Equuscorp Pty Ltd v Haxton

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: French CJ,Crennan,Kiefel JJ.,Gummow,Bell JJ.,Heydon J.
• Judgment Date: 08 March 2012
• Neutral Citation: [2012] HCA 7,2012-0308 HCA B
• Docket Number: Matter No M128/2010 Matter Nos M130/2010, M131/2010 & M132/2010
• Date: 08 March 2012

Equuscorp Pty Ltd (Formerly Equus Financial Services Ltd)

Appellant

and

Ian Alexander Haxton

Respondent

Equuscorp Pty Ltd (Formerly Equus Financial Services Ltd)

Appellant

and

Robert Samuel Bassat

Respondent

Equuscorp Pty Ltd (Formerly Equus Financial Services Ltd)

Appellant

and

Cunningham'S Warehouse Sales Pty Ltd

Respondent

[2012] HCA 7

French CJ, Gummow, Heydon, Crennan, Kiefel and Bell JJ

Matter No M128/2010

Matter No M129/2010

Matter Nos M130/2010, M131/2010 & M132/2010

HIGH COURT OF AUSTRALIA

Equuscorp Pty Ltd v Haxton

Equuscorp Pty Ltd v Bassat

Equuscorp Pty Ltd v Cunningham's Warehouse Sales Pty Ltd

Restitution — Restitution of benefits derived from unenforceable or illegal contracts — Recovery of money paid as money had and received — Respondents invested in tax driven blueberry farming schemes — Respondents borrowed funds to pay farm management fees — Each investment a ‘prescribed interest’ under Companies Code of each respondent's home State (‘Code’) — Contrary to s 170(1) of Code, no valid prospectus registered when prescribed interests offered — Farming schemes collapsed — Respondents did not repay loan funds — Loan agreements unenforceable against respondents due to illegality — Whether restitution of loan funds available — Whether failure of consideration — Whether respondents' retention of loan funds unjust.

Personal property — Alienation of personal property — Assignment of choses in action — Assignment of right to restitution — Deed of assignment included assignment of legal right to debts and ‘all legal and other remedies’ — Whether right to restitution capable of assignment — Whether deed of assignment assigned right to restitution.

Words and phrases ? ‘bare right of action’, ‘chose in action’, ‘failure of consideration’, ‘legal and other remedies’, ‘money had and received’, ‘prescribed interest’, ‘unjust enrichment’.

Companies Code, ss 170, 174.

Property Law Act 1974 (Q), s 199(1).

Judicature Act 1873 (UK), s 25(6).

Representation

B W Walker SC with R M Peters for the appellant in each matter (instructed by Lander & Rogers Lawyers)

J D Merralls QC with M D Rush for the respondents in M129/2010, M131/2010 and M132/2010 (instructed by Hillhouse Burrough McKeown Pty Ltd)

M R Pearce SC with M J Campbell for the respondents in M128/2010 and M130/2010 (instructed by Hillhouse Burrough McKeown Pty Ltd)

ORDER

In each appeal, the order of the Court is:

Appeal dismissed with costs.

French CJ, Crennan AND Kiefel JJ.

Introduction

1 Equuscorp Pty Ltd (‘Equuscorp’), the appellant in these appeals, seeks the assistance of this Court to recover money advanced under loan agreements which were made in furtherance of an illegal purpose. They were an important part of a number of failed tax driven investment schemes in which members of the public were invited to invest in a blueberry farming enterprise (‘the schemes’). The attraction for investors was that non-farmers could invest in farming businesses and claim amounts expended on farming enterprises as tax deductions in relation to their non-farming incomes. The invitations to invest in the schemes were made in contravention of the requirements of the law regulating the issue of prescribed interests.

2 Equuscorp was not a party to the loan agreements. They were made by Rural Finance Pty Ltd (‘Rural’), which was a member of a group of companies controlled by the promoters of the schemes. Equuscorp, as an arms length financier of the group, took an assignment of the loan agreements from the receivers and managers of Rural after the enterprise collapsed. It sued the investors under the loan agreements. The agreements were found to be unenforceable for illegality, having been made in furtherance of an illegal purpose. Equuscorp claimed in the alternative for restitution of the advances made under the agreements as money had and received.

3 The Court of Appeal of the Supreme Court of Victoria held that the right to claim for restitution had not been available to Rural and, therefore, was not available to Equuscorp and that, in any event, the assignment of the loan agreements did not extend to the right to claim such relief. Equuscorp has appealed to this Court against the decisions of the Court of Appeal in five cases affecting three investors in the schemes. Its argument in support of the appeals involved the following propositions:

For the reasons that follow the first and third of those propositions fail. The illegality that rendered the loan agreements unenforceable also deprived Rural of the right to claim for money had and received by way of advances under those agreements. The restitutionary rights, had they existed, would have been assignable but on the proper construction of the deed of assignment (‘the Deed’) were not assigned to Equuscorp. The appeals should be dismissed with costs.

• (i) That Rural had a right to claim against the respondents for money had and received on account of the receipt by them of advances under the loan agreements notwithstanding the unenforceability of those agreements.

• (ii) That if Rural had a right to claim for money had and received, that right could be assigned — this proposition was in answer to notices of contention filed by the respondents asserting that the restitutionary claims were not assignable.

• (iii) That, if a cause of action for money had and received as against each of the respondents was assignable, it had been assigned to Equuscorp.

Factual background

4 Each of the respondents invested in the schemes promoted over the course of several financial years during the mid to late 1980s by brothers Anthony and Francis Johnson. The farming activities were conducted on land at Blueberry Hill, between Coffs Harbour and Grafton in the north- east of New South Wales (‘the land’). The registered proprietor of the land was Corindi Blueberry Growers Pty Ltd (‘CBG’) which was controlled by the Johnson brothers. Over the course of time investments were made in the schemes in five separate tranches in June 1987, January 1988, June 1988, March 1989 and May 1989. Each of the respondents in these matters invested in at least one of these tranches. Despite some differences in relevant documentation the schemes contained common elements. They were:

The schemes were designed so that — upon entering into a farm agreement, a management agreement, a loan agreement and a sale agreement, each with a counterparty controlled by the Johnson brothers — an investor obtained an interest in a blueberry farm and the blueberry farming business, with the hope of future profits and capital appreciation, together with the immediate benefit of a significant tax deduction which could be claimed against non-farming income.

• • investors were invited to execute a farm agreement with CBG, whereby each investor acquired rights in respect of a part of the land (‘the farm’) for a consideration of $1 per annum for six years and 35% of the net profit of the farm for the seventh to 12th years inclusive. The investor was obliged to maintain the plants on its farm and to harvest the blueberry crop;

• • to discharge those obligations investors entered into a management agreement with Johnson Farm Management Pty Ltd (‘JFM’) which would perform the investor's maintenance and harvesting obligations for an annual fee fixed for the first six years and thereafter calculated on a recovery plus profit-share basis. JFM, like CBG, was controlled by the Johnson brothers 1. Fees could be prepaid in whole or in part. Prepayment attracted a discount and it was expected that management fees were tax deductible expenditure;

• • investors could, at their option, enter into a loan agreement with Rural whereby Rural would finance the investor's prepayment of management fees to JFM under the relevant management agreement;

• • each investor also entered into a sale agreement with another company controlled by the Johnson brothers, Kathleen Drive Stone Fruit Growers Syndicate No 1 Pty Ltd (‘the buyer’), whereby the first five years' produce from the blueberry farms was presold to the buyer at a guaranteed price.

5 The loan agreements, each of which was for a term of years 2, contained similar elements but also varied between the schemes in important respects. The relevant elements may be summarised as follows:

• • in each case the investor was required to make two initial repayments of capital, three and six months from the date of execution of the agreement;

• • each of the loan agreements, except that used for the 1988–1989 year, contained a non-recourse provision such that if the investor made the initial payments Rural's right to repayment of the balance would be met only by recourse to the proceeds of fruit sales. The non-recourse provision was conditioned upon compliance with certain terms, such as making the initial payments by the due date;

• • the loan agreements each authorised the buyer to pay the proceeds of the sale of fruit to Rural;

• • each loan agreement contained a provision charging the investor's interest in the farm, or the net proceeds of the farm, as security for the repayment by the investor of the principal and interest due to Rural under the loan agreement (‘Investor Charge’). Each investor was required, on request, to

  execute a mortgage, charge or crop lien over the investor's interest in the farm (‘Investor Mortgage’); and

• • the loan agreements used in June 1988 and in 1988–1989 included an acceleration provision which made the balance of the loan and interest immediately due and payable upon a default in payment of the principal or interest. The acceleration provision was not present in the forms of loan agreements used for the other schemes.

6 The making of the loans followed a familiar and circular path. Rural would draw a cheque on its bank account payable to the investor for the amount of the investor's...