Jiwira v PIBA

The plaintiffs' claims 3 These and other incidental events have led to the present proceedings, in which the plaintiffs seek relief of various kinds, by a Second Further Amended Statement of Claim ('the Statement of Claim'). The plaintiffs' claims are as follows: (1) the Bank owed them a duty of care to preserve the property so as to minimise any shortfall that they would owe to the Bank pursuant to the securities, and failed to preserve the property in breach of this duty ('the negligence claim in relation to the fire'); (2) the Bank owed them a duty to exercise its power of sale as mortgagee in good faith, with due regard to their interests, and in such manner as to minimise any shortfall, and to exercise all reasonable care, and the Bank acted in breach of this duty ('the power of sale claim'); (3) the Bank owed them a duty to act in good faith in relation to an insurance policy over the farming property, and not to deal with the policy in a manner that would compromise or adversely affect the interests of the plaintiffs, but in breach of that duty the Bank compromised or adversely affected the plaintiffs' entitlements under the policy ('the policy claim'); (4) the Bank engaged in misleading or deceptive conduct for the purpose or with the effect of denying the plaintiffs the benefit of reinstatement of the homestead pursuant to the insurance policy, contrary to the Trade Practices Act and the Fair Trading Act, and thereby acted unconscionably contrary to the common law ('the misleading conduct claim'); (5) the Bank as mortgagee in possession had a duty to the plaintiffs to exercise reasonable care and skill in dealing with insurance interests or benefits, and failed to discharge that duty ('the insurance duty of care claim'); (6) the Bank owed the plaintiffs a duty to act in good faith having regard to their interests, so as to minimise any shortfall and take all reasonable care to sell the cotton crop for the farming property at the best price reasonably obtainable, and failed to do so ('the cotton crop claim'); (7) the Bank took possession of goods to which Mr Baker had a right to immediate possession, and refused to return them and sold them ('the conversion claim'); (8) the Bank owed the plaintiffs a duty to protect and grow the wheat crop on the farming property, and it failed to do so ('the wheat crop claim'); (9) the Bank commenced and maintained proceedings for the winding up of Jiwira to effect an object not within the scope of the process ('the abuse of process claim as to the winding up proceedings'); (10) the Bank commenced and maintained proceedings for bankruptcy orders against Mr Baker to effect an object not within the scope of the process ('the abuse of process claim as to the bankruptcy proceedings'). 4 The plaintiffs claim general, aggravated and exemplary damages, and damages pursuant to the Trade Practices Act and the Fair Trading Act, as well as interest and costs. 5 I have reached the view, after reviewing and analysing the evidence as carefully as I can, that the plaintiffs' case fails on the facts (except as to the conversion claim), rather than on any issues of law. I shall deal with the facts relevant to the plaintiffs' claims, and then with each claim in turn. Before doing so I wish to make some remarks about the credibility of the witnesses.

The witnesses 6 Mr Baker has been fighting against the Bank for his economic survival since the late 1980s. He has been involved in a great many legal proceedings (Mr Caves, one of the Bank's principal witnesses, said there were 17 proceedings, and I have no reason to doubt that figure), most of them commenced by Mr Baker. His lack of cooperation with the Bank's efforts to enforce its security has at times been obstructive. It appears to me that he behaved unreasonably with respect to the removal of equipment from the property, and some of his complaints about the items charged to Jiwira's account by the Bank appear to be carping attempts to needle the Bank's officers. A similar attitude was revealed at times during his cross-examination. In these circumstances I do not feel confident that his evidence is the unburnished truth. I have decided that I should not rely solely upon Mr Baker's evidence in making findings of fact on contested matters. 7 My impression of some of the plaintiffs' witnesses is that they are Mr Baker's 'mates', intent on supporting him in his economic crisis, in the finest traditions of the Australian bush. Unfortunately the ideals of Australian mateship, though admirable in many ways, are not entirely conducive to the giving of accurate, reliable evidence. Thus, I found the evidence of Mr Baker's valuer, Mr Col Stone, to be quite unreliable, when compared with the more thorough and scientific approach of Mr Thomas, the Bank's valuer. I found Mr Lambert's evidence about the tourist project to be imprecise and not based on sound analysis. I prefer the evidence of the Bank's witnesses to the evidence given on behalf of the plaintiffs with respect to the condition of the property when the Bank took possession and afterwards, and with respect to the adequacy of the arrangements for security of the property. 8 Generally speaking, the evidence of the Bank's witnesses was reliable and stood up well in cross-examination. I was impressed by the expert witnesses, especially Mr Thomas, Mr Brown and Mr Gunning. Anthony Simshauser, who was appointed caretaker of the property, struck me as a responsible person with a fair knowledge of farming properties.

The Weetawaa property 9 As I have mentioned, Weetawaa comprised two adjacent parcels of property, the Jiwira land and the DLM land. The Jiwira land consisted of seven lots, most of which was freehold land held by Jiwira, though there was some Crown title land. The DLM land was three lots owned by a company called DL Management Pty Ltd. 10 There were several structures on the Weetawaa property, namely a large homestead built around the turn of the century, a three-bedroom house, a smaller three-bedroom house, a two-bedroom cottage, a garage, a seven-bedroom accommodation, stables, three machinery sheds and a utility shed, two tanks, eight silos (including two Jetstream silos), a kitchen/dining/caravan area, a 'demountable' small office block, cattle yards and self feeders, a hay shed, a meat house and an airstrip. 11 As I shall explain, Jiwira acquired the mortgage over the DLM land and the rights of a purchaser of the land under a contract of sale. To move from that position to clear freehold title would require either the exercise by Jiwira of the mortgagee's power of sale in favour of some related entity (a risky process) or sale and transfer by the mortgagor, DL Management, subject to the mortgage. Since, at the time relevant to these proceedings, DL Management was a defunct company, it would be necessary to persuade the corporate regulator (the National Companies and Securities Commission and subsequently the Australian Securities Commission) to exercise power on behalf of the defunct company, if the second solution were to be pursued. 12 The Jiwira land had an area of approximately 565 hectares, of which 163 hectares were classified as irrigation land. The DLM land had an area of 334 hectares of which 149 hectares was irrigation land. A creek called Gunidgera creek ran through the property. There were river licences for a total of 1,590 megalitres and a conjunctive bore licence. The allocation for the bore licence increased as the river allocation decreased. The allocation was 243 megalitres when the river licences had a 100 percent allocation and as the river licences decreased the bore licence increased to 648 megalitres as a maximum. 13 There was also an artesian bore licence which has significance because Mr Baker developed a tourist proposal which involved using that licence to create a hot mineral spring bath.

The artesian bore licence 14 Jiwira was the licensee of an artesian bore licence No 139790, issued by the Department of Water Resources. By using the licence to develop a bore, Jiwira hoped to tap hot spring water under the DLM land, thought to have healing powers and to be attractive to tourists. 15 The licence was valid for five years from 20 February 1990, but it would lapse if construction of the bore was not commenced and completed within three years of the date of its issue. The bore was to be constructed in accordance with specifications attached to the licence conditions. No construction had commenced at the time when the Bank took possession of the property in July 1992. Groundwater extracted from the bore, once constructed, was permitted to be used for stock, domestic, recreation and industrial/commercial uses, and to be used only on the property of the licensee, and was not to be discharged into any watercourse. The volume of groundwater extracted from the bore was not to exceed 40 megalitres in any 12 month period commencing 1st July. 16 On 14 April 1997 Mr Col Stone, a registered valuer, valued the licence as at 14 April 1976 at $100,000. This was on the basis of his view that there was a serious tourism proposal for the development of Weetawaa which would be a 'winner', an essential feature of which was the use of a developed mineral spring from the artesian basin. He took into account the scarcity of such licences, the success of mineral spa baths in Moree, and the positive influence on the value of a motel in Moree of an artesian bore used to create a natural mineral spa bath for tourists. Mr Stone's valuation was hotly disputed by the Bank.

The acquisition of Weetawaa, the Bank's lending to Jiwira, and the insurance arrangements 17 Mr Baker, who is now 62, has been a farmer since he was 19 years old. In 1985, while he lived in the Wee Waa district, he became aware that Weetawaa was available to be acquired. He was aware that the land contained a mansion and he says he believed it had great potential as a tourist attraction. Part of the land (the seven titles comprising the Jiwira land) was for sale. The remainder (three titles) was owned by D L Management (the DLM land), managed by Mr Dalziel. 18 The DLM land, on which the mansion was located, was mortgaged by two mortgages to Bayer Australia Limited. In 1979 DLM agreed to sell the DLM land to a farming company, which entered into possession and farmed the land. Shortly after exchanging contracts with the purchaser, Mr Dalziel disappeared. Subsequently DLM became a defunct company and was deregistered. 19 Mr Baker approached a representative of Bayer Australia Limited and negotiated the acquisition of the mortgage of the DLM land for $450,000. At about the same time he negotiated an assignment from the purchaser of its rights under the 1979 contract of purchase. These interests were acquired by Jiwira. In this way Jiwira acquired effective control over the DLM land. 20 Mr Baker's accountant, Mr Ron Clark, has given evidence as to the balance outstanding under the Bayer Australia mortgage when Jiwira acquired the mortgage, and subsequently. At all times the amount owing was a substantial amount, probably sufficient to exclude any prospect that a mortgagee sale would produce a surplus payable to the mortgagor. 21 In September 1985 Jiwira applied for a loan from the Bank to acquire the Jiwira land. The Bank required additional security, and was given a mortgage over the mortgage of the DLM land. The loan was provided not only to assist Jiwira with the land purchase, but also to provide working capital for cotton growing on the DLM land. Mr Baker and his son, Larry Baker, guaranteed the obligations of Jiwira under the mortgage arrangements with the Bank. Between October 1985 and February 1986 the Bank advanced approximately $880,000 to Jiwira under these arrangements. The money was used for cotton farming, wheat growing and as a feedlot for cattle. 22 Mr Baker arranged for insurance of the Weetawaa property. A rural insurance proposal was prepared for MMI General Insurance Limited in June 1984. The policy was issued on about 9 June 1984. It contained a number of covers, including fire damage to the buildings, the contents of those buildings, farm machinery and other aspects of farming activities. In the proposal the buildings were insured for an amount of $520,000. Between 1985 and 1992 the insured values in the policy were increased and insurance premiums were charged and paid accordingly. By June 1992 the policy was numbered 24-0003389-RPP (replacing Policy No RRL-7006581), and the insured value for 'Dwelling 1' was $826,700. The policy was issued in the name of Mr Baker as insured and the Bank's interest as mortgagee was shown on the policy. As far as the homestead was concerned, the policy was a reinstatement policy, in the sense that the insurer had the option of reinstating the property in response to a claim on the policy.

