Blacker v National Australia Bank Limited

REASONS FOR JUDGMENT The litigation history and the status quo 1 On 27 November 1997, the Applicants ("the Blackers") commenced proceedings in this Court against the Respondent ("the Bank") for what were described by the Trial Judge (Katz J) as a "plethora of claims" related to the Blackers' acquisition of a dairy farm with the financial assistance of the Bank, which included claims based upon the Trade Practices Act 1974 (as amended) (Cth). The Bank denied the claims and counter-claimed for possession of the farm as mortgagee, and for the moneys owing by the Blackers to the Bank related to such financial assistance. 2 At the forefront of the Blackers allegations against the Bank were misrepresentations said to have been made by the Bank's branch manager at Bega (Mr Neagle) to induce them to acquire the farm with the Bank's financial assistance. 3 After a trial of twenty hearing days, the Trial Judge (Katz J) awarded the Blackers damages in the sum of $92,500 and interest thereon computed from 1 February 1994, in relation to their claims made against the Bank. The total sum for which such judgment was entered in favour of the Blackers for such damages and interest was $153,968.15. Judgment was also entered by his Honour, in response to the Bank's counter-claim, first for possession of the farm and the dairy cattle depastured thereon, and secondly for the sum owing in respect of the Bank's mortgage namely $1,551,475.68. The Blackers were also ordered to authorise the New South Wales Dairy Corporation to pay to the Bank the proceeds of surrender of the Blackers' milk quota, the same having been also hypothecated to the Bank pursuant at least to an irrevocable authority provided by way of collateral security for the Bank's advances. The citation of the judgment of Katz J is Blacker v National Australia Bank Ltd [2000] FCA 681. 4 The Blackers unsuccessfully appealed to a Full Court comprising Whitlam, Tamberlin and Sackville JJ, the appeal being dismissed on 19 March 2001 ([2000] FCA 254). The Full Court observed in its judgment that the farm and its dairy cattle had been sold by the Bank in the exercise of its power of sale, at some time after the judgment of Katz J (at first instance) had been handed down. The proceeds of sale of the farm and cattle yielded only $692,776.64, in relation to which the Full Court observed as follows (at [16]): "We were also informed that the sale price was adversely affected by the then impending deregulation of the dairy industry in New South Wales (implemented by the Dairy Industry Act 2000, which came into force on 1 January 2001)." Prior to delivery of the Full Court's judgment, a bankruptcy notice was served by the Bank on 13 December 2000 on the Blackers in relation to the sum of $771,407.55, which was claimed by the Bank to be still due and owing after crediting the proceeds of sale of the farm, inclusive of interest calculated presumably up to the date of issue of the bankruptcy notice, that is to say, on 11 December 2000. 5 Prior to the hearing of the Blackers appeal to the Full Court, that is to say, on 16 October 2000, I had delivered judgment relating to three issues which had arisen in the course of the Bank's attempted exercise of the powers conferred by its securities held from the Blackers (see National Australia Bank Ltd v Blacker (2000) 104 FCR 288). The second of those issues related to the Bank's security over the Blackers' milk quota pursuant to the irrevocable authority abovementioned, such mild quota having been held under the auspices of the Dairy Industry Act 1979 (NSW). As I recorded in [34] of my judgment, the Australian dairy industry was deregulated on and from 1 July 2000 and the quota system thereupon ceased to exist, and no compensation was payable to dairy farmers by reason of such cancellation. Instead there was brought into force, by virtue of the Dairy Industry Adjustment Act 2000 (Cth) the Dairy Structural Adjustment Program (called DSAP), the objectives and principles whereof (as set out in clause 1 of Schedule 2 to Dairy Structural Adjustment Program) being to assist the dairy industry to adjust to deregulation by the provision of two types of grants, the first being DSAP Payments to be made pursuant to Schedule 2, and the second being Dairy Exit Payments to be made pursuant to Pt 9C of the Farm Household Support Act 1992 (Cth). My judgment continued as follows: "The DSAP payments are to be calculated by reference to 1998-1999 milk deliveries by dairy farmers at a rate of 46.23 cents per litre for market milk and a national average rate of 8.96 cents per litre for manufacturing milk. The Dairy exit payments are to be made available for farmers