Haxton & Ors v Equuscorp Pty Ltd [2010] VSCA 1

RESTITUTION and UNJUST ENRICHMENT - Whether lender prima facie entitled to restitution for total failure of consideration - Whether investors' retention of funds unjust - Relevance of terms of unenforceable loan agreements - Their relationship to schemes as a whole - Whether trial judge erred in construction of loan agreements and factual findings - Whether action on the sole enforceable loan agreement statute-barred.

ASSIGNMENT - Whether lender's claim in restitution assignable - Whether rights effectively assigned by deed.

TABLE OF CONTENTS (Reasons for judgment of Dodds-Streeton JA)

1 I have had the advantage of reading in draft the reasons for judgment of Dodds-Streeton JA. I agree, for the reasons which her Honour gives, that the appeals by Equuscorp should be dismissed and that the appeals by the investors should be allowed.

2 I have had the considerable advantage of reading Dodds-Streeton JA's draft reasons. I agree with her Honour, for the reasons she gives, that Equus' claims in restitution against the investors in the failed blueberry scheme must fail[1] and that the investors' appeals[2] should be allowed.

3 As her Honour explains in her comprehensive reasons, unjust enrichment now provides the conceptual underpinning for defined categories of cases in which it has been established that a defendant has a prima facie obligation to make restitution for money, property or services received from a plaintiff.[3] While these categories are now well-developed, the law of restitution is not frozen. In the future case by case analysis is likely to result in the recognition of new situations in which a restitutionary remedy is held to be available.[4]

4 Equus relied on two lines of authority in support of its claim that Rural (and Equus as assignee of Rural's rights) had an enforceable claim in restitution against the investors, for the balance of the loan moneys and interest.

5 The first line of authority relates to money paid under a contract in relation to

which the consideration has totally failed. As Dodds-Streeton JA's analysis shows,[5] neither English nor Australian courts have strictly applied the requirement to show a total failure of consideration.[6] Moneys paid under a contract which has failed are sometimes recoverable even where the contract has been partially performed by the person from whom recovery is sought.[7] Accordingly, the fact that a lender has received some repayments of capital and interest from the borrower under an unenforceable contract, will not necessarily be sufficient, of itself, to preclude a claim in restitution for the unpaid balance of the loan.

6 The second group of cases (which Equus submitted were implicitly based on total failure of consideration)[8] include those in which contracts of loan have been made to finance an illegal prescribed interest transaction, where the contract cannot be severed from that transaction. These cases indicate that the lender may have a claim in restitution against a borrower, in relation to loan moneys which the borrower has received,[9] for the purposes of investing in a scheme, despite a breach of the prescribed interest requirements, and the lack of severability of the loan contract.

7 Despite these two lines of authority, I agree with Dodds-Streeton JA, for the reasons she gives, that Equus has no prima facie right to recover the capital and interest moneys advanced by Rural. Further, even if the lender has a prima facie right to restitution of money paid to a borrower, despite the breach of the prescribed interest provisions, Equus is not entitled to restitution in the circumstances of this

8 The loan agreement was an integral part of a scheme for the growing and harvesting of blueberries. The investors received no benefit from the failed scheme of which the loan formed part. There was no evidence as to whether the investors in fact received the benefit of tax deductions. The investors lost their right to receive a share in the proceeds of production of the blue berries, and their interests in the farm were extinguished by the enforcement of the security interests. Further, in these circumstances it was not unjust for the investors to retain the 'benefit' (such as it was) of the loans made to them.

9 It is therefore unnecessary to decide if a lender's right of restitution arising after the failure of a loan contract is assignable. In that regard I note only that the question whether a restitutionary claim is assignable may depend on the category within which the particular claim falls. In some circumstances the question whether it is 'unjust' for a recipient to retain the benefit of moneys paid or services rendered may be so dependent on the particular relationship between the payer and the recipient that the purported assignment more closely resembles a claim in tort than a claim which should be treated as assignable.

10 In any case, I agree with Dodds-Streeton JA that, even if Rural had a right of restitution against the investors, the words of the deed of assignment, when read in conjunction with the Asset Sale Agreement, did not assign Rural's putative rights in restitution (as opposed to the Rural's rights under the loan agreements) to Equus.

11 Accordingly, I would join in the orders proposed by Dodds-Streeton JA.

12 Before the Court, there are eight related appeals which arise from eight cases representative of some 550 proceedings issued by Equuscorp Pty Ltd ('Equus')

against defendants who, through a series of schemes in the late 1980s, invested in a blueberry farm project at Corindi in New South Wales. In the proceedings below, Equus sought to recover from the investors as a debt, or alternatively in restitution, the outstanding principal and interest allegedly due under the loan agreements they had each entered with Rural Finance Pty Ltd ('Rural') in order to finance their participation in the schemes. In 1997, Equus had acquired for $500,000 Rural's rights to loans totalling approximately $50 million under numerous agreements with scheme investors.

13 In seven cases, the trial judge held that the loan contracts were illegal and unenforceable against the investors, because they were not severable from scheme transactions which breached the prescribed interest provisions of the Companies Code ('the Code') due to the want of any or any proper prospectus.

14 The trial judge dismissed Equus's contractual claim in all eight cases. His Honour upheld its alternative restitution claim in only two cases. Equus is the appellant in six of the present appeals and the investors are the appellants in two of the appeals. There are also a number of notices of contention.[10]

15 The appeals raise the following principal issues:

1. Did Rural as the lender under the illegal loan contracts which were unenforceable against the investors, have a prima facie claim to restitution of the loan funds as money had and received on the basis of total failure of consideration, subject to the set-off of payments received from the investors? If so, in the circumstances, was the investors' retention of the funds unjust? Did the trial judge err in having regard to the terms of the unenforceable contracts in determining whether the retention of the loan funds was unjust?
2. If Rural had such restitutionary claims, were they capable of assignment?
3. If such claims were capable of assignment, were they effectively assigned to Equus by the deed of assignment dated 30 October 1997?
4. If, in determining Equus's entitlement to restitution, the trial judge was entitled to have regard to the terms of the unenforceable contracts, did he nevertheless err in his construction thereof and his related factual findings, on the basis of which he determined whether certain investors had the benefit of non-recourse provisions and whether certain debt claims were statute-barred.

16 The cases of both Equus and the investors depended on a series of cascading arguments, any one of which, if accepted, was dispositive of at least some of the appeals. For example, seven of the appeals could be determined on the basis of holding (as I do) that Rural's restitutionary claims, if established, were not assigned by the deed of assignment. In deference to the submissions of counsel, I have also considered the other principal arguments.

17 For the reasons set out in detail below, I have found:

1. Equus did not establish that on the facts Rural (its assignor) had a prima facie entitlement to restitution by reason of total failure of consideration.
2. If (contrary to the above) the investors were prima facie obliged to restore the loan funds due to a total failure of consideration or otherwise, the obligation was displaced. The investors' retention of the loan funds was not unjust in circumstances where:
   • the loans were, in substance, integral elements of investment schemes conducted by a group of companies under common control, in which an entity related to the lender offered interests to investors without any complying prospectus, in breach of the protective prescribed interest provisions of the Code;
   • the loans funded the investors' acquisition of interests, including blueberry farm licences and leases, in the scheme;
   • the loan agreements provided that following two initial payments of capital, the balance of the loans was to be paid with the guaranteed proceeds of the sale of blueberries over a five year term;
   • it was neither pleaded nor established that the investors entered the schemes in order to obtain tax deductions; there was no evidence that any investor had obtained any benefit by way of a taxation benefit or advantage;
   • under the investment schemes, Rural's loans were secured by mortgages over the investors' scheme interests, typically licences or leases[11] of the blueberry farm on which the blueberry crops (the proceeds of which were to be applied to the payment of their loans) were produced. In 1991, when the scheme projects failed financially, the blueberry production and the guaranteed payments from the sale of blueberries ceased. Rural charged its assets and undertaking (including its security interests in the investors' licences, leases or other interests) to Equus. Equus, in enforcing its charge over Rural's assets, took possession of the investors' interests, which they consequently lost. The investors did not terminate the loan contracts until (the parties agreed) they filed defences to Equus' proceedings.

18 While the authorities provide no clear guidance on whether a restitutionary claim of the kind alleged is assignable per se, assignment may occur in the circumstances outlined in Trendtex Trading Corporation v Credit Suisse ('Trendtex').[12]

19 The deed of assignment dated 30 October 1997 was not, on construction, effective to assign rights of the nature alleged by Equus, had they been established.

20 Contrary to Equus' submission, the terms of an unenforceable loan contract in a case of alleged total failure of consideration not only may but ordinarily must be considered when assessing whether the claimant has received none of the bargained-for benefit. The terms may also, in an appropriate case, constitute circumstances relevant to the determination of whether a payee's retention of moneys paid in connection with the unenforceable contract is unjust. The observations in Pavey & Mathews Pty Ltd v Paul ('Pavey')[13] restricting reference to the contractual terms was, in my view, informed by the factual context of a quantum meruit claim for work performed under an unenforceable building contract. The High Court made clear that the terms of the unenforceable contact in that case did not govern the recovery in restitution, but did not impose an inflexible bar in all contexts.

21 I am not persuaded that the trial judge erred in his construction of the terms of the loan contracts or in his findings of fact.

22 The facts, as found by the trial judge and as set out in the agreed statement of facts amplified by oral submissions, were as follows.

23 From 1986, Mr Anthony James Johnson and his brother, Mr Francis Edward Johnson, promoted tax-driven investment in blueberry farming activity by a number of successive similar schemes in the financial years 1986/7, 1987/8 and 1988/9. The schemes were designed to allow investors to deduct the expenses incurred in blueberry farm production from all their income. The investors anticipated an immediate tax deduction[14] from their non-farm income, together with the prospect of future income and capital appreciation as the farm became productive.

24 The Johnsons controlled, held office in or were associated with, a number of companies (collectively, 'the Johnson Group'), each of which played a role in the implementation or maintenance of the schemes.

25 Corindi Blueberry Growers Pty Ltd ('CBG') acquired and developed the blueberry farm and tourist complex at Blueberry Hill, Corindi in New South Wales. Messrs A J and F E Johnson were directors of CBG in 1987. Investors, by paying CBG, purchased an interest (typically a licence for a 12 year term) in the blueberry farm project.

26 The investors were responsible for maintaining and harvesting the blueberry crop. They engaged another Johnson Group company, Johnson Farm Management ('JFM'), to perform that role, in return for a management fee to cover maintenance and harvesting services. Although prepayment of the management fee was not mandatory, it had the advantage of a discount and tax deductibility was expected.

27 Messrs A J and F E Johnson were directors of JFM in 1987. According to the company search in evidence, the date of F E Johnson's appointment was unknown. He ceased to hold office on 24 June 1988.

28 Under the schemes, the investors owned the blueberry fruit produce, which they sold to another Johnson Group company 'Kathleen Drive Store Fruit Growers Syndicate No 1' trading as 'Johnson Farms' ('the Buyer') for a guaranteed price for five years, after which the proceeds of sale were to be shared between the investors and CBG, with the investor retaining the capital interest in the project. According to a company search of the Buyer, A J Johnson was appointed as director on a date unknown and ceased to hold that office on 1 September 1995. F E Johnson was also a director of the Buyer.

29 Although it was not mandatory, the prepayment could be borrowed from another Johnson Group company, Rural, in which case the investor would endorse in favour of JFM the Rural cheque for the principal drawn in the investor's favour. Rural was registered in 1983. In 1987, its directors were A J and F E Johnson.

30 The investors party to these appeals financed their investments by loans from Rural. Rural lent the investors for five years the prepayable maintenance and harvest charges together with the interest payable under the loan, on advantageous terms. The loan agreements relevant to the appeals, while not identical, were similar. Pursuant to the loan agreements, Rural advanced funds to the investors as follows:[15]*

31 The trial judge described the operation of the schemes as follows:

A particular feature of these schemes and the feature which gives rise to this litigation, is that the Johnson Group also offered finance to investors on very attractive terms. In short, Rural Finance Pty Ltd, a company registered in 1983 whose directors in 1987 were Mr AJ Johnson and Mr FE Johnson, would lend to the investors for five years the amount of the maintenance/harvest charges to be pre-paid to JFM and the interest payable under the loan. The only outlay required of the borrower personally was two relatively small capital repayments. The loan also provided that the guaranteed proceeds of the harvest sales over the first five years would be applied to repay the balance of the loan, including the pre-paid interest. The expected result of this was that the investor, for this modest outlay, would receive a tax deduction to the full value of the loan and interest and the prospect of further farm income after five years and, ultimately, the capital value of the interest in the project.[16]

32 His Honour found that the relevant investors made the following payments under the loan agreements:[17]

33 His Honour described the failure of the schemes and the associated Johnson Group companies thus:

It seems that the Blueberry Hill project encountered financial difficulties, for the company extracts show that on 10 January 1991 the plaintiff, Equuscorp Pty Ltd ("Equus"), registered charges over the assets of CBG, JFM, Rural Finance and the Buyer. On 29 August 1991, Equus appointed Phillip Arthur Hennessy of KPMG Peat Marwick in Brisbane and Michael Joseph Dwyer of McGrath Nicol + Partners in Adelaide receivers and managers of the assets of Rural Finance[18] and on 14 March 1993 Mr Hennessy and Alexander Robert McKay McIntosh of McGrath Nicol + Partners were appointed receivers and managers of the assets of JFM, CBG and the Buyer.[19] On 6 March 1996, Rural Finance was wound up pursuant to resolution of its creditors at a meeting convened under s. 439A of the Corporations Law.

On 30 October 1997, Rural Finance assigned to Equus its loan contracts with the investors. The face value of these 638 loans as at 30/8/1997 was $52,584,005. The consideration given for the assignment was $500,000.[20]

34 Surprisingly, given the nature of the claims, this Court had limited evidence about the failure of the schemes and the associated companies, and the financial consequences for the investors. In the course of the hearing, counsel for both parties supplemented the evidence with unchallenged information. Senior Counsel for Equus informed us that Equus obtained fixed and floating charges over the assets of all companies in the Johnson Group in order to secure advances made to Johnson Group companies.

35 We were informed that the last proceeds of sale of the blueberries produced on the farms were paid in June 1991. Thereafter, the proceeds of sale ceased to be applied to the reduction of the investors' liability under the Rural loans.

36 In October 1995, in reliance on its priority security, Equus caused the blueberry farm to be sold.

37 Counsel for the investors informed us (and it was not disputed) that the investors 'lost their money, lost their investment'. The investors' interests under the schemes (usually a 12 year licence, or a lease over the land on which the blueberries were being grown) were lost, because 'such interests as they had were charged to Rural [which] assigned those charges to Equus[corp], Equus[corp] has enforced them and it is all gone ...'.

38 In summary, the investors were typically licensees or lessees whose interests in, and capacity to farm the land, were effectively determined when Equus enforced the charges it held over the assets of the relevant Johnson Group companies, including Rural, the lender/mortgagee. Rural did not enforce its securities over the investors' interests. We were informed that the priority rights of Equus pursuant to the deed of charge over Rural's assets precluded that course.

39 Before us, there was also little evidence about the financial impact of the failure of the schemes on the investors. Although it was common ground that the investors expected the schemes to secure, inter alia, the advantage of tax deductions against their non-farm income, there was no evidence of whether any investor received any and if so what taxation benefit from participation in the schemes.

40 On 16 May 1997, an agreement styled an Asset Sale Agreement was entered into between the Rural receivers on behalf of Rural as vendor and Equus as purchaser, whereby Rural sold the investor loans described in the schedule to the agreement.

41 On 30 October 1997, pursuant to the Asset Sale Agreement, Rural, by its receivers, executed a deed of assignment by which the rights of Rural in the loan agreements were assigned to Equus.

42 In 1998, Equus commenced proceedings against investors, including those party to these appeals, to recover the principal and interest allegedly due under the loan agreements.

43 Equus's primary claim below was in contract for recovery of the balance and interest payable under the loan agreements. The investors advanced both common and individual defences to the debt claims.

44 First, the investors contended that the assignments of the debts were ineffective, as the schedule to the deed of assignment was illegible. His Honour rejected that contention.

Express Non-recourse Term - whether benefit lost

45 Secondly, the investors contended that the loans were non-recourse and their liability was limited to the payment of two instalments of principal, either by reason of an express term in five loan agreements made prior to 1989 [Bassat 5084, CWS 5189, CWS 8277, CWS 5223 and Haxton 5261] or implicitly, in the three 1989 loan agreements [Bassat 4540, Haxton 5154 and CWS 4989].

46 Equus conceded that five loan agreements contained non-recourse provisions, but contended that the relevant investors had failed to secure the benefit thereunder, because they had not satisfied the precondition of timely payment of the two instalments of principal due by the specified dates.

47 His Honour found that in four of the five express non-recourse loan agreements, there was late payment, resulting in a failure to secure the benefit of the express non-recourse provisions. His Honour concluded as follows:

• Bassat 5084 (June 1987 loan agreement): the payments of principal were punctual, so the investors had the benefit of the non-recourse provision.
• CWS 5189 (June 1987 loan agreement): the payments of principal were late. The precondition of immunity under the non-recourse provision was not satisfied.
• CWS 8277 (January 1988 loan agreement): the payments of principal were late. The precondition of immunity under the non-recourse provision was not satisfied.
• CWS 5223 (June 1988 loan agreement): one repayment was not made by the due date. The precondition of immunity under the non-recourse provision was not satisfied.
• Haxton 5261 (June 1988 loan agreement): one repayment was not made by the due date. The precondition of immunity under the non-recourse provision was not satisfied.

His Honour rejected the investors' alternative submission that (if the benefit of the non-recourse provision was not secured, due to late payment), Rural had nevertheless waived the late payment, through conduct including: failure to notify the investor that the protection of the non-recourse provision was lost; failure to enforce the security; continued acceptance of payments from the sale of farm produce; acceptance of a lower interest rate; and sending letters to investors stating that they were not personally liable.

48 His Honour also rejected the investors' submissions in Bassat 4540, Haxton 5154 and CWS 4989 that although the loan agreements contained no express non-recourse provision, a non-recourse term was to be implied.

49 In CWS 5223 (entered into on 28 June 1988) and CWS 4989 (entered into on 28 June 1989), the investors alternatively contended that they had the benefit of a release.[21]

50 In CWS 5223, his Honour rejected the 'remarkable'[22] argument that a statement in Rural's letter to the investor (after the non-recourse entitlement had already been lost) that the relevant repayment was a 'final loan repayment' operated as a release from any other loan repayment if the December instalment were paid early. That holding is the subject of a Notice of Contention by the investor.

51 In CWS 4989, however, his Honour accepted that a document entitled 'guarantee' dated 29 June 1989, apparently executed with the common seals of JFM and Rural, operated as a release. He rejected Equus' argument that the guarantee was invalid because, inter alia, it was not executed by Rural and lacked good consideration. That holding is the subject of an appeal by Equus.

52 The investors also argued that Equus' causes of action were statute-barred in the five following cases:

53 The investors' limitation defence depended on the acceleration of liability to pay the entire principal and interest under cl 7 of the loan agreements by reason of late payment of instalments of capital.

... The defence then depended upon the cause of action arising prior to 25 February 1992 or 27 March 1992. In each case the loan fell due for repayment five years after the date of the loan so that the cause of action arose in 1993 or 1994, within the six year limitation period. The point taken on behalf of the investors was that, in each of these loans, the late payment of one or both of the specified repayments of capital was a default which triggered the acceleration clause so that the principal and interest became immediately due and payable in 1988 or 1989 on the date of the default. The relevant conclusions which I have reached with respect to each of these five loans are as follows:

CWS 5223 The payment of principal due on 29 September 1988 was late.

Haxton 5261 The payment of principal due on 29 December 1988 was late.

Bass[at] 4540 [sic] No payment of principal was late.

Haxton 5154 The payment due on 30 November 1989 was late.

CWS 4989 The payments due on 28 September 1989 and 28 December 1989 were both late.

In each case no payment of principal and interest from the proceeds of sale was made after 30 June 1991.[23]

55 The acceleration provision, which was in similar language in each of the default clauses, provided as follows:[24]

Subject to all other provisions hereof should the Borrower make default hereunder as to payment of interest or the Principal Sum or any part thereof then the balance of the Principal Sum together with any outstanding interest shall thereupon immediately become due and payable by the Borrower to the Lender and may be sued for and recovered by the Lender in any court of competent jurisdiction. PROVIDED HOWEVER that this Clause 7 shall apply to the following defaults and no others:

(i) a failure by the Borrower to repay to the Lender the sums referred to in (i) and (ii) in Part B of Schedule 2, and

(ii) a failure to repay or pay any balance of the Principal Sum and any interest out of the income received by the Borrower from the Farm during the first five (5) years of the Lease in accordance with Clause 3C(ii) hereof.

56 The trial judge rejected Equus's argument that, due to days of grace, there was no default activating the acceleration clause. The word 'immediately' indicated, in his view, that there were no days of grace.[25]

57 His Honour also rejected Equus's following arguments against the limitations defence:

(a) The loan agreement was a speciality (deed) and thus had a 15 year limitation period. (The trial judge held that the loan agreements did not bear the hallmarks of a deed.)

(b) Rural waived the default by its subsequent receipt of principal and interest. (His Honour held that such receipt was not inconsistent with default.)

(c) The investors had taken no steps to rescind the loan agreements and sought tax advantages therefrom, thereby affirming and ratifying the loan agreement, so that time did not run. (The trial judge found that argument hard to understand, unsupported by submissions and dependent on unevidenced factual assertions.)

58 His Honour concluded that the obligation to repay was accelerated, so that the limitation defence was made out, in all save Bassat 4540 (in which he found no late payment).

59 The trial judge also found that the investors' interests in the Blueberry Hill blueberry project were prescribed interests within terms of s 5(1) of the Code, the offer of which to the public was prohibited by s 170 of the Code unless accompanied by a prospectus lodged with the National Companies and Securities Commission. Only Haxton 5261 and CWS 5223 had a prospectus.

60 The trial judge found that all the investments were offered to the public within the meaning of s 5(4) of the Code. He found that in CWS 5223, the prospectus was ineffective, due to a discrepancy between the interest it described and the interests offered and purchased, the failure to appoint a trustee and the identity of the manager. His Honour concluded that the offer of the investments in all save Haxton 5261 breached s 170 of the Code for want of any or any complying prospectus. They were therefore illegal and unenforceable against the investors. His Honour found that the unenforceability also attached to the loan agreements under which finance was provided for the schemes, because, on the basis of McGarvie J's analysis in O'Brien v Melbank Corporation Ltd, ('O'Brien')[26] the loan agreements were not severable from the illegal transactions. Each of the investors had prepaid and borrowed the management fee from Rural. His Honour found that, although each loan agreement was technically severable, the loan would not have been offered or taken up unless it were part of the scheme, and it could not be inferred that 'a fair and reasonable person in the position of the investor and Rural Finance respectively would intend that the loan might stand when the rest of the scheme fell away'.[27]

61 His Honour concluded that, because no loan agreement was severable, all (save for Haxton 5261) were unenforceable against the investors on the ground of illegality.

62 Although Haxton 5261 was not unenforceable against the investor for illegality, his Honour found that it was statute-barred. (That conclusion also applied to CWS 5223, CWS 4989 and Haxton 5154.)

63 His Honour set out his conclusions on the debt claims as follows:

The result of this is that each of the debt claims has failed. In summary, this is for the following reasons.

