It’s a pretty dry day today in the High Court as it hears appeals from the judgment of the Victorian Court of Appeal in Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v. Haxton.
In the 1980s the respondents participated in a series of investment schemes involving a blueberry farm project at Corindi in New South Wales. The appellant, Equuscorp, brought proceedings in the Supreme Court of Victoria, seeking to recover from the respondents as a debt, or alternatively in restitution, the outstanding principal and interest allegedly due under the loan agreements they had each entered into in order to finance their participation in the schemes.
The trial judge (Byrne J) held that the investment schemes contravened the prescribed interest provisions of the then Companies Code because no proper prospectus had been issued. The loan contracts could not be severed from the investment scheme transactions, and therefore the loan contracts were also illegal and unenforceable against the investors. He nevertheless found that Equuscorp had a good claim in restitution against each of the respondents.
The Court of Appeal (Redlich and Dodds-Streeton JJA and Beach AJA) upheld the respondents’ appeals. The Court found that Equuscorp did not establish that on the facts it had a prima facie entitlement to restitution by reason of total failure of consideration.
Even if Equuscorp did have a prima facie entitlement, nonetheless the investors’ retention of the loan funds was not unjust in circumstances where: the loans were, in substance, integral elements of investment schemes which contravened the prescribed interest provisions of the Companies Code; the loans funded the investors’ acquisition of interests 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; the investors entered the schemes in order to obtain tax deductions; and there was no evidence that any investor had obtained any benefit by way of a taxation benefit or advantage.
Equuscorp challenges both those findings of the Court of Appeal.