Plaintiff v Defendant

2 The plaintiffs' claims arise under a loan agreement said to have been entered into in June 1999 between the first plaintiff's ultimate assignor, the second plaintiff BEP Finance Pty Ltd, and the defendant. That loan agreement was assigned by BEP to Environinvest Limited, the fourth plaintiff (EIL) and then to Primary Yield Finance Pty Ltd, the third plaintiff (PYF) and from PYF to the first plaintiff (ABL).

3 The substantial defence present in the Third Further Amended Defence filed on 2 March 2012 (after denials of the assignments alleged) is that under a put and call option between the defendant and EIL - the defendant was granted a put option, and EIL a call option - under which EIL could be called on to buy certain property, or could call on the defendant to sell that property (presumably the woodlots acquired with the loan moneys) and in consideration pay out the loan. The defendant alleges that on 20 September 2007 he (via his brother Roger Pescott) exercised the put option and in consequence the loan agreement was discharged.

4 In this application to amend the defence the defendant seeks to:

(a) Change in a minor respect the way the defence under the put and call option is pleaded;

(b) Plead unconscionable conduct on the part of ABL in failing to give notice of the assignment until 2008. This defence alleges that if the loan was not paid out as a result of the exercise of the call option (which is the primary defence) then that was because of the failure of ABL to give the notice of assignment earlier, prior to 2007. Had it done so, the defendant could have ensured that EIL paid the funds pursuant to the call option and discharged the loan (paragraphs 7A, 7B and 7C); and

(c) Raise the defence commonly known as an Amadio defence.[1]

19. In 2000 Roger Pescott was:

a. A director of the Blackborne Pty Ltd; (sic)

b. A Director of Environinvest Pty Ltd;

1. The individual who instructed the solicitors who drafted the loan agreement dated 3 July 2000.

PARTICULARS

Roger Pescott is the only brother of the Defendant and other than a sister permanently resident in the United Kingdom the defendant's only living family member. The Defendant has never married and has no children.

1. At the time of the purported execution of the loan agreement the Defendant was under a special disability in that he was at the time:

a. Deaf;

PARTICULARS

Medical records and reports to the effect that the Defendant is profoundly deaf and has been so since birth are available for inspection upon reasonable notice at the offices of the solicitors for the Defendant.

1. Entirely reliant upon the Roger for financial and legal advice; (sic)

c. The defendant's only surviving family member in Australia;

1. Ignorant of his legal entitlements to independent legal advice in reference to the loan agreement;
2. Uncritically and unquestioningly trusting of his brother's advice;
3. Habituated to uncritically and unquestioningly trust and rely upon his brother in financial and legal matters;
4. Unable to efficiently or reliably communicate verbally with people specifically people he did not know or was not familiar with;
5. Ignorant of financial and legal matters and due to his deafness unable to readily acquire new information or take advice on such matters;
6. Had no access to written explanatory information or a prospectus for either the loan or the products purportedly purchased in his name with the borrowed funds;
7. Unaware that the products purchased with the loan funds were in the absence of disclosure or independent advice only available for purchase by "sophisticated investors" as that is defined in the Corporations Act 2001 (Cth).
8. Unaware of the terms and conditions of the loan agreement as he had never read it;

1. Entirely unaware of the consequences of the loan agreement;

1. Did not have sufficient income to meet the payment of principle and interest proscribed in the loan agreement.
2. Had no understanding of the consequences of or obligations created by the Loan Agreement;
3. Was not in a position to make and did not make any judgement as to whether her [sic] own best interest were served by entering into the Loan Agreement.

1. At all material times Roger was aware of the facts pleaded in paragraph 21 above. [sic]
2. In the circumstances it is unconscionable for the lender or any subsequent assignee of the loan to seek to enforce the terms of the loan against the plaintiff.
3. Further, on the face of the loan agreement and in the absence of all or most of the precursor or preparatory documentation that, as a regular course of business, would accompany a loan for $490,000.00 the Plaintiff was on notice that the loans were irregular, undocumented and should have been further investigated by the Plaintiff prior to accepting an assignment of them.
4. Had the Plaintiffs been aware of the true circumstances of the loan, which would and could have been discovered had the Plaintiff conducted the investigations that a reasonable and prudent assignee would have undertaken in the circumstances, the voidability of the Loan Agreement would have been known to the Plaintiff.
5. The voidability of the loans does not arise out of any fault or misrepresentation by the defendants.
6. In the circumstances it is unconscionable for the Plaintiff to now seek to pursue its alleged entitlements to sue on a Loan Agreements it knew or should have known were void or voidable. The special disabilities pleaded above at paragraphs 21 and 22 above were not discovered by the Plaintiff due to its own failure to conduct the reasonable and prudent investigations that it was obliged to undertake in the circumstances. [sic]

6 Like the proceeding brought by ABL against Caroline MacKenzie (S CI 2009 4756) (Caroline's proceeding), in relation to which I have handed down judgment today in respect of a substantially similar application, this proceeding was commenced in 2009 and the statement of claim to which the proposed Fourth Further Amended Defence will plead was filed on 1 September 2011. On 18 February 2014, Associate Justice Daly made pre-trial directions, and the trial was fixed for 20 October 2014 on an estimate of 3-4 days. This proceeding is to be heard at the same time as Caroline's proceeding[2] in which ABL sues Caroline MacKenzie, Roger Pescott's wife. Trial directions have apparently been complied with and the Court Book compiled and filed.

7 Importantly, Euan had previously pleaded an Amadio defence in his Further Amended Defence filed in September 2010. That defence was the subject of a substantial reply in which ABL contended, in effect, that on the facts pleaded the defence was not available. They say that is the case with this pleading.

8 Euan has filed an affidavit sworn on 9 September 2014, the substance of which is:

(a) He retained his current solicitors on 22 August 2014. Before that he represented himself with the assistance of his brother, Roger Pescott. Before that he was represented by Millens, solicitors, until June 2013. He does not say, as does Caroline, that he ceased using those solicitors because of a lack of funds;

(b) Like Caroline, he says the genesis of this application arose from requests by his brother Roger for documents from ABL's solicitors. In consequence of a refusal by those solicitors to provide the documents sought, on the grounds of irrelevance to the issues, it was revealed to him that his defence as filed was inadequate;

(c) He produces a copy of the loan agreement and identifies his signature on it, but says he does not recall signing it nor does he recall ever seeing a copy of the put and call deed that he has identified in the Court Book. He refers to another document, a standard transfer form at page 477 of the Court Book which he does recall signing and which he says did not contain any handwritten figures filled in it as it now appears to have;

(d) He says he was not aware of any power of attorney by him in favour of Roger and refers to something having been signed on his behalf by Roger (paragraph 11 of his affidavit) without identifying what he is referring to;

(e) He says he was aware in general terms that Roger administered a number of companies and trusts and that he, and other family members had shares in the entities. He says that Roger told him that the tree allocations (presumably a reference to his interest in certain woodlots) would be a good investment and on this basis he signed some documents, although he knows not what; and

(f) He confirms his personal circumstances, broadly speaking, so as to show that the matters pleaded in paragraph 20 of the proposed fourth amended defence are substantiated. In addition he refers to the fact that he is not and has never been a sophisticated investor, in the sense required by s 708 of the Corporations Act 2001 (Cth). Clearly he does so for the purpose of confirming the allegation in paragraph 20(j) of the proposed defence.

9 Roger Pescott also swore an affidavit in support of the application.[3] That affidavit was also sworn in support of the application made in the other proceeding between ABL and Caroline MacKenzie (S CI 2009 4756). In that affidavit:

(a) He refers to a letter that he drew for his wife to send to ABL's solicitors in July 2014 seeking discovery of documents relating to the due diligence conducted by ABL before acquiring the loans from EIL, and the response received on 30 July 2014;

(b) He says that the investment in the EIL projects by both Caroline and Euan were ultimately intended to be available to be purchased by EIL under the put and call option agreements. At the time of the loans to Caroline and Euan, respectively, the Pescott family owned 100% of EIL and of the lenders (in the case of this proceeding that was BEP Finance and in the case of Caroline's proceeding it is Blackburne);

(c) He says that at the time the loans were made he was running all of these entities and organised the purchase of some forestry scheme allotments both in his own name, in the name of a family trust and then the names of Euan and Caroline;

(d) He did not see any risk associated with these loans because of the ability to discharge the liabilities by executing the call option;

(e) He says that in 2007 he executed the options on behalf of Caroline and Euan as a sale of EIL was then proposed;

(f) He says that Caroline and Euan were oblivious to the way EIL administered the loan and EIL subsequent failure to apply the sale proceeds to their loans. EIL paid the instalments due under the loans and attended to the administration of them; and

(g) He confirms his brother's lack of financial understanding and his deafness. He says he executed the loan agreement pursuant to a power of attorney whilst Euan produces the loan agreement and confirms that he signed it, as is apparent from the document produced.

10 I refer to the outline of the applicable law set out in the judgment in Caroline's proceeding,[4] as if it were repeated here.

11 As in Caroline's proceeding, ABL contended that Euan's proposed Fourth Further Amended Defence suffers from the same defects. I will not repeat them, nor my responses. They are generally applicable to this case.

12 It may be that in other circumstances Euan's deafness might constitute a disability capable of giving rise to a defence based on the principles exposed in Amadio.[5] But as with Caroline's proposed defence, the elements necessary to establish it in this case are wholly lacking. I need not repeat them. They are set out in my judgment in Caroline's proceeding delivered today.[6]

13 For the same reasons as I have given in Caroline's proceeding, the application is also too late and likely to cause irreparable prejudice to ABL.

14 For the reasons given in Caroline's proceeding judgment, I conclude that with the exception of the minor amendments proposed to be made to the defence based on the discharge of the loan through the exercise of the put and call option, that the amendments sought should be refused and Euan's Summons dismissed.

ABL NOMINEES PTY LTD (ACN 106 756 521) (in its capacity as Trustee of the LIGHTHOUSE WAREHOUSE TRUST NO 8 (ENVIRONINVEST FINANCE))

PRIMARY YIELD FINANCE PTY LTD (in liquidation) (Receivers and Managers appointed)

[1] Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447, 462; ("Amadio").

[2] The orders to this effect were made by Daly AsJ on 11 May 2010. That order relates also to other proceedings.

[4] ABL Nominees Pty Ltd v MacKenzie [2014] VSC 460, [10]-[22].

[5] [1983] HCA 14; (1983) 151 CLR 447.

[6] [2014] VSC 460.