Equuscorp Pty Ltd & Anor v Glengallan Investments Pty Ltd & Ors

[1] The trials of these proceedings were heard together, and so were appeals to the Court of Appeal and the High Court. In each case the claim by the first plaintiff, or alternatively the second plaintiff, is for moneys, principal and interest, owing under a written loan agreement made on 30 June 1989 by the defendant as borrower and the second plaintiff as lender. The first plaintiff claims in each case as assignee of the second plaintiff's rights under the loan agreement - an assignment made, it alleges, in January 1991 or alternatively November 1994. The defendants deny they are indebted to the plaintiffs, each defendant alleging an 'operative'

limited-recourse oral loan agreement under which, the defendant says, no money was in fact lent; but, if money were found to have been lent, the defendant says he or it had performed all his or its obligations under the operative agreement. At first instance, on 30 November 2001, judgment was entered for the defendant in each case on the ground that the evidence before the court had made good both defences I have mentioned. Orders for costs were made in favour of the defendants on

5 March 2002. Findings were made on certain other issues not raised by the defences to which I have referred, and still other issues were, however, not considered further at the trial since the determination on the issues I have mentioned made it unnecessary to do so. Among the latter issues were the question of the effectiveness of the assignments and issues arising on a counterclaim by each defendant seeking inter alia relief under the Trade Practices Act 1974 (Cth). Appeals by the plaintiffs to the Court of Appeal were dismissed on

27 September 2002, but the court held that the defendants should have failed on their contention that there were operative limited-recourse oral agreements. The plaintiffs then appealed to the High Court, which handed down its decision on

16 November 2004. The plaintiffs' appeal was allowed, the orders of the Court of Appeal were set aside and in place of those orders it was ordered that the appeal to the Court of Appeal be allowed, the orders made on 30 November 2001 and

5 March 2002 be set aside, and the matter be remitted to the Supreme Court for further consideration of the issues not decided at the trial.

[2] It was conceded on behalf of the defendants that some of the relief originally counterclaimed was, following the decision of the High Court, no longer open to them, but they maintained their claims to:

1. Declarations that in the events that have occurred they are not indebted to either plaintiff; and

2. Alternatively, orders pursuant to the Trade Practices Act declaring the loan agreements void and of no effect.

[3] The task of deciding the issues remitted to this court has been assigned to me, as the primary judge. I do not intend to quote at length from the three sets of reasons for judgment that have preceded these. What follows should be read in the context of those reasons, but, where necessary, I shall refer to or quote passages in them; and accordingly, I think it desirable that I set out paragraphs 58, 59, and 60 of the reasons of the High Court in which reference is made to the issues remitted for further consideration:

58 It is necessary to recall that the primary judge accepted evidence given on the respondents' behalf about what was said, before the respondents executed the written loan agreements, on the subject of limiting the respondents' liability. The Court of Appeal's conclusions about the consequences that followed from that acceptance were directed to identifying what was the agreement between the parties rather than to the issues whether the statements about limited recourse were operative misrepresentations, or constituted misleading or deceptive conduct. Those issues require consideration not only of what was said, but also whether what was said misled the respondents. And neither at trial nor on appeal has there been any real attention given to whether what was said constituted misleading or deceptive conduct by Rural Finance, as distinct from the individual speaker, or some company in the Johnson Group other than Rural Finance. Nor has there been any focus upon what causal connection, if any, there was between the misleading representations allegedly made about limited recourse, earlier in June 1989, and the subsequent execution of the written loan agreements by, among others, Mr Thornton, a chartered accountant whom the primary judge found to be 'a businessman of considerable experience'.

59. The respondents' claims that there were operative misrepresentations and that the respondents were misled or deceived in this particular respect have not been decided by the primary judge or by the Court of Appeal. They should not be decided for the first time in these appeals. Rather, they should be decided at first instance and accordingly these questions should be remitted to the Supreme Court of Queensland for consideration conformably with the reasons of this Court.

60. If the respondents' claims about misrepresentation and about misleading or deceptive conduct concerning limited recourse are to be remitted for further consideration at first instance, it is prudent to remit the claims concerning the alleged representation about 'real' money. The conclusion reached earlier in these reasons about the real money point may suffice to prevent the respondents succeeding on this account. And further examination of the alleged misrepresentation about limited recourse may show that the evidence led at trial was insufficient to establish the respondents' claims of misrepresentation and of contravention of of the . These, however, are matters better reserved for further argument before the Supreme Court of Queensland, together with the limitation defence which the appellants pleaded. So, too, any remaining question about the effect of the assignments from Rural Finance to Equuscorp should be remitted for further consideration.

[4] On 11 February 2005 the parties came before me with a draft consent order in which they agreed to an order that the issues defined in an attachment, A, be determined 'in conformity with the reasons for judgment of the High Court of Australia' and a further order that no further evidence was to be adduced without the leave of the court. In addition, there were directions concerning the delivery of written submissions. I should mention here that no further evidence was adduced, apart from a schedule setting out the sums allegedly owing by the defendants on

3 May 2005 (exhibit 175). The issues set out in the attachment were defined by reference to the pleadings in action no. 1688 of 1991 and were as follows:

1. Issues relating to validity/efficacy of assignment

(a) Paragraphs 21 to 23 of the Further Amended Statement of Claim dated 2 September 1999 (and particulars thereof);

(b) Paragraph 18 of the Further Further Further Amended Defence and Counterclaim dated 21 January 2000 (and particulars thereof);

(c) Paragraph 6 of the Further Further Amended Reply and Answer dated 28 January 2000 (and particulars thereof).