• Bassat 5084 investor is protected by the non-recourse agreement and, in any event, the loan agreement is unenforceable for illegality.
• CWS 5189 the loan agreement is unenforceable for illegality.
• CWS 8277 the loan agreement is unenforceable for illegality.
• CWS 5223 the loan agreement is unenforceable for illegality and is statute-barred.
• Haxton 5261 the loan is statute-barred.
• Bassat 4540 the loan agreement is unenforceable for illegality.
• Haxton 5154 the loan agreement is unenforceable for illegality and the claim is statute-barred.
• CWS 4989 the loan agreement is unenforceable for illegality, it has been released by the guarantee dated 29 June 1988 and the claim is statute-barred.[28]

64 The trial judge thus held that all loan agreements save Haxton 5261 were unenforceable against the investors for illegality and, in many cases, on additional bases.[29] Haxton 5261, although not illegal, was statute-barred.

65 In the seven illegal loan cases, his Honour's conclusions on the debt claims remained relevant to Equus's alternative claim in restitution for money had and received, pursuant to which it sought to recoup (after making due allowance for repayments of principal) the money Rural advanced to the investors. As discussed below, his Honour thought that the terms of the illegal contracts were relevant to whether retention of the loan moneys was unjust.

66 The trial judge held that the investors' obligation to make restitution was independent of, and survived, the unenforceability of the loan agreements; and, by cl 2 of the deed of assignment dated 30 October 1987, Rural's causes of action in restitution (as well as the debts) were assigned to Equus for $500,000.

1. The assignment is an absolute assignment intended to take effect immediately as a legal assignment of, inter alia,

(a) the legal right to such debts, interests under the guarantors [sic] and its interests under the securities and all interest due and becoming due on the debts.

(b) all legal and other remedies for these matters in the preceding sub-paragraph (a).

(c) the power to give good discharge for those matters referred to in sub-paragraph (a) without the concurrence of Rural.

His Honour concluded that the terms of clause 2(b) were sufficiently broad to encompass restitutionary claims associated with the rights of Rural under the loan agreements.

68 At trial, it was not disputed, and his Honour assumed, that assignment was available as a matter of principle. He did not address the possibility that such restitutionary claims were incapable of assignment, that any limitations applied to their assignment or consider whether an assignment (including its circumstances and terms) could have an impact on the availability or extent of restitution.

69 At trial, it was common ground that the investors had terminated the loan agreements by filing defences to Equus's claim in 1999. His Honour did not, however, accept that contention. He noted that the investors did not plead the right to terminate, or its exercise, by the filing of defences.

70 His Honour reasoned that the investors had obtained the benefit of the money advanced by Rural, which had suffered a corresponding disbenefit. His Honour stated:

... I am satisfied that Rural Finance expressed in the deed of assignment its intention to pass to Equus all of its rights and remedies under and in connection with the loan agreements and that these include any right to restitution which may arise from the payment of the loans to the investors.[30]

71 The investors argued that Rural did not suffer a 'disbenefit' from making the advance, due to the 'round robin' nature of the scheme transactions. His Honour dismissed that contention on the basis of the decision of the High Court in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd ('Equuscorp v Glengallen')[31] which established that the legal effect of the loan transaction was determinative.

72 The investors alternatively relied on Australia and New Zealand Banking Corporation v Westpac Banking Corporation ('ANZ v Westpac')[32] (in which a recipient bank disbursed a mistaken overpayment by ANZ to Westpac's customer) to argue that they derived no benefit from the money advanced, because the loan moneys were destined for JFM in fact, and when they endorsed cheques to JFM, they changed their position to their detriment, in reliance on the validity of the schemes and the enforceability of their constituent agreements.

73 His Honour considered that ANZ v Westpac (albeit a case of payment by mistake) established there is no obligation to make restitution if a party receives a payment either as agent for an undisclosed principal, or as principal, but as a 'mere conduit pipe',[33] in circumstances where the money is destined for another and is in fact passed on.

74 The trial judge concluded that, while the principles of ANZ v Westpac could preclude the restitution of payments made under an unenforceable loan agreement, the present cases were different, because (although all parties knew that the cheques would be endorsed in favour of JFM) the investors were not contractually obliged to endorse them in that way. The investors, in such circumstances, were not mere intermediaries. Rather, they received the benefit of the receipt of the funds.

75 The trial judge considered that a 'change of position' defence sat uneasily with the facts of the case, 'where money [was applied], as all intended, in pursuance of a transaction which was seen as beneficial'[34] as distinct from a case where the defendant was the innocent recipient of funds mistakenly paid.

76 The investors also argued that Equus's restitutionary claim based on unjust enrichment was not made out, because their retention of the loan moneys did not offend equitable notions of 'good conscience' where the loan payments were made as part of an illegal transaction and the lender's own illegal conduct lay behind Equus's claims.

77 His Honour noted that the authorities disclosed different views on whether restitution was available for loan moneys or other payments illegal due to breach of the prescribed interest provisions.

78 He followed the approach of the Full Federal Court in Australian Breeders Co-operative Society Ltd v Jones and Others,[35] ('Australian Breeders Co-operative Society') which held that illegality under a provision analogous to s 170 of the Code did not preclude the lender's claim for restitution of loan moneys from the investors.

79 His Honour considered that the primary focus of attention was the circumstances at the moment of enrichment. He held that the fact that the loan contracts were unenforceable (at the moment of the enrichment) could affect the determination of whether the benefit was conferred gratuitously. Further, he considered that the terms of the unenforceable contracts (including whether the loans were non-recourse) were relevant.

In the present case the lender seeks restitution for the benefit of the loan accepted by the investors. Whether the retention of that benefit by the investors is unjust cannot be determined without regard to the terms of the unenforceable contract. If, for example, Rural Finance lent money on terms that the principal was not repayable, it could not be said that the borrowers' failure to repay was unjust. And so, notions of fairness and good conscience in the investors must have regard to circumstances such as those attending their receipt of the sum advanced. But, if it is necessary to have regard to this, does this mean that the terms of the contract, which are not enforceable against them, may be brought to account in the restitution claim against the investors? I think it must.[36]

81 His Honour concluded that (as a matter of principle) -

(a) If there were a non-recourse term (as in Bassat 5084) (the benefit of which remained on foot), then restitution was not available.

(b) If there were a non-recourse term, but its benefit had not been secured because a precondition such as timely payment was not fulfilled, nevertheless, the relevant investor was not liable to pay more than the two capital payments when it entered the loan agreement and received the benefit of the loan moneys. Although such an investor subsequently lost the benefit of the non-recourse provisions, its conscience would not be affected if, at the time of receipt of the loan funds, there had been no obligation to repay them. If subsequent events gave rise to a corresponding contractual obligation to repay the loan, the obligation would be seen as contractual, unless the circumstances gave rise to another right.

82 In the cases where the loan agreements had no non-recourse provision (Bassat 4540, Haxton 5154 and CWS 4989) his Honour concluded that Equus had a good claim in restitution. In the case of CWS 4989, however, there was a release, so Equus's claim failed on that basis.

83 His Honour concluded that the 'guiding principle' was that, where there was an advance conferring a benefit at the lender's expense under an unenforceable contract, so much as remained unpaid was recoverable in restitution, unless the borrower could point to a term of the loan agreement which, (if enforceable), would make a failure to repay 'not unjust'.

The solution which, as a matter of principle, I will adopt in this case is that a lender under an unenforceable contract, by paying the principal sum to or at the direction of the borrower, conferred a benefit upon the borrower at the lender's expense and that this principal, or so much as remains unpaid, is recoverable in restitution unless the borrower is able to point to a term of the loan agreement which, if enforceable, would have the consequence that its failure to repay the principal is not unjust.[37]

85 Equus did not challenge the trial judge's findings that: seven of the eight loans at issue in the appeals were illegal and unenforceable, because they were not severable from transactions made in breach of the prescribed interest provisions of the Code; the loans would not have been offered or taken up had they not been part of the schemes; and the parties did not intend the loan agreements to stand if the schemes fell away.

86 It was also common ground that authorities such as Amadio Pty Ltd v Henderson ('Amadio v Henderson')[38] established that a breach of the prescribed interests provisions did not necessarily preclude the restitution of moneys advanced on a loan contract which was illegal and unenforceable, because non-severable from transactions made in breach of the statutory requirements.

87 On appeal, Equus claimed in restitution the unpaid balance of the loan moneys together with reasonable interest, rather than interest at the rates specified in the unenforceable contracts.

88 At trial, Equus' restitutionary claims were advanced as merely subsidiary and alternative to the debt claims. Counsel acknowledged that the basis of the restitution claim was only loosely argued below, and no category or particular ground of unjust enrichment was identified. The learned trial judge was not assisted by the detailed submissions and voluminous authorities advanced before us.

89 Before us, Equus acknowledged that restitution or unjust enrichment was not a recognised legal principle sufficient in itself to found a cause of action. Rather, the authorities, while recognising the potential for extension to novel contexts, generally required the claim to be framed within an established category of vitiating factors.

90 In reliance on Roxborough v Rothmans of Pall Mall Ltd ('Roxborough'),[39] Westdeutsche Landesbank Girozentrale v Islington London Borough Council ('Westdeutsche'),[40] Australian Breeders Co-operative Society and Amadio v Henderson, and like authorities, Equus submitted that in the present case, the applicable category of restitution was a total failure of consideration. Rural's receipt of payments and interest before the failure of the schemes did not preclude reliance on total failure, because in the restitution context, the consideration bargained for was not performance but legally enforceable rights to be repaid principal and interest secured by enforceable securities according to the contractual terms. Rural received no such rights, either because they never existed or because they ceased to exist 'because of the avoidance ab initio' by the borrower.

91 Equus argued that (given that the investors could enforce the loan contracts under s 174(2) of the Code), until they terminated the loan contracts by the filing of the defences, they were obliged to fulfil the obligations thereunder. When the investors elected to avoid the loan agreements, there was avoidance ab initio and the lender was therefore entitled to the return of its loan moneys, which was best accomplished by set-off. Equus conceded that its advocated analysis had not been adopted in any relevant authority. It relied, however, on Australian Breeders Co-operative Society, where the Full Federal Court, in reliance on Westdeutsche, considered that, in principle, the lender was entitled to the restitution of its loans, the quantum of which should be calculated by deducting from the original loan the establishment fee and all capital repayments reducing the loan balance. That approach was said to illustrate the Westdeutsche principle of restitution and counter-restitution, which, practically speaking, could be achieved in the present case by set-off.

92 Equus submitted that as a matter of inference the courts in the prescribed interest cases analysed the unenforceable loan contracts as avoided ab initio because they embarked on the exercise of returning both parties to their pre-agreement position. Further, those cases made clear that the receipt of some loan repayments were not inconsistent with a total failure of consideration.

93 Equus submitted that the avoidance ab initio analysis fulfilled the protective aims of the prescribed interest provisions, as otherwise, an illegal loan contract would be terminated only for the future. The intended legislative protection would then not be secured. The investor's protection would depend on the time at which it realised that a breach had occurred, or on the extent to which it had fulfilled its own obligations.

94 Equus nevertheless acknowledged that, on its analysis, the investors in this case gained no obvious advantage in terminating the loan agreements, as prior to termination they could not be compelled to restore or repay anything, while after termination they would be required to do so.

95 Equus further submitted that Rowland v Divall[41] and David Securities Pty Ltd v Commonwealth Bank of Australia ('David Securities')[42] supported an analysis of total failure of consideration in the present case. Further, Westdeutsche had overruled the long criticised holding in Sinclair v Brougham[43] that a void contract could not be, in effect, enforced by allowing a claim for money had and received in quasi-contract. Equus could therefore obtain restitutionary relief even if it were tantamount to enforcement of the illegal contract.

96 Equus argued that regard could be had to the terms of the unenforceable contract only to establish that a gift was not intended and the trial judge therefore erred in holding that the restitutionary claim could be determined by reference to whether, under the terms of the loan contracts, any moneys were payable at the date of the enrichment by receipt of the loan funds. Equus submitted that his Honour's approach ignored the restriction in Pavey. It was also inconsistent with Roxborough, in which (although the contract of sale was not avoided and there was no implied term that the retailer be repaid if the tax proved unlawful), recovery was permitted on the basis of total failure of consideration. Equus further submitted that even if it were correct in principle to determine entitlement to restitution by reference to whether any sum were payable under the terms of the unenforceable loan contract, his Honour erred in holding that nothing was payable at the date of the advances in the case of the express non-recourse loans because immunity was not assured, but rather, dependent upon satisfaction of the condition of timely payment of the two instalments of principal. Further, under the loan contracts a requirement for additional payments from the proceeds of sale of the fruit also applied.

97 Equus submitted that Roxborough also supported the proposition that there was a total failure of consideration once the lender was found not to have a contract which entitled it to be repaid, because it had lost the rights which were the basis for payment. Equus argued that in Roxborough, the High Court looked to severance only because the contracts in that case had not been avoided, terminated or fully performed. Instead, the underlying substratum or contemplated state of affairs had fallen through, as in Muschinski v Dodds.[44] Even where there was attributable blame, Roxborough permitted the application of the Muschinski v Dodds principle, as the analogy need not be complete. It was therefore irrelevant if, in the present case, the party unlawfully promoting the scheme and the lender were essentially 'one and the same'.

98 Equus submitted that the English 'swap' cases[45] also supported the analysis of a void agreement requiring restoration of the parties to their original condition, as in Amadio v Henderson. It submitted that the Court of Appeal in Westdeutsche[46] held that, as the bank bargained for an enforceable right to have the entire agreement performed, there was a total failure of consideration, despite some payments of interest.

99 Equus ultimately submitted that it was entitled to restitution whether the loan contracts were void from the outset or subsequently avoided ab initio. The investors did not receive the loan funds as a mere conduit[47] and were enriched even if their investment in a third party transaction turned out badly.

100 The investors submitted that Rural's restitutionary claims, if established, were inherently unassignable or at least, were not effectively assigned by the deed of assignment.

101 The investors also submitted that Rural had no claim to restitution, whether in the category of total failure or otherwise, because the practical effect of the scheme transactions was that the investors received no benefit. They did not effectively receive a loan, but, at most, gained entry into an investment which failed, resulting in a total loss of their interests.

102 In Pavey, the High Court made clear that restitution of money paid in connection with an unenforceable contract is not based on implied or quasi-contract but an obligation imposed by law. The High Court re-evaluated the jurisprudential basis of actions for money had and received under unenforceable contracts. It rejected the hitherto widely received view that recovery in actions of indebitatus assumpsit for executed work, payments or transfers of property made under unenforceable contracts was founded on quasi-contract. Instead, Deane J (with whom Mason and Wilson JJ agreed) endorsed the opinion of Goff and Jones,[48] that 'the obligation to make payment for an executed consideration given and received under an unenforceable contract should now be accepted as lying in restitution or unjust enrichment'.[49]

103 In Pavey, a licensed builder carried out building work for which, under an oral contract, the owner was to pay a reasonable remuneration based on prevailing industry rates. The contract was unenforceable by, but not against, the builder, because it was neither in writing nor signed by the parties, as required by applicable legislation. At first instance, the trial judge determined that the legislation did not preclude the builder from recovering recompense for its work on a quantum meruit. The Court of Appeal held that such action would be to enforce the contract, contrary to the legislation.

104 The High Court (Mason, Wilson, Deane and Dawson JJ, Brennan J dissenting), held that the builder was entitled to recompense for its work in quantum meruit 'on a claim to restitution or one based on unjust enrichment'.[50] Deane J analysed the nature of the defendant's obligation for benefits rendered under an unenforceable contract thus:

In such a case, the underlying obligation or debt for the work done, goods supplied, or services rendered does not arise from a genuine agreement at all. It is an obligation or debt imposed by operation of law which "arises from the defendant having taken the benefit of the work done, goods supplied, or services rendered...[51]

To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unenforceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case: see Muschinski v Dodds [125]; Goff & Jones, op cit, p 11ff. In a category of case where the law recognizes an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, as is pointed out subsequently in this judgment, also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case.[52]

106 It followed, his Honour said, that an implied contract analysis was fundamentally flawed and reflected, inter alia, discarded fictions, buried forms of action and the conventional tendency to characterise as contractual any common law claim that was not a tort.

107 Deane J observed that where there was either no genuine agreement or an agreement which was frustrated, avoided or unenforceable, the 'agreement' could provide the occasion for, and part of the circumstances giving rise to, the imposition by the law of the obligation to make restitution. His Honour distinguished between a remedy for the independent obligation and enforcing the contractual terms, but considered that the fact that the restitutionary action was founded on an independent obligation 'does not mean that the existence or terms of the [unenforceable] contract are necessarily irrelevant'.[53] In such an action, the contractual terms could constitute evidence of whether the conduct in question was done gratuitously and in claims for money lent or paid 'the obligation to make restitution' would in many cases 'plainly involve the obligation to pay the precise amount advanced or paid'.[54]

108 Deane J thought that circumstances giving rise to an obligation arose had been explored in reported cases and commentary and it was unlikely to make much difference in practice whether it was founded in quantum meruit or restitution.

Once the true basis of the action on a quantum meruit is established, namely execution of work for which the unenforceable contract provided, and its acceptance by the defendant, it is difficult to regard the action as one whereby the plaintiff seeks to enforce the oral contract.

True it is that proof of the oral contract may be an indispensable element in the plaintiff's success but that is in order to show that:

(a) the benefits were not intended as a gift, and

(b) that the defendant has not rendered the promised exchange value ...

The purpose of proving the contract is not to enforce it but to make out another cause of action having a different foundation in law.[55]

110 While the High Court in Pavey articulated the fundamental principles of restitution and unjust enrichment underlying the diverse manifestations of the money counts, it recognised that ordinarily they operated in established categories.

111 In a series of subsequent cases the High Court confirmed that unjust enrichment and restitution do not themselves constitute a cause of action but rather explain the availability of relief in a number of different circumstances.

112 In ANZ v Westpac, the ANZ Bank, due to a clerical error, telegraphically transferred to Westpac Bank for the credit of an overdrawn customer the sum of $114,158.20, instead of the intended sum of only $14,158. Westpac applied all but approximately $17,000 to reduce the customer's overdraft, before being apprised of the error. It recovered only a small amount from the customer, which went into liquidation.

113 Westpac conceded that had it been alerted to the mistaken payment before dealing with the moneys, it would have been obliged to repay the entire $100,000 excess. Before the High Court, Westpac contended that it received the money as agent for the customer prior to notice of the mistake. In their joint judgment, Mason CJ, Brennan, Deane, Toohey and Gaudron JJ, in reliance on, inter alia, Pavey, noted that the common law action for money had and received for recovery of money paid under a mistake of fact was based not in implied contract, but in restitution or unjust enrichment. Their Honours stated:

... [I]n other words, receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment.[56]

114 Their Honours recognised that although the contemporary legal principles of restitution or unjust enrichment could be equated with 'seminal equitable notions of good conscience'[57] and the traditional language of trust was used, the action was nevertheless:

[A] common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g, that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognizes would make an order for restitution unjust.[58]

115 Their Honours also recognised that although the payee would ordinarily be the person unjustly enriched, if the money were received by an intermediary, there could be uncertainty about which party received the benefit at the moment of payment. If the intermediary who initially received the benefit handed it on to a principal or other third party, the intermediary could be seen as a mere conduit whose prima facie liability was displaced.

116 Their Honours concluded that Westpac had a good defence to the extent to which, on its customer's behalf, it paid out the proceeds of the payment before receiving notice of the ANZ's mistake. By that time, Westpac had irretrievably paid out a large proportion of the overpayment in honouring cheques drawn on it.

117 The plurality in David Securities acknowledged that the decisions in both Pavey and ANZ v Westpac rejected the view that 'unjust enrichment is a definitive legal principle according to its own terms and not just a concept'.[59] Their Honours stated:

Accordingly, it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality.[60]

118 The plurality recognised that before the prima facie obligation to make restitution was displaced, the recipient 'must point to circumstances which the law recognizes would make an order for restitution unjust. There can be no restitution in such circumstances because the law will not provide for recovery except where the enrichment is unjust. It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of defence any matter or circumstances which shows that his or her receipt (or retention) of the payment is not unjust.'[61]

119 In Roxborough, Gummow J acknowledged that it was difficult to identify the doctrinal basis of the action for money had and received because the common money counts had 'occupied an uneasy position in the legal system between the three great sources of obligation in private law, tort, contract and trust'.[62]

120 Gummow J stated (citing Mason CJ in Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd[63]) that, unlike tort, the action was not compensatory for loss or damage and 'was not defeated simply because the plaintiff had recouped the outgoing from others'.[64] The doctrinal objection to a 'passing on' defence was, his Honour said, the unconscientious conduct of the defendant in refusing to account to the plaintiff.[65]

121 Gummow J acknowledged a need for 'caution in judicial acceptance of any all-embracing theory of restitutionary rights and remedies founded upon a notion of "unjust enrichment"'.[66] His Honour approved Justice Paul Finn's extra-judicial caveat that the concept of unjust enrichment could 'contrive legal analysis' and adopted Justice Finn's statement that:

[T]o the extent that [the concept of unjust enrichment] directs attention to outcomes and to the character to be attributed to them, it is capable of concealing rather than revealing why the law would want to attribute a responsibility to one party to provide satisfaction to the other. This is particularly so where, as is so often the case, it is conduct in a relationship or dealing -- an expectation created and relied upon; a mistake not corrected; etc -- which provides the focus of legal attention and which generates the issue of legal policy for which resolution is required. This, I suspect, provides the reason why "unconscionable conduct" and not "unjust enrichment" (a possible effect of that conduct) has achieved the currency it has in Australian law.[67]

122 Gummow J observed that unjust enrichment was not a synonym for the refusal to pay money against conscience in money had and received cases, because clearly the action also lay against defendants who were not on any view enriched.

123 His Honour considered that a case-by-case evolution or development was preferable to 'top-down' reasoning, in which theory came first.[68] In the light of such considerations, Gummow J stated that unjust enrichment should be regarded as a concept, rather than a definitive legal principle. His Honour considered that preferably, the rules and remedies of restitution should develop in accordance with its auxiliary and gap-filling role to avoid unjust results in specific cases.

124 His Honour analysed Lord Mansfield's judgment in Moses v Macferlan.[69] His Lordship there described the action for money had and received as 'lying in numberless instances', the question being whether 'the defendant may retain it with a safe conscience'.[70] He stated that 'the gist of this kind of action [is] that the defendant, upon the circumstances of the case is obliged by the ties of natural justice and equity to refund the money'.[71]

125 Gummow J considered that Pavey had reinvigorated the flexible translation of equitable and civilian notions to common law actions. His Honour stated:

Further, in deciding cases such as the present which question the boundaries of the established categories recourse, should be had to the general considerations referred to in Moses v Macferlan.[72]

126 In Lumbers v W Cook Builders Pty Ltd (in Liq),[73] Gummow, Hayne, Crennan and Kiefel JJ, in their joint judgment, stated:

The second point to be noted is that unjust enrichment was identified as a legal concept unifying "a variety of distinct categories of case".[74] It was not identified as a principle which can be taken as a sufficient premise for direct application in particular cases. Rather, as Deane J emphasised[75] in Pavey & Matthews, it is necessary to proceed by "the ordinary processes of legal reasoning" and by reference to existing categories of cases in which an obligation to pay compensation has been imposed. "To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate".[76] On the contrary, what the recognition of the unifying concept does is to assist "in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case"[77].[78]

127 The High Court's post-Pavey elaboration of unjust enrichment signals a caveat against loose applications of overly general principles and associated 'idiosyncratic notions of unfairness'. It appears inconsistent with unjust enrichment as the independent category of law advocated by jurists exemplified by Professor Birks.[79] In Australian law, no general principle of unjust enrichment permits restitution simply because the defendant retains a payment made without any legal basis. Rather, generally speaking, the circumstances must invoke an established category or the claimant must make a case for the extension of relief to a novel context.

