Equuscorp Pty Ltd v Haxton – High Court’s latest pronouncement on the law of restitution

Yesterday afternoon the High Court handed down its long-awaited restitution law judgment dealing with claims for money had and received for failure of consideration – and their assignability – in Equuscorp Pty Ltd v Haxton; Eqquascorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham’s Warehouse Sales Pty Ltd [2012] HCA 7. The full judgment is now on Austlii and can be read here.

This case involved five appeals from the Victorian Court of Appeal. In the High Court three judgments were written – one by French CJ, Crennan and Kiefel JJ, one by Gummow and Bell JJ, and one by Heydon J. Their Honours dismissed the appeals, which had the effect that the respondent investors were not liable to repay funds advanced to them under loans which had been assigned to Equuscorp.


The respondents had invested in tax driven blueberry farming schemes conducted in the north-east of NSW in the mid to late 1980’s, promoted by two brothers Anthony and Francis Johnson. Investments were made in the schemes in five separate tranches. Under the schemes, investors could enter into a loan agreement with a company called Rural Finance Pty Ltd whereby Rural would advance funds payable by the investors to other companies in the scheme group, pursuant to the schemes. The schemes were designed so that investors obtained an interest in a farm and farming business with the hope of future profits and capital appreciation, together with the immediate benefit of a significant tax deduction claimable against non-farming income.

Equuscorp was an arms length financier of the group of companies controlled by the scheme promoters, the Johnson brothers. In 1997, after the scheme collapsed, the receivers and managers of Rural sold the loan agreements between Rural and the investors to Equuscorp, assigning its interests under the loan agreements and the amounts of debts owing thereunder. As a rather striking side-note, at first instance Byrne J had found that at around the time of their assignment, the 638 loan agreements were worth $52,584,005. The consideration given for the assignment was $500,000.

Contrary to s 170(1) of the then Companies Code, no prospectus or valid prospectus had been registered when the schemes were promoted, when investors were offered a “prescribed interest” and were offered loans on favourable terms to invest. After taking the assignment, Eqquscorp sued investors to recover payments due to it under the loans.

The loan agreements were found to be unenforceable for illegality. (So held Byrne J at first instance; this was not challenged in the Victorian Court of Appeal or the High Court.) This is somewhat curious, as the making of the loan agreements was not expressly prohibited by the Code; what was illegal was the offering or inviting the public to subscribe for or purchase a prescribed interest . However it appears that Byrne J held the loan agreements to be unenforceable on the common law ground of being associated with or made in furtherance of an illegal purpose (see [22-27]).

Equuscorp claimed in the alternative for restitution of the advances made under the agreements as money had and received, for failure of consideration. Essentially, the questions for the High Court were these –

  1. Did Rural have a right of restitution for money had and received (based upon a failure of consideration)?
  2. If yes, was such a right assignable (to Equuscorp)?
  3. If yes to both, was it assigned by Rural to Equuscorp?

The High Court answered those questions, broadly, as follows –

  1. No, 5:1. An entitlement to restitution here would stultify the policy and objects of the Companies Code, being the protection of investors in the position of the respondents. The investors would not be unjustly enriched if they were not compelled to make restitution. (So  held French CJ, Crennan and Kiefel JJ [45]; also Gummow and Bell JJ [99]. Heydon J dissented, making some thought-provoking remarks worth considering [126-133, 134-149]. Note that at [137], Heydon J comments that despite what the Court of Appeal had held, there is no requirement of total failure of consideration in every case.)
  2. Yes, assignable, 6:0. There was no cause of action available for Rural to assign to Equuscorp. But if there had been a right of restitution, such a right was capable of being assigned (Yes – French CJ, Crennan and Kiefel JJ [53]. Yes (tied up in yes to question 3) – Gummow & Bell JJ [74-5]. Yes – Heydon J [159])
  3. Evenly split, 3 yes:3 no. The High Court was evenly divided on the question of whether, if there had been a right to restitution in Rural, it would have been assigned under the Deed. (No – French CJ, Crennan and Kiefel JJ [64], though they left open one aspect at [66]; Yes – Gummow & Bell JJ [74-9]; Yes – Heydon J [160-161]. Note that at first instance Byrnes J had answered yes; on appeal to the Victorian Court of Appeal – their Honours had answered no.)