Development of the tourist proposal 23 From 1985 until 1991 Mr Baker carried out renovations to the homestead. Photographs in evidence show that it was quite dilapidated before the renovations, and afterwards it had become a fine house with wide balconies and comfortable furnishings, overlooking a large billabong. The house contained 11 bedrooms, two kitchens, a ballroom and various other rooms. Mr Dobbin, a Senior Manager in the NSW Lending division of the Bank who is also a qualified valuer, gave evidence that on 22 July 1992 when he visited the property, extensive renovations to the homestead were not apparent to him, although he thought the kitchen may have been renovated. His evidence did not deny that renovations were made, and I prefer the evidence of Mr Baker on this point, since it is corroborated by photographs of the homestead, although it is not clear that every part of the homestead was renovated. 24 Mr Baker developed a concept of the homestead and properties as a tourist attraction for the Japanese market. In about 1988 he had a glossy coloured brochure printed, with Japanese as well as English text, advertising homestead accommodation and an Australian farm experience, with wide open spaces, mineral springs and investment opportunities. The brochure claimed that Weetawaa is located just under one and a half hours flight from both the Brisbane/Gold Coast and Sydney centres, with great wildlife and 3.5 km of private rivers. It said that relaxation could include private mineral spring baths or a pleasant ride to the opal fields of Lightning Ridge. A more detailed information pamphlet in Japanese was also prepared. 25 Mr Baker's development of the tourist proposal was, in my view, no more than a preliminary exploration. Although he had the glossy brochure and Japanese pamphlet printed, and it appears that he took advice on site from some Japanese visitors, nothing concrete was achieved. There is in evidence a glowing but unspecific assessment of the tourist potential of Weetawaa by Diamond Tours Pty Ltd dated 6 October 1988. A document headed 'Weetawaa as a tourist resort' was subsequently prepared by Mr Baker, to encourage investment participation in the project. It outlines a proposal for a six-day itinerary using tourist coaches rather than air travel, and speaks extravagantly about the tourist attractions of the trip. 26 There is a 'tourism proposal budget', evidently prepared by Mr Baker's accountant Mr Clark, envisaging income based upon 18 people spending $300 per night for a six night tour, over 45 weeks of the year, which shows a budgeted net profit of $633,300, and provision for capital expenditure of $600,000. A further 'stage 2' budget envisages 38 people spending $300 per night for five nights over 35 weeks, for a net profit of $1,303,300 after further capital expenditure of $900,000. However, there is no evidence of a business plan that would support the efforts required to establish a business of this nature. There is no information about the types of staff required, the food requirements of the tourists, the availability of interpreters or any other matters specific to the tourist industry. 27 The basic tourist concept of moving Japanese tourists from Sydney airport to Wee Waa by a very long bus trip seems unappealing, and therefore the projections of participation seem over-optimistic. All in all, I agree with the Bank's witnesses, Mr Thomas, Mr Gunning and Mr McKeon, that the tourist proposal was 'blue sky' to which no value could be attached. 28 By early 1992 Mr Baker was fighting to stave off possession proceedings by the Bank, as I shall explain. At that time he approached Peter Lambert of Planned Financial Benefits Pty Ltd, regarding the refinancing of the property and development of the tourist proposal. Mr Lambert has given evidence that he investigated the proposal and found it to be a viable investment option. 29 On 16 March 1992 he wrote to a potential investor, Mr Colin Walker, inviting investment in the project. The letter describes an investment proposal labelled as 'a once-in-lifetime opportunity'. It claims that the property would be 'valued on today's market at $2,100,000 or on a 90 day sale basis at $ 1,900,000'. The investor would obtain the controlling interest in the part of a joint venture enterprise involving tourism. Mr Baker would receive $1 million for sale of the homestead and the five acres surrounding it and rights to the hot spring waters, and would retain an interest in 10 percent of the net profit of the tourist venture, as well as receiving his share-farming entitlements from the other part of the farm which had been leased to share farmers. At about the same time Mr Lambert composed a 'generic' letter inviting investment on much the same basis, though it is not established that he sent that letter to anyone. 30 The letter to Mr Walker gives no explanation of how the valuation of the property was ascertained. Indeed, is not clear exactly what property is the subject of the valuation. It does not articulate any valuation method. It does not give any indication that the valuation is based upon comparative figures from similar tourist ventures or comparative accommodation rates for similar ventures. As Mr Peter McKeon, a chartered accountant who gave evidence for the Bank said, the 'valuation' has not been articulated in any way that would give confidence to outside parties to rely on Mr Lambert's figures. I reject Mr Lambert's letter as any indication of the value of Weetawaa or any part of it. It light of the evidence of the Bank's witnesses, Mr Thomas, Mr Gunning and Mr McKeon, and in the circumstances set out above, I reject Mr Lambert's opinion that the property was a viable investment as a tourist venture in March 1992. 31 By 24 June 1992 (as I shall explain), the Bank was very close to taking possession of Weetawaa. On that day Mr Lambert wrote to Mr Baker on behalf of an anonymous client, saying that 'subject to the confirmation of the projected figures relating to the conversion of your homestead and five acres of surrounding land to a Mineral Springs Tourist Recreational Complex', he expected to be in a position to negotiate a settlement by the end of July. He envisaged an investment of around $750,000. The investor would acquire freehold title to the homestead and five acres, together with rights to the mineral springs, and Mr Baker would receive approximately 20 percent of the income shares of the acquiring company in return for his ongoing interest in the project. In light of subsequent valuations and the sale price actually achieved for the whole of the DLM land in 1993 ($612,500), a price of $750,000 for the homestead and five acres seems remarkably high. This, and the tone of Mr Lambert's letter, raise a question in my mind as to whether there was any genuine offer. 32 Mr Baker's own evidence tends to confirm that there is good reason to be suspicious about the genuineness of the offer. He said in cross-examination (at T23): 'From my recollection I phoned him and said how, and he said, he first phoned and I said please give me a letter to cover what you said over the phone and that's how this come and then whether he had somebody I don't know, I never tried to find out because by then I was being hit with process servers and my head was just spinning.' 33 The reference to process servers appears to be, in its context, a reference to the service of process in connection with the Bank's taking possession. Mr Baker said he negotiated with the National Australia Bank for finance to pay out the defendant Bank, and his mind was on that negotiation rather than pursuing the offer by Mr Lambert's client. However, if Mr Baker believed that the offer from Mr Lambert's client was genuine, it would have been irrational of him not to pursue that offer concurrently with other attempts to satisfy the Bank that it ought not to take possession. Weighing up all the evidence on this point, and bearing in mind the title difficulties with the DLM land, my conclusion is that it is unlikely that Mr Lambert had any investor genuinely interested in the proposal. 34 Mr Baker contends that when the Bank subsequently entered into possession and sold Weetawaa, it failed to refer to the tourist proposal in any advertisements or negotiations, and consequently obtained a substantially lower price for the property than its true worth. It is true that the Bank did not refer to the tourist proposal, or otherwise to tourist potential, in any advertisements or negotiations for the sale of the property. The agent who conducted the mortgagee sale, Mr Maurice Simshauser, has given evidence that it would have been a waste of advertising space to suggest that the property could be used as a tourist venture. By the time of the sale, of course, the homestead had been burnt down. On the evidence before me, it is more likely than not that the tourist proposal and any alleged tourist potential for the property did not enhance its value while the homestead was standing, and a fortiori, added nothing to the value of the property after the homestead had been burnt down.

Loan default and attempts to overcome the title deficiency to the DLM land 35 By 1988 Jiwira's account with the Bank was well in arrears, due (according to Mr Baker) to a radical fall in the cotton price. On 13 October 1988 the Bank served a notice on Jiwira under s 57 (2) (b) of the Real Property Act 1900 (NSW), relating to a debt which then stood at $934,633.30. 36 In February 1989 Mr Baker and his accountant, Mr Ronald Clark, had a meeting with Mr Durie, a manager of the Bank, to discuss Mr Baker's financial position. Mr Baker explained that cotton on the property was being farmed by a share farmer and Jiwira would receive only 20 percent of the takings for the crop. He proposed that he would clear the title to the DLM land and sell a portion of it as a tourist venture, and the proceeds would go to the Bank. In response, Mr Durie said that the Bank would require a crop lien on the cotton crop, on the basis that the whole of the proceeds of the company's share of the crop would be paid to the Bank. Mr Baker alleges that Mr Durie agreed with his proposal and said that if the crop lien was given, the Bank would give him as much time as he needed to sell the homestead block. While I accept that Mr Durie probably made some kind of encouraging response, I reject as implausible the contention that he bound the Bank contractually to defer any enforcement action until the homestead block was sold, or that his conduct created an estoppel to the same effect. 37 On 10 February 1989 Mr Baker executed a crop lien in favour of the Bank and an irrevocable order over the cotton crop, directing Namoi Cotton Cooperative to pay all moneys due to Mr Baker in respect of the crop (once sold to the Cooperative) to the Bank. 38 Mr Baker continued his efforts to find a financial backer for the development of the tourist project, but he had a major problem. He did not hold the freehold title to the DLM land, but only a mortgage and assignment of the rights of the purchaser under a contract, and he had mortgaged his interest to the defendant. In 1985, when he acquired the land, he took the advice of counsel as to whether anything could be done to obtain the freehold. In counsel's view, Jiwira could exercise the mortgagee's power of sale over the DLM land and provided that the sale was bona fide and reasonable steps were taken to obtain a fair price, the land could be sold to a related company. But the bona fides of the transaction and the adequacy of the price would need to be demonstrable, to resist a challenge by any of several caveators. Mr Baker placed before the Bank a proposal for a mortgagee sale to a related entity, but the Bank rejected the proposal. 39 During late 1988 and early 1989, Mr Baker negotiated the sale of the DLM land for $400,000, evidently to a related entity, on the basis that payment of the purchase money would be deferred. His solicitor made several applications to the Bank for release of its mortgage over Jiwira's interest in the DLM land, putting forward various proposals to secure the Bank's position pending registration of a transfer from Jiwira in exercise of its power of sale as mortgagee. 40 On 23 March 1989 the Bank wrote to Mr Baker's solicitor explaining its position on the various proposals that had been made. The letter expressed concern that any proposal would have to be 'consistent with the Bank's policy whereby it cannot be concerned either directly or indirectly with any dealing in which its ethical standards could be called into question or seen to be compromised'. The letter then canvassed two alternative proposals. One involved exercise of the mortgagee's power of sale by Jiwira after removal of the caveats and independent valuations, and the other involved the Corporate Affairs Commission exercising its powers under the companies legislation to transfer the land on behalf of the defunct owner. Mr Baker decided, in light of the Bank's letter, to pursue the second option. He says he would have preferred the first, but that is of no consequence since he chose the second.

Proceedings for possession 41 In October 1990 the Bank took action in the Common Law Division of this Court to gain possession of the Jiwira and DLM lands pursuant to the securities that it held. In November 1990, the Bank commenced proceedings in the Commercial Division of this Court against Jiwira, Mr Baker and Larry Baker as defendants, to recover amounts claimed under the loan agreement. The Court subsequently ordered that these proceedings be heard together. 42 During the period 1990 to 1992, Mr Baker made various attempts to obtain alternative finance, without success. 43 On 25 October 1991 both proceedings were settled. By consent, judgment was entered against the three defendants in the proceedings in the sum of $1,300,000, and the plaintiff in the proceedings (the Bank) obtained a judgment for possession of the land, subject to a proviso that a share farmer on part of the land should not be disturbed. The Court ordered that execution of the judgments be stayed until 30 April 1992, and in the event that contracts for the sale of the land (or part of it) at arms length for an acceptable price were entered into, the execution of the judgments would be stayed until 30 June 1992. The defendants in those proceedings promised to use their best endeavours to obtain execution by the Australian Securities Commission of a transfer of the title of the DLM land to Jiwira, with reasonable assistance from the plaintiff Bank. However, the Commission did not execute a transfer and none of the land was sold within the time envisaged by the consent orders. 44 On 23 December 1991 the Bank took proceedings in the Common Law Division of this Court against the share farmer to recover possession. Writs of possession were filed in the proceedings against Jiwira and the proceedings against the share farmer on 15 May 1992. At that stage the MMI insurance policy remained in force, valid to 8 June 1992, covering buildings on the land to the value of $ 1,044,000. 45 In June 1992 Jiwira and Mr Baker commenced proceedings against the Bank and Mr Durie in the Federal Court of Australia seeking damages for alleged breaches of the Trade Practices Act 1974 (Cth). 46 On 30 June 1992 the Bank calculated the debt due under the judgments against the plaintiffs and Larry Baker at $1,404,306. On 13 July 1992 the Bank issued a notice to vacate pursuant to the writs of possession, requiring vacant possession by 22 July 1992.

Insurance arrangements, May to July 1992 47 Towards the end of May 1992 the Narrabri office manager of MMI contacted Mrs Baker in order to arrange a review of the insurance policy. Mrs Baker told him that her husband had gone elsewhere for insurance. In fact, on 27 May 1992 a proposal was made to Commercial Union, through Elders as its agent, and a policy was issued effective from 3 June 1992. On 9 June, the date of expiry of the MMI policy, Mr Baker confirmed with the Narrabri manager of MMI that he had decided not to renew the policy, and the manager noted the account as being closed. 48 Evidently Mr Baker's decision to cancel the insurance policy came to the knowledge of the Bank. After several letters were exchanged between the Bank and MMI, on 20 July 1992 the Bank paid $ 5,313.45 to MMI for insurance cover, and later charged this amount to Jiwira's account, as costs associated with running the property as mortgagee in possession. 49 On 23 July 1992 the Bank sent a facsimile to MMI headed 'Policy No 24 000 3389 RPP'. It will be recalled that this is the number of the policy that had been issued to Mr Baker. The facsimile said: 'Further to your fax advice last Monday, the renewal premium was paid in Sydney as suggested. Please note that PIBA is now mortgagee in possession of the insured property. The property is under the care of a resident caretaker/manager. Please advise if you require any further information and confirm that we remain covered.' 50 It is clear from the facsimile that the Bank's intention in paying the premium was to renew the policy which then existed, rather than to take out a new policy to insure its separate interest. 51 On the same day MMI sent a facsimile to the Bank, headed with the same policy number, saying 'Have interested party noted as' the Bank. Therefore at that stage the Bank was noted as an interested party in the existing policy that had been issued to Mr Baker as insured.

The Bank takes possession 52 The Bank took possession of the Jiwira and DLM lands on 22 July 1992. Mr Baker says that at that time, he had made arrangements through a broker in Sydney for the National Australia Bank ('NAB') to refinance Weetawaa. A branch manager from the NAB had come out to Weetawaa during the previous week to inspect the property, and final arrangements were to be made on Friday 24 July. When the property was repossessed on 22 July and the homestead was burnt down on 27 July, the NAB put everything on hold. Their files were returned to Sydney and according to Mr Baker, the NAB was subsequently unable to produce any documents to confirm its availability to provide funds, in response to a subpoena in litigation between Mr Baker and the insurance company MMI. Mr Baker was able to name the branch manager who made the inspection but did not ask him to provide evidence in this case. 53 I accept that Mr Baker endeavoured to find alternative finance to forestall the Bank's repossession, but I find that the proposal for NAB finance was not approved by that bank at any stage, specifically or even in principle. In addition to the matters already mentioned, I rely for that finding on a facsimile from the NAB branch manager to Mr Baker transmitted on 15 July 1992, which informs Mr Baker that he 'will need to make adjustments'. 54 Mr Baker and his family moved to a property called Strathhaven, about 14 km from Weetawaa. They started to move furniture on about 21 July and continued after the Bank took possession. On 23 July 1992 Mr Baker telephoned the Narrabri manager of Elders, and asked him to cancel the Commercial Union insurance since the mortgagee had taken possession of the property. The policy was cancelled.