2. Issues relating to misrepresentations, estoppel and prior equities affecting any assignment

(a) Paragraphs 6, 19 to 20A, 22 and 23 of the Further Further Further Amended Defence and Counterclaim dated 21 January 2000 (and particulars thereof);

(b) Paragraphs 7 to 13 of the Further Further Amended Reply and Answer dated 28 January 2000 (and particulars thereof).

[5] It will be noted that in the reasons of the High Court there is no express mention of the estoppel issue, but the parties have agreed, correctly I think, that it arises on the same factual bases as do the issues concerning misrepresentation and misleading and deceptive conduct, and so should be determined with the latter issues.

[6] It is convenient to deal first with the issues relating to misrepresentation, misleading and deceptive conduct, estoppel, and prior equities affecting any assignment.

[7] Paragraphs 6, 19 to 20A, 22, and 23 of the further further further amended defence and counterclaim are as follows:

6. By an oral agreement made in June 1989 between Johnson on its own behalf and as agent for the Second Plaintiff and the Defendant ("the Operative Agreement") it was agreed that the Second Plaintiff would loan the Defendant the sum of $434,000.00 to enable it to acquire 500 units in the limited partnership upon the following terms:-

(a) the liability of the Defendant was, and is, limited;

(b) such liability was, and is, limited to a payment of $70,000.00 on 30 June 1989 and two payments of $35,000.00 each on 30 September 1989 and 31 December 1989;

(c) thereafter the income generated by the limited partnership would be applied in extinguishment of the balance of the said loan.

Particulars of Agreement

(i) Alastair Hasell and Tony Johnson acted on behalf of the Second Plantiff and on behalf of Johnson;

(ii) Barry Thornton acted on behalf of the Defendant;

(iii) the conversations relied on are approximately 2 telephone conversations and 2 conversations face to face between Thornton and Hasell and approximately 2 telephone conversations Hasell made to Tony Johnson in the presence of Thornton between in or about early June 1989 and 30 June 1989 but prior to the execution of the Loan Agreement;

19. In answer to the whole of the further Amended Statement of Claim the Defendant says:-

(a) at all times material to this action Johnson and one Hasell were the agents of the Second Plaintiff and one Thornton was the agent of the Defendant;

(b) to induce the Defendant to enter into the Operative Agreement and to subsequently sign the Loan Agreement Hasell and Johnson represented to Thornton that:-

(i) the liability of the Defendant pursuant to the Operative Agreement and the Loan Agreement was limited in the manner pleaded in paragraph 6 hereof; and

(ii) the Second Plaintiff had sufficient funds to lend to the Defendant (by way of a payment to the Respondent on behalf of the Defendant) to enable it to acquire 500 units in the limited partnership.

(c) the Defendant did enter into the Operative Agreement and sign the pro forma Loan Agreement in reliance upon such representations as the Second Plaintiff intended;

(d) the Defendant would not have done the acts pleaded in sub-paragraph (c) but for the representations pleaded in sub-paragraph (b) as the Second Plaintiff at all times knew;

The reference to 'Johnson' in paragraph 6 is to Johnson Farm Management Pty Ltd: see paragraph 3(d). It is not in issue that the word 'Respondent' in paragraph 19(b)(ii) should read 'Representative'. In paragraph 11 it was pleaded that the second plaintiff failed to provide a cheque or pay cash to the Representative for the application price for each unit applied for on 30 June 1989 or at all, and in paragraph 17 it was pleaded that the defendant is not indebted to either plaintiff because the second plaintiff did not make the alleged loan to the defendant by reason of there having been a round-robin transaction when the second plaintiff did not have 'sufficient funds' to make the payment on behalf of the defendant.

[8] Paragraphs 7 to 13 of the further further amended reply and answer are as follows:

7. As to paragraphs 19, 20 and 20A of the Defence and Counter-Claim, the plaintiffs:

(a) Admit that at all material times, Thornton was the agent of the defendant;

(b) Deny the allegation that Johnson Farm Management Pty Ltd and Hasell were the agents of the second plaintiff with respect to any of the matters pleaded in paragraph 19 of the Defence and Counter-Claim including the making of the representations alleged therein and say that the plaintiffs believe the allegation to be untrue in that Johnson Farm Management Pty Ltd and Hasell had no authority from the second plaintiff to make the representations alleged or otherwise act in respect of any matters pleaded therein:

(c) Deny the allegations in paragraphs 19(b), 19(c), 19(d) and 19(e) and say that the plaintiffs believe them to be untrue on the grounds that:

(i) The defendant signed the Loan Agreement referred to in paragraph 2 of the Statement of Claim and adopted it as alleged in paragraphs 13 and 14 of the Statement of Claim;

(ii) The document styled 'Guarantee' was not executed by the second plaintiff or by any authorised party;

(iii) Lynch and Johnson did not inform Russo and Blunt of the existence of the 'Operative Agreement' in December 1990;

(iv) The document styled 'Guarantee', on its true construction, does not have the effect of altering the liability of the defendant pursuant to the Loan Agreement;

(v) The defendant does not now have, and at no time had, any entitlement or grounds to elect to avoid the Loan Agreement;

(vi) With respect to paragraph 19(b)(ii) because of

(A) the particulars previously given by the defendant of relevant conversations; and

(B) the failure of the defendant to make the allegation in any previous version of the defence.

