Fuge v Commonwealth Bank of Australia
[2019] FCA 1621
•30 September 2019
FEDERAL COURT OF AUSTRALIA
Fuge v Commonwealth Bank of Australia [2019] FCA 1621
File number: VID 534 of 2016 Judge: LEE J Date of judgment: 30 September 2019 Catchwords: CONTRACTS – whether release extended to certain claims – application of legal and equitable principles of construction applicable to wide or general words of release.
CONTRACTS – Unjust contracts – When contract or provision of contract is “unjust” – Where money borrowed for farming purposes on basis of business plan prepared on behalf of borrower – Bank applied standard assessment tools and not indifferent to purpose and practicality of loans.
CONTRACTS – Unjust contracts – provisions of heads of agreement settling dispute resulted in the inevitability of default and were unnecessary to protect the legitimate interests of the Bank – provisions “unjust” but were not enforced so no relief declaring the provisions void granted.
BANKING AND FINANCIAL INSTITUTIONS – scope and content of obligation to participate in a mediation in good faith – whether Bank breached its obligations pursuant to the Code of Banking Practice – whether Bank engaged in asset lending – whether Bank breached cll 3.2 and 28.2 of the 2013 Code of Banking Practice in refusing to accept refinancing offers
MORTGAGES – sale of assets under power – remedies of mortgagor - consideration of Bank’s obligations upon sale.
EQUITY – a mortgagor alleging that a mortgagee has exercised a power of sale in such a way that the equity of redemption has been lost discloses no cause of action at common law the proper remedy is a suit in equity for an account on the footing of wilful default – Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391 applied.EVIDENCE – whether s 18F of the Farm Debt Mediation Act 1994 (NSW) preventing evidence being adduced as to what occurs during a farm debt mediation is picked up by s 79 of the Judiciary Act 1903 (Cth) in respect of proceedings in the Federal Court where admissibility is governed by ss 55 and 56 of the Evidence Act 1995 (Cth) – provision not picked up.
EVIDENCE – no Dobbs v National bank of Australasia Limited (1935) 53 CLR 643 certificate proving debt – Bank tendered some business records and adduced some evidence relevant to proving debt – whether evidence sufficient to prove alleged cross-claim debt.
CONSUMER LAW – alleged misleading and deceptive conduct – findings relating to whether oral representations were conveyed – application of principles explained in Watson v Foxman (1995) 49 NSWLR 315.
DISCOVERY – allegation that discovery obligations not complied with such that there could not be a proper testing in evidence of the credit assessments – whether Kuhl v Zurich inference should be drawn
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 12BB, 12DA
Competition and Consumer Act 2010 (Cth) s 82
Contracts Review Act 1980 (NSW) s 9
Conveyancing Act 1919 (NSW) s 23C
Duties Act 1997 (NSW) s 304
Evidence Act 1995 (Cth) s 55, 56, 144
Farm Debt Mediation Act 1994 (NSW) Pt 2, s 11, s 14, 4, 8, 11AA, s 18F
Farm Debt Mediation Amendment Act 2002 (NSW)
Federal Court of Australia Act 1976 (Cth)
Judiciary Act 1903 (Cth) s 79
Legal Profession Uniform Conduct (Barristers) Rules 2015 rr 64 and 65
National Credit Code
Real Property Act 1900 (NSW) ss 42, 57
Registration of Deeds Act 1897 (NSW)
Transfer of Land Act 1958 (Vic) s 42
Cases cited: Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996; (1999) 153 FLR 236
Alexander v The Queen (1981) 145 CLR 395
Attorney-General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Co Pty Limited (1978) 139 CLR 195
Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 1045
Australian Guarantee Corporation Ltd v De Jager [1984] VR 483
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384
CCL Secure Pty Ltd v Berry [2019] FCAFC 81
Commonwealth Bank of Australia v Hadfield [2004] NSWCA 350
Commonwealth Bank of Australia v Iinvest Proprietary Limited (No 9) [2018] NSWSC 1276
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466
Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391
Dixon (Trustee) v Citiline Developments Pty Limited, in the matter of Nasr (Bankrupt) [2018] FCA 1446
Dobbs v National bank of Australasia Limited (1935) 53 CLR 643
Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260
Festa v The Queen [2001] HCA 72; (2001) 208 CLR 593
Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm)
Gibbons v Wright (1954) 91 CLR 423
Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112
Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation [1995] ANZ Conv R 361
Haynes v St George Bank a Division of Westpac Banking Corporation [2018] SASCFC 51
Jones v Dunkel (1958) 101 CLR 298
Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151
Kuhl v Zurich Financial Services Australia [2011] HCA 11; (2011) 243 CLR 361
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205
Lindfield Developments Pty Limited v Shuangxing Development Pty Limited [2016] NSWSC 68
MBF Investments Pty Ltd v Nolan [2011] VSCA 114; (2011) 37 VR 116
McCourt v National Australia Bank [2010] WASC 121
Mealey v Power [2015] NSWSC 1678
Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 82
Murphy v Overton Investments Pty Limited [2002] FCAFC 129
National Australia Bank Limited v Smith [2014] NSWSC 1605
National Commercial Banking Corp of Australia v Hedley [1986] ANZ ConvR 420.
Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198
Onassis and Calogeropoulos v Vergottis [1968] 2 Lloyd’s Rep 403
Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50; (2015) 236 FCR 199
Perera v Genworth Financial Mortgage Insurance Pty Ltd [2017] NSWCA 19; (2017) 94 NSWLR 83
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639
Performance Capital Mortgage Pty Ltd v Motive Finance & Leasing Pty Ltd [2010] NSWSC 429
Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233
Sarina v Fairfax Media Publications Pty Ltd [2018] FCAFC 190
St George Bank Ltd v Trimarchi [2004] NSWCA 120
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318
Turner v Windever [2005] NSWCA 73; (2005) ANZ Conv R 214
Ultimate Property Group Pty Ltd v Lord[2004] NSWSC 114; (2004) 60 NSWLR 646
Varma v Varma [2010] NSWSC 786
Waller v Hargraves Secured Investments Limited [2012] HCA 4; (2012) 245 CLR 311
Watson v Foxman (1995) 49 NSWLR 315
West v AGC (Advances) Ltd (1986) 5 NSWLR 610
Ye v Zeng (No 7) [2018] FCA 1478
Tyler, E L G, Fisher and Lightwood’s Law of Mortgage (3rd ed, 2013)
Date of hearing: 2-5, 8-12, 15 October 2018, 21-22 November 2018, 17-18 December 2018, 14 February 2019, 2 April 2019 Date of last submissions: 2 April 2019 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 340 Counsel for the Applicants: Mr P E King with Mr I Leong Solicitor for the Applicants: MGA Lawyers Counsel for the Respondents: Mr A R Zahra with Mr D J McDonald-Norman Solicitor for the Respondents: HWL Ebsworth ORDERS
VID 534 of 2016 BETWEEN: ANTHONY RICHARD FUGE
First Applicant
MATTHEW FUGE
Second Applicant
AND: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
First Respondent
DIRK STEVENS
Fourth Respondent
AND BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
Cross-Claimant
AND: ANTHONY RICHARD FUGE (and another named in the Schedule)
First Cross-Respondent
JUDGE:
LEE J
DATE OF ORDER:
30 SEPTEMBER 2019
THE COURT ORDERS THAT:
1.By 4pm on 4 October 2019 the parties provide to the Court agreed minutes of order reflecting these reasons for judgment or, in the absence of agreement, competing minutes of order identifying the orders for which the parties contend.
2.In the event orders cannot be agreed, the proceeding is to be listed on a date to be notified by the Associate to Justice Lee for the purposes of the Court receiving the submissions of the parties as to the competing orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
LEE J:
A INTRODUCTION
[1]
B FACTUAL BACKGROUND
[6]
B.1 Facility Agreements
[6]
B.2 Defaults
[15]
B.3 Farm Debt Mediation and Settlement Recorded in “Heads of Agreement” Dated 17 July 2014
[16]
B.4 Further Defaults
[25]
B.5 Sale of Properties
[27]
C RELEVANT ISSUES
[31]
D CONSTRUCTION OF THE HEADS OF AGREEMENT (Issue 1)
[34]
D.1 Whether cl 4.2 releases all claims arising from or in connexion with the Transaction Documents
[38]
D.1.1 Common Law
[39]
D.1.2 Equity
[47]
D.2 Whether Issue 1(d) was released by cl 4.2
[52]
E VALIDITY OF THE HEADS OF AGREEMENT (ISSUE 2)
[60]
E.1 Alleged invalidity in the form of notices by which the Farm Debt Mediation was convened
[60]
E.1.1 Forged or Fraudulently Made
[63]
E.1.2 Lack of Authority
[81]
E.1.2.1 Submissions
[82]
E.1.2.2 Consideration
[87]
E.1.3 Non est Factum
[93]
E.2 Whether Bank acted contrary to its good faith obligations pursuant to the Farm Debt Mediation Act 1994 (NSW)
[96]
E.2.1 Existence of Statutory or Contractual Good Faith Obligation
[96]
E.2.2 Content of Good Faith Obligation
[97]
E.2.2 Submissions and Consideration
[100]
E.3 Whether the HOA is a credit contract to which the National Credit Code applied that is unjust and an order should be made that it is invalid
[101]
E.4 Whether the HOA was an unjust contract within the meaning of s 9 of the Contracts Review Act 1980 (NSW) and an order should be made that it is invalid
[103]
E.4.1 Principles
[103]
E.4.2 Arguments
[109]
E.4.3 Procedural Injustice – Stage One Findings
[113]
E.4.5 Substantive Injustice – Stage One Findings
[141]
E.4.6 Stage Two Analysis
[161]
E.4.7 Relief
[174]
F pre-2014 causes of action (ISSUE 3)
[181]
F.1 Special One Grain
[182]
F.1.1 Principled Approach
[183]
F.1.2 Evidence
[186]
F.1.3 Submissions
[191]
F.1.4 Analysis
[193]
F.2 Other Claims
[197]
F.2.1 Improvident Lending
[197]
F.2.1.1 The Fuges’ Submissions
[206]
F.2.1.2 Evidence as to Asset Lending and Findings
[212]
F.2.1.3 Analysis as to Improvident Lending
[219]
F.2.1.4 Other submissions as to unjust contract relief
[237]
F.2.1.5 Alleged Breaches of Code of Banking Practice
[239]
F.2.2 Invalidity or discharge of any securities or guarantees existing at 17 July 2014
[242]
G THE POST-2014 CAUSES OF ACTION – UNDERVALUE (ISSUE 4)
[243]
G.1 Principles
[243]
G.2 Sale of Lenborough and Greenfields
[249]
G.3 Sale of Livestock
[260]
H FAILURE TO ACCEPT REFINANCING OFFERS: Breach of CODE OF banking PRACTICE (ISSUE 5)
[266]
H.1 Factual Background
[268]
H.2 Submissions and History of Offers
[270]
H.3 Consideration
[290]
I DISCHARGE OF A GUARANTEE? (ISSUE 6)
[304]
J THE CROSS-CLAIM (ISSUE 7)
[307]
J.1 The Dispute as to Quantum
[307]
J.2 Application to Re-Open
[320]
J.3 Assessment
[324]
J.4 Defence to Cross-Claim
[327]
K DISCOVERY
[331]
L Conclusions and orders
[336]
A INTRODUCTION
The applicants (Fuges) are a farming family. They feel a great affinity for the land they have toiled and feel a sense of injustice at the prospect of the connexion they have with that soil being severed. What follows is a tale of bad luck, miscalculation and wilfulness from which neither the Fuges nor the first respondent (Bank) emerges unscathed. The difference is that for the Fuges, their miscalculations have been life altering; for the Bank, it will presumably recover the money that is owed to it and move on.