Before closing, I will briefly address two aspects of this decision – the apparent state of play of unjust enrichment and the nature of claims for money had and received in Australia, and the reason why the majority found that in this case, there was no such right to restitution.

The Nature of claims for money had and received – right to restitution

At [29] French CJ, Crennan and Kiefel JJ discuss the history of claims for money had and received. They note that it was an offshoot of the old form of action of indebitatus assumpsit, which by the 17th century, had superseded the action of debt. They summarise how it went through a period of being thought to rest upon a theory of implied contract. This theory was rejected in Australia in 1987 by the High Court in Pavey & Matthews Pty Ltd v Paul, and in the UK in 1996 by the House of Lords in Westdeutsche Landesbank Girozentrale v Islington London Borough Council.

They maintain our High Court’s position that unjust enrichment does not found or reflect any “all-embracing theory of restitutionary rights and remedies”. What it does, they said, is refer to or explain categories of cases where the law does not permit one person to keep a benefit obtained from another. The concept of unjust enrichment explains the claim for money had and received, so their Honours said, in this way –

An enrichment of a defendant may be treated by the law as unjust by reason of a qualifying or vitiating factor such as mistake, duress, illegality or failure of consideration, triggering a prima facie obligation to make restitution to the plaintiff, subject to any defences such as the change of position defence (which would make an order for restitution, in turn, unjust). See their discussion at [29-30].

At [114] Gummow and Bell JJ make an enlightening observation. They observe that an action for money had and received is a legal action not an equitable suit, however it is settled in Australia that the action is a liberal action in the nature of a bill in equity. They observe for example that in the present litigation, were Equuscorp to succeed, a question would arise as to the relevance and quantification of any offsetting “tax benefit” which the respondents had received before the investment scheme collapsed.

Rural had no right to restitution here

Essentially, the majority held that where a contract is rendered unforceable by a law, a restitutionary claim will not lie where the allowance of that claim would defeat the policy of the law which made the contract unenforceable. (See Gummow and Bell JJ at [104].)  To permit recovery on an action for money had and received in such a case would stultify the statutory policy of protecting investors by imposing onerous obligations upon scheme promoters to comply with statutory requirements. They held that this was the case here. Rural was not an arms length financier. It was part of the group of companies involved in promotion of the schemes. It offered loan agreements on favourable terms in furtherance of an illegal purpose (offers to take up prescribed interests without the benefit of the protections required by the Code).

In contrast, restitution can be allowed where a contract or transaction is made or a tax is paid which was rendered “illegal” by a law which, for example, requires formalities which were not met, or which restricts legal capacity, as does the doctrine of ultra vires.

At [103], the basis for the High Court majority’s view as to there being no right to restitution here, is particularly well explained by Gummow and Bell JJ. Their Honours note that the determinative issue is whether the policy of the statute law (here s 170 of the Code) denies any scope for an action for money had and received. They observe that guidance on this issue can be gained by a statement by Professor Palmer in his 1978 treatise The Law of Restitution where he says this:

“The illegality of the transaction will preclude recovery of damages for breach, or any other judgment aimed at enforcement of the contract, and the problem is whether the plaintiff can nonetheless obtain restitution of values transferred pursuant to the contract. The fact that public policy prohibits enforcement of the contract is not a sufficient reason for allowing one of the parties to retain an unjust enrichment at the expense of the other. Such a retention is warranted only when restitution is in conflict with overriding policies pursuant to which the transaction is made illegal.”

The best part

I would like to finish, admiringly, with the opening paragraph of Heydon J’s judgment. For its deft eloquence, I find it one of the most enjoyable opening passages of a judgment I have read in a while:

“The relevant transactions are set out in the preceding judgments. Those transactions are redolent of tax avoidance, suggest a preference for the beauty of the circle to the bluntness of the straight line, and indicate a single group of minds in control of superficially different entities. There is about them something of the night. However, it was not squarely suggested that the transactions were shams or that their somewhat murky atmosphere was relevant to the legal issues in these appeals. Those issues are four in number…”

1 thought on “Equuscorp Pty Ltd v Haxton – High Court’s latest pronouncement on the law of restitution

  1. That was my favourite quote too Carrie, for perhaps a few reasons. Your synopsis makes for an interesting read. Cheers, Andrew Davies (GM, Equuscorp)

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