(d) Say that the first plaintiff took the assignment of the second plaintiff's right, title and interest in the Loan Agreement in good faith, for valuable consideration, and without notice of the 'Operative Agreement' or the matters alleged in paragraph 6, 19(b)-(d) and 19(e) of the Defence and Counter-Claim.

(e) Say that in the premises, the first plaintiff is not subject to any prior equity in favour of the defendant.

(a) Admit that the second plaintiff was a corporation within the meaning of the Trade Practices Act and was engaged in trade and commerce at the time the defendant executed the Loan Agreement;

(b) Otherwise deny the allegations contained therein and believe them to be untrue by reason of the matters referred to in paragraph 5 hereof;

(c) Say that to the extent that the Defendant's claim for relief under the Trade Practices Act 1974 is based on paragraphs 19(b)(ii) and 20A of the Defence and Counter-Claim, it is barred by section 87 (1CA)(b) of the said Act.

[9] I shall now set out my findings as to the events that occurred before 30 June 1989 when the written loan agreements were signed. It is convenient to deal first with the facts concerning the representation alleged in paragraph 19(b)(i) of the defence and counterclaim and with what follows from the determination of those facts.

[10] In June 1989 there were discussions between Mr Hasell and Mr Thornton about investing in the Red Claw project. Mr Thornton was a director of

Glengallan Investments Pty Ltd and HGT Investments Pty Ltd. Mr Thornton's account given in his oral evidence, which begins at p. 496 of the transcript and which I accept as true, was that in early 1989 Mr Hasell provided him with information about the Blueberry project. Mr Hasell gave him a brochure and outlined to him what the salient features of that project were. The brochure revealed that finance was available to investors. Mr Hasell told Mr Thornton that the Blueberry ventures were sold on 'a basis of limited-recourse arrangements'. ('Limited-recourse financing', Mr Thornton said, 'is a common feature of a lot of large mining and other resource-type industries', and also in certain construction industries.) Mr Thornton did not take up the invitation to participate in the Blueberry project, but subsequently had a discussion with Mr Hasell in which

Mr Hasell said, 'I have another venture which is along the same lines with limited recourse as the Blueberry venture'. That was the Red Claw project, which

Mr Hasell said was run by the same group, the Johnson group.

[11] Mr Thornton asked Mr Hasell for information about the Red Claw project. About 31 May 1989 Mr Thornton received information by facsimile (exhibit 12), and a meeting was later arranged. It took place in Mr Thornton's office, he thought, about 2 June. Mr Hasell gave Mr Thornton another document, a letter dated

1 June 1989 (exhibit 85) from Mr Richard Lynch (to whom I referred in paragraphs 11 and 34 of my reasons published on 30 November 2001), national sales manager of Johnson Farm Management, and a copy of a draft prospectus, and told him that the venture operated 'on the basis of making three payments and thereafter the balance of the loans would be repaid from income from the venture'. Mr Hasell told him that the three payments required of investors would be a first pre-payment 'to do with operating expenses', and the other two payments were loan repayments that were to be made at three-monthly intervals. (The discussions from the beginning proceeded on the premiss that any investor would borrow the moneys to be invested.) Mr Thornton looked at the prospectus and said to Mr Hasell, 'These documents do not show that they are limited recourse', and added, 'As far as I'm concerned, unless they are limited recourse, I am not interested in investing in this venture'. Mr Hasell replied, 'Yes, they are full recourse', but he said that he would speak to Mr Anthony Johnson and he was sure that he could secure loans 'on a similar basis to the Blueberry venture'. Mr Thornton replied that unless Mr Hasell obtained the loans on that basis he was not interested in investing.

[12] Up to the time when those discussions took place Mr Thornton was acting only for himself, and probably the two companies I have mentioned of which he was a director. He then had discussions with the other investors who ultimately became the defendants in the proceedings.

[13] Several days or a week later Mr Thornton had a further conversation with

Mr Hasell, this time by telephone, in which Mr Hasell confirmed to him that

Mr Anthony Johnson had 'agreed to the limited-recourse loans'. Mr Thornton then told Mr Hasell about the other interested investors. Mr Hasell had told

Mr Thornton, either then or at the meeting about 2 June, that finance could be provided by an 'in-house finance company called Rural Finance'. There was further discussion, on the subject of assignment, because Mr Thornton had read of problems associated with ventures of the type in question in which debts had been assigned to third-party finance companies when projects had failed, and the finance companies had then proceeded to sue and recover the moneys owing under the loans from the investors. Mr Hasell said he would speak to Mr Anthony Johnson about that.

[14] About the middle of June Mr Thornton had a discussion with Mr Hasell about the preparation of paperwork, etc.

[15] Mr Thornton had a further discussion with Mr Hasell in which he emphasized the point he had made before about assignment of the loan debts and asked him to produce all the necessary documents by the week before the last week in June because he needed them before then so he could study them and have his lawyers look at them. Mr Hasell failed, however, to provide the documents until the morning of 30 June.

[16] The determination of the issues left to be decided now must be approached, in conformity with the reasons for the High Court, on the premiss that if there was an oral consensus prior to the execution of loan documents by the defendants it was discharged and the parties' agreements were recorded in the writing they executed: reasons of the High Court, paragraph 36.