This proceeding has several unfortunate characteristics which are recurringly seen by anyone experienced in banking litigation. One is that people experiencing a sense of grievance and in financial distress litigate at length over family property and incur costs which they cannot afford and are not well proportioned to the value of any claim. A second is that claims warranting relief are made on a less than compelling basis. A third is that sage advice encouraging a client to overcome their sense of grievance and salvage what they can from the wreckage, is either absent or not followed. A fourth is the making of a partly absurd claim by lawyers which can serve to distract attention away from other claims which may have merit, and entrenching the hostility of the opposing party. Justice Bryson said in the context of family equity suits in Turner v Windever [2005] NSWCA 73; (2005) ANZ Conv R 214 at 222 [104], a “Judge in Equity recurringly sees families destroy their economic positions and well-being in similar ways, and it is not in the Court’s power to stop it”. The same can be said for disputes of the present type.
The Fuges conducted their farming business on three properties near Forbes in the Central West region of New South Wales. One property (Kennedia West) was owned by Mr Anthony Fuge and the other two properties (Greenfields and Lenborough) were owned by both Anthony Fuge and Mr Matthew Fuge as tenants-in-common in equal shares (I will describe all three properties collectively as the Properties). The Fuges also owned water rights associated with each of the Properties (Water Rights). Until sometime around late 2008, the Fuges conducted a partnership (Partnership) which apparently operated the farming operations. The Partnership dissolved as a trading entity in 2008, from which time Anthony Fuge continued to conduct all farming operations in his own name.
Prior to August 2008, the Fuges had various loans with Elders Rural Bank Ltd (Elders). By mid-2008, they used the services of a finance broker, Ms Sue Cohen, to seek to arrange alternative finance. Ms Cohen approached the Bank with a business plan prepared by Anthony Fuge in an effort to refinance with the Bank.
The Fuges advance a multitude of claims against the respondents. It is no longer necessary to detail the claims made as against the second and third respondents, as these were belatedly discontinued on the second day of the hearing. As against the Bank, for reasons which will become evident, it is not presently useful to attempt a detailed summary of the pleadings. It is best to begin by outlining in some detail the background to the dispute.
B FACTUAL BACKGROUND
B.1 Facility Agreements
In late 2008, the Bank approved the Fuges’ application for finance and two “AgriAdvantage Plus” facilities were established, totalling $1.65 million, namely:
(a)$900,000 AgriAdvantage Plus facility for Anthony Fuge recorded in a letter of offer/facility agreement dated 7 August 2008 (signed by Anthony Fuge on 21 August 2008), comprising:
(i)$750,000 “better business loan” with a 5 year term (with the stated purpose being “refinance of existing finance”); and
(ii)$150,000 overdraft facility with an indefinite revolving term but repayable on demand (with the stated purpose being “working capital”);
(b)$750,000 AgriAdvantage Plus facility for Matthew Fuge recorded in a letter of offer/facility agreement dated 7 August 2008 (signed by Matthew Fuge on 12 September 2008); the facility comprised a better business loan for $750,000 with a 5 year term (with the stated purpose being “refinance of existing finance”).
These facility agreements required security to be provided by the Fuges, which comprised:
(a)three registered mortgages over the Properties, all dated 1 October 2008 (being the Kennedia West Mortgage; the Lenborough Mortgage; and the Greenfields Mortgage);
(b)first equitable charges over the three bundles of Water Rights;
(c)guarantee given by Anthony Fuge in respect of the borrowings of Matthew Fuge; and
(d)guarantee given by Matthew Fuge in respect of the borrowings of Anthony Fuge.
(collectively, the 2008 Original Securities)
Anthony Fuge executed his documents at Lenborough on 15 September 2008, in the presence of Mr Richard Hewitt, and Matthew Fuge executed his documents in Hong Kong. On 9 October 2008, the refinance of the Fuges’ Elders loans settled and the Bank paid Elders a sum of $1,423,046.90.
On 13 October 2008, the Bank wrote to both the Fuges confirming the establishment of the $750,000 better business loans with terms of five years. Over time, a series of changes were made to the original 2008 credit facilities with the 2008 Original Securities largely remaining in place. The changes were in the nature of advancing further funds, rolling-over loans and extending some liabilities. The changes are recorded in various letters of offer/facility agreements, signed by the Fuges as required.
In May 2009, the Bank extended a further AgriBusiness Line of Credit facility up to $130,000 to Anthony Fuge. This increase in the facilities required additional security in the form of a business and livestock mortgage to be given by both Fuges over all assets, including Merino sheep at Lenborough, Greenfields and Kennedia West (Business Mortgage). No additional funds were advanced or extended to Matthew Fuge, but the guarantee previously given by him in respect of Anthony Fuge’s liabilities was required to be extended to a new total of $1.03 million.
In February 2010, the Bank provided a further AgriAdvantage Plus better business loan in the amount of $100,000 to the Fuges. The security remained the same.
By February 2011, the one-year $100,000 better business loan had expired, and the Bank agreed to “roll over” that loan for a further one-year term. The security remained the same, other than the Business Mortgage previously given by both Fuges being replaced with a new mortgage to be given only by Anthony Fuge (Livestock Mortgage).
The evidence then discloses further letters of offer/facility agreements dated 22 February 2011, which record the Livestock Mortgage to be given by Anthony Fuge. The Livestock Mortgage appears to have been signed by Anthony Fuge on 25 February 2011, although the FASOC asserts this to be the product of forgery. The Livestock Mortgage was a mortgage over “all assets and uncalled capital including Merino Sheep depastured at” Lenborough, Greenfields and Kennedia West.
In March 2012, the $100,000 better business loan was rolled over for a further one-year term. In May 2012, the Bank extended and increased the $100,000 better business loan. The loan was extended to 27 March 2013 and the amount increased to $200,000. Again, the security did not change.
B.2 Defaults
By 30 April 2012, the temporary extension of Anthony Fuge’s overdraft facility was required to be reduced back to $150,000. On 27 March 2013, the $200,000 better business loan (from May 2012) expired and was required to be repaid by the Fuges. On 9 October 2013, the $750,000 better business loans granted to each of Anthony and Matthew Fuge in 2008 were due to be repaid. The Fuges did not comply with any of these obligations.
B.3 Farm Debt Mediation and Settlement Recorded in “Heads of Agreement” Dated 17 July 2014
On or about 21 February 2014, the Bank issued a notice to the Fuges (s 8 Notice), pursuant to s 8 of the Farm Debt Mediation Act 1994 (NSW) (FDMA). The s 8 Notice identified that a total amount of $2,247,680.83 was then owing by the Fuges and that the Bank intended to take enforcement action. On 21 March 2014, Anthony Fuge sent an email to Mr Hewitt (which was then forwarded to Mr Matthew Maxwell) attaching a notice pursuant to s 9 of the FDMA, in which the Fuges requested a mediation. On the same day the Bank’s solicitors notified the Rural Assistance Authority that a mediation was required.
The Fuges engaged Mr Stephen Jay as their Rural Assistance Counsellor to assist them in relation to the mediation and their negotiations with the Bank. Mr Jay, on behalf of the Fuges, proposed that Mr David Bogan be appointed mediator and the Bank agreed.
A farm debt mediation took place on 17 July 2014 (Mediation). It was attended by Mr Maxwell and a solicitor from the Bank, as well as the Fuges and Mr Jay. Mr Bogan attended as mediator. The Mediation began at approximately 10am and concluded in the early afternoon. Precisely what occurred at this mediation will be considered in detail in Section E.4.3 below.
Unlike in many cases involving mediations, here we know some of what occurred by reason of evidence being adduced by the parties. It is necessary to explain why. The issue is one which I discussed in Dixon (Trustee) v Citiline Developments Pty Limited, in the matter of Nasr (Bankrupt) [2018] FCA 1446 in a different context; that being whether s 79 of the Judiciary Act 1903 (Cth) (JA) picks up s 304 of the Duties Act 1997 (NSW).
In the present case, the relevant section, s 18F (previously s 15) of the FDMA provides that:
18F Confidentiality of mediation sessions
(1) Evidence of anything said or admitted during a mediation session and a document prepared for the purposes of, in the course of or pursuant to, a mediation session are not admissible in any proceedings in a court or before a person or body authorised to hear and receive evidence.
(2) In this section, mediation session includes any steps taken in the course of making arrangements for a mediation session or in the course of the follow-up of a mediation session.
(3) This section does not apply to the following documents:
(a) a mediation agreement,
(b) a contract, deed, mortgage or other instrument entered into as a result of, or pursuant to, a mediation agreement,
(c) a summary of mediation under section 18O.
(4) This section does not apply to proceedings commenced with respect to any act or omission in connection with which the information has been disclosed on the basis of preventing or minimising the danger of injury to any person or damage to any property.
Of course in this justiciable controversy wholly within federal jurisdiction, the FDMA only applies by operation of s 79(1) of the JA, which provides:
The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.
The FDMA therefore only operates as surrogate federal law to the extent that it is not inconsistent with either the Constitution or, relevantly here, a law of the Commonwealth. The evidence of what occurred during the mediation is unquestionably relevant to a fact in issue in this case, meaning it is relevant within the meaning of s 55 of the Evidence Act 1995 (Cth) (EA), being the law governing admissibility at this hearing. It follows that pursuant to s 56(1), except as otherwise provided by “this Act” (that is, the EA), evidence that is relevant in a proceeding, is admissible in the proceeding. The s 18F exception preventing admissibility of otherwise relevant evidence, is not “picked up” and applicable in the present circumstances (although it would have had applicability in the event a New South Wales court exercising federal jurisdiction was determining this matter, as another New South Wales Act – rather than a law of the Commonwealth – would be regulating issues of admissibility). When my preliminary view along these lines was drawn to the attention of the parties at the commencement of the hearing when dealing with objections, the objections previously maintained by the Bank as to the admissibility of evidence as to what occurred at the mediation were not pressed.
In any event, at the conclusion of the Mediation, a document entitled “Heads of Agreement” was signed by all parties (HOA).
The HOA included the following express terms which are of particular note in this proceeding:
(a)the [Fuges] acknowledge and agree that they are in default of the Transaction Documents … by virtue of the Defaults specified in the Section 8 Notice (cl 3.1.1);
(b)the [Fuges] acknowledge and agree that the Amount Owing [being, $2,247,680.83] is immediately due and payable by them to the [Bank] (cl 3.1.2);
(c)the [Fuges] are required to repay to the [Bank] the Amount Owing, together with accrued interest and costs by 30 November 2014 (c 5.1);
(d)the [Fuges] must make a payment of $50,000 to the [Bank] by 20 August 2014 (cl 5.2);
(e)the [Fuges] acknowledge and agree that their obligations to the [Bank] to repay the Amount Owing are secured by the Securities [set out in the s 8 Notice Notice] (cl 3.1.3);
(f)the [Fuges] release and discharge the [Bank] from all claims against the [Bank] arising from or in connection with the Transaction Documents (cl 4.2);
(g)by 31 July 2014, the [Fuges] must obtain market appraisals and sale methodology advice from 3 licensed agents as to the most appropriate method of sale for each of the Properties (on basis of the timeframes agreed within this Agreement) together with sales price guidance for each Property (cl 5.3);
(h)by 7 August 2014, the [Fuges] must provide to the [Bank] copies of the selling agents’ signed agency agreements for the sale of each of the Properties and details of the marketing campaign proposed for the sale of the Properties (cl 5.4);
(i)The [Fuges] must provide the [Bank] … with written fortnightly updates … as to the progress of the sale campaign for the Properties including a list of all interested parties, inspections conducted and any interim offers to purchase the Properties (cl 5.5);
(j)by 15 October 2014, the [Fuges] must provide to the [Bank] for its approval in writing, unconditional contracts for the sale of each of the Properties with a sale price sufficient to repay the Amount Owing, together with accrued interest and costs and a settlement date of not (sic) longer than 42 days from the date of exchange of a signed contract for sale (cl 5.6);
(k)in the event that the [Fuges] fail to comply with a term of this Agreement or commit any further defaults under the Facilities, they agree to:
(i)deliver up vacant possession of all of the Properties;
(ii)consent to judgment in favour of the [Bank] for the Amount Owing plus accrued interest and costs and possession of the Properties;
(iii)not do anything to interfere with the [Bank] taking possession of the Properties; and
(iv)a sale by the [Bank] in its capacity as mortgagee in possession (or by its appointed agents)
(cl 5.8)
(l)the [Fuges] may rescind this Agreement at any time before 5pm on the 14th day after the day on which this agreement is entered into (cl 8.1).
