Gooley v NSW Rural Assistance Authority

Is the Bank entitled to retain the Surplus?

1. This question involves the proper construction of the Bank's security documents.
2. Whether or not the Bank is entitled to retain the Surplus depends on the proper construction of the Bank's security documents.
3. On 22 May 2018 Robb J noted that the parties agreed that: "The rights, interests and obligations of the plaintiffs, the Bank and [George and Fuhrmann (Holdings) Pty Ltd: a creditor of Mr and Mrs Gooley] to the Surplus are to be determined on the same basis as their respective rights, interests and obligations to the Properties existed immediately prior to Settlement, with the intention that none of the Plaintiffs, Bank and [George and Fuhrmann (Holdings) Pty Ltd] will gain any advantage or suffer any disadvantage in terms of their respective rights, interests and obligations by reason of compliance with orders 1 to 4 above to facilitate the Sales and the Settlement thereof."
4. The Bank held three mortgages over the Casino properties. Two incorporated the provisions in registered Memorandum 9390023. The other incorporated the provisions in registered Memorandum AB35822.

The nature of Mr and Mrs Gooley's claim

1. The claim made by Mr and Mrs Gooley is set out in Mr and Mrs Gooley's defence to the Bank's cross-claim. It has subsequently been incorporated by reference to their cross-claim. For simplicity I will simply refer to paragraphs of that defence as if they were in the cross-claim.
2. I am here considering the cross-claim as Mr and Mrs Gooley seek to amend it. I do not understand this aspect of the proposed amendments to be controversial.
3. By pars 36 and 37 of the cross-claim Mr and Mrs Gooley allege that on 12 December 2007 they accepted an offer made by the Bank on 16 October 2007 of a fixed rate loan facility of $1.2 million for a term of 15 years (5 years interest free and 10 years principal and interest).
4. By par 36A Mr and Mrs Gooley plead that it was a "fundamental term" of the contract that the loan be for a term of 15 years.
5. By par 41 Mr and Mrs Gooley allege that: "On 2 [sic] July 2008 the [Bank] by way of presentation of a signature page, requested registration of the Deed of Priority granting [the Bank] priority over [the Rural Assistance Authority] on its security and to address changes in the law relating to mortgages over water rights. During the course of a conversation with Mr Mitchell [an officer of the Bank] in or around July 2008 the [Bank] represented to [Mr and Mrs Gooley]…that there were no other changes to the agreements that were entered into on 12 December 2007 including that the fundamental term had not altered."
6. The document Mr and Mrs Gooley signed was p 6 of a document called "Facility Terms".
7. That document was attached to a letter from the Bank dated 3 July 2008 addressed to "The Partners Gooley Farms". The letter was entitled "Variation of Facilities" and stated, amongst other things: "We are pleased to advise that we have agreed to vary your existing Facilities. Please find attached new facility terms which, once you have accepted it, will replace the [16 October 2007] Agreement. From the date of acceptance of this Offer Letter the terms and conditions for all additional Facilities provided to you under this offer Letter, and the terms and conditions for all existing Facilities are set out in: ● This offer Letter and the attached Facility Terms; and ● Our General Terms for Business Lending dated December 2007…".
8. The Facility Terms document stated, on p 1, that the "Facility Expiry Date" was "5 years from initial drawdown date".
9. In his affidavit of 13 February 2018, Mr Gooley deposes that on the occasion that he and Mrs Gooley signed p 6 of the Facility Terms document: 1. Mr Mitchell said that he had a form that "I will get you to sign today" and that "all this will do is register a Priority on your mortgage document, nothing else changes with your loan"; 2. Mr Mitchell had "a few different forms for [Mrs Gooley] and I to sign and I recall that the forms were in loose form and not bound"; and 3. Mr Mitchell said that "this is a form to register a Deed of Priority and the loan remains the same as it was originally set up".
10. Mr and Mrs Gooley claim that they did not understand that the execution of the document had the effect, according to its terms, of reducing the term of their loan from 15 years to 5 years; and that had they known the true position they would have sought to exercise one or other of the ANZ Option and the Tablelands Option.

The provisions in registered Memorandum 9390023

1. Clause 2.1 obliges "the mortgagor" (that is Mr and Mrs Gooley) to pay to the Bank "the Secured Money".
2. "Secured Money" is defined to mean money the payment of which falls part of "the Obligations" (c 1.1(pp)).
3. "Obligations" is defined to include the obligations of the mortgagor to the Bank under or by reason of "any Facility Document" including obligations which are "prospective" or "contingent" or which "come into existence on or after the date of this mortgage" (cll 1.1(gg)(ii), (iv) and (v)).
4. "Facility Document" is defined to include "this mortgage" and: "[A]ny document or agreement which records or evidences the terms on which any Secured Money is payable to the Bank or the terms on which any Obligation to the Bank is to be performed".
5. One document which "records or evidences" the terms on which secured money is payable is the Bank's General Terms for Business Lending (attached to the letter of 3 July 2008 set out at [17] above).
6. Clause 15.1 of those General Terms obliges Mr and Mrs Gooley to indemnify the Bank for costs incurred "in connection with any Facility Document".
7. The definition of "Facility Document" in the General Terms is different from that in Memorandum 9390023 and includes "the Agreement".
8. "Agreement" is defined in the General Terms to mean "the agreement constituted by the acceptance by you of the Offer Letter". "Offer Letter" is defined to mean "the letter of offer from us to you attaching the Facility Terms". "Facility Terms" is defined to mean "the document attached to the Offer Letter headed 'Facility Terms'".
9. Thus, when these documents are read together, they provide the Bank with security for costs it incurs "in connection with", relevantly, the 3 June 2008 Letter of Offer and the Facility Terms annexed to that document.
10. Although the Bank's mortgage has now been discharged, and its loan repaid, I see no basis to avoid the conclusion that, nonetheless, the costs the Bank will incur in resisting Mr and Mrs Gooley's claim will be incurred by it "in connection with" the 3 June 2008 letter of offer and the attached Facility Terms. The latter document is the document Mr and Mrs Gooley executed when induced, they claim, by Mr Mitchell's representations about the effect of that document.
11. For those reasons alone, my opinion is that the Bank is entitled to security over the Surplus, or at least that proportion of the Surplus as represents a reasonable estimate of the costs it is likely to incur in defending Mr and Mrs Gooley's claim.
12. This conclusion renders unnecessary consideration of other provisions in Memorandum 9390023, or Memorandum AB35822 that were the subject of argument before me.

Proposed amendment to the defence to first cross-claim

1. Although Mr Gooley's affidavit evidence refers to the ANZ Option and the Tablelands Option, there was no reference to either option in Mr and Mrs Gooley's pleadings.
2. Mr and Mrs Gooley advance their case from two points in time.
3. The first is from July 2008. They say that had they been told from July 2008 that the Bank contended the 12 December 2007 facility was reduced from 15 years to 5 years, they would have sought to bring their business back to the ANZ Bank, with whom they assert they had a cordial relationship and a 30 year loan facility (the ANZ Option), and "seriously considered" the Tablelands Option.
4. The second point in time is April 2010. Mr and Mrs Gooley wish to contend that had the Bank only then revealed "the true position" in April 2010, they would have in fact exercised the Tablelands Option (not merely "seriously considered" it) rather than exercising the ANZ Option.
5. The manner in which Mr and Mrs Gooley propose to plead each of these matters is as follows.
6. As to the position in July 2008: "41A In reliance on the representation of Mr Mitchell as servant or agent of the Respondent Bank referred to in paragraph 4 including as to the fundamental term of the Plaintiffs maintained their new accounts with the Bank and did not seek any alteration of the legal documents or seek legal advice but trusted the Bank to deliver the promised finance as set out in paragraphs 36 and 36A. 41B Had the Plaintiffs [then] been informed by Mr Mitchell for the Bank that the credit arrangements referred to in paragraphs 36 and 36A had altered so soon after its negotiation, including by a breach or anticipatory breach of the fundamental term alleged in paragraph 63A in any respect, the Plaintiffs would have applied to ANZ Bank whom the Plaintiffs left to go to the Bank in 2007 on good terms and reverted to their former financial arrangements with reasonable prospects of doing so based on the success of Gooley Farms to that date [including the 30 year finance there previously provided for to the Plaintiffs by that Bank], or to another suitable financial provider to agricultural farming operations, and/or further they would have seriously considered wholly moving their farming operation to the Tablelands region of northern NSW encompassing Armidale, Guyra, Glen Innes and Inverell having regard to the serious floods experienced in the coastal operation [the Tablelands Option]."
7. I have inserted "[then]" in the first line of par 41B to reflect that Mr King, who appears for Mr and Mrs Gooley, accepted that that word should be added to this paragraph (and corresponding paragraphs later in the pleading) to make clear that the paragraphs intended to state what Mr and Mrs Gooley would have done at the relevant time (here, in July 2008).
8. As to the position from April 2010 the position was: "Had the Plaintiffs [then] been informed by Mr Mitchell for the Bank that the credit arrangement referred to in paragraphs 36 and 36A had altered so soon after its negotiation, including by a breach or anticipatory breach of the fundamental term alleged in paragraph 36A in any respect, the Plaintiffs would have sold Gooley Farms on the coast near Lismore and then have moved their farming operation to the Tablelands region of northern NSW encompassing Armidale, Guyra, Glen Innes and Inverell having regard to the serious floods experienced in the coastal operation [the Tablelands Option] and would have ceased farming operations on the coast."
9. In relation to each of these matters, Mr and Mrs Gooley will have to show, on the balance of probabilities that there was a substantial, not merely theoretical or negligible "prospect of a beneficial outcome", to adopt the language used by Barrett AJA in Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135 at [99]; see also [20] of my judgment of 4 May 2018. That is, that "according to the balance of probabilities, that there is some colour of value to the lost opportunity": Mal Owen at [101].
10. This is the first of the two stages described by the High Court in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332.
11. If Mr and Mrs Gooley are able to establish this, then the second stage of the inquiry requires an assessment of the damage they have suffered as a result of not being able to avail themselves of the relevant opportunity.
12. That assessment is made: "…by reference to the degree of probabilities and possibilities of factual hypotheses [and] may require a process of estimation extending even to a degree of guesswork…and may lie at any point within a broad range." [Barrett AJA in Mal Owen at [101]; citation omitted.]
13. Mr and Mrs Gooley's proposed pleading concerning the ANZ Option and the Tablelands Option could be pleaded in a manner more closely aligned with the language of these authorities to make out their "loss of a chance" case. However, the proposed pleading makes sufficiently clear the case they seek to establish.
14. In my judgment of 4 May 2018 I referred to other infelicities in the current state of the cross-claim (see [23] to [36]).
15. The proposed amended pleading goes some way to address the shortcomings that I consider exist in the current pleading. The pleading remains, to some extent, unclear. But the time has come for this matter to progress to a stage where a hearing date can be allocated. Any shortcomings that may still exist in the pleadings are matters with which Mr and Mrs Gooley will have to contend when the matter comes on for trial. The proposed cross-claim gives the Bank sufficient notice of the nature of the case Mr and Mrs Gooley intend to bring.
16. I propose to grant Mr and Mrs Gooley leave to amend their defence to first cross-claim in accordance with the document circulated during the hearing on 25 June 2018 which was marked MFI 1; subject to the minor change to which I have referred to at [39] above.

Separate hearing of liability?

1. I do not consider this case to be appropriate for a separate hearing of liability and quantum.
2. There will be a close connection in this case between the questions of whether an opportunity of substantial value has been lost and whether Mr and Mrs Gooley can prove they have suffered loss as a result of not being able to avail themselves of that opportunity. Mr Gooley is likely to be a key witness in relation to both of these matters.
3. I understand from Mr Castle that issues as to Mr Gooley's credit will be relevant to those matters and the anterior question of whether the Bank behaved in a way which entitles Mr and Mrs Gooley to any remedy.
4. It appears likely, as Mr Castle submitted, that any challenge to Mr Gooley's credit will have to be assessed in relation to the evidence he gives in relation to all aspects of this matter.

Conclusion

1. I will now invite submissions as to the orders that should be made to give effect to these reasons and, in particular, what orders should be made in relation to the Bank's notice of motion of 20 April 2018 and Mr and Mrs Gooley's notice of motion of 25 June 2018.
2. I will also invite submissions as to whether any further enquiry should be made into the Bank's estimate of its likely future costs.
3. I also propose to make directions as to the future conduct of the matter and list the matter before the Commercial List Judge for allocation of a hearing date.

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