128 In the present case, Equus relied upon total failure of consideration. Although total failure of consideration is a well-established category giving rise to a prima facie entitlement to restitutionary relief, its ambit and pre-conditions are uncertain due, inter alia, to the wide variety of diverse cases in which it is invoked and the inconsistent use of central terms, including 'consideration' and 'rescission'. As Professor Birks observed 'the ambiguities have produced something close to intellectual breakdown [as] again and again we slip from one meaning to another without noticing'.[80] Further, the analyses or outcomes of some recent significant cases have challenged pre-existing orthodoxies.[81]

129 Australian courts have predominantly accepted Professor Birks' view that 'after discharge of a contract, the recoverability of any payment made before the completion of the contract is dependent on whether the "state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself"'.[82] In that context, consideration is the benefit the claimant bargained for under the contract or purported contract.[83] While the traditional requirement that the consideration for the payment must have totally failed is frequently, if not universally restated, where the contract is ineffective, the payer's only remedy may be in restitution. In such a case, courts have tended to adopt a more liberal approach to total failure of consideration. Where the payer has received some benefits, the expected consideration or bargain may be so construed that the received benefits do not constitute even a partial satisfaction. Alternatively, the transaction and the consideration may be held to be divisible, leaving a discrete element of the bargain in relation to which consideration wholly failed, despite the claimant's receipt of some payments or benefits relating only to a different component of the transaction. English courts have analysed payments made under a void contract as an absence, rather than a total or partial failure, of consideration.[84]

130 In relation to total failure of consideration, Goff and Jones state:

The proper enquiry is whether the claimant who claims restitution has received any part of the bargained for performance (consideration). If he has and he is not in a position to make counter-restitution, then his restitutionary claim must fail. Conversely, if he has received no part of the consideration, or if it is still possible for him to make counter-restitution in respect of the part which he received, then his restitutionary claim should succeed. In answering the question whether there has been a total failure of consideration, the court must look at the terms of the contract even though it is ineffective.[85]

131 McLure JA has stated extra-judicially[86] that failure of consideration for a payment where the state of affairs contemplated as its basis has failed to materialise or sustain itself 'requires a factual investigation as to the basis or reason for the payment ... ordinarily, the basis would be the performance by the other party of its contractual obligations. In such circumstances, the terms of the contract govern (a) the identification of the consideration for the payment and (b) whether the failure is total or partial'.

132 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited, ('Fibrosa')[87] concerned a claim for restitution of a deposit paid on an initially valid supply contract frustrated due to war. Viscount Simon LC distinguished between consideration in the formation of contracts (where it meant the exchange of promises) and in the context of recovery of money for failure of consideration, where it 'is generally speaking not the promise ... but the performance of the promise. The money was paid to secure performance and if performance fails the inducement which brought about the payment is not fulfilled'.[88]

133 Viscount Simon's statement was approved by the High Court in Baltic Shipping Company v Dillon ('Baltic Shipping')[89] There, the courts below held that the plaintiff was entitled to restitution of her fare for a 14-day pleasure cruise which ended on the tenth day when the ship sank. The High Court held that the plaintiff was not entitled to recover the fare, because, inter alia, there was no total failure of consideration notwithstanding the apparently indivisible nature of the contract.

If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.

In the context of the recovery of money paid on the fact that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration.[90] In that context, the receipt and retention by the plaintiff of any part of the bargained for benefit will preclude recovery, unless the contract otherwise provides ...[91]

135 Deane and Dawson JJ (in their joint judgment) stated that the consideration for which the plaintiff paid the fare:

[W]as not, for the purposes of her action in unjust enrichment, the contractual promise which she received from Baltic. Technically, it can be argued that Baltic's bare promise to provide the pleasure cruise itself represented some consideration for Mrs Dillon's fare and, that being so, it is wrong to say that the consideration for the prepayment wholly failed. As has been said, however, the law of unjust enrichment is concerned with substance rather than technical form

...

Thus, the consideration for which Mrs Dillon paid the fare was the substance of Baltic's contractual promise, namely, the actual provision of the components of the promised fourteen day pleasure cruise.

If all that Mrs Dillon had relevantly received had been Baltic's bare promise, unperformed and unenforced, the consideration for the whole of the fare would have wholly failed. In fact, however, Baltic provided and Mrs Dillon accepted the accommodation, the sustenance, the entertainment and the transport involved in the first eight clear days of the fourteen day cruise ...[92]

Their Honours adopted Lord Wright's observations in Fibrosa[93] and observed that 'ordinarily, however, an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted'.[94]

136 In David Securities, the High Court considered total failure of consideration in relation to a payment made under a contractual provision void due to a mistake of law. In that case, certain borrowers alleged loss occasioned by the respondent bank's misleading and deceptive conduct and contractual breaches in relation to foreign currency loans. At first instance,[95] the borrowers' claim was dismissed and the bank's cross-claim for moneys still due under the borrowing arrangements was successful. On appeal, the Full Federal Court[96] held that a clause of the loan contracts (which required the borrowers to make payments essentially equivalent to a withholding tax otherwise payable by the bank) was void pursuant to s 261(1) of the Income Tax Assessment Act 1936 (Cth). The Full Federal Court nevertheless refused the borrowers recovery or set off of the relevant payments, because traditionally, an action did not lie in cases of payment under a mistake of law.

137 The High Court held that moneys paid under a mistake of law were recoverable. Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, in their joint judgment, noted the uniform academic criticism of the distinction between mistakes of fact and law, to which Pavey's recognition of the 'unifying legal concept' of unjust enrichment added impetus.[97]

138 The plurality acknowledged but did not determine the Bank's argument that failure of consideration was the 'basal principle' underpinning the recovery of money paid under a mistake. They stated: '[i]t is necessary to examine closely the terms of the loan agreement and the course of events preceding its signing in order to discover what the payer gave and expected to receive by way of consideration.'[98]

139 In David Securities, the plurality made the following points in relation to the category of failure of consideration:

• The failure was to be judged from the perspective of the payer and what it thought it was receiving as consideration.[99]

• The law had traditionally disallowed recovery if the payer had received any part of the 'benefit' provided for in the contract.[100]

• The modern 'notion of total failure looked to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact'.[101] Their Honours referred in that context to Rowland v Divall,[102] in which the purchase of a stolen car, which conferred neither property nor the right to possession, was held to give rise to a total failure of consideration, notwithstanding that the purchaser had used the car for several months. They also referred to Rover International Ltd v Cannon Film Ltd (No 3).[103] In that case, the claimant company made substantial prepayments under an agreement to dub and distribute in Italy certain films supplied by the owner, after which the gross receipts were to be split in agreed proportions. The purported contract was void ab initio, as the claimant was not incorporated at the date of its execution. At first instance, it was held, inter alia, that the claimant could not recover the advance payments on the basis of total failure of consideration, because it had received and distributed several films. The Court of Appeal (Kerr and Nicholls LJJ) held that the test was whether the claimant had received 'any part of the benefit bargained for under the contract or purported contract'[104] which for 'present purposes' was the opportunity to earn a substantial share of the gross receipts, rather than delivery and possession of the films.[105]

• Where consideration can be apportioned or counter-restitution is relatively simple, insistence on total failure of consideration could be misleading or confusing.

• Because in the case before them, the parties implicitly acknowledged that the consideration under the loan agreement could be broken up or apportioned, 'any rationale for adhering to the traditional rule requiring total failure of consideration disappears'[106]

• A defence of change of position was necessary in order to 'ensure that [the] enrichment of the recipient ... was prevented only in circumstances where it would be unjust.'[107]

140 In David Securities, Brennan J distinguished between the categories of payment under a mistake and payment made for a consideration that totally fails. His Honour stated that in the former case, the payer's right to recover accrued at the date of receipt, whereas in the latter, 'the payer acquires no right to recover when the payment is received, but only when the consideration totally fails. The very hypothesis which makes it unjust for the payee to retain the payment when the consideration fails is that the payer has received no part of the contractual benefit for which the payment was made'.[108]

141 In contrast to payment made under a mistake, Brennan J stated that:

"Consideration which has totally failed" refers to a benefit under a contract or purported contract that the payee has totally failed to give during the period available for contractual performance.[109]

142 Brennan J therefore categorised the claim in David Securities as payment under a mistake of law. His Honour stated:

[The] borrowers were not obliged in law to pay for that consideration: s 261 so operated. But that is not to the point. The point is that the respective borrowers got precisely what they bargained for but they were not obliged to pay for it. The payment of the tax equivalent was not for a consideration that totally failed; it was paid under the mistake that it was due and payable. The mistake, if mistake there was, arose from ignorance of the operation of s 261 of the Income Tax Assessment Act.[110]

143 In Roxborough, tobacco retailers sought to recover from a tobacco wholesaler a part of the purchase price they paid under supply contracts for tobacco products. The claimed amounts were referable to a licence fee (effectively an indirect tax) imposed by the States, which was subsequently held to be invalid. The licence fee (if valid) was payable by the wholesaler to the revenue authorities. The retailers passed on the relevant amounts to tobacco consumers, so (depending on the outcome of the case) either the wholesaler or the retailers would probably obtain a windfall.

144 A strictly 'orthodox'[111] approach may have precluded restitution on the basis of failure of consideration in the case of a valid, fully-performed contract, in order to avoid subversion of the contractual allocation of risk. The High Court (Kirby J dissenting) nevertheless held that the amounts were recoverable as money received for the retailers' use (common indebitatus) in the category of a consideration that has failed.

145 Gleeson CJ, Gaudron and Hayne JJ (in their joint judgment) held that the tax amounts were recoverable as money paid for a severable part of the consideration which had failed. Their Honours observed that the tax was externally imposed rather than agreed by negotiation. The parties treated the tax amounts as distinct and separate elements.

146 Their Honours held that the 'passing on' of the tax to the retailers' customers did not preclude the claim for unjust enrichment. It was unnecessary that the retailers be impoverished for it to be unconscionable of the wholesaler to withhold the payment. Rather, a subtraction from the retailers' wealth sufficed for the withholding to be seen as unjust enrichment. The retailers had paid the amounts from their own funds and the customers were not legally liable. The critical question was, their Honours thought, who had the superior right.

147 The plurality accepted that failure of consideration for money had and received embraced payments for a purpose which had failed, or on a contemplated state of affairs which had disappeared, as amplified by Deane J in Muschinski v Dodds.[112] Their Honours thought that, in the case of money paid pursuant to a contract, it would be unduly narrow to limit failure of consideration to failure of contractual performance. They considered that although the amounts referable to the tax were, on one view, part of the amount to be paid for delivery of the products, they were not merely an agreed part of the price or part of one indivisible sum impossible to apportion. Rather, it was possible to identify that part of the final agreed sum attributable to a cost component and to conclude that the circumstances (failure to incur an expense) had resulted in a failure of a severable part of the consideration.

The appellants rely upon the principle encapsulated by Viscount Haldane LC in Royal Bank of Canada v The King.[113] In a passage later adopted by Lord Wright,[114] his Lordship said:[115]

"It is a well-established principle of the English common law that when money has been received by one person which in justice and equity belongs to another, under circumstances which render the receipt of it a receipt by the defendant to the use of the plaintiff, the latter may recover as for money had and received to his use. The principle extends to cases where the money has been paid for a consideration that has failed".[116]

149 Gummow J observed that in Roxborough, the retailers agreed to pay both components of the purchase price in exchange for the supply of the goods, but the payment of the licence fee component was subject to a further term that the wholesaler would so act that the retailers would not bear the fee if it remained in business and renewed its licence.[117] When the tax was held to be invalid, 'the result was held to be that the [retailers] had paid money on a basis that later became falsified'.[118]

150 In Roxborough, Gummow J acknowledged the diverse senses in which the term 'failure of consideration' is used in law, relevantly including, as Professor Stoljar stated:

A much older and specialised sense [to describe] a specific remedy when, upon the collapse of a bargain, the promisee seeks to recover money had and received by the promisor.[119]

151 In Roxborough, the wholesaler (payee) had not failed in performance of the contract, but as Gummow J observed, the emphasis on the performance of a promise in Fibrosa was an unsatisfactory explanation of all cases in the category of failure of consideration. Rather, the question was:

Is it unconscionable for Rothmans to enjoy the payments in respect of the tobacco licence fee, in circumstances in which it was not specifically intended or specially provided that [the wholesaler] should so enjoy them? Here, "failure of consideration" identifies the failure to sustain itself of the state of affairs contemplated as a basis for the payments the appellants seek to recover.[120]

152 Gummow J observed that as a general rule, in the case of partial failure of a contractual promise, a proportionate part of the money paid could not be recovered on an action for money had and received. The restrictive rule was partly explicable by the difficulty posed by an entire obligation in which the consideration for the payment was indivisible, so that an action was not maintainable where the money was not apportioned by the contract nor capable of being apportioned by the court.

153 Gummow J referred to Sir Guenter Treitel's view[121] that unless there were traditional justifications (such as difficulty of apportionment or interference with the contractual allocation of risk) the insistence on total failure of consideration should not apply. If the payer had no other satisfactory remedy for breach in respect of the part left unperformed by the payee or where there was no difficulty in apportionment, restitution might be available.

154 His Honour observed that in Roxborough, the retailers had no contractual remedy in respect of the retention of the claimed moneys and the very form of the relevant transaction indicated that the payments made for delivery of and title to the tobacco products and for the tobacco licence fee could be 'broken up'.[122]

155 In Westdeutsche, a borough council entered an interest swap transaction with a bank, pursuant to which the council received a lump sum payment of £2.5 million from the bank and paid the bank four payments of interest totalling approximately £1.35 million over a three year period. Subsequently, interest swap transactions were held to be ultra vires local authorities. The bank sought to recover the balance of the £2.5 million plus interest, being about £1.145 million.

156 The council conceded that a gift was not intended. Had it been known prior to the first payment of interest that the transaction was ultra vires, it would have been obliged to restore the entire sum, as paid for a consideration which had wholly failed.

157 Hobhouse J at first instance[123] adopted a narrow approach to total failure of consideration. He held that it applied only where a party had failed to perform obligations under an initially binding contract. Although Hobhouse J granted the bank relief, it was on the basis that, in equity, the payments made under the ultra vires contract remained the property of the payer, which it was unconscionable for the recipient to retain. There was, therefore, an absence of, or no consideration, rather than a total failure of consideration. Neither mistake nor the principle of total failure of consideration was the basis of the right of recovery.

158 The Court of Appeal affirmed that the bank could recover the lump sum payment despite its receipt of four instalments of interest from the council. Their Lordships, however, justified that outcome on different bases.

159 Dillon LJ stated that it was clear from Fibrosa 'that by "the consideration has wholly failed" is meant that the performance promised has not been provided.'[124] His Lordship regarded Hobhouse J's restriction of total failure of consideration to initially binding contracts as unduly narrow. He considered that a severance approach, could establish a total failure of consideration.

160 Dillon LJ referred to Rugg v Minett,[125] where the court severed the consideration paid for turpentine in casks according to whether the casks were filled (and the property therein passed to the purchaser) or were not filled (so that property did not pass) and held that only the consideration attributable to the latter had wholly failed.

I do not see why a similar process of severance should not be applied where what has happened, in a purely financial matter, is that there has been a payment of money one way and a payment of smaller sums of money the other way. The effect of severance is that there has been a total failure of consideration in respect of consideration in respect of the balance of the money which has not come back.[126]

162 His Lordship also thought that, severance apart, the balance of the £2.5 million paid under the ultra vires transaction could be recovered on the basis that there was no consideration 'in quasi contract as money had and received or on the ground of unjust enrichment'.[127] He relied, in that context, on early cases which allowed the recovery of payments which were not purely voluntary made under void annuity deeds. Dillon LJ concluded that on the basis of the authorities, the bank was entitled to recover the balance of the $2.5 m 'as money had and received or, as it is now called, ... unjust enrichment ... '.[128]

163 His Lordship concluded that the same result could be achieved on equitable grounds, as the claim for money paid under the void, ultra vires contract was for property with which, in equity, the bank had never really parted.

164 Leggatt LJ appeared to endorse Hobhouse J's approach. His Lordship considered that the trial judge's formulation was 'wholly accurate',[129] provided that the contract was not 'a borrowing contract', in which case, on the principle in Sinclair v Brougham:[130]

Restitution would not be ordered where to do so would have the effect of enforcing a void contract. That is not the case here. In relation to a contract other than a borrowing contract the effect of restitution is to put the payer into the position which he would have been in if the transaction had never been entered into.[131]

165 Leggatt LJ accepted that 'the fact that the payer had received a benefit did not mean that there had been no total failure of consideration if the payer did not get the benefit for which he bargained...'.[132] The bank bargained for payments which would discharge a contractual obligation and which the bank was lawfully entitled to receive. What it obtained were 'payments made under a void agreement which in equity remained the property of the council and which even at law it was always entitled to recover back.'[133]

There can have been no consideration under a contract void ab initio. So it is fallacious to speak of the failure of consideration having been partial. What is meant is that the parties did, in the belief that the contract was enforceable, part of what they would have been required to do if it had been. As it was, they were not performing the contract even in part: they were making payments that had no legal justification, instead of affording each other mutual consideration for an enforceable contract. In my judgment the payments made are in those circumstances recoverable by the bank, in so far as they exceed the payments made by the council as money had and received to the use of the bank, by which the council have been unjustly enriched.[134]

Somewhat confusingly, given that the analyses of Dillon and Leggatt LJJ differed, Kennedy LJ agreed with both judgments.

167 On appeal to the House of Lords in Westdeutsche, as the bank's entitlement to recover the payments was conceded, it was unnecessary to consider its basis. Lord Goff nevertheless endorsed a more liberal approach to total failure of consideration. His Lordship stated:

(1) Total failure of consideration

There has long been a desire among restitution lawyers to escape from the unfortunate effects of the so-called rule that money is only recoverable at common law on the ground of failure of consideration where the failure is total, by reformulating the rule upon a more principled basis; and signs that this will in due course be done are appearing in judgments throughout the common law world, as appropriate cases arise for decision. It is fortunate however that, in the present case, thanks (I have no doubt) to the admirable researches of counsel, a line of authority was discovered which had escaped the attention of the scholars whose work in this field.

This line of authority was concerned with contracts for annuities which were void if certain statutory formalities were not complied with. They were not therefore concerned with contracts void by reason of the incapacity of one of the parties. Even so, they were concerned with cases in which payments had been made, so to speak, both ways; and the courts had to decide whether they could, in such circumstances, do justice by restoring the parties to their previous positions. They did not hesitate to do so, by ascertaining the balance of the account between the parties, and ordering the repayment of the balance. Moreover the form of action by which this was achieved was the old action for money had and received - what we nowadays call a personal claim in restitution at common law. With this precedent before him, Hobhouse J felt free to make a similar order in the present case; and in this he was self-evidently right.

The most serious problem which has remained in this connection is the theoretical question whether recovery can here be said to rest upon the ground of failure of consideration. Hobhouse J thought not. He considered that the true ground in these cases, where the contract is void, is to be found in the absence, rather than the failure, of consideration; and in this he was followed by the Court of Appeal. This had the effect that the courts below were not troubled by the question whether there had been a total failure o consideration.

The approach so adopted may have found its origin in the idea, to be derived from a well known passage in the speech of Viscount Simon LC in Fibrosa Spolka Akcyjina v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32, 48, that a failure of consideration only occurs where there has been a failure of performance by the other party of his obligation under a contract which was initially binding. But the concept of failure of consideration need not be so narrowly confined. In particular it appears from the annuity cases themselves that the courts regarded them as cases of failure of consideration; and concern has been expressed by a number of restitution lawyers that the approach of Hobhouse J is contrary to principle and could, if accepted, lead to undesirable consequences: see Professor Birks, "No Consideration: Restitution after Void Contracts: (1993)" 23 WALR 195; Mr W J Swadling, "Restitution for No Consideration" [1994] RLR 73 and Professor Burrows, "Swaps and the Friction between Common Law and Equity" [1995] RLR 15. However since there is before your Lordships no appeal from the decision that the bank was entitled to recover the balance of the payments so made in a personal claim in restitution, the precise identification of the ground of recovery was not explored in argument before the Appellate Committee. It would therefore be inappropriate to express any concluded view upon it. Even so, I think it right to record that there appears to me to be considerable force in the criticisms which have been expressed; and I shall, when considering the issues on this appeal, bear in mind the possibility that it may be right to regard the ground of recovery as failure of consideration.[135]

168 In Goss v Chilcott,[136] the Privy Council held that a lender which advanced funds on a mortgage subsequently altered without the borrowers' authority (thereby discharging their liability) was entitled to recover the funds, despite its receipt of two interest payments. The Privy Council distinguished between capital and interest, and concluded that, in respect of the former, there was a total failure of consideration.

169 In Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd ('Ovidio Carrideo')[137] a tenant paid moneys under a lease which it was not legally liable to pay due to the landlord's failure to provide a disclosure statement, as required by the Retail Tenancies Reform Act 1998. At first instance, the tenant recovered the money it had paid under a mistake in a claim for restitution of money had and received.

170 The Court of Appeal (Chernov, Nettle and Ashley JJA) in allowing the landlord's appeal, discussed the history and basis of the restitutionary claim as developed in recent High Court authorities. Before the Court of Appeal, it was common ground that the tenant made the rental payments in ignorance of its right to withhold them, so that prima facie, it was entitled to repayment by way of restitution. It was therefore unnecessary to consider whether the circumstances gave rise to a prima facie entitlement to restitution or, if so, whether they conformed to any established category of relief. Instead, it was necessary only to determine whether the defendant could displace the prima facie entitlement.

171 The Court of Appeal held that the landlord's retention of the rental payments was not unjust to the extent of a reasonable allowance for the use and occupation of the demised premises.

172 In discussing whether the landlord had a good defence to the claim for restitution, Chernov JA observed that the majority in David Securities recognised:

[T]hat any matter or circumstance that showed that the receipt or retention of the payment was not unjust would ordinarily afford a good defence to such a restitutionary claim.[138]

173 Further, his Honour noted that Gummow J in Roxborough had emphasised that the common foundation of restitutionary relief in the relevant manifestations was the notion that the defendant's retention of the money was, in the circumstances, unjust and unconscionable.

174 In Ovidio Carrideo, Nettle JA discussed total failure of consideration in some detail. His Honour observed that traditionally, a defendant could rely on provision of some part of the benefit provided for in the bargain to demonstrate that its prima facie liability to make restitution should be displaced. His Honour stated:

"Total failure of consideration" is, however, a complex conception, since the idea of consideration is used in the law in more than one sense. Where a plaintiff's cause of action is for the recovery of money paid under a mistake of fact or law, the relevant conception of "consideration" is in effect limited to the matter considered in forming the decision to make the payment; the state of affairs contemplated as the basis or reason for payment. Therefore, as Gummow, J. explained in Roxborough v Rothmans of Pall Mall,[139] in the present context "total failure of consideration" looks to the benefit bargained for by the payer rather than any benefit which might have been received in fact.[140]

175 Nettle JA observed that the tenant in Ovideo Carrideo sought to invoke the reasoning in David Securities and Roxborough in order to show that it paid rent under the lease in the mistaken belief that it was bound in law to pay it, and 'upon a total failure of consideration'.

