Equus Financial Services Ltd v Glengallan Investments Pty Ltd [1993] QSC 407

I ' at State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporti~~,e~~~;),-·:~·:~;;:~~j f '' .•..••. ~· ....... '-·- ·-·'-~-·k·-' ; i ::::ic.te :·:;~ · .~.<::~ ·: ;::_ _:·.:.:.~J ! i f>.'.l .)j I /~- <-7 3 I '--·'------------ SUPREME COURT OF QUEENSLAND / CIVIL JURISDICTION ( \/0IIITE J (- j ( ' __) No 1688 of 1991 EQUUS FINANCIAL SERVICES LIMITED Plaintiff/Respondent and GLENGALLEN INVESTMENTS PTY LTD Defendant/Applicant BRISBANE .. DATE 10/12/93 .. JUDGMENT 1 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telmhone: fOn 227 4360. Facsimile: f07l 227 .;.;.~? -- 1 of 16 -- 101193 dfc (White J) HER HONOUR: In this matter leave is given to amend the defence in terms appearing in paragraph 5 of the affidavit of Ian Hogg filed on 5 August 1993. Since I have concluded that there has been no absolute assignment under the deed of the subject debt in this action, the provisions of section 199 of the Property Law Act do not apply and Equus has no standing to 10 sue. Accordingly the action must stand dismissed. I will hear argument as to costs. I publish my reasons. 20 HER HONOUR: I order that the respondent/plaintiff pay the applicant/defendant's costs of and incidental to the summons to be taxed and the costs of and incidental to the action to be taxed. 30 / y - /2. - 40 50 60 JUDGMENT 2 -- 2 of 16 -- IN.THE SUPREME COURT OF QUEENSLAND No. 1688 of 1991 Brisbane Before Justice White [Re: Equus Financial Services Limited] BETWEEN: EQUUS FINANCIAL SERVICES LIMITED Plaintiff AND: GLENGALLEN INVESTMENTS PTY. LTD. Defendant REASONS FOR JUDGMENT - WHITE J. Judgment delivered: 10 December 1993 CATCHWORDS: Pleading - striking out - assignment of debt -whether absolute- s.199 Property Law Act 1974. Counsel: Mr. D Cooper for the applicant/defendant Mr. S Couper for the respondent/plaintiff Solicitors: Hearing Date: Gadens Ridgeway for the applicant/defendant Lees Marshall & respondent/plaintiff 5 August 1993 Warnick for the -- 3 of 16 -- IN THE SUPREME COURT OF QUEENSLAND No. 1688 of 1991 Brisbane Before Justice White [Re: Equus Financial Services Limited] BETWEEN: EQUUS FINANCIAL SERVICES LIMITED Plaintiff AND: GLENGALLEN INVESTMENTS PTY. LTD. Defendant REASONS FOR JUDGMENT - WHITE J. Judgment delivered: 10 December 1993 By its summons the applicant/defendant ("Glengallen") seeks to have the within action struck out on the ground that the statement of claim endorsed on the writ fails to disclose a cause of action, that the action be stayed, or alternatively that it be dismissed. The plaintiff/respondent ( "Equus") has sought to recover from Glengallen principal and interest due under a loan agreement entered into on 30 June 1 989 between Rural Finance Pty Ltd ("Rural") and Glengallen. Equus alleges that it is the assignee of all of Rural's right title and interest in the loan agreement which assignment is alleged to have occurred on 7 January 1991. Default in the payment of principal and interest on 30 June 1991, the due date, is alleged and as a consequence the whole of the -- 4 of 16 -- 2 principal. and interest is alleged to be due and owing. The specially endorsed writ is dated 2 October 1991. By its amended defence and counterclaim delivered 6 October 1992 Glengallen denied that the loan agreement referred to in the statement of claim was ever intended to have effect according to its terms, and pleaded that the rights and liabilities of Rural and Glengallen were always intended to be governed solely by the terms of another agreement (the ''operative agreement"). Glengallen alleges inducement by Rural to enter into the loan agreement by representations that the loan agreement was to have no force and effect to the extent that it was inconsistent with or varied from the operative agreement. Those matters are not of concern in this application and I will deal with them no further. In para. 13 of the amended defence and counterclaim Glengallen.admitted the assignment by Rural to Equus and alleged that Equus took the assignment with the knowledge that it had no ri9ht to the payment of any further sum under the loan agreement by Glengallen. The correspondence exhibited to the various affidavits filed in the application reveal that Glengallen's solicitors had some difficulty both in obtaining a copy of the agreement referred to in para. 10 of the statement of claim and identifying which of several versions was the agreement that Equus relied upon, whereby Rural assigned its right title and interest in the loan agreement with Glengallen to Equus. Initially, Glengallen' s solicitors requested a copy on 10 January 1992 pursuant to 0. 