26 Apr 2012

The importance of comprehensive assignment provisions in debt trade documentation

by Peter Bowden, Nick Poole, Paul James, Sam Cottell

As well as all legal and other remedies, the assignment should specifically provide that any restitutionary rights in respect of the assets are also assigned.

Purchasers of debt must ensure that the documentation effecting debt trades properly assigns all rights (including restitutionary rights) attached to the debt as well as the debt itself.

A recent High Court decision demonstrates the importance of drafting a comprehensive assignment provision in any transfer documentation. Failure to do so may limit the rights of any purchaser of the debt (Equuscorp Pty Ltd v Haxton [2012] HCA 7).

Equuscorp Pty Ltd commenced proceedings in the Supreme Court of Victoria claiming "loss and damage" stemming from breaches of certain loan agreements that had been assigned to it by Rural Finance Pty Ltd. Equuscorp was unsuccessful at first instance and then again on appeal.

In September 2010 Equuscorp was granted special leave to appeal to the High Court. Equuscorp argued: 

  • Rural Finance had a right to claim for money had and received under the original loan agreements;
  • if Rural Finance had a right to claim for money had and received the right could be assigned; and
  • if a cause of action for money had and received was assignable, it had been assigned to Equuscorp.

The background in the Equuscorp case

The loan agreements related to a number of investment schemes in which members of the public were invited to invest in a blueberry farming enterprise. The lure of the schemes was that non-farmers could claim amounts expended on farming enterprises as tax deductions in relation to their non-farming incomes.

The investment schemes were run through Cordini Blueberry Growers Pty Ltd (CBG) controlled by Anthony and Francis Johnson (the Johnson Brothers). The investments consisted of a farm agreement between the investor and CBG with management fees payable to Johnson Farm Management Pty Ltd (JFM) (which was also controlled by the Johnson Brothers). The investors were given an option to enter into a loan agreement with Rural Finance where Rural Finance would finance the investors' payment of the management fees.

On 7 January 1991 CBG granted a registered mortgage over the farming land to Equuscorp. Three days later Equuscorp registered charges over the assets of CBG, JFM and Rural Finance to secure a grant of loan facilities in the group of companies controlled by the Johnson Brothers.

In or around July 1991 the investors stopped receiving proceeds from the sale of fruit and no further repayments were made in reduction of the loans. Following this, Equuscorp appointed receivers and managers to the assets of CBG, JFM and Rural Finance. On 16 May 1997 Rural Finance sold the loan agreements to Equuscorp through an asset sale agreement. Under this agreement Rural Finance assigned its interests and the amount of debt owing under the agreements to Equuscorp for $500,000 (excluding a deduction for previous collections). The face value of the debts under the loan agreements was $52,584,005.

Between November 1997 and March 1998 Equuscorp commenced proceedings to enforce the loans against the borrowers.

The borrowers pointed out that the schemes had been illegal because there had not been any prospectuses lodged with respect to them. They argued that the loans had been an integral part of the schemes and that, if the schemes were illegal, it followed that the loans should be unenforceable.

Equuscorp did not challenge the finding that the loan agreements were unenforceable. Equuscorp's argument, instead, was that this was a case of unjust enrichment: even if the loans were not enforceable, the investors had no right to hold on to the money. Accordingly, it claimed against them in restitution.

The problem

Equuscorp was not, of course, the original lender. It had bought the loan book from Rural Finance.

The deed of assignment transferred the loans and "all legal and other remedies for these matters".

One of the questions for the High Court was whether "all legal and other remedies" included a restitutionary claim for money advanced under the loans.

The High Court split 50/50 on this question.

Three judges (Chief Justice French and Justices Crennan and Kiefel) said that "legal and other remedies" only referred to legal enforcement of debts. Equuscorp's claim in restitution was not an enforcement of the loans; instead, it was a result of the fact that the loans were unenforceable.

Justices Gummow and Bell took a more liberal view:

"Any action for money had and received was a remedy "for these matters" in the sense that it arose out of or by reason of the failure of the loan agreements. There would have been little sense for the [vendor] to retain these restitutionary actions and for Equuscorp to pay for some but not all of the rights… against the borrowers."

Justice Hayne's reasoning was largely similar to that of Justices Gummow and Bell.

The effect

It would have been helpful if the High Court bench hearing this case had had seven rather than six Justices! As a result, we are left with no clear guidance and, given that this case took 20 years to reach the High Court, no prospect of a definitive statement in the foreseeable future.

The upshot for anyone taking an assignment of similar assets is that the wording used in this case should not be relied upon. As well as all legal and other remedies, the assignment should specifically provide that any restitutionary rights in respect of the assets are also assigned.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.