banked pending acceptance by the Manager of and [sic] application by a prospective member.
Sub-clause 15.2, 15.8 and 15.10 of the Constitution addressed dealings with application monies:
15.2   Entry by Member into Joint Venture Agreement
As soon as practicable after acceptance by the Manager of a prospective Member’s       Application Form, each prospective Member must execute the Joint Venture       Agreement and must deliver the same to the Manger together with all monies     payable at that time pursuant to the terms of those Agreements.
…
15.10 Refund of Application Monies
Where an Application Form has not been accepted by the Manager the Manager     must return to such prospective Member the payments made by that prospective     Member together with any interest earned thereon.
Clause 30.1 defined the Scheme Bank Account to mean:
the bank account maintained by the Manager or the Custodian as the agent of the Manager, as the case may be, into which all monies received by the Manager for and on behalf of Members are to be paid other than any monies required to be banked into the Applications Bank Account.
Sub-clauses 15.8, 15.9 18.1 and 18.7 addressed the Scheme Bank Account:
15.8   Scheme Bank Account
Upon acceptance of an Application Form pursuant to clause 15.4, the Manager      shall, or the Custodian, as the case may be, transfer the relevant application monies      from the Applications Bank Account to the Scheme Bank Account.
15.9   Application of Monies or Payments
The monies or payments received from or on behalf of Members must be applied in the case of the Annual Management Fees, the Vineyard Establishment Fees and the Lease Rent Contribution Fee to the Manager and in any other case such investments or manner as are authorised by this Constitution.
…
18.1   Gross Income
All Gross Income received with respect to the Scheme must be paid by the    Manager into the Scheme Bank Account.
18.2   Payment of Monies Out of Scheme Bank Account
The Manager shall be entitled to pay all monies required to be paid by or for and on behalf of the Members pursuant to his Constitution or the Joint Venture Agreement in accordance with the relevant provisions out of the Scheme Bank Account including without limitation the Annual Management Fees, the Vineyard Establishment, Lease Rent Contribution Fee, Winery Expenses and Winery Fee.
Payment required into Scheme Bank Account?
The defendants contend that, on its proper construction, 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. That contention should be accepted.
The definition of “Scheme Bank Account” provides that “all monies received by the Manager for and or behalf of members” are to be paid into the Scheme Bank Account. The fact that this encompasses the payment of Participation Fees is demonstrated by the express exclusion of monies required to be banked into the Applications Bank Account which exclusion would be unnecessary if Participation Fees were not required to be paid into the Scheme Bank Account. It is demonstrated by clause 15.8 which requires the payment of Participation Fees paid by way of application monies from the Applications Bank Account into the Scheme Bank Account rather than into AHM’s personal bank account: it would be incongruous and absurd for Participation Fees sourced directly from Participants to be required to be paid into the Scheme Bank Account but not the component which happened to be sourced from a lender rather than the Participant’s own pocket. It is also demonstrated by the fact that clause 18.2 provides for participation fees to be paid out of the Scheme Bank Account, which assumes that Participation Fees have been paid into the Scheme Bank Account in the first place.
In addition the Prospectus (as amended) included the following sections:
OTHER UNDERTAKINGS OF THE RESPONSIBLE ENTITY
No other undertaking, scheme, enterprise or investment contract involving the issue of managed investment scheme to the public has been conducted by the Responsible Entity within the five years immediately preceding the date of this prospectus except for its role as Manager of the Australian Hardwood Management Project No 1 and as Manager and Responsible Entity of Australian Hardwood Management Project No 2.
…
CASH FLOWS
Forecasts of budgeted expenditure are dependent on actual field conditions and weather, both difficult to forecast and able to materially affect costs, and costs of processing and production of grapes to wine.
The Responsible Entity will utilise funds received by it in meeting its obligations under the Joint Venture Agreement as Responsible Entity of the Project.
In the opinion of the Responsible Entity funds to be raised are adequate, under foreseeable conditions, to complete the tasks set out in the Joint Venture Agreement with an element of safety for adverse conditions of unforeseen circumstances.
Based on the initial prepaid Management Fee of $13,430, Establishment Fees of $3,570 and Lease Rent Contribution Fee of $300, expertises of the Manager are budgeted as follows:

$

%

Fund Raising Expenses

2,595

15.00

Viticulture, Establishment, Management Expenses and Lease Rent

14,143

81.75

Profit Including Taxation

562

3.25

$17,300

100.00

...