35 r. 14 of the Rules. In response they were supplied with a copy -- 5 of 16 -- 3 of an unstamped loan assignment agreement dated 7 January 1991 which was not executed by Equus. In due course Glengallen's solicitors inspected the documents in Equus' two affidavits of discovery but they say that that inspection failed to disclose the agreement whereby Rural says it assigned its interest to Equus. Mr Ian Hogg, solicitor for Glengallen, inspected a loan agreement at the offices of Equus' solicitors on 10 June 1993, and in a letter dated 17 June 1993 Equus' solicitors confirmed that the original loan assignment agreement, inspected on 10 June was "the loan agreement which our client is relying upon in these proceedings". Some weeks later Mr Hogg collected a bound copy of that agreement. It is ex. "C" to his affidavit filed on 30 July 1993 ("Loan Assignment Agreement"C""). Glengallen's solicitors raised with Equus' solicitors that Loan Assignment· Agreement "C" did not contain evidence of the assignment of any loan. It is clear from a perusal of that document that p. 68 was intended to contain a description of the loans contemplated by the agreement but apart from formal headings nothing appears. Equus' solicitors indicated that there was an executed copy of the loan assignment agreement which included a list of the individual loans assigned to Equus by Rural. That Loan Agreemenl is "ex. K.C.S. 2" to the affidavit· of Mr Kelvin Schmidt,· solicitor for Equus ( ... Loan Assignment Agreement K.C.S.2"). It indeed does contain as an annexure ":B" all of the individual loans said to be assigned to Equus. In his affidavit filed on 5 August 1983, Mr Schmidt says that he has consulted with Mr Russo, the managing director of the plaintiff, concerning the execution of the Loan Assignment -- 6 of 16 -- 4 Agreement dated 7 January 1991, which.is referred to in para. 10 of the statement of claim. He was informed that the Loan Assignment Agreement 11 K ._C. S. 2'' was executed in Brisbane by Rural and the borrowing parties at the offices of_ Equus' solicitors. The Loan .Assignment Agreement !'C 11 which was inspected by the solicitors for Glengallen on 10 June 1993, was sent to Melbourne for execution by Equus. Mr Schmidt says that a further copy of the Loan Assignment Agreement dated 7 January 1991 has been identified. That document has been executed by all the parties, apparently contains the same provisions as the two Loan Assignment Agreements referred to above and contains a further sheet identifying Annexure 11 B 11 together with a copy of Annexure IIBII. It appears there is a further original copy of the Loan Assignment Agreement said to be identical in all respects to the Loan Assignment Agreement 11 K.C.S. 2 11 , but which also includes a sheet identifying Annexure 11 B 11 • Mr Schmidt, says that all the documents will b~ relied upon by the plaintiff at the trial if that becomes necessary. It seems plain that if the only document was the Loan Assignment Agreement 11 C 11 , that it could not be relied upon as evidence of the assignment of the subject loan since it does not evidence any,such assignment. Notwithstanding the assertion in the letter of 10 June 1993, Equus will seek to rely upon all of the documents necessary to evidence the assignment at trial, so that those submissions directed . to the sufficiency of the - documentation fail. However, the difficulties which Glengallen has experienced in obtaining a complete understanding of the -- 7 of 16 -- 5 relevant documentation entitles them to leave to amend their defence withdrawing the admission of the assignment. However that does not dispose of the matter. Mr D Cooper for Glengallen submitted that the loan agreement documents are not an absolute assignment of a debt within the meaning of s.199 of the Property Law Act 197 4. In the Deed (the body of both "C'' and "K.C.S. 2" is the same) Rural is described as the assignor and Equus as the assignee. The recitals relevantly provide: "A. B. c. D. The Assignor has financed the purchase of Partnership Units in the Johnson Farm Management Project. The financial arrangements referred to in Recital A are recorded in the Loan Agreements. The Assignor has requested the Assignee to provide certain financial accommodation to it and a~ security for that financial accommodation (the terms of which are set forth in this Agreement) and for the Consideration specified in Ite~ 4 the parties have agreed that the Assignor will assign to the Assignee by way of security the Assignor's interest in the Loan Agreements and the Assignor's rights, remedies and recourse in respect of the same upon the terms hereinafter appearing. 