who choose to leave agriculture, such payments being non-divisible income for the purposes of the Bankruptcy Act 1966 (Cth) (cl 1 of Sch 2 - Amendment of Other Acts). The Authority is to administer DSAP payment rights, such payments to be funded by a dairy adjustment levy on milk products. The levy is to be paid into a Dairy Structural Adjustment Fund, and the DSAP payment and Dairy exit payments will be made out of such fund. The DSAP Payments Scheme provides for payments to be made by 32 quarterly instalments over eight years commencing on 1 July 2000. Eligibility for payments is based essentially on whether an applicant held an eligible interest in a dairy farm enterprise at 6.30pm on 28 September 1999 and delivered milk during the base year 1998-1999. The Blackers have made application for DSAP payment. Section 6 of that application refers to the milk delivered for the 1998-1999 year and provides a partition or breakdown between market milk delivered pursuant to a quota or non quote on the one hand, and manufacturing milk on the other. No other reference to the quote system appears in the form of application. The outcome of the application is not the subject of evidence." 6 Thereafter I concluded that the Blackers were correct in their contention that their DSAP payments anticipated to be made by the Commonwealth, being expressed by the said Dairy Industry Act to be compensatory in respect of dairy farmers' exposure to deregulation generally, were not relevantly connected to the abolition by State Parliaments of milk quotas, such that the DSAP payments to which the Blackers would be entitled fell outside the scope of the Bank's irrevocable authority related to the Blackers' milk quota given as collateral security over the Blackers' dairy farm 7 The Bank sought to overcome this shortcoming in its security realisation expectations by recourse to an application for a Mareva injunction relating to the Blackers' DSAP entitlements. I granted such an injunction, subject to the following qualification and for the following reasons: "Moreover the weight of authority would I think justify me in the exercise of discretion to adopt the approach that the Blackers should be entitled in principle to retain such funds as are necessary to pay their outstanding legal costs of the proceedings at first instance, and of the subsequent interlocutory proceedings before me, and of the anticipated costs of the pending appeal, provided the same are fair and reasonable. Additionally the Blackers should not in principle be left without reasonable living expenses pending the outcome of the appeal, and should be able in principle to satisfy any other bona fide unsecured creditors. They have estimated their living expenses at $850.00 per week, though Mrs Blacker had subsequently obtained employment and Mr Blacker may well have done so since the proceedings were last before me. That a Mareva injunction should usually allow a defendant to have access to his or her own assets for living expenses, payment of debts and legal expenses free of Mareva injunctions has been recognised by authority (see Frigo v Culhaci (unreported, Court of Appeal, NSW, No CA 40414 of 1998, 17 July 1998) at p 13; Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 569), though again, care needs to be exercised in applying established authority in circumstances where the opposing party is not a defendant before hearing but an appellant in relation to a judgment already obtained against him or her." 8 The formal orders which were sealed by the Court's District Registrar on 9 November 2000 were as follows: "1. Subject to Order 2, Peter Raymond Blacker and Christine Blackers ("the Blackers") be restrained from disposing of, alienating, transferring, selling, mortgaging, encumbering or otherwise dealing with their rights as eligible applicants to payment from the Dairy Adjustment Authority ("DAA") under the Commonwealth Government Dairy Industry Adjustment Package, until further order. 2. Within 14 days of the date of this order, the Blackers and the National Australia Bank Limited ("the Bank") open an interest bearing account with the Bank in the name of the Blackers ("the Account"). The Blackers immediately thereafter advise the DAA of the details of the Account and direct the DAA to pay all payments referred to in 1 above into the Account, until further order. 3. All previous orders made on 25 August, 28 August, 13 September and 15 September 2000 by Justice Conti on the Bank's motion be vacated, such that subject to orders 1 and 2 above, the Blackers are not otherwise restrained from dealing with their property. 4. Each party pay their own costs of this motion." According to the latter of 16 July 2001 of the Blackers' solicitors, "They advise that the DAA was advised as required by clause 2 of the orders dated 18 October 2000". 9 Subsequent to the dismissal of the Blackers' appeal to the Full Federal Court, the Blackers have adopted two courses of action as follows: (i) the lodgment on 9 April 2001 of a purported Application to the High Court for Special Leave to Appeal from the whole of the Full Federal Court's decision; I say "purported", because whilst the same is described as an Application for Special Leave to Appeal, it is framed only as a notice of appeal. This application is still pending, and no estimated date of hearing has been provided to me, doubtless because none can presently be estimated; by letter dated 15 May 2001, the High Court has drawn attention of the Blackers' solicitors to non-compliance with the High Court Rules as to filing of a summary of argument and a draft notice of appeal, and has drawn attention to High Court Order 69A rule 13 as to the consequences of such default continuing for six months after the filing of a purported Application for Special Leave to Appeal; (ii) the filing of a Summons in the Supreme Court of New South Wales Equity Division on 6 June 2000 for the hearing by the Supreme Court of the application which had been originally made to the Federal Court pursuant to the Contracts Review Act 1980 (NSW), additionally and separately to the relief sought under the Trade Practices Act to which I have already referred in [1] above; such additional basis for relief had been the subject of the ruling of Katz J in his said judgment at first instance that the Federal Court had no jurisdiction to entertain applications for relief under such NSW legislation. 10 In a lengthy judgment extending over 69 pages, Young J (as he then was) dismissed the application of the Applicants to the Supreme Court for relief under the Contracts Review Act. In so doing, Young J concluded as follows: "159 It must be remembered that on the authorities, when considering this question, I must bear in mind that the CRA is remedial legislation which should be widely construed. However, I must also look for a high level of injustice and must bear in mind the public interest in maintaining certainty of contract. I must also remember that, even if I find on the facts that the contract could be unjust, I still have a discretion as to whether to make any order or what order should be made. 160. The plaintiffs' case was that they should never have entered into the transaction or the contract as they could not reasonably ever have profited by it. They considered that the bank had the expertise and that it had carried out the necessary checks and that, because the bank had approved the loans, it was safe to proceed. 161. The plaintiffs seek to set aside the personal covenant in the mortgage and to be paid compensation of $857,000. If these orders were made, the plaintiffs would be put back in the same position as if the transaction had not been entered into. 162. In one sense there was some blame on the bank for the Blackers entering into the transaction. However, I do not consider that the action of Mr Neagle was the prime factor. The Blackers wanted to buy Springbrook: Mr Neagle was only a facilitator. I accept the position that Mr Blacker was more aware of the risks than he would now have us all believe. 163. There were no threats or force used to make the Blackers enter into the contract of loan and mortgage. The terms of that contract were not oppressive. Even accepting that there was inequality of bargaining power, this was not the case of an illiterate or otherwise disabled couple making a contract that was forced upon them. They may have been only basically educated and they may have been overawed by Mr Neagle's suggested competence, but this does not seem to me to be enough to show that there was procedural injustice in bring about the contract. The contract itself was not one that could be said to be substantively unjust. 164. Thus, the claim must fail. 165. I should note that even if I were wrong in my assessment, this is not a case where any order for compensation should be made. It is interesting that there does not appear to be any reported case where such an order has been made and in Smith's case such an order was refused. Although the submissions of Mr Graham QC and Mr Thomson about putting Springbrook on the market too late and too high a price were overly severe, there is not the evidence to show that the losses that the Blackers experienced were as a result of their entering into the loan contract. 166. Accordingly, apart from the appropriate procedural orders to formalise the claim under the CRA as proper proceedings in this Court, the order must be that the proceedings be dismissed with costs." 11 The Blackers are determined to persevere with their course of litigation against the Bank on all fronts. They have lodged an appeal to the NSW Court of Appeal on 11 December 2000 against the decision of Young J at first instance. I have not been provided with an estimate of the time within which the appeal might be heard, nor with the grounds for appeal, doubtless at least in part because the Blackers have failed to comply with the NSW Court of Appeal's timetable in respect of that appeal. The Bank has already taken steps with a view to having the appeal struck out by reason of such non-compliance. The Blackers' present financial circumstances 12 I have already referred in [4] above to the issue by the Bank of a bankruptcy notice against the Blackers prior to delivery of the Full Federal Court's judgment. "In about March", according to Mr Blacker's Affidavit presently before me, the Federal Court dismissed an application brought by the Blackers to set aside the bankruptcy notice, and declined to further extend the time for compliance therewith. The Bank thereupon filed and served a creditors petition for the bankruptcy of the Blackers, which is listed for hearing in the Federal Magistrate's Court on 6 August 2001. The residual debt said to be owing by the Blackers, inclusive of unpaid interest on the judgment debt, amounted to $983,678.83 as at 20 July 2001. An affidavit sworn by Mr Blacker on 9 July 2001 disclosed that the only assets of himself and his wife consist of household furniture and effects, a Mitsubishi Magna motor vehicle purchased in 1991, and entitlements payable to them under the Dairy Industry Structural Adjustment Package worth approximately $320,000.00, whilst their liabilities "include" their indebtedness to the Bank and outstanding legal costs due to their former solicitors Commins Hendrik; at the hearing I was informed that these costs would be in the order of $90,000.00. 13 Their personal circumstances and those of their children were described as follows: "5. My wife and I moved to Canberra in March 2001. My mother died on 5 April 2001. I am 48 years old. My wife is 43 years old. We have two children, Gail is 20 years and financially independent. Tim is 18 years and financially dependent. He attends TAFE. 5. From July 2000 to May 2001 my wife and I were unemployed except that my wife worked for 2 months at Allens Department Store, Merimbula. On 7 May 2001 I obtained employment as a storeman in the cold store at PFE Foods, Canberra. My wife secured two days casual work in early May 2001 and on 14 May 2001 my wife commenced employment at the Garren Hughes Newsagency. My total wages, net of tax for the period 7 May 2001 to 30 June 2001 were approximately $3,100.00. I am informed by wife and believe that her total wages for the period 14 May to 30 June 2001 were approximately $2,500.00." The Blackers' entitlements under the Dairy Structural Adjustment Program Scheme 2000 14 I have already referred to the statutory DSAP Payments, and also the Dairy Exit Payments in [5] above. On 24 April 2001, the Dairy Industry Authority gave Notice of Decision to the Bank to the effect that the Bank was not entitled to a "standard payment right" by reference to the "Dairy Farm Enterprise Name : Peter and Christine Blacker Licence Number 59087". The Notice stated that the Bank was not entitled to any such standard payment right under the Dairy Structural Adjustment Program Scheme 2000 for the reason that as at 28 September 1999, the Bank was not carrying on the dairy farm enterprise "Springbrook" (which was of course the dairy farm enterprise conducted by the Blackers before the advent of the disputes between the parties), nor was party to an "eligible dairy leasing arrangement" or "an eligible dairy sharefarming arrangement". 15 Notices of Decision of the Dairy Adjustment Authority dated 1 May 2001, separately addressed to each of the Blackers individually, disclose the following: (i) Each of the Blackers is entitled to a so-called "standard payment right with a face value of $159,459.00"; (ii) Eligibility for such "right" is subject to repayment to the Commonwealth of any Commonwealth support or adjustment payments which may have been received by Mr or Mrs Blacker after 28 September 1999; (iii) Payment of such right may only be made to a bank account held by Mr or Mrs Blacker (as the case may be) by electronic funds transfer; (iv) Payment would be made by 32 equal quarterly instalments, with the last quarter ending on 30 June 2008, such quarterly sums being calculated at $4,983.00; (v) An internal review of the quantum of such entitlement would be made, if either of the Blackers was dissatisfied with the DAA's calculation of the total "Dairy Farm Enterprise Amount" of $318,918.00. 16 A Department covering letter in relation to each of such Notices contains the following advice: "If you comply with the condition set out above (referring thereby to completion of a form of declaration) and are granted a standard payment right, you may be entitled to a Dairy Exit Program (DEP) payment. If so, you may elect to take a DEP payment instead of payments under the DSAP scheme." Relief now sought 17 The application now placed before me by way of Amended Notice of Motion seeks relief in broad terms as follows: (i) a declaration that any amounts received by the Blackers under the Dairy Structural Adjustment Program (DSAP) Scheme constitute part of the Applicants' assessable income; (ii) a declaration that any DSAP payments [to be] received by the Blackers will not vest in their respective bankruptcy trustees, pursuant to s 58 of the Bankruptcy Act 1966, in the event that sequestration orders are made against their respective estates; (iii) an order in effect varying the Mareva injunction referred to in [7] above to enable the Blackers "to pay and to continue to pay the reasonable legal expenses of defending Creditors Petition No. S344/2001 between National Australia Bank Ltd as Applicant and the Blackers as Respondents". 18 In support of the order sought as above, Counsel for the Blackers made an application for relief in the terms set out in [7] above. It has been submitted on their behalf that the same principles should apply in relation to their pending bankruptcy proceedings, in order to enable the Blackers to prosecute their application for special leave to appeal to the High Court of Australia, and additionally their appeal to the Court of Appeal. They point out that if they can persuade the Federal Court to adjourn the bankruptcy proceedings listed for hearing on 6 August 2001 (see [12] above), the Federal Court would be likely to adjourn the Bank's creditor's petition pending the determination of "those appeals", and reliance is placed upon Ahern v Deputy Commissioner of Taxation (1988) 76 ALR 137 at 148, where the following dicta of a Full Federal Court (Davies, Lockhard and Neaves JJ) said as follows: "It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49; Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181. These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter parties litigation. It involves change of status and has quasi-penal consequences." 19 Ahern stands as authority for the proposition that whilst the Commissioner of Taxation is entitled to judgment in court proceedings for recovery of unpaid income tax the subject of an income tax assessment notice issued in the ordinary course of the Commissioner's administration, nevertheless by reason of relevant provisions of the Income Tax Assessment Act, a court exercising bankruptcy jurisdiction has a discretion to withhold enforcement of a court judgment obtained in such a context, where it is satisfied that the taxpayer has raised a genuine dispute by reason of the content of the taxpayer's objection to the assessment, pending the resolution of such dispute in whatever court there exists jurisdiction so to do. 20 In the present case, this Court has already determined at first instance and on appeal that the subject matter of the Bank's creditor's petition is lawfully payable by the Blackers, and I have not been presented with any viable basis that I can conceivably identify which would indicate a reasonably arguable prospect of the Blackers obtaining the grant of special leave to appeal. Nor can I identify in the alterative a viable basis for the Blackers to successfully prosecute their present appeal to the New South Wales Court of Appeal upon the Contracts Review Act issue, and no such basis has been articulated to me; the reasoning of Young J seems to me to be entirely sound and in consonance with authority. 21 The Blackers have however raised further issues in the following terms set out in the Counsel's written submissions: "In determining whether to vary the Mareva orders to enable the Blackers to have access to DSAP payments, the Court should find that even if the Blackers became bankrupt those monies would not vest in a trustee in bankruptcy. In bankruptcy creditors might have some claim, not upon the DSAP payments as such but a claim based upon assessing the Blackers' liability to make income contributions assessed in accordance with Division 4B of the Bankruptcy Act (cf. Re Sharpe; Ex parte Donnelly (1998) 88 FCR 536 at 540). Ordinarily a subsidy received by a taxpayer in relation to its business will constitute income according to ordinary concepts but not all subsidies have the character of income (see the observations of Hill J in First Provincial Building Society Ltd v FCT 95 ATC 4145 at 4150-4151). It is for this reason that DSAP payments are specifically dealt with for the avoidance of doubt and as assessable conformably with section 15-10 ITAA 97. On the other hand the dairy exit payment has the character of capital, not income. It is for this reason that section 118 - 37 ITAA 97 requires the receipt of a dairy exit payment to be disregarded as a CGT event for CGT purposes under Part 3A ITAA 36. It is for the same reason that a dairy exit payment is expressly excluded from the property of a bankrupt that vests in a bankrupt's trustee (see section 116(2)(mcb) Bankruptcy Act 1966). It is submitted that a DSAP payment which is a subsidy (section 15-10 ITAA 97) and of an income character, does not constitute "property" which would vest in a bankruptcy trustee under section 58 of the Bankruptcy Act in the event that either of the Blackers have sequestration orders made against their respective estates (see Re Sharpe; Ex parte Donnelly (1998) 80 FCR 536 at 540F-G)." 22 Assuming that the Blackers' foregoing contentions or some of them to be correct, the same would provide no answer in principle to the Bank's present creditor's petition based upon insolvency based upon moneys due and owing in relation to its mortgage advances and interest thereon. The consequences of the Blackers' contention set out in [21] above being correct as to exemption from after-acquired property from bankruptcy, whether in whole or in part, would be to increase the monetary extent of their insolvency by way of consequential increase in their indebtedness to the Bank. Moreover any incidence of income in relation thereto would be irrelevant to efficacy of such creditor's petition. In short, the submissions have no direct bearing upon the outcome of the pending hearing of the bankruptcy proceedings commenced by the Bank. Furthermore the taxation issues involve nothing justifiable bearing upon whether or not the creditor's petition should be accepted and a sequestration order duly made. 23 In any event, the following observations need to be made upon the submissions of Blackers' Counsel extracted in [21] above: (i) Assuming that the Blackers were to forthwith make a successful application to the Dairy Adjustment Authority for the making of DEP payments under the present DEP scheme in their favour, with an outcome in favour of the Blackers that such payments in their hands may not constitute property divisible amongst their creditors within s 116 of the Bankruptcy Act 1966 (Cth) as amended (as to which see s 116(2)(mcb) thereof), notwithstanding Division 4B thereof (as to which see Re Sharpe Ex parte Donnelly (1998) 80 FCR 536 at 540), there can be no reason why such an application to the Authority cannot be made without the assistance of access to some part of any DSAP monetary entitlements for that purpose; (ii) Any controversy as to whether or not the proceeds of any such DEP payments would constitute property divisible amongst the creditors of the Blackers would become a matter for resolution between the Blackers and the Blackers' trustee in bankruptcy, in his or her capacity as representative of all creditors and not just the Bank; incidentally, it would be surprising if the Blackers could not obtain appropriate legal aid to assist them as a party in any curial proceedings to resolve any dispute with the trustee arising on that subject, assuming that any such dispute might arise by reason of the trustee obtaining legal advice contrary to that of the Blackers; (iii) Any controversy as to the taxable or any non-taxable character of any such DEP payments in the hands of the Blackers would be a matter for resolution between the Blackers' trustee in bankruptcy and the Commissioner of Taxation; any future taxation litigation could also well become the subject of legal aid, assuming the same to arise and the Blackers becoming parties to any such dispute by reason of the trustee in bankruptcy forming a view in consonance with that of the Commissioner, but contrary to the Blackers; (iv) In the meantime, there is no proper basis for any declaratory orders to be made by the Court in relation to any such potential controversies, in the context of the present bankruptcy proceedings commenced by the Bank, in relation to which the issue must boil down to quantification of indebtedness only, given the adverse judgments of the Full Federal Court and of the Supreme Court of New South Wales. 24 In the result, the Application made by the Blackers for Mareva relief must be dismissed. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.