176 His Honour, while acknowledging that in one sense, it was presumably true that the state of affairs contemplated as the reason for payment did not exist at the date of payment, it did not follow that the rent was recoverable, because, unlike David Securities and Roxborough, the claimant had received something in return for the payment. The use and occupation was the benefit it had in view. His Honour concluded that: 'It follows, in terms of a conventional analysis, there has not been a total failure of consideration.'[141]

177 The decided cases do not establish the precise ambit and prerequisites of total failure of consideration as a vitiating factor justifying restitution, or clearly indicate its relationship to, and potential overlap with, other recognised categories, such as mistake. Nor is there yet a settled and coherent judicial analysis of the impact, in the restitutionary context, of the termination of a contract by a party against whom it is unenforceable. As Lord Woolf stated in Westdeutsche, '[r]estitution is an area of the law which is still in the process of being evolved by the courts. In relation to restitution there are still questions remaining to be authoritatively decided'.[142]

178 Mindful of the uncertainties necessarily attending the case-by-case development of this area of the law of restitution, in my view, neither Australian nor English authorities have expressly, or as a matter of inference, wholly discarded the requirement that the failure of consideration be total. Rather, particularly in cases where there is no enforceable contract or alternative source of remedy, courts have mitigated its severity by a liberal approach to severance from the consideration bargained for. David Securities and Roxborough do not establish that a lender which has received some benefits or repayment under an unenforceable loan contract is, without more, prima facie entitled to restitution on the ground that the consideration it bargained for was a legally enforceable right to repayment which has wholly failed.

179 In Roxborough, where the contract was valid and fully performed, if the consideration were characterised as the contractual promise in accordance with Fibrosa, there would have been no failure of consideration at all. The contemplated state of affairs on the basis of which the payments were made was nevertheless not sustained.

180 The recognition in Roxborough that failure of consideration is 'not limited to non-performance of a contractual obligation although it may include that'[143] coexisted with the view that 'the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared'.[144] The latter concept does not exclude the Fibrosa analysis of consideration. Both were endorsed in Baltic Shipping and, implicitly, in David Securities. Gummow J in Roxborough did not reject the Fibrosa meaning of consideration for all restitutionary contexts, although he recognised that it would not apply in every case.

181 Equus' argument in the present case may implicitly depend on an assumption that Roxborough and like authority has resurrected the pre-Fibrosa view of consideration as typically the promise of performance, rather than performance of the promise. The authorities do not, on my reading, support that proposition.

182 While in Roxborough Gummow J appeared to approve modification of the traditional insistence on totality where the claimant had no alternative remedy or the transaction was relevantly severable, both factors were present in that case. It is not clear that his Honour viewed each as an independent basis for restitutionary relief even if the claimant had received some of the benefit bargained for. The decision of the plurality in Roxborough was more unambiguously based on severability.

183 Moreover, while in Westdeutsche, on which Equus relied, Dillon LJ adopted a liberal approach to severance, Hobhouse J at first instance had adopted a narrow approach to total failure of consideration, with which Leggatt LJ apparently agreed. The views of Kennedy LJ on that issue (who agreed with both judgments, although they contained different analyses) were unclear. In the House of Lords, Lord Goff endorsed, in obiter, a broader approach but Westdeutsche, in contrast to the present case, involved a void ultra vires contract and the predominant analysis was an absence, rather than a total failure, of consideration.

184 In determining whether a party making a payment under an unenforceable contract or otherwise, has a prima facie right to recover it in restitution, as for a total failure of consideration, it is first necessary to identify the benefit or return for which the payer bargained. Reference to many circumstances, including the terms of the unenforceable contracts would, in the usual case, be necessary to ascertain the benefits for which a payer bargained. Where the unenforceable contract is inextricably connected to other agreements their total effect as a matter of substance is likely to be relevant. As Gummow J emphasised in Roxborough, the judicial development of restitution has increasingly emphasised substance over form.[145]

Why Equus cannot rely on total failure of consideration

185 In the present case, Rural was party not only to the loan contracts, but also to mortgages securing the repayment of the loans. Before us, Equus characterised the benefits for which Rural bargained as legally enforceable rights to repayment under the terms of the loan contracts and also to the related securities.

186 Rural nevertheless received payments of principal and interest and also obtained the security. Although, with the benefit of hindsight, such securities were themselves unenforceable against the investors (and secured unenforceable liabilities), they were dealt with and enforced as valid interests of Rural. On their enforcement, the investors' licences, leasehold or similar interests in the scheme (for the acquisition of which the loan agreements were entered) were lost entirely.

187 Equus's proffered 'counter-restitution' in the form of set-off for the repayments already made by the investors is thus inadequate. It takes no account of the loss of the investors' interests pursuant to the securities which (as part of the package of benefits for which Rural bargained) Rural received and dealt with.

188 The submission that Rural obtained no part of what it bargained for because its purpose was to obtain legally enforceable rights is technical and contrived in circumstances where Rural in fact received substantial repayments and dealt with the securities. The observations of Deane and Dawson JJ in Baltic Shipping on 'the substance of the contractual promise' set out above, are apposite in this context.

189 It does not follow that a payment which lacks juristic justification cannot constitute consideration for which the payer bargained. As recognised in Ovidio Carrideo, consideration in this context is 'the matter considered in forming the decision to make the payment'.[146] As in Baltic Shipping and Ovidio Carrideo, Rural, prior to the curial determination of unenforceability, received to a significant extent, benefits which were the substance of the contractual promise, and which a lender would typically have in view in return for making an advance. In such circumstances, even if the loan contracts and associated securities are considered in isolation from the other transactions of the schemes, the fact that the benefits received were retrospectively held to lack a legally enforceable character does not render them analogous to the short term use of a car to which the claimant in Rowland v Divall[147] had sought legal title. In Rowland v Divall, the character of legally enforceable rights and title was clearly crucial to the bargain. Further, in the present case, Equus did not advance a basis of severance. The ground of distinction between repayments of capital and interest relied on in Goss v Chillcott[148] was not open.

190 Much remains unsettled in relation to the purpose or intention relevant to total failure of consideration in the context of restitution (including, for example, whether they are to be objectively or subjectively assessed).[149] In this case, on any view, the purposes and contemplated state of affairs underlying the loan advances cannot be assessed in isolation from the schemes as a whole. Before us, there was no evidence of Rural's 'contemplated state of affairs'. Nevertheless, Equus did not challenge the trial judge's express finding that the loans would not have been offered or taken up unless they were part of the schemes and that no intention for the loan agreements to stand if the schemes fell could be inferred. That was the basis for the illegality and unenforceability of Rural's loan contracts. It was undisputed that Rural's loan contracts were not severable from other scheme transactions between various Johnson Group companies and the investors, including transactions made in breach of the prescribed interest provisions of the code.

191 The submission that the state of affairs contemplated by Rural in making the advances collapsed because it did not obtain legally enforceable rights to the benefits under the loan contracts cannot, in my opinion, be reconciled with the unchallenged findings of the trial judge. It cannot be concluded that Rural contemplated rights under the loan contracts which would survive the collapse of the schemes. Equuscorp v Glengallen does not preclude reference to the effect of an integrated scheme when ascertaining the benefit bargained for in the context of an alleged total failure of consideration.

192 In my opinion, Equus has not established that Rural had claims in restitution to recover the advances as upon a total failure of consideration.

193 The facts of the cases dealing with the payment of moneys on swap transactions ultra vires local authorities, or for tax, rent or fees mistakenly believed to be lawfully payable, were so different from those of this case that they afford only limited guidance.

194 Rather, the facts of the present case most obviously resemble those of the prescribed interest cases (Hurst v Vestcorp Ltd,[150] O'Brien, Australian Breeders Co-operative Society and Amadio v Henderson). Equus also relied on those cases to establish total failure of consideration submitting that they were (unacknowledged) instances of the category, which, by inference, justified the relief it sought.

195 In my opinion, it was not established that the potential restitutionary claims of lenders recognised in the prescribed interest cases depended on total failure of consideration. More importantly, the approach in those cases, particularly the detailed reasoning in Amadio v Henderson, provides no support for Equus' analysis and claimed relief.

196 In Hurst v Vestcorp Ltd, the New South Wales Court of Appeal held that a contract resulting in an offer of an interest made in breach of the prescribed interest provisions of the Companies Act 1961 (Cth) was illegal and unenforceable, as were loan agreements which (although not themselves in breach) were so integral to the relevant investment scheme that they could not be severed.

197 In Hurst v Vestcorp Ltd, a promoter invited investment in a tax-driven scheme. The investors could borrow half of the investment amount from the respondent company, Vestcorp, of which the promoter was the agent. The principal and interest were repayable from the proceeds of exploitation of a film, or at the end of a two and a half year term, irrespective of the performance of the project.

198 At first instance, Hodgson J held that there was no offer to the public, so despite the absence of an approved deed, the prescribed interest provisions were not breached.

199 On appeal, the majority (Kirby P and McHugh JA) considered that there was an offer to the public. While acknowledging the sometimes drastic consequences of illegality, including the potential injustice to third parties, the Court of Appeal (Kirby P, Mahoney and McHugh JJA agreeing) considered that contracts made in breach of the prescribed interest provisions were illegal.

In favour of the arguments of the appellants are the fact that the objects of

s 82 and s 83 are, in terms, the protection of the public. Clearly this is

relevant to fastidious and rigorous insistence upon compliance with its terms:

cf Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (at 429).

Reference has also been made to the implication which may be derived from

the terms of s 86(2). Unless transactions entered into without the protection

which the statute requires are rendered void or enforceable, the object of s 82

and s 83 may not be attained, or attained effectively. Investors, in ignorance

of basic information and without minimal protections, may be left with

enforceable transactions. For them, it would be small comfort that the penal

provisions of s 86 imposed a penalty on those who had secured the

transaction despite breach of the Act. The statute must be considered having

regard to the generality of its operation. It cannot be construed narrowly

simply because the present appellants were well advised and, by implication,

knew what they were doing.

As against these arguments, which would suggest that transactions in

breach of s 82 and s 83 should be treated as illegal and unenforceable, a

number of considerations suggest the contrary conclusion.

...

This said, I consider that the preferable conclusion is that a transaction

made as a direct consequence of a breach of, relevantly, s 83, is illegal and

unenforceable. Although this conclusion may result in some undiscriminating

effects on persons innocent of the cause of breach, the opposite argument

would emasculate the effective operation of s 83 and the achievement of its

obvious purpose for the protection of the public. To some extent, the law of

illegality contains within it means for protecting the innocent from the worst consequence of hardship that may follow illegality: cf Cheers v Pacific

Acceptance Corporation Ltd (1960) 60 SR (NSW) 1; 76 WN 464. The

construction which, on balance, I prefer is more consonant with the apparent

implication inherent in the terms of s 86(2) of the Act.[151]

201 The Court of Appeal considered that the loan agreements were such an integral part of the scheme that they could not be severed. They were therefore tainted with illegality.

202 The Court of Appeal dismissed both the investors' claim for the return of certain amounts they had invested and a cross-appeal in which the lender sought incidental payments.

203 The trial judge had not considered restitution. McHugh JA, however, observed that although the loan contract (being inextricably linked with the scheme) was invalidated, 'it does not follow that the parties are without remedy in respect of executed transactions entered into under the unenforceable contract'.[152]

In some cases the doctrine of restitution will enable a party to recover

compensation for a benefit accepted by the other party under the contract

even though the contract is unenforceable. Recovery of compensation in

these cases does not depend on the terms of the unenforceable contract. The

right of recovery is based on an obligation or promise which the law itself

imposes: Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 255-256.

As the decision in that case shows, compensation may be payable in respect

of work done and accepted under a contract even though a statute declares

that the contract is unenforceable. Whether restitution is possible in respect

of benefits accepted under a contract declared by statute to be unenforceable

depends on the intention of the legislature That is to say, the question is

whether the legislation evinces an intention not only to invalidate the

contract but to preclude the recovery of compensation by way of restitution

for benefits given and accepted under the unenforceable contract: cf Pavey &

Matthews v Paul (at 263), per Deane J.

In the present case the contract of loan is invalid because it was made as

the result of a breach of the Companies Act 1961, s 83. Nothing in s 83 and

s 86 of the Act or the Act as a whole indicates that the legislature intended

that a loan of money made to an investor who takes up an interest is not

recoverable as a matter of restitution.

Although the contract of loan is unenforceable, the appellants have

received and have had the benefits associated with the loans. With one

exception, they have had the benefit of the tax deductions associated with the

amounts of the loans. They have also been able to increase their interest in

the films as the result of the loans. Yet the result of my judgment is that the

contracts of loan are unenforceable. If appellants are not required to refund the moneys which they borrowed, they will reap an unmerited benefit. That,

of course, is often the result of the illegality doctrine. But the modern doctrine

of restitution enables the court in appropriate cases to overcome these

injustices.[153]

205 The Court of Appeal remitted the proceedings to the trial judge to consider the possible operation of the doctrine of restitution and to provide such relief as was appropriate.

206 In O'Brien, the Full Court of the Supreme Court of Victoria considered, by way of obiter, whether restitution was available to a lender for moneys advanced under a contract illegal and unenforceable due to breach of the prescribed interest provisions. The investors appealed from the trial judge's order that they repay loan moneys borrowed on ordinary commercial terms to purchase their units in a tax-driven cattle breeding scheme. A managing company used the full investment amount in the year of investment and made an equivalent loss, thus entitling the investors to an immediate tax deduction.

207 When the lender sued the investors under the loan contracts, they contended that their interests were offered to the public without a prospectus, contrary to s 82 of the Companies Act 1961 (Vic). Consequently, the purchase and the loans contracts were illegal and unenforceable.

208 The trial judge held that there was no offer to the public, and, if there were, the associated loan contracts were severable from the purchase contracts and therefore enforceable.

209 On appeal, Fullagar and McGarvie JJ held that there was an offer to the public and the purchase contracts were illegal and unenforceable. McGarvie and O'Bryan JJ held that the loan contracts were nevertheless severable. They were therefore unaffected by the illegality of the investment contracts and remained enforceable. The appeal was dismissed.

210 McGarvie J, in reliance on Hurst v Vestcorp Ltd, observed that the effect of s 82 was to render a transaction made as a direct consequence of a breach of the section (such as the contracts to acquire units) illegal and unenforceable.

Where part of a contract is illegal and unenforceable there are three decisions to be made before it can be concluded that severance enables the remaining part to be enforced. First it must technically be possible to sever. If it is, the court decides, as a matter of construction, whether the intention to be imputed to fair and reasonable persons in the positions of the parties is that the operation of the contract apart from the illegal part was to be conditional on the efficacy of that part, or that it was to take effect notwithstanding the failure of that part. Even if both those decisions favour severance, the nature of the illegality may result in there being no enforceability. If the illegal conduct involved is heinous or inimical to the community interest to a high degree it will be regarded as tainting the whole contract and rendering it entirely unenforceable.

...

In applying those principles, by analogy, to the integrated transactions here, the first requirement, of it being technically possible to sever, is clearly satisfied. A loan contract and its related investment contract are separate, and discrete contracts, each capable of operating on its own.

The crucial step in these appeals is the decision whether the intention to be imputed is that the operation of a loan contract was to be conditional on the efficacy of the related investment contract or was to take effect regardless of its efficacy: and if the former, was the investment contract, within that imputed intention, efficacious?[154]

212 McGarvie J concluded that the parties would not intend the loan contact to be inoperative if the investment contracts were rendered partly unenforceable due to breach of the prescribed interest provisions.

213 His Honour observed that a contract in breach of the statutory provisions was not wholly unenforceable. The investors' interests in the share of partnership rights and entitlement to have the business managed were enforceable. They still had an interest in the business, and as much and as little prospect of obtaining a tax deduction as if the investment contracts were not illegal under the Companies Act 1961.

214 Due to the holding that the loan contracts were enforceable, it was unnecessary to determine whether the lender had an alternative claim in restitution. McGarvie J observed that, at trial, the parties by agreement had not called all the relevant evidence or fully presented arguments on the lender's alternative claim to recover, by restitution, sums equivalent to the amounts lent. It was agreed that if the appeal were allowed, the proceeding would be remitted to enable the parties to deal with the restitution claim, unless the appeal court considered that there was no arguable case. McGarvie J considered that, if the investors were not liable under the loan contracts, there would be an 'arguable claim in restitution.'[155]

215 Fullagar J (dissenting) considered that the loan contracts were not severable and thus were unenforceable. His Honour expressed the view that the question of 'restitution' should be referred back to the trial judge.

216 In Australian Breeders Co-operative Society, the Full Federal Court (Wilcox, Lee and Lindgren JJ) considered that restitution could be available to a lender for funds advanced under an illegal loan contract unenforceable due to breach of the prescribed interest provisions. In that case, investors financed by secured loans acquired interests in a tax-driven thoroughbred horse breeding venture. The price of bloodstock fell sharply and the venture failed. The investors alleged negligence, misleading and deceptive conduct and breach of fiduciary duty. The trial judge held that the documentation misled and deceived the investors in various respects, but did not consider that the offer to invest cash was a prescribed interest.

217 The Full Court held that the interests were prescribed interests issued or offered to the public other than by a company or its agent, in contravention of s 169 of the Companies Code 1981 (NSW).

218 Section 170 of the Companies Code prohibited a company or its agent from issuing or offering prescribed interests to the public without a registered prospectus. Section 169 operated in aid of s 170, by preventing its circumvention by persons other than a company or a company's agent.

219 Section 174(1) of the Companies Code provided a penalty of $20,000 or five years' imprisonment for contravention of, inter alia, s 169.

A person is not relieved from any liability to any holder of a prescribed interest by reason of any contravention of, or failure to comply with, a provision of this Division.

221 As Wilcox and Lindgren JJ observed, s 174(2) would prevent the contravention being raised as a defence to an investor's claim based on the transaction documents, but it did not deal with the case where an investor raised the contravention as a defence to a claim by a party who was not involved in the contravention.

222 Wilcox and Lindgren JJ observed that, on one view, the prescribed interest provisions might not have been intended to prohibit each individual contract, but only to penalise the prescribed conduct. They nevertheless recognised that the question whether contracts made in breach of the provisions were vitiated must be determined by ordinary principles of statutory construction, including, importantly, whether the statute's object was or included the protection of the public.

223 Their Honours accepted that the evident purpose of s 169 was the protection of the public. Wilcox and Lindgren JJ observed that:

The object of prohibiting a person other than a company from dealing with the public by issuing or offering a prescribed interest was to prevent subscriptions from being caught from the public without the scheme being exposed in a document equivalent to a prospectus. Such a provision has been part of company law for many years. It is designed to control the promotion to the public of proposals that may be ill prepared or even fraudulent.[156]

224 Wilcox and Lindgren JJ accepted the view in Hurst v Vestcorp Ltd (endorsed in O'Brien and by Heerey J in Henderson and Others v Amadio Pty Ltd and Others [No.1][157] and [No.2][158]) that:

Subject to the possibility of severing lawful from unlawful parts, a transaction that came into existence as a result of contravention of the relevant provisions of the Companies Act was illegal and unenforceable...[159]

225 Wilcox and Lindgren JJ expressly rejected the opinion of Rolfe J in Davis v Mortgage Acceptance Nominees Ltd[160] that a party who was innocent of any illegality should be able to recover under the contract, rather than having to rely on restitution.

226 They considered that, save in a rare case, if invalidation were intended, it would:

[B]e generally applied, even at the expense of an innocent party. Of course, the doctrine of severance may assist an innocent party, or such a party may have a remedy under the law of restitution. Restitution should not be seen as an inferior remedy. It enables the court fully to reimburse the innocent party, with interest at an appropriate rate.[161]

227 In Australian Breeders Co-operative Society, the lender, Mortgage Acceptance Nominees Ltd ('MANL'), purchased mares for lease as breeding stock and granted leases of undivided interests in them. It also made loans to cover venture expenses to all but one of the investors, secured by mortgages over their shares in the venture.

228 When the investors negotiated to rescind their contracts with MANL, MANL submitted, inter alia, that its contracts were severable.[162] It claimed for recovery of rent, the residual sums due under the leases, the amounts outstanding under the mortgages and pre-judgment interest on the whole sum.

229 Wilcox and Lindgren JJ concluded that the lease and management agreements, which were tainted with illegality, were 'the heart of the transaction';[163] but due to the interdependence of the documents, the illegality 'necessarily infected the loans agreements and mortgages ... We hold MANL is not entitled to enforce against the investors any of the [relevant] documents...'[164]

230 Wilcox and Lindgren JJ held that, although MANL's lease loans and mortgages were unenforceable, it was entitled to recover on the ground of restitution for unjust enrichment.

231 Their Honours described the concept of unjust enrichment as follows:

[T]he concept of unjust enrichment is a recognition by the law that, in certain categories of cases, an obligation arises for a person who has been enriched to make a compensatory payment to a person who has sustained a countervailing detriment. The right to an order for such a payment depends on proof that the case falls within an appropriate category of case, such as mistake, duress or illegality. If there is enrichment in such a case, prima facie, the enrichment is unjust and an order will be made that the enriched party compensate the party at whose expense the enrichment was obtained. This prima facie situation will not apply if the enriched party shows matters or circumstances that make receipt (or retention) of the payment not unjust: see David Securities at CLR 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ.[165]

232 Wilcox and Lindgren JJ observed that (although a statute may disclose an intention to exclude restitution) consistently with McHugh JA's reasoning in Hurst v Vestcorp Ltd, the prescribed interest provisions contained neither an express nor implicit exclusion of 'the remedy of restitution' in the case of breach.[166] Thus, their Honours considered that 'the reasoning of Mason and Wilson JJ in Pavey (at CLR 229) is as applicable to this case as it was in [Hurst v Vestcorp Ltd]'.[167]

233 Their Honours considered, but did not determine, the lender's claim to restitution. They found its claim to reimbursement for expenditure on horses to be misconceived. The purchase was made in the course of the lender's business, and it accepted the commercial risks. The investors were not enriched thereby. Nor did the leases unjustly enrich the investors. The only money paid in relation to leases was the investors' rental payments. Further, Wilcox and Lindgren JJ considered it inappropriate to factor in any taxation savings the investors obtained by deducting the rental payments from their taxable incomes, because 'these savings stemmed from the payments, not from any detriment suffered by MANL'.[168]

234 Nevertheless, their Honours thought that subject to various matters, the lender was, in principle, entitled to recover restitution of its loan to each investor, although the matter should be remitted. In order to establish the amount of enrichment to each borrower, it would be necessary to deduct from the original loan amount the loan establishment fee and all capital repayments reducing the loan balance. Further, they stated (in reliance on Westdeutsche) that although the interest rates fixed in the loan agreements were 'an element of the invalid agreements', which should not be enforced, the amount to be paid by way of restitution 'may include simple interest on the balance of repayable moneys from time to time'.[169]

235 Wilcox and Lindgren JJ observed that the investors might have defences based on change of position or estoppel. The court remitted to the trial judge the determination of the appropriate restitution orders, including consideration of the relevant money figures and the establishment of any defences.

236 In Amadio v Henderson, the Full Court of the Federal Court again considered whether restitution was available to a lender which had advanced funds under an illegal loan contract unenforceable due to a breach of the prescribed interest provisions. The scheme (whereby Amadio sold its city office building to investors) was promoted by a firm of solicitors. The contract of sale involved a number of conditions. Amadio lent the investors 120 per cent of the purchase price, secured by mortgages, guarantees and indemnities.

237 By a series of related transactions, Amadio transferred the title to the investors, and the investors granted it mortgages, guarantees and indemnities. In essence, Amadio provided vendor finance to the investors and took a mortgage back.

238 Under the scheme, the building's value was expected to steadily appreciate over 10 years, while in the meantime, the investors would obtain tax deductions for the difference between the interest paid and the net rent they received. Instead, the scheme failed and resulted in financial disaster for the investors. There was a collapse of the property market. During the slump, the building's value declined to about half the purchase price and rental was also reduced. The investors defaulted. The investors and/or guarantors were jointly liable for over $20 million.