11 "Loan Agreements" is defined as: " 'Loan Agreements' means collectively the Loan Agreements described in Parts 1 and 2 of Annexure B and such other Loan Agreements which th~ Assignee may from time to time approve (in its absolute discretion)as Loan Agreements between the Assignor as lender and various customers (including any Security given insupport of any Loan Agreement) for the purpose offinancing the acquisition by the Customer of Partnership Units and a reference to the 'Loan Agreements' is a reference to any or all of the Loan Agreements as the context shall require;" "Class A Loan Agr~ements" means: " The Loan Agreements specified in Part 1 of.Annexure B." -- 8 of 16 -- 6 "Class B Loan Agreements" means: " The Loan Agreements specified in Part 2 of Annexure B." Glengallen is shown as having a Class B loan in Part 2 of Annexure B ("K.C.S. 2"). Clause 2.2.4 is a provision relating to Class B Loan Agreements to the exclusion of any other provision in the agreement. It provides: "Notwithstanding any other provision of this Agreement the following terms and conditions shall apply to the Class B Loan Agreements. To. the extent that there is any inconsistency between the provisions of this Clause and the other provisions of this Agreement, the provisions of this Clause shall prevail. 2.2.4.1 2. 2. 4·. 3 On or shortly after the date of this Agreement the Assignee shall forward to each Customer (together with the notice referred to in Clause 4. 1 . 2 ( 2)) a letter substantially in the terms of Annexure A2 ("the Letter"). Provided that the Assignee is satisfied as to the creditworthiness of the relevant Customer and that such Customer shall duly sign and return to the Assignee the duplicate of the Letter, then the Assignee will calculate the Consideration for the relevant Class B Loan Agreements in the same manner as provided in Item 4(a) and such Consideration will be paid orapplied in accordance with the provisions of this Agreement~ If the relevant Customer does not duly sign and return to the Assignee the duplicate of the Letter or if the Assignee is for any reason not satisfied with the creditworthiness of that Customer or with the documentation in respect of the relevant Class B Loan Agreement then: upon receipt from the Customer of all or any moneys in respect of payments falling due in June 1991 and June 1992 the Assignee shall be entitled to deduct from the moneys received a collection fee equal to ten percent ( 1 0%) thereof and shall promptly -- 9 of 16 -- 7 account to the Assignor for the remaining ninety percent (90%) of those moneys less any legal or enforcement expenses relating to the collection of those moneys; if the payments falling due in June 1991 and June 1992 are duly and punctually paid to the Assignee by the Customer then the Assignee may in its absolute discretion calculate the Consideration for the present value ofthe relevant Class B Loan Agreement in the manner provided in Item 4(a) and such Consideration shall be paid orapplied in accordance with the provisions of this Agreement; if the Assignee in its absolute discretion decides not to calculate the Consideration as provided in Clause 2.2.4.2 or if the payments falling due in June 1991 and July 1992 are not duly and punctually paid by the Customer to the Assignee then the Assignee shallre-assign the related Class B Loan Agreement and any relevant Security to the Assignor for the consideration of ONE DOLLAR ( $1.00) and thereupon the Assignee shall be released from any obligation to pay any further amount ofConsideration in respect of that Class B Loan Agreement." Clause 17 provides that the law of Queensland is the governing law of the Deed. Section 199 of the Property Law Act provides relevantly: "Any absolute assignment by writing under the hand of assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) topass and transfer from the date of such notice - (a) the legal right to such debt or thing in action; (b) or legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor." -- 10 of 16 -- 8 It. is submitted by Mr Coop~r that the agreement is intended to operate as an old system mortgage and that is demonstrated by . ' reference to.Clause 2.1 of the agreement which provides: '.'Upon payment of the Consideration in the manner herein set out specified in Item 4 the Assignor as beneficial owner separately and severally assigns, conveys and sets over to the Assignee the following: 2. 