Lawloan Mortgages Pty Ltd v Hancock - [2001] NSWSC 607

No judgment structure available for this case.

CITATION: Lawloan Mortgages Pty Ltd v Hancock & Ors [2001] NSWSC 607

CURRENT JURISDICTION: Equity Division
Commercial List

FILE NUMBER(S): SC 50061/2001

HEARING DATE(S): 4 and 5 July 2001

JUDGMENT DATE:
20 July 2001

PARTIES :

Lawloan Morgages Pty Ltd (Plaintiff)
Oswald James Hancock (First Defendant)
Shelley Elizabeth Hancock (Second Defendant)
H Ranch Pty Limited (Third Defendant)

JUDGMENT OF: Bergin J

COUNSEL : RG Forster SC/M McCulloch (Plaintiff)
MJ Watts (Defendants)

SOLICITORS: Cowley Hearne (Plaintiff)
Potts Latimer (Defendants)

CATCHWORDS: [STATUTORY CONSTRUCTION] - Whether a property promoted as a "Ranch" with a motel and tourist facilities offering accommodation, horse riding and a function centre operation is a "farming operation" and whether each, or any of, the defendants is a "farmer" for the purposes of the Farm Debt Mediation Act 1994 (NSW).

LEGISLATION CITED: Farm Debt Mediation Act 1994 (NSW), as amended
Income Tax Assessment Act, 1936 (Cth)
Rural Lands Protection Act 1989 (NSW)

CASES CITED: Biga Nominees Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia (1991) 104 FLR 74
Ferguson v F.C.T. 79 ATC 4261
Miles v Ficuga Pty Ltd (1996) 20 ACSR 156
Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108
Re McDermott Industries (Aust) Pty Ltd & Anor and Chief Executive Officer of Customs (1997) 47 ALD 134
Varga v Commonwealth Bank of Australia (1996) 7 BPR 15,052

DECISION: See paragraph 90.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

DATE: FRIDAY 20 JULY 2001

50061/2001 - LAWLOAN MORTGAGES PTY LTD v HANCOCK & ORS

Introduction

1 These proceedings commenced by Summons filed on 3 May 2001. In paragraphs 1 to 3 the plaintiff, Lawloan Mortgages Pty Ltd, seeks money judgments against Oswald James Hancock (Mr Hancock), the first defendant, Shelley Elizabeth Hancock (Mrs Hancock), the second defendant and H Ranch Pty Ltd (H Ranch), the third defendant. In paragraphs 5 to 7 of the Summons the plaintiff seeks a judgment for possession and leave to issue a writ of possession.

2 The defendants either admit or put the plaintiff to proof of the claims made in the Summons. The only other defence pleaded by the defendants is that the proceedings are incompetent by reason of the provisions of the Farm Debt Mediation Act 1994 (NSW), as amended (the Act).

3 On 30 May 2001 the defendants filed a Notice of Motion seeking an order that the proceedings be stayed until a certificate pursuant to s 11 of the Act had been issued. The plaintiff also filed a Motion on that day seeking summary judgment in respect of the money claims in paragraphs 1 to 3 of the Summons.

4 Both the plaintiff’s and defendants’ Motions were listed before Hunter J for hearing on 22 June 2001. I am informed by counsel that after hearing the evidence adduced by the plaintiff on its Notice of Motion and entertaining some argument his Honour ordered that there be a final hearing of the whole of the Summons. His Honour fixed the hearing for 4 July 2001 and directed the defendants to answer a Notice to Produce.

5 The final hearing took place before me on 4 and 5 July 2001. Mr RG Forster SC leading Mr M McCulloch of counsel appeared for the plaintiff. Mr T Watts of counsel appeared for the defendants.

6 The plaintiff is a Queensland Law Society approved mortgage fund operated in conjunction with the mortgage practice conducted by Elliott & Harvey, a firm of solicitors in Nerang, Queensland. The first and second defendants, Mr and Mrs Hancock, are husband and wife and the only directors and shareholders of the third defendant, H Ranch. In its annual returns for the years 1995 to 2000 inclusive H Ranch described its principal activities as “trustee-horse riding, accom. and function centre operation” (Ex. A).

7 On 26 August 1998 Elliott & Harvey received an application on behalf of the defendants from National Farm Finance of Australia Pty Ltd (FFA) which described itself as “Rural Finance Merchant Funders”. The stated purpose of the loan was to “refinance current loan arrangements” and to “assist with legal and other costs associated with the sale of the property and carry on finance”. The amount sought was $425,000.

8 On 8 September 1998 Elliott & Harvey forwarded formal confirmation of loan approval to FFA. The approval was in the amount of $390,000 for a period of 12 months conditional upon certain events occurring and documents being provided to Elliott & Harvey. That loan offer was accepted and forwarded to Elliott & Harvey on 16 September 1998. Thereafter Elliott & Harvey communicated with the defendants’ then solicitors Messrs Parbery & Nesbitt in Ulladulla. On 23 September 1998 Elliott & Harvey requested further documentation including a certified statement of assets and liabilities of H Ranch and of Mr and Mrs Hancock.

9 On 29 October 1998 Parbery & Nesbitt forwarded to Elliott & Harvey a list of assets and liabilities of the H Ranch and Mr and Mrs Hancock (Ex. KGD 4 p 74 - 76). That list refers to outdoor equipment including grain silos, concrete water tanks, saddlery and tack. It also listed grass skiing equipment but attributes no value to it. General equipment was listed as 1 pig spit, 2 x HWS, industrial vacuum cleaning, table tennis equipment and tennis court fittings. The riding school is listed as including 20 horses (saddled). Other equipment including carpet heaters, pumps, crockery, tables, bunks, curtains and the like are all listed under the heading “Riding School/Motel/Recreational”. Other items are listed under the heading “Woolshed” including tables, glass and crockery, refrigerator and dishwashers. Two motor vehicles were also listed. There are no animals other than the 20 horses listed in the document headed “plant, equipment and stock”.

10 On 11 November 1998 Parbery & Nesbitt forwarded further documents required by Elliott & Harvey including a liquor licence in respect of the Bullock Inn Restaurant on the property, the council approval in respect of an extension of the complex and a letter from Mr and Mrs Hancock advising the location of the horse riding activities.

11 On 3 November 1998 Elliott & Harvey requested further information. including the following:

Relationship between the operations conducted on your client’s property and the individual director Mr Hancock who appears to own the real estate. In particular:

(a) does the company conduct the business and if so under any licence or lease; and

(b) who purportedly owns the assets including fixtures on the property.

12 The answer to that question was provided by letter dated 10 November 1998 from FFA as follows:

under any licence or lease?

but there is no licence or lease from Oswald Hancock to H Ranch.

Hancock, and the other assets as per the certified asset position is owned by H Ranch. As indicated the vehicles are owned by Oswald and Shelley individually.

13 FFA requested an increase in the amount of the approved loan from $390,000 to $415,000. Elliott & Harvey agreed to the increase and advanced those funds in December 1998.

14 A second application was received by Elliott & Harvey from FFA for the defendants in March 1999 for $1.07 million which was subsequently approved. On 31 August 1999 the plaintiff advanced $1,070,000 to the defendants. Such loan was repayable in August 2000. The loan was secured by a mortgage 6282173 (the Mortgage) over the land in Folio Identifier 4/709716, 1/755942, 21/755942, 57/755942 and 61/732602 at Milton in the State of New South Wales (the Property).

15 The loan application stated that the defendants had received an offer of $1.54 million from the Indigenous Land Corporation for the property. The FFA advised that if the sale did not proceed, which it claimed was “unlikely”, then it was the defendants’ intention to market the property in 9 months time for sale with finalisation before the 12 month period had expired.

16 The sale did not eventuate and in August 2000 the repayment date for the loan was extended to 28 February 2001. Although demand has been made for repayment the defendants have failed to repay the loan which as at 13 June 2001 was in the amount of $1,343,431.59.

17 The only substantive defence propounded by the defendants is the claim that the Act applies to the loan. There is no issue that if the Act applies the plaintiff is not entitled to pursue its action for possession of the Property by reason of the prohibition in s 8 of the Act because the plaintiff has not served a notice as required by that section. However there is an issue as to whether the plaintiff is entitled to Orders 1 to 3 for the money judgments notwithstanding the Act’s application.

H Ranch

18 In about 1998 the defendants instructed FFA to assist them with obtaining funds to refinance the then current loan arrangements that were in place. Mr Hancock, and it appears Mrs Hancock also, consulted with Mr Hastie of FFA and provided him with the relevant information which was included in the loan applications to the plaintiff.

19 Much of the history of the operation of H Ranch is contained in that material which is in evidence, supplemented by Mr Hancock’s affidavit and oral evidence. Mrs Hancock, although available, did not give any affidavit or oral evidence.

20 In 1957 Mr Hancock’s parents and his older brothers, Max and John, purchased a parcel of land about 10.5 kilometres north west of Milton on the South Coast of New South Wales. That property, totalling 569 acres, became known as “Hancock’s Ranch”.

21 Between 1959 and 1965 Hancock’s Ranch was operated as a dairy farm after a quota was obtained from the Dairy Farmers Co-operative. Crops were also grown on the property. In about 1961 Mr Hancock’s brother, Max, “dropped out” of the ownership of the Ranch and Mr Hancock became one of the registered proprietors. In about 1965 dairy farming ceased on the property and was replaced by raising “vealers for beef”. Mr Hancock gave evidence that between 1965 and 1978 vealers were raised and crops were cultivated continuously on the Hancock Ranch.

22 On 28 February 1978 Mr Hancock married Mrs Hancock. It was about this time that Mr Hancock’s parents retired and “transferred their share of ownership in the title” of Hancock’s Ranch to Mr Hancock and his brother John. Also at about this time Mr Hancock and his wife purchased 25 acres that adjoined the Hancock Ranch. It is apparent that such property was registered in Mr Hancock’s name only.

23 In 1979 Mr Hancock and his brother John “cut up the farm”, so that Mr Hancock kept 269 acres, together with the 25 acres to which I have just referred, and his brother kept 300 acres which continued to be known as “Hancock’s Ranch”. The 269 acres and the 25 acres in Mr Hancock’s name became known as the “H Ranch” of which Mr Hancock sold 10 acres in 1982.

24 In the second application to the plaintiff for the loan a supporting valuation described the property as follows:

4.1 Particulars

The property is described as freehold land with unrestricted title comprising portions 1, 21, 57, allotment 61 DP 732602, allotment 4 & 5 in Deposited Plan 709716, Parish of Little Forest, County of St Vincent.

The property comprises an area of 81.005 hectares. The property also includes a licence for “horse riding & grazing” purposes over portion 60 which is Crown land and we have attributed no monetary value to this land as it is owned by the Crown.

4.2 Area/Dimensions

· 5/709716 5.148 hectares

· 4/709716 9,911 square metres

· 21/7322602 & 57/732602 36.42 hectares

· 1/732602 & 61/732602 38.44 hectares

5.1 Topography and Vegetation

The land is described as an irregular shaped, elevated block, some 320 metres above sea level, with a gently sloping cleared ridge running north/south falling away steeply to the west into bushland and a creek which provides permanent water. Some 25% is cleared while the remainder is heavily timbered rain forest land. Soils are volcanic clay loam with scattered large surface rocks. The ridge line provides excellent home sites and commands extensive views to the north, east and south of the coastal plains and the ocean.

25 The loan application described the property as “farm stay motel accommodation complex which backs onto the National Park”. The “business” on H Ranch originally began in 1978 with the “construction of four units, recreation halls, stables and dwelling”. In 1986 the business was expanded with the addition of “eight additional motel units, tennis courts, swimming pool and large modern woolshed for weddings and functions”.

26 The advertising brochure describes the property as “Australia’s Complete Holiday Ranch”. It contains a number of photographs including people riding horses, the exterior and interior of the accommodation, the swimming pool and the woolshed interspersed in which the following is stated:

national rain forest;

27 In August 1990 the Shoalhaven City Council approved the defendants’ development application for a “Tourist Complex containing 120 living units or cabins” (Ex. KDG 5 p 86). The approval was conditional upon the total number of units being restricted to 120 and a minimum of 15 of the living units forming part of the “existing motel complex”.

28 The defendants’ first application for finance in August 1998 included the following:

· Mr Hancock has established H Ranch, a tourist facility and for the past twenty years has been involved with the day to day running of this business. Prior to expansion to its present level, Mr Hancock owned and operated a refrigerated transport unit.

· Mrs Hancock has been a permanent employee of the Department of Education as a senior English teacher since 1974. She is also an elected representative (Councillor) of the Shoalhaven City Council, having acted in this capacity since 1987.

· The H Ranch property consists of 100 hectares plus the adjoining security property Lot 4. Negotiations are proceeding for the sale of the entire property (H Ranch) for approximately $2,000,000.00. On the 9th July 1998 the Hancocks received an offer of $1,540,000.00 from I.L.C. (an Aboriginal Company) on going discussions with the potential purchasers are occurring. Presently since the Hancocks have received the support of the Shoalhaven City Council for an additional 4 rural blocks, in the rural plan which is currently with the Department of Planning prior to the gazettal.

· These additional blocks of course increase the value of land and should be taken into consideration by the purchasers. A re-zoning application on the land is still in place for a further division of blocks and they retain the option to also pursue the environmental studies which would finalise this.

· We are advised that funding of the purchase has been approved by the Aboriginal Council at $1,540,000.00 however the Hancocks had offered the property originally at $3,000,000.00 and are wanting to negotiate further and try and increase the sale price up to $2,000,000.00 plus.

(Ex. KDG 1 p 12)

Financial Statements

29 The applications for finance also included profit and loss statements for H Ranch for the years 1996 to 1998 inclusive. It is apparent that such documents for the years 1997 and 1998 were prepared by FFA. The documents for the years 1995 and 1996 appear to have been prepared by the defendants’ accountants.

1995

30 The total sales referred to in the profit and loss statement for this year are listed at $145,336. The expenses total $75,351 and listed fodder, fertilizer and seed as $5,550, repairs and maintenance - general as $5,772, salaries and wages as $1,790 and veterinary fees as $115.

31 The balance sheet listed the fixed assets as $3,258 which includes “purchase horses” as $2,400. The current liability lists a loan account of Mr and Mrs Hancock as $17,692 an unlabelled liability as $40,901 with expenses paid “behalf Boolgatta” as $1035.

1996

32 The profit and loss statement for this year listed sales as $144,479. The expenses totalled $94,480. Fodder, fertilizer and seed was listed as $5,373, repairs and maintenance - general as $6,958, salaries and wages as $2,544 and veterinary fees as $448.

33 The balance sheet listed “purchase horses” as $390 in the fixed assets with the loan account as $30,237 and expenses paid on behalf “Boolgatta” as $2459. The other liability, unlabelled in the previous year is handwritten as “payments to credit union” and in this year is listed as $26,700.

1997

34 There is only a profit and loss statement which has been produced by FFA for this year. It listed sales as $132,555. The expenses total $76,385. Fodder, feed etc is listed as $4,700, repairs/maintenance as $488, salaries as $3,795 and veterinary fees as $365.

1998

35 Once again the profit and loss statement for this year appears to have been created by FFA and once again there is no balance sheet. The total sales are listed as $147,360 less expenses of $74,799. Fodder, feed etc is listed as $3,357, repairs/maintenance as $155, salaries as $3,426 and veterinary fees as $185.

36 “Boolgatta” is a 250 acre property some 10 kilometres from the H Ranch which was purchased by Mr Hancock in about 1982. He gave evidence that crops are grown on Boolgatta and “hay and silage” are made on “Boolgatta” for “supplementary feed for the livestock on H Ranch”.

37 The 1999 application submitted to the plaintiff included a document entitled “Asset & Liability Position” (Ex. KDG 1 p 42) in which there appeared the reference “Livestock $200,000”. Mr Hancock gave the following evidence in relation to that value:

Q. That’s not a document that you created is it?
A. Its our assets.

Q. Did you create the document?
A. I believe so.

Q. You did it yourself you think Mr Hancock?
A. No, I believe I compiled it with Mr Hastie.

Q. I want to clarify something and correct it if it needs correction. Do you see under the heading “Schedule Number 2 Stock and Equipment”?
A. Yes.

Q. There is a value of $200,000 accorded to it?
A. Hmmm.

Q. I want to check with you, that isn’t correct is it?
A. That seems a lot, yes, it seems a lot.

(tr. 53-54)

38 A Notice to Produce was called upon during the hearing and Mr Watts advised that much of the material had been provided to FFA for the purposes of the loan applications to the plaintiff. That material was apparently obtained overnight and is now in evidence including bank statements, cheque butts, deposit books and accommodation registers and diaries.

39 There is no mention in any of the financial statements, profit and loss statements, balance sheets or tax returns such as they exist, of any primary production income or expenses.

40 Mrs Hancock’s tax return for the year 1997 makes no claims in relation to business income or expenses for primary production. The business income, separate from teaching activities and councillor duties, is listed at $9,812 with expenses of $4,485. In 1999 the business income, once again allocated a non-primary production classification, is declared as $6,185.

41 Mrs Hancock has claimed a rebate in respect of Mr Hancock for the last 4 years, claiming that he received no taxable income for those years. Mr Hancock’s evidence is that he believes the last tax return he lodged was in 1996, although he was not sure. He stated in a recent application for finance to La Trobe Home Loans of Australia (Ex D) that his gross weekly income was $1,000. That seems to be inaccurate having regard to the claim made by Mrs Hancock in her tax returns and Mr Hancock’s acknowledgment that he was aware that Mrs Hancock was making such claims and his evidence that he has no income of his own (tr.64).

42 The returns of H Ranch as trustee for the Hancock Family Trust for the years 1995 to 1997 are in evidence (Ex. E) and make no claim at all in respect of any income in the nature of primary production. All income in the year 1995 at $145,413, 1996 at $144,580 and 1997 at $92,697 is listed as non primary production income. Each of the tax returns of the company contain the following:

“Description of main business activity: MOTEL AND TOURIST FACILITIES”

43 In the tax return for the year ended 30 June 1997 the words “cattle sales” are hand written with a figure of $200 on the right hand side of the page. There is no evidence about this handwriting and it appears not to have been included or dissected in the body of the document as filed. It is therefore no more than a curious entry.

44 There is with the 1997 tax return for the company a profit and loss statement which lists the income as $92,697 and expenses $117,635. That includes fodder, fertilizer and seed as $2,999, repairs and maintenance - general as $6437, salaries and wages as $925 and veterinary fees as $635. This is approximately $40,000 less in income and $41,000 more in expenses than contained in the profit and loss statement provided by FFA for the same year with the application for finance.

Cattle

45 Mr Hancock gave evidence that he had “always had cattle” (tr. 15). He said:

46 Mr Hancock also gave evidence that he sold cattle through the Stock & Station Agent AJ Campbell & Son Pty Ltd, Nowra and also to the local abattoirs, Milton District Meats and D & S Afflicks. Further sales were made through the East Nowra Butchery.

47 Mr Hancock gave the following evidence:

…

48 Mr Hancock went on to say that all the profit and loss statements that are contained in the applications for finance “similarly” reflect the transactions that went through the H Ranch Pty Ltd bank account at IMB Ulladulla. There is no separate entry in the profit and loss statements at all in relation to any cattle sales or purchases.

49 The Rural Lands Protection Act 1989(NSW) requires a person who occupies land within a district under the Act to lodge with the relevant Board concerned an annual return giving details of the matters prescribed by the Regulations. Those matters relate to land and stock. A person who occupies land within the district is required to lodge such a return whether or not that person owns stock kept within the district (s 57).

50 It is apparent that over the years the defendants have filed returns as required by that Act. Mrs Hancock has apparently written to the South Coast Rural Lands Protection Board recently in respect of the contents of previous stock returns filed by the defendants, copies of which the defendants have not kept.

51 On June 27 the South Coast Rural Lands Protection Board wrote to Mrs Hancock in the following terms:

Regarding your request for a copy of last year’s Land and Stock Return which we received, the forms are held at our Bega office and it would take some time to track down a particular form. I’ve copied the information we have in our computer regarding your 2000 Land and Stock return, and hope this is of some help to you.

52 The IMB deposit books are also in evidence. They cover the years 1994 to the year 2000. In 1994 the total deposits were approximately $90,089.30. Doing the best I can, having regard to the evidence of Mr Hancock, it seems that at most $16,500 was probably received by way of cheques for cattle sales in that period. Of the total deposits of $90,000 approximately $31,000 was in cash. There is no evidence that the defendants received cash for the sale of any cattle. There is some evidence that Mr Hancock might have paid cash for some calves. There is also no evidence in relation to the cash deposits.

53 In 1995 the total deposits were approximately $83,000 of which approximately $18,650 was cash. Items listed in the cheque deposits that probably relate to the sale of cattle total $6,349.06. In 1996 the total deposits were approximately $51,980.62 of which approximately $25,500 was in cash. The items in the cheque deposits that probably relate to cattle sales total approximately $6,000.

54 If these figures are accurate the deposits in respect of cattle sales in 1995 and 1996 approximated 4.3% and 4.15% respectively of the total income recorded in the profit and loss statement for 1995, $145,336 and 1996 $144,479.

55 In the years 1997, 1998 and 1999 and 2000 none of the cheque deposits can be identified as relating to cattle sales. The deposits in each of those years total approximately $92,000, $94,000, $24,000 and $2,000 respectively. The profit and loss statements provided to the plaintiff record income from sales in 1997 at $132,555 and in 1998 at $147,360.

56 It is apparent that the deposit books in evidence are not all the deposit books in respect of the business. The evidence in this regard is in a very unsatisfactory state.

57 There are a number of invoices from AJ Campbell & Son Pty Ltd in evidence (Ex 1 & 2) which establish seven sales of cattle, one in 1995, two in 1996, two in 1999 and two in the year 2000. The total amount recorded as having been paid to Mr Hancock for those sales is approximately $20,000 (Ex. 2). Mr Hancock’s evidence is that all amounts paid for cattle sales were paid into the H Ranch account.

58 In cross examination Mr Hancock agreed that the horse riding activities operated by H Ranch had previously operated for quite a long period on Hancock’s Ranch, and from those activities emerged the plan of providing the accommodation as well. Mr Hancock agreed that the following was a correct description:

In 1979 the property was largely used for horse riding and children’s holiday camps which today still comprises a major component of the tourist facility (tr 55).

59 In relation to the debt to the plaintiff Mr Hancock gave the following evidence:

Q Certainly by early this year you had started taking steps to obtain mortgage finance so as to be able to re-finance the loan which the plaintiff is presently attempting to recover from you?
A That is correct, in fact I want to honour my commitment, absolutely.

60 There is no detail at all of what negotiations have occurred since 1998 in respect of the sale of the property. The only evidence is the original loan application detail of the ILC offer of $1.54 million.

H Ranch facilities

61 Mr Hancock described the operation of the H Ranch in his oral evidence. Visitors or tourists stay in the motel complex on a per person per night or per double per night, bed and breakfast tariff of $88. The breakfasts are cooked by Mrs Hancock, one of her daughters and/or an assistant. A barbecue facility is provided for the use by the motel guests for lunch or, if requested, Mr Hancock will cook a barbecue lunch.

62 The restaurant is known as the Bullock Inn. Dinners are available for guests and are cooked by either Mr or Mrs Hancock and/or assistants. H Ranch also takes bookings for large dinners and for such occasions will, if necessary, employ caterers or assistants. Mr Hancock is the licensee of the restaurant/bar and his son works as a bar tender.

63 One of the main attractions of the H Ranch is the horse riding activities. The rides are accompanied by a person Mr Hancock described as “a very dear friend” who has only “missed six weekends in ten years on a voluntary basis” (tr 43). The description “riding school” was attributed to these activities in the financial material provided to the plaintiff. Groups hire the horses at rates apparently ranging from $25 - $35 (Ex 5). At the riding school “tests” are held in relation to the identification of the anatomy of the horse together with questions including as to whether when jumping one leans forwards or backwards, the four gaits of a horse and how to assess the age of a horse (Ex 5).

64 Users of the H Ranch include families, business groups, schools, and other groups including bushwalking associations. The tariff for the accommodation apparently includes use of the tennis court and swimming pool and the bushwalking activities. At times the Woolshed and the whole of the motel complex is booked out for weddings or “school camps”(Ex 5).

65 Mr Hancock gave evidence that he presently has five goats. When asked what he did with the goats he said “it’s looking like they are good to eat, two of them, but really they are there for the purpose of people coming to the farm, they are farm animals” (tr. 29). There is no evidence that there are any sheep kept on H Ranch, although the advertising brochure refers to sheep shearing demonstrations. It may be that such demonstrations are performed with sheep brought to the property for that specific purpose and then taken away again.

66 It is not clear where the 25 cattle referred to as “beef” in the 2000 Stock Return were kept in that period. The Stock Return refers to an area of 131.84 hectares which provides for approximately 1 cow per 5.27 hectares. However the H Ranch is only 80 odd hectares and it is probable that the Return included the Boolgatta property which is 10 kilometres from the H Ranch. Mr Hancock gave some general evidence about Boolgatta being flood prone with the necessity to move the cattle to H Ranch in time of flood. There is no specificity to this evidence and I do not know where the cattle were kept or when the cattle were on Boolgatta or on H Ranch.

Does the Act apply?

67 The object of the Act is to provide for mediation “concerning farm debts” before a creditor can take possession of property or other enforcement action under a farm mortgage” (s.3). The Act applies in respect of creditors only in so far as they are creditors under a farm debt (s 5(1)). Section 8 of the Act provides:

No enforcement action until notice of availability of

mediation given

(2) Notice to the farmer is to be in writing in a form approved by the Authority (informing the farmer of the creditor’s intention to take enforcement action in respect of the farm mortgage and of the availability of mediation under this Act in respect of farm debts).

(3) This section does not apply if a certificate is in force under s 11 in respect of the farm mortgage concerned.

68 Section 4 defines the following relevant terms:

“Enforcement action”

Farm”

“Farm debt”

“Farm machinery”

(a) a harvester, binder, tractor, plough or other agricultural implements; or

(b) any other goods of a class commonly used for the purposes of a farming operation that are prescribed by the Regulations as being farm machinery for the purposes of this Act,

if the goods are acquired for the purposes of a farming operation;

“Farm mortgage”

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

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

“Farm property”

(a) a farm or part of a farm, or

(b) farm machinery used by a farmer in connection with a farming operation;

“Farmer”

“Farming operation”

A statutory enforcement notice referred to in the definition “enforcement action” is defined to include a s 57(2)(b) notice under the Real Property Act 1900.

Farmer/Farming Operation

69 The first question to be determined is whether any of the defendants is a “farmer”. That requires a decision as to whether any of the defendants are “solely or principally engaged in a farming operation”.

70 The word “principally” has been construed as being “a qualitative word not a quantitative word”. Young J in Varga v Commonwealth Bank of Australia (1996) 7 BPR 15,052 said at 15,054:

I do not consider that the word “principally” means one has to work out what percentage of the person’s time is spent in farming operations and what otherwise. One has got to look at the person and say in all the circumstances is farming that person’s principal activity. It may be that from time to time that person may do something else. For instance, it is not at all unusual in our community for persons engaged in primary production to spend part of the year using their farm machinery for contract slashing or the like on someone else's property. It is not at all unusual where husband and wife are both farmers and there is a season of drought or a depressed market for one of those people to take a full time remunerative position outside the farm so that the income can be funnelled into the farming operating and keep it alive. Although it will be necessary to look at each case on its merits and on its facts, it would not seem to me that the mere fact that a person from time to time is involved in using the farm machinery for contract work outside the farm or is earning income outside the farm disqualifies that person from being a farmer within the meaning of the definition.

71 Mrs Hancock is a full time teacher and has been so for the last 24 years. She is also a part time shire councillor. The evidence discloses that Mrs Hancock does the clerical work for the H Ranch (tr 30). Adopting the approach referred to by Young J in Varga, I am satisfied that with a full time teaching career and shire councillor duties, Mrs Hancock could not reasonably be described as a “farmer’ within the meaning of that term in the Act. She is qualitatively neither solely or principally involved in a farming operation, even assuming that the H Ranch is such an operation.

72 Young J has used the term “primary production” as an equivalent to farming. That term is not defined in the Act. The Income Tax Assessment Act, 1936 (Cth) (ITAA), defines “primary production” as “production resulting directly from (a) the cultivation of land, (b) the maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase, (c) fishing operations, (d) forest operations, (e) horticulture and includes the manufacture of dairy produce by the person who produced the raw material used in that manufacture” (s.6).

73 In the income tax area the size of the operation or the question of whether a taxpayer is “principally” involved in a primary producing business are not necessarily the governing factors in relation to the classification of the operation for tax advantages of primary production. In Ferguson v F.C.T 79 ATC 4261 Fisher J said at 4269:

Finally, the conclusion is open to be drawn that a taxpayer is engaged in business activities notwithstanding the fact that he is operating in a very small way i.e. on a few acres, with very few trees or with a very small number of stock. I would be of the opinion that the size of the operation could be of significance for the purpose of testing whether a taxpayer is conducting a hobby rather than a business, but that size is certainly not the determining factor.

74 The position is quite different in the determination of whether a person is a farmer under the Act. The answer to that question is governed by whether that person is solely or principally involved in the operation.

75 Mr Watts submitted that there is no requirement for there to be a “business” for the operation to be a farming operation. He submitted that the legislature could have, and did not use the word “business” and that the section should be interpreted beneficially to the person claiming the protection of the Act in line with Young J’s approach in Varga.

76 It is not necessary to decide that matter having regard to the approach I intend to adopt in respect of Mr Hancock’s maintenance and sale of the cattle. Notwithstanding that there have been no claims by either Mr Hancock or H Ranch for primary production income or expenses in any tax returns I intend to assume that the maintenance and sale of the cattle by Mr Hancock is a farming operation.

77 The next matter to be determined is whether the H Ranch is a farming operation. Farming operation is rather unhelpfully defined as a “farming operation”. It includes dairy, poultry and bee farming operations. It also includes pastoral, horticultural and grazing operations. There is no separate definition of these “operations”.

78 There are numerous types of “operations” that have been considered by courts and tribunals over the years, including railway operations, mining operations and forest/logging operations: Biga Nominees Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia (1991) 104 FLR 74; Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108; Re McDermott Industries (Aust) Pty Ltd & Anor & Chief Executive Officer of Customs (1997) 47 ALD 134; Miles v Ficuga Pty Ltd (1996) 20 ACSR 156 (referred to as 19 ACSR in 20 ACSR). In Miles Dowd J, in considering whether forest activities or operations fell within the definition of “farming operation” in the Act, expressed the view, at 157, that it was a “limiting definition” and included “matters which would clearly involve grazing”.

79 In Re McDermott Industries the Full Tribunal, in following Regional Director of Customs (WA) v Dampier Salt, expressed the view that regard should be paid to the “desired end product” for the person engaged in the relevant operation. It seems to me that this approach is similar to the approach adopted by Young J in Varga referring to farming as primary production.

80 The desired end product of the H Ranch is in my view an operation which generates income from its “principal activities” as described in its Annual Returns of a company (Ex. A) as “horse riding, accommodation and function centre operation” and its “main business activity” as described in its tax returns (Ex. E) as “motel and tourist facilities”.

81 The H Ranch “operation” is the sale of accommodation, the sale of meals, the provision of buildings for hire in which weddings and conferences may be held, the sale of “rides” on horses and the provision of tuition in the riding of horses. The horses are not sold. The horses are used for the business of the horse riding school and the sale of rides, which in my view falls outside the activities contemplated in the definition “farming operation”.

82 It is true that the operation is conducted on rural land which has been categorised as farmland for the purpose of the assessment of the rates that are payable, but in my view it is not a farming operation within that definition in the Act.

83 Even if I were to assume that the cattle sales were somehow part of the H Ranch business by reason of the payment of Mr Hancock’s receipts for the sales into the H Ranch account, I am satisfied that such operation was not conducted solely or principally by H Ranch. Its principal activities are those to which I have referred above. I am satisfied that H Ranch is not a farmer.

84 The next question to be determined is whether Mr Hancock was solely or principally engaged in the farming operation relating to the cattle for the purpose of deciding whether he is a farmer. In considering this question I have included consideration of Mr Hancock’s evidence in his affidavit that he also provided management assistance on properties known as “the Duck Hole” and “Barrington”. That evidence is I am afraid like much of the defendants’ other evidence in this case, quite unsatisfactory. It is general and with no detail of what Mr Hancock has done on or in respect of the properties and how much time he has spent on the properties. There is nothing in the documentary evidence to assist and I am unable to give a great deal of weight to this evidence.

85 As to the time at which the person claiming the protection of the Act must be a farmer Young J said in Varga at 15,056:

It would seem to me that the whole flavour of s 4 indicates that it is at the time when the creditor is seeking to take possession of the property or other enforcement action.

86 It is clear from the evidence that the sales of cattle have diminished over the years. It is also apparent from the accommodation registers that the sale of accommodation has diminished in the last few years. There are no tax returns to assist in such an assessment as they have not been lodged since 1998. Mr Hancock described his occupation in recent years as follows:

My primary occupation has been to try and sell the property and I am exhausted and still exhausting my efforts in relation to that.

(tr. 61)

87 I am satisfied that Mr Hancock’s role was accurately described in the 1998 application to the plaintiff for finance in which it was stated that he had “established the H Ranch, a tourist facility and for the past twenty years has been involved with the day to day running of this business” and that prior to that he had operated a refrigerated truck. (Ex. KDG 1 p 12). Other than to acknowledge the accuracy of that description, Mr Hancock did not mention the operation of that truck in his evidence.

88 Whether the relevant time at which the person claiming the protection of the Act has to be a farmer is at the time of the incurring of the debt or the time when the creditor is seeking possession does not make any difference in this case. I am satisfied that Mr Hancock was not solely or principally involved in a farming operation at either time, that is, in 1998 or 2001. I am satisfied that he was principally involved in the operation of the H Ranch which I have found is not a farming operation.

89 “Farm debt” and “farm mortgage” are intrinsically linked to and dependent upon the definition of “farmer” and in the light of my finding that none of the defendants is a farmer there is no need to consider these matters further. For the defendants to have the protection of s 8 of the Act the money has to be owing by a farmer. I am therefore satisfied that the Act does not apply.

90 As this matter was the only defence propounded I am satisfied on the evidence that the plaintiff is entitled to the orders sought in the Summons. The parties are to bring in Short Minutes of Order including an order as to costs. If a costs order is not agreed I will hear argument at the time the Orders in the Short Minutes are made.

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Last Modified: 07/24/2001

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Citations

Lawloan Mortgages Pty Ltd v Hancock [2001] NSWSC 607

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CITATION:	Lawloan Mortgages Pty Ltd v Hancock & Ors [2001] NSWSC 607
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50061/2001
HEARING DATE(S):	4 and 5 July 2001
JUDGMENT DATE:	20 July 2001
PARTIES :	Lawloan Morgages Pty Ltd (Plaintiff) Oswald James Hancock (First Defendant) Shelley Elizabeth Hancock (Second Defendant) H Ranch Pty Limited (Third Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	RG Forster SC/M McCulloch (Plaintiff) MJ Watts (Defendants)
SOLICITORS:	Cowley Hearne (Plaintiff) Potts Latimer (Defendants)
CATCHWORDS:	[STATUTORY CONSTRUCTION] - Whether a property promoted as a "Ranch" with a motel and tourist facilities offering accommodation, horse riding and a function centre operation is a "farming operation" and whether each, or any of, the defendants is a "farmer" for the purposes of the Farm Debt Mediation Act 1994 (NSW).
LEGISLATION CITED:	Farm Debt Mediation Act 1994 (NSW), as amended Income Tax Assessment Act, 1936 (Cth) Rural Lands Protection Act 1989 (NSW)
CASES CITED:	Biga Nominees Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia (1991) 104 FLR 74 Ferguson v F.C.T. 79 ATC 4261 Miles v Ficuga Pty Ltd (1996) 20 ACSR 156 Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 Re McDermott Industries (Aust) Pty Ltd & Anor and Chief Executive Officer of Customs (1997) 47 ALD 134 Varga v Commonwealth Bank of Australia (1996) 7 BPR 15,052
DECISION:	See paragraph 90.