MIS Funding No 1 Pty Limited v Beefeater Sales International Pty Limited

By a statement of claim filed on 8 April 2014, the plaintiff, MIS Funding No 1 Pty Limited (MIS), a wholly owned subsidiary of Commonwealth Bank of Australia, seeks to recover from the first defendant, Beefeater Sales International Pty Ltd (Beefeater), the sum of $541,757.35 together with interest said to be owing under a loan agreement dated 28 June 2001 (the Loan Agreement) made between the third defendant, Willmott Finance Pty Ltd (WFIN), as lender and Beefeater as borrower. The Loan Agreement was entered into in connection with a registered managed investment scheme called the “Willmott Forests – Professional Investor – 2001 Project” (the Scheme) promoted by Willmott Forests Limited (WFL), which agreed to manage the Scheme in accordance with an investment deed dated 12 June 2001 (the Investment Deed). MIS makes its claim as the assignee of WFIN’s rights under the Loan Agreement pursuant to a Loan Transfer Deed dated 30 June 2006 between it, WFIN and WFL.

In the alternative, if the Loan Agreement is unenforceable, MIS seeks to recover the money advanced by WFIN as money had and received. MIS also seeks to recover the amount it claims from the second defendant, Mr Peter Woodland, pursuant to a guarantee Mr Woodland gave of Beefeater’s obligations under the Loan Agreement.

Beefeater has filed a cross claim claiming amounts of interest it has paid to MIS totalling $215,664.81 on the basis that those amounts were paid by it in the mistaken belief that they were due under the Loan Agreement.

WFIN, which is now in liquidation, filed a submitting appearance.

The Scheme involved the growing of pine trees on land owned by WFL.

The Scheme was described in an Information Memorandum issued by WFL. In order to invest in the Scheme, an investor was required to complete an application form that was attached to the Information Memorandum for a minimum number of 67 “Hectares” (or such other number as WFL determined) and, on acceptance of the application, to enter into a Lease Agreement and Forestry Management Agreement with WFL. By the terms of the application form, an investor also agreed to be bound by the terms of the Investment Deed. “Hectares” is not defined in the Application Form, nor in the Information Memorandum.

The application form offered two payment options. Option A involved the payment of cash of $8,250 per Hectare payable at the time of application. Option B, described as “Finance”, involved the payment of a deposit of $1,650 per Hectare payable on application and a payment of the balance of $6,600 per Hectare within 30 days. Under cl 5 of the application form, an investor irrevocably appointed WFL as the investor’s attorney to execute and complete the Forestry Management Agreement and Lease Agreement.

An investor who selected the Finance option was required to complete an application for finance from WFIN, which was a wholly owned subsidiary of WFL. The purpose of the loan was described in the application form as “FORESTRY INVESTMENT”.

On 26 June 2001, Mr Woodland, on behalf of Beefeater, signed an application form for 67 Hectares and elected to take the Finance option. Mr Woodland drew a cheque on an account in the name of Woodland Home Products Pty Ltd with the State Bank of New South Wales for the sum of $110,550 in favour of WFL and on the same day completed a loan application form for the amount of $442,000. At the same time, Mr Woodland signed a guarantee and indemnity of Beefeater’s obligations under the Loan Agreement (the Guarantee).

On 5 July 2001, WFL wrote to Beefeater confirming that it had accepted Beefeater’s application for 67 Hectares and enclosing, among other things, counterparts of the Forestry Management Agreement and Lease Agreement both dated 4 July 2001 that it had signed on Beefeater’s behalf in exercise of the power of attorney granted to it. The power of attorney had not been registered.

Under the terms of the Forestry Management Agreement, WFL agreed “to carry out the works and services set out in the attached schedule in respect of the Leasehold Property in accordance with the terms and conditions set out below”. The “Leasehold Property” was defined to mean the land comprised in certificate of title described as “Auto Consol 13188-145 (Lot 48: DP756837)”.

Clause 4 of the Forestry Management Agreement provided:

Clause 10 provided:

The Lease Agreement, although not in registrable form, provided:

The leased land is described as certain numbered blocks “on the Plan annexed hereto being 67 hectare(s) and part of the land described below but always reserving to the lessor and to all others authorised by the lessor with or without vehicles or machines unrestricted rights of way over any present or future pathway or firebreak on the land.” The “land described below” was the land comprised in the certificate of title referred to earlier. The term of the lease was expressed to be for 24 years with a further term of “5 years or until such time as the Trees have been harvested and the land made good, whichever is the sooner”.