239 At first instance, Heerey J held that the scheme contravened s 171 of the Code and the mortgages and guarantees were unenforceable. His Honour did not find that Amadio had breached s 171, because, on the better view, it issued a prescribed interest to investors located by the solicitors, rather than to the public. Heerey J nevertheless held that the transactions between Amadio and the investors were a consequence of the unlawful offer and could not be severed. They were therefore unenforceable (except by the holders of the prescribed interest).

240 His Honour ordered that the investors be relieved of their obligations and receive compensation by way of restitution and damages. He also ordered that the building be re-transferred to Amadio.

241 Heerey J did not reduce the investors' damages by reference to the tax benefits they enjoyed, because he found no link between the contraventions of the Code and the tax benefit they gained. (He considered the tax benefit in the context of reducing damages, rather than in the context of restitutionary relief.)

242 Amadio and various other parties appealed to the Full Federal Court.

243 The Full Federal Court held that the scheme involved the offer of a prescribed interest to the public by the firm of solicitors in breach of s 171 of the Code, from which Amadio's transactions with the investors could not be severed.

244 The Full Federal Court observed that in Australian Breeders Co-operative Society, Wilcox and Lindgren JJ had agreed with Heerey J's conclusion 'that the consequence of a contravention of s 169 was to render void and unenforceable all transactions made in consequence of that contravention'.[170] Their Honours expressed reservations about the use of the word 'void', as s 174(2) of the Code expressly stated that persons were not relieved of liability to an interest holder by reason of the contravention. They cited Mason and Carter's acknowledgment in Restitution Law in Australia[171] that the contrast between void, unenforceable and illegal contracts was 'not easy to draw in the abstract or in practice'.

In the present context it is more accurate to say that transactions entered into in consequence of a contravention of the prescribed interest provisions are unenforceable except by the holder of the prescribed interest.[172]

246 The Full Federal Court affirmed Heerey J's conclusion that the illegality of the management agreement necessarily affected the loan agreements and mortgages, but although Amadio could not enforce the contract of sale it remained liable thereunder to the investors, by reason of s 174(2) of the Code. On that analysis, the transfer of the property to the purchasers was valid, but the mortgages and associated guarantees they had given were unenforceable. Amadio nevertheless remained liable to advance the principal sum to the investors, and accordingly, it was validly advanced, but the investors, were not obliged to repay it.[173]

247 The Full Federal Court endorsed the view in Australian Breeders Co-operative Society that there was 'nothing in the Companies Code that suggests an intention to exclude restitutionary relief in the case of a breach of s 169'.[174] That conclusion was, it thought, consistent with the Code's failure to prohibit the making of a contract pursuant to which a prescribed interest was sold, as distinct from the offer or issue of a prescribed interest to the public without, inter alia, a prospectus.

248 The Full Federal Court emphasised that restitutionary relief must be determined on the basis of equitable principles, rather than abstract notions of fairness.

249 The investors sought a declaration that the mortgages and guarantees were unenforceable and restitution of their interest payments to Amadio (less the rent received) on the basis that they re-transfer the property.

The equitable relief sought by the applicants was consistent with the statutory scheme which is for the protection of investors. Prima facie, investors entering into transactions which are illegal under the scheme ought to be entitled to restitutionary relief restoring them to the position they would have been in had they not participated in the scheme.[175]

251 Their Honours noted that the prima facie position could be displaced by circumstances which indicated that equity should not grant full restitutionary relief. They referred to equitable principles which permitted relief to borrowers under loans void under the old usury laws. According to those authorities, a borrower who sought equitable relief was, in effect, put to an election and was required to forgo legal rights in order to obtain equitable relief. As the price of having a security cancelled, the borrower had to pay the principal and lawful interest.

252 As their Honours observed, the case before them did not involve a lender and borrower, but a lender/vendor and borrower/purchaser. The investors offered to deliver up the property. They thus obviated the need to determine whether, had the investors elected to retain the property, they would be liable to Amadio for unjust enrichment

253 The Full Federal Court saw the task as one of equity using its powers to do what was practically just, even if it could not precisely restore the parties to the state they were in before the contracts. Their Honours relied, in that context, on the observation in Vadasz v Pioneer Concrete (SA) Pty Ltd[176] that restoration is essential to the idea of restitution.

254 The Full Federal Court observed that although Amadio had not itself breached the prescribed interest provisions, it was not just an innocent financier. It was on notice that a breach of the prescribed interest was likely.[177]

255 Their Honours concluded that there was nothing in the conduct of the investors which disentitled them to relief and no reason why the property could not be returned to Amadio. The property had not physically deteriorated. It was not unjust that the risk of the drop in values should be to Amadio's account if it were to be put back in the position it would have been in had the scheme not infringed the Code.

256 The change in position of the investors (that is, their investment in the building), was bound up with the promotion of the investment by a means which infringed the law. The investors were also members of a class (viz investors) for whose protection the infringed provisions were enacted.

257 The Full Federal Court noted that the basic principle applied by Heerey J in doing what was practically just was to grant restitutionary relief on the basis of restoration - to place the parties in the respective positions they would have occupied had the relevant transactions not taken place, without any unjust enrichment of any of them. Heerey J had rejected claims for repayment of the principal and interest, because it was not just that a person who had suffered a loss as a result of the breach of prescribed interest provisions should be put in a position where 'the beneficiary of the breach achieves the same benefit as if the law had not existed'.[178]

258 The Court acknowledged, however, that the tax consequence of the award of restitutionary relief was likely to be a vexed question. It stated:

The discussion of the income tax consequences of the reimbursement of deductible expenses in Commissioner of Taxation (Cth) v Rowe [1997] HCA 16; (1997) 187 CLR 266; 143 ALR 406 and of the potential capital gains tax consequences of damages awards in an article by Professor Richard Krever entitled "The Capital Gains Tax Consequences of Litigation" (1997) 71 ALJ 699 demonstrates how difficult the issue can be. The difficulty is not reduced by the fact that the interest has been paid under a contract which was unenforceable by the lender but enforceable by the investors by reason of s 174(2).[179]

259 The Full Federal Court noted that, in the cases before it, the ultimate tax outcome was far from clear. Further, it was not satisfied that tax benefits to investors could be taken into account in order to reduce the restitutionary relief.

It is relevant to observe that the tax benefits were an integral aspect of the scheme unlawfully promoted by [the solicitors] and that, by reason of the matters set out both earlier and later in these reasons, we are satisfied that Hudson Conway and Amadio were not innocent third parties in relation to that promotion.[180]

261 The prescribed interest cases uniformly recognised that, in principle, restitution of funds advanced under the illegal loan contract was not precluded. In each case, however, the determination of the restitutionary claim was either unnecessary or remitted to the trial judge. The courts did not identify the applicable category of restitutionary relief or address the question whether the lender's receipt of some payments precluded relief. There is no basis on which to infer that the restitutionary relief recognised in the prescribed interest cases as available 'in principle' was implicitly based on a total failure of consideration. Indeed, as Mason and Carter state, there is 'a problem with [the] analysis'[181] in Hurst v Vestcorp Ltd because there was 'no explanation of how the prima facie claim was established'[182] and no reliance on 'any recognised unjust factor'.[183] Further, as 'the suggestion appears to be that unjust enrichment may operate on the basic claim, unmerited benefit'[184] the analysis (which was adopted in the subsequent prescribed interest cases) may not accord with the requirements of a prima facie claim elaborated by the High Court in the significant decisions following Pavey.

262 While the reasoning (or lack thereof) on the availability of restitution in the prescribed interest cases may ultimately invite re-evaluation, before us it was not challenged.

263 The Full Federal Court's working out of the restitutionary relief in Amadio v Henderson is comprehensive and persuasive. Nevertheless, beyond the recognition that such relief is potentially available to a lender which has advanced funds under a contract illegal and unenforceable due to breach of the prescribed interest (or analogous) provisions, it offers no support for Equus's case.

264 Amadio v Henderson indicates that if (contrary to the view expressed above) Rural were prima facie entitled to restitutionary relief on some recognised basis, the entitlement would be displaced in the circumstances of this case. The Full Federal Court made clear that, prima facie, investors who are party to scheme transactions which are illegal and unenforceable due to a breach of statutory provisions aimed at their protection are themselves entitled to restitutionary relief, restoring them to the position they would have been in had they not participated in the scheme.

265 Indeed, the Full Federal Court considered that although Amadio had not itself breached the Code, it was 'practically just'[185] that it, rather than the investors, should bear the loss occasioned by the scheme's financial failure, given that the investors (as members of a class for whose benefit the breached provisions were enacted) had invested under an unlawful transaction from which Amadio's contracts could not be severed.

266 The Full Federal Court considered that the investors were entitled to relief (a declaration that the mortgagee and guarantees were unenforceable and restitution of interest payments). Further, to the extent that it was practically just, Amadio should likewise be restored to the position it was in before the scheme transaction. The investors obtained relief on the basis that they would retransfer the property (albeit of diminished value) to the lender/vendor.

267 The Court expressly stated that it did not determine whether the investors would have been required to pay Amadio principal and interest had they elected to retain the property.

268 The Full Federal Court in Amadio v Henderson (contrary to Equus's advocated analysis) thus approved relief to the investors on the basis that they restore the devalued property to the lender/vendor, ensuring that, in substance, the latter bore the adverse financial consequences of the scheme's failure. It is clear that the Court in Amadio v Henderson would not have ordered a mutual restitution which would visit on the investors the deleterious consequences of the scheme's financial failure as they (although the objects of the intended statutory protection) had been denied it by reason of a breach with which Amadio was inseparably connected.

269 The Court stated that the correct approach in the relevant context was to 'do what was practically just'.[186] In determining what was practically just, it had regard to the substance of the wider scheme. It aimed to place the investors in the position they would have been had they not entered the failed scheme.

270 The analogy with Amadio v Henderson is imperfect, because there the lender and the vendor were one and the same. Further, when the matter came before the Court the investors still had title to the property they had acquired under the scheme. In the present case, the division of the necessary roles in the schemes between different related Johnson Group corporations under common control does not, in my view, confine the Court's consideration to the loan agreement when determining both whether there was a prima facie right to restitution and, if so, whether the investors' retention of funds was unjust. The Court is entitled to view the position of lender and investor as a matter of substance and totality. As in Amadio, although Rural did not breach the Code itself, it was on notice of any potential breach, as it had the imputed knowledge of the common directors.

271 By analogy with Amadio, Rural (as a lender/mortgagee of a loan integral to the scheme illegal under legislation designed to protect the very class of persons constituted by the investors) would not be entitled to the repayment of the loans unless, at least, the investors retained the scheme property.

272 In my opinion, if (contrary to the above conclusion) Rural had a prima facie entitlement to restitution, the following circumstances establish that the investors' retention of the balance of the loan funds was not unjust: the investors entered the investment schemes without the protection of an adequate prospectus; then made the requisite direct payments of capital pursuant to loan agreements which provided that the balance of the loan would be discharged by the application of proceeds of sale (guaranteed by a Johnson Group company) of the blueberries (grown and harvested under a management agreement with another Johnson Group entity); it was not disputed that the loans would not have been offered or accepted but for the wider schemes and that the loan agreements were not intended to stand if the schemes failed; the projects failed; the investors irrevocably lost their entire interest in the schemes pursuant to the enforcement of Rural's (legally unenforceable) security interests; there is no evidence that the investors invested in order to obtain, or did obtain, any taxation benefit from their participation in the schemes.

273 In my view, it is unnecessary, in this context, to consider the position of Equus as opposed to that of its assignee, Rural. Equus, as the assignee of the alleged restitutionary claims would take subject to defences and the equities which bound the assignor (were it otherwise, it would be necessary to assess the significance of the fact that Equus paid less than 1% of the face value of the loans).

274 Although the investors pleaded that a claim to the restitution of money paid under an unenforceable contract was not assignable, at trial they presented no argument in support of that submission. They merely contended that if (contrary to their submission) Rural had such rights, they were not the subject-matter of, or transferred under, the deed of assignment.

275 Before us, the investors reiterated that the deed of assignment was ineffective to assign Rural's restitutionary claims (if any) to Equus and also submitted that such claims were inherently incapable of assignment. In reliance on authorities such as Poulton v The Commonwealth,[187] Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd ('Fostif')[188] and Mutual Pools & Staff Pty Ltd v The Commonwealth ('Mutual Pools'),[189] the investors contended that, in contrast to a contractual right, a claim in restitution (which, if it existed in the present case, arose because there was no enforceable contract) was neither a chose in action nor a property right. Rather, it was a bare cause of action and as such, unassignable.

276 The investors relied on Mason CJ's statement in Mutual Pools and the authorities on which it was based and on doubts expressed by Heydon and Callinan JJ in Fostif on the Court of Appeal's view that such claims were assignable. They submitted that the rejection of the traditional, quasi-contractual rationale of money had and received by the High Court in Pavey, in favour of an imposed obligation based on acceptance of a benefit which could not conscientiously be retained, supported the view that that such claims were not assignable. Moreover, the investors submitted that dicta supporting the assignability of restitutionary claims depended on the now discarded quasi-contractual rationale and, following Pavey, should be rejected as inconsistent with currently prevailing views of the nature of the claim.

277 Equus contended that the Court of Appeal in Fostif correctly held that restitutionary rights were assignable, a view supported by Brennan J in Mutual Pools. It submitted that doubts expressed by Heydon and Callinan JJ in Fostif were not, on analysis, supported by the references in the relevant footnote. Nor did the re-characterisation of the basis of the action in money and received in Pavey justify a departure from earlier recognition of its assignability, particularly as that would be incompatible with the modern, liberal approach to champerty.

278 Alternatively, Equus submitted that even if a cause of action for money had for an unjust enrichment were a bare cause of action, it could [as recognised by Meagher, Gummow and Lehane in Equity: Doctrines and Remedies and Re Kenneth Wright Distributors Pty Ltd (in liq), Re; W J Vine Pty Ltd v Hall,[190]] be effectively assigned with an associated proprietary right such as a debt, which occurred in the present case.

279 Further, Trendtex established that a bare cause of action may be assigned if the assignee has a genuine commercial interest in it. Equus had, it submitted, a genuine commercial interest in enforcing rights associated with the loan contracts, which had not been terminated at the date of the assignment.

280 As recently acknowledged, the question whether restitutionary causes of action can be assigned 'has received very little consideration, either in the case law or the books.'[191]

281 Traditionally, bare causes of action (a bare right to litigate) could not be assigned. The benefit of purely personal rights and tortious rights of action were unassignable. On the other hand, rights such as debts were assignable, as were rights of action incident or subsidiary to property rights.[192] Similarly, it appeared that a contract (non debt) could be assigned with any causes of action for breach (although probably not the right of action alone). The restriction on assignability was driven, inter alia, by the concern to prevent trafficking in litigation (maintenance and champerty). Thus, rights such as debts tended to be assignable, because the assignee had an interest over and above the right to litigate. That was less evident in the case of a tortious cause of action, which arose independently of agreement.[193]

282 Generally speaking, the closer to a proprietary right a chose in action was, the less problematic was its assignment. To the extent to which the cause of action for money had and received lay in implied contract, the fewer were the traditionally conceptual impediments to its assignment.[194] The implied contract rationale was rejected in Pavey, where instead, the High Court recognised the conceptual basis as an obligation imposed by law.

283 As Gummow J acknowledged in Roxborough, a restitutionary claim occupies an uncertain ground between the three established bases of contract, tort and trusts. While historically the character of claims in contract and debt supported their assignability, a significant justification for the different treatment of tortious claims was that they arose independently of agreement, a feature shared by restitutionary claims under the revised rationale in Pavey.

284 Although no factually similar case to the present appeals was identified, the question of the assignability of restitutionary claims has been addressed, albeit obliquely, in several analogous contexts.

285 In Fostif, the New South Wales Court of Appeal (Mason P, Sheller and Hodgson JJA) held that several sets of representative proceedings brought by tobacco retailers to recover amounts paid pursuant to an invalid tobacco licensing scheme should not have been stayed as an abuse of process, although the proceedings were financed by a litigation funder which proposed to conduct them on behalf of all retailers who opted in, in return for one-third of the claim.

286 The Court of Appeal considered that, although the arrangement was champertous (in that the funder had no interest in the litigation other than repayment or profit) there was no abuse of process in the absence of a particular tendency to abuse which could not be controlled.

287 Mason P stated that the case did not engage any residual category of trafficking, because the nature of the funder's activity did not merit such 'conclusory opprobrium'[195] and also because -

The second point has not been debated before us and my views are

necessarily tentative. However, the cases involving the elusive notion of

"trafficking" all appear to involve the funder taking some role akin to that of

an assignee in relation to claims that are incapable of assignment because they

are bare causes of action for damages. By contrast, the retailers' causes of

action are for money had and received, historically a claim in debt. Debts are

readily assignable, even to those who hope to recover more than they pay the

assignor, without apparently engaging the principles about trafficking. See

Mutual Pools & Staff Pty Ltd v Commonwealth of Australia (1994) 179

CLR 155 at 176, 173. See also J G Starke, Assignments of Choses in Action in

Australia (1972) Sydney, Butterworths, ch 11.[196]

288 Mason P's view was reiterated in Restitution Law in Australia, of which his Honour (writing extra-judicially) was a joint author. The authors stated that, while a bare cause of action for tort is not assignable ... 'the right to pursue a restitutionary claim is capable of assignment and it would not, in our view, offend the policy behind the barring of assignment of actions in tort to allow the assignee to sue in such claims.'[197] The related footnote stated 'see Mutual Pools & Staff Pty Ltd v The Commonwealth [1994] HCA 9; (1994) 179 CLR 155 at 176 per Brennan J; cf at 173 per Mason J'.[198]

289 On appeal to the High Court in Fostif, the majority held that the representative proceedings should not be stayed as champertous and an abuse of process.

290 Callinan and Heydon JJ dissented. They concluded that the representative proceeding based on litigation funding was an abuse of process. Only Callinan and Heydon JJ addressed the Court of Appeal's tentative holding that the retailers' causes of action for money had and received was historically a claim in debt and could therefore be readily assigned without apparently engaging the principles about trafficking.

291 Their Honours stated that there was a serious question about the correctness of that statement. The related footnote[199] noted that, while the Court of Appeal relied on Brennan J's statement in Mutual Pools, in contrast were the views of Mason CJ in Mutual Pools[200] and Poulton v Commonwealth.[201]

292 In Mutual Pools, Brennan J referred to the earlier decision of the High Court in Mutual Pools & Staff v Federal Commissioner of Taxation (Swimming Pool Sales Tax Case),[202] upholding a challenge to the validity of a law imposing a tax on so much of a swimming pool as was constructed in situ. Brennan J observed that it:

...[Was] conceded that, in consequence of that decision, the Commonwealth was indebted to the plaintiff in the amount which the plaintiff had paid purportedly as tax in accordance with the impugned legislation and interest on that amount. That debt (whether it be regarded as owing under the agreement made by the Swimming Pool & Spa Association of Australia Ltd and the Commissioner of Taxation or in restitution) was not a claim created or governed by a statute. It was a common law chose in action vested in the plaintiff and assignable by it. The debt was "property" within the meaning of that term in s 51(xxxi) of the Constitution.[203]

Brennan J's recognition of the assignability of a restitutionary right analogous to that in the present case, was more qualified than first appeared, as it depended on a concession that there was 'a debt ... owing whether under the agreement ... or in restitution'.[204] The assignability of a debt is well established, so the force of the statement may hinge on the unresolved question of the nature of a restitutionary claim.

293 In Mutual Pools, Mason CJ did not express an equally unqualified view that the rights in question were assignable. Instead, his Honour appeared to regard the question as unsettled. He noted that in Werrin v The Commonwealth ('Werrin'),[205] the High Court assumed, but did not decide, that a claim in restitution for money paid as tax under a mistake was not assignable.[206] Mason CJ observed that the extinction of a chose in action against the Commonwealth could have the effect of an assignment of the chose in action. He suggested that Dixon J's failure to refer in Werrin to s 51(xxxi) of the Constitution may have been founded on an assumption the that restitutionary claim at issue in the case was not property and therefore not assignable. Mason CJ also referred to Poulton v The Commonwealth.

294 In Mutual Pools, Deane and Gaudron JJ stated that in the context of s 51(xxxi) of the Constitution the word 'property' was:

[S]aid to be "the most comprehensive term that can be used",[207] must be construed as extending "to every species of valuable right and interest including real and personal property, incorporeal hereditaments ... and choses in action".[208] Money is within ordinary concepts of personal property and the acquisition of money is an acquisition of property. Like other constitutional guarantees, s 51(xxxi) is concerned with substance rather than form. That being so, the imposition of an enforceable obligation to pay money and the consequent conferral of a chose in action upon the creditor can, depending upon the context in which the obligation is imposed, constitute an acquisition of property by the creditor.[209]

295 In Werrin, a taxpayer sought to recover, in an action for money had and received, a sum which he had reluctantly paid as sales tax on second hand goods. The tax was subsequently held not to apply. The taxpayer had apparently paid the sum when the Commissioner believed that it was due in respect of second hand goods sold by the taxpayer.

296 Each member of the High Court held that the taxpayer was not entitled to recover the money, either because the payment was made voluntarily under a mistake of law,[210] or because recovery was barred by a provision of the Sales Tax Procedure Act 1934-1935 (Cth) or on both those grounds.

Even if it be assumed that the payments made on account of sales tax which the plaintiff seeks in this action to recover would in point of law form a debt due by the Crown to the taxpayer, as a taxpayer who had mistakenly complied with an unjustifiable demand for tax ... [it was barred by the statutory provision].[211]

298 His Honour observed that 'the assumption I have mentioned is perhaps a large one'.[212]

299 Williams, Webb and Kitto JJ in their joint judgment, stated that if the Commonwealth were guilty of conversion, the growers alone 'could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to a well-established principle, the right was incapable of assignment either at law or in equity'.[213]

300 The investors contended that the above observations constituted an acknowledgment that restitutionary claims (rather than only claims in tort) were inherently unassignable. It is, however, difficult to disentangle any reasoned position on restitutionary rights from their Honours' recognition of the conventional unassignability of the antecedent tortious claim on which the alleged restitutionary right depended.

301 In Werrin, Dixon J observed that the statutory provision barring recovery was framed on the assumption that the mere payment of money as and for sales tax when no tax is in truth payable would or might entitle the payer to a refund, apart from the enactment. It was unnecessary to consider the correctness of that assumption, because, in his Honour's view, the provision was both valid and effective to extinguish any right to repayment which the taxpayer might otherwise have.

302 Dixon J, in that context, did not think that s 75 of the Constitution by implication prevented Parliament from extinguishing a cause of action against the Commonwealth (including actions in tort and contract) or that the joint judgment of Isaacs, Rich and Starke JJ in the Commonwealth v New South Wales[214] had so held. His Honour did not refer to s 51 (xxxi) as a possible source of the provision's invalidity.

303 Dixon J's observations are at least consistent with the explanation suggested by Mason CJ in Mutual Pools and Rich J in Werrin doubted the assumption that the cause of action was a debt. Further, Brennan J's remarks in Mutual Pools were predicated on a concession.

304 In Poulton v The Commonwealth, a wool dealer to whom growers delivered wool for appropriation by a statutory authority pursuant to a Commonwealth scheme alleged that the growers by letter had assigned to him their entitlement to a portion of profits on the sale of the wool. As the alleged assignment contravened applicable legislation, the dealer argued that the legislation was invalid because, contrary to s 51 (xxxi) of the Constitution, it did not provide for just terms. The statutory appropriation was therefore a tort which the dealer could waive and instead claim restitutionary rights.

305 There is no unambiguous, authoritative statement indicating that the restitutionary claims in this case, if established, were capable of assignment. On balance, the preponderance of the admittedly sparse and relatively oblique indications by the High Court tends to throw doubt on, rather than affirm, that proposition.

306 In Trendtex, the House of Lords considered that although the purported assignment of a cause of action (in relation to a dishonoured letter of credit) to a third party with no genuine and substantial interest in the success of the litigation was void for champerty, if the potential assignee had such an interest, the assignment of the bare right action would not offend the law against maintenance and champerty.

307 In TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd and Ors (No 3),[215] Finkelstein J held that confidential information, while not property 'in any normal sense' or indeed property at all, but, rather, the subject matter of protection by equity by 'the notion of an obligation of conscience ... '[216] was capable of assignment, particularly where it related to rights owned, or likely to be owned, by the assignee. His Honour stated:

I said that the receivers "purported" to assign the causes of action for there is a general rule that a personal right to litigate cannot be assigned either at law or in equity, but an impersonal right in the nature of a proprietary right can be assigned provided the circumstances warrant it. Thus, it has been said that causes of action in tort, which are regarded as personal rights, cannot be assigned: Poulton v Commonwealth (1953) 89 CLR 540 at 571, 602 ; [1954] ALR 1 at 7-8. The bar on assignments of personal actions would include actions in equity that are of a personal kind: Glegg v Bromley [1912] 3 KB 474 at 489-92. An action for breach of confidential information is a personal action.

There is in England an exception to the bar on the assignment of personal rights. In Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703 ; [1981] 3 All ER 520 at 530 (Trendtex) Lord Roskill (with the concurrence of the other Law Lords) said: "[I]n English law an assignee who can show that he has a genuine commercial interest in enforcement of the claim of another and to that extent takes a assignment of that claim to himself is entitled to enforce the assignment unless by the terms of the assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance ... The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that property right or interest, or, if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance".

In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 188 FLR 278 ; 220 ALR 267 ; [2004] NSWSC 1041. It may be that the debate is now over for the High Court in Campbell's Cash and Carry Ltd v Fostif Pty Ltd (2006) 229 ALR 58 ; [2006] HCA 41 seems to have approved Trendtex. In any event, my own view is that the logic of Lord Roskill's view is inescapable. This is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee.[217]

308 In Trendtex, the House of Lords tended to confine the concept of an unassignable bare right of action, by holding that a chose of action was assignable if the assignee had a general commercial interest in it, even if it were not incidental or subsidiary to a right of property.

309 While in the present case the loan agreements are illegal and do not give rise to enforceable debts, at the date of the assignment, no step had been taken to terminate them. Although the restitutionary claims (it established) would be alternative, rather than incidental to, the debts, the broad approach in Trendtex would probably encompass such a circumstance.

310 In summary, although the authorities provide no clear guidance on the assignability of a lender's restitutionary claim to recover the funds advanced under an unenforceable loan contract, it appears, on the better view, to be capable of assignment, particularly if the lender has a general commercial interest of the kind recognised in Trendtex. The nature of the restitutionary right, infused with equitable considerations and subject to defences such as change of position, may pose difficulties in the context of assignment. In my view, such potential problems would affect the availability and nature of the remedy, rather than posing an absolute barrier to assignment.

Did the deed of assignment transfer restitutionary claims alternative to the debts?

311 Equus submitted that the trial judge correctly held that Rural's restitutionary rights were transferred to it by the deed of assignment, the evident purpose of which was to assign not only the rights in the loan agreements but all associated remedies, so that 'it would be a very peculiar construction to say that what was assigned was the loan if it turned out that the loan was not enforceable and there was a right in restitution'.

312 In my opinion, the deed of assignment did not comprehend alternative rights or remedies of Rural based on restitution or unjust enrichment should the loan contracts be unenforceable. As the investors submitted, the nature of the alleged restitutionary rights differed fundamentally from debts or other rights arising under loan contracts. Such restitutionary rights, if established, were not based on or intended to give effect to, the unenforceable contracts, but rather arose from an obligation imposed by law which did not depend on the contractual terms. There would be no necessary correspondence of remedy and quantum under the restitutionary rights and under the loan contracts.

DEED OF ASSIGNMENT

BETWEEN RURAL FINANCE PTY LTD (Receiver and Managers Appointed) (In Liquidation) A.C.N. 008 584 638 of KPMG, Level 11, Corporate Centre One, 2 Corporate Court, corner Slaytor Avenue and Bundell Road, Bundell, Queensland 4217 ("Rural")

AND EQUUSCORP PTY LIMITED A.C.N. 006 012 344 of 8th floor, 390 Little Collins Street, Melbourne Victoria 3000 ("Equus")

RECITALS

1. The persons or corporations identified as borrowers in the schedule are indebted to Rural under certain investor loans regarding the Blueberry Project at Corindi, New South Wales, more particularly described in Annexure "A" to the Asset Sale Agreement referred to herein ("loan contracts") in the amounts set out in the schedule ('debts").
2. Pursuant to the terms of an Asset Sale Agreement made between Rural as vendor and Equus as purchaser dated 16 May 1997 ("Asset Sale Agreement") Rural has agreed to sell or assign the debts, Rural's rights under the loan contracts, all guarantees or guarantees and indemnities in respect thereof ("guarantees") and all other securities held by Rural in respect thereof ("securities") to Equus.

1. Pursuant to clause 5.2(a) of the Asset Sale Agreement, Rural, as legal and beneficial owner, hereby sells, assigns, transfers and sets over the debts, its interests under the loan contracts, its interests under the guarantees and its interests under the securities, free from all encumbrances to Equus and all interest due and becoming due on the debts for Equus to hold absolutely ("the assignment").
2. The assignment is an absolute assignment intended to take effect immediately as a legal assignment of, inter alia,

(a) the legal right to such debts, interests under the guarantors and its interests under the securities and all interest due and becoming due on the debts.

(b) all legal and other remedies for these matters in the preceding sub-paragraph (a).

(c) the power to give good discharge for those matters referred to in sub paragraph (a) without the concurrence of Rural.

314 The deed of assignment, by Recital B, made clear that Rural's agreement to assign the debts, rights under loan contract, guarantees and securities was 'pursuant to the terms of an Asset Sale Agreement dated 16 May 1997' ('Asset Sale Agreement').

315 The Asset Sale Agreement, by clause 3, provided that:

On Completion the Vendor shall sell or assign as sole beneficial owner, and the Purchaser shall purchase or take an assignment of, the Asset for the Total Purchase Price and upon and subject to the terms of this Agreement. If the Asset is a book debts or rights of actions [sic], the Purchaser will render to the Vendor no less than seven days before Completion Date a Bare Assignment of the book debts or rights of action together with Notices of Transfer addressed to the relevant debtor for approval and execution by the Vendor.

316 Item 1 of the schedule to the Asset Sale Agreement identified the Asset as:

The investor loans regarding the Blueberry Project at Corindi, NSW more particularly described in Annexure "A" being loans between RURAL FINANCE PTY LTD ACN 008 584 638 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) and others.

317 The Asset Sales Agreement made detailed provision for the adjustment of the total purchase price by reduction for Rural's disposal, collection or compromise of any component of the asset or any receivable prior to completion.[218] Further, by clause 5.2, it required the vendor to deliver on completion such notices and other documents necessary to perfect or in connection with the change in ownership of the Asset. It provided that, in relation to any component of the Asset which was a book debt or right of action, the vendor was to provide a Bare Assignment (defined to mean, unless the content otherwise required, 'an assignment document simply reciting the transfer of an asset from the Vendor to the Purchaser without containing any representations or warranties either stated or implied') or a notice of assignment (defined to mean, unless the context otherwise required, 'a notice stating simply no more than that the Asset has been transferred from the Vendor to the Purchaser and also informing any debtor of a new address to which any payments should be made.').

318 Clause 7 of the Asset Sales Agreement provided for Warranties and Representations as follows:

7. WARRANTIES AND REPRESENTATIONS

7.1 The Vendor makes no representations and warranties to the Purchaser concerning the Asset.

7.2 The Purchaser takes the Asset on an "as is, where is" basis.

7.3 The Purchaser acknowledges the Purchaser has conducted its own enquiries and examination of the Asset and that it has relied entirely upon those inquiries and that it has not relied upon any information or material provided to the Purchaser by the Vendor or the Vendor's receiver and manager (if any);

7.4 The Vendor does not in any way warrant the existence and correctness of any Receivable, or the amounts of the Receivables as mentioned or appearing in the books or lists exhibited to the Purchaser. The Vendor also does not warrant that those Receivables are recoverable or that the Receivables or any of them have not been settled either by payment or contra account. The Vendor does not warrant that the debtors in respect of the Receivables have no set off against the Receivables. No claim or allowance may be made by the Purchaser in this respect. The Vendor makes no representation or warranty that any or all of the Receivables are assignable and the Purchaser acknowledges having made its own inquiries in respect of the Asset.

7.5 The Purchaser acknowledges to the Vendor that the Purchaser has made its own assessment as to whether or not the documentation evidencing repayment of the Receivables has been correctly stamped and that no warranty is made or has been made to the Purchaser by the Vendor in that regard. The Purchaser also acknowledges to the Vendor that no claim may be made by the Purchaser against the Vendor in respect of stamping of the documentation evidencing repayment of the Receivables.

7.6 The Purchaser acknowledges that the Purchaser has made and relies only on its independent assessment of whether or not the Asset or any component of it is assignable. The Purchaser acknowledges that the Purchaser has made and relies only on its independent assessment of whether or not the Asset or any component of it is collectable and acknowledges that some of the debtors from whom they may have to seek recovery of the Receivables claim that the Receivables are not owing, are limited recourse or are non-recourse or have been terminated or discharged.

319 Clause 10 of the Asset Sales Agreement reiterated that it did not contradict or modify the Purchaser's obligation to take the Asset on an 'as is, where is' basis.

320 Clause 17 provided that the Asset Sale Agreement contained the parties' entire understanding. It stated:

17. ENTIRE UNDERSTANDING

17.1 This Agreement contains the entire understanding and agreement between the parties as to the subject matter of this Agreement.

17.2 All previous negotiations, understandings, representations, warranties (other than warranties set out in this Agreement), memoranda or commitments in relation to, or in any way affecting, the subject matter of this Agreement are merged in and superseded by this Agreement and shall be of no force or effect whatsoever and no party shall be liable to any other party in respect of such matters.

17.3 No oral explanation or information provided by any party to another shall affect the meaning or interpretation of this Agreement or constitute any collateral agreement, warranty or understanding between any of the parties.

321 The Asset Sales Agreement thus clearly identified the subject matter of the assignment as the specified investor loans and its content was directed to recovery under them or the associated guarantees and securities.

322 The Asset Sales Agreement expressly recognised the possibility that the receivables might not exist or be recoverable, and, that the amounts appearing in Rural's books might be incorrect, but it made no provision for such contingencies. Instead, it provided that Equus took the assignment of the loan contracts on an 'as is, where is' basis. It expressly acknowledged that some of the debtors claimed that the receivables were not owing, were limited recourse or non-recourse or had been terminated or discharged. It nevertheless provided that Rural made no representations and warranties concerning the Asset and that Equus had made an independent assessment of whether the Asset, or any component thereof, was collectable.

323 The clearly limited definition of the Asset the subject of the assignment and the failure to provide for the transfer of alternative rights or remedies connected with, but not in or under the loan contracts (despite the express recognition that the loan contacts might be unenforceable), do not support the view that the assignment of such alternative remedies was intended.

324 The deed of assignment was made pursuant to the Asset Sales Agreement. It also expressly identified only the loan contracts, debts guarantees and securities as the subject matter of assignment. The reference in para 2(b) of the deed of assignment to 'all legal and other remedies' while broad on its face, was, in context, merely an element of a composite phrase which expressly related back to the loan contracts and associated securities [ie: 'for ... matters in the preceding sub-paragraph (a),' which in turn refers to 'the legal right to such debts, interests under the guarantees and its interests under the securities and all interest due and becoming due on the debts.']

325 The language of the deed of assignment, construed according to its ordinary meaning and in its total context (including the Asset Sales Agreement) indicates that the assignment was limited to the loan contracts, debts, guarantees and securities. No basis for the implication of a term extending the assignment to alternative restitutionary rights or remedies was identified. Indeed, the Asset Sales Agreement (pursuant to the terms of which the assignment by deed was made) contemplated that the loan contracts might be non-existent, unenforceable or unrecoverable, but provided that they were sold without warranty as is and that the Asset Sales Agreement comprised the parties' entire understanding. The failure to refer to or provide for the assignment of any alternative remedies in connection with the loans in the event of such contingencies indicates that it was not intended. While a robust construction may be applicable to commercial documents, the subject matter of the assignment in this case did not extend to alternative rights and remedies of a fundamentally different restitutionary nature predicated on the unenforceability of the contracts.

326 The notice of assignment of debt given to Cunninghams Warehouse Sales Pty Ltd ('CWS') dated 14 November 1997 executed by Rural and Equus stated:

... that Rural has sold, assigned, transferred and set over to Equus absolutely and beneficially all its right, title, estate and interest in the debt and under the loan contract with the intention that Equus shall be entitled to all of its rights and remedies against you in connection with the debt and under the loan contract formerly enjoyed by Rural, including rights under any instrument of security therefore, and Rural hereby authorises and directs you to pay Equus any moneys to which Rural, but for the sale, assignment, transfer or set over, is or may become entitled to in consequence of the debt and under the loan contract.

327 Before us, Equus alternatively submitted that the standard notice of assignment of debt to the debtor (exemplified by that in CWS) itself constituted an assignment of restitutionary rights connected with the loan contracts, or at least evidenced the parties' common intention to assign such rights under the deed of assignment.

328 Those arguments were not the subject of the notices of appeal or included in the written submissions. In such circumstances, Equus was not entitled on appeal to rely on the notice of assignment of debt.

329 The argument that a notice of assignment to the debtor constituted an independent assignment was, in any event, unpersuasive. Moreover, language of a subsequent notice to the debtor could not enlarge the scope of the antecedent assignment. To the extent to which it constituted the parties' subsequent interpretation of their bargain, it was not admissible in relation to its construction. As Brooking J stated in FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd:

The view which a party to a contract takes of its effect has no bearing on its construction, whether that view is made manifest by conduct or by express statement...[219]

The Construction of Terms of the Loan Agreements and Factual Findings in Particular Cases

330 The restitution case was sparsely developed at trial. Before us, but not at trial, Equus based its claim on total failure of consideration, contending that its assignor, Rural, obtained nothing for which it bargained. The learned trial judge decided various contractual issues relevant to whether moneys would have been repayable under the loan contracts (had they been enforceable), because in his view, that governed whether the investors' retention of funds was unjust.

331 In my view, the terms of an unenforceable contract and related agreements which bore on a claimant's expectations may be relevant to identifying the benefits or return for which it bargained and whether the defendant's retention of payments was unjust.

332 Given Equus' case of total failure of consideration upon 'collapse of a bargain', and my conclusion that the contemplated state of affairs was informed by the schemes as a whole, the central relevance of whether any amount was payable under the loan contracts has been overtaken.

333 In my opinion, for the reasons set out below, the trial judge did not err in his construction of the loan contracts or his related factual findings. His conclusion that nothing further was, in substance, payable under many of the contracts, was, in my view, correct. It fortified the conclusion that the relevant investors had no prima facie obligation to make restitution, or alternatively that their retention of the loan funds was not unjust. In the two cases in which his Honour concluded that there was a liability to pay under the loan agreements, for the reasons discussed above, wider considerations preclude restitution.

334 Save for Haxton 5261, the determination of the appeals does not depend on the discrete contractual arguments, but, as all were argued before us, I consider them for completeness.

335 In Haxton 5154, CWS 4989, CWS 5223 and Haxton 5261, the trial judge found that although the late payment of an instalment excluded the benefit of the non-recourse provision of the loan agreements, it also constituted a default under clause 7, which accelerated liability to pay the full amount of the principal and interest. As a result of his Honour's construction of clause 7, the creditor's cause of action was statute-barred. That finding is crucial to the determination of the appeal in Haxton 5261, the sole proceeding in which the loan contract was not illegal and unenforceable due to breach of the prescribed interest provisions of the Code.

336 On appeal, Equus submitted that the trial judge's construction was erroneous.

337 The relevant clauses of the loan agreements were as follows:

3C. PRINCIPAL AND INTEREST PAYMENTS

(i) The Borrower shall repay to the Lender the respective sums specified in (i) and (ii) in Part B of Schedule 2 three (3) months from the date hereof and six (6) months from the date hereof respectively in reduction of the Principal Sum.

(ii) The balance of the Principal Sum and any interest owing under Clause 3B (i) and (ii) shall be repaid to the Lender by direct deduction from the income received by the Borrower from the Farm such income being applied firstly in payment of any interest due and payable under Clauses 3B(i) and (ii) hereof and the balance thereafter in reduction of the Principal Sum.

(iii) The Borrower shall have the right on any day appointed herein for the payment of interest or at periods of 3, 6 and 9 months in each year to repay to the Lender:

(a) the whole of the balance of the Principal Sum.

(b) $1000 or any multiple thereof in reduction of the Principal Sum.

(iv) The Borrower by his execution hereof hereby authorises the Manager and the Buyer to pay to the Lender until all monies payable hereunder have been paid, the proceeds of farm income.

Upon any payment of any such sum or sums interest thereon shall immediately abate notwithstanding Clause 3 B(i) hereof.

338 Clause 4(iii) of the loan agreements provided that, subject to certain conditions (including the repayment of the principal repayments referred to in clause 3C(i) by the due date), the lender would have no right of recourse against the debtor for payment of the balance of the principal sum, interest and other costs charges or expenses, other than from the farm income.

(iii) Notwithstanding anything hereinbefore or hereinafter contained and subject expressly to:

(a) the repayment by the Borrower of each of the principal repayments referred to in Clause 3C(i) by the due date for the repayment of each such sum; and

(b) the payment of interest by the due date for each such payment, (or such further time as the Lender in each such case at its sole discretion allows); and

(c) the due performance by the Borrower of the conditions imposed on him by Clause 5 hereof, then the Lender shall have no right of recourse against the Borrower and the Borrower shall have no other personal liability for payment of the balance of the Principal Sum or Interest owing under Clauses 3B(i) and (ii) or any other costs, charges or expenses whatsoever in respect of the balance of the Principal Sum other than out of the income from the farm [sic] as provided in Subclause 3C(ii) hereof.

Subject to all other provisions hereof should the Borrower make default hereunder as to payment of interest or the Principal Sum or any part thereof then the balance of the Principal Sum together with any outstanding interest shall thereupon immediately become due and payable by the Borrower to the Lender and may be sued for and recovered by the Lender in any court of competent jurisdiction. PROVIDED HOWEVER that this Clause 7 shall apply to the following defaults and no others:

(i) a failure by the Borrower to repay to the Lender the sums referred to in (i) and (ii) in Part B of Schedule 2, and

(ii) a failure to repay or pay any balance of the Principal Sum and any interest out of the income received by the Borrower from the Farm during the first five (5) years of the Lease in accordance with Clause 3C(ii) hereof.

341 In relation to Haxton 5261 (and CWS 5233), his Honour held that the reference in clause 4(iii) was to payment of interest by the due date for each payment referred to interest on the two repayments of principal under clause 3C(i) and as one repayment of such interest was not made by the due date and no extension of time for compliance was allowed, the precondition for the operation of the non-recourse provision was not satisfied under those loan agreements.

342 His Honour held that the late repayment of the full instalment of principal due in December 1988 was a default under clause 7 of the loan agreement, which rendered the balance of the principal (together with any outstanding interest) immediately due and payable, Rural's cause of action therefore arose at that date in December 1988 and was statute-barred when it was commenced in March 1998.

343 His Honour rejected Equus's submission that the late payment did not constitute a default under clause 7 because (in contrast to clause 4) clause 7 made no reference to payment by the due date, so that, by inference, time was not of the essence and payment within a reasonable time would avoid default.

344 Before us, Equus submitted that clause 7 merely conferred an option on the lender to require the amount to be due and payable. Equus argued that according to the established approach to the construction commercial documents, if it were not expressly stipulated that time was of the essence, a single late payment would not accelerate liability to pay the entire amount of principal and interest.

345 Further, Equus submitted that clause 4(iii) (stipulating that the benefit of the non-recourse provision was conditional on payment by the due date) was otiose if a late payment rendered the entire amount due under the loan immediately payable.

346 Equus also submitted that the trial judge erred in holding that 'the insertion of the word 'immediately' indicates that there are no days of grace',[220] because, on a proper construction of clause 7, the word 'immediately' was directed towards the consequence, rather than the identification, of the default.

347 Equus submitted that if, contrary to its submission, the late payment constituted a default, Rural waived it by electing to continue to receive payments of principal and interest from the proceeds of sale of the fruit, rather than taking steps to recover the full principal and interest.

348 The loan agreements are imperfectly drafted and contain many inconsistencies. However, in my opinion, when the relevant clauses are read together, his Honour's construction of clause 7 afforded them a coherent operation. It also accorded with the meaning of the language when construed in context. The reference to 'default' was in relation to payment of interest or the principal sum or any part 'hereunder' (that is, under the relevant loan agreement). It would, according to its ordinary meaning, include the failure to pay principal under clause 3C(i) by the due dates there specified. The suggested distinction between the identification and the consequence of the default was, in my view, artificial. Nor did his Honour's construction render clause 4(iii)(a) otiose. As the investors contended, clause 4(iii)(a) may be read with clause 7 to confer both the benefit of a non-recourse provision and immunity from the calling up of the entire loan if the condition were complied with. As his Honour observed, the word 'immediately' appears inconsistent with days of grace. The failure to provide guidance as to the extent of any period of grace fortifies the view that no days of grace were intended.

349 I am not persuaded that his Honour's construction of clause 7 was in error. It follows that action under the relevant loans was statute-barred.

350 In CWS 5223, Equus's restitution claim was dismissed because the loan had a non-recourse provision and the action was statute-barred. The investor, by a Notice of Contention, contended that his Honour erred in failing to hold that CWS was released by reason of its acceptance of an offer constituted by the letter of Rural dated 16 November 1988.

351 His Honour found that the investor's first payment of principal due on 28 September 1988 was made on 22 November 1988 and was therefore late. Although the second payment due on 28 December 1988 was made in time on 15 December,[221] his Honour held that the late payment of the first instalment was a default, triggering the acceleration of liability to pay the full amount due on 29 September 1988 under clause 7 of the loan agreement.

352 By its letter to CWS dated 16 November 1988, Rural stated:

We wish to remind you that your second (and final) loan repayment in relation to your investment in Blueberry Hill Development falls due in December 1988.

To alleviate any concern over the Christmas period we suggest early payment and in this regard we offer you a rebate on your repayment. The rebate will be calculated daily at 16.5% pa and is available now until the due date. Your rebate cheque will be mailed to you on the day your payment is received.[222]

353 The investor submitted both below and before us that the reference in Rural's letter to the 'second (and final) loan repayment' was an offer (which the investor accepted) of release from any further payments (including payments from the proceeds of sale of farm produce) if the December instalment were paid early. Alternatively, the investor submitted that the letter constituted a release of the entire debt under the loan or a waiver of any rights arising from late payment.

I am entirely unpersuaded that the letter and what followed will bear this remarkable interpretation. While it is true that mention is made of the December payment as being the final loan repayment, this is not to be found in any contractual context such as exists in the second paragraph of the letter.[223]

355 In my opinion, his Honour was correct. Construed in context, the relevant statement did not constitute an oblique release of the entire liability or waiver of all rights under the loan contract, but simply offered a discount on, and rebate of, interest, in the event of early payment of the December instalment. The contrary construction attributes undue significance to the word 'final' in isolation and ignores the context, in which it was contemplated that following the borrower's direct payment of two instalments of principal, payments would be made from the proceeds of the sale of produce.

356 As to waiver or variation, reliance was not alleged so as to found an estoppel.

357 In my opinion, the allegations in the Notice of Contention in CWS 5223 are not made out.

358 In Bassat 5084, Equus appealed from the trial judge's dismissal of its claim in restitution on the basis of his finding that the investor enjoyed 'the protection of the non-recourse provisions of [the] loan agreement',[224] the benefit of which (contrary to Equus's submission) was not lost by reason of late payment.

1. The learned trial judge erred in finding that the respondent on 24 December 1987 posted a cheque for $10,000.00 in payment of the second principal instalment, because such finding was contrary to the evidence or the weight of the evidence.
2. The learned trial judge erred in finding that in the ordinary course of post, a letter posted in Melbourne on 24 December 1987 would arrive at Corindi on or before 31 December 1987 because there was no evidence which could properly support the finding and the finding was not in relation to a matter of which the learned trial judge could take judicial notice.
3. The learned trial judge erred in finding that the second principal payment was received by Rural Finance before 31 December 1987 because such finding was against the evidence or the weight of the evidence.

4. The learned trial judge should have found:

(a) that Rural Finance Pty Ltd was entitled to be repaid the amount of the advance as a matter of restitution on the basis of failure of consideration;

(b) that the appellant was entitled to restitution against the respondent.

360 Equus submitted that the trial judge's finding that the second principal payment was received by Rural on time (that is, before 31 December 1987) was against the weight of the evidence which, on a fair assessment, established that the payment was received on 4 January 1988.

The second Bassat 5084 payment of $10,000 was due on 31 December 1987. Mr Bassat said that, at that time, he was employed by IBM in Melbourne. He received a letter from Rural Finance dated 26 November 1987 to which I have referred. The letter requests that correspondence be sent to an address in Corindi, New South Wales. Mr Bassat said that on 24 December, which was a Thursday, he drew a cheque from his IBM Employees Credit Union account. I accept that he did this; a copy of the cheque was produced. He said that he sent the cheque by post on the same day addressed to Rural Finance at the Corindi address. The covering letter dated 24 December 1987 bears a handwritten note, apparently made by a Rural Finance employee, "cheque rec'd 4/1/88". The initial beside this note appears to be "EW". The person was not identified. I accept the evidence of Mr Bassat that, in the ordinary course of post, a letter posted in Melbourne would arrive at Corindi on or before 31 December. This allows three working days for receipt. The notation records receipt Monday 4 January 1988 and this is treated as the date of receipt in the Rural Finance records.

The evidence of Mr Lynch showed that, about this time, Rural Finance was changing its office address. The address at Corindi was its business address up to October 1987 when it moved to Tweed Heads. About Christmas 1987 it moved again to Southport. Its letter to Mr Bassat of 26 November 1987 was on the old letterhead which directed correspondence to its Corindi address.

In all the circumstances, I find that Mr Bassat did in fact post the letter and the cheque on 24 December and I infer that it arrived at Corindi before 31 December. It is likely that it was then forwarded to Tweed Heads or Southport where it arrived on 4 January 1998. Equus bears the burden of proof on this issue. I am not satisfied that it has discharged this burden. Indeed, I find that Mr Bassat sent the cheque to Rural Finance and that it arrived at the given address by the due date. The fact that Rural Finance had moved offices without advising its borrower cannot provide a basis for invoking the penalty provisions of the loan agreement. The second payment in the Bassat 5084 loan was made by the due date.[225]

362 In reaching his conclusions, the trial judge had regard to the accounting records of Rural, admitted pursuant to s 1305 of the Corporations Act 2001 (Cth). He also had regard to the testimony of the following witnesses:

(a) Mr Hennessy, a receiver and manager of Rural;

(b) Mr Anderson (the manager in charge who controlled the records and their storage);

(c) Mr Richardson, (Equus' general manager between 1996 and 2000) who, in September 1998, attended the Labrador, Queensland storage facility and inspected the Rural documents there, including investor ledgers as at 30 June 1987, 1988 and 1989, including a Loans Recourse Register for each year with a record of the dates of payment of the specified repayments of principal; and

(d) Mr Lynch (a Johnson Group employee from 1987 to late 1989 and the secretary of Rural from March 1988 to 29 June 1989).

363 Mr Lynch gave evidence that the critical loan recourse registers were not Rural's records, but had been produced by the receivers. Messrs Hennessy and Anderson rejected that suggestion. His Honour preferred the evidence of Messrs Hennessy and Anderson, due to Mr Lynch's apparent difficulty in recall and the apparent authenticity of the loan recourse registers, including the confirmation of the material they contained by other contemporaneous evidence.

364 His Honour also had regard to letters of Rural addressed to certain investors, reminding them that the payment of principal was late, and that in consequence, the non-recourse provisions were no longer available. Equus relied on such letters (if unchallenged by the relevant investor) as an admission that the payment was late and to resist the defence that it had waived the forfeiture of the non-recourse provisions. Ultimately, His Honour did not accept the letters as part of Rural's books of account. He required them to be proved, because Mr Lynch gave evidence that he and another employee had prepared the letters, but did not send them.

365 In particular, his Honour did not accept the letters where the investor denied receipt. Mr Bassat denied that he received Rural's letter to him dated 11 January 1988.

366 His Honour did not accept that the 'postal acceptance rule' should apply to payments (ie, that the payment was made when the cheque was posted). Where it could be shown that postage had occurred, he took judicial notice that receipt would occur several days later.

367 On appeal, Equus submitted that the records of Rural (which the trial judge acknowledged '...have the appearance of authenticity and the information they contained is, so far as is relevant, confirmed by other contemporaneous evidence'[226] established that the second payment was received on 4 January 1988. In Equus' submission, the trial judge erred in preferring the contrary evidence of Mr Bassat who, in any event, did not assert that he posted the letter on 24 November 1987, but conceded that he could not remember.

368 While acknowledging the advantages of the trial judge recognised in Fox v Percy[227] and like authorities, Equus submitted that to the extent that his Honour's critical findings did not turn on credit, this Court was equally well-placed to determine them; or, to the extent to which an assessment of credit was involved, his Honour had misused his advantages.

369 Equus relied, in particular, upon the following Rural records:

(a) a letter from the investor, R S Bassat to the Secretary of Rural Finance dated 24 December 1987. The letter stated that the accompanying cheque in the sum of $10,000.00 was to '[c]over Principal Repayment due 31 December, 1987'. It contained a handwritten notation - 'cheque rec'd 4/1/08' and was initialled 'EW'. Equus contended that the notation established the date of receipt by Rural;

There was, however, no evidence as to the identity of the author of the notation or the circumstances in which it was written.

(b) a letter of Rural signed by Anthony J Johnson, Managing Director of Rural Finance, dated 11 January 1988, to Mr Bassat. The letter stated:

Specifically, we draw your attention to Clause 3 B (iii) which deals with the non-recourse nature of the loan. This clause states clearly that the continuing non-recourse nature is conditional upon the principal repayments being made by the due date. Our records indicate, in fact, that you were late in effecting your repayments and accordingly we advise that the non-recourse provisions are no longer in effect.

(c) an excerpt from Rural's investor's ledger as at 30 June 1988, which contained an entry for 'Bassett R'. It contained a handwritten notation of '4/1' next to the entry in the 'date banked' column of '5/1/88'. Other entries indicated that payments received before 31 December 1987 were not banked until well into the first week of 1988.

(d) Rural's Loan Recourse Register, which contained an entry for 'Bassett R'. There was an entry in the date paid column of 05/01/88 and a full recourse sum of $90,000.

370 In my opinion, the Rural records on which Equus relied did not, even considered in isolation, unambiguously establish that Mr Bassat's payment was received on 4 January 1987 or that he received the 11 January letter. Further, there was evidence to the contrary, on which his Honour was entitled to rely.

371 In his (unsigned) statement, dated 12 October 2007, Mr Bassat stated:

...on 26 November 1987 I received a letter from Rural Finance calling for my final principal repayment. It contained a direction to address all correspondence to Range Road, Corindi. Once again I drew funds from my IBM Employees Credit Union Account. I drew a cheque for $10,000.00 on 24 December 1987 and by a letter dated that day sent it to Rural Finance at is street address at Range Road, Corindi.

I note that the Statement of Claim alleged that I paid these moneys on 4 January 1988. I can't believe that this is correct since even allowing for the Christmas Break in the normal course of post my letter and cheque must have been received on or prior to 31 December 1987.

372 Mr Lynch's statement described the identification of late payments as follows:

In late 1988 and early 1989, on the instructions of Tony Johnson, another employee, Linda Tedd and I went through all the loan agreements being those for 1987, early 1988, Prospectus and private for 1988 to identify the late payments. Our criteria was that if anybody was three days late then that was to be treated as a late payment. We used whatever records were available to us, but principally the banking.

As far as I was aware we had no procedure in place for recording the receipt of mail or payments and so there was always the possibility that we would make a mistake by relying on banking records or handwritten notes as to evidencing the actual date of receipt of payment.

The situation was complicated because Rural had no staff of its own so people were co-opted from other areas of the office to perform administration tasks from time to time. The organisation had grown quite large in a short period [of] time and process and procedures got left behind.

The exercise was therefore pretty imprecise and I was not confident we could achieve what Tony had asked us to do with any degree of accuracy...

373 Mr Bassat, in his witness statement, denied receipt of the 11 January letter. Mr Lynch (the Rural officer responsible for ascertaining whether payments were late and sending letters to the investors) stated:

I have seen copies of letters on Rural Finance letterhead bearing Tony Johnson's signature and addressed to ... Bob Bassat and dated 11 January 1988...[t]hose letters were part of the bundle of letters prepared by myself and Linda. They were not sent.

374 In cross-examination, Mr Bassat stated that he first had to check his statement, which was based on 'impeccable records' to respond to questions in relation to receipt of the letter (which was '15 or 20 years ago'). The following exchange occurred:

Lets be clear about this. You have no actual memory whether or not you received the original of this letter dated 11 January 1988; is that right? - - - I wouldn't say that. Are you asking me to be absolutely correct in my facts? I want to make absolutely sure it is right.

I'm asking you about your memory. Do you have any actual memory about whether or not you received this letter dated 11 January 1988 - - - Let me read the letter and I will tell you. I believe I did.

You believe you did? - - - Yes.

375 Albeit there was some ambiguity about the ultimate question and Mr Bassat's response, in so far as the witness conceded a belief that he received the letter, in re-examination, he corrected himself. The following exchange occurred:

MR PEARCE: You told my learned friend that you did receive this letter. Do you recall saying that? - - - I do.

Was that a correct answer? - - - I believe not.

Why not? - - - I just re-read the letter. I got a lot [of] correspondence a very long time ago and I was confused about the letter, what it said. I did not get this letter.

376 In cross-examination, Mr Lynch said that cheques came in and would often not be banked for a number of days. He stated:

MR COUPER: ... There was a good deal of incentive for Rural Finance to make sure that when a cheque came into the office it was immediately identified and banked as soon as possible; correct? - - - Not quite correct. Unfortunately we got Tony involved in the middle of it, I'm sorry, but sometimes he could procrastinate a little bit and the controls and the whole lot of the systems would somehow fall out of bed and everything went through across his desk and he was aware of it. Sometimes the cheques would come in and be delayed in banking.

MR COUPER: As you seriously suggesting, Mr Lynch, that Mr Johnson had some interest in delaying the banking of cheque? - - - No, I don't suggest it. I'm just saying this is what had occurred. I would strongly want the cheques or push the cheques in, but because of the type of day and the way that he personally operated, he was the be-all and end-all of the company and sometimes cheques and letters would be struck on his table for a few days.

...

MR COUPER: Can you just explain to His Honour, if you would, what was the exercise that you actually performed? What were the steps involved? ---With Linda Tedd and myself?

MR COUPER: Yes? - - - We went to - well, firstly we had to trace the payments. That was difficult because of the accounting system and the inaccuracy in it being behind also in time was rather difficult. We had to go back to deposit slips to verify who paid when and what date and then go to the loan agreements to work out when the payments were due because there were different dates between the various loan agreements...

...

... But essentially the payments were dug out from the deposit slips from the various notations that were around the office to trace them through. You couldn't just go to a bank statement because a lot of them were identical payments, so you would have a number of bankings of, say, $5,000.

... What I'm really saying is that the accounting records were not up to date and it was difficult to establish who was doing what to whom at what time.

...

377 Mr Bassat, whose testimony his Honour had the advantage of seeing and hearing, gave evidence that it was his usual practice to post a letter on the day of its preparation. Mr Lynch's unchallenged evidence established that Rural's administrative practices were seriously defective and that incoming documents might not be processed for days.

378 The weight attributable to the notation of the date of receipt on Mr Bassat's letter was diminished by the lack of evidence of its author. Mr Lynch's evidence established that Rural's record keeping, processing, correspondence and receipt of documents were in disarray, which would have been aggravated by the office move during the period of the letter's probable receipt.

379 In my opinion, the findings made by his Honour were open and not against the weight of the evidence. His Honour was entitled to find as he did.

380 In Bassat 4540, Haxton 5154 and CWS 4989, the investors contended that the trial judge erred in failing to hold that their liability to repay principal and interest was implicitly limited to the proceeds of sale of the farm produce, by reason of the 'scheme' of the loan agreements, entered into in the context of the other concurrent scheme agreements.

381 In particular, the investors contended that their personal liability to repay principal and interest was limited to the payments referred to in clause 3C [of a typical loan agreement] which is set out at paragraph [337] above.

382 The non-recourse provision absent in the 1989 loan agreements, but included in the other loan agreements, was contained in clause 4(iii), set out in paragraph [339].

383 The investors argued that clause 3C(ii) in all loan agreements should be read as if the word 'only' were inserted after the words 'repaid to the lender' and before the words 'by direct deduction'.

384 His Honour rejected that construction. He concluded that in the Bassat 4540, Haxton 5154 and CWS 4989 loan agreements, there was no non-recourse term.

385 The investors' submission depended not only upon construing the clauses of the loan agreement as a whole, but also on construing together all the other scheme agreements between the investors and the entities in the Johnson Group.

386 While, as discussed above, the total effect of the interconnected agreements of related companies under common control was relevant to determining what the claimant bargained for in the context of an alleged total failure of consideration, in the contractual context, his Honour's construction was not erroneous. The guarantor of the quantum of the proceeds of sale was a separate company, albeit related to Rural, and clause 3 did not place a limit on the balance payable. Indeed, clause 3 entitled the borrower to repay the entire principal sum at specified intervals. Clause 3 assisted the lender by identifying a source of repayment and authorising the direct debit of the funds therefrom, but did not limit the borrowers' liability to that source.

387 In CWS 4989, Equus submitted that the trial judge erred in holding that the investor obtained a valid release pursuant to a document described as a guarantee, which was apparently dated 29 June 1989.

388 The loan agreement in CWS 4989 dated 28 June 1989 did not contain a non-recourse provision. The guarantee was apparently executed with the common seal of JFM and Rural Finance. The document was expressed to have been signed, sealed and delivered by A J Johnson. Despite its apparent date, it was common ground that the guarantee was executed some time in August 1989. It was received by CWS in mid-August 1989.

389 The common seal of Rural was stated to have been affixed to the guarantee by authority of a resolution of the board of Rural in the presence of two persons, A J Johnson and F E Johnson, whose signatures appeared.

390 A historical company search of Rural showed that in August 1989, its directors were F E Johnson and Gregory Morris Johnson. The company search showed that A J Johnson ceased to be a director of Rural on 29 June 1989 (the apparent but not the actual date of the guarantee document). He did not become a director again until 3 October 1994. The search did not show A J Johnson as a secretary of Rural in 1989.

391 The trial judge found that, irrespective of his formal status and appointment, 'Mr A J Johnson was the moving spirit behind the Johnson group of companies and that all of their significant decisions were his decisions'.[228]

392 His Honour found that the apparent signature of F E Johnson was not his signature, as it did not resemble other signatures of F E Johnson in evidence and F E Johnson testified that he could not be sure that it was his signature.

393 The trial judge found that the guarantee was given by A J Johnson personally, JFM and Rural Finance. In the place where A J Johnson signed, the execution clause read: 'signed sealed and delivered by A J Johnson in the presence of...' There was, however, no attesting witness as contemplated.

394 The trial judge found that the investor could rely on the assumption of regular execution pursuant to s 68A(3) of the Code, as Equus (although not 'the company' referred to therein) was its assignee and contested the assumption in that capacity.

395 His Honour held that the guarantee was effective, irrespective of whether the CWS investor gave consideration, because it was signed sealed and delivered by A J Johnson, albeit unattested by a witness and, pursuant to s 73A of the Property Law Act 1958,[229] operated and took effect as a deed.

396 The trial judge construed the 'so called guarantee and indemnity' as a promise to hold CWS harmless, if any of the Johnson Group companies or any other party made a claim for further payment.

397 His Honour did not consider it necessary to make findings on whether the execution of the guarantee was valid, as A J Johnson was a director or a de facto director within the definition in s 5(1) of the Code and, as such, even without the common seal, his signature was sufficient authentication.

398 His Honour concluded that the guarantee was effective to preclude Rural from bringing a proceeding against investor CWS in breach of its promise. His conclusion was fortified because McPherson JA in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd[230] considered that a similar 'guarantee' operated as a release in relation to a loan agreement without an express limited recourse provision.

399 Both before the trial judge and on appeal, Equuscorp submitted that no valid release was granted, on the following bases:

(a) having found that the guarantee document had been executed some time in August 1989 when Anthony Johnson was not a director or secretary of Rural and that the purported signature of F.E. Johnson was in fact not his signature, the learned trial judge should have found that:

(i) there was no assumption which could be drawn by CWS based on s. 68A(3)(b) of the Code; and

(ii) as there was no evidence that in August 1989 Anthony Johnson was held out by Rural as being an officer or agent of the company, there was no basis for any assumption based on s. 68A(3)(c) of the Code;

(b) accordingly, the learned trial judge should have found that CWS was not entitled to assume that the guarantee document had been duly sealed by the company under s. 68A(3)(e) of the Code;

(c) the learned trial judge should have found that in respect of execution of the guarantee, CWS could not rely on the assumptions set out in s.68A(1) of the Code as those assumptions are only relevant to proceedings where an assertion is made "by the company". In these proceedings, the assertion was not being made by the company (Rural), but by Equus;

(d) the learned trial judge should have found that the guarantee was not in fact given by Rural in favour of CWS as:

(i) Frank Johnson (a director of Rural) did not sign the guarantee;

(ii) Anthony Johnson was not a director or secretary of Rural; and

(iii) there was no evidence that in August 1989 Anthony Johnson was authorised to execute the guarantee on Rural's behalf;

(e) alternatively, the learned trial judge should have found that the guarantee was not a deed, there was no consideration for the guarantee and, therefore, the guarantee did not release CWS from its obligations pursuant to the loan agreement; and

(f) the learned trial judge erred in law in finding that on its proper construction the guarantee released CWS from its obligations pursuant to the loan agreement.[231]

400 Before us, Equus contended that, on the evidence, the trial judge was not entitled to find that A J Johnson was a director or authorised to release an investor from liabilities under a loan agreement. Further, the investor was not entitled to rely on s 68A(3)(e) of the Code to assume that the seal of Rural was properly affixed and that the document was that of Rural.

401 The investor contended that it could rely on s 68A(3) of the Code because:

(a) Equus, as an assignee, was bound by the equities which bound the assignee.

(b) The irregularity would be overcome by the rule in Royal British Bank v Turquand ('Turquand').[232]

(c) A J Johnson was 'the moving spirit' behind the Johnston Group and thus a director within the definition of s 5(1) of the Code.

(e) Gummow J did not hold in Australian Capital Television Pty Ltd v Minister for Transport and Communications & Ors ('Australian Capital Television')[233] that s 68A(1) of the Code did not apply to an assertion by an assignee standing in the company's shoes and bound by the equities which bound it.

(f) The investor could rely on the indoor management rule and the rule in Turquand independently of s 68A.

PERSONS HAVING DEALINGS WITH COMPANIES, &c.

68A(1) [Certain assumptions not to be denied by company] A person having dealings with a company is, subject to sub-section (4), entitled to make, in relation to those dealings, the assumptions referred to in sub-section (3) and, in any proceedings in relation to those dealings, any assertion by the company that the matters that the person is so entitled to assume were not correct shall be disregarded.

68A(2) [Persons entitled to assume good title from company] A person having dealings with a person who has acquired or purports to have acquired title to property from a company (whether directly or indirectly) is, subject to sub-section (5), entitled to make, in relation to the acquisition or purported acquisition of title from the company, the assumptions referred to in sub-section (3) and, in any proceedings in relation to those dealings, any assertion by the company or by the second-mentioned person that the matters that the first-mentioned person is so entitled to assume were not correct shall be disregarded.

68A(3) [Persons entitled to make certain assumptions when dealing with company] The assumptions that a person is, by virtue of sub-section (1) or (2), entitled to make in relation to dealings with a company, or in relation to an acquisition or purported acquisition from a company of title to property, as the case may be, are -

(a) that, at all relevant times, the memorandum and articles of the company have been complied with;

(b) that a person who appears, from returns lodged with the Commission under section 238 or with a prescribed State authority[234] under the corresponding provision of a previous law of the State[235], to be a director, the principal executive officer or a secretary of the company has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by a director, by the principal executive officer or by a secretary, as the case may be, of a company carrying on a business of the kind carried on by the company;

(c) that a person who is held out by the company to be an officer or agent of the company has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by an officer or agent of the kind concerned;

(d) that an officer or agent of the company who has authority to issue a document on behalf of the company has authority to warrant that the document is genuine and that an officer or agent of the company who has authority to issue a certified copy of a document on behalf of the company has authority to warrant that the copy is a true copy;

(e) that a document has been duly sealed by the company if -

(i) it bears what appears to be an impression of the seal of the company; and

(ii) the sealing of the document appears to be attested by 2 persons, being persons one of whom, by virtue of paragraph (b) or (c), may be assumed to be a director of the company and the other of whom, by virtue of paragraph (b) or (c), may be assumed to be a director or to be a secretary of the company; and

(f) that the directors, the principal executive officer, the secretaries, the employees and the agents of the company properly perform their duties to the company.

403 By s 68A(3)(e), the investor was entitled to assume that the guarantee was duly sealed by the company (and thus its document) if it bore what appeared to be an impression of the seal, and if the sealing appeared to be attested by two persons, one of whom could be assumed to be a director and the other a director or secretary, either because, relevantly under s 68A(3)(c), the persons were held out by the company to be an officer or agent or, under s 68A(3)(b), they appeared to be a director or secretary from returns lodged with the Commission under ss 238 or 263 or with a prescribed state authority under a corresponding provision of a previous law of the State.

404 F E Johnson appeared from the historical company search in evidence to be a director of Rural, so despite the finding that his signature was not genuine, it was not disputed that s 68A(3)(b) applied in relation to it.

405 In contrast, the trial judge accepted that as at August 1989, A J Johnson was shown to have ceased to be a director on 29 June 1989. Before us, however, Equus acknowledged that there was no return of directors in evidence, but only an historical company search, which did not show the date on which the records of the Commissioner for Corporate Affairs were changed to show that A J Johnson had ceased to act. Equus submitted that, as the historical company search of Rural listed as a 'pre-ASIC document' a Form 61 [viz 'Particulars and Changes of Particulars in Register of Directors, Principal Executive Officer and Secretaries'] it should be inferred that the relevant received form was a notification of A J Johnson's cessation as a director.

406 Assuming that to be so, there was no evidence as to the practices and time-lags, if any, involved in the transferral of the information contained in notification forms to the public record in 1989. The evidence as to whether the public record showed A J Johnson as a director of Rural as at August 1989 was therefore equivocal.