B.4 Further Defaults
Despite the agreement reached at the mediation, the Fuges did not comply with cll 5.1, 5.2, 5.4 and 5.5. The Bank’s solicitors wrote to the Fuges on numerous occasions between August and December 2014 noting the alleged breaches of the HOA, as well as making certain offers.
By 19 January 2015, the Bank had not been paid the outstanding debt and issued a formal Notice of Demand to the Fuges, identifying their continuing breaches and demanding payment in the amount of $2,388,315.26 by 4.00pm on 23 January 2015. The Fuges did not make the payment by that deadline.
B.5 Sale of Properties
On or around 5 February 2015, the Bank served notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) (RPA) in respect of the Lenborough Mortgage, the Greenfields Mortgage and the Kennedia West Mortgage. On 9 February 2015, the Bank appointed Mr Robert Moodie and Mr Will Griffiths as receivers and managers. On 17 March 2015, the receivers and managers retired and they were instead appointed as agents for the Bank.
In August, purchasers were secured for Lenborough and Greenfields. During this period and up until 14 December 2015, the Fuges put various offers to the Bank in an effort to settle the dispute by selling Kennedia West and refinancing the debt owing to the Bank. These offers are detailed in Section H below. On 20 November 2015, Anthony Fuge exchanged a sale contract for Kennedia West with a purchaser. On 14 December 2015, the Bank exchanged contracts in relation to Lenborough and Greenfields and their respective Water Rights.
In July 2015, Mr Griffiths sold 214 Merino wether lambs and once the Properties were sold, the balance of the flock pursuant to the Livestock Mortgage.
The Bank applied these sale proceeds towards various facilities owing by the Fuges in the manner detailed in the affidavit of Mr Greentree at [169] with the result that the Bank calculated the amount owing by the Fuges as at 21 December 2017 to be $739,058.49. It will be necessary to resolve the dispute as to quantum below.
C RELEVANT ISSUES
Regrettably, notwithstanding numerous amendments, the pleadings filed by the applicants were at best obscure and at worst incoherent. At the beginning of the hearing, I indicated to counsel for both sides that in order to obtain clarity in relation to those matters that I was required to determine, it was necessary that the real issues be identified with precision. My resolve to adopt such a course was fortified by the fact that the opening submissions filed in advance of the hearing by both parties demonstrated that there was an asymmetry between them as to precisely what was, and was not, part of the case to be advanced. Repeatedly during the course of the hearing, I made it crystal clear to counsel appearing for the Fuges that unless an issue appeared on the agreed list of issues which reflected the issues to be determined, then I did not propose to determine it. Accordingly, as matters emerged during the course of the hearing and it became clear that the list of issues was in some way incomplete, it was the subject of a specific order amending the list which became known as MFI 7.
The ultimate version of MFI 7 was in the following form:
MFI 7
ISSUES FOR DETERMINATION
1.Whether upon a proper construction of clause 4.2 of the Heads of Agreement dated 17 July 2014 (HOA), any causes of action by the applicants against the respondent (Bank) alleging: (a) improvident lending or unconscionable conduct or unjust contract relief or NCC relief in relation to facilities provided by the Bank prior to the HOA (Relevant Facilities); (b) breach of clauses 2.2, 25.1, 25.2, 26.2 and/or 28.5 of the [Code of Banking Practice] in relation to the provision of the Relevant Facilities; (c) negligent advice or omission of advice in relation to the provision of the Relevant Facilities; (d) misleading representations as to Special One Grain; or (e) as to invalidity or discharge by operation of law of any securities or guarantees existing as at 17 July 2014 (Pre-2014 Causes of Action) were released?
2.If one or more of the Pre-2014 Causes of Action would, on a proper construction of clause 4.2, have been released if the HOA was valid, is the HOA invalid because:
a.of some invalidity in the form of the notices pursuant to which the Farm Debt Mediation was convened by reason of the fact:
i.the Business and Livestock Mortgage by Anthony Fuge over all assets and uncalled capital including Merino Sheep purportedly dated 28 February 2011 (MFI 2, 351-355) (Livestock Mortgage) was forged or fraudulently made; or
ii.Anthony Fuge did not have authority to charge part of the Security the subject of the Livestock Mortgage?
b.the HOA was executed in circumstances where the conduct of the Bank in the mediation was contrary to the good faith requirement provided for in Part 2 of the Farm Debt Mediation Act 1994 (NSW) (for the reasons particularised in the schedule to this document)?
c.the HOA is a credit contract to which the National Credit Code applied that is unjust (for the reasons set out in the schedule to this document) and an order should be made that it is invalid?
d.the HOA was an unjust contract within the meaning of s 9 of the Contracts Review Act 1980 (NSW) (for the reasons set out in the schedule to this document) and an order should be made that it is invalid?
e.the HOA should be set aside because the entry into the HOA amounted to unconscionable conduct contrary to the provisions of s 12BC of the Australian Securities and Investments Commission Act 2001 (Cth) (for the reasons set out in the schedule to this document)?
3.In the light of the answers to questions 1 and 2, for such of the Pre-2014 Causes of Action that are able to be maintained, are the applicants entitled to any and, if so, what relief against the Bank?
4.Irrespective of the answers to questions 1 to 3, are the applicants entitled to common law damages or equitable relief by reason of the sale of any security property by the Bank after 17 July 2014 at an undervalue?
5.Irrespective of the answers to questions 1 to 4, are the applicants entitled to common law damages by reason of a breach by the Bank of the Code of Banking [Practice] arising by reason of the Bank's failure after 17 July 2014 to accept refinance offers made to the Bank on behalf of the applicants (being offers to discharge their indebtedness to the Bank)?
6.Whether the guarantee which appears at Exhibit C p 219 was discharged by operation of law by reason of the fact that the livestock mortgage (Exhibit C p 351) was entered into by the Bank and Anthony Fuge without the consent of Matthew Fuge.
7.Is the Bank entitled to the relief it seeks in the cross claim?
At the conclusion of the hearing, I directed that the parties make their final submissions in relation to the matters identified in MFI 7. In large part, the parties complied with this order and it is convenient to structure the balance of these reasons by reference to these issues. It should also be noted, however, that this case did not proceed with celerity, and by the time it came to finally reserve my judgment in this proceeding (six months subsequent to the hearing commencing), the parties had provided to the Court a total of no less than 19 different sets of submissions and aide-memoires. To the extent that any submissions of the parties have not been dealt with in this judgment, this is because they were either not substantiated beyond mere assertions or I do not consider that they relate relevantly to the issues specified in MFI 7.
D CONSTRUCTION OF THE HEADS OF AGREEMENT (Issue 1)
The first issue concerns the construction of cl 4.2 of the HOA.
The Bank contends that cl 4.2 is a complete release which operates to bar all of the Fuges’ Pre-2014 Causes of Action. Unsurprisingly, the Fuges contend that it does no such thing.
The general release in this proceeding was in the following terms:
From the date of this Agreement, the [Fuges] release and discharge the [Bank] from all Claims against the Creditor arising from or in connection with the Transaction Documents.
(emphasis added)
For the purpose of the HOA, Claim is defined in cl 1 to include: “a claim, demand, debt, action, proceeding, suit, cost, charge, expense, damage, loss and other liability”. Transaction Documents are defined to mean the “Facilities and the Securities” which in turn were defined as the Facilities and Securities referred to or set out in the s 8 Notice attached to the HOA. The s 8 Notice referred to those facilities and securities detailed in Section B above.
D.1 Whether cl 4.2 releases all claims arising from or in connexion with the Transaction Documents
The Fuges do not appear to cavil with the characterisation of the release as general, however, a number of arguments were advanced as to why the release would still not apply. Generally, it was contended that the words of a release are not determinative and the context of both the HOA and its formation must be considered. This is said to be a circumstance where the general release should be read as being constrained or qualified by the pre-existing dispute between the parties – being the repayment of the debts.
D.1.1 Common Law
It is plain that as a general proposition, general words of release may from time to time be limited. At common law, the effect of a release accords with its likely ordinary and natural meaning. Where a release is expressed in general terms, however, principles of construction dictate that the operation of the exclusion will be limited to the subject or occasion to which the agreement, read as a whole, refers: Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112 at 123 (Dixon CJ, Fullagar, Kitto and Taylor JJ). The Full Court of this Court recently explained in Sarina v Fairfax Media Publications Pty Ltd [2018] FCAFC 190 at [20]:
Thus, where, as often occurs, a deed recited that the parties have had a particular dispute, but the clause creating the release did not expressly confine its operation to the dispute mentioned in the recitals, the principles of construction at common law read down the wide words of the release to apply only to the dispute in the recitals.
As a matter of common law construction, the Fuges submit that: (a) the recital, acknowledgements and mediation agreement at Schedule 1 circumscribe the limits of the dispute; and (b) the s 8 Notice only refers to the Fuges’ defaults rather than the facilities themselves such that the release does not extend to issues as to the facilities. It is convenient to deal with these arguments sequentially.
First, the recital and acknowledgement clauses are said to confirm that the only dispute being resolved was the Bank’s claim against the Fuges for failure to repay their loans. The recital is in the following terms:
RECITALS
Whereas:
A.The Creditor provided the Facilities to the Farmers.
B.The Creditor holds the Securities to secure the repayment of the Amount Owing under the Facilities.
C.The parties have participated under the Act to address the issues in dispute among them and have reached an agreement on the terms set out below.
The Acknowledgement clause sets out a series of acknowledgements made by the Fuges. This includes:
The Farmers acknowledge and agree that:
3.1.1 they are in default of the Transaction Documents;
…
3.1.4 the Transaction Documents are valid and enforceable in accordance with their terms and continue in full force and effect;
It is difficult to see how, as a matter of construction, these clauses could assist the Fuges’ case given that the acknowledgement and recital expressly put the enforceability of the Transaction Documents in issue. The Fuges insist that the Acknowledgements clause is “absolutely silent” on the Bank’s wrongdoing. This is beside the point. The clause is not silent on the enforceability of the Transaction Documents. As to the Mediation Agreement, the submission made was that it describes the dispute by reference to the s 8 Notice. For that reason, this argument is sufficiently disposed of by my analysis as to the s 8 Notice below.
Secondly, it will be recalled that the Transaction Documents were defined in the HOA as the Facilities and Securities “referred to or set out in” the s 8 Notice. The Fuges argued that since the Transaction Documents were defined by reference to the s 8 Notice, and the s 8 Notice’s descriptions of “Facilities” and “Securities” only reference the Fuges’ failure to repay the Facilities, the only matter that “arises from” or “connects with” the Transaction Documents is a failure to pay. This argument does not withstand scrutiny. The only way in which the s 8 Notice feeds into the release clause is in a definitional sense, by giving content to the words “Transaction Documents”.
The s 8 Notice is a two-page document that outlines the Bank’s intention to take enforcement action. In detailing the defaults, the s 8 Notice names each of the various loans, and at the bottom of the first page there is a table which details all relevant facilities and their balance at the date of issue of the s 8 Notice. All Facilities outlined in Section B above, are clearly “referred to” in the s 8 Notice. The suggestion that the s 8 Notice should then operate so as to delimit the issues of the HOA to the Fuges’ obligation to repay the Bank, while excluding issues in relation to the enforceability or validity of those facilities and securities, merely needs to be stated to be rejected.
It is clear that as a matter of construction, issues 1(a)(b)(c) and (e) are all claims which in their terms explicitly “relate to” the facilities provided by the Bank, and therefore in turn, to the Transaction Documents. Issue 1(d) is slightly more complex and will be considered separately below.
D.1.2 Equity
In addition to the arguments of construction at common law, the Fuges seek to rely upon the High Court’s (Dixon CJ, Fullagar, Kitto and Taylor JJ) statement of equitable principle in Grant v John Grant at 129–130:
From the authorities which have already been cited it will be seen that equity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.
In Sarina the Full Court explained at [21]:
[E]quity will restrain a party seeking to enforce a wide or general release where it would be unconscientious for that party to do so in all of the circumstances. In such a case, the court will examine the knowledge and intention of both releasor and releasee as to the subject matter on which the release would operate.
The Fuges contend that the equitable doctrine expressed in Grant v John Grant should apply to cl 4.2 because:
there is not an (sic) single iota of any evidence showing that the Fuges knew about, articulated, or complained to the Bank, prior to the Heads of Agreement, that they were dissatisfied with, entitled to, or were thinking about making a claim regarding asset lending, misleading or deceptive conduct, rights under the National Credit Code or Code of Banking Practice, and so on.
The difficulty for the Fuges is that it is not to the point whether they were aware of the specific legal claims potentially available to them at the time of signing the release. Equity will only intervene to prevent unconscientious reliance upon the general release. As demonstrated by the contents of the s 8 Notice and the agreement contained within the HOA as a whole, the Fuges were well aware of the fundamental factual bases out of which their Pre-2014 Causes of Action are said to have arisen. The HOA was entered into after the Mediation, which had taken place between the Fuges and the Bank as customers and banker, in relation to a number of loans, mortgages and other charges and guarantees which regulated their relationship.
The Fuges did not point to any inequality in knowledge between themselves and the Bank as to the circumstances or factual underpinnings of the facilities and securities, nor was any element of bad faith or disentitling conduct specifically alleged in relation to withholding information pertinent to the Pre-2014 Causes of Action. Equity will not intervene where an agreement was then struck and the Fuges agreed to release all claims against the Bank arising out of such a context. The parties are taken to have intended to resolve or reach a compromise in relation to all extant claims arising from the facilities and securities between them. Equity will not intervene to displace the position at law that issues 1(a)(b)(c) and (e) are released.
D.2 Whether Issue 1(d) was released by cl 4.2
In order to assess whether this claim was within the scope of the release, it is necessary to outline the details of the alleged misleading representation.
The representation is said to have occurred during a conversation between Anthony Fuge and Mr Hewitt. The contextual background being that Anthony Fuge and Mr Hewitt had a telephone conversation during which the issue of pooling grain arose. Anthony Fuge contends Mr Hewitt made a representation to the following effect: “If I had 10,000 tonnes I’d pool it with [Special One Grain] because they’re safe as houses and they’re a customer of ours”: FASOC at [9A(c)]. It is said that in reliance upon this representation, Anthony Fuge pooled a large amount of his harvest with Special One Grain. At [9E] it is alleged that the representation was erroneous in that the investment was an unreliable source of income “to meet his financial commitments including to the Bank”, and the Fuges suffered significant loss and damage in that Special One Grain underperformed.
Whether or not this representation was in fact made is not relevant to the present enquiry. The Bank accepts that a claim for misleading representation not associated with the Transaction Documents would not likely be covered by cl 4.2. The Bank provided four reasons as to why the claim was so associated.
First, the Bank relies upon the loss and damage element of the claim. The FASOC at [9J] particularises the loss suffered by reason of the misrepresentation as being loss of the Properties and associated Water Rights among other things. This is said to be enough to mean that the claim is “related to” the Transaction Documents, because presumably the Fuges’ claim is that the direct financial loss which occurred by reason of the misrepresentation prevented them from fulfilling their repayments.
Secondly, the Bank argues that in any event, the Fuges failed to advance any claim that they suffered loss that was not referable to the Transaction Documents. Thirdly, the alleged losses attributable to the representation were crystallised by the mediation and were therefore susceptible to being released.
Although the Fuges have sought to run any loss occasioned by the misrepresentation together with the broader claim, and have inadequately particularised the alleged loss directly referable to the Special One Grain representation, this does not mean, in and of itself, that the only potential loss that can be claimed is in relation to the facilities. To proceed otherwise would be to ignore the statutory words in s 82 of the Competition and Consumer Act 2010 (Cth), that a person is entitled to recover the amount of the loss or damage caused by the contravention. I am not persuaded that due to the wide-ranging particularisation of loss, the claim as to misrepresentation arises from or is in connexion with the Transaction Documents. The claim arises out of alleged advice given as to the investment of the Fuges’ grain harvest. How the Fuges were then planning to use that income is irrelevant.
Lastly, the Bank submitted that the FASOC alleges misleading or deceptive conduct “in relation to the provision of financial services”. This does not assist the Bank. The Fuges’ opening submissions make it clear that the financial service being relied upon is the provision of financial and business advice.
Notwithstanding the Bank’s submissions, the better view is that the claim as to misrepresentation does not fall within the release. The claim relates to alleged advice given as to the investment of the Fuges’ grain harvest. On an ordinary understanding of this claim and the release, this separate element of the dealings between the Bank and the Fuges was not within the contemplation of the parties at the time of entering into the HOA and was not released; however, for reasons I will explain, if I am wrong on this point, it does not matter as the claim is flawed in any event.
E VALIDITY OF THE HEADS OF AGREEMENT (ISSUE 2)
E.1 Alleged invalidity in the form of notices by which the Farm Debt Mediation was convened
This submission rests upon the alleged requirement that a s 8 Notice, such as that issued by the Bank on 21 February 2014, must identify, with respect to a mortgage, “the debt concerned”: Waller v Hargraves Secured Investments Limited [2012] HCA 4; (2012) 245 CLR 311. The Fuges rely upon the proposition that if a s 8 Notice is incorrect, then a valid notice must be re-issued, otherwise the farm debt mediation will be invalid. The s 8 Notice is said to have been invalid by reason of its reference to the Livestock Mortgage, which is said not to be enforceable.
Mr King, counsel for the Fuges, accepted during the course of argument, that an invalid s 8 Notice could not, by reason of this fact alone, invalidate an agreement reached at the end of the Mediation such as the HOA, but that the argument could still be relevant to either a larger unconscionability case, or as a defence to the cross-claim, in that the Bank would be statutorily prohibited from taking enforcement action.
Despite this concession by Mr King, it is useful to deal with the two substantive allegations made in relation to the form of the notice identified in MFI 7, as my findings in relation to these submissions go on to affect other issues raised in this proceeding.
E.1.1 Forged or Fraudulently Made
It is trite that allegations of forgery and fraud are not ones which are to be made lightly. As the Full Court (McKerracher, Robertson and Lee JJ) recently explained in CCL Secure Pty Ltd v Berry [2019] FCAFC 81 at [79]:
Under Rules 64 and 65 of the Legal Profession Uniform Conduct (Barristers) Rules 2015, no allegation of fact in any court document settled by the barrister could be made unless the barrister believed on reasonable grounds that the factual material already available provided a proper basis to do so. Moreover, as to allegations amounting to serious misconduct against any person, it was necessary for the barrister to believe on reasonable grounds that: (a) available material by which the allegation could be supported provided a proper basis for it; and (b) the client wished the allegation to be made, after having been advised of the seriousness of the allegation and of the possible consequences for the client and the case if it was not made out.
In the present case, serious allegations of deliberate fraud have been made from an early stage in the pleadings and in the sworn evidence. At [10(a)] of the FASOC, it is alleged that the Livestock Mortgage “is a forgery and was obtained by fraudulent means”. The issue of forgery was also raised at a case management hearing on 22 September 2017, which resulted in the original mortgage being taken into the custody of the Court. Mr King contended later that his basis for the allegation of forgery was that the date on the Livestock Mortgage document was not a date on which Anthony Fuge could have possibly signed it. A handwriting expert was then appointed as a referee, who produced a report which was adopted in February of 2018 (Report). The Report concluded that the signature on the document was likely that of Anthony Fuge. Despite the Fuges accepting the finding of the referee, no amendment was sought to be made to the pleadings and Mr King maintained the submission of forgery in opening submissions. During cross-examination on day three of the hearing, Anthony Fuge was shown an original copy of the Livestock Mortgage and agreed that the document bore his signature.
It is important here to divagate briefly, to explain the position taken by Mr King shortly before Mr Zahra, counsel for the Bank, reached the point of cross-examining Anthony Fuge as to the Livestock Mortgage documents. An exchange took place during which I expressed my concern as to his choice to maintain an allegation of fraud given his then instructions. It is worth setting it out briefly (T100-101):
MR KING: … Mr Hewitt brought a bundle of documents out and signed them on the kitchen table, I think, on the back of the truck. And it’s not clear – it hasn’t been made clear – or there is an assumption in my friend’s question that he knew what the documents were that he was signing. And I - - -
HIS HONOUR:… So your instructions, effectively, this was all done – he brought out a bundle of documents, then, on 25 February 2011, all signed over a kitchen table, so he wouldn’t have known one way or the other what he signed.
MR KING: Exactly.
HIS HONOUR: If those are you[r] instructions, how can you maintain that on 25 February 2011 there was a forgery, Mr King?
MR KING: Because the – well, two things: firstly, the document which my friend hasn’t yet taken him to was dated 28 February, not 25 February; and, secondly, he disputes that he did sign it.
HIS HONOUR: Yes, but you have already said to me that it was signed – on your instruction[s], it was signed in circumstances where a whole bundle was put out. There are documents here – I mean, it just seems to me, Mr King – this is a very serious allegation.
MR KING: Yes.
HIS HONOUR: It is an allegation which amounts to professional people engaging in criminal conduct. In the light of his answers in respect of signing other documents on 25 February and what you have just told me about how those documents are signed, I must say, I express no final views about it, but I’m concerned about the basis upon which there is currently in the possession of you and your solicitors [which allows you] to maintain an allegation of serious criminal misconduct against somebody.
MR KING: Yes. Well, your Honour, I refer to the authorities before the luncheon adjournment, and we do maintain it.
It was not until day six of the hearing that the following exchange took place (at T544-T545):
HIS HONOUR: Well, we know it’s not forged, don’t we? Are you seriously maintaining it’s forged, given what Mr Fuge said in cross-examination?
MR KING: No, I don’t, but we do say it was fraudulently made, having regard to the misrepresentations it contained and the fact that it was registered.
One would have thought that this would be the end of any such issue but on day 12, after closing submissions in reply had been filed, which somewhat remarkably included a submission which doubted the veracity of the second original mortgage not shown to the referee, Mr King finally acknowledged no forgery point was now taken (at T1050-1051):
HIS HONOUR: May I say, frankly, Mr King, I think you’re doing Mr Fuge a disservice by running this argument. Mr Fuge, to my mind, when he was dealing with these documents presented as someone who was genuinely trying to give a proper account. He didn’t obfuscate. He said, “That may well have been my signature”, etcetera.
MR KING: He did.
HIS HONOUR: Now, you for months and months and months had been running a case where there was deliberate fraud where someone had forged a signature, something Mr Fuge wasn’t prepared to come to, to his credit. Now, as far as I’m aware, that case still hasn’t been abandoned …
MR KING: we don’t press the contention, for the reasons your Honour has outlined, that this was a forgery by – of his signature on the document.
…
HIS HONOUR: So … I can take that that’s abandoned?
MR KING: That’s abandoned
Despite Mr King’s belated acknowledgment that the claim was abandoned, no application was made to amend the pleading. In any event, the allegation that the document was forged may now be put to one side.
Mr King did not, however, abandon any other claims as to fraud. At T1051, it was made clear that the case as to deliberate dishonesty was maintained, specifically, alleging that the Livestock Mortgage was fraudulently made. In closing submissions, it was asserted this was the case for two reasons. First, because the mortgage contains a misrepresentation which the Bank knew to be false at the time of registration. This misrepresentation is said to be that the mortgage is dated “28 February 2011”, when the evidence discloses that it was not signed on that date. It is alleged that the process is not in conformity with any authority that the mortgagor provided. Secondly, the mortgage is said to contain a further misrepresentation, being that Mrs Katrina Noble (née Westcott) witnessed the signature, when in fact, she did not.
The first argument is put in such a way that does not require me to make a finding as to whether Mrs Noble did in fact witness the signature. It is said that knowingly dating the mortgage on a date different to that on which Mr Fuge signed it is enough to amount to fraud. Fraud, however, requires actual dishonesty. Even on the Fuges’ case, other than asserting that the Bank knew the date to be incorrect, there is no actual element of dishonesty or malice alleged which can be brought home to the Bank. Beyond ensuring the document was dated prior to registration, there was no dishonest advantage or outcome that the Bank was attempting to achieve.
Having regard to the evidence of the witnesses, the most likely chain of events is that the document was signed at Kennedia West, the date was not filled in at that time and it was placed upon the document later by an employee of the Bank working in the securities area of the Bank – hardly a novel state of affairs as would be known to anyone with experience in routine conveyancing (including mortgage) transactions. In any event, how the date of 28 February 2011 came to be on the mortgage document is neither here nor there.
The Fuges were not able to provide any relevant authority which supported the proposition that the subsequent dating of the Mortgage was enough to set it aside. The submissions cited two authorities, which do not deal with the issue of incorrect dating: see National Commercial Banking Corp of Australia v Hedley [1986] ANZ ConvR 420; Australian Guarantee Corporation Ltd v De Jager [1984] VR 483. Apart from this, the cases concern the fraud exception to indefeasibility contained in s 42 of the RPA and Transfer of Land Act 1958 (Vic) respectively. Unsurprisingly, indefeasibility does not arise regarding the Livestock Mortgage as it is not governed by the RPA. The Livestock Mortgage was registered pursuant to the General Register of Deeds kept pursuant to the Registration of Deeds Act 1897 (NSW).
On no view of it can the subsequent dating of the Mortgage in this case, when the signature and witnessing were carried out according to law, operate as a fraudulent act to invalidate the Livestock Mortgage.
In any event, although it was not raised by the parties, it seems quite clear to me that this argument must fail for another reason, being that even if no mortgage could be said to have been validly entered into at common law, the Bank must have a claim for specific performance on the basis that an equitable mortgage exists. Here, the mortgage is in writing; signed by the mortgagor; and identifies the essential terms of the mortgage: see Performance Capital Mortgage Pty Ltd v Motive Finance & Leasing Pty Ltd [2010] NSWSC 429 at [17]-[18]. Moreover, and perhaps more importantly, there are at least two other documents that were signed by both the Fuges by which they agreed that in exchange for the Bank providing certain facilities there would be a suite of securities which included the replacement of a then existing business mortgage and the giving of a new business and livestock mortgage.
I now turn to the more serious allegation, that Mrs Noble was untruthful in her evidence and did not in fact witness Mr Fuge signing the document. It is necessary to begin with an assessment of the evidence given by Mrs Noble, Anthony Fuge and Mrs Melanie Fuge.
The affidavit evidence of Mrs Noble was that, to the best of her recollection, on at least one occasion she attended a meeting at the Fuges’ property in Forbes with Mr Hewitt. Despite admitting to no longer having an independent recollection of the time or date of that meeting, she did recall Anthony Fuge saying words to the effect of “my wife and I just got married in Eugowra”. She recalled thinking that it must have been uncomfortable weather for the wedding, as she had been in Eugowra at the same time, and it was “incredibly hot”. At the beginning of her evidence in chief, Mr Zahra asked whether Mrs Noble was able to point out Anthony Fuge in the court room, which she then did. Perhaps unsurprisingly, in light of the notorious difficulties with in-Court identification evidence, the Fuges argue that this evidence has very no probative value: see Alexander v The Queen (1981) 145 CLR 395 at 426-427; Festa v The Queen [2001] HCA 72; (2001) 208 CLR 593 at 601 [18]; however, this is neither here nor there, as I have not placed any weight upon this part of Mrs Noble’s evidence.
Mrs Noble gave evidence that the dates on the two letters of offer were written by her, and the witness signature on the Mortgage document belonged to her. In cross-examination, she gave evidence that it was always her practice to witness signatures immediately after the customer had signed the document. When asked to explain why the letter of offer was dated by her on 25 February 2011, but the mortgage was not, she replied that “[f]or some reason, things like mortgages and charges over particular assets, the business lending support team preferred for us to send them back undated and they would take care of that. It was something to do with the registration of the documents”: T587.12-15. I accept this evidence.
Anthony Fuge appeared to me to be a witness doing his best to tell the truth and, to his credit, was more circumspect in making allegations of wrongdoing than his Counsel. His oral evidence was consistent with the general assertion made in his affidavit evidence, that he had no recollection of Mrs Noble ever coming to the property in Forbes. Although at the beginning of cross-examination on this point he made an assertion that he positively denied Mrs Noble being at the property, this was later clarified. It became clear he had not understood there to be a difference between Mr Zahra’s question as to his not recollecting her being there, and whether he was able to deny positively that fact. Although Anthony Fuge did make an allegation of forgery as to his signature on the document in his affidavit, his oral evidence was delivered relatively thoughtfully, and he did not try to obfuscate when answering difficult questions. Importantly, as mentioned above, upon being shown the Livestock Mortgage, he accepted that the signature belonged to him.
The Fuges contend that Mrs Fuge gave powerful evidence denying that Mrs Noble had ever visited their home at Lenborough. Her evidence was, as best as she could remember, that Mr Hewitt always came to the house alone. If she had prior warning that Mr Hewitt was coming, she would usually bake a cake and they would have a cup of tea. In cross-examination, she told the Court that to the best of her recollection, Mr Hewitt was present at the farm on 25 February 2011, but she did not recall Mrs Noble being there. While Mrs Fuge explained she had no recollection of Mrs Noble ever coming to the farm, her evidence did not rise to a positive denial that Mrs Noble could have been there. I am satisfied that Mrs Fuge was trying her best to tell the truth.
Mrs Noble was a truthful witness. She did not present as someone with any interest in coming to Court and telling anything other than the truth. Mrs Noble’s oral evidence under cross-examination was consistent with the account given in her affidavit. At no point did Mrs Noble attempt to avoid the fact that her practice was to send mortgage documents to the Sydney office undated. The corroborative detail concerning her recollection of the weather at the time of the wedding also tends to provide some verisimilitude to her account. Further, in circumstances where the evidence of Anthony Fuge and Mrs Fuge is that they could not positively deny that Mrs Noble was present, there is simply no sound basis upon which to draw a conclusion that Mrs Noble did not in fact witness the signature. This would be the case for proof of any fact in similar circumstances, the proof falls so far short of making out an allegation of dishonesty to be risible. The allegation of forgery should not have been made, and once made, it should never have been maintained.
E.1.2 Lack of Authority
This submission rests on the proposition that despite the termination of the Partnership in late 2008, Matthew Fuge continued to own some of the sheep at the time of entry into the Livestock Mortgage. The Fuges submit that by reason of this, it was impossible for Anthony Fuge to commit his brother’s interest in the same property and it was never his intention to do so.
E.1.2.1 Submissions
As the Bank notes in its submissions, the Fuges bear the onus of proving the state of affairs as to the ownership of the sheep for which they contend. The following evidence is relied upon by the Bank as demonstrating why that onus has not been discharged:
(a)Anthony Fuge’s financial statements which disclosed that he was the owner of the sheep at all relevant times after the termination of the Partnership;
(b)Matthew Fuge’s evidence that the sheep were never included in his financial statements;
(c)a Notice to Produce was issued to the Fuges calling for production of any documents recording Matthew Fuge as the owner of any sheep and the only documents produced was a record of the Partnership owning the livestock in 2009;
(d)the evidence of Matthew Fuge that he left the care and management of the sheep to Anthony Fuge;
(e)the evidence of Mr Griffiths that Anthony Fuge represented to him that he was the owner of the sheep; and
(f)the representations made by Anthony Fuge by virtue of his financial records that he was entitled to grant a mortgage over the livestock as the sole owner.
The Fuges submit that contrary to the Bank’s submissions, the actual state of affairs was that the brothers were joint owners of the sheep as they had contributed equally to the cost of the purchase of the flock. This position did not change after Anthony Fuge became a sole trader. These assets were made available by Matthew Fuge for Anthony Fuge to use as a sole trader, for which Matthew Fuge charged neither rent nor another fee. The evidence relied upon to disprove the correctness of the financial records was said to be: first, the publicly listed documents relating to the livestock ownership. When the livestock’s official NSW Property Identification Code was registered with the Local Land Services, both Fuges were registered as owners. This is also said to be the case when the registration was renewed in both 2009 and 2016.
Secondly, the Fuges rely upon their oral evidence in respect of the ownership. Anthony Fuge’s evidence was that he could not afford to pay his brother out for the livestock, and never did. As to the financial records, Anthony Fuge agreed that where livestock were accounted for in his Financial Report for the Year Ended 30 June 2013, this related to all of the livestock on the Properties for the period identified. Anthony Fuge agreed to the proposition that this financial report was not only supposed to set out the income of the Properties, but also provide details as to the true position concerning his assets and liabilities. He said that he did not inform the accountant who prepared the report that his brother jointly-owned the sheep, and that he just kept on breeding the sheep and running the business.
Matthew Fuge’s evidence was that he understood Anthony Fuge had included the sheep in his own personal financial statements because he was acting as a sole trader. When asked whether Anthony Fuge was the registered owner of the sheep, Matthew Fuge answered that he owned half the sheep, save for those bought by Anthony Fuge after the termination of the Partnership. Matthew Fuge was then taken to [115] of his affidavit, where it reads: “they were not the rightful owners of the livestock; my brother was the registered owner”. In response to this, Matthew Fuge acknowledged that his brother was the registered owner, as was the Partnership.
Thirdly, it was submitted that in any event, Anthony Fuge held the sheep on constructive trust for Matthew Fuge.
E.1.2.2 Consideration
There are a series of cascading issues which pervade the Fuges’ submissions as to this point. The position as to the ownership of the livestock is somewhat obscure. Before considering the strength of the arguments summarised above, it is worth identifying the supposed consequences said to flow from a finding that Matthew Fuge jointly owned the livestock. Regrettably, this is another example of legal issues being floated for the Court to work out, without being fully developed in submissions or apparently being thought through.
The Fuges contend that Anthony Fuge would not have had the authority to mortgage his brother’s share. Two points should be made about this chain of reasoning. First, the high point of the Fuges’ evidence is the recording of the Partnership on the LPA Register. If that were to be taken as conclusive of ownership, the lawful owner would be the Partnership itself, not the two brothers individually in equal shares. Subject to an agreement to the contrary, it is trite that one partner, acting in that capacity, is entitled to deal with the property of the Partnership. This aspect was not explored at all in the Fuges’ submissions.
Secondly, even if I found that Anthony Fuge had no authority to offer security over Matthew Fuge’s portion of the livestock, the Fuges’ submissions do not endeavour to explain how this would legally affect the Livestock Mortgage. It appears to me that at best, Matthew Fuge would have a claim against Anthony Fuge for conversion. No submission was made or developed as to how the Bank’s title would be defeated or impeached. There is no suggestion that the Bank was on notice as to Anthony Fuge wrongfully representing his ownership status as to the livestock, and the proposition that the Bank had some form of obligation to go beyond Anthony Fuge’s representations and check a certificate of registration, cannot be accepted. Further, given the cross-guarantees, the Fuges were jointly and severally liable for the debts in any event. It is unnecessary to say anything further on this, since the Fuges do not even reach the stage of proving joint ownership of the livestock and so the possible consequences of such a finding fall away.
Turning now to the submissions, it is necessary to deal with the competing evidence as to ownership. The first and most obvious issue with taking the certificate of registration at face value, is the apparent ownership of the livestock by the Partnership, despite the Partnership having been dissolved in late 2008. Putting this to one side, the certificate cannot be taken as being definitive evidence of ownership in the presence of directly contradictory evidence, being the financial records of Anthony Fuge. Despite how the submissions may attempt to colour it, an LPA certificate of registration simply does not carry with it the legal status of registration pursuant to the RPA. This is not a case of title by registration.
As to the financial records, at the time the reports were prepared by the accountant, Anthony Fuge understood that the reports were to set out the true position of his assets, and at no point did he inform the accountant that the livestock was not owned by him alone. No explanation whatsoever was provided by the Fuges as to the discrepancy between the asserted position and the financial records. The Fuges have not established to my satisfaction that the livestock were co-owned and, I am inclined to think the financial records, prepared by a professional accountant, probably represented the true state of affairs. As to the Fuges’ oral evidence, reviewing their evidence fairly, the Fuges seem to believe that the livestock purchased prior to the dissolution of the Partnership was never “bought out” by Anthony Fuge, and as a consequence, remains property of the Partnership. I have already explained above why a finding that the Partnership owned the property would not assist in this claim.
For the many reasons I have outlined, this claim must fail.
E.1.3 Non est Factum
For completeness, I will briefly discuss the final claim made connected to this point as to lack of authority. This being the issue of non est factum. This claim was not identified within MFI 7 and despite being mentioned at various points in the Fuges’ submissions, does not appear to have been pressed in the traditional sense.
This common law doctrine allows a mortgage to be set aside where the mortgagor has no understanding of what they are signing: Gibbons v Wright (1954) 91 CLR 423 at 443-444. To make out this defence, the mental incapacity must be such that the mortgagor through no fault of their own, is incapable of understanding the purpose of the document. The plea of non est factum will fail where the mortgagor was capable of understanding the general purport of what they were signing – regardless of whether it was actually explained: Gibbons at 438. The alleged sequence of events here was that Mr Hewitt attended Lenborough on 25 February 2011 and simply placed a pile of documents in front of Anthony Fuge for him to sign. It is said that Mr Hewitt did not take him through the documents, nor was any legal or other independent advice or assistance provided. Anthony Fuge gave evidence that he was unaware that he was signing the Livestock Mortgage on his own account and not conditionally. He explained that he understood the sheep to have been jointly owned by Matthew and himself and he would not have signed the Livestock Mortgage if he had known his brother was not also being asked to sign it.
The highest this claim was put in closing submissions was that Anthony Fuge did not understand or was unaware that he was signing the Livestock Mortgage solely on his own account, and not jointly or conditionally with his brother. The Fuges’ closing submissions accept that it is possible that Anthony Fuge understood another business mortgage was required. The argument run was that had Anthony Fuge known that his brother was not going to be asked to sign the document, he never would have. The problem is that this argument presumes that Anthony Fuge understood he was signing a mortgage over the livestock. If this was the case, then the potential liability of Matthew Fuge simply cannot rise to constitute a gap in understanding so significant as to make out a claim of non est factum.
E.2 Whether Bank acted contrary to its good faith obligations pursuant to the Farm Debt Mediation Act 1994 (NSW)
E.2.1 Existence of Statutory or Contractual Good Faith Obligation
Although the parties disagreed as to whether there was an obligation to mediate in good faith arising under the FDMA, there is no need to tarry to deal with this issue as it is common ground that obligations arising out of the Code of Banking Practice were incorporated into the agreement between the parties and the Bank accepted, as a matter of contract, it was obliged to act in good faith in relation to the mediation. What is hotly in dispute, however, is the content of such an obligation in circumstances such as the present. It is this issue to which I now turn.
E.2.2 Content of Good Faith Obligation
The content of a contractual obligation to mediate in good faith is not clearly defined. It is a concept which is often more easily considered by reference to examples of what constitutes a failure to comply with such an obligation. In Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996; (1999) 153 FLR 236 at 268 [156] Einstein J provided a non-exhaustive analysis of what constitutes compliance with or failure to comply with an obligation to mediate in good faith:
(1)to undertake to subject oneself to the process of negotiation or mediation (which must be sufficiently precisely defined by the agreement to be certain and hence enforceable).
(2) to undertake in subjecting oneself to that process, to have an open mind in the sense of:
(a) a willingness to consider such options for the resolution of the dispute as may be propounded by the opposing party or by the mediator, as appropriate.
(b) a willingness to give consideration to putting forward options for the resolution of the dispute.
Subject only to these undertakings, the obligations of a party who contracts to negotiate or mediate in good faith, do not oblige nor require the party:
(a) to act for or on behalf of or in the interests of the other party;
(b) to act otherwise than by having regard to self-interest.
Given the broad and somewhat amorphous nature of such an obligation, it is unsurprising that at 269 [159], Einstein J was conscious of the difficulties in attempting to prove a breach by a party of their obligation to mediate in good faith:
That there are in certain situations clear and even grave difficulties in being able to prove the breach by a party of an obligation to negotiate or mediate in good faith, is not to be taken as meaning that those obligations lack necessary identifiable content and are therefore so uncertain as to be unenforceable in law. Certainty or uncertainty of contractual obligation is not to be measured by difficulties of proving breach of contractual obligations. The two fields of discourse ought not be collapsed.
The challenge in determining the specific content of a good faith obligation is limited to the specific context of mediation; the difficulty in delineating what conduct would be inconsistent with the obligation can be seen in the context of contractual negotiations more generally: see Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 at 331-32 [35] per Pullin JA and Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825; (2016) 329 ALR 1 at 161 [1009] per Edelman J. Whatever else is unclear, one thing is pellucid: the difficulty of attempting to provide some sort of an exhaustive definition. The case of the Fuges is that they were “railroaded” into signing the HOA at the mediation and the Bank knowingly took advantage of the Fuges’ inequality in bargaining power by forcing them to accept an agreement they neither wanted nor understood. Whatever be the precise metes and bounds of the obligation to participate in a mediation in good faith, it is a necessarily contextual question, and it is unnecessary to dwell on the boundaries further here because if the Fuges make out their “railroading” contention as outlined above, this is not a case at the margins – it would demonstrate a want of participation in the mediation by the Bank in good faith.
E.2.2 Submissions and Consideration
As can be seen from MFI 7, the Fuges ran several arguments attacking the legitimacy of the HOA. Why the argument was put in such a hydra-headed way is difficult to fathom. Issues 2(b)-2(e) require consideration of whether the Bank mediated in bad faith; whether the HOA is an unjust contract pursuant to either the Contracts Review Act 1980 (NSW) (CRA) or the National Credit Code (NCC); and whether entry into the HOA amounted to unconscionable conduct. In the circumstances of this case, the allegation of a want of good faith is put in a way so that it forms a component part of the broader allegation that the contract was unjust in the circumstances in which it was made. The parties proceeded on the basis that the same arguments advanced as to why there was a breach of an obligation of good faith also applied to the issues of unjust contracts and unconscionability (in the sense that a breach of the obligation would necessarily be relevant to an assessment of unjustness or unconscionable conduct: see, for example, s 9(1) of the CRA). For reasons I will explain, it is most convenient to deal with the Fuges’ arguments in this part of their case by reference to the discussion as to the applicability of statutory relief under the CRA at E.4 below.
E.3 Whether the HOA is a credit contract to which the National Credit Code applied that is unjust and an order should be made that it is invalid
On day 14 of the hearing, at T1239, and after more than a few exasperations on my part as to the necessity of seeking relief under the CRA and also cognate relief under other statutes, including the NCC, the following exchange occurred:
HIS HONOUR: …it seems to me, Mr King, that the Contracts Review Act – you’re not going to get relief under the other statutes if you don’t get relief under the Contracts Review Act and if you get relief under the Contracts Review Act you don’t need relief on the other statutes.
MR KING: I think that’s the way Keane J put it in Paciocco, your Honour. Yes. And Allsop J in Paciocco in the Full court made the point, with respect, but a good one, that the greater learning about this whole area of unjust contracts is, in fact, bound up in the Contracts Review Act and that’s where much of the learning is to be found, and we respectfully adopt that, and so we respectfully adopt what has fallen from your Honour - - -
(emphasis added)
But there are further aspects of this argument which were not dealt with by the Fuges. It is trite that a guarantee may be discharged by reason of the occurrence of one or more events which, subject to the provisions of the guarantee, effect the automatic revocation of the guarantee by operation of law. But there was no attempt to engage with the notion that the express terms of the guarantee provided, by cl 10.3, that the Bank’s rights and remedies under the guarantee were independent of those that the Bank had under any other guarantee or security or cl 10.1 which provided that the Bank’s rights under the guarantee were not affected by any act or failure to act by the Bank, including in the event the Bank lost the benefit of any security or did not validly obtain any security.
This seems to be a further example of an issue being thrown up by the Fuges without the Court being given any proper articulation of the argument or any assistance as to how it is to be resolved by engaging with legal principle. The guarantee was not discharged as alleged.
J THE CROSS-CLAIM (ISSUE 7)
J.1 The Dispute as to Quantum
The Bank brings a cross-claim in debt based on the factual matters set out above in Section B. In summary, the Bank relies upon the facility agreements entered into by the Fuges, the various defaults in making payments under those agreements, the HOA, and the various defaults in complying with their obligations under the HOA. As set out at B.5 above, the Bank eventually issued formal demands for payment in January 2015, identifying the Fuges’ breaches and demanding payment of the sum of $2,388,315.26. The Bank now claims that after realising the security assets, the shortfall is $788,918.38, calculated to 2 October 2018. That figure is said to increase by $169.89 each day.
The way in which evidence was led to prove the debt has been somewhat convoluted. The Bank adduced evidence by way of affidavit from Mr Greentree as to the amount owing as at 21 December 2017, being $739,058.49. This evidence was not the subject of objection by counsel for the Fuges at the time the affidavit was read. Mr Greentree was not cross-examined directly as to this debt figure, but there was some cross-examination as to quantum.
Prior to coming to that cross-examination, it is worth pausing to explain the approach taken to the documentary evidence in this case generally. Prior to the trial, because of the very large number of apparently irrelevant and duplicate documents that were annexed or exhibited to affidavits, I indicated to the parties that I would not accept into evidence documents exhibited to affidavits. Any documents to be tendered were to be included in a chronological court book. As I explained during the hearing, my intention was that prior to any documentary tender, I would ask the parties to go through the process of filleting out irrelevant documents (or parts of documents) in the court book and those documents marked as MFIs that had been neither referred to in submissions, nor utilised during cross-examination: T7, T790. The parties would then electronically file and produce a hard copy of relevant documents or parts of documents in chronological order, and after determining any objections or applications for limitations, I would allow that bundle to go into evidence (as it eventually did, as Exhibit C).
Returning to the present issue, the relevant parts of the cross-examination of Mr Greentree are as follows:
MR KING: You knew also under the new credit code – the Code of Banking Practice that applied as from 1 January 2014, replacing the earlier 2003 code, that consistent with your obligations to your customer, it was necessary first to inform the customer of the payout figure and the details of it - - -
MR ZAHRA: I object.
MR KING: You knew that, didn’t you?---Yes.
HIS HONOUR: I will allow it.
MR KING: And that included telling the customer what was the principal sum due and owing?---We’ve provided multiple payout figures across all the negotiations.
Well, just please answer my question. If you were to comply with such a request, it would require you to set out the principal sum?---I’m not fully aware of tha
It would also require you to set out the interest?---In most of my correspondence, I
believe I did advise what the interest was, or interest accrued was.
Including penalty interest?---To my knowledge, there was no penalty interest applied to these accounts. The interest rate applied to the accounts each time I provided a payout figure was around the structured or business rate that was applied to the loans applicable.
And interest, of course, if it had been compounded – that would be needed to be set out too, wouldn’t it?---Not to my knowledge, because that’s the way the loans operate.
And the charges – bank charges?---Again, not to my knowledge.
Receivers’ expenses?---I’m not aware I have to detail all that in each negotiation or advice.
And the – in this case, huge – solicitors’ fees that were added onto the debt?---When I was requested for a detail of that, I did provide it.
Yes.
HIS HONOUR: Do we know what the amount was outstanding as of 8 October 2015?
MR KING: We don’t. That’s why Mr Andolfatto asked the question, your Honour and he didn’t get a reply.
MR ZAHRA: What may assist your Honour, though, is – I can readily give your Honour a reference at 2 June 2015, which your Honour will see at court book volume 4, page 1827.
HIS HONOUR: 1827?
MR ZAHRA: 1827. There are many examples of this, but that’s one example.
HIS HONOUR: 1827?
MR ZAHRA: 1827. There probably are some closer to October, but I can’t immediately give your Honour them.
HIS HONOUR: Sure.
MR ZAHRA: But I will give them to you in - - -
HIS HONOUR: I just - - -
MR ZAHRA: - - - closing submissions.
HIS HONOUR: I just wanted to get an idea about what – given that the – so it went up from – this is why I was quite interested in that document before, because I want to understand what happened to the debt, because – so it went up, from 1 March 2015, from 2.415, $150,000 between 1 March and 1 June.
MR ZAHRA: Well, that’s what those documents record, your Honour. Yes. I can’t say anything beyond that at this stage.
HIS HONOUR: Yes. Okay. Thank you.
MR KING: You see, there’s no break-up provided by the bank to assist the customer to understand what his or her indebtedness might be, not even on the document that’s MFI14 in front of you on the table, is there?---I didn’t prepare this. I don’t know where this came from, sorry.
Hence although the actual quantum figure as at 21 December 2017 was not directly challenged, there was some apparent unarticulated dispute about the issue of quantum. Bearing in mind the cross-examination above, later that day (day nine of the hearing), consistently with my efforts to ensure that all real issues were identified, I asked Mr Leong directly whether the quantum sought on the cross-claim was in dispute. Mr Leong replied, “it could be”. After making reference to the overarching purpose, I indicated to the parties that unless consensus could be reached on the issue, it would be for the Bank to prove the debt, and I would reserve the question of costs (and the basis upon which they need to be paid) depending upon the outcome. At this point, Mr Leong asked whether he could give a final indication as to whether the matter was genuinely in dispute the following week. I reminded Mr Leong that in making such a forensic decision it was no doubt appropriate that those advising the Fuges have regard to the obligations on legal practitioners pursuant to s 37M of the Federal Court of Australia Act 1976 (Cth). The following week, I permitted the Fuges to reserve their position on quantum until further information was provided by the Bank as to what amounts were paid during the life of the facilities.
In his closing address, Mr King submitted that the Bank had “failed to prove their own cross-claim” and had refrained from assisting the Court or his clients in understanding precisely how it was calculated. Mr King drew my attention to the Fuges’ attacks on the Bank’s calculations in his written submissions; his cross-examination of Mr Greentree; the fact that Mr Greentree’s schedule and MFI14 did not go into evidence, and insisted that no sound basis for calculating the debt had been put in evidence.
I should digress here to note that MFI14, which purported to be a schedule (prepared for the purpose of litigation) which summarised the relevant facility totals and provided particulars of the amount owing, was not included in the court book when it came to the initial tender of Exhibit C: T862. I do not know the reason for its removal, although its omission is unsurprising as it is apparent it was not a business record within the meaning of s 69 of the EA. Further, there was a spreadsheet referred to by Mr Greentree in his first affidavit, which was said to have been prepared to show the payout figure as at 21 December 2017. Presumably because the Bank did not consider it needed to rely upon this document as proof of Mr Greentree’s evidence in closing submissions, this spreadsheet was removed from the court book during the filleting exercise and never tendered as part of Exhibit C. The spreadsheet was later marked as MFI27 when it became clear that it was not in evidence.
Of course, at all times, the central question on the cross-claim was whether, in accordance with s 144 of the EA, I feel an actual persuasion, on the basis of the material in evidence, that the amount claimed by the Bank has been proved on the balance of probabilities. When quantum is in issue in a case such as this, proof is usually effected by two modes of evidence not present here. Most commonly, this occurs by the tender of a Dobbs certificate: Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643. As is well known, Dobbs settled a principle which has been long upheld, that where the parties have contractually agreed to a clause which specifies that a certificate of debt signed by a relevant bank manager will be conclusive evidence of the amount of the debtor’s indebtedness, such a document is admissible.
No such contractual mechanism was available here. The closest evidence available, was [10.1] of Mr Greentree’s second affidavit, which purported to be a sworn statement of the debt owing, which according to cl A7.5 of the Bank’s “Standard Terms and Conditions” was not conclusive in circumstances where quantum is contested. On this basis, the statement was not admitted into evidence and I indicated that the debt should be otherwise proven unless it could be agreed: T751.
In these circumstances, one would have thought the obvious course of tendering all the bank statements under s 69 of the EA would have been adopted by the Bank. Somewhat surprisingly, it was not, and the Bank maintained that its primary position was that Mr Greentree’s evidence as to the debt was unchallenged and quantum could be proven on the basis of his affidavit alone.
In any event, apparently after some reflection, in the Bank’s further closing submissions (filed by leave after the close of oral argument, but before the reservation of judgment) an “alternative position” was put forward, in the event that “the Court requires further persuasion as to the amount owing to the [Bank] as at 21 December 2017”.
This alternative case included seeking leave to tender parts of MFI2 (a separately marked bundle of business records, the relevant parts of which were removed during the filleting process) into evidence, in circumstances where the Bank was now prejudiced due to its forensic choice not to adduce further evidence (since it was said Mr Greentree’s evidence was not challenged directly during the course of the trial).
Following receipt of these submissions and my reservation of judgment, the solicitors for the Fuges contacted my Associate noting that they were “extremely concerned that the [Bank’s further closing submissions] go beyond the scope of leave” granted and were in the process of “preparing an urgent interlocutory application”. In the circumstances, my Associate indicated to the parties that the order reserving judgment would be revoked, and the matter would be relisted at short notice.
J.2 Application to Re-Open
What then became the Bank’s application to re-open its evidence on the cross-claim was successful for reasons I explained ex tempore at the time of hearing the application; it is unnecessary to repeat those reasons here. In short, the Bank finally tendered some admissible business records to prove the amount of the debt, and I was prepared to receive those records in circumstances where I was satisfied I could alleviate any prejudice to the Fuges through permitting them to request, pursuant to the EA, that the Bank call the maker of the representations made in the business records to give viva voce evidence (so that the Bank’s relevant officers could be cross-examined), and to put on any responsive evidence.
On 14 February 2019, I relevantly made the following orders:
2.In the event a request is made pursuant to s 167 of the [EA] on or by 6 March 2019, that the respondents produce either Mr Stevens or Mr Ralston for the purposes of giving evidence, the granting of leave to re-open and tender Exhibit D will be conditional upon the respondents acceding to this request.
3.If no such request is made, leave is granted to the respondents to re-open and tender Exhibit D.
On 6 March 2019, my Associate received an email from the solicitors for the Fuges indicating that they did not request the relevant officers (Mr Stevens or Mr Ralston) be called by the Bank, however, they did indicate that they wished to put on further written submissions. Those submissions were received two weeks later, and the matter was then relisted for a final time for the purpose of a formal tender of the documents provided to me as Exhibit D on the reopening.
Accordingly, the evidence I accepted on the re-opening (of which, Exhibits D, E and F marked on the reopening became part of a supplemented Exhibit C tendered on the hearing) may be summarised as follows:
·Exhibits A, B, C, E and F (being exhibits on the application to re-open) – emails of various dates, which go to showing that a detailed breakdown of the amounts owing in respect of each of the relevant facilities was prepared, together with splitting out bank fees and legal costs. Exhibits E and F were emails which had initially been included in the court book, but not tendered into evidence as they had not been explicitly referred to during submissions.
·Exhibit D (on the application to re-open) – a bundle of bank statements, which provide in respect of each of the loan facilities, the relevant bank business record. This exhibit is said to allow the Court to calculate the debt based on the Bank’s primary records, separate from Mr Greentree’s affidavit.
J.3 Assessment
In addition to the evidence adduced following the reopening, it is also necessary for me to consider the affidavit of Mr Greentree, the cross-examination, and other contemporaneous business records which mentioned the debt outstanding at various points in time, such as the letter of demand and various other communications referred to in the Bank’s submissions.
In considering this evidence it is necessary to bear in mind an important caution. Although the Bank could have sought to prove its case by the tender of all relevant business records, rather than a selection of them, this does not determine the question of whether the evidence tendered should be accepted, except in ways identified by the principles governing onus and standard of proof. Once a fact is put in issue, it “must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led”: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at 412 [165] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ. At 412 [165]-[166], the Court explained:
Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles...
Lord Mansfield’s dictum in Blatch v Archer [(1774) 1 Cowp 63 at 65] that “[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted” is not to be understood as countenancing any departure from any of these rules...
(Emphasis in original)
Although the point was not articulated by the Fuges, in reaching the conclusion that I could accept the Bank’s evidence, I have considered whether I should draw a Ferrcom inference as to the Bank’s failure to adduce further evidence as to the debt: Commercial Union Insurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389. A Ferrcom inference, being an application of the principle in Blatch v Archer, is an inference that the failure of a party to adduce evidence-in-chief as to some particular topic by a witness who has been called, demonstrates that evidence on that topic would not have assisted that party. Such an inference, however, is not appropriate in the present circumstances. The Bank has established a prima facie case as to the debt, not only from Mr Greentree’s affidavit, but also the exhibits tendered following the re-opening. I have no reason to doubt that when the Bank closed its case in chief on the cross-claim initially, it did not consider it was necessary to tender all the bank statements. Although it may have been possible for the prima facie case established by the records in evidence to be displaced, this would have required calling into question the figures provided by the Bank in some specific way by countervailing evidence or by cross-examination; this was not done nor attempted. Accordingly, although it might have been done far more simply than it was done, the Bank has discharged its onus as to quantum on the cross-claim.
J.4 Defence to Cross-Claim
Lastly, I must briefly deal with the way in which the Fuges sought to defend the cross-claim. Generally, the cross-claim was defended by effectively repeating the same allegations that were made in the statement of claim. As to an allegation of duress, it was acknowledged by Mr King that in circumstances where other claims such as an unjust contract effectively have a lower liability threshold, I did not need to deal with that claim.
The last outstanding issue, however, was a submission that there was a statutory or equitable bar to the Bank taking enforcement action pursuant to the HOA by reason of the fact that enforcement action can only validly be taken in respect of a valid “farm” mortgage. This argument was raised orally by the Fuges during the course of the hearing, and was explained as being a “defence to the cross-claim”.
At T1023-1024, on day twelve of the hearing, the following exchange occurred:
HIS HONOUR: Sorry. It’s like mercury on a plate trying to work out what the issues are in this case. This is about the seventh version of this document. I thought the things that you were saying – in your defence for a cross-claim you, effectively, repeat the same allegations that you make before as to why you say the heads of agreement ought be set aside, that is, make a claim under duress, which is something I was going to come to later. Then you say there are further defaults. Where’s the allegation that there was no enforcement action? I have asked this question several times, Mr King, and I made it clear that there is no – that the issue of setting aside the heads of agreement was merely a springboard for you to bring the pre-2014 claims.
There is no free-standing allegation that the enforcement action was invalid because of their – a failure to comply – this is exactly the reason why I have done this, Mr King, to prevent exactly this sort of thing happening. And every time it has been raised I have been insistent that if an allegation is going to be – I have proceeded on the basis that the cross-claim defence – and I don’t mean this pejoratively, it’s entirely usual in a case like this – is parasitic on the way in which you are bringing your principal claim, that is, you are entitled to damages by reason of contravening conduct which has been alleged by reason of the conduct of the bank.
MR KING: Yes. Your Honour, the – if your Honour goes to paragraphs 103/104, we deny the cross-claim at 103 and in paragraph 104, and then say:
…the mortgage is charged as security and variations were invalid or voidable - - -
HIS HONOUR: There’s no pleading there of a breach of the Act, and it was not enforcement action and, therefore, that gives you right to some sort of free-standing claim.
HIS HONOUR: Well, you say the mortgages and the loan agreements should be set aside.
MR KING: Yes.
HIS HONOUR: That’s the case I understand, that’s the case that you have run. But that is a different case. That’s the case that’s pleaded, that’s the case that’s articulated. There is one passing reference to this in your written submissions, which goes nowhere. There is a throwaway line in half a sentence because I looked for it, because you said – you made a passing reference to it yesterday, and I have raised it several – it has been raised by me, before. It’s in the - - -
MR KING: Your Honour, perhaps just to cut to the chase, I - - -
HIS HONOUR: I can’t see. There was one reference to – there’s one reference to section 8 and section 11 but it’s in the context of – effectively in a discussion criticising Mr Zahra’s construction of how the farm debt mediation process works. But there’s no allegation that there has been – that there is some sort of case being run – there’s a breach of the Farm Debt Mediation Act meaning that they can’t – they couldn’t take enforcement action by reason of the fact that the heads of agreement are set aside. If you’re going to run such a case, Mr King, then that’s going to have to be put in MFI7 and you’re going to have to articulate to me what the amendment is that you require and I will hear Mr Zahra as to whether that amendment should be - - -
MR KING: I will do that, your Honour. We say it is picked up at paras 103, 104 and 102(c) but – so I - - -
HIS HONOUR: Sorry, 100 – what – of the pleading?
MR KING: Of the defence to cross-claim.
HIS HONOUR: I reject that. That is simply not there, Mr King. If that case is being run, it is not pleaded properly and - - -
MR KING: But I would take - -
HIS HONOUR: And if you’re going to – but I’m not going to have a debate about- - -
MR KING: No. I understand, your Honour.
HIS HONOUR: - - - pleading rules. But if you want to bring it, then you’re going to have to amend, like you’re going to have to amend - - -
MR KING: Yes.
HIS HONOUR: - - - if you want to bring your section 11AA case. The MFI7 – and you said you were going to think about that, as well.
MR KING: Yes.
HIS HONOUR: So I want to bring this into a landing at 2.15 today.
MR KING: A landing, yes.
HIS HONOUR: So if you’re going to amend in either of those respects, then you should bring in – rather than me having to do all the work.
MR KING: No, no, we will do that, your Honour.
(emphasis added)
Needless to say, no application to amend the defence to the cross-claim was made and I do not consider it is open to the Fuges to run the argument.
K DISCOVERY
The final issue to which I must turn, is one of discovery, which does not arise from MFI 7 but which was the subject of argument towards the end of the hearing. There was a great deal of colour and movement in relation to this issue, and a lot of accusations proffered. Before turning to the substance of the submission, it is worth reiterating that the pleadings in this matter were very difficult to understand and had a protean quality. When put together with the submissions, it was difficult to understand what the issues were until discipline was enforced at the hearing.
It is important that the Fuges’ submission that the Bank failed to comply with its discovery obligations as to asset lending such that there could not be a “proper testing in evidence of the credit assessments” is seen in this context. In final submissions, what the Fuges eventually submitted was that:
The Court should infer that the failure to produce relevant documents in particular the 2008 credit assessments, and the later 2009, 2010, 2011 and 2012 credit assessments, relating to the issue of asset lending was deliberate;
The calculated risk that the Bank and its advisors took in not producing these relevant documents was that the Court would accept its explanation that the documents were not ‘adverse’ to the Bank and so were not required to be produced under the orders of Lee J in 2017, even if [which is also false] the credit assessments were not required by the discovery categories specified by the orders of Gleeson J at the outset of the matter in 2016 [those categories specifically refer to ‘assessments’];
…
This is a classic and proper case of applying the leading evidentiary dictum of Heydon, Crennan and Bell JJ in Kuhl v Zurich Insurance Services Pty Ltd [2011] HCA 11 at [64]. There is, from this conduct ‘an implied admission or circumstantial evidence permitting an adverse inference’, in this case of the absence of a defence to the Applicant’s asset lending case: see further below.
The implied admission should be made. The Bank discovered a trolley load of documents produced higgledy piggledy with many thousands of irrelevant documents in chaotic date order making inspection and appreciation more difficult for the Applicants and falling during the critical period from 2008 to 2016, yet could not produce the key documents that undermine its defence.
Worse, and relevant to the Kuhl inference, is the fact that as the Defence case proceeded it has become clear that, even now, after the failure to comply with discovery orders, after the Applicants’ written and oral clearly opening on asset lending as pleaded, after MFI 7, and after the calls for the Bank’s credit assessment documents which Mr Hewitt said existed to support his assessments during cross examination of Mr Hewitt, and after the affidavit of Mr Stevens warranting all relevant documents were discovered , yet still not all such documents that would permit a proper testing in evidence of the credit assessments have been produced. The guidelines were sworn by Mr Stevens in his supplementary discovery affidavit to be pages 29 and 30 in the attachments which the Court correctly described as ‘incomprehensible’ [Tr 691/29]. Yet, the document described by Mr Hewitt as ‘the guidelines…an extensive document’ or ‘policy’ at Tr 688 [40] and 699 [10] was never produced. Instead a dictionary to the 2 pages in Mr Stevens’ affidavit only was produced. The underlying policy and guidelines were never produced. It should be assumed that either such documents did not exist and Mr Hewitt gave false evidence as to the sufficiency of his credit assessments [cf Tr 677 /1-2] or the Bank through Mr Stevens gave false testimony at paragraph 14 of his affidavit as to the completeness of discovery.
In further cross-examination when asked, with pen and paper, to demonstrate and verify his assertion that the Farmpak 2008 analysis was derived from real figures in the prior AKW accounts for 2004 to 2008 he could not, and then said there must be another Farmpak analysis: Tr 716 [22]. Yet no further production of such documents occurred.
Both of the foregoing scenarios reaffirm the appropriateness of the implied admission sought from the failure to give discovery of relevant documents as ordered by the Court.
In addition in any event an order for indemnity costs in respect of the wasted court time, namely of 3 days in week 2 of the hearing conservatively wasted, and 3 days preparation of the Applicants’ case wasted in searching through dense and inaccessible discovery, should be made in any event against the Bank.
As to the majority of submissions directed to this point during oral address, the substantive complaint was that the discovery by the Bank as to documents relating to the issue of asset lending, and more specifically the FarmPak programme, were produced late. Although one explanation for this is the confusion in the initial pleadings, the important point is that the documents were produced once it became obvious during the trial that the discovery was insufficient, and no procedural unfairness was occasioned upon the Fuges who had every opportunity to test that evidence. To the extent it is suggested that I should draw an adverse (Kuhl v Zurich Financial Services Australia [2011] HCA 11; (2011) 243 CLR 361) inference against the Bank arising by reason of the late production of such documents, it is unjustified in the circumstances.
As to drawing an inference with respect to the documents identified by the Fuges as never having been produced, at T1042, Mr King agreed that the relevant documents were underlying primary material or guidelines which record how various inputs are put into the FarmPak programme, which, together with the materials supplied by the farmers, are used to produce the serviceability analysis.
I am satisfied that sufficient material was provided as to the FarmPak programme, and do not consider it appropriate to draw an inference that the Bank must have directly relevant material which provides for the underlying assumptions and calculations carried out by FarmPak additional to that which was provided, such that I can infer the information would not have helped the Bank’s case.
L Conclusions and orders
This has been a long, tedious and detailed judgment. This has been necessary because of the vast array of factual assertions made by the Fuges and the way in which their legal representatives have advanced their claim for relief. Although I have determined it is appropriate to grant some limited declaratory relief relating to some provisions of the HOA, all other claims for relief made on behalf of the Fuges must be dismissed.
Further, I consider the Bank is entitled to the primary relief it seeks in relation to the cross-claim.
I commenced this judgment by indicating that neither party comes out of this litigation unscathed. It is a matter of regret that the parties could not have sensibly worked out their differences at around the time of the mediation or at some time thereafter. The problem with litigation, is that it is often a “zero sum game” and this proceeding is a good illustration.
Given that it will be necessary for me to hear the parties in relation to the issue of costs, I propose to direct the parties to provide the short minutes of order for which they contend to my Associate. Unless agreed orders are provided, I also propose to list the matter as soon as convenient to deal with the entry of final orders and to resolve any outstanding issues relating to costs.
I certify that the preceding three-hundred and forty (340) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate:
Dated: 30 September 2019
ANNEXURE A
SCHEDULE OF PARTIES
VID 534 of 2016 Cross-Respondents
Second Cross-Respondent
MATTHEW FUGE
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