Under cl 1(a) of the Lease Agreement, Beefeater “may use the land only as part of a managed investment scheme by which investors including [Beefeater] (“Growers”) participate in the establishment and maintenance of trees (“Trees”), which scheme is managed by the lessor”.

Also on 5 July 2001, WFIN wrote to Beefeater confirming that its loan had been approved. The letter enclosed a Loan Agreement and a direct debit request, which Beefeater was requested to complete. Beefeater returned the signed Loan Agreement to WFIN on 17 July 2001.

Clause 1 of the Loan Agreement provides:

Under cl 4(c) of the Loan Agreement, Beefeater agreed “to pay all costs, charges and expenses of WFIN in entering into, exercising any of its rights under and enforcing this agreement (including legal costs on a full indemnity basis) …” .

Clause 11 of the Loan Agreement provides:

By clause (a) of the Guarantee, Mr Woodland agreed to guarantee Beefeater’s obligations under the Loan Agreement. Clause (d) of the Guarantee provides:

The amount advanced under the Loan Agreement was not paid to Beefeater and there are no records of WFIN in evidence showing the payment of the amount borrowed to WFL or records in evidence of WFL showing a receipt by it of the amount borrowed.

Each year from 2001 until 2010, Beefeater received an annual report or growers report from WFL describing the progress of the Scheme.

On 30 June 2006, WFIN, WFL and MIS entered into the Loan Transfer Deed. Clause 2.1 of that deed provides:

“Loan” is defined to mean “any debt or part of a debt owing by a Debtor to a Seller or the Purchaser under the loans identified in the Settlement Report”. A loan of $442,000 owing by Beefeater to WFIN is one of the loans identified in the Settlement Report.

“Related Security” is defined to mean:

Clause 2.4 of the Loan Transfer Deed provides:

Under the terms of the Deed, MIS was entitled to perfect its title by giving notice of the assignment to borrowers if, among other things, an “Insolvency Event” (defined to include the appointment of a “’controller” within the meaning of s 9 of the Corporations Act 2001 (Cth) or the appointment of a liquidator to WFIN) occurred.

By cl 8.1(f) of the Deed, WFIN agreed to indemnify MIS against all loss suffered by MIS in relation to “the payment by [MIS] of an amount in respect of the Purchase Price of a Loan where that Loan is not in existence on the Effective Date”.

WFL established a number of schemes concerned with the growing of pine forests. It got into financial difficulties and, on 6 September 2010, receivers and managers were appointed to both it and WFIN. Relying on that event, on 13 October 2010, MIS exercised its right to perfect the assignment of the Loan Agreement to it by giving notice to Beefeater of the assignment of its loan.

In March 2011, both WFL and WFIN went into liquidation.

Following those events, Beefeater stopped making payments under the Loan Agreement.

Clause 14 of the Loan Agreement permitted WFIN to give a “Dobbs certificate” in respect of the amount payable under the agreement. It provides:

Purportedly in exercise of that right, on 24 July 2015, Mr Mohammed Fahad, a business client manager of MIS, gave a certificate in relation to the amount payable under the Loan Agreement relevantly in the following terms:

Beefeater resists the claim against it on two grounds. First, it submits that MIS has not established that the funds were advanced. It is accepted that WFIN did not pay the money advanced to Beefeater. According to Beefeater, there is no evidence that it was paid to WFL either.

Second, Beefeater submits that, even assuming that the funds were paid to WFL, they were not paid to acquire “Hectares” as required by cl 11 of the Loan Agreement. It says that for two reasons. First, it submits that, in order to acquire “Hectares”, Beefeater had to acquire a legal lease of the relevant land and it did not do so under the Lease Agreement because the lease was for a period of more than three years and was not registered as required by s 53 of the Real Property Act 1900 (NSW). Second, it submits that, even if it was sufficient to acquire “Hectares” for Beefeater to acquire an equitable lease it did not do so under the Lease Agreement. In support of that contention, it relies on s 163 of the Conveyancing Act 1919 (NSW) (as it existed at the relevant time). Section 163(2) provided that “no conveyance or other deed not being a lease or agreement for a lease for a term not exceeding three years, and no memorandum by this Act operating as a deed executed by the attorney under the power in pursuance of the power shall be of any force or validity whatsoever unless the instrument creating the power has been registered”, although the sub-section contains a proviso to the effect that the relevant instrument takes effect if and when the power of attorney is registered. Beefeater also submits, relying on the decision of Hargrave J in Equuscorp Pty Ltd v Belperio [2006] VSC 14, that the lease is void for uncertainty because it does not clearly identify the land the subject of the lease.