1 . 1 2. 1 . 2 2.1. 3 2.1. 4 2. 1 . 5 providedAssignee the cost interest assigned with the all of the Assignor's right title and interest in and to each of the Loan Agreements, the Securities and all moneys and damages (to the extent that the same are assignable) which may now or hereafter be or become payable or recoverable under the Loan Agreements; all other moneys and damages (to the extent that the same are assignable) which may now or hereafter be or become payable or recoverable under the Loan Agreements or any of the Securities; to the extent that they are assignable all powers, licences, authorities, rights and remedies vested or which become vested in the Assignor under the Loan Agreements; to the extent that they are assignable all judgments or orders which may have been or be obtained by the Assignor in respect of the Loan Agreements, the Securities or any other rights; all the Assignor's right title and interest in and to and the benefit of any guarantee given to the Assignor for the performance of the Customer's obligations under the Loan Agreements ("the Loan Guarantee"); that if the Assignor shall pay to the the Repurchase Amount, the Assignee shall at of the Assignor reassign to the Assignor all of the Assignor in the Loan Agreements hereby to the Assignee by the Assignor in accordance conditions hereof." Mr S. Couper for Equus argued that the agreement is not to be so characterised if the document is read as a whole. He referred to Clause 9.1 in particular, which provides that the assignor shall upon request in writing by the assignee take a -- 11 of 16 -- 9 re-assignment from the assignee of any loan agreement and any relevant security on the occurrence of any of a number of events set out from clause 9. 1 . 1 to 9. 1 . 7. This submission however overlooks the comprehensive nature of clause 2.2.4 to which I have referred, and which is exclusive for Class B Loans. I accept that it appears that the agreement, in relation to Class B Loan Agreements at any rate, is intended to operate as an old system mortgage. Such a mortgage is an assignment of the legal estate of the mortgagor with provision for redemption and reconveyance. Such an assignment has been held to be within provisions similar to s. 199, Durham Brothers v. Robertson [1898] 1 Q.B. 765 at pp. 771 - 3, but Glengallen submits that the Deed(s) of Assignment is not absolute and is therefore outside the scope of s.199 of the Property Law Act. In Hughes v. Pump House Hotel Company [1902] ·2 K.B. 190 Mathews, L.J. held that the whole of the documentation must be considered to reach a conclusion on such a matter. He said at pp. 193 - 4: "In every case of this kind, all the terms of the instrument must be considered; and, whatever may be the phraseology adopted in some particular part of it,if, on consideration of the whole instrument, it is clear that the intention was to give a charge only, then the action must be.in the name of the assignor;while, on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within s. 25, and the action must be brought in the name of the assignee." The mere fact that the assignment is expressed to be by way of security for a loan, as this does, does not of itself prevent it from being absolute, Hughes v. Pump House Hotel Company, supra p. 197, although, when combined with other factors it may have -- 12 of 16 -- 10 this affect, Mercantile Ba~k of London Ltd. v. Evans [1899] 2 Q.B. 613. Chitty On Contracts Vol. 1 (26th ed.) suggests at para. 1155 that whether an assignment is absolute may be ascertained as follows:- . . "The test seems to be, has the assignor unconditionally transferred to the assignee for the time being the sole right to the debt in question as against the debtor? If so, the assignment will be absolute; but if the debtor cannot tell whether to pay the as signor or the assignee without examining the state of accounts between them, it will be held to be by way of charge only. Much may depend on the language of the particular instrument; in construing it, the Court will look at the whole of its language. The words italicised above are of crucial importance, for it is no concern of the debtor whether the assignor and assignee have some private arrangement for the disposal of the debt after it has been paid by the debtor. Thus the fact that the assignee is to hold the proceeds of the debt, or the surplus proceeds beyond a stated amount, on trust for the assignor does not prevent the assignment from being absolute. 11 "Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee", Norman v. Federal Commissioner of Taxation (1962-63) 109 C.L.R. 9 per Windeyer J. at p. 26. That the arrangement between Rural and Equus is conditional it is said, can be seen from a consideration of certain of the provisions in the Deed. Clause 2 sets out what must occur before the assignment of Rural's interest in the Loan Agreeme~ts is completed, that is:- "Upon payment of the Consideration in the manner herein· set out specified in Item 4 the Assignor as beneficial owner separately and severally assigns, conveys and sets over to the Assignee the following: 11 (Clause 2. 1 ) . Item 4 is as follows: 11 Consideration: (a) As to the Class A Loan Agreements, such amount as the Assignee shall determine from time to time so -- 13 of 16 -- 11 as to ensure the Assignee shall receive the Required Yield. (b) As to the Class B Loan Agreements: (i) an initial consideration of ONE DOLLAR ($1 .00) (the "initial consideration"); (ii) the balance in accordance provisions of Clause 2.2.4." with the Clause 2. 2. 4 provides for the exclusive nature of the within provisions as regards Class B Loan Agreements. It requires Equus to send a notice and letter to each customer in a particular form (they have been received by Glengallen, ex."A" to affidavit of Ian Hogg filed 30 July 1993). If Equus is satisfied as to the creditworthiness of the relevant customer and that customer duly signs and returns the duplicate of the letter to Equus then Equus will calculate the consideration for the particular Class B Loan Agreements in the same manner as provided for in Item 4(a), that is, as for Class A Loan Agreements and the consideration so calculated will be paid or applied in accordance with the provisions in the Deed. If the customer does not sign and return the duplicate of the letter or if Equus is not satisfied as to the creditworthiness of the customer or with the documentation in respect of the particular Class B Loan Agreement, then upon receipt f~om the customer of all or any moneys in respect of payments falling due in June 1991 and June 1992 Equus may deduct from those moneys a collection fee and promptly account to Rural for the remaining amount of money less any expenses. If the payments falling due in June 1991 and June 1992 are duly and punctually paid to~Equus by the customer then Equus may in its absolute discretion calculate the consideration for the present value of the relevant Class B Loan Agreement in the same way as -- 14 of 16 -- 1 2 for Class A Loan Agreements and it shall be paid or applied in accordance with the provisions of the Deed. However, if Equus in its absolute discretion decides not to calculate the consideration as proviqed above or if the payments falling due in "June 1991 and. July [sic] 1992 11 are not duly and punctually paid by the customer then Equus ••shall re-assign the related Class B Loan Agreement and any relevant security to the assignor for the consideration of ONE DOLLAR ($1.00)". The initial consideration of one dollar was paid on 8 January 1991. The statement of claim alleges that the amounts due by Glengallen have not been paid. The letter referred to in } clause 2.2.4.1 has not, it seems, been signed and returned to Equus. On a reading of the Deed I find it impossible to conclude that in relation to the Glengallen Loan Agreement· it either purports to be or is intended to be an absolute assignment by Rural to Equus of its interest in the Glengallen debt, Comfort v. Betts [ 1 891 ] 1 Q.B. 737 at p. 740. It cannot be said that the assignor has unconditionally transferred to the assignee for the time being the sole right to the debt in question as against the debtor. Mr S Couper submitted that if Equus has breached its obligation under clause 2.2.4.3 to re-assign it then holds the interest in the Glengallen debt on trust for Rural and is thus a proper plaintiff. If, as I have concluded, no absolute assignment of the Glengallen debt has occurred then this argument has no merit for the present proceedings. -- 15 of 16 -- 1 3 • Leave is given to amend the defence 'in terms appearing in para. 5 of the affidavit of Ian Hogg filed 5 August 1993. Since I have concluded that there has been no absolute assignment under the Deed of the subject debt in this action, the provisions of s. 199 of the Property Law Act do not apply and Equus has no standing to sue. Accordingly the action must stand dismissed. I will hear argument as to costs. -- 16 of 16 --