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

Haxton & Ors v Equuscorp Pty Ltd [2010] VSCA 1 - VSCA 2010 case summary — Zoe

[27]

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.
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.

[216]

(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]

[252]

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]

[256]

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]

[369]

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]

[387]

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.

[437]

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]

[465]

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.

...

[497]

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.

At a glance

Court

Decision date

Before

Source

Judgment (706 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (37)