To the extent that MIS’s claim is a claim for money had and received, Beefeater resists the claim on a number of bases. First, it contends that no money was advanced. Second, it contends MIS is not entitled to make the claim. Any claim belonged to WFIN and was not assigned to MIS. Third, Beefeater contends that it changed its position by applying the funds in the way that it did. In addition, Beefeater claims that MIS is not entitled to rely on the certificate given under cl 14 of the Loan Agreement because only WFIN was entitled to give that certificate.

It is not disputed that if the claim under the Loan Agreement succeeds against Beefeater, then MIS is also entitled to succeed against Mr Woodland for the same amount. On the other hand, Mr Woodland submits that he is not liable under the Guarantee to the extent that MIS’s claim is a claim for money had and received and that claim succeeds. That is because the indemnity given by Mr Woodland in cl 4(d) of the Guarantee is not sufficiently wide to cover a liability for an action for money had and received.

In my opinion, it is more likely than not that the $442,200 was advanced and paid directly to WFL as contemplated by cl 11 of the Loan Agreement.

There is no direct evidence of payment by WFIN to WFL of that amount on behalf of Beefeater and no direct evidence of the receipt of that money by WFL. MIS relies on cl 1 of the Loan Agreement as containing an acknowledgement that the loan was made. However, I do not think that the clause goes so far. The clause contains an acknowledgement that “the Loan is made to me/us for the purpose of …”. The acknowledgment is not an acknowledgment that the money has been paid but rather that it will be applied for a particular purpose. There are, however, other reasons for thinking that the money was paid.

First, in my opinion, the certificate given by MIS under cl 14 is evidence that the amount was advanced, since according to that certificate the amount owing to MIS as at 24 July 2015 pursuant to the Loan Agreement was $647,525.66.

Beefeater submits that MIS was not entitled to give that certificate on four main grounds. First, it submits that the certificate could only be given by WFIN and the right to give it could not be assigned to MIS. Second, and connected to the first point, it submits that the certificate could only be given by a duly authorised person and Mr Fahad was not such a person. Third, it submits that it could not be given where the loan never came into existence, as is the case here. Fourth, it submits that the certificate only creates an evidentiary presumption that has been rebutted in this case.

I do not accept these submissions.

A number of the submissions depend on, or are said to be supported by, comments made by Young J in Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284. But that case turned on the particular terms of the clause in question. In that case, the clause provided that the certificate was conclusive evidence of the facts stated in it and that the certificate had to be signed by, among others, a “duly authorised officer of the Mortgagee”. Young J expressed the view that such a clause had to be construed strictly. His Honour held that the certificate did not meet the requirements of the clause because, among other things, it was not apparent on the face of the certificate that it had been given by a duly authorised officer. Here, however, the certificate is not conclusive evidence of the facts stated in it and the requirement is that it be given by “you”, meaning WFIN.

The right to give the certificate was a right conferred by the Loan Agreement and, if the rights under the Loan Agreement were assignable, which they were, then those rights included the right under cl 14. There is nothing about the right to give the certificate that makes it personal to WFIN. It is to be expected that an assignee would have current knowledge of what was owing under the Loan Agreement. Consequently, an assignee appears to be an appropriate person to give the certificate. The effect of issuing a certificate simply was to place the onus of disproving the relevant facts on Beefeater. There is no reason why the parties should not have intended an assignee to take the benefits of that right. WFIN, and any corporate assignee, had to act through its employees and agents. It is reasonable in those circumstances to interpret the word “you” in cl 14 to mean that the certificate could be given by an employee or agent of WFIN (or its assignee).

As to Beefeater’s third point, the question is not whether the loan came into existence, but whether the Loan Agreement did. It plainly did. No reason is advanced for why it should be treated as having come to an end because there are disputes concerning whether money was advanced under it or not.

As to Beefeater’s fourth point, in my opinion, it has not led any evidence which would rebut the evidentiary presumption created by cl 14. Beefeater points to the fact that MIS has detailed records concerning the payment of $110,550 by Beefeater but no records concerning the payment of $442,200 by WFIN. The records that would have recorded any payment were not records of MIS. Consequently, I do not think anything can be inferred from the absence of records showing the payment of the $442,200 from WFIN to WFL.