The fire 55 Mr Baker says that when he was removing his possessions from the homestead in the period from 22 July to 26 July he noticed that the gates of the property were not locked or chained, and the house was not locked. However, the evidence of Mr Caves, Mr Dobbin, Maurice Simshauser and Anthony Simshauser, which I prefer on this point, was that the main entrance had only a cattle grid and no gates, there were gaps in the fences and a gate was missing at the back of the property and so the property could not be securely closed, and additionally, the homestead was not completely secure. It was open when the Bank took possession, and according to Anthony Simshauser, whose evidence I accept on this matter, the back door to the homestead was left unlocked after the Bank took possession because Mr Baker had agreed to allow access to the telephone in the homestead and Anthony Simshauser did not have a key. 56 There was evidence (including evidence by Mr Baker) that country properties and vehicles in the Wee Waa area are frequently not locked. There was no practice of locking even the compound containing fuel and chemicals for aircraft at the airstrip on the property, and the aircraft themselves, before the Bank took possession. Mr Baker kept dogs on the property but there is no basis for concluding that dogs were a necessary security precaution. In any case, Anthony Simshauser had a dog on the property while he was caretaker. 57 The truth seems to be that no one saw the need for any special security precautions. There was probably some local resentment towards the Bank for dispossession of a farmer, but that did not lead the Bank to perceive any need for special security measures and in my view, in the absence of a particular threat, there was no duty on the Bank to take any such special measures. Security at Weetawaa was maintained by the Bank approximately at the same level as during Mr Baker's occupancy. 58 By 24 July 1992 Anthony Simshauser was living in a house on the property about 150 metres away from the homestead. He observed vehicles coming onto the property fairly regularly on 25 and 26 July, including a vehicle belonging to Mr Baker. Just after midnight in the early morning of 27 July, while he was watching the Olympics on television, Mr Simshauser heard a large bang and a vibration coming from the direction of the homestead. He walked out to the veranda to look at the homestead but could see nothing. About 1:30am there was a very loud explosion and a bright yellow flash. Mr Simshauser ran out onto the veranda and saw that the homestead was on fire, the flames above the roof along the entire building. The homestead was destroyed by fire. The cost of reinstatement would have been approximately $1.3 million. 59 The homestead was well and truly ablaze by the time Anthony Simshauser saw it. He and his girlfriend drove about 4 km to a telephone and reported the fire. There was a telephone at the airstrip but Mr Simshauser thought it would be locked up, and so he went to the public telephone although it was further away. 60 On 4 August 1992 Mr Baker's solicitor wrote to the Bank recording that Mr Baker was 'devastated' by the fire, and asserting that since he was removed from possession, no adequate steps were taken to guard the property. In my opinion, however, the measures taken by the Bank to protect the property after it entered into possession were adequate. The Bank appointed a responsible person as a live-in caretaker. Although it did not insist that the homestead be fully locked, it was reasonable for the Bank to take the view that the homestead would be adequately protected by the presence of the caretaker nearby. The property had not been securely locked prior to the Bank taking possession, and there was no reason for the Bank to believe that greater precautions were needed than had been adopted in the past. 61 A coronial inquiry was conducted into the homestead fire. The coroner reported on 25 February 1993. He concluded that the fire had been deliberately lit by a person or persons unknown using an accelerant. He found there was no evidence that Mr Baker or anyone associated with him stood to gain from the destruction of the property. Although the coroner noted Mr Baker's evident dissatisfaction with the Bank's repossession of the property, he found that there was insufficient evidence to support the conclusion that Mr Baker was sufficiently angry with the Bank to have caused the fire himself. 62 Mr Caves gave evidence to the inquiry. Part of the evidence was that the Bank was not in a position to give good title and to sell the DLM land, and that no sale figure had been placed on the land. The plaintiffs submitted that this evidence was false or deceptive and affected both the credibility of Mr Caves and the bona fides of the Bank. If, as is likely, Mr Caves gave his evidence before conducting the negotiation for sale of the DLM land, there was no agreed purchase price when he gave his evidence. Nevertheless the Bank had a figure in mind and resolution of the sale was imminent. Further, by that time the title difficulties had either been resolved or the way to resolve them was sufficiently clear that Mr Caves was confident about negotiating a sale. His evidence to the coroner appears to have fallen somewhat short of full disclosure. 63 Without in any way condoning that state of affairs, it seems to me that Mr Caves' evidence to the coroner does not destroy his credibility as a witness in the present proceedings or establish bad faith on the part of the Bank. From a commercial point of view, his reluctance to disclose the Bank's hand in his evidence before embarking upon the negotiation may have been understandable. In cross-examination he appears to have drawn a distinction between hard facts and developments which had not become firm. The hard facts were that the title to the DLM land was still uncertain and no final outcome had been achieved on price. The developments with respect to clearing up the title and negotiating a price had not at that stage matured into hard facts, and he appears to have felt justified, therefore, in not mentioning them, especially where to do so might prejudice the Bank's negotiating position.

Insurance negotiations after the fire 64 The letter from Mr Baker's solicitor to the Bank dated 4 August 1992 said that Mr Baker had cancelled his insurance of the property, and asked the Bank to confirm that it had insured the property for $800,000. 65 On 11 August 1992 Phillips Fox, acting for the Bank, wrote to MMI asserting that the Bank paid 'the annual premium on policy No 24.0003389 RPP ... to cover [the Bank's] interest as mortgagee-in-possession'. The letter notified MMI of a likely claim under that policy, and asked for a copy of the policy wording, a certificate of insurance and an endorsement noting the Bank's interest. 66 On 12 August 1992 the plaintiffs' solicitors wrote to Phillips Fox inquiring as to the amount for which the homestead had been insured, whether a claim had been lodged, and the anticipated date of settlement of the claim. On the same day Phillips Fox responded, refusing to make the information available. Then on 21 August 1992 the plaintiffs' new solicitors, Ferrier & Associates, wrote to Phillips Fox asserting that the Bank had a clear obligation to immediately pursue the claim for insurance and to credit the proceeds against the plaintiffs' debt to the Bank. That, they said, would reduce the debt from about $1.4 million to about $750,000. They said that their clients believed part of the property could be sold at short notice for that amount in cash, and the Bank could then be paid out. 67 Phillips Fox responded by letter of 26 August 1992. The letter confirmed that the Bank had taken steps to insure its interest in the property after it took possession on 22 July 1992, and said that the insurer had been notified of a potential claim and that the Bank was waiting for a copy of the policy wording and relevant certificates and endorsements. The letter also said that the insurer was carrying out 'usual forensic tests' following the fire and that it could take six to eight weeks before the insurer determined its attitude to the Bank's claim. 68 Ferrier & Associates responded on 3 September 1992, specifically asking whether the Bank had adopted the existing policy previously held by the plaintiffs, or had taken out a new and separate insurance cover. Like their previous letter, the letter of 3 September 1992 proceeds on the assumption that the Bank's insurance claim would produce payment of the full amount of the sum insured. The letter calculates that after payment of that amount, the plaintiffs' debt to the Bank would be reduced to $604,306, and offers to pay that amount in return for release of the security. 69 On 18 September 1992 Phillips Fox replied, saying that the insurance claim had become increasingly complex for three reasons. The first was that the insurer was uncertain whether it had re-issued the existing policy amending the insured to be the Bank as mortgagee-in-possession, or had issued a new policy. A copy of the issued policy had been requested but not received. The second problem was said to be that there was strong evidence to suggest that either Jiwira or Mr Baker, or an agent on behalf of either one, had started the fire. Such an allegation could place any insurance claim by the Bank in jeopardy. The third problem was that the only interest of the Bank in the parcel of land on which the homestead stood (I take this to be a reference to the DLM land) was as a mortgagee of a mortgage. The letter predicted that it would be some time before the insurance claim was resolved. 70 Further letters (dated 1 October 1992 and 15 October 1992 respectively) were exchanged, of no significance with respect to the insurance question except that Phillips Fox continued to refuse to supply information about insurance. Then on 30 October 1992 MMI sent a facsimile to Phillips Fox enclosing a 'Policy Schedule'. The Policy Schedule showed the insured as the Bank and identified the policy as No 98-0980469-RPP (a different policy number). It stated that the maximum limit of indemnity would be the sum insured or the outstanding balance of the finance contract with the Bank as mortgagee in possession, after the sale of the property, whichever was the lesser. The maximum liability for the homestead was stated to be $500,000 for any one originating cause. 71 In my opinion, until 30 October 1992 there was genuine uncertainty on the part of MMI and Phillips Fox as to whether the Bank had renewed the existing policy under which Mr Baker was the insured, noting its interest as mortgagee in possession, or had obtained a new policy confined to its own interest as the insured, as mortgagee in possession. MMI endeavoured to clarify the position in favour of the latter outcome by issuing a new policy, retrospectively covering the Bank's interest in July 1992 but excluding any interest on the part of Mr Baker and Jiwira. But the new policy amounted to a reconstruction of events ex post facto, not related in any obvious way to what actually happened when the Bank paid the premium. The actual events establish, in my view, that the Bank renewed the policy that insured Mr Baker's and Jiwira's interest as well as the Bank's. It thereby resuscitated their interests in the policy, which had been extinguished shortly before the renewal by Mr Baker's cancellation of the policy. 72 The plaintiffs claim that the new policy was issued on 30 October 1992 as a result of an agreement between the Bank and MMI to substitute it for the earlier policy, thereby excluding the interests of Mr Baker and Jiwira. I have found no evidence of any such agreement. There is some evidence, described below, that the Bank and MMI remained confused after 30 October 1992 as to the nature of the cover and the identity of the applicable policy. That element of confusion points against the existence of any agreement of the kind alleged. 73 In November 1992 Phillips Fox sought confirmation, on behalf of the Bank, that expenditure of $3,000 for the removal of debris from the property would be met under the policy 'issued' to the Bank, given the Bank's proposal to put the property to auction on 21 December 1992. Confirmation was received. On 26 November 1992 Phillips Fox wrote to MMI confirming that the Bank had notified a claim and inquiring whether a claim form was needed. The letter sought advice as to when the Bank could expect a cheque in payment of its claim for damage to the homestead, which according to the letter had been insured for the sum of $826,700. 74 A claim form was in fact lodged by the Bank only on 13 January 1993, naming itself as the insured and identifying the policy number as 24.0003389.RPP (the old policy number). The amount claimed was $826,700. Mr Baker also lodged a claim form as insured, referring to the same policy number, for the replacement value of the building stated to be $807,300. The Bank send a facsimile to MMI on 29 January 1993 seeking speedy resolution of its claim, but referring to the claim as having been made under the new policy. 75 On 20 April 1993, after completion of the sale of Weetawaa, Mr Caves (the Credit Manager for the Bank who had replaced Mr Durie) wrote to MMI with reference to the claim form dated 13 January 1993. His letter contained calculations showing a shortfall on the Bank's facility after all expenses, sale proceeds and income had been accounted for, of $137,302.60. The letter requested MMI's cheque for that amount and said that Mr Caves would authorise execution of an appropriate release for that sum. That amount was subsequently paid. Oddly, the letter of 20 April 1993 purports to quantify the previous claim made under the old policy, but it refers to conditions applicable under the schedule of the new policy. 76 Mr Baker and Jiwira took proceedings in this Court against MMI for orders that they were entitled to be indemnified under insurance policy No 24-0003389RPP, and that policy number 98-0980469-RPP was void, and an order that MMI pay them the amount of loss recoverable under the policy, subject to the interest of the Bank. Relief was also sought by way of rectification and under the Contracts Review Act. MMI by its defence alleged that the fire had been deliberately caused by Mr Baker and consequently it was not liable to indemnify the plaintiffs. 77 The proceedings came before Cohen J, who delivered his reasons for judgment on 7 February 1997. His judgment proceeded on the basis that the applicable policy was the old rather than the new policy, and consequently the interests of Mr Baker and Jiwira, as well as the interest of the Bank, were insured. 78 Dealing with MMI's allegation that the fire had been deliberately caused by Mr Baker, his Honour found, on the balance of probabilities, that the fire had been caused by human intervention with the use of an accelerant such as petrol. He agreed with MMI's submission that Mr Baker had the opportunity to light the fire, because he was living only a short distance away and could easily have carried sufficient petrol onto the property to produce the fire. He noted that Mr Baker's conduct after he was informed of the fire had been 'somewhat unusual'. (Mr Baker went to Sydney and consulted Queen's Counsel and then arranged for a forensic expert to prepare a report on the fire; and when the expert concluded that the fire had been started by human action he did not disclose the report in the proceedings.) 79 However, Cohen J found it more likely than not that Mr Baker was unaware, at the time of the fire, that the Bank had renewed the insurance policy or had arranged any separate cover which included his and Jiwira's interests, and that Mr Baker assumed at that time that the policy had lapsed. Therefore, applying the civil standard of proof in accordance with the principles of Briginshaw v Briginshaw (1938) 60 CLR 336, he concluded that MMI had failed to discharge the onus of establishing that the fire had been lit by or with the knowledge or concurrence of Mr Baker. 80 His Honour held that the plaintiffs were entitled to recover under the old policy the value of various items in the homestead, which he listed, and the value of the homestead. He noted that the Bank received $137,302.60 from MMI after settlement of the sale of Weetawaa in March 1993. That was the amount calculated by the Bank as the shortfall by which the loan and accrued interest and expenses exceeded the proceeds of sale. MMI submitted that the value of the house as assessed was $205,000, and accordingly all that would have been due to the plaintiffs was approximately $67,000. He noted that in their letter dated 19 April 1995 MMI's solicitors claimed that neither of the plaintiffs had an interest in the property that could sustain a claim for reinstatement and accordingly MMI had rejected any claim by the plaintiffs. His Honour noted that MMI had previously declined to reinstate the property, as it was entitled to do under the terms of the policy, although he made no particular findings as to the circumstances in which that had occurred. 81 Cohen J carefully considered authorities concerning the method of valuing the insured's loss where the insurer has an option to reinstate the insured building. His Honour held that in the circumstances, the loss suffered by the plaintiffs consisted of the reduction in the purchase price which would be obtained upon sale by the mortgagee in possession, that is the market value of the house. He quantified this, after referring to valuation evidence, at $250,000. He noted that the value of the homestead would have been higher if Mr Baker and his family intended to remain on the property and live in the homestead, but they were not in a position to continue to do so because the Bank had taken possession of the property, and Mr Baker was unable to recover it until the very substantial debt due to the Bank was paid. It had not been shown that there was at the time any real chance that the debt to the Bank could be paid out in the reasonably near future, and consequently a method of valuation that took into account the possibility that they would resume possession was not available. 82 Cohen J declared that the plaintiffs were entitled to be indemnified under the old policy in respect of their loss due to the fire, and ordered MMI pay them $112,697.40 (the difference between the value of the homestead and the amount MMI had already paid the Bank to clear the debt), plus the value of the identified chattels and interest and costs.