407 It is, however, unnecessary to determine that issue, as in my opinion, the evidence established that (as the trial judge held) A J Johnson was 'the moving spirit' of the company. Further, it established that he was not only a de facto director, but also had implied (if not express) actual as well as ostensible authority to execute releases or vary loan contracts.

408 A J Johnson did not give evidence, but Mr Lynch (the secretary of Rural until 29 June 1989) and F E Johnson gave evidence at trial. Mr Lynch's evidence included the following:

MR COUPER: Are you seriously suggesting, Mr Lynch, that Mr Johnson had some interest in delaying the banking of cheques? - - - No, I don't suggest it. I'm saying this is what had occurred. I would strongly want the cheques or push the cheques in, but because of the type of day and the way that he personally operated, he was the be-all and end-all of the company and sometimes cheques and letters would be stuck on his table for a few days.

...

MR COUPER: You had no discussion with Mr Frank Johnson about that topic? - - - No. If I could just explain the answer. There was one boss in the Johnson group. It was Tony Johnson. So the directions and discussions were all with Tony on the Equus sale of loans et cetera, non-recourse, again with Tony. Frank didn't come into it. He ran the farms. All he wanted to do was keep his budgets operative and his farm operational.

MR COUPER: Mr Johnson, at paragraph 8 of that statement you say, "At an early date in the blueberry project we did discuss our respective roles" - that's you and your brother, Tony - "in the company and we agreed that Tony would have the power to run Rural on a day to day basis. Tony did, however discuss with me any matters of importance, particularly in relation to farm operations." It is right to say, isn't it, that if a decision was required that would substantially affect the financial position of the company, it would require an agreement of you and Tony Johnson before that decision was made? - - - No, not entirely. I really had nothing to do with the overall running of the financial side of the companies at all. I was based in, call it, the paddock. I operated and done [sic] all the development work and controlled that side of the operations. I really had no day to day operations [sic] in the financial or the day to day management of the company.

410 Although Mr Lynch ceased to be the secretary of Rural from the date of A J Johnson's formal cessation as a director, he was an employee of the Johnson Group until late 1989[236] and neither his nor F E Johnson's testimony was restricted to an earlier time. The evidence entitled his Honour to find that A J Johnson publicly exercised authority as Rural's directing mind and will.

411 As such, A J Johnson fell within s 68A(3)(c). Equus nevertheless submitted that it was not subject to the assumptions in s 68A(3) because it was not itself the relevant company but only an assignee therefrom. It relied on Gummow J's statement in Australian Capital Television that the second limb of s 68A(1) (which dealt with proceedings in relation to a company) was concerned with disregarding assertions by the company.[237]

412 In my opinion, his Honour's observation, when taken in context, was not intended to render an assignee immune from the assumptions when it was asserting a company's rights in a proceeding. Rather, it was directed at excluding assertions contrary to the assumptions in s 68A(3) by a 'stranger' in a proceeding to which the company, the other party or parties to the relevant dealings and the stranger were all joined. Gummow J also thought that the limitations in the scope of s 68A were supplemented by the rule in Turquand's case, which continued to develop independently of the statute and would apply in such circumstances to uphold the regularity and validity of the relevant transaction.

413 Moreover, reliance on s 68A was unnecessary, where A J Johnson was, on the evidence, 'the moving spirit' of the company, with actual implied authority to perform the functions of the board, including the execution of a release or variation of the loan contract.

SECTION 80 CONFIRMATION OF CONTRACTS AND AUTHENTICATION AND EXECUTION OF DOCUMENTS

80(1) [Power to make, vary or discharge contract] In so far as the formalities of making, varying or discharging a contract are concerned, a person acting under the express or implied authority of a company may make, vary or discharge a contract in the name of or on behalf of the company in the same manner as if that contract were made, varied or discharged by a natural person.

80(2) [Effectiveness] The making, variation or discharging of a contract in accordance with sub-section (1) is effectual in law and binds the company and other parties to the contract.

...

80(7) [Authentication by signature of officer] A document or proceeding requiring authentication by a company may be authenticated by the signature of an officer of the company and need not be authenticated under the common seal of the company.

415 In Equuscorp Pty Ltd v Glengallen Investments Pty Ltd,[238] Jerrard JA dealt with the absence of a corporate seal on a guarantee signed only by the signature of A J Johnson by concluding:

Nothing really turns on the absence of that seal, because the provisions of s 80(1), (2), and (7) of the Companies Act 1989 (Cth), then applicable as part of the Companies (Code) of Queensland by virtue of s 6 of the Companies (Application of Law) Act 1981 (Qld), made the absence of a seal irrelevant.[239]

That conclusion is equally applicable in the present case.

416 Equus further contended that the guarantee was not under seal and that there was no consideration for the release. While the affixing of the corporate seal does not render a document a deed, in the present case, the guarantee was signed, sealed and delivered by A J Johnson. As the trial judge held, although it was unattested by a witness, by s 73A of the Property Law Act 1958 (insofar as that provision applied), it operated and took effect as a deed.

417 Further, the guarantee, on its face, stated that the consideration was CWS's entry into the acquisition of 10,500 blueberry trees in the Blueberry Hill Development and applying for a loan from Rural for $667,590. It is not clear that the total number of trees were acquired as at the date of the guarantee's execution. The guarantees therefore contemplated the performance of ongoing or future obligations, which also constituted consideration.

418 I am also satisfied that, as the trial judge found, on a proper construction, clause 2 of the loan agreement confined the payments to those specified and no others. Albeit imperfectly drafted, apparently by lay persons, the import of the guarantee (whether it be more accurately a release or a variation) was that the investors' liability under the loan contract was limited to the two capital payments.

419 In my opinion, the appeals by Equus should be dismissed. The appeals by the investors should be allowed.

Haxton 3769/2008 (5154/1998 below) (appellant Haxton)

• Second payment made by due date (withdrawn)
• Construction of cl 3C(ii) of loan agreement
• No assignment of restitutionary claim
• Appellant not liable to make restitution to Equus

Bassat 3770/2008 (4540/1998 below) (appellant Bassat)

• Construction of cl 3C(ii) of loan agreement
• No assignment of restitutionary claim
• Appellant no liable to make restitution to Equus

• Limitation defence not made out, therefore claim not statute barred

• Equus entitled to be repaid the amount of advance as a matter of restitution
• Appellant entitled to restitution against Bassat
• Second payment was made after due date

• Equus entitled to be repaid the amount of advance as a matter of restitution
• Appellant entitled to restitution against CWS
• 'Guarantee' document did not act as release for CWS

• Equus entitled to be repaid the amount of advance as a matter of restitution
• Appellant entitled to restitution against CWS

• No assignment of restitutionary claim
• Letter of 16 Nov 1988 was a release

• Equus entitled to be repaid the amount of advance as a matter of restitution
• Appellant entitled to restitution against CWS

• Equus entitled to be repaid the amount of advance as a matter of restitution
• Appellant entitled to restitution against CWS

[3] See for example Pavey & Mathews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 256-7 (Deane J). See also his Honour's similar comments about the basis for the imposition of constructive trusts in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, 619-620.

[4] Ibid and see also Roxborough v Rothmans of Pall Mall Ltd (2001) 208 CLR 516, 553-554 (Gummow J); Lumbers v W Cook Pty Ltd (in Liq) [2008] HCA 27; (2008) 232 CLR 635, 665 (Gummow, Hayne, Crennan and Kiefel JJ).

[5] See paragraphs [128] to [183] below.

[6] See for example David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353; Roxborough v Rothmans of Pall Mall Ltd (2001) 208 CLR 516 (Roxborough). Compare the remarks of Nettle JA in Ovideo Carrideo v The Dog Depot Pty Ltd [2006] VSCA 6, [33] (Nettle JA).

[7] See for example Roxborough; David Securities Pty Ltd v Commonwealth Bank of Australia (David Securities) [1992] HCA 48; (1992) 175 CLR 353.

[8] For example Equus relied on Rowland v Divall [1923] 2 KB 500 and David Securities .

[9] See particularly, O'Brien v Melbank Corporation Ltd (1991) ACSR 19, 57 where McGarvie J considered that the lender would have 'an arguable claim for restitution' and Fullagar J, who dissented on the issue of whether the loan contract was severable from the investment scheme, also considered that the question of restitution should be referred back to the trial judge and Australian Breeders Co-operative Society v Jones and Others [1997] FCA 1405; (1997) 150 ALR 488, 541-542, where the lender was held to be entitled to restitution of the loan and Amadio Pty Ltd v Henderson [1998] FCA 823; (1998) 81 FCR 149.

[10] See the schedule on page 117 of these reasons.

[11] Byrne J stated ([2007] VSC 553, fn 2):

The interest in each year varied: in 1987 it was a joint venture (Bassat 5084, CWS 5189,). In January 1988 a leasehold (CWS 8277) and in 1988 and 1989 a licence (CWS 5233; Haxton 5261; Bassat 4540; Haxton 5154; and CWS 5989).

[12] [1982] AC 679. Considered in Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499, 505-6 (Sir John Megaw); 507-9 (Lloyd LJ).

[13] (1987) 162 CLR 221; [1987] HCA 5.

[14] Equus did not, however, plead that the investors invested in order to obtain tax advantages.

[15] Agreed Summary, dated 17 December 2008, [5]. * Note that the proceeding numbers at trial do not correspond to the proceeding numbers on appeal. In order to avoid confusion, in these reasons, the trial proceeding numbers are used.

[20] [2007] VSC 553, [7]-[8] (citations in original).

[21] (In CWS 5223, one payment was found to be late and the express non-recourse provision was lost; and in CWS 4989, there was held to be no non-recourse provision.)

[22] [2007] VSC 553, [79].

[24] The reasons for judgment inadvertently contained the non-recourse provision, rather than the acceleration provision. The correct provision has been substituted.

[25] [2007] VSC 553, [116].

[26] [1991] 7 ACSR 19 (Fullagar, McGarvie and O'Bryan JJ).

[27] [2007] VSC 553, [112].

[28] [2007] VSC 553, [120].

[29] Bassat 5084 had a non-recourse provision. CWS 4989 was released by the guarantee and was statute-barred. CWS 5223 was statute-barred.

[30] [2007] VSC 553, [127].

[31] (2004) 218 CLR 471; [2004] HCA 55.

[32] (1988) 164 CLR 662; [1988] HCA 17.

[33] [2007] VSC 553, [132].

[35] [1997] FCA 1405; (1997) 150 ALR 488.

[36] [2007] VSC 553, [143].

[38] [1998] FCA 823; (1998) 81 FCR 149 (Northrop, Ryan and Merkel JJ).

[39] (2001) 208 CLR 516; [2001] HCA 68.

[40] [1996] UKHL 12; [1996] AC 669 (Lords Goff, Browne-Wilkinson, Slynn, Woolf and Lloyd) and [1994] 1 WLR 938 (Dillon, Leggatt and Kennedy LLJ).

[41] [1923] 2 KB 500.

[42] (1992) 175 CLR 353; [1992] HCA 48.

[43] [1914] AC 398.

[44] (1985) 160 CLR 583; [1985] HCA 78.

[45] See, for example, Westdeutsche; Guinness Mahon & Co Ltd v Kensington & Chelsea Royal London Borough Council [1999] QB 215; Kleinwort Benson v Lincoln City Council [1998] UKHL 38; [1999] 2 AC 349; Kleinwort Benson v Birmingham City Council [1997] QB 380.

[46] [1994] 1 WLR 938.

[47] See Goss v Chilcott [1996] AC 788.

[48] The Law of Restitution (2nd ed, 1978) 320-1.

[49] [1987] HCA 5; (1987) 162 CLR 221, 255.

[50] [1987] HCA 5; (1987) 162 CLR 221, 227.

[51] Ibid 255. See Phillips v Ellinson Bros Pty Ltd [1941] HCA 35; (1941) 65 CLR 221, 235 (Starke J).

[56] (1988) 164 CLR 662, 673.

[59] [1992] HCA 48; (1992) 175 CLR 353, 378.

[62] (2001) 208 CLR 516, 550.

[63] [1994] HCA 61; (1994) 182 CLR 51, 78; [1994] HCA 61.

[64] (2001) 208 CLR 516, 542.

[67] Ibid 543. See P Finn, 'Equitable Doctrine and Discretion in Remedies', in W Cornish et al (eds), Restitution: Past, Present and Future (1998) 251, 252.

[69] [1760] EngR 713; (1760) 2 Burr 1005; 97 ER 676.

[70] (2001) 208 CLR 516, 548. See [1760] EngR 713; (1760) 2 Burr 1005, 1008-1012.

[71] [1760] EngR 713; (1760) 2 Burr 1005, 1012; [1760] EngR 713; 97 ER 676, 681.

[72] (2001) 208 CLR 516, 553.

[73] (2008) 232 CLR 535, 665.

[74] [1987] HCA 5; (1987) 162 CLR 221, 257 (Deane J).

[75] [1987] HCA 5; (1987) 162 CLR 221, 257.

[76] [1987] HCA 5; (1987) 162 CLR 221, 256 (Deane J).

[77] [1987] HCA 5; (1987) 162 CLR 221, 257 (Deane J).

[78] (2008) 232 CLR 535, 665 (citations in original) (emphasis in original).

[79] See P Birks, Unjust Enrichment (2nd ed, 2005) and P Birks, An Introduction to the Law of Restitution (1st ed, 1985).

[80] P Birks, Unjust Enrichment (2nd ed, 2005) 102.

[81] For example, in Roxborough, restitution was permitted despite the existence of a valid or fully performed contract. Also see C McLure 'Failure of Consideration and the Boundaries of Restitution and Contract' in S Degeling and J Edelman (eds) Unjust Enrichment in Commercial Law (2008) 209-236.

[82] P Birks, An Introduction to the Law of Restitution (1st ed, 1985), 223, approved by McHugh J in Baltic Shipping Company v Dillon [1993] HCA 4; (1992) 176 CLR 344, 393 and by the plurality in David Securities [1992] HCA 48; (1992) 175 CLR 353, 382.

[83] See David Securities [1992] HCA 48; (1992) 175 CLR 353, 382.

[84] See Westdeutsche, discussed from paragraph [154] to [166] of these reasons.

[85] R Goff and G Jones, The Law of Restitution (7th ed, 2007) [19-005] 492.

[86] C McLure 'Failure of Consideration and the Boundaries of Restitution and Contract' in S Degeling and J Edelman (eds) Unjust Enrichment in Commercial Law (2008) 213.

[87] [1942] UKHL 4; [1943] AC 32.

[89] (1993) 176 CLR 344; [1993] HCA 4.

[90] Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, [1942] UKHL 4; [1943] AC 32, at p 48.

[91] Ibid 350-1 (citation in original).

[92] [1993] HCA 4; (1993) 176 CLR 344, 376-7.

[93] [1942] UKHL 4; [1943] AC 32, 64-5.

[94] [1993] HCA 4; (1993) 176 CLR 344, 378.

[95] (Unreported, Federal Court of Australia, Hill J, 6 June 1989).

[96] [1990] FCA 148; (1990) 23 FCR 1 (Lockhart, Beaumont and Gummow JJ).

[97] [1992] HCA 48; (1992) 175 CLR 353, 375.

[102] [1923] 2 KB 500.

[103] [1989] 1 WLR 912.

[106] [1992] HCA 48; (1991) 175 CLR 353, 383.

[111] A Burrows, The Law of Restitution (2nd ed, 2002) 323-4.

[112] [1985] HCA 78; (1985) 160 CLR 583.

[113] [1913] AC 283.

[114] Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32, 65.

[115] Royal Bank of Canada [1913] AC 283, 296.

[116] (2001) 208 CLR 516, 539 (citations in original).

[119] S Stoljar, 'The Doctrine of Failure of Consideration', (1959) 75 Law Quarterly Review 53, 53.

[120] David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 382; Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 at 389; Goss v Chilcott [1996] AC 788 at 797. (2001) 208 CLR 516, 557 (citations in original).

[121] G Treitel, The Law of Contract, (10th ed, 1999) 979.

[122] (2001) 208 CLR 516, 558.

[123] (1993) 91 LGR 323.

[124] [1994] 1 WLR 938, 943.

[125] [1809] EngR 228; (1809) 11 East 210; (1809) 103 ER 985.

[126] [1994] 1 WLR 938, 945.

[130] [1914] AC 398, subsequently overruled by the House of Lords.

[131] [1994] 1 WLR 938, 952.

[135] [1996] UKHL 12; [1996] AC 669, 682-3.

[136] [1996] AC 788; [1996] NZLR 385.

[137] [2006] VSCA 6.

[138] Ibid [10] (emphasis in original).

[139] (2001) 208 CLR 516.

[140] Ibid. At 555 [102]; see also David Securities v Commonwealth Bank [1992] HCA 48; (1992) 175 CLR 353 at 382. Ibid [28] (citations in original).

[142] [1996] UKHL 12; [1996] AC 669, 722.

[143] (2001) 208 CLR 516, 525.

[145] See also Baltic Shipping v Dillon [1993] HCA 4; (1993) 176 CLR 344, where Deane and Dawson JJ (at 376) stated: 'In particular, the notions of good conscience, which both the common law and equity recognized as the underlying rationale of the law of unjust enrichment, now dictate that, in applying the relevant doctrines of law and equity, regard be had to matters of substance rather than technical form.'

[146] [ 2006] VSCA 6, [28] (Nettle JA).

[147] [1923] 2 KB 500.

[148] [1996] AC 788.

[149] See C McLure 'Failure of Consideration and the Boundaries of Restitution and Contract' in S Degeling and J Edelman (eds) Unjust Enrichment in Commercial Law (2008) 223.

[150] [1988] 12 NSWLR 394.

[151] [1988] 12 NSWLR 394, 411-3.

[154] (1991) 7 ACSR 19, 53.

[157] [1995] FCA 1300; (1995) 62 FCR 1.

[158] (1996) 62 FCR 221.

[159] [1997] FCA 1405; (1997) 150 ALR 488, 535.

[160] (Unreported, Supreme Court of New South Wales, Rolfe J, 20 April 1999).

[161] [1997] FCA 1405; (1997) 150 ALR 488, 535.

[162] Because: it had no connection with the convention of s 169 by the promoters; there was no requirement that a loan be taken from MANL (one investor did not do so); the venture was independent of the leases (additional horses could be, and were, purchased separately from the venture); the lease loan agreements and mortgages were in unexceptional form and imposed obligations that were independent of the venture's success or failure; and MANL assessed the credit worthiness of the lessees/borrowers without reference to their interests in the venture. See [1997] FCA 1405; (1997) 150 ALR 488, 538.

[163] [1997] FCA 1405; (1997) 150 ALR 488, 540.

[170] [1997] FCA 1405; (1997) 150 ALR 488, 538.

[171] K Mason and J W Carter Restitution Law in Australia (1st ed, 1995), 317.

[172] [1998] FCA 823; (1998) 81 FCR 149, 192.

[176] (1995) 184 CLR 102; [1995] HCA 14.

[177] [1998] FCA 823; (1998) 81 FCR 149, 201.

[178] [1995] FCA 1300; (1995) 62 FCR 1, 189.

[179] [1998] FCA 823; (1998) 81 FCR 149, 200.

[181] K Mason and J W Carter, Restitution Law in Australia, (1st ed, 1995) [2608] 881. Also see K Mason, J W Carter and G J Tolhurst, Mason and Carter's Restitution Law in Australia, (2nd ed, 2008) [2608] 903-4.

[185] See Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102, 113-4 (Deane, Dawson, Toohey, Gaudron and McHugh JJ).

[186] [1998] FCA 823; (1998) 81 FCR 149, 197.

[187] (1953) 89 CLR 540; [1953] HCA 101.

[188] (2006) 229 CLR 386; [2006] HCA 41.

[189] (1994) 179 CLR 155; [1994] HCA 9.

[190] [1973] VicRp 14; [1973] VR 161.

[191] M Smith, The Law of Assignment (1st ed, 2007) [12.106], n 4.

[192] Ibid [12.72] and the cases cited therein.

[195] [2005] NSWCA 83; (2005) 63 NSWLR 203, 232.

[197] K Mason and J W Carter, Restitution Law in Australia (1st ed, 1995) [1534] 628. Also see K Mason, J W Carter and G J Tolhurst, Mason and Carter's Restitution Law in Australia, (2nd ed, 2008) [1534] 650.

[199] [2006] HCA 41; (2006) 229 CLR 386, 484 (footnote 424).

[200] See [1994] HCA 9; (1993) 179 CLR 155, 173

[201] See (1952) 89 CLR 540, 602 (Williams, Webb and Kitto JJ).

[202] (1992) 173 CLR 450; [1992] HCA 4.

[203] [1994] HCA 9; (1994) 179 CLR 155, 176.

[205] (1938) 59 CLR 150; [1938] HCA 3.

[206] [1994] HCA 9; (1994) 179 CLR 155, 173.

[207] The Commonwealth v New South Wales [1923] HCA 34; (1923) 33 CLR 1, 20-21 (Knox CJ) and Starke J; Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 509 (Mason CJ, Brennan, Deane and Gaudron JJ).

[208] Minister for the Army v Dalziel (1944) 68 CLR, at p 290; Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR, at p 509.

[209] [1994] HCA 9; (1993) 179 CLR 155, 184 (citations in original). See Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR, 509-510.

[211] [1938] HCA 3; (1938) 59 CLR 150, 160.

[213] (1952) 89 CLR 540, 602 (citations omitted).

[214] (1923) 32 CLR 200; [1923] HCA 23.

[215] (2007) 158 FCR 444; [2007] FCA 151.

[218] 'Receivables' was defined in clause 2 to mean, unless the context otherwise required, 'the book debts, claims or supposed book debts and claims comprising all or any of the Asset'.

[219] [1993] VicRp 76; [1993] 2 VR 343, 351. Also see Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, 164 (Heydon JA).

[220] [2007] VSC 553, [116].

[222] Equus's outline of submissions in reply, dated 16 March 2009, [50].

[223] [2007] VSC 553, [79].

[225] Ibid [39]-[41] (citation omitted).

[227] (2003) 214 CLR 118; [2003] HCA 22.

[228] [2007] VSC 553, [83].

[229] Section 73A of the Property Law Act 1958 states:

73A Sealing of deeds

An instrument executed by an individual on or after the date of commencement of section 4 of the Property Law (Deeds) Act 1977 expressed to be sealed by that individual but not so sealed shall for all purposes operate and take effect as if it had been so sealed.

[230] [1994] QCA 157.

[231] Equus' outline of submission, dated 3 February 2009, [32].

[232] [1856] EngR 470; (1856) 119 ER 886.

[233] (1989) 86 ALR 119.

[234] Vic., Qld, W.A., Tas.: For the words "a prescribed State authority" read "the Commissioner for Corporate Affairs or the Registrar of Companies".

S.A.: For the words "a prescribed State authority" read "the Corporate Affairs Commission or the Registrar of Companies".

A.C.T.: For the words "a prescribed State authority" read "the Registrar of Companies".

[236] Mr Lynch's evidence was as follows:

HIS HONOUR: ... You say you became the company secretary in March 1988 ..., right?

HIS HONOUR: So you joined the group in October 1987, ...

HIS HONOUR: You became secretary [of Rural] in March 1988. In 29 June 1989 you resigned as secretary?

HIS HONOUR: Did you remain on with the Johnson group after 29 June...?

HIS HONOUR: How long did you remain in whatever capacity with the Johnson organisation ... ?

HIS HONOUR: What was your position after you resigned as secretary?

MR LYNCH: I was probably the general factotum, sales, manager.

[237] See (1989) 86 ALR 119, 156.

[238] [2006] QCA 194.