The second matter that provides evidence that the payment was made was that WFIN was required to make the payment in accordance with its contractual obligations under the Loan Agreement and the payment was made to discharge Beefeater’s contractual obligations to WFL. No one suggested at the time that those contractual obligations had not been complied with.

Third, and connected to the second point, although the evidence is scant, it is apparent that WFL sought to develop the Scheme in accordance with its obligations under the Forestry Management Agreement and Investment Deed. It provided Beefeater with annual reports in relation to its progress; and there is no evidence to suggest that those annual reports were inaccurate. WFL no doubt expected to be remunerated for the work that it did in accordance with the requirements set out in the agreements by which an investor invested in the Scheme. WFL had a right under cl 10 of the Forestry Management Agreement to recover from Beefeater the balance of any application moneys which were due and payable by Beefeater to it, which included the amount to be advanced under the Loan Agreement. The expectation is that if WFL had not received the $442,200, it would have sought to recover that amount from Beefeater in order to fund the work it did in connection with the Scheme. However, there is no suggestion that it did so. It may be inferred that that is because WFIN paid the balance of the subscription moneys payable by Beefeater in accordance with its contractual obligations. The fact that WFL and WFIN were closely related does not affect this inference. It can be inferred that WFL needed money to operate. Absent any other evidence, it is to be expected that if it did not obtain that money directly from investors it would have obtained it from WFIN in accordance with the agreements that the parties entered into.

Fourth, computerised financial records maintained by WFIN show a loan owed by Beefeater. A printout from those records was admitted into evidence. The earliest entry on the printout is dated 1 December 2002, and there is no record showing the actual advance being made. However, the tendered records show that, at least from 1 December 2002, Beefeater owed WFIN the amount of $442,200 and that it was charged and paid quarterly interest on that loan of $9,673.13. The printout and the payments by Beefeater of interest is evidence that the loan was made.

Fifth, there are other records that are consistent with the loan having been made. In particular, the Loan Transfer Deed records a loan owed to WFIN by Beefeater in the sum of $442,200.

I accept that Beefeater did not, for the reasons it gives, acquire a legal or equitable lease of the blocks identified in the plan attached to the Lease Agreement. The Lease Agreement was not registered, nor was the power of attorney under which it was executed. It follows from the first fact that Beefeater could not have acquired a legal lease. It follows from the second that Beefeater could not have acquired a leasehold interest at all, at least until the power of attorney was registered, which it never was. Unlike the position in Equuscorp, there was no expert evidence before me on whether it was possible from the plan to identify the precise boundaries of each block. However, on the face of it that does not appear possible because no measurements are marked on the plan, and although a scale is given the plan does not appear to be sufficiently precise to be able to determine the exact location of each block. There is a question whether the Lease Agreement should, despite its title and a number of its provisions, be treated as a licence to use the relevant blocks. However, it is not necessary to resolve that question in this case. Whether the Lease Agreement gave rise to purely contractual rights or not, in my opinion, WFIN complied with cl 11 of the Loan Agreement.

Clause 11 of the Loan Agreement authorised WFIN to pay the principal to WFL to acquire a particular bundle of rights described as “Hectares”. That bundle of rights is defined in the Loan Agreement by reference to the bundle of rights for which Beefeater had applied pursuant to its application form dated 26 June 2001, including the rights under the Management Agreement and the Lease Agreement. “Hectares” is not defined in the Loan Agreement in a way that seeks to identify independently the nature of those rights, so as to put WFIN on enquiry concerning whether those rights were obtained under the relevant agreements or not. In particular, there is nothing in the Loan Agreement which states or suggests that “Hectares” were only acquired for the purposes of the Loan Agreement if a leasehold interest was acquired in the relevant blocks. The parties to the various agreements may have assumed that the blocks were being leased to Beefeater for the purpose of the Scheme, and there are obvious indications in the Lease Agreement that it was intended by that agreement to grant a lease that could be registered. But it does not follow from that, that there was a promise by Beefeater in cl 1 of the Loan Agreement only to use the borrowed moneys, or a promise by WFIN in cl 11 only to pay the borrowed moneys, for the purposes of a Scheme that had as one of its attributes that the blocks on which the trees were to be grown would be subject to a legal or equitable lease.

The point of the previous paragraph is reinforced by considering the position if WFIN had actually paid the principal to Beefeater. In that event, if Beefeater had then paid the money to WFL, it would, on its case, have been in breach of cl 1 of the Loan Agreement since it would have paid the money without obtaining Hectares. It follows that WFIN would have been entitled to terminate the agreement and sue to recover the amount that it had lent. That is not what the parties could have intended.

