National Australia Bank Ltd v Annett & Ors
[2009] VSC 247
•15 June 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 9505 of 2007
No. 9506 of 2007
No. 9507 of 2007
| NATIONAL AUSTRALIA BANK LTD | Plaintiff |
| v | |
| SHANE LAWRENCE NOEL ANNETT AND OTHERS | Defendants |
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JUDGE: | BYRNE J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 9-11 JUNE 2009 | |
DATE OF JUDGMENT: | 15 JUNE 2009 | |
CASE MAY BE CITED AS: | NATIONAL AUSTRALIA BANK v ANNETT & ORS | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 247 | |
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MORTGAGES – Mortgagee’s claim for possession - misleading or deceptive conduct –unconscionable conduct – causation - loss
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G. McEwen | Thomson Playford Cutlers |
| For the Defendants | Mr M. O’Connor | Maddens Lawyers |
HIS HONOUR:
The plaintiff, National Australia Bank Limited, seeks possession of certain real estate mortgaged to it to secure loans made to members of the Annett family. Details of the mortgage are as follows. Mortgage AE607285R dated 7 September 1996 was granted by Peter Melville Annett and Kaye Gwendoline Annett. The property in question is part of a dairy farm in Ridge Road, Henty in the state of Victoria, more particularly described in certificates of title volume 9634 folio 114, volume 10283 folio 315, volume 10806 folio 076, volume 8617 folio 612 and volume 9625 folio 917. This is the subject of proceeding No.9506 2007.
Second, Mortgage AE607264A dated 7 September 2006 granted by Peter Melville Annett. The property in question was the balance of the dairy farm at Ridge Road, Henty in the state of Victoria and being the land more particularly described in certificate of title volume 10910 folio 490. This is the subject matter of proceeding No.9507 of 2007.
Third, Mortgage AE607257W dated 7 September 2006 granted by Shane Lawrence Noel Annett and Kaye Gwendoline Annett. The property in question is a café situated at and known as 114 Henty Street, Casterton and being the land more particularly described in certificate of title volume 10626 folio 627. This is the subject matter of proceeding No.9505 of 2007.
Mr & Mrs Annett were at the time married, but they have since separated. She is now Kaye A'Vard and I shall refer to them as Mr Annett and Ms A'Vard. Other members of the Annett family I shall identify where appropriate by their christian name.
It seems that in their dealings with the bank in May 2006 and early 2007 the Annetts enjoyed the services of a finance broker, Bruce Kealey.
The claim of the bank was not seriously in issue. The loan documents and the securities were not challenged. It is clear that, from 18 April 2007 at least, the Annetts were in default. Notices of default were given as were notices under s.76 of the Transfer of Land Act. The defaults were not remedied. The current amount outstanding is of the order of $1.4m. Accordingly, subject to the matters raised in the counterclaim, the bank claim must succeed.
The counterclaim dated 23 October 2008 seeks relief for deceptive and misleading conduct and for unconscionable conduct committed by the bank. As pleaded, it is said that, when the loans were made, the bank impliedly represented that its agribusiness staff Tamara Elizabeth Miller and Terence Patrick McMahon, "were experts in understanding, managing and providing finance to agricultural businesses such as the dairy farming business", of the Annetts.
The loans were made in September 2006. No complaint is made of this. Six months later in March and April 2007 the Annetts returned to the bank seeking, according to the pleading, $100,000 to restock their milking herd. This finance was refused. At this time too the Annetts asked the bank officers to execute a lender’s certificate in support of their application to the Federal Government for an interest rate subsidy. The bank declined to do this.
It is said that these refusals in the circumstances showed the bank officers lacked the expertise which was represented so that the representation made back in September 2006 was false and that this constituted misleading and deceptive conduct and further that the refusals were unconscionable.
As a consequence, the mortgage became unenforceable so that the claim should fail. Relief to the same general effect was sought. So much was the claim as pleaded.
In the course of her evidence, no challenge was addressed to the expertise of Ms Miller. I indicated to counsel for the Annetts that if all the pleaded allegations were made out, this cross-examination did not demonstrate any want of expertise on the part of the bank officers nor did it appear to provide a legal basis by denying the bank its security which had been granted three months before. It would then, therefore, be unlikely that the Annetts would be entitled to retain the loans without the repayment of principal and interest. Notwithstanding this, there was still no attempt to demonstrate any want of expertise in Ms Miller or Mr McMahon. Indeed, Ms Miller has degrees of Bachelor of Economics and Bachelor of Arts and my impression of both her and of Mr McMahon was that they were well informed about the realities of farming and farm economics. The counterclaim as pleaded, therefore, cannot succeed.