[17] At the meeting in GWA House on 30 June 1989 Mr Hasell provided the loan documents that were executed by or on behalf of each of the defendants.

Mr Thornton read them and noted that they did not include the discussed provision for limited-recourse loans. It has been determined by the High Court that there were no operative agreements as alleged by the defendants. No other agreement had reached finality before 30 June 1989: see paragraph 9 of my reasons published on 30 November 2001. The only way to reconcile any earlier oral arrangement the defendants allege and the written loan agreements they executed is to understand the limitation of recourse to the defendants as a limitation which was to be effected by the Johnson interests' undertaking some secondary liability to the defendants to save them harmless if the venture did not produce profits sufficient for the defendants to meet their obligations under the loan agreements: reasons of the

High Court, paragraph 40. That earlier oral arrangement could have been reached only on 30 June 1989, but before the execution of the written loan agreements.

[18] The negotiations between Mr Thornton and the second plaintiff did not, as I have indicated, reach finality before 30 June 1989. They were negotiations that could not be completed until Mr Thornton had had an opportunity to examine in detail the documents, including the loan documents, in their final form. When Mr Hasell told Mr Thornton before 30 June 1989 that Mr Anthony Johnson had agreed to the limited-recourse loans, that did no more than to induce Mr Thornton to continue, for himself and on behalf of others, the negotiations begun early in the month. The loans then referred to were loans involving limited-recourse to borrowers in the way pleaded in paragraph 6 of the defence. On 30 June 1989, however, Mr Thornton was under no misapprehension that the written loan agreements did not provide for limited recourse. If he and the other defendants were induced to execute the loan agreements by anything said on 30 June 1989 it was by an undertaking of secondary liability of the kind that I have mentioned. It was clear on 30 June 1989 that any offer of limited-recourse loans of the kind pleaded in paragraph 6 of the defence had been withdrawn.

[19] In paragraph 9 of my reasons published on 30 November 2001 I recorded that I found an oral agreement was reached on 30 June 1989 between Mr Thornton acting for himself and the other defendants and Mr Hasell on behalf of the second plaintiff, and that an assurance given and promise made to Mr Thornton on the telephone by Mr Anthony Johnson on that day were given and made when Mr Johnson was acting as agent for the second plaintiff. It must now be accepted, in conformity with the reasons of the High Court (particularly paragraph 40), that it is more probable than not that, although Messrs Hasell and Johnson then had authority to act on behalf of the second plaintiff, what they said then to Mr Thornton concerning limitation of recourse to the defendants was said on behalf of

Johnson Farm Management, and with its authority. Johnson Farm Management was more probably than not the company in the Johnson group undertaking the secondary liability to the defendants referred to by the High Court, rather than the lender, the second plaintiff. I should add that on my reading of paragraph 40 it cannot be characterized as an inessential part of the reasoning of the High Court, as was suggested on behalf of the defendants. It is not clear that prior to 30 June 1989 Mr Hasell was acting for the second plaintiff, and his role cannot be characterized as more than that of salesman for Johnson Farm Management, and that continued to be so on 30 June 1989, but Mr Anthony Johnson spoke, through Mr Hasell, for both Johnson Farm Management and the second plaintiff prior to 30 June 1989.

[20] It was submitted on behalf of the defendants that even if what was said prior to the signing of the loan documents does not have legal effect as establishing 'stand alone' contracts, it nonetheless amounts to actionable representations 'for the purposes of misrepresentations, TPA relief and estoppel'. As I have indicated, the representation pleaded in paragraph 19(b)(i) of the defence and counterclaim did not have that effect because what was said before 30 June 1989 did not cause anything that took place on that day. It must now be accepted that it was the undertaking of the secondary liability together with the representation pleaded in paragraph 19(b)(ii) of the defence and counterclaim that induced the defendants to sign the loan agreements.

[21] I turn now to the facts concerning the representation alleged in paragraph 19(b)(ii) of the defence and counterclaim and with what follows from those facts.

[22] It was submitted on behalf of the defendants that the representation alleged in paragraph 19(b)(ii) of the defence and counterclaim was made by the second defendant by its conduct, which included providing to the borrowers prior to their signing the written loan agreements an order form (part of exhibit 85), the prospectus (exhibit 13), and the document entitled 'Important Late News' (exhibit 14). Mr Thornton denied having seen the last-mentioned document until the proceedings began, but that makes no material difference to the defendants' case on this issue. Clearly enough the representation was made, and the defendants did sign the loan agreements relying on the representation. I am not satisfied, however, that the representation was false or misleading because, in conformity with the reasons of the High Court, the resolution of the issue raised by paragraph 20A of the defence and counterclaim must be reached on the premiss that the result of the transactions constituting the round-robin that took place at a Melbourne branch of the Westpac Banking Corporation on 30 June 1989 was that, in accordance with its obligations under the written loan agreements, the second plaintiff applied money it lent to the defendants in payment of the application moneys due from the defendants for the units being bought: reasons of the High Court, paragraphs 9, 10, and 46. It was submitted on behalf of the defendants that although there had been a finding by the High Court that the second plaintiff performed its obligations under the loan agreements there had been no finding that any indebtedness existed between the second plaintiff and the defendants as a result of that performance. That submission cannot, in my view, be sustained because it has been determined that debts were created and satisfied at all points in the round-robin until, at its end, the defendants owed the second plaintiff certain sums: reasons of the High Court, paragraph 46. That determination is conclusive, and it may therefore be accepted that a debt is owed by the defendants as a result of the payments made on their behalf on 30 June 1989.

[23] My findings on the issues relating to misrepresentations, estoppel, misleading and deceptive conduct, and prior equities affecting any assignment, come down to the following:

1. To induce the defendants to enter into and continue negotiations concerning investment in the Red Claw project the representations pleaded in paragraph 19(b) of the defence and counterclaim were made in June 1989 on behalf of Johnson Farm Management and the second plaintiff.

2. The representation pleaded in paragraph 19(b)(i) was made up to 29 June 1989 but not after that, and so not on 30 June 1989 when it was withdrawn when the loan agreements were presented for signature by the defendants.

3. The representation pleaded in paragraph 19(b)(ii) was made in June 1989 up to and including 30 June 1989.

4. The defendants signed the loan agreements relying on the representation alleged in paragraph 19(b)(ii), as the second plaintiff intended, but not on that alleged in paragraph 19(b)(i), which was withdrawn on 30 June 1989 before the loan agreements were signed and was replaced by an undertaking of secondary liability by Johnson Farm Management.

5. The representation alleged in paragraph 19(b)(i) did not induce the defendants to sign the loan agreements because it was withdrawn on 30 June 1989 before the loan agreements were signed and was replaced by an undertaking of secondary liability by Johnson Farm Management.

6. The defendants would not have signed the loan agreements but for the representation alleged in paragraph 19(b)(ii).

7. The representation alleged in paragraph 19(b)(i) did not constitute relevant misleading or deceptive conduct in trade or commerce because it was withdrawn on 30 June 1989 before the loan agreements were signed and replaced by an undertaking of secondary liability by Johnson Farm Management.

8. The representation alleged in paragraph 19(b)(ii) was not false, misleading, or deceptive as the second plaintiff had sufficient funds to lend to the defendants and in fact lent money to the defendants by means of a round-robin.

9. There was no common assumption or common intention arising from the alleged operative agreements as there were no operative agreements as alleged in paragraph 6 of the defence and counterclaim.

10. The representation alleged in paragraph 19(b)(i) was not made at any relevant time, and that alleged in paragraph 19(b)(ii) was not untrue, and accordingly the defendants have no ground to elect to avoid the loan agreements.

[24] It follows that the defendants must fail on the issues concerning misrepresentation, estoppel, misleading and deceptive conduct, and prior equities affecting any assignment. I have dealt with the resolution of those issues on the defendants' case as it was pleaded. It is important to note the limits of the defendants' pleaded case. In written submissions made on behalf of the defendants in the course of this part of the proceedings the following was submitted concerning the inducements to the defendants to invest in the Red Claw venture:

In the circumstances, Thornton and the other Defendants were induced to invest in the venture, and sign the Loan Agreements, in reliance upon the conduct (consisting of representations and silence) of the Second Plaintiff namely:-

(a) a representation that the personal liability of the Defendants pursuant to the Loan Agreements was limited to three payments (namely the initial prepayment of interest on 30 June 1989, and two payments of principal on 30 September and 31 December 1989) and thereafter any further payments would be made only from the Project's income;

(b) a representation that the Second Plaintiff had sufficient funds to lend to the Defendants to acquire fully paid units in the limited partnerships and so provided the working capital stated in the Prospectus;

(c) a representation that sufficient capital funds would be injected into the project through the acquisition of units in order to make the venture successful and generate profits for investors;

(d) the silence in not advising that the Second Plaintiff did not have sufficient funds to lend to the Defendants to acquire fully paid units in the limited partnerships, or to allow the injection of sufficient capital funds to make the venture successful and generate profits for investors;

(e) the silence in not advising why the banks had withdrawn in mid June 1989;

(f) a representation that the Loan Agreements would not be assigned to a third party;

(g) the silence in not advising that the Second Plaintiff was proposing to sell its loan book;

(h) the silence in not advising of the round robin transactions which were intended to occur (and which indeed had occurred) at Westpac on 30 June 1989.

Paragraph (a) reflects the representation pleaded in paragraph 19(b)(i), but the remaining paragraphs go beyond the defendants' pleaded case. The addition of the words 'and so provided the working capital stated in the Prospectus' in paragraph (b) go beyond the defendants' pleaded case in paragraph 19(b)(ii), as do the assertions in paragraphs (c) to (h) inclusive.

[25] In the course of submissions made on behalf of the defendants, I was asked to make certain findings. I have already dealt with some of those requests and I shall not deal with them further, but shall deal with those I have not discussed already.

[26] It was submitted on behalf of the defendants that a finding should be made that all parties (or at the very least the defendants) assumed that the contracts which existed between them were the oral contracts, and the second plaintiff knew of that assumption. No such finding can be made because it must be accepted that there were no operative limited-recourse oral agreements of the kind alleged by the defendants.

[27] The defendants seek a specific finding, in reliance on a certificate of formation and composition of a limited partnership signed by the Deputy Registrar of Commercial Acts (exhibit 11, referred to in paragraph 11 of my reasons published on

30 November 2001) that no defendant contributed cash on 30 June 1989. The certificate can be read in this way, but since it must be accepted, in conformity with the reasons of the High Court, that the units were paid for by means of the

[28] The defendants seek a finding concerning Ms Kathleen O'Leary, referred to in paragraph 16 of my reasons published on 30 November 2001. Ms O'Leary gave evidence on the voire dire on the third day of the trial, but was not called to give evidence at the trial itself. She was in the precincts of the court for the first two days of the trial in response to a subpoena issued on behalf of the plaintiffs,

Mr Iain Marshall said in evidence. On behalf of the defendants it was submitted that a finding should be made that the plaintiffs' failure to call Ms O'Leary to give evidence on the subject of the letter of 29 November 1989 raises a compelling inference that had she been called she would not have given evidence to the effect that the letter was sent by mistake. I am not persuaded that I should make the finding because the issue to which it would be relevant (the existence or not of the operative limited-recourse oral agreements) has been determined against the defendants. I should record, however, that I do accept Mr Marshall's evidence.

[29] Mr Lynch gave evidence that it was not the practice in a scheme like the Red Claw project to tell potential investors that there was going to be a round-robin. He said it would not have been conducive to selling; he thought it would have dissuaded a number of investors because they would have been concerned, 'as to the real funds behind the project'. He added, 'A number of times I was queried on the projections that we sent out with the kit as to just how much real money was coming in and projected in sales. These people were not just investing for tax deduction. A lot of them were investing for a long-term income stream'. One Blueberry investor,

Mr Lynch said, 'set up their superannuation on the basis of Blueberry and the

long-term stream from it'. The same applied to the Red Claw project, 'They all looked at the real returns coming in'. It was submitted on behalf of the defendants that a finding should be made, based on Mr Lynch's evidence, that the second plaintiff lied to investors about its ability to make loans in Australian currency as required by the documents given to borrowers and the investment deed because the second plaintiff realised that to make such a disclosure would discourage investors from investing in the venture and would have caused it to fail -which of course it did. I accept Mr Lynch's evidence, but, as I have explained, it must be accepted that the representation pleaded in paragraph 19(b)(ii) of the defence and counterclaim was not untrue since the second plaintiff was able to provide the required funds by means of a round-robin that gave rise to legally-effective transactions. It was submitted on behalf of the defendants that in the circumstances related by Mr Lynch it may be concluded that the second plaintiff knowingly made a representation contrary to the truth, or alternatively impliedly represented that there existed a state of facts different from the truth. That conclusion is not open.

[30] It was submitted on behalf of the defendants that a finding should be made that there was a meeting in December 1990 as alleged in paragraph 19(e)(iv) of the defence and counterclaim and that that meeting, and similar earlier meetings in July and August 1989, were relevant 'in respect of the defence issues'. Mr Lynch gave evidence that he believed he had a meeting with Mr Nicola Russo, managing director of the first plaintiff, in July 1989 to discuss the sale of 'receivables from Red Claw', during which he explained that, as with the Blueberry project, 'there were certain loans that had limited-recourse agreements attached to them'.

Mr Russo then said he was not interested in that class of loan because it was not 'good security', Mr Lynch said. Mr Lynch said that he had a further meeting with Messrs Russo and Ron Collins in Melbourne in, he thought, August 1989 to discuss again the possible sale of Red Claw receivables excluding the limited-recourse loans. Again Mr Russo said, according to Mr Lynch, that he was not interested in those loans. In October 1989 Mr Lynch terminated his association with the

Johnson group, but had a further meeting with Mr Russo at Mr Lynch's home on the Gold Coast in December 1990 at which a Mr Blunt who, Mr Lynch believed, was 'a director of Beneficial Finance', was present. Mr Lynch said Mr Russo had telephoned him and said he was on the Gold Coast and wished to talk to Mr Lynch about the Johnson Red Claw loan book and who was 'on' limited-recourse loans, as he was to have a meeting with 'Mr Johnson' regarding purchase of the loan book. Mr Lynch produced lists of investors in the Blueberry and the Red Claw projects but did not supply it to Mr Russo. Mr Russo asked what loans were non-recourse or limited-recourse on the Red Claw list. Mr Lynch then discussed with Messrs Russo and Blunt the Red Claw list and read out to them the names of the limited-recourse investors. Messrs Russo and Blunt made notes, and the GWA borrowers were identified as 'subject to these special arrangements'. After December 1990,

Mr Lynch said, he had a number of telephone conversations with Mr Russo and

Mr Stewart-Hesketh, to whom I referred in paragraphs 35 and 36 of my reasons published on 30 November 2001. In those conversations the loans were queried 'and where they stood', and there were 'many, many statements at that time to the extent really that they were going to sell the projects up'.

[31] I accept Mr Lynch's evidence concerning those meetings and conversations but since there is no evidence that Mr Lynch had first-hand knowledge of the arrangement between the second plaintiff and the defendants the evidence is of no weight in resolving the issues between the parties. So far as that evidence is directed to the issues whether there were the alleged operative limited-recourse oral agreements or whether the second plaintiff and the defendants believed there to be such agreements, the evidence is of no effect. It must be accepted that there were no such oral agreements, and from what passed between Mr Thornton on behalf of the defendants and Mr Hasell and Mr Anthony Johnson on 30 June 1989 there can have been no belief that there were such agreements.

[32] The allegation in paragraph 19(b)(ii) of the defence and counterclaim was made for the first time by the amendment to that pleading delivered on 21 January 2000. The limitation period fixed by s. 87(1CA)(b) of the Trade Practices Act 1974 is three years as it applies to the defendants' counterclaim to relief under that Act in reliance on their allegation in paragraph 19(b)(ii): see Schedule 1, item 32 of the Trade Practices Amendment Act (No.1) 2001 (Cth). It is common ground on the pleadings (paragraph 25 of the statement of claim, paragraph 1(g) of the defence and counterclaim) that on 20 September 1991 the first plaintiff demanded payment of the sums it alleges were owing under the loan agreements, so that day may be taken as the day on which the defendants' causes of action under the

Trade Practices Act accrued. It follows that to that extent the defendants' counterclaims are statute-barred, but, as I have indicated, they fail on the merits in any event.

[33] I come now to the issues relating to the validity and efficacy of the alleged assignments. Paragraphs 21 to 23 of the further amended statement of claim are as follows:

21. On the seventh day of January 1991 the first plaintiff entered into an agreement with the second plaintiff pursuant to which all of the second plaintiff's right, title and interest in the Loan Agreement was assigned to the Plaintiff.

22. (a) Alternatively, on or about 7 January 1991 the second plaintiff executed and delivered to the first plaintiff a notice of assignment in respect of the Loan Agreement which was relevantly in the following terms:

"NOTICE OF ASSIGNMENT

Loan Agreement

To: Glengallan Investments Pty Ltd

14th Floor

GWA House

10 Market Street

BRISBANE QLD 4000

RURAL FINANCE PTY LIMITED HEREBY GIVES YOU NOTICE that on the day of January 1991 it assigned to Equus Financial Services Limited of Level 1, 2 Clarke Street, South Melbourne, its interest under the Loan Agreement it has with you dated the 30th day of June 1989 including its right to monies and you are hereby directed to make all payments of monies due under the loan agreement to Equus Financial Services Limited.

(b) The second plaintiff thereby assigned its right, title and interest in and to the Loan Agreement to the first plaintiff.

(c) The defendant received the said Notice of Assignment from the plaintiff on or about 27 March 1991.

23. (a) Alternatively by an agreement in writing dated 16 November 1994 the second plaintiff assigned to the first plaintiff all its right, title and interest in and to the Loan Agreement.

(b) The first plaintiff gave notice in writing to the defendant of such assignment on or about 17 November 1994.

Paragraph 18 of the further further further amended defence and counterclaim is as follows:

18. In answer to paragraphs 21, 22 and 23 of the Further Amended Statement of Claim the Defendant admits that the First and Second Plaintiffs purported to enter into agreements ("the Agreements") respectively on or about 7 January 1991 and 16 November 1994 and that Notices as alleged in paragraph 22 and 23 were purportedly delivered on behalf of the Second Plaintiff on the dates alleged, but denies that either the Agreements or the Notices are effective as an assignment because:-

(a) at 7 January 1991 and 16 November 1994 no debt existed between the Defendant and the Second Plaintiff which was capable of being assigned by reason of the matters pleaded in paragraphs 6 to 17 hereof;

(b) the alleged loan was described in the Agreement of 7 January 1991 as a B class loan. The terms of that Agreement did not effect an absolute assignment of any B class loan. Alternatively the terms of that Agreement effected a conditional assignment of the B class loans which assignment failed by reason of the non-fulfilment of the said conditions.

(c) the Agreement of 7 January 1991 and the Notices are void for uncertainty.

Paragraph 6 of the further further amended reply and answer is as follows:

6. As to paragraph 18 of the Defence and Counter-Claim, the plaintiffs:

(a) Deny the allegation in paragraph 18(a):

Particulars

The plaintiffs rely on the matters pleaded in paragraphs 2 to 20 of the Statement of Claim and the matters pleaded in paragraphs 2(c) and 7(c) hereof.

(b) Admit that the Loan Agreement was described as a Class B Loan Agreement in the agreement dated 7 January 1991 but otherwise deny the allegations made in paragraphs 18(b) and (c) and believe them to be untrue on the grounds pleaded in paragraphs 21, 22 and 23 of the Statement of Claim and the full terms of the agreement dated 7 January 1991 and the terms of the notices referred to in paragraphs 22 and 23 of the Statement of Claim;

[34] In paragraphs 50 to 52 of the reasons I published on 30 November 2001 I set out relevant provisions of the agreement of 7 January 1991 (exhibit 25) and the facts established by exhibits 157 and 167. The agreement of 16 November 1994 was not before the court, but the notice dated 16 November 1994 was: exhibit 27. It was as follows:

NOTICE OF ASSIGNMENT OF DEBT

(Section 199 Property Law Act 1974)

TO: GLENGALLEN [sic] INVESTMENTS PTY LTD

**(**the "Debtor")

BECAUSE:

A. The Debtor owes Rural Finance Pty Ltd ACN 008 584 638 (Receivers and Managers Appointed) (the "Assignor") the debt specified in the Schedule (the "Debt"); and

B. The Assignor has assigned all of the Assignor's right, title and interest to the Debt to Equus Financial Services Limited ACN 006 012 344 (the "Assignee") by, inter alia, agreement dated 16 November 1994.

C. The Assignor has previously assigned the Debt to the Assignee. The Assignee maintains the efficacy of its rights in the Debt and has required this further assignment to place beyond any doubt the efficacy, nature and extent of the rights of Equus to the Debt.

TAKE NOTICE THAT:

1. The Assignor notifies the Debtor that by an absolute assignment free from equities in writing under the hand of the Assignor in favour of the Assignee dated 16 November 1994, the Assignor assigned to the Assignee all its right, title and interest to the Debt.