Similarly, if the effect of cl 11 is that WFIN was put on enquiry concerning the nature of the rights that Beefeater obtained, the position would have been that Beefeater would have paid the deposit and undertaken a number of obligations arising from the application form and the agreements to which it referred, including the payment of the balance of the application fees within 30 days, but WFIN was still not authorised to pay those fees on behalf of Beefeater without satisfying itself that the Lease Agreement gave rise to rights of a particular quality. That is not what the parties could have intended by the authority granted by cl 11. The purpose of the authority was to enable WFIN to do what Beefeater would otherwise have done if the principal was advanced directly to it. That is what, on the finding I have made, WFIN did.

Moreover, there is nothing in the Loan Agreement identifying what qualities “Hectares” had to have before the principal could be paid other than the quality of the rights that Beefeater applied in its application form to acquire and there is no other means by which WFIN could have identified those qualities. Beefeater submits that the relevant quality was the quality of a legal or at least an equitable lease of the blocks that were the subject of its application. But there is nothing in the Loan Agreement that identifies that quality as being an essential quality of “Hectares”.

To put these points another way, WFIN was a lender who lent money to enable Beefeater to invest in a project chosen by Beefeater. Provided the money it advanced was paid for that purpose, the money was paid in a way that was authorised by cl 11 of the Loan Agreement. It is true, of course, that WFIN was a wholly owned subsidiary of WFL and that the directors of WFIN were also directors of WFL. But the close relationship between the two companies cannot affect the nature of the rights and obligations that WFIN had under the Loan Agreement. If Beefeater did not get what it was promised in the Information Memorandum, that was a matter between it and WFL. The mere fact that there was a close relationship between WFL and WFIN did not make WFIN responsible for the obligations undertaken by WFL.

Having regard to the conclusions I have reached, it is not necessary to consider MIS’s alternative case.

However, in the event that WFIN was not entitled under the Loan Agreement to pay the principal to WFL, I would not have permitted MIS to succeed in its action for money had and received. WFIN may have been entitled to recover from Beefeater the money it paid to WFL on the basis that the money was paid in the mistaken belief that the Loan Agreement was enforceable. However, in my opinion, that right of recovery was not assigned to MIS under the Loan Transfer Deed. If that right was assigned at all, it was assigned by cl 2.1(b) of the Loan Transfer Deed. What was assigned under that clause were amounts at any time owing in respect of or in connection with a debt owing by Beefeater to WFIN under a loan identified in the Settlement Report. The right to bring an action for money had and received, to the extent that it existed, was not such a right. It was not an amount owing in respect of or in connection with a debt owing under a loan. Rather, it was an amount recoverable because it had been paid as a result of a mistake made by WFIN. That conclusion is consistent with the fact that WFIN agreed in cl 8.1(f) of the Loan Transfer Deed to indemnify MIS against any loss MIS suffered as a consequence of the loan not being in existence at the time the deed came into effect.

On the conclusions I have reached, WFIN was entitled to recover the principal of $442,200 together with interest and other amounts due under the Loan Agreement. Those rights were assigned to MIS. By cl 2.1(c) of the Loan Transfer Deed, all “Related Securities” were also assigned to MIS. The expression “Related Securities” included WFIN’s rights under the Guarantee. It follows that MIS is entitled to recover the amount owing from Mr Woodland.

MIS relies on a certificate given under cl 14 of the Loan Agreement to prove that the amount owing under it was $647,525.66 as at 24 July 2015 and that interest continues to accrue at the rate of $153.18 per day. For the reasons I have given, I accept that it is entitled to do so. On that basis, MIS is entitled to judgment in its favour against both Beefeater and Mr Woodland in the amount of $650,282.90.

Under the terms of the Loan Agreement, MIS is entitled to its costs on an indemnity basis from Beefeater. Under the terms of the Guarantee, Mr Woodland is liable for the amount for which Beefeater is liable. Notwithstanding the terms of the Loan Agreement, costs are in the discretion of the court: Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 per Beazley JA (with whom Hodgson and Ipp JJA agreed) at [11]-[13]. Normally, however, the court would exercise its costs discretion consistently with the parties’ contractual obligations. No reason has been advanced for why it should not do so in this case. It follows that Beefeater and Mr Woodland should pay MIS’s costs on an indemnity basis.

The orders of the court are: