Commonwealth Bank of Australia v Bird

[2011] NSWSC 586

Supreme Court

New South Wales

Medium Neutral Citation:

Commonwealth Bank of Australia v Bird [2011] NSWSC 586

Hearing dates:

16 May 2011

Decision date:

20 June 2011

Jurisdiction:

Common Law

Before:

Schmidt J

Decision:

In the circumstances, it follows that the orders sought by the plaintiff must be made. I order:

1. That the first defendant give the plaintiff possession of the Property.

2. Leave to issue a writ of possession in respect of the Property is granted.

3. In respect of the Complete Home Loan, I order that:

(a) the first defendant pay to the plaintiff the sum of $1,049,033.49 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier; and

(b) the second defendant pay to the plaintiff the sum of $1,000,000 plus the plaintiff's reasonable expenses of enforcing Guarantee A.

4. In respect of the Investment Home Loan, I order that:

(a) the first defendant pay to the plaintiff the sum of $295,454.23 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier; and

(b) the second defendant pay to the plaintiff the sum of $280,000 plus the plaintiff's reasonable expenses of enforcing Guarantee B.

5. In respect of the Business Better Loan A, an order that the first defendant pay to the plaintiff the sum of $400,000 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

6. In respect of the Business Better Loan B, an order that the first defendant pay to the plaintiff the sum of $184,082.91 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

7. In respect of the Overdraft, an order that the first defendant pay to the plaintiff the sum of $294,292.36 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

8. An order pursuant to section 101 of the Civil Procedure Act 2005 that interest be payable on any judgment obtained by the plaintiff against the first and second defendants at the prescribed rate or at various rates charged by the plaintiff to customers on like accounts (compounded monthly) from the date of judgment on so much of the money as is from time to time unpaid, whichever is higher.

9. Costs on an indemnity basis.

Catchwords:

MORTGAGES - mortgagees remedies - possession of property - Farm debt Mediation Act 1994 - whether debt was a farm debt incurred by a farmer for the purpose of a 'farming operation' - farming operation not established

COSTS - departing from the general rule - order for costs on indemnity basis

Legislation Cited:

Civil Procedure Act 2005
Farm Debt Mediation Act 1994
Rural Lands Protection Act 1998

Cases Cited:

Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337
Constantinidis v Equititrust Ltd [2010] NSWSC 299
Varga v Commonwealth Bank of Australia [1996] NSWSC 8

Category:

Principal judgment

Parties:

Commonwealth Bank of Australia (Plaintiff)
Raymond James Bird (First Defendant)
Denise Barbara Bird (Second Defendant)

Representation:

Counsel:
Mr S Aspinall (Plaintiff)
Mr DA Allen (Defendants)
Solicitors:
Henry Davis York (Plaintiff)
Hancocks Solicitors (Defendants)

File Number(s):

2010/56056

Judgment

1. By amended statement of claim filed on 13 August 2010, the plaintiff bank seeks monetary judgment and orders for possession of a property at North Richmond, of which the first defendant, Raymond Bird is the registered proprietor. The proceedings have a somewhat tortured procedural history. The defence filed by the second defendant, Denise Bird, has been struck out. By orders made by Davies J in February 2011, Mr Bird was permitted to advance a defence to the claim which rests on the provisions of the Farm Debt Mediation Act 1994 ('the Act') and for that purpose, to rely on specified paragraphs of an affidavit filed in February. His case was that any steps taken to enforce the mortgages which the plaintiff holds over the property are void, because of its failure to comply with the requirements of that Act.

1. At issue between the parties was whether or not the Act applied to the loans.

1. Mr Bird gave a mortgage over the property in October 2007, to secure a home loan facility under which $1 million was advanced and another home loan facility under which $280,000 was advanced. The second defendant, Mrs Bird, gave a guarantee in respect of those advances.

1. It was in June 2008, that $368,630 was advanced to Clevedon Australia Pty Ltd ('Clevedon'), which was also provided with an overdraft with a limit of $200,000. These advances were supported by a guarantee given by Mr Bird and by a second mortgage over the property.

1. In August 2008, a further $400,000 was advanced to Clevedon under a further Better Business loan. Mr Bird's guarantee was extended to include this loan, bringing the guarantee to $969,630. The loans later fell into default and demands for their repayment were not met.

1. Affidavit evidence was given by Mr Bird. He now lives with his family in New Zealand. He was not required for cross examination.

1. The property in question consists of 25 acres with a house and sheds. Mr Bird deposed that when he obtained the home loan he told a bank officer, Ms Goffett, that he intended to purchase Hereford cattle for the property, both for breeding and sale. He in fact ran up to a maximum of 18 cattle at any one time on the property, including bulls, cows and calves. He bought and sold Hereford cattle through sale yards at Windsor and Camden. Annexed to his affidavit were invoices from Inglis Livestock to a company Clevedon Eco International Pty Ltd, in respect of the sale of steers and heifers in October 2009 and cows and heifers in March and April 2010, in the sums, respectively $4,972.04, $3978.22, and $354.45.

1. Also annexed to the affidavit was a 2011 rate notice addressed to Mr Bird, under the Rural Lands Protection Act 1998 and two photographs of the property, which showed a number of cattle. The notice imposed a meat industry levy and had regard to the carrying capacity of the property.

1. Ms Goffett replied to this affidavit evidence. She was also not required for cross examination. Her affidavit evidence was that in 2007 at the time of the residential loan obtained by Mr Bird, she was employed by the plaintiff as a mobile lender specialising in residential property purchases. She was authorised to deal with loans for owner occupied residential properties and residential properties purchased for investment purposes. She was not authorised to deal with applications for business banking products, or applications by persons engaged in farming activities. She had to refer such applications to the plaintiff's business banking section.

1. Ms Goffett understood that Mr Bird obtained an investment home loan for $280,000 and a complete home loan for $1 million. She had met with him at his residence at Five Dock and also had numerous telephone discussions with him. The purpose of the loan application made was stated to be to purchase an "established dwelling - House", in which Mr Bird indicated he would be living. The occupation which he disclosed was as a professional in the employ of Clevedon, whose business was stated to be gardening equipment. Mr Bird told her he was a self employed businessman importing and selling gardening tools which were sold in shopping centres, with some direct sales to customers and that his income was derived from his business. The application made no reference to Mr Bird being a farmer, or farming equipment.

1. Ms Goffett said that the property had a separate flat. The purpose of the loan documents referred to the purchase of an owner/occupied home, which was a dual occupancy. Ms Goffett denied that Mr Bird told her that he intended to run, breed or raise cattle on the property. If he had, she would have had no alternative but to refer his application to the business banking section. He told her he was moving to Richmond for lifestyle and he intended to use sheds on the property to store equipment used in his business, which would save him large storage costs which he was then incurring. He said that in time he might want to build more sheds. Ms Goffett told him that would require an approach to the business banking section.

1. Also in evidence were Mr Bird's tax returns for the years ending 2005, 2006 and 2007. His main occupation in 2005 was noted as being 'company director' and his payer as Clevedon. In 2006 and 2007 his income was disclosed as directors fees. ASIC searches disclosed that Mr Bird is a current director and secretary of Clevedon and Bird Imports International Pty Ltd, formerly known as Clevedon Eco International Pty Limited, as well as a former director and secretary of other companies. When Mr Bird departed Australia in April 2010, he indicated that his occupation was 'importer'.

1. Clevedon's tax returns for the years ending 2004, 2005, 2006 and 2007 disclosed its main business activity as 'garden supplies retailing'. Its loan application summary to the plaintiff disclosed that it was set up to import and sell garden equipment, with Bunnings and Mitre 10 being its main competitors. In a later application it was disclosed that it was a retailer of gardening equipment operating in various shopping centres in New South Wales, Victoria and Western Australia; that it had completed a deal widening its product offerings to include cleaning products; and that its Better Business loan was to build a commercial shed for storage of stock, at the principal place of residence.

1. Ms Laban, the plaintiff's solicitor, deposed that the receiver appointed to Clevedon did not disclose livestock or farming equipment in the Receiver's Report and that the Report to Creditors referred to the conduct of a business of portable kiosks selling gardening equipment. Ferrier Hodgson reported in December 2009 that it was an importer and retailer of gardening equipment with a single supplier based in Taiwan and that Mr Bird had been responsible for its management.

The Farm Debt Mediation Act

1. The operation of the Act has repeatedly been considered. Under s 8(1), a creditor is precluded from taking enforcement action against a farmer in respect of a farm mortgage, until 21 days after a s 8 notice is given. The Act contains a number of relevant defined terms in s 4:

" creditor means a person to whom a farm debt is for the time being owed by a farmer.

farm means land on which a farmer engages in a farming operation.

farmer means a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation and includes a person who owns land cultivated under a share-farming agreement and the personal representatives of a deceased farmer

farm debt means a debt incurred by a farmer for the purposes of the conduct of a farming operation that is secured wholly or partly by a farm mortgage.

farm mortgage includes any interest in, or power over, any farm property securing obligations of the farmer whether as a debtor or guarantor, including any interest in, or power arising from, a hire purchase agreement relating to farm machinery, but does not include:

(a) any stock mortgage or any crop or wool lien, or

(b) the interest of the lessor of any farm machinery that is leased.

farming operation means:

(a) a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or

(b) any other operation prescribed by the regulations for the purposes of this definition."

1. There is an onus falling upon Mr Bird to establish that the s 8 prohibition on which he relies, applies to him. Thus, he has to establish that he is a 'farmer'; that the plaintiff is a 'creditor'; that the mortgage is a 'farm mortgage'; that it secures a 'farm debt'; and that the debt was incurred for the purpose of the conduct of a 'farming operation'. In order to establish these matters, it is necessary to have regard both to the present and to the past. As Barrett J discussed in Constantinidis v Equititrust Ltd [2010] NSWSC 299 at [13]:

"13 When one comes to the definition of "farm debt" and the question whether a particular debt is today a "farm debt", however, it is necessary to look not only to the present but also to the past. This is because the definition of "farm debt" has regard to circumstances existing when the debt was "incurred". In speaking of a debt "incurred . . . for the purposes of the conduct of a farming operation" and directing attention to the purposes for which the debt was incurred, the definition of "farm debt" necessarily pays attention to purposes existing at the past time when the debt was incurred. But that, it seems to me, is the only past aspect to which attention is directed. To the extent that the definition of "farm debt" refers to incurring by a "farmer" and security under a "farm mortgage", it directs attention to the present status of the person who incurred the debt in the past and the present status of the mortgage by which the debt is secured.

14 I am of the opinion, in particular, that one does not look for either "farmer" status or the existence of the mortgage at the time of the incurring of the debt. This is because the aim of the Act is to protect persons who are for the time being farmers from action under mortgages which for the time being exist over properties that are for the time being farm properties - but only where the secured debt incurred in the past was obtained for farming purposes. Applying the approach I consider to be correct, a person who is today a farmer and whose farm property stands today as security for a debt will be protected if the purpose of the original incurring of the debt was a relevant farming purpose (and whether or not the person was then a farmer), but not if the original incurring was for some non-farming purpose; while, if the original incurring was for a relevant farming purpose but either the person by whom the debt is owed is not today a farmer or the security property is not today a farming property, the protection will not be attracted.

15 These approaches are, to my mind, consistent with the legislative intention as recognised in decided cases and in line with previous decisions: see, for example, the decision of the Court of Appeal in Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337 and that of Young J a few days later in Varga v Commonwealth Bank of Australia (1996) 7 BPR 15,052.

16 In the first of those cases, Clarke JA also referred to the definition of "enforcement action" and regarded as relevant to its interpretation the following observation of Dixon CJ in Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 (at 448):

"... The words 'enforce', 'enforceable' and 'enforcement' when used in relation to a security may properly be applied to the exercise of any of the remedies which the security may give."

1. It was the case advanced for Mr Bird, that there was evidence that when he obtained the loan he intended to operate a farm and that he later conducted a grazing operation on the property, which was sufficient to meet the onus which fell upon him to show he was engaged in a farming operation. If he was conducting a farming operation, he was a farmer. There was a presumption of continuance. The invoices addressed to the company were neutral. Mr Bird could operate the farm and actually have the company sell cattle, albeit it was accepted that he had not given evidence about those matters. There was evidence that he was the director of a company, but no evidence either way to show how much of his time was involved in that work. In my view, the case so advanced for Mr Bird may not be accepted.

1. On the evidence, it appears that the property, which comprises 25 acres at Richmond, is capable of being used as a 'farm' that is, 'land on which a farmer engages in a farming operation'. That the property is now being used for that purpose, or that it has ever been used by Mr Bird for that purpose in the past, was not, however, established.

1. Despite the evidence of what Mr Bird told Ms Goffett as to his intentions, when he purchased the property, which she denies, all of the other evidence suggests that the property was purchased as a residential property, and that Mr Bird also intended to store gardening equipment there, that being stock sold by the business which Clevedon conducted and in which he was involved, as a working director.

1. On his account, Mr Bird told Ms Goffett when he acquired the property that he intended to purchase Hereford cattle for the property both for breeding and sale. Ms Goffett denies this, but even if it was his intention, there is little evidence that he acted on that intention. The only evidence touching on this is that a company of which he is a director, formerly known as Clevedon Eco International Pty Ltd, spent something over $9,000 on the acquisition of cattle. That is not a sufficient basis upon which it may be concluded that either Mr Bird is or was involved in a 'farming operation', especially when consideration is given to the evidence which suggests that Mr Bird and Clevedon were always involved in quite a different business and used the property for the purposes of that business. It was his work in that business which generated Mr Bird's income.

1. The invoices which show that a small number of cattle were purchased by a company at which Mr Bird was a director and the photographs showing a number of cattle present on the property at some time, cannot establish that the property is, or ever was used as a 'farm'. That is, that it was being used by a 'farmer' to conduct a 'farming operation'. Nor is there any evidence as to what use is presently being made of the property and by whom. That it was used for grazing, was certainly not established.

1. Mr Bird now lives in New Zealand. He was not able to travel to Australia for the hearing. There is no evidence that he is presently conducting a 'farming operation' on the property. Whatever it is that Mr Bird is now doing in New Zealand, there is no evidence that it involves farming. Nor is there any evidence that he is now involved in any farming operation in Australia.

1. The evidence is simply incapable of establishing that Mr Bird is either now, or in the past was ever a 'farmer', namely that he was ever 'solely or principally engaged in a farming operation'. The word 'principally' must be construed qualitatively, not quantitatively (see Varga v Commonwealth Bank of Australia [1996] NSWSC 86). The test there discussed by Young J was whether in all the circumstances farming is shown to be the person's principal activity. That was not shown here.

1. Accepting that cattle breeding and sale may be encompassed by paragraph (a) of the definition of 'farming operation', namely '(a) a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation', still the evidence does not establish that Mr Bird was ever 'solely or principally engaged' in such an operation. To the contrary, the evidence strongly suggests that in the past he was solely or principally engaged in quite a different business, that conducted by Clevedon, which was concerned with the importation and sale of gardening equipment. What he does now is not known.

1. There is also no evidence that Mr Bird ever incurred any expenses in operating any farming operation, or that he has ever achieved any returns from any involvement in such a business. To the contrary, all of the evidence points to him being a company director who has in the past made his living from his involvement in a gardening importation and retailing business. Nor is there any evidence which established the existence of either a 'farm mortgage' or a 'farm debt'. Nor has the plaintiff been shown to be a 'creditor'. All of these terms depend on a positive finding in Mr Bird's favour, that he is a farmer conducting a farming operation.

1. It follows that it must be concluded that Mr Bird has not established that the Act applies to these mortgages. Furthermore, as the plaintiff submitted, there is no suggestion that the Clevedon debt was ever farm related and even if this had been established, the Act applies to the enforcement of a farm mortgage, not the enforcement of the loan itself (see Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337 at 340). Given the conclusions I have reached, it is not necessary to consider the submissions developed about this issue any further.

Costs

1. The plaintiff relied on its rights under the mortgage to its reasonable costs of enforcing the mortgage in respect of the home loans. In relation to the Clevedon loans, the mortgagor was obliged to pay the bank's costs on a solicitor/client basis. An order for indemnity costs was sought by the plaintiff.

1. In relation to the home loans, the plaintiff's submission was based on an argument that Mr Bird's defences of the plaintiff's claim were not raised bona fide, but to delay possession being taken. Otherwise, the plaintiff relied on the defendants' repeated defaults, defences which were submitted to have been outrageous, such as forgery of documents, which were not pressed, and failures to comply with the Court's orders. Together the circumstances were submitted to be such as to warrant an indemnity costs order in its favour.

1. No case was advanced against the costs orders sought by the plaintiff. Having in mind the contractual position, as well as the undisputed conduct of the litigation by the defendants, I am well satisfied that the circumstances are such that there should be a departure from the usual costs order, on the basis sought by the plaintiff.

Orders

1. In the circumstances, it follows that the orders sought by the plaintiff must be made. I order:

1. That the first defendant give the plaintiff possession of the Property.

2. Leave to issue a writ of possession in respect of the Property is granted.

3. In respect of the Complete Home Loan, I order that:

(a) the first defendant pay to the plaintiff the sum of $1,049,033.49 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier; and

(b) the second defendant pay to the plaintiff the sum of $1,000,000 plus the plaintiff's reasonable expenses of enforcing Guarantee A.

4. In respect of the Investment Home Loan, I order that:

(a) the first defendant pay to the plaintiff the sum of $295,454.23 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier; and

(b) the second defendant pay to the plaintiff the sum of $280,000 plus the plaintiff's reasonable expenses of enforcing Guarantee B.

5. In respect of the Business Better Loan A, an order that the first defendant pay to the plaintiff the sum of $400,000 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

6. In respect of the Business Better Loan B, an order that the first defendant pay to the plaintiff the sum of $184,082.91 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

7. In respect of the Overdraft, an order that the first defendant pay to the plaintiff the sum of $294,292.36 together with interest at various rates charged by the plaintiff to customers of the plaintiff on like accounts (compounded monthly) from 1 March 2010 to repayment or judgment, whichever is earlier.

8. An order pursuant to section 101 of the Civil Procedure Act 2005 that interest be payable on any judgment obtained by the plaintiff against the first and second defendants at the prescribed rate or at various rates charged by the plaintiff to customers on like accounts (compounded monthly) from the date of judgment on so much of the money as is from time to time unpaid, whichever is higher.

9. Costs on an indemnity basis.

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Decision last updated: 20 June 2011