2. Unless and until otherwise directed in writing by the Assignee, the Debtor is required to make payment of the Debt to the Assignee at Level 1, 424-430 Smith Street, Collingwood Melbourne, Victoria.

SCHEDULE

(the "Debt")

All money owing by the Debtor pursuant to Loan Agreement dated 30 June 1989 between the Debtor and the Assignor.

DATED this 16th day of November, 1994.

RURAL FINANCE PTY LIMITED ) RURAL FINANCE PTY

(RECEIVERS AND MANAGERS ) LIMITED (RECEIVERS

APPOINTED) by its duly constituted ) AND MANAGERS

Attorney NICK RUSSO pursuant to ) APPOINTED) by its

Power of Attorney contained in a deed ) duly constituted Attorney of charge dated 7 January 1991 in the ) who declares that he has presence of: ) no notice of the

) Revocation of the Power

) Attorney in pursuance of

) which he has executed

(Signature) ) these presents

)

/Solicitor ) (Nick Russo)

EQUUS FINANCIAL SERVICES ) EQUUS FINANCIAL LIMITED by its duly constituted ) SERVICES LIMITED Attorneys NICK RUSSO, MANAGING) by its duly constituted DIRECTOR & DIANE POUNSETT, ) Attorney who declares COMPANY SECRETARY pursuant to ) that he has no notice of Power of Attorney BOOK NO. 277 at ) Revocation of the Power Pg 5 in the presence of: ) of Attorney in pursuance

) of which he has executed

) these presents

(Signature) )

/Solicitor ) (Nick Russo)

NICK RUSSO

(D. Pounsett)

DIANE POUNSETT

[35] The defendants' pleaded case was first then that the plaintiffs 'purported' to enter into the two agreements. The qualification implicit in the word 'purported' I take to be a reference to the defendants' pleaded case in paragraph 18(a) of the defence and counterclaim, i.e., since there was no debt capable of being assigned and although the agreements appeared to effect assignments they could not do so since there was nothing to assign. That part of the defendants' pleaded case must fail because there was such a debt in each case. Accordingly, I am not persuaded that the plaintiffs were required to prove the terms of the agreement of 16 November 1994.

[36] The defendants' second line of attack on the assignments concerned only the agreement of 7 January 1991: the agreement did not effect an absolute assignment of any class B loan, it was pleaded in paragraph 18(b). That very issue came before the Court of Appeal in appeal no. 262 of 1993 (Equus Financial Services Limited v. Glengallen [sic] Investments Pty Ltd, unreported 19 May 1994) in which the first plaintiff under its former name was the appellant and Glengallan Investments Pty Ltd the respondent (the second plaintiff had not been joined then). Fitzgerald P. and Derrington J. concluded that there had been an assignment effected by the agreement of 7 January 1991. Fitzgerald P. concluded it was unnecessary to decide whether either, or both, the deed and the notice served in reliance on it constituted an absolute assignment within the meaning of s. 199 of the Property Law Act 1974. It was sufficient, his Honour observed, if either, or both, constituted an equitable assignment. Having referred to clause 2.2.4 and to item 4, annexures A (notice of assignment and direction) and A2 (letter to customer), and clause 4.1.2.2 (which provided that the assignor covenanted and agreed with the assignee to deliver to the assignee on or before the date of the deed a notice to each customer in the form provided for in annexure A), his Honour concluded that it was plain that an acknowledgment was not to be received from the borrower and the payment for the assignment of a class B loan agreement was not to be made by the appellant to the second plaintiff, until after a document substantially in terms of the notice given to Glengallan Investments Pty Ltd had been given to the borrower. In those circumstances, his Honour concluded, 'the proper conclusion is that the parties to the Deed, the appellant and the Deed, the appellant and [the second plaintiff], intended that each class B Loan Agreement was to be assigned to the appellant by the Deed, or in any event, by, or prior to, the Notice or equivalent document'. Derrington J. concluded that, despite the absence of any direct statement to that effect, on the proper construction of clause 2.2.4 the parties agreed to unconditional assignments of class B loan agreements which were to take effect in law at once. The third member of the court, McPherson J.A., allowed that it was possible that what had been agreed was no more than an enforceable agreement to assign.

[37] It follows from the reasons of the majority that the agreement of 7 January 1991 effected an assignment of the loan to Glengallan Investments Pty Ltd and that that assignment had not failed by reason of the non-fulfilment of the conditions upon which the defendants rely. It was submitted on behalf of the plaintiffs, in reliance on Bass v. Permanent Trustee Co. Ltd [1999] HCA 9; (1999) 198 C.L.R. 334, at pp. 359-360, that in proceeding no. 1688 of 1991 I am bound by the decision of the Court of Appeal in appeal no. 262 of 1993. I accept that that submission is correct. It does not mean, however, that I am bound by that authority in the other five proceedings in the same way, but of course the decision of the Court of Appeal is authoritative as a binding precedent because it was not suggested that there is any distinction between the relevant facts of proceeding no. 1688 of 1991 and those of the other five proceedings. I should record that I conclude that if I am not bound by the decision of the Court of Appeal I nonetheless should reach the same conclusion as Derrington J. for the reasons his Honour gave.

[38] I am not persuaded that there is any relevant uncertainty in the agreement of

7 January 1991 or in either of the notices relied on by the plaintiffs.

[39] It follows that judgment must be entered for the first plaintiff against each of the defendants, and the defendants' counterclaims must be dismissed. I shall invite further submissions on the sums for which judgment should be entered, and costs.