The condition of the property when the Bank took possession 83 There is conflicting evidence as to whether the property was in a poor condition when the Bank took possession of it on 22 July 1992. Mr Caves took possession of the property on behalf of the Bank on that day, accompanied by Mr Dobbin and Don Hayward, the sheriff. They were joined by Maurice Simshauser, the agent commissioned to sell the property, later in the day. 84 Mr Caves gave evidence that the property appeared untidy, particularly around the houses. He says there were weeds growing, the grass required mowing and rubbish had accumulated in some places. He observed that there appeared to be a lot of what looked like worthless equipment sitting in the open. Later in the day, with Mr Dobbin and Mr Simshauser, he conducted a detailed inspection of the property in a four-wheel drive vehicle. He said the property did not appear to be in good condition, that very little maintenance and weed control had occurred, and that little fertiliser had been used. The wheat crop appeared to him to be of poor quality, lacking water. There was a machinery shed filled with old and apparently worthless pieces of equipment. The houses and buildings on the property were unlocked. The irrigation channels on the property appeared to him to be in bad condition and neglected. 85 Mr Dobbin gave evidence that the irrigation development ranged from below average to satisfactory and some of the grounds and the house where (subsequently) the Bank's caretaker resided were untidy. He said that the fencing on the property was reasonable to poor and that a gate was not attached to one of the entrances. He formed the opinion that the wheat was of a reasonable to poor standard, and he decided not to further irrigate it due to possible restrictions on water allocations. Later he recommended that Mr Brown, an agricultural consultant, be engaged by the Bank. 86 The evidence of Mr Caves and Mr Dobbin was corroborated by Maurice Simshauser's evidence. He added that he observed a large number of weeds growing amongst the wheat crop, and that the irrigation on the property was illegal because tailwater containing chemical substances ran into the creek. Their evidence was also corroborated by the evidence of Mr Brown, who regarded the wheat crop as being in poor condition, except in fields 32 and 33 which were satisfactory enough to justify further watering. 87 Mr Baker denied that the property was in poor condition when the Bank took possession. David Baines, a pilot who conducted an aerial spraying business using the Weetawaa airstrip, gave evidence that the property was maintained in a neat and professional manner until the Bank took possession, but from July 1992 until he left in March 1993 he observed a general deterioration in the overall property. I do not find the evidence of Mr Baker and Mr Baines persuasive on these points. In cross-examination Mr Baines said there were trees obscuring his view of the homestead as he drove to the airstrip, and his observations were based on the absence of a full-time gardener who had graded the roads and cleaned up when the property was occupied by Mr Baker. 88 In summary, I accept the evidence given for the Bank on this question, and I reject the evidence given for the plaintiffs to the extent that it is inconsistent with the Bank's evidence set out above.

The Bank's management of Weetawaa from after the fire until its sale - the wheat and cotton crops 89 At the time when the Bank took possession of Weetawaa, Mr Baker was share farming the DLM land. He prepared 88 hectares (200 acres) of that land for a cotton crop in June 1992. In October 1992, after the Bank had taken possession, it caused an 88 hectare cotton crop to be planted on the DLM land, and charged the expenses associated with growing that crop to the Jiwira account for the period until the Jiwira land was sold in December 1992. 90 Mr Baker was a share farmer on the Jiwira land, by oral arrangement with Jiwira. He planted a Sunco wheat crop in fields 32, 33, 34, 35, 36 and 37 in April 1992. He commenced watering the wheat crop in July 1992, and had watered field 32 but not fields 33 to 37 at the time when the Bank took possession. 91 On 23 July 1992 the plaintiffs' solicitors wrote to Phillips Fox noting that the Bank had entered into possession and asking who would be responsible for the present growing crops and the management of the property. Phillips Fox replied on 24 July 1992 saying that the Bank intended to retain a caretaker until sale of the property, but since possession had passed to the Bank Mr Baker had no further interest in the crops or the day-to-day management of the property. 92 The Bank engaged Maurice Simshauser, an experienced real estate agent from Narrabri, to sell the property. On the day when the Bank took possession, Mr Caves asked Mr Simshauser to recommend a caretaker. Mr Simshauser said his son was currently between jobs and could work as a caretaker for the Bank. Mr Caves agreed. Mr Anthony Simshauser moved into the property on the same day, and remained until March 1993, living there with his girlfriend. He was paid approximately $100 per day. Mr Dobbin gave evidence, which I accept, that he told Anthony Simshauser to take responsibility for the property's security, and instructed him not to leave it unattended unless there were exceptional circumstances. 93 Mr Caves originally intended, when the Bank took possession, that he would sell the property by about September 1992. He instructed Phillips Fox to prepare contracts for sale of the property by auction. Phillips Fox advised that because of title problems it would not be possible to have the DLM land ready for sale in September. At that stage (that is, September 1992) Mr Caves decided to plant a cotton crop on the property. Alastair Haire was engaged as a share farmer to plant the crop in September/October 1992. 94 The question of appropriate husbandry was the subject of further correspondence between Ferrier & Associates and Phillips Fox in August and September 1992. 95 On 21 August 1992 the plaintiffs' solicitors wrote to the Bank's solicitors conveying their clients' belief that at a properly conducted auction, the property would achieve a price of at least $1.9 million. The letter noted that there were 'valuable crops' growing on the property, which had to be tended if they were to achieve the indicated yields, and that they would add to the value of the property. 96 On 26 August 1992 Phillips Fox asked for details of the crops and the appropriate arrangements to ensure that they were properly tended. On 3 September 1992 Ferrier & Associates said they had asked Mr Baker to make a further inspection of the property in order to provide a detailed statement of what should be done in the ordinary course of farming practice to preserve the crops. 97 No detailed statement by Mr Baker was provided to the Bank, but on 16 September 1992 Ferrier & Associates wrote to Phillips Fox referring to the Bank's intention to sell a 'surplus' of 600 megalitres of water. The evidence indicates that the sale of water surpluses, arising out of a farmer not using all of the water permitted by licences held for the farm, is a common practice, as water surpluses cannot be carried over to the next season and therefore must be sold in order for any financial benefit to be obtained. Essentially the complaint in the letter was that there was no real surplus because the available water should have been used to irrigate the wheat crop. 98 Ferrier & Associates' letter asserted that the Bank had failed to conduct Weetawaa with reasonable husbandry and that the property was deteriorating. It claimed that the wheat had not been irrigated since Mr Baker had been forced off the property. It asserted that the wheat crop required watering and that this would require the use of a substantial quantity of the water allocation prior to the end of September. The letter also asserted that about 350 acres of the land, that had been prepared for cotton growing, was deteriorating due to weed infestation, and urgently required spraying to eradicate the weeds, if planting of the cotton crop was to be completed. Another 400 acres of wheat was becoming infested with broadleaf weed and required aerial spraying of the weeds as well as fertiliser. The letter asserted that Mr Baker's equity of redemption was being eroded, and that failure by the Bank properly to care for the property would militate against the property receiving a fair price at auction. 99 Phillips Fox responded on 18 September 1992, asking for the detailed information that had been promised, as a matter of urgency. They wrote again on 25 September 1992, stating that Mr Geoff Brown, an agricultural consultant, had been retained by the Bank to advise on the management of wheat crop and the proposed cotton crop on Weetawaa. The letter reported on arrangements that had been made for watering and spraying. The arrangements were that fields 32 and 33 had already been sprayed with weed killer and would be watered within seven days. Fields 31, 34, 35, 36 and 37 had received no spraying and would not be watered, on the basis of Mr Brown's recommendation that no further expenditure should be incurred on those fields due to the variable and unsatisfactory plant population. Fields 21, 22, 23 and 24 had been cultivated for cotton and would be watered at an appropriate time. The letter said that Mr Brown had recommended selling off 600 megalitres of surplus water. (I interpolate that Mr Brown's own evidence, which I accept, was that he was consulted as to the sale of surplus water but he did not make any recommendation.) The letter denied that the property had deteriorated under the Bank's management. 100 Mr Brown gave evidence for the Bank. He said that he visited the property on 3 September 1992 at the request of Mr Maurice Simshauser, to prepare a report in relation to the condition of the wheat crops and the cotton ground of Weetawaa. 101 As to the wheat crop, he concluded after inspection that fields 32 and 33 were reasonable, since although the wheat was late it was tillering with satisfactory plant populations, and there was no immediate need for irrigation. There was a problem with wild turnips, which could be controlled with chemicals, but the chemicals would prevent crops being planted in the summer. The wheat in fields 31, 34, 35, 36 and 37 was late, probably because it had been sown late. The stands of wheat were variable and there were poor populations. Mr Brown expressed the opinion that these problems originated soon after the crop emerged and may have existed before 22 July 1992. He took the view that these fields did not warrant further expenditure and that a light crop could possibly be harvested from them if the season and rainfall were to be favourable. 102 Generally, his view was that although the wheat crop needed some husbandry it was not in bad condition and was not deteriorating. He saw the wheat for a second time in late September or early October 1992, and observed that there had been no significant change in its condition. 103 On 3 September 1992 he inspected fields 21, 22, 23 and 24, which were to be used for planting cotton. He expressed the opinion that the fields were reasonably clean, although he suggested some methods for controlling the growth of the weeds that were present. His recommendations were implemented. He says that the fields were cultivated, and cotton was first planted in fields 21 and 22 on 19 October 1992. The crop covered about 88 hectares. It was destroyed by hail just as it was emerging and had to be replanted. The crop was replanted about the middle of November 1992. The planting was done by Alastair Haire. 104 There was some conflicting evidence about whether the replanting of the cotton crop in November 1992 could have affected the cotton yield. Mr Jock Leys, an agronomist who gave evidence on behalf of the plaintiffs, said that the replanting of the cotton crop in mid-November would in most seasons not inhibit the yield, provided the crop husbandry was of a good level. 105 Mr Brown said that planting in mid-November may not affect the yield significantly in some seasons, but it would be likely to so in most seasons in the Namoi Valley, and the yield would be unlikely to be 3.5 bales per acre. I accept Mr Brown's evidence, having particular regard to the fact that it is directed to the conditions in the Namoi valley. 106 From October 1992 to March 1993 the cotton crops on the property were inspected regularly by employees of Mr Brown's company, and from about 19 November 1992 their reports were sent to the Bank and Mr Simshauser. Mr Brown visited the property on several occasions to inspect the cotton fields and make decisions with Mr Haire in relation to the cotton. The defoliation of the cotton began at the end of March 1993, and the cotton was picked between mid-April and May 1993. In Mr Brown's opinion the cotton crop was of reasonable quality, though not outstanding. The fact that the crop was replanted after hail damage had a negative impact upon its yield. 107 Mr Brown says that the sale of excess water rights had no impact on the cotton, which was never short of water, and there was adequate water for the wheat notwithstanding the sale. 108 Mr Baker has disputed some aspects of Mr Brown's evidence. According to Mr Baker, chemicals to control wild turnips would not prevent crops being planted in the summer. His opinion was supported by the evidence of Mr Leys, who said that there were various herbicides that could be used without creating a 'plant back problem'. Mr Brown responded to the evidence of Mr Leys, saying that herbicides applied at a late stage in the development of the wheat crop (September, in the present case) could create a problem for the summer crop, and also a problem for the cotton crop to be sowed shortly afterwards in adjacent fields. I accept Mr Brown's explanation, because it is specifically directed to the planting conditions at Weetawaa. 109 Mr Baker says the wheat was sown in April 1992 and was not sown late. He asserts that there were no problems with the wheat prior to 22 July 1992, and any problems that developed were caused by failure to water the crop after the Bank took possession on that day. 110 Anthony Simshauser gave evidence that he arranged for the reservoir and weir on the property to be repaired in September 1992, and when it was repaired on 25 September 1992 he pumped water into the reservoir for five days. Consequently there was water in the reservoir from late September throughout most of October 1992, and Mr Brown was therefore able to inspect stored water on the property. Mr Simshauser says he watered paddocks 32 and 33 between 26 and 29 September 1992. 111 I accept Mr Simshauser's evidence. I also accept the evidence of Mr Caves, Mr Dobbin and Mr Maurice Simshauser that the wheat was not in good condition in July 1992 when the Bank took possession. Their evidence is coherent and consistent. There is no clear explanation for the poor quality of the wheat crop, although a plausible theory which emerged in evidence is that the aerial sowing of the crop was unsatisfactory. Mr Brown's evidence is that he recommended a program of limited watering which would be adequate in view of the condition of the wheat, and it was carried out. I accept that this occurred. I reject Mr Baker's evidence correspondingly. 112 On 1 October 1992 Ferrier & Associates responded to Phillips Fox's letter of 25 September 1992. They asserted that at the time when the Bank took possession of the property, Mr Baker was managing the property so that it would produce 600 tonnes of wheat saleable at $140 per tonne. In addition, 350 acres of cotton was to be planted in paddocks which had been prepared, anticipated to produce three bales of cotton per acre, saleable at $320 per bale. Field 33 had at that time been completely watered, field 32 had been partially watered and field 34 was commencing to receive water. If Mr Baker's possession had not been disturbed, the letter said, he would have completed the watering of fields 32 and 34 and then proceeded to water fields 35, 36, 37 and 31. The letter said that when the Bank took possession the watering process ceased and it asserted that nothing could done as at the date of the letter to produce a crop from fields that had not been watered. The letter asserted that the weeds were by that time waste high and had absorbed moisture and nutrients and thus reduced the yields from these paddocks. The letter claimed that it would be necessary for the weeds to be manually chipped at substantive cost. 113 Phillips Fox responded by letter of 15 October 1992. They asserted that the Bank had maintained the property in a very satisfactory manner, notwithstanding the poor state of the property at the time possession was taken. They said that the Bank had not intended to have possession of the property for more than the bare minimum of time required to prepare and advertise it for sale. However, several matters had arisen which had delayed sale. They were the title issue for the DLM land, which the Bank had pursued vigorously with the National Companies and Securities Commission since taking possession; the discovery that a number of caveats had been lodged against some of the titles to the property, which the Bank had taken steps to cause to lapse; and the fire. The letter asserted that the delay currently being experienced prior to marketing and auctioning of the property had been caused by the plaintiffs' conduct or inactivity, and not by the Bank. 114 It seems to me that Mr Baker's conduct from the time the Bank took possession was unhelpful, so far as proper husbandry of the wheat crop and cotton fields were concerned. In particular, he was invited in late August 1992 to make recommendations as to the appropriate arrangements to ensure that the crop was properly tended, and as far as the evidence goes, it appears he failed to do so. 115 When the property was auctioned on 21 December 1992 Mr Findley, who was assisting Alastair Haire and his wife (Mr Findley's daughter) in their bid, expressed concern about a tailwater drain on the irrigation land entering into a creek. The concern was about pollution on the leased land where the cotton crop was growing. He asked for permission to undertake temporary work by diverting the tailwater drain away from the creek. Shortly after the auction there was a request from the Water Resources Commission for pollution of the creek to cease. The Bank was extremely concerned about the legal implications of potential pollution, as at that time it was still the owner of the property. Consequently it agreed to provide funds for Mr and Mrs Haire, then the lessees of the property, to carry out the necessary work. The total cost was $21,000, of which $11,000 was treated as for the construction of a permanent structure. The Bank charged the balance of $10,000 to the Jiwira account as temporary work undertaken to protect the Bank as mortgagee in possession. 116 Trevor Hawkins, and earthmoving contractor, carried out the work on the instructions of Mr Findley. He says that before the work was done, tailwater ran down the western side of fields 20, 21,22, 23 and 24 into the creek. Tailwater from fields 31 and 33, and possibly 36, also ran into the creek. Tailwater from fields 34, 35 and 37 ran into a floodway, travelled several hundred metres and then entered the creek. Mr Hawkins constructed a return train along the western side of fields 21 to 24 to divert the tailwater away from the creek. He supplied a centrifugal pump to Mr Findley at a cost of $14,150. The tailwater return drain diverted the water back to the pump and the pump then relocated the tailwater into a head ditch. 117 In my opinion the evidence shows that there was a proper basis for concern about pollution from tailwater, and the Bank responded reasonably to that concern. The Bank was therefore entitled to charge the cost of fixing the problem to Jiwira, except to the extent that the work permanently improved the land. 118 There is evidence clearly indicating that the Bank had real concerns about its responsibility for management of the property and the crops prior to sale. No doubt the fire had heightened its concern. In particular, Mr Dobbin wrote detailed memoranda to the Sydney Credit Committee outlining the steps taken with respect to the property at various times, including the engagement of Mr Brown, his recommendations and their implementation.

Plant, machinery and equipment 119 The Bank took possession of various items of plant, machinery and equipment on 22 July 1992, when it took possession of Weetawaa, because the items were on the property. The items included two 50 tonne silos, an irrigation pump and a demountable office block. It is accepted that these items were still on the property at the time of the auction. The Bank purported to sell them - indeed, an advertisement for the auction which is in evidence specifically refers to silos. 120 When it took possession the Bank required Mr Baker to remove all of his plant, machinery and equipment from the property prior to any sale. The Bank allowed Mr Baker a short time after possession was taken for removal of these items. 121 On 24 July 1992 Phillips Fox wrote to the plaintiffs' solicitors saying that there were a number of pieces of machinery, including cotton pickers, tractors and ploughs on the property, as well as round bales of hay and grain in the silos. The letter asserted that Mr Baker and Mr Caves (on behalf of the Bank) had agreed that they should be removed by 5 August 1992, and sought to make arrangements for that to occur. The letter said that the Bank would use its best endeavours during the period prior to the sale to ensure that Jiwira and Mr Baker did not suffer any loss as a result of the Bank taking possession. However, the letter stated that the Bank would require that any access which Jiwira or Mr Baker may seek to the property be arranged at least 24 hours beforehand through the agent, Mr Simshauser. 122 On 26 August 1992 Phillips Fox wrote to Ferrier & Associates saying that a number of these items, some in a dilapidated condition, remained on the property, and must be removed before the commencement of the marketing campaign for the sale. An inventory was to be prepared. It was forwarded on the following day. On 3 September 1992 Ferrier & Associates responded, observing that the items set out in the inventory represented valuable equipment when associated with the running of the property, and requesting a deferment of removal of the equipment, on the basis that in the same letter a proposal had been made for Mr Baker and Jiwira to pay out the Bank and resume possession. 123 On 18 September 1992 Phillips Fox wrote to Ferrier & Associates asking for their urgent response in respect of the inventory and saying that in the absence of a reply by 30 September 1992, the Bank reserved the right to deal with the equipment as it considered appropriate. 124 The correspondence establishes that Mr Baker did not remove various items of equipment from the land although he was given ample opportunity to do so stretching over a period of about two months. No adequate explanation has been given for his failure to take steps to protect his property, and I conclude that no such explanation can be given. It appears to me likely that his lack of cooperation had a negative impact on the selling process, although in the end the impact was probably not substantial. 125 Mr Baker entered the property on about 15 January 1993 for the purpose of removing some machinery. He informed Mr Haire and Mr Findley that he would return to collect two new silos that were his personal property, and to pick up a pump and a demountable office block at the same time. He had borrowed the pump from his neighbour's property in April 1992. 126 By letter bearing the same date and personally delivered to Mr Baker, Phillips Fox wrote to Mr Baker complaining that after the auction of the property on 21 December 1992, Mr Baker or his representatives had entered the property without arrangements with the Bank and had unbolted or detached certain items, and had removed other items, which the letter claimed to be fixtures. Amongst other things, two Jetstream silos had been unbolted. The pump and the demountable office block were not expressly mentioned. The letter asserted that Mr Baker had no right to enter the property and if there were any items of plant and machinery or other chattels of which Mr Baker sought possession, he should submit a list of all such items to the Bank or the caretaker. The letter drew attention to the Bank's contractual obligation to convey the land including fixtures to the purchaser who had bought at the auction. 127 One of the allegations in the letter of 15 January 1993 was that Mr Baker had removed a forced air heater from the fireplace in the middle vacant house on the property, incurring damage in the way the fixture was forcibly removed. Mr Baker disputed this allegation. His evidence was that the heater removed from the property was a 'maxiheat log fire' that was not attached to the fireplace by mortar. Evidence was also given by Anthony Brown, a builder, who inspected the heater. He said that the heater had never been fixed or rendered into place. Anthony Simshauser's first affidavit asserted that the heater was fitted inside the fireplace with mortar. In his subsequent affidavit he said that he was mistaken on this point, but nevertheless the facia of the fireplace had been damaged, apparently by a lever, when the heater had been removed. On balance, it seems to me likely that there was some minor damage done. I do not regard the discrepancy in Mr Simshauser's evidence as affecting his overall credibility. 128 The evidence is not entirely clear as to whether Mr Baker made any further attempts to recover the three items from the property. The evidence includes a letter from Phillips Fox to Mr Baker dated 29 January 1993. The letter enclosed a list of items remaining on Weetawaa which were not the subject of the sale that had taken place on 21 December 1992. The letter asked Mr Baker to advise immediately if any of the items listed belonged to third parties, and gave him until 2 pm on 5 February 1993 to make appropriate arrangements with Anthony Simshauser to remove the items. The letter said that if any of the items remained on the property after that time, the Bank would assume that those items were of no commercial value and would dispose of them in whatever way it considered appropriate to prepare for the completion of the sale. The list did not include the pump, the silos or the demountable office block. 129 I infer from the absence of any other evidence, that Mr Baker did not subsequently seek to recover those three items of property. In my opinion the letter of 15 January 1993 amounts to a refusal to return the silos, since it asserts in unqualified terms that they are fixtures to which Mr Baker is not entitled, that had been sold to the purchasers with the Jiwira land. Although the demountable office block and pump are not expressly mentioned in the letter of 15 January, that letter and the letter of 29 January imply the assertion by the Bank that it would not permit Mr Baker to remove fixtures, and that these items, not being listed, were regarded by the Bank as fixtures. 130 Mr Caves said that all of the pumps on the property were 'permanently fixed', but did not go into detail. Anthony Simshauser said there were three 'permanent' irrigation pumps on the property, and one portable pump. He says the three permanent pumps were bolted to concrete blocks. Two of them were motor driven and one was electric. His evidence is that the portable pump was removed by Mr Baker in January 1993. I infer that the pump now demanded by Mr Baker, which remains on the property, was one of those described by Anthony Simshauser as 'permanent'. There is no specific evidence as to the manner of attachment of the pump, but I infer that it was attached to irrigation pipes by plumbing that could be undone, and by bolts to one or more concrete blocks. 131 Mr Baker's evidence about the silos is that he arranged for his son Larry to remove the clamps on 16 July 1992. This is corroborated by Larry's evidence. But Anthony Simshauser says that clamps were in place in August 1992, and that they were removed by Mr Baker on 14 January 1993. He then fixed some temporary clamps to the silos to replace the ones that had been taken. I regard Mr Simshauser's evidence as plausible, since it seems to me unlikely that the silos would have been left unsecured as from July 1992, and the external evidence shows that Mr Simshauser caused a letter to be written by Phillips Fox on 15 January 1993 complaining that Mr Baker had unbolted the silos at that time. It may be that Mr Baker and his son unbolted the silos in July 1992, but if they did, the silos must have been re-bolted shortly afterwards, in light of Anthony Simshauser's evidence. 132 Mr Scott Hewish, sales manager for Australian Agricultural Machinery, gave evidence about the design of the silo clamps used to hold Jetstream silos to the concrete slabs on which they are placed. He identified a silo clamp showed to him by Mr Baker (one of the clamps used to hold the silos in place at Weetawaa) as being of the same design and material as supplied by his company to secure their Jetstream transportable silos to a concrete base. The silo clamps are used, according to Mr Hewish, to stop the silo from blowing over, but the silos are designed to be moved around paddocks and small farms, and are marketed and sold as transportable silos. His evidence is that a specially designed trailer is used to move them from one point to another at any time, and silos of this type are moved from time to time, if not commonly, by their owners. 133 Compared with the evidence of Mr Hewish, the evidence given on behalf of the Bank about the silos was unconvincing. Maurice Simshauser, who inspected the property on 22 July 1992, said that the silos were bolted and plated to concrete blocks. But he did not go into detail. If an item is held in place by nuts and bolts and the nuts can be readily unscrewed, the item may not be a fixture. 134 Anthony Simshauser's evidence was that the silos were fixed to concrete slabs with metal bolts. He said they were not designed to be moved around paddocks or farms, that a special trailer would be required to move them, and that it was not usual practice to do so. He said the silos were designed to be permanent. He said the concrete had been poured onto the ground and had not been re-enforced, so that it would almost certainly break if an attempt was made to move it. 135 I do not disbelieve this evidence, but in my opinion Anthony Simshauser did not understand the silos as a product, nor how they were attached to the concrete slab, nor what would happen when they were moved. I am satisfied by the evidence of Mr Hewish that the silos were manufactured and marketed as a transportable product, although admittedly a special trailer would be needed to move them and moving them would not be a common occurrence. Moving them would not involve moving the concrete slab, but simply detaching them by undoing the nuts which held the clamps to bolts in the concrete, and then manoeuvring them into the special trailer. 136 The 'demountable' office block was resting on bricks or blocks but its awning was concreted into the ground. Even so, Mr Thomas, who valued the property for the Bank, treated it as demountable and therefore did not list or value it as a fixture in his report. Maurice Simshauser's evidence in his first affidavit was that the demountable office block was standing on concrete blocks and was plumbed, but he subsequently accepted it was not plumbed. Anthony Simshauser said that the office block was 'properly plumbed for sewerage' and that the plumbing connections were not temporary. On this subject I prefer the evidence of Anthony Brown, a builder who gave evidence on behalf of the plaintiffs. He inspected the demountable office block to see if it had ever been plumbed to an existing septic tank. He said there was nothing to indicate that it had ever been plumbed. It showed no signs of plumbing penetrations at all, either through the walls or through the floor. 137 There is a dispute between the parties as to the value of the items of equipment claimed by Mr Baker. Philip Binskin, an experienced valuer and auctioneer, estimates that the pump (if in a reasonable condition) had a fair market value of $1,250 to $1,800. The demountable office block had a fair market value of $1,000 to $ 1,500. The two silos (which he identified as type 2300) had a fair market value of $2,000 to $ 2,500. This conclusion is broadly consistent with Mr Thomas's valuation of 9 November 1992. Mr Thomas valued all eight silos on Weetawaa at $25,000. 138 Mr Baker says that the Bank's conversion of the pump to its own use caused him to suffer a loss of $5,190, and he relies on a quote for replacement of the pump given by Bate Engineering and Construction Pty Ltd for that amount. He says that the cost of replacement of the two silos (type 2300) is $ 4,630 each, and he relies on a price list of H E Silos showing that price. Mr Baker claims that the demountable office block was valued at $4,000, a figure he obtained from reading the price of such items in The Land newspaper, but there is no supporting evidence. 139 I accept Mr Baker's evidence of the replacement cost of these items, in the absence of any evidence to the contrary, and I also accept Mr Binskin's evidence as to the market value of the silos and office block. The fact that he did not inspect the items before valuing them does not destroy his evidence as to their market value. However, Mr Baker gave evidence that Mr Binskin was shown a photograph of the wrong pump, and that evidence was not challenged and appears to be correct. I therefore cannot accept Mr Binskin's evidence as to the market value of the pump. 140 Later in these reasons for judgment I shall consider whether, on the basis of these facts, the three items are fixtures, in which case Mr Baker's claim in respect of them must fail. I shall also consider the question of measure of damages for conversion.

The Bank's sale of Weetawaa 141 When the Bank took possession of the property on 22 July 1992, Mr Caves thought it possible that the land might be sold by private treaty, but before long he decided to sell by public auction. On 24 July 1992 Phillips Fox wrote to the plaintiffs' solicitors, in response to a letter by them dated 23 July 1992, saying that the Bank intended to advertise the sale of the property by auction, and was at that time having independent valuations prepared. Maurice Simshauser was nominated as the agent. The letter said that the Bank anticipated an auction date in mid to late September 1992. 142 The title problems with the DLM land led the Bank to decide in September 1992 that the purchaser of the Jiwira land at auction would be granted a lease over the DLM land. The Bank would have an option to negotiate a sale of the DLM land with the purchaser/lessee. At that time Mr Caves was advised that the Bank might not be able to sell the DLM land for a further 12 months.

The Bank's valuations 143 The Bank commissioned Mr Kerry Thomas, a registered valuer, to prepare a valuation of the property for the purpose of sale. Mr Thomas's report, dated 9 November 1992, expressed the opinion that the value of the Jiwira land as at 2 November 1992 was $881,798, and the value of the DLM land was $527,584. He valued the growing cotton crop on the DLM land (as at mid-December 1992) at $40,000, producing a total value of $1,449,382. The total valuation was split as to 61 percent to the Jiwira land, 36 percent to the DLM land and 3% to the crop. On 19 November 1992 he wrote to Phillips Fox drawing attention to some alterations in the assumptions upon which the valuation had been prepared. He drew attention to the importance of a survey report and noted that some matters would require revision of his valuation estimate, but apparently a revised valuation figure was not issued before the auction took place. It appears that any revision would have been downwards. 144 A valuation was also prepared by Mr Dobbin, prior to the receipt of Mr Thomas' valuation. It is undated but it was referred to in his memorandum to the Sydney Credit Committee dated 21 October 1992. Mr Dobbin valued the Jiwira land and the DLM land together, because in his view an irrigation licence attached to both parcels made it impossible to separate them. His valuation, including an estimated value of the crop, was $1.524 million. In the memorandum of 21 October 1992 he expressed the view that $ 1.5 million would be achieved at the auction, with the possibility of a price at high as $1.6 million. Notwithstanding his view that the two parcels of land could not be separately valued, he broke up the values in the ratio 73 percent (Jiwira land) to 27 percent (DLM land). As it happened, Mr Dobbin's valuation (like Mr Thomas's valuation) was less than the combined price paid for the two parcels.

Marketing 145 The Bank advertised the auction for 21 December 1992 through Armstrong's Advertising. The advertising of the sale was extensive and greater than Maurice Simshauser usually recommended, and the Bank spent approximately twice the amount that Mr Simshauser usually spent on advertising such a sale. 146 One of the advertisements appeared in 'The Land' newspaper on 12 November 1992. The advertisement identified 565 hectares for sale (in effect, the Jiwira land) and 334 hectares for lease and future sale. The improvements were said to include `a large elevated silo complex, staff accommodation and an ablution block. Of the 565 hectares, 163 were identified as 'green hectares' with flood irrigation supplied by a 950 megalitre licence and weir, a 243 megalitre bore licence and 150 megalitre storage. Of the 334 hectares, 138 were identified as 'green hectares' with flood irrigation supported by a 640 megalitre creek licence, and 88 hectares of planted cotton which would be 'given in' with the sale. The advertisement is ambiguous as to whether the cotton crop was to be given in with the auction sale or with the future sale of the DLM land. 147 No mention was made in the advertisement of the artesian bore licence or any tourist potential for the property. Mr Caves gave evidence that the Bank decided not to advertise the artesian bore licence on the advice of Maurice Simshauser. Mr Simshauser's evidence was that an artesian bore licence would not be relevant to cotton farmers, and that it would have been a waste of advertising space to suggest that the property could be used as a tourist venture. I agree, for the reasons given by Mr Thomas, Mr Gunning and Mr McKeon, to whose evidence I refer elsewhere in this judgment. 148 An issue was raised as to whether the Bank was aware of the tourist proposal in the second half of 1992. It appears that Mr Baker discussed it with Mr Durie, who was replaced by Mr Caves in 1992. Therefore although Mr Caves may not have been aware of the tourist proposal to any significant degree, the Bank probably was. But the real reason for the lack of any reference to the tourist proposal in advertising for the sale was that Mr Simshauser did not regard any such proposal as significant, rather than that the Bank was unaware of it. 149 Bill Smith, a stock and station agent and real estate agent, gave evidence on behalf of the plaintiffs. He said that he had business dealings with Alan Baker in relation to the buying and selling of cattle for his feedlot operation, and had therefore observed the operation of Weetawaa when Mr Baker remained in control. He said the property was managed by Mr Baker in a professional manner. He arranged an inspection of the property on about 16 December 1992, in the company of his clients and Maurice Simshauser. On the same day he wrote to Mr Simshauser informing him that he would be introducing two clients at the auction. His evidence is that at the property inspection, Mr Simshauser repeatedly ran down the improvements on the property, and marketed the property ineffectively. 150 On the other hand, Maurice Simshauser gave evidence that he promoted the property truthfully, as a farmer whose job requires that he be respected and credible, to sophisticated farmers who would themselves recognise the deficiencies of the property. The property was one of the earliest developed in the area and the irrigation facilities were, in Mr Simshauser's view, quite dated. Mr Simshauser says that the storage facilities and pumping equipment on the property were second grade, and that the irrigation development was of a poor standard that did not comply with the requirements of the Water Resources Commission. His evidence is that he said to some potential purchasers and their agents that the property needed some re-development but had great potential. 151 I accept the evidence of Mr Simshauser on this point, and reject the evidence of Mr Smith to the extent that it asserts that Mr Simshauser ran down the property and that he did not market it effectively. Mr Smith's evidence is contrary to the evidence of Mr Gunning, who clearly had a high opinion of Mr Simshauser's conduct of the sale. Mr Simshauser had no motive to take a negative approach, as his brief was to encourage potential purchasers to bid for the property. Observing him in the witness box, I concluded that in the country fashion he was inclined to understatement, but that his manner would, though rather 'laid-back', encourage confidence. His approach might be interpreted as negative, but that interpretation would be misguided. His efficacy was proven by the outcome of the auction, which exceeded the expectations of the Bank and its valuer. 152 Mr Thomas, the valuer who gave evidence on behalf of the Bank, expressed the opinion that the property was well promoted and the sale program was adequate, as evidenced by the attendance at auction.

The auction 153 Mr Simshauser gave evidence that reasonable interest was shown in the property and that he carried out several inspections of the property with interested parties. Mr Caves and Mr Dobbin travelled to Narrabri on two occasions prior to the auction, to talk to prospective purchasers about the sale and explain the contract. Mr Dobbin, Mr Caves and a solicitor from Phillips Fox were also available for several hours prior to the auction. Amongst the people to whom they spoke was Mr Findley. 154 The reserve price for the Jiwira land was fixed by the Sydney Credit Committee on recommendation by Mr Dobbin, at $900,000 including the crop. Mr Dobbin's memorandum recommending the reserve price, dated 16 December 1992, attached a further valuation by him valuing the Jiwira land at $900,000 and the DLM land at $570,000. 155 Approximately 20 to 30 people attended the auction. Mr Caves gave evidence that he had attended many auctions of properties and in his opinion the auction bidding for Weetawaa was very competitive. He said there were four or five people competing when the price was less than $900,000. There were three main bidders after that, Mr Melbourne, Mr Hadley and Mr Findley (who was bidding on behalf of Mr and Mrs Haire). 156 At the auction on 21 December 1992 the Jiwira land was sold for $1.16 million, well above the reserve and well above the valuations made by Mr Thomas and Mr Dobbin. The purchasers were Mr and Mrs Haire. Mr Haire was already tending the cotton crop. Mr and Mrs Haire took possession of the balance of the property (the DLM land) pursuant to the provisions of the contract of sale of the Jiwira land, which contemplated a lease with an anticipated sale after defects in title to that land had been resolved.

The contract 157 The contract of sale of the Jiwira land, as signed by Mr and Mrs Haire, is not in evidence. There is an unsigned form of contract but neither side has been able to adduce evidence confirming that the text of the contract was identical to the text of this document. Nevertheless, the document in evidence clearly relates to the sale of the Jiwira land, and conforms to the evidence of witnesses about the contents of the contract that was in fact signed. On the balance of probabilities, I find that the unsigned contract in evidence contains the text of the contract entered into between the Bank and Mr and Mrs Haire for the sale of the Jiwira land as a result of the auction. 158 The contract contains the following provisions relating to the lease and maintenance of the DLM land: (a) The purchaser must on completion of the contract enter into a lease of the DLM land in the form annexed to the contract (clause 33). The form of lease contains an option in favour of the vendor/lessor to sell the DLM land to the purchaser (clause 33.8). The price offered by the vendor in exercising its option to sell the land must be based on the 'Open Market Value' of the DLM land (part 16, lease). The mechanism for determining the 'Open Market Value' is set out at some length in the second schedule to the lease. Subject to various stated 'Assumptions' and 'Disregarded Matters', the 'Open Market Value' means the market value at which the DLM land might reasonably be expected to be sold on the open market on the terms and conditions contained in the form of sale contract annexed to the lease. (b) After execution and prior to completion of the contract, the purchasers must occupy the DLM land as licensees of the vendor in accordance with the terms and conditions of the lease (clause 33.5), for a licence fee equivalent to the rent that would be payable under the lease. The lease imposes various requirements relating to the use and operation of the land (part 4, lease). In particular, it provides that the lessee must: · manage the land according to the principles of proper and good husbandry (part 4.5.1); · at all times take all usual and proper steps to maintain and cultivate the crops, pastures and pasture grasses (part 4.5.2); · maintain all improvements on the land in good order and repair (part 4.5.3); and · not do, or permit or suffer anything that will degrade, impoverish or waste the land (part 4.5.4). 159 It is clear that during the period between contract and completion, there was no requirement for the purchaser to enter into a lease of the DLM land. Instead, the purchaser entered into occupation of the DLM land as licensee upon the terms of the lease, by force of the terms of the contract of sale of the Jiwira land. In fact, there was no occasion for Mr and Mrs Haire to enter into the lease of the DLM land which was contemplated upon completion of the sale of the Jiwira land, since it was possible to complete the sale of both properties together. 160 There was some confusion in the oral evidence at the hearing as to whether the cotton crop on the DLM land was sold with the Jiwira land, the purchase price reflecting the value of the cotton crop as at December 1992, or was literally given away with the sale of the DLM land, the purchase price of the latter evidently not reflecting the higher value of the cotton crop as at February 1993. Mr Caves and Mr Dobbin insisted that the cotton crop was sold with the Jiwira land and the auction price reflected the value of the cotton crop at that time. Maurice Simshauser gave evidence to the contrary. In my view he was confused. The terms of the contract of sale, summarised above, imply that the purchaser of the Jiwira land obtained the right to occupy the DLM land and to cultivate the crop on it. This conclusion is supported by the fact that the value of the cotton crop on the DLM land, as at December 1992, was included in Mr Thomas's valuation which influenced the reserve price for the Jiwira land at the auction. 161 Therefore the cotton crop was effectively included in the sale of the Jiwira land, and the value of the cotton crop in December 1992 explains, admittedly to a relatively small degree, the very high price obtained at the auction. 162 Mr and Mrs Haire became entitled to the proceeds of sale of the crop, but they were also obliged to meet the outgoings with respect to it after the auction sale. The outgoings with respect to the cotton crop for the period up to the auction were charged by the Bank to Jiwira's account, but subsequent outgoings were not charged to Jiwira. It is not clear from the evidence whether Mr and Mrs Haire made a profit out of the crop, net of their expenses. Some evidence indicates that they received a return for their cotton crop of $305, 685.77, but it is not clear whether that figure is confined to cotton grown on Weetawaa or includes other crops as well.

Curing the title deficiency to the DLM land 163 The Bank was able to overcome the deficiencies of title to the DLM land rather earlier than it had first expected. The evidence of how this came about is not entirely clear. It appears that a solicitor in Phillips Fox discovered that there was a worker's compensation claim against D L Management Pty Ltd which either led to or justified the restoration of the company to the register. Counsel for the plaintiffs suggested in cross-examination that the company was in fact restored to the register in October 1992, in ample time for the Bank to sort out the title issues before the auction. Some bill of costs narratives by Phillips Fox suggest that they advised with respect to the reinstatement of DL Management in December 1992 and that by 11 December 1992 they were considering service of a s 57(2)(b) notice under the Real Property Act on the reinstated company, with a view to the Bank relying on the mortgagee's power of sale. It appears from Phillips Fox's narrative that the s 57 procedure was followed, the notice eventually being served at the end of January 1993. There was some uncertainty about whether the company had in fact been reinstated, because a search had revealed that it was not. In view of the difficulties presented by caveats on the title, and the Bank's stated view about the risks of mortgagee sale, it seems to me unlikely that the Bank would have relied on the s 57 procedure as the sole or principal means of curing the title defect. 164 The evidence implies that the title problems were overcome by a transfer of the land executed by the company or on its behalf (perhaps by the Australian Securities Commission, as it then was), rather than by the Bank exercising or causing Jiwira to exercise the mortgagee's power of sale. What is not clear from the evidence, even if the company was restored to the register as early as in October 1992, is the point of time at which a decision to transfer the land was taken by or on behalf of the company. The restoration of the company to the register would not necessarily have facilitated the process of transfer. That event may have deprived the Commission of its power to act on behalf of the defunct company, restoring the power of transfer to the reinstated company's directors or liquidator. If this happened, a new process of negotiation may have been needed. On balance, I accept the evidence of the Bank that the title problems were not overcome until after the auction, though the full explanation of why this was so has not been revealed.

The sale of the DLM land 165 In a memorandum to the Sydney Credit Committee dated 19 February 1993, Mr Dobbin noted that the sale price for the Jiwira land was well above Mr Thomas' valuation of that land, and that Mr Thomas had valued the DLM land at $571,584. Mr Dobbin expressed the opinion that this was a conservative figure, and said a fair market value would be $620,000, although a slightly lower figure may occur in the negotiation dependent upon the circumstances. 166 The sale of the DLM land, by private treaty to Mr and Mrs Haire for $612,500, was negotiated on 25 February 1993, by which time Mr Caves believed that the title difficulties had been resolved. The sale price valued the DLM land at $620,000, but the price was reduced by an allowance agreed between the parties. The negotiations took place at the residence of Mr Findley. Mr Haire, Mr and Mrs Findley, Mr Caves, Mr Dobbin, Mr Simshauser, and the solicitors for Mr Haire and the Bank, were all present. Mr Caves said that substantially a full day was spent negotiating to agree upon the sale price, although he conceded that he may have given evidence before the coronial inquiry on the same day. It is hardly surprising that the negotiation would have been lengthy and difficult, in view of the complexity of the contract of sale. At times he relied on the advice of Mr Simshauser as to value and the advice of the Bank's solicitor as to legal issues. He also took into account the valuation of Mr Thomas dated 9 November 1992. 167 The plaintiffs attacked the Bank for relying on the valuation by Mr Thomas in negotiating the sale of the DLM land. Their submission was that Mr Thomas's valuation was prepared before the auction and subsequently it was about 30 percent too low, having regard to the price achieved at the auction for the Jiwira land. Mr Thomas acknowledged that if he had been asked to do a current valuation in late February 1993, the valuation would have been increased having regard to the auction price, though not necessarily to the full 30%. At the time of the February 1993 negotiation, the Bank had no current or relevant independent valuation, according to the plaintiffs. They submitted that while a mortgagee may consult its own convenience as to the time of sale, it cannot sell on the basis of a valuation which it knows to be irrelevant and below market price at the time of negotiations to sell. 168 I disagree with the plaintiffs' submissions on this point. While a mortgagee exercising a power of sale should obtain a valuation of the property upon which to base the offering price or auction reserve price, from an independent valuer unconnected with the mortgagee (Fisher and Lightwood's Law of Mortgage, Australian edition, para 20.22; Bourke v Beneficial Finance Corporation Ltd (1991) ANZ ConvR 473), it is not necessary that the valuation be updated whenever any new valuation evidence arises. 169 It is implausible to contend that the unexpectedly high price achieved for the Jiwira land would be matched, proportionately, in an auction for the DLM land, given that the purchasers of the Jiwira land obtained rights of occupation with respect to the DLM land and an expectation of subsequently acquiring it, and no similar collateral rights would be offered on the sale of the DLM land. The Bank had available to it the expertise of Mr Dobbin as well as the earlier valuation by Mr Thomas. Both Mr Thomas and Mr Dobbin gave evidence that the price obtained for the Jiwira land could well have been influenced favourably by the purchasers' prospect of acquiring the DLM land. Taking into account that the auction price was significantly higher than Mr Thomas's valuation, which he described as 'conservative', Mr Dobbin recommended to the Credit Committee that the Bank should negotiate for sale of the DLM land for $620,000 even though Mr Thomas valued the DLM land at only $527,584. The approach taken by Mr Dobbin was reasonable in the circumstances, and in my view it was not necessary for the Bank to obtain a further independent valuation. 170 I find no evidence to support the plaintiffs' submission that in the negotiations for sale of the DLM land, the Bank acted recklessly to sacrifice the interests of the mortgagor and with a lack of good faith.

Mr and Mrs Haire's borrowing from the Bank 171 Mr and Mrs Haire were borrowers from the Bank for a very substantial loan, secured over the Jiwira land and the DLM land. Efforts were made during the hearing to protect the confidentiality of their relationship with the Bank, and therefore I shall avoid referring to specific matters except to the extent that it is necessary to do so. It appears that at the time of negotiation of the sale price for the DLM land, Mr and Mrs Haire requested an increase in their borrowing limit, to enable them to meet the price required by the Bank and to undertake other development work on the property. The increase was approved but it raised their loan security ratio to a high level. 172 At some time after sale of the DLM land, Mr Dobbin re-valued Weetawaa as a whole. The effect of the revaluation was to reduce the loan security ratio for Mr and Mrs Haire's loan to a more acceptable level. 173 The evidence of Mr Caves, which I accept, is that he did not know at the time of the negotiation of the sale price for the DLM land that Mr and Mrs Haire were borrowers from the Bank. However, the decision-making body within the Bank for loan applications was the Credit Committee, which also made the decision to approve the sale of the DLM land, so the streams of knowledge about the sale transaction and the borrowing came together within the Bank's hierarchy. 174 The plaintiffs submitted that during the period from December 1992 to February 1993 the Bank acted to accommodate Mr Findley and Mr and Mrs Haire in every way, sacrificing the interests of Mr Baker and Jiwira and negotiating a price to suit Mr and Mrs Haire. In my opinion the facts simply do not support this submission.

Completion of the sale of Weetawaa 175 Both Mr Baker and his son Larry Baker lodged caveats in relation to the property. The Bank took proceedings in this Court against Mr Baker in 1993 seeking withdrawal of his caveat in relation to the property. 176 Settlement of the sale of the Jiwira and DLM land to Mr and Mrs Haire took place on 11 March 1993. The proceeds of the sale of the whole Weetawaa property, after deduction of costs and expenses including FID charges, was $1,657,027.07. 177 The plaintiffs criticise the time taken by the Bank to sell Weetawaa after it took possession, and the fact that simultaneous completion of the sales of both parcels of land delayed completion of the sale of the Jiwira land. In my opinion there is an adequate explanation, set out above, for the Bank's delay in moving from possession to auction. In summary, it related to the title difficulties for the DLM land, and the consequent need for the Bank and its legal advisers to structure a complex transaction that would deal with both parcels of land. I do not regard the period between 21 December 1992 and 11 March 1993 as an excessively long period for completion of the contract of sale of the Jiwira land. I note that simultaneous completion of the sales of the two parcels of land avoided whatever costs and delays would have been associated with entry into a lease of the DLM land as required by the contract.

The value of Weetawaa in December 1992 178 The plaintiffs claim that the Bank failed to obtain an adequate price for Weetawaa. Part of the allegation is that the arrangements for lease and sale of the DLM land to the purchaser of the Jiwira land necessarily undervalued the DLM land once title to it had been cleared. It is also said that the cotton crop on the DLM land was valuable and was, in effect, given away. Additionally, it is said that the Bank held the auction at a very bad time, and failed to market the tourist potential of Weetawaa, and failed to attach any value to the artesian bore licence. I turn to the evidence on these matters. 179 The plaintiffs rely on a valuation of the DLM land by Mr Col Stone, a registered valuer and real estate agent from Wee Waa, dated 5 November 1997 but valuing the property as at 1 December 1992 - that is, after the fire and while the cotton crop was growing. The valuation is $ 1,167,000. This figure is, of course, vastly in excess of the sale price actually achieved, $612,500. The report refers to comparable sales in the area, and to the value of the growing cotton crop of 88 hectares (217 acres), noting that over the past few years in excess of three bales per acre of cotton had been grown. 180 There are several difficulties with Mr Stone's valuation evidence. The first is that his 1997 valuation of the DLM land is at odds with two other valuations made by him, apparently of the same land. The discrepancies between the valuations undermine Mr Stone's credibility as a valuer. 181 The first of the earlier valuations, given in 1985, was to support the exercise by Jiwira of the mortgagee's power of sale to dispose of the DLM land to a related company. Counsel had advised that before such a transaction could take place, several independent valuations of the land would have to be obtained. In that context, it was in Mr Baker's interest for Mr Stone to value the DLM land at a low figure. The figure given, as of 1985, was $168,000. Mr Baker said that the value of the land had been improved in the meantime because the land had been levelled, but in my opinion this explanation cannot account for the difference between $168,000 in 1985 and $1,167,000 in 1992. 182 The second earlier valuation was given on 9 August 1991. In fact there were three valuations, the first valuing lot 38 at $35,539, the second valuing lot 39 (including the homestead) at $161,659, and the third valuing lot 1 at $134,000, making a total of $331,198. Mr Baker says that these valuations were also obtained for the purpose of clearing the title to the DLM land, but that seems unlikely given the lapse of time between counsel's advice and the 1991 valuations. Mr Baker points out that the 1991 valuations did not include the value of water licences and a cotton crop, and the figure would have been higher had they been included. However, in my view that does not explain the difference between $ 331,198 in 1991 and $ 1,167,000 in 1992. Mr Stone said in cross-examination that the water licences added $ 2,400 per hectare to the value of the land, the 'dry' value of which would be $864 per hectare. But his evidence on this point is contrary to the evidence of Mr Thomas and I reject it. 183 There are also some problems with the 1997 valuation itself. Mr Stone's methodology seems to have been unsatisfactory. He did not keep ongoing written records of comparable sales, or records of calculations made for the purposes of his valuation. He used as analogies sales of properties with markedly superior water rights, apparently without any adjustments. He did not make any reference to the sale price achieved for the Jiwira land at the auction in December 1992, although that transaction was a highly relevant analogy. He made no reference to the problem of title which had not been resolved as at 1 December 1992. He included in his valuation of the DLM land an estimate of the value of the cotton crop even though it was (as I have held) sold with the Jiwira land. He valued the cotton crop as a mature crop (effectively, as at April 1993) although his valuation of the DLM land was expressed to be as at 1 December 1992. He took into account tourist potential notwithstanding the destruction of the homestead. 184 As mentioned above, the Bank obtained valuations from Mr Thomas and Mr Dobbin before the auction, and used this information in setting the reserve price. Both of them gave evidence as to the value of Weetawaa at the hearing. I was particularly impressed by the evidence of Mr Thomas, which included his clear and thorough report, his written answers to questions put to him by the Bank's solicitors in correspondence, and his oral evidence. He made it clear that his valuation of Weetawaa in the total sum of $1.45 million had taken into account the value of the cotton crop, to which he ascribed $40,000. He regarded the sale price in fact achieved ($1.772 million) as the best price available. He said: 'It must be remembered the purchase price well exceeded my valuation. My valuation was based on very good sales evidence.' 185 He said that the property was well promoted and the sale program was adequate, as evidenced by the attendance at the auction. In his opinion the separate offering of two parcels did not depress the value. Indeed, it may have attracted extra buyers who were interested in only one of the two parcels, thus pushing up the price. 186 Mr Dobbin gave evidence, likewise, that bids for the Jiwira land were made above the value of that parcel because the purchaser would also obtain access to the DLM land by lease, with the possibility of being able to buy it later. He said that the prices paid for the two parcels of land did not accurately reflect their respective values if they had been sold separately. 187 While Mr Thomas acknowledged that a May (or, less desirably, an August) sale is preferable to a sale in other months, as cotton growers prefer to acquire land at a time when they can exercise control over planting and crop management, he said it would be 'splitting hairs' to quantify differences between other months. He said that he had not been aware of the tourist proposal at the time when he prepared his November valuation, but his initial reaction was that such plans would add no value and would be characterised in real estate parlance as 'blue sky'. 188 A major difference between Mr Stone's valuation and Mr Thomas's valuation is that in the view of the latter, the irrigation standard of the property was grossly inferior, in matters particularised in detail in Mr Thomas's report. Mr Thomas noted that the irrigation development on Weetawaa consisted of many irregular shaped fields (pointed rows) and there was no tailwater return system on many fields. This resulted in tailwater being directed into the Gunidgera Creek, which was illegal. Additionally, Mr Stone valued the cotton crop at $251,286, compared with Mr Thomas's valuation of $40,000. Mr Stone's figure assumed that the crop was ready to pick and that there would be no expenses involved in the picking process. Mr Thomas took the view that if a crop is approaching the harvest stage, it is appropriate to value it by calculating the projected gross proceeds of the harvest and deducting harvest costs and an allowance for risk; but where there is a long way to go before a crop is ready for harvesting, the correct approach is to incorporate the costs of planting and husbandry plus a percentage of the net profit allowing for the length of time until harvest. This was the approach taken by Mr Thomas in his valuation. 189 Mr Thomas also commented on the value of the artesian bore licence. As mentioned earlier, Mr Stone valued this at $100,000 in his valuation dated 14 April 1997, apparently assuming that the licence conditions with respect to construction of the bore had been satisfied. Mr Thomas said that before he would be prepared to ascribe a value to an undeveloped bore licence, he would need to be convinced of two things. The first was that there was in fact a viable supply of water at the temperature required for spa bath purposes. The second was that the tourist proposal had been investigated by an experienced operator or consultant in the hospitality/tourist industry who had substantial knowledge of the industry. He pointed out that the artesian bore would be a superfluous water supply for stock purposes, and doubted whether it would be suitable for cropping. He said that a prospective purchaser would need to see that the bore was in fact operational for the purposes intended, before being prepared to pay any significant sum for it. He said it would be difficult to expect someone to pay $100,000 given the unknowns associated with the total tourism project. I accept all of this evidence. 190 As to the value of the homestead based on the tourist proposal, Mr Thomas noted that there are 'countless numbers' of large station homesteads and similar mansions scattered throughout New South Wales, located on properties where tourism/hospitality could be a possibility, but all of the mansion-type houses sold in similar circumstances in the north of the State have not been sold with any such business attached to them. Therefore there are no sales and valuation precedents. He concluded: 'We are not necessarily stating that the construction of a bore and the inclusion of the hospitality business would definitely not be viable. What we are saying is that from a prospective purchaser's point of view any premium attaching to this assertion would not be paid for at the undeveloped stage. In other words the risk associated in proving this premium would need to be captured by the developer's profit. Any prospective developer, in our opinion, would not be paying for this assumption or premium up front.'

I find this analysis persuasive. 191 Mr Dobbin gave evidence that the existence of a large homestead on the property would not have greatly increased the price obtained for it, since farmers prefer to invest their funds in income earning assets. The costs of renovating and maintaining an historical homestead may have had a detrimental effect on the purchase price. 192 An opinion similar to the opinion of Mr Thomas was expressed by Bruce Gunning, an experienced rural auctioneer and real estate agent. As to the cotton crop, his assessment was based on practical experience and inquiries, as well as a document called the 'Cotton Comparative Analysis' produced by a firm of accountants called Michael Boyce & Co, which he said was widely used as a yardstick for growers and others. He said the growing cotton crop had a value as at 1 December 1992, but it was a long way away from a three bales per acre crop identified by Mr Stone. In his opinion, a prudent purchaser would have given weight to what the crop had cost to prepare and plant, and what it would cost to complete, and would make an allowance for risk as well as the standard of the crop. Mr Gunning's estimate was that the growing cotton crop added up to $50,000 to the value of the property. While the figure is different from the figure given by Mr Thomas, the approach to valuation is the same. 193 Mr Gunning said that the best time to sell an irrigation property is generally April, May or June, as this is the time when existing growers know the results of their crops and have the most funds available to spend on expansion. The growing season for cotton, commencing in October, is normally not a good time to be offering irrigation properties, as this is the period when existing growers have exposure to borrowings and expenditure. However in the present case, he observed, the adjoining owners were all very successful growers, well-established and comparatively unaffected by lack of capital, and so the normal situation was to some extent negated. 194 He expressed the opinion that Maurice Simshauser was one of the most successful agents for the sale of irrigation land within the cotton growing area of Australia. He said that Mr Simshauser had promoted the property with a good program. He said he was not aware of anything not done by Mr Simshauser that could have been done to better advance the sale of the property. Mr Gunning acted for prospective purchasers at the auction and attended it. He said it was the second most successful auction he had ever attended. He denied that Mr Simshauser promoted the property in a negative light. 195 Mr Gunning expressed the view that the Bank had not auctioned the property at an earlier time because of the machinery that had been left there. That appears to me to be inconsistent with the Bank's own evidence, generally to the effect that the principal cause of delay of the sale was the uncertainty as to the title of the DLM land. 196 In Mr Gunning's view, the property did not have any demand as a tourist venture after the homestead was burned down. The existence of a licence to drill an artesian bore would have had limited appeal when the buyer could purchase existing operating artesian bores in the northern inland areas of New South Wales. He remarked that he knew of no highly profitable enterprise based on an artesian bore, and that the Moree spa baths actually lose money. He said the artesian bore had no value for irrigation or livestock, and therefore its only value would be for tourism, and he did not consider the property without the homestead to have any tourism potential. 197 In Mr Gunning's view, selling the Jiwira land with a lease and prospective purchase of the DLM land may have had a negative effect on the sale price, particularly as it may have discouraged bidders who could only afford one of the two parcels. However, the three principal bidders at the auction would have had the ability to pay for the whole of the property, and would want to secure the entire property. He said that the sale was a special situation where the three neighbours were so strong financially that one of them was destined to be the buyer, and in those circumstances the arrangements for selling the Jiwira and DLM land would have had a less negative effect than in other circumstances. 198 Mr Gunning expressed the view that destruction of the homestead may have reduced the valuation of the property by as much as $500,000, since it was a special homestead and buyers in the area would appreciate a home of that standard. In his view, had the homestead been in existence at time of the sale, the sale price might have been higher by between $300,000 and $500,000. However a new homestead similar to the one that burned down would not be an economic proposition. 199 Mr Gunning generally agreed with Mr Thomas's valuation, which he regarded as 'soundly based but perhaps a little conservative maybe due to his previous training as a bank officer'. He saw Mr Stone's assessments to be more in line with a sales or marketing assessment than analysis of the real nature of the property. He specifically agreed with Mr Thomas's assessment of the sub-standard irrigation layout, and contrasted it with Mr Stone's assessment of the property as top irrigation land, an assessment with which Mr Gunning disagreed. 200 I found Mr Gunning to be a good witness with extensive experience, whose opinions were based on common sense. His assessments generally corresponded with the views of Mr Thomas. I regard the discrepancy between his assessment of the value of the growing cotton crop at $50,000, and Mr Thomas's assessment at $40,000, as of no significance in this case. 201 Their opinions were also supported by Maurice Simshauser. He gave evidence that when he visited the property on 22 July 1992, he estimated its value at between $1.7 million and $1.9 million. After the homestead burnt down he estimated the value of the property had decreased by about $300,000. The estimate is significant because of Mr Simshauser's extensive practical experience, but it does not constitute a valuation. 202 Mr Simshauser was critical of the valuation by Mr Stone, on the ground that Mr Stone compared the DLM land with properties of a much higher standard, without making adjustments for differences of standards. Mr Simshauser said that he sold the properties noted as Carsons and Woodlands, used as comparisons by Mr Stone, and said that those properties had modern developments, return systems and better water allocations per acre. Mr Thomas's valuation took into account these differences, but Mr Stone's valuation did not. Additionally, according to Mr Simshauser, Mr Stone based his calculations on acreages that could not be supported by the water allocations available. Bearing in mind Mr Simshauser's experience, and the obvious deficiencies in Mr Stone's valuation, I prefer the evidence of Mr Simshauser to the evidence of Mr Stone on these matters. 203 Taking into account all these matters, I have decided that Mr Stone's valuation evidence with respect to the DLM land and the artesian bore licence is unreliable and I reject it.

Liquidation proceedings against Jiwira and bankruptcy proceedings against Mr Baker 204 As previously mentioned, in October 1991 the Bank had entered judgment against Jiwira, Mr Baker and Larry Baker in the sum of $1,300,000. A statutory demand for the judgment debt and interest was first served on Jiwira on 27 July 1992. The Bank commenced winding up proceedings on 15 September 1992. A second statutory demand was served on 19 October 1992. 205 A winding up order was made against Jiwira on 17 December 1992. Mr John O'Brien was appointed liquidator. The Report as to Affairs dated 10 March 1993 shows that the principal asset of Jiwira was a debt of $1,106,032 owed by Mr Baker, but the Report noted that Mr Baker had a claim against Jiwira for damages in respect of lost crops, lost tenancy rights, costs of relocation and expenses incurred on behalf of Jiwira, arising as a result of the Bank's entry into possession of the property on 22 July 1992. The report stated the liability to the Bank as $1,652,849. It noted that the Jiwira land and the mortgage over the DLM land were charged to the Bank, but indicated that the Bank had not provided information about the sale values of the land. Estimating their values, the Report asserted a surplus of assets over liabilities of $502,842. 206 A bankruptcy notice was served on Mr Baker on 2 December 1992 and a creditor's bankruptcy petition was filed on 19 January 1993, asserting that he was indebted to the Bank for $1,404,303.65 for amounts outstanding pursuant to the deed of guarantee executed by him in 1985 in support of the Bank's loan. On 20 April 1993 Mr Baker's solicitors wrote to Phillips Fox referring to the sale of the Jiwira land and the DLM land and the insurance policy, and asserting that the Bank had received, or was entitled to receive, far more than the amount it could claim to be owing to it. The letter referred to the fact that the amount claimed by the Bank included legal costs, and sought particulars. 207 Phillips Fox replied on 21 April 1993 saying that since the date of issue of the creditor's petition, settlement of the sales of land had taken place and the Bank had received $1,772,500. The request for particulars of legal costs was refused. 208 As previously mentioned, on about 20 April 1993 the Bank submitted a claim to MMI for $137,302.60, calculated as the sum of the judgment debt against Jiwira, Mr Baker and Larry Baker plus interest and farm running expenses and costs, less the proceeds of sale of the property. The bankruptcy proceedings were dismissed on 23 April 1993. Mr Baker pressed his challenge to the legal costs of Phillips Fox and, as mentioned above, that challenge led to an application to this Court for assessment of those costs, and eventually a reduction of the amount of costs claimed by the Bank against Jiwira. 209 In October 1993 Mr Baker made an application to the Court for an order staying the winding up on the ground that the Bank had received payment by realisation of the securities and pursuant to the insurance policy, and any remaining debt was covered by the insurance. Mr O'Brien, Jiwira's liquidator, indicated that he would consent to an order staying the winding up if the taxed costs of the petitioning creditors and his own costs and disbursements were fully paid. The Bank's solicitor asserted that the Bank was still owed an amount of $5625.32 as at 20 August 1993, with interest accruing daily thereafter. 210 On 6 December 1993 McLelland CJ in Eq delivered a judgment dealing with Mr Baker's application. He noted that the purpose of the application was to open up the state of account between Jiwira and the Bank and in particular, to challenge the Bank's deduction of the legal costs charged by Phillips Fox, which had given rise to the remaining debt. He decided that, provided Mr Baker paid the Bank the amount claimed, it would be appropriate to terminate the winding up. That amount was paid and the winding up was terminated. Mr Baker later took proceedings for review of Phillips Fox's costs. 211 Mr Caves gave evidence that the decision to take the winding up and bankruptcy proceedings was initially made by him, on behalf of the Bank, in mid July 1992, when the Bank also decided to enter into possession of the property. By the middle of July 1992, Mr Caves was aware of the following matters: (a) the Federal Court proceedings against the Bank and Mr Durie were still on foot; (b) the plaintiffs had instructed solicitors and were lodging caveats and taking various proceedings to prevent the Bank from obtaining possession of the property or executing its judgment debt; (c) the Bank had become entitled to commence bankruptcy proceedings against Mr Baker and winding up proceedings against Jiwira on the basis of the failure of those parties to pay the judgment debt of $1.3 million; (d) since October 1991 no money had been paid by either plaintiff in reduction of the judgment debt, which continued to attract interest; (e) Weetawaa was thought by the Bank to have a value somewhere in the region of $1.3 to $1.4 million and so there may have been insufficient funds to cover fully the plaintiffs' liability to the Bank after taking into account interest and selling costs; (f) title to the DLM land was not clear and that could prevent the Bank from exercising its power of sale for some time, even if it took possession. 212 His evidence, which I accept, is that taking into account these various matters, he instructed Phillips Fox prior to 22 July 1992 to take various steps. The steps were to bring proceedings to wind up Jiwira, and to bring bankruptcy proceedings against Mr Baker and his son Larry Baker, and also to move to obtain possession of Weetawaa with a view to sale by the Bank as mortgagee in possession as soon as practicable. Mr Caves said that in taking the bankruptcy and winding up proceedings the Bank did not intend to prevent Jiwira from taking appropriate proceedings to challenge the amounts debited to its account by the Bank, or to prevent Jiwira from challenging the Bank's actions in relation to the insurance claim. I accept this evidence. 213 Mr Caves also said that towards the end of August 1992, he became aware that Jiwira and Mr Baker may have owned the other property, which could be applied to satisfy the judgment debt. No particulars were given. 214 Mr Baker said that the bankruptcy proceedings were intimidating to him because he was under great strain at that time. The Bank had taken possession of the property and the homestead had burnt down. He had come under suspicion in relation to the fire. Phillips Fox had refused to provide any details of the insurance arrangements. An order was then made for the winding up of Jiwira. It was necessary for him to obtain further legal representation because of the bankruptcy proceedings and therefore to incur further costs. He claimed that the bankruptcy proceedings served no commercial purpose. Mr Baker also said that the winding up proceedings prevented Jiwira from taking action to challenge the debiting of its account by the Bank, and to challenge the Bank's action in relation to the insurance policy. In late 1992 and early 1993 his attention and resources were exhausted by the bankruptcy and winding up proceedings, and he was not able to deal with these other matters. 215 No doubt the time of commencement of the bankruptcy proceedings was an enormously difficult time for Mr Baker. But I do not accept that he felt intimidated by the winding up or bankruptcy proceedings. Nor do I accept that the winding up and bankruptcy proceedings interfered with his challenging the Bank's actions in debiting the Jiwira account and in relation to the insurance policy. After all, he and Jiwira commenced proceedings against MMI in November 1992. After the liquidator was appointed, Mr Baker persuaded the liquidator to pursue the litigation against MMI, arranging for a solicitor for that purpose. 216 Part of Mr Baker's complaint about the winding up and bankruptcy proceedings is that by the time of their commencement, the Bank was in the process of selling Weetawaa and (in Mr Baker's belief) the Bank was covered by insurance for any shortfall. As he saw it, the Bank was adequately protected and had no legitimate reason to take the additional steps of seeking orders for winding up and bankruptcy. 217 Liquidation and bankruptcy proceedings offer legitimate protection for creditors, especially where there is a perceived need to investigate dealings or pursue assets. In my view it was legitimate for the Bank to seek such protections in the latter half of 1992 when the winding up and bankruptcy proceedings were commenced. The Bank's conduct must be assessed having regard to the circumstances known to Mr Caves at the time when he made the relevant decisions. As it happened, by virtue of later events, the Bank's debt was covered by the proceeds of sale of Weetawaa and the insurance claim. But there was no assurance that this would be so prior to the successful auction on 21 December 1992, the solving of the title difficulties for the DLM land and the negotiation of its sale on 25 February 1993, and the clarification of the policy cover (a process under way in the second half of 1992 but only brought to fruition when the Bank's claim was met in April 1993). Additionally, Mr Caves had been led to believe that Jiwira may have other assets, and bankruptcy proceedings would have brought to light the assets of Mr Baker and his son. In the circumstances the commencement and conduct of liquidation and bankruptcy proceedings were a part of a legitimate commercial strategy of recovery of all moneys owing. Once recovery had taken place, the winding up proceedings were terminated and the bankruptcy petition was dismissed.

The balance of account 218 Under clause 12 of the deed of mortgage between Jiwira, Mr Baker and his son and the Bank, dated 5 November 1985, the Bank is authorised to debit and charge to the account of the mortgagor all the costs, charges and expenses incurred by the Bank in connection with the account of the