When he opened his case, counsel for the Annetts focused attention on the unconscionability allegation. The bank acted unconscionably in refusing the further advance and in failing to sign the interest rate subsidy application. Despite the protests of counsel for the bank, I permitted this rather different case to go forward, based on the particulars set out in counsel's case summary handed to the court on day 3 of the trial.
I turn now to the facts of the case. The loans were made in September 2006. They totalled $1,160,000 and were made for the purpose of retiring existing debts to Suncorp Metway and Cow Bank totalling $896,000, $60,000 to pay outstanding creditors, $100,000 for the purchase of extra cows and $100,000 working capital. The bank loans were structured as follows. An overdraft account called Farm Management Account No.86-197-0260 with a limit of $150,000. A Business Options Instalment Loan Account No.86-228-2339 for $230,000 which required payment of principal and interest by monthly instalments of $2,833. Finally, a Business Options Interest Only Loan Account No.86-239-3127 for $780,000.
The Annett family conducted two businesses in addition to the dairy farm. A café in Casterton from premises owned by Shane Annett and Ms A’Vard and a dress shop in Hamilton conducted from leased premises. When the loan was being negotiated in August 2006, it was a matter of concern to Ms Miller, the bank's Agribusiness Manager, that these two businesses were trading at significant losses. She, therefore, included in the loan conditions a requirement that the farm was not to be drawn upon excessively to support these businesses.
The mortgages to which I have referred were part only of the security documents required by the bank. In addition, the borrower was granted a stock mortgage over their herd of 420 milk cows. The stock mortgage included a provision which prohibited the mortgagors from dealing with the stock, otherwise than in the ordinary course of business, and to apply the proceeds in the purchase of replacement stock or to pay the proceeds to the bank.
Furthermore, in its letter of offer dated 17 August 2006, the bank included among its conditions of approval, the following. "The Bank does not expect that any further funding would be required by the business to meet its current requirements except in exceptional unforeseen circumstances".
I should mention that the August 2006 decision of Ms Miller to grant the loan had not been easily won. A few weeks previously, Ms A'Vard and Peter Annett approached Mr McMahon, a National Bank Agribusiness Manager at Warrnambool seeking financial accommodation to pay out the existing Suncorp facility and for a further $50,000.
There were two meetings with Mr McMahon in the course of which he came to the view that the Annetts would not have the income to service the loan. He said too that the security offered was poor in that the farm was situated outside a primary dairy area. He was concerned also that the non-farm enterprises conducted by the family, the café and the dress shop were trading unprofitably and would be a cash drain on the farming business. Shortly after 7 August 2006 he informed the Annetts that the bank was unlikely to accede to their request.
Following this rejection, Ms A'Vard telephoned Mr McMahon's regional manager, John Stuart Brown complaining that Mr McMahon had not addressed their application with sufficient understanding. Mr Brown told me that she said to him that, Mr McMahon “did not view things that well from a sort of female perspective that he possibly didn't sort of relate well to females and therefore he hadn't given her loan application the time it fully deserved". Mr Brown then had Ms Miller look at the application with the result that it was accepted.
The drought in the Casterton area worsened in the summer of 2006-7. Rather than enlarge their herd of milk cows the Annetts were required to cull them selling off 100 to 150 head. Fodder was expensive and by March 2007 the overdraft was close to the $150,000 limit. They were not, however, in default in any payment due under the facility.
On 23 March 2007 Ms A'Vard and Mr Kealey attended Mr Brown with a view to obtaining further accommodation from the bank. Ms Miller was not available as she was on leave. The Annetts sought $170,000 to purchase 200 milk cows and a further $60,000 extension on the overdraft limit for working capital to clear outstanding creditors. Mr Brown declined this request for a number of reasons.
He mentioned that the overdraft account appeared to be running close to its limit and that it was constant. The accounts produced to him showed creditors totalling $96,600 and the majority of these were beyond 30 days. He examined the cash flow projections for the rest of the financial year and formed the view that they were a little optimistic. He said that part of the facility granted in September was to deal with the same matters as were the subject of the present application - to buy cattle and to reduce creditors.
He said that Mr Kealey enquired whether the bank would permit the Annetts to borrow from another source the funds necessary to build up the herd. Mr Brown responded in effect that this would be possible only if all facilities were refinanced. In his subsequent file note, he advised that no excesses should be permitted until an exit plan was provided.
A second meeting with Mr Brown took place on 11 April 2007. At this meeting Ms Miller was also present. Further cash flows were presented showing a best case scenario and a middle case scenario. These cash flows were subjected to a detailed analysis before me but it is not necessary that I rehearse this here.
Meantime, two events took place. First, the April milk payment from Murray Goulburn was not paid into the Annetts' overdrawn farm account. Ms A'Vard said that she had opened a new account with the Bendigo Bank and had directed the dairy to make the payment due on or about 15 April into that account.
The second event was the dishonour by the bank of a cheque for $2,000 on 11 April. The payment of that cheque caused an excess of over $1,500 beyond the $150,000 overdraft limit.
A third meeting took place with Ms Miller and Ms A'Vard on 17 April. This meeting took place at the office of the Annetts' accountant, Gary Smith and he too was present. A number of fresh concerns were raised. First, there was the non-receipt of the Murray Goulburn milk payment. Second, the fact that the Annetts were conducting a trading account with Murray Goulburn which then stood in debit in the sum of $157,000. Third, the fact that a substantial number of cows had been sold over the summer without notifying the bank, with a consequent deterioration of the value of the bank's stock mortgage security. Finally, $37,000 had been paid from the farm business to support the café and the dress shop. Further accommodation was refused.
Following the meeting Ms Miller referred the account to another department within the bank which was concerned with accounts considered as impaired. In her report dated 18 April and signed on 19 April she recommended recovery action to preserve the bank's position. As at 18 April the farm account went beyond its overdraft limit and this position was never rectified.
It will be apparent from this brief summary that the bank was entitled to refuse to provide further funds to the Annetts. It was not suggested that the bank had previously bound itself to provide them. Indeed, in the letter of offer it indicated quite the opposite.
What was said to me was that, given the drought, the bank would have known that restocking was essential if the farm was to survive. The evidence showed that without enlarging the herd the farm was in fact not a viable business. It seems that both Mr Brown and Ms Miller were aware of this and, further, that the prospects of the business were poor in any event. No witness demonstrated that the farm would have been a viable concern even had the herd been enlarged. Its problems were more fundamental. It cannot be said that the bank's refusal to extend the loan therefore was unconscionable.
The second matter relied upon was the bank's failure to sign the interest subsidy certificate. The certificate form is relevantly in these terms, "I confirm the foregoing information to be true and correct and agree to support this enterprise for a further 12 months unless default occurs". On behalf of the bank it was said that given the parlous circumstances of the Annetts’ dairy farm business it could not properly so certify.
The position adopted on behalf of the Annetts was that the certificate was submitted for signature and the refusal to sign occurred on 2 April or 11 April 2007 at which time they were customers in good standing so that there was no reason for the bank to refuse. Accordingly they say unconscionability is made out. This contention must fail for all or any of a number of reasons.
First, the date of refusal was in fact late April not early April as alleged. Ms Miller referred the question of signing the certificate for advice from the department to which the impaired file had been referred after the 17 April meeting. She sought this advice on 24 April 2007. She said that the request to sign the certificate was made a day or two previously. I accept her evidence. The evidence of Ms A'Vard was in many matters internally inconsistent and she showed herself, naturally enough, very much emotionally involved in the failure of the farm. She was evasive when her own conduct was called into question.
Second, the Annetts were in default on 11 April, the date of refusal given in Ms A'Vard's letter of 6 May 2007 and subsequently.
Third, given the conduct of the Annetts which I have set out above, the prospect after 23 March 2007 of the bank's ongoing support was doubtful. In the circumstances, far from being unconscionable, the refusal of the bank to certify was justified.
Fourth, if the extra funding sought on 23 March was not provided the farm would be likely to fail within the next year.
Fifth, if the certificate had been signed there is no evidence that the subsidy would have been granted.
Sixth, if the subsidy had been granted there was no evidence as to the prospects of the farm even with the assistance of the subsidy.
Seventh, if the allegation of unconscionability had been made out there was no evidence of loss, let alone the amount of that loss.
Eighth, if the Annetts suffered loss, the loss was not due to the conduct of the bank in September 2006. There is no reason, therefore, to release them from the agreements then made and the securities then given.
It follows from all of this, that the counterclaim must fail and, in the circumstances of this case, the bank should have the orders it seeks.
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