Those sections 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.
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.
It follows that the High Court’s decision in Equuscorp[22] has no application. In that case, the amounts of the loans were deposited into the bank account of the Manager and there was no basis upon which it could be contended that this was outside the mandate conferred by the Borrowers.
[22] (2005) 218 CLR 471.
It also follows that the indebtedness of Mr Taylor and Mr Gillen to the Manager 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.
Payment into a bank account?
The defendants contend that, even if the Constitution did not require all Participation Fees to be paid into the Scheme Bank Account, nevertheless, on its proper construction, clause 2.1 of the Loan Deed required a “payment” to be made in a form which was capable of being and was banked into a bank account of the Manager.
If the only relevant parties to the “payment” had been AHM and Rocky Castle, it would have been open to them to agree that payment should be effected by the delivery and acceptance of a Promissory Note. Even as between those parties, there was no direct evidence of such an agreement and no basis to infer that, at the end of transaction A, there had been a “payment” discharging any antecedent obligation. As a matter of inference, it is unlikely that AHM would have been prepared to treat any antecedent obligation as discharged merely by the acceptance of the Promissory Note by AHM. Rather, AHM would have required at least the acceptance by Koonara in turn of the indorsement of the Promissory Note as effecting unconditional payment by AHM to Koonara of the amount of the Promissory Note. However, upon the third indorsement of the Promissory Note by Koonara to Rocky Castle, it might be inferred as between Rocky Castle and AHM that AHM then treated the transactions in relation to the Promissory Note as effecting payment. However, the agreement and intentions of AHM and Rocky Castle are of limited significance.
As between AHM and the Participants, there can be no doubt that AHM was entitled to insist upon payment in a form capable of being banked into its bank account and the Participants had no ability to require AHM to accept a promissory note as itself being in payment of Participation Fees. Sub-clauses 4.2, 4.3 and 4.4 of the Constitution and sub-clauses 5.1, 6.1 and 7.1 of the Joint Venture Agreement required the Participant to “pay” to AHM the annual management fees, lease rent contribution fee and vineyard establishment fees. It is plain that, on their proper construction, these clauses did not entitle participants to effect “payment” by the delivery of a promissory note to the Manager. Those clauses make no distinction between the obligation of the Participant to pay fees according to whether the payment is funded out of the Participant’s own pocket or is funded by a lender such as Rocky Castle. This is not determinative in itself, but is relevant when it comes to construing clause 2.1 of the Loan Deed.
As between Rocky Castle and each Participant, section B clause 2 of the Application Form contained an irrevocable authorisation and direction by the Participant to Rocky Castle to apply the proceeds of the loan to payment of the Management Fees. The reference to “proceeds of the loan” is suggestive that the authority and direction equates the type of payment to be made by Rocky Castle to the type of payment which AHM would be obliged to accept directly from the Participant. This is confirmed by the wording of clause 2.1 of the Loan Deed which refers to an advance “to the Borrower or as he may direct”, which also suggests payment in a form which might be directly on-paid by the Borrower to AHM. It is also confirmed by the concept of “part payment” in clause 2.1(a), suggesting that the payment out of the Borrower’s own pocket is to be made in the same form as the payment funded by the Lender.
The Prospectus treated the Participants as having a commercial interest in the Manager having sufficient funds to meet the establishment and maintenance expenses and lease rent required to be met by it as responsible entity. If the Manager did not pay Participation Fees into a bank account, it would not hold sufficient funds to meet its obligation under the Joint Venture Agreement as responsible entity of the Joint Venture. The existence of that commercial interest in the Participants suggests that it was the intention of the Participants reflected in clause 2.1 of the Loan Deeds that Rocky Castle must pay funds advanced by it in a form capable of being banked in the Manager’s Bank Account. While this would not have prevented AHM paying those funds out of its bank account for purposes other than the Joint Venture, it would have required an active decision by AHM’s signatories to the bank account to do so.
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.
Other criticisms by Rocky Castle
Rocky Castle contends that the Judge erred by imposing a requirement that, before finding that Rocky Castle made “payment” within the meaning of clause 2.1, it was necessary first to determine that at some point after transactions A, B or C Rocky Castle’s financial position had materially changed. Rocky Castle further contends that the Judge erred in any event because its financial position did materially change as a result of transactions A, B and C. It may be accepted that posing the question whether there was a material change in the financial position of the lender as a result of the transactions as a test for determining whether there was a “payment” is apt to lead to circularity. However, any reference to material change in financial position can be put aside because, for the reasons given above, the Judge was correct in his overall conclusion that there was no payment within the meaning of clause 2.1 of the Loan Deeds.
Rocky Castle contends that the Judge effectively imposed a requirement that there be a payment of “real money” for there to be a loan. This notion was discredited by the High Court in Equuscorp. It may be accepted that the notion of “real money” is apt to lead to circularity. However, the Judge quoted from a passage of the High Court’s reasons which criticised the Court of Appeal’s reference to “real money” and there is no basis for a contention that the Judge imposed any such requirement.
Rocky Castle contends that the Judge failed to take into account provisions of the Loan Deed and of the Application Form and the Constitution. Those provisions dictate the conclusion reached by the Judge.
Rocky Castle contends that the Judge failed to give weight to the certificates Burke Reschke tendered in evidence under clause 7.2 of the Loan Deeds, the certificates constituted further confirmation of the fact that the method of advance sufficient to satisfy AHM was open to be agreed between Rocky Castle and AHM and were themselves evidence of the existence of the asserted indebtedness of Mr Taylor and Mr Gillen to Rocky Castle.
Clause 7.2 of the Loan Deeds included the following sentence:
Any certificate signed by any officer for the time being of the Lender or by any person purporting to be an officer of the Lender or sealed by the Lender stating as at any dates the amount owing or contingently owing by the Borrower to the Lender or the occurrence of any of the events, acts or state of affairs set out in clause 6 or any other act, matter or thing arising hereunder shall for all purposes and in all courts and all times be prima facie evidence of the facts stated therein.
Rocky Castle tendered as exhibit 48 two certificates by Mr Reschke dated 21 May 2012 as against Mr Taylor and two certificates by Mr Reschke as against Mr Gillen. Taking the certificate as against Mr Taylor involving simple interest as an exemplar, the material provisions of the certificate were as follows:
2.     By the Loan Deed dated 30 June 2000, the Lender agreed to and did                   advance the Borrower principal in the sum of $31,200.
…
4.     Pursuant to the terms and conditions of the Loan Deed, as at 30 April 2012,         the amount owing (inclusive of simple interest) pursuant to the Loan Deed           for the period 1 July 2008 – 30 April 2012 as at 30 April 2012 is as follows:
Reduced Principal (and simple interest):        $28,960.44
Enforcements costs pursuant to clause 7.1 of the Loan Deed: to be assessed.
The certificate comprised prima facie evidence pursuant to clause 7.2 of the Loan Deed of “the amount owing … by the Borrower to the Lender” as at 30 April 2012. However, it was clear on the evidence at trial that there was no “payment” by Rocky Castle to AHM other than by way of the Promissory Notes. As the Promissory Notes did not comprise “payment” within the meaning of clause 2.1 of the Loan Deed, the prima facie presumption created by paragraph 4 of the certificate and clause 7.2 was of no assistance to Rocky Castle. It is not clear whether paragraph 2 of the certificate, insofar as its states that the Lender “did advance the Borrower Principal in the sum of $31,200” was stating an “act, matter or thing arising” within the meaning of clause 7.2 of the Loan Deed. Assuming that it was, it does not avail Rocky Castle for the same reasons as in respect of paragraph 4.
Conclusion
The Judge correctly concluded that there was no “advance” or “payment” within the meaning of clause 2.1 of the Loan Deed. Rocky Castle fails on its principal grounds of appeal.
Restitution claim
The only cause of action pleaded and advanced at trial in the Magistrates Court was in debt pursuant to the Loan Deeds. No cause of action in restitution was pleaded or advanced at trial. Unsurprisingly, no cause of action in restitution was addressed by the Magistrate in his reasons for judgment.
On the appeals to the Judge, no notice of contention was filed by Rocky Castle contending that the Magistrate’s judgment should be upheld because Rocky Castle was entitled to judgment in restitution.[23] No contention was advanced at the hearing of the appeal by Rocky Castle based on a cause of action in restitution.
[23] A notice of contention is required by Rule 285(4) of the Supreme Court Civil Rules 2006 to be filed within 14 days after service of the notice of appeal if a respondent wishes to make an alternative contention.
On the appeals to this Court, Rocky Castle contends for the first time that, if the decision of the Judge rejecting the cause of action in debt is upheld, Rocky Castle is or may be entitled to succeed against Mr Taylor and Mr Gillen in restitution.
Ground 12 of the notices of appeal claims that it is open to Rocky Castle to contend and states that Rocky Castle contends on appeal that it is entitled to payment of principal and interest by reason of its provision to each respondent, at the respondent’s request, of the benefit of the discharge of the respondent’s obligation to the extent of the principal sum arising from the Joint Venture Agreement, which benefit the respondent voluntarily received and retained. Ground 12 does not assert that the Judge erred by not upholding a claim in restitution nor that the Judge ought to have done so.

In its summaries of argument, Rocky Castle does no more than contend that it was open to the Judge to have found the defendants liable to Rocky Castle as having been unjustly enriched in that their debts to AHM had been discharged at Rocky Castle’s expense, thereby conferring on them a non-controvertible benefit.
In its oral submissions on appeal, Rocky Castle does not contend that the appeal should be allowed on the basis of a finding by this Court that Rocky Castle is entitled to succeed on a cause of action in restitution. Rather it seeks an order remitting the matter to the Magistrates Court for hearing and determination ab initio of a claim in restitution. If such an order were made, Rocky Castle would need to amend its pleadings in the Magistrates Court to plead the material facts giving rise to a cause of action in restitution and adduce evidence at trial in support of that cause of action.
Reliance on restitution claim in this Court
The general principle is that parties on appeal are bound by the manner in which they run their case in the court or courts below. In general, a plaintiff who pursues one cause of action at trial is not permitted to rely upon a different cause of action on appeal.[24]
[24] Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438 per Latham CJ, Williams and Fullagar JJ.
One qualification to that general principle is where a party raises a question of law for the first time on appeal which does not involve any factual issue or where there is no possibility that, if the point had been raised initially, relevant evidence might have been adduced.[25] This qualification does not usually apply to an attempt to raise an entirely new cause of action on appeal not pleaded or pursued at first instance.
[25] Ibid.
In Owners of the Ship “Shin Cobe Maru” v Empire Shipping Co Inc,[26] the High Court said:
As a general rule, a respondent to an appeal is entitled to support a judgment by an argument not presented below so long as the argument does not depend upon an issue of fact not litigated in the courts below and so long as it is open to the respondent on the pleadings and having regard to the way in which the case has been conducted.[27]
[26] (1994) 120 ALR 12.
[27] (1994) 120 ALR 12 at 14 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.
In the present matters, a case in restitution is not open on the pleadings nor having regard to the way in which the case was conducted at first instance and on appeal to the Judge. It does depend upon issues of fact not litigated in the courts below.
On the appeal to this Court, Rocky Castle did not bring forward a proposed amended statement of claim pleading a cause of action in restitution. It did not adduce any evidence not adduced at trial. In particular, it did not call any evidence to explain the transactions between Rocky Castle and AHM, AHM and Koonara and Koonara and Rocky Castle associated with the granting and subsequent indorsements of the Promissory Notes. It did not adduce any evidence of the subsequent dealings between those parties, did not adduce any evidence showing which entity (if any) was out of pocket and did not tender any accounting records such as journals, ledgers or financial statements. It did not adduce any evidence from Mr Reschke explaining the position, the transactions, why the Participants were not told about the Promissory Notes or why no cause of action in restitution was pursued in the courts below.
A fundamental premise upon which the asserted cause of action in restitution depends, according to Rocky Castle’s ground of appeal and summary of argument, is that Mr Taylor and Mr Gillen were discharged from their indebtedness to AHM to the extent of the amounts which Rocky Castle agreed to advance. If follows from the fact that the delivery of the Promissory Notes by Rocky Castle to AHM was outside the mandate from Mr Taylor and Mr Gillen contained in the Loan Deeds and Application Forms that the transaction between Rocky Castle and AHM was not undertaken on behalf of Messrs Taylor and Gillen. The maxim res inter alios acta, aliis nec nocet nec prodest (a thing done between others does not harm or benefit others) applies. There was no discharge by AHM of the indebtedness of Mr Taylor and Mr Gillen by reason of the acceptance and indorsement by AHM of the Promissory Notes. Subject to any defences which they might establish, Mr Taylor and Mr Gillen remain liable to the Manager for the unpaid Participation Fees.
Rocky Castle is not entitled to an order by this Court upholding the Magistrate’s judgment on the ground that it has established on appeal a good cause of action in restitution.
Remission of action to Magistrates Court
As observed above, in its oral submissions on appeal, Rocky Castle seeks an order remitting the matter to the Magistrates Court for hearing and determination ab initio of a claim in restitution.
The only ground upon which Rocky Castle contends that it should be entitled to pursue a new cause of action in restitution is that it was taken by surprise at trial by the defendants’ contentions that the dealings with the Promissory Notes did not constitute advances or payments within the meaning of clause 2.1 of the Loan Deeds.
Rocky Castle did not adduce any evidence in support of its contention that it was taken by surprise at trial or otherwise so as to justify an entitlement to amend to add an additional cause of action at this late stage. No evidence was adduced from Mr Reschke or anyone else that Rocky Castle was in fact taken by surprise. On the materials before this Court, Rocky Castle should not have been taken by surprise given the terms of the pre-action communications and of the pleadings of the parties. Rocky Castle tendered 53 exhibits, many of which were relevant only to the issue of payment and it engaged very experienced senior counsel to conduct the trial in the Magistrates Court. In his reasons for decision on supplementary issues, the Magistrate said:
The defendants’ long standing defence to the plaintiffs’ claim was that the loan monies had not been advanced in fact.[28]
[28] Reasons for decision 17 August 2012 at [14].
Even if Rocky Castle had been taken by surprise at trial, there is no apparent reason why it could not have applied at trial, even at the stage of closing addresses, to amend its pleadings and introduce a cause of action in restitution in the alternative to its pleaded cause of action in debt. If it had done so, the Magistrate could have determined whether permission to amend should be granted taking into account the conduct of the parties and any time limitation issues which might be raised by the defendants. No evidence was adduced from Mr Reschke or anyone else explaining why no action was taken at trial once it became apparent to Rocky Castle (if not apparent already) that the substantive defence of the defendants was that there had been no advance or payment within the meaning of clause 2.1 of the Loan Deeds.
If Rocky Castle had demonstrated that the reason why it did not seek to agitate an alternative cause of action in restitution until the appeal to this Court were due to the misconduct of the defendants, that it would suffer irremedial prejudice if it were not now permitted to plead and prosecute such a cause of action in the existing proceedings (as opposed to instituting fresh proceedings) and that it has a reasonably arguable case in restitution and otherwise explained its delay, it is conceivable that the interests of justice might require that this Court remit the matter to the Magistrates Court to permit it to advance such a cause of action in the existing proceedings. Rocky Castle has failed to establish any of those requisite matters.
Consequential issues
On the assumption that it is entitled to uphold the judgment of the Magistrate on the causes of action in debt, Rocky Castle advances on appeal two subsidiary claims, namely that it was entitled to compound interest (contrary to the Magistrate’s judgment) and it was entitled to a declaration of entitlement to its enforcement expenses (as reflected in the Magistrate’s judgment).
Because I have concluded that the appeal should in any event be dismissed, strictly these two consequential issues do not arise. As they were fully argued by the parties, I deal with them on the assumption that Rocky Castle had succeeded on the principal issue.
Compound interest
At trial, Rocky Castle claimed that, on the proper construction of the Loan Deeds, it was entitled to compound interest. The Magistrate rejected that construction. Rocky Castle cross appealed to the Judge against the Magistrate’s rejection of its claim.
Clause 3.1 of the Loan Deeds provides as follows:
As and from the Settlement Date Interest shall be chargeable on the Principal or Reduced Principal, as the case may be, at the rate of 8.5% per annum on that part of the Principal or Reduced Principal that is outstanding on that date and on each anniversary thereafter and the Borrower must pay such interest to the Lender annually in advance in the case of the first payment on the Settlement Date and for each subsequent payment on each anniversary of the Settlement Date thereafter.
Leaving aside the definitions of “Principal” and “Reduced Principal”, there is nothing in clause 3.1 or elsewhere in the body of the Loan Deed which states that interest is payable on outstanding interest.
The definitions of Principal and Reduced Principal in clause 1.1 of the Loan Deed are as follows:
“Principal” means the sum of $15,600.00 per Participation advanced by the Lender to the Borrower as provided in Clause 2 herein.
“Reduced Principal” means the Principal less any payments of principal made pursuant to clause 4 and including any interest which may be capitalised or is remaining unpaid.
There is nothing in the definition of Principal which is capable of encompassing interest. Assuming that the Borrower makes no payments to the Lender at all, under clause 3.1 interest is chargeable upon $15,600 and not upon interest thereon.
The definition of Reduced Principal expressly encompasses “any interest which may be capitalised or is remaining unpaid”. Rocky Castle contends that those additional words must be given work to do and that work is to provide for compound interest. The defined term ‘”Reduced Principal” is also used in clause 5.1 which provides that the Reduced Principal becomes repayable immediately at the option of the Lender upon the occurrence of one of the four defined events. The definition therefore has work to do for the purposes of clause 5 without necessarily requiring that clause 3 be construed to provide for compound interest. In any event, if compound interest had been intended, it may be expected that clause 3.1 would have expressly provided for it and would have stipulated the rest periods. It may be expected also that the definition of “Principal” would have referred to capitalised or unpaid interest.
The terms of the Loan Deeds do not manifest an intention that unpaid interest be compounded. Rocky Castle has failed to establish that the Magistrate erred in his construction of the Loan Deed.
Declaration as to enforcement expenses
The Magistrate awarded judgment for a money sum against each defendant. In addition, he granted a declaration in the following terms:
The Defendant is liable to pay to the Plaintiff all of the Plaintiff’s expenses and costs of an incidental to the enforcement of the Loan Deed on an indemnity basis pursuant to clause 7.1 of the Loan Deed dated 30 June 2000.
On the appeals to the Judge, the defendants contended that the Magistrate erred in making the declarations because he had no power to do so and in the alternative erred in the exercise of his discretion in making them. In his reasons for judgment, the Judge did not decide the grounds of appeal relating to the declarations.
On the appeal to this Court, Rocky Castle contends that, if it is otherwise successful, the orders of the Magistrate, including the declarations, ought to be reinstated.
Both Rocky Castle and the defendants take procedural points about the ability of the other to contest the issue of declarations. The defendants contend that the notices of appeal seek orders only for the recovery of principal, interest and costs; they do not seek a declaration and should not be permitted to do so on the hearing of the appeals. Rocky Castle contends that the defendants have not cross-appealed against the orders of the Judge and, if the appeal is allowed, the Magistrate’s orders should simply be reinstated. Both parties’ procedural contentions should be rejected. It follows that the issue is to be determined on its merits.
Unlike the Supreme Court[29] and the District Court,[30] the Magistrates Court does not have a general jurisdiction or power to grant a declaration of right independently of a money claim.
[29] Supreme Court Act 1935 (SA) s 31.
[30] District Court Act 1991 (SA) s 8.
Section 8 of the Magistrates Court Act 1991 (SA) at material times up to 17 August 2012 (when judgment was granted by the Magistrate) provided:
(1) The Court has jurisdiction—
(a)     to hear and determine an action (at law or in equity) for a sum of money              where the amount claimed does not exceed—
(i)    if the claim is for damages or compensation for injury, damage or loss                  caused by, or arising out of, the use of a motor vehicle—$80 000;
(ii)    in any other case—$40 000;
(b)     to hear and determine an action (at law or in equity) to obtain or recover title         to, or possession of, real or personal property where the value of the property         does not exceed $80 000;
(c)     to hear and determine an interpleader action where the value of the property         to which the action relates does not exceed $80 000;
(d)     to grant any form of relief necessary to resolve a minor civil action.
(2)     The parties to an action may waive any monetary limit on the civil jurisdiction of     the Court, and, in that event, the Court will have jurisdiction to determine, the      action without regard to that limitation.
Rocky Castle accepts that the actions did not fall within paragraphs (b) to (d). The Magistrates Court’s jurisdiction was relevantly confined to the jurisdiction to hear and determine an action for a sum of money where the amount claimed did not exceed $40,000.
Section 32 of the Magistrates Court Act provided at material times:
The Court may, on matters within its jurisdiction, make binding declarations of right whether or not any consequential relief is or could be claimed.
Section 32 is in identical terms to section 28 of the Environment, Resources and Development Court Act 1993 (SA). It has been held by this Court in relation to the latter section that:
This section does not create an independent jurisdiction in the Court. It confers on the Court a power to grant an additional remedy as to matters in respect of which it already has jurisdiction.[31]
and that:
Section 28 … confers a power not jurisdiction. It provides for a remedy to be exercised in matters within the Court’s jurisdiction. The jurisdiction is to be found elsewhere.[32]
[31] Keane v Salisbury City (1995) 87 LGERA 203 at 204 per King CJ (Duggan and Nyland JJ agreeing).
[32] Smith v Mt Barker Products Pty Ltd [2000] SASC 164; (2000) 77 SASR 157 at [25] per Duggan J (Doyle CJ and Lander J agreeing).
Under clauses 3, 4 and 5 of the Loan Deeds, principal and interest were recoverable by way of debt by the Lender from the Borrower. Clause 7.1 created a debt recoverable by the Lender from the Borrower of the Lender’s enforcement expenses. It was open to Rocky Castle to have claimed a sum of money for its enforcement expenses, to have proved the amount of those expenses at trial and to have recovered judgment for that debt together with the principal and interest. However, the amount of principal and interest to which the Magistrate found Rocky Castle was entitled against Mr Gillen was $36,573.10. This was very close to the jurisdictional limit of $40,000 contained in section 8(1)(a)(ii) of the Act. This may well have been the reason why Rocky Castle elected not to seek any sum of money under clause 7.1 and instead seeking a declaration of entitlement.
The Magistrates Court’s jurisdiction was relevantly confined to hearing and determining an action for a sum of money. The Magistrates Court had no jurisdiction under section 8 and no power under section 32 to grant a declaration in relation to a debt which was not the subject of a claim for a sum of money under section 8. It is not possible for a plaintiff to circumvent the monetary limit on the Magistrates Court’s jurisdiction imposed by section 8 by seeking a declaration instead of a money judgment.
Even if the Magistrate had power to grant the declarations, he ought to have exercised his discretion to decline to do so. Rocky Castle was unable to request the Magistrates Court to enter a money judgment subsequently for enforcement expenses because the Magistrate was functus officio after he granted judgment and in any event the combined award would exceed the monetary jurisdiction of the Magistrates Court. The quantification of the enforcement expenses required Rocky Castle to institute separate proceedings (probably in the Supreme Court). In those circumstances it was inappropriate to grant declarations.
Conclusion
I would dismiss the appeal
STANLEY J: I would dismiss the appeal. I agree with the reasons of Blue J.

$	%
Fund Raising Expenses	2,595	15.00
Viticulture, Establishment, Management Expenses and Lease Rent	14,143	81.75
Profit Including Taxation	562	3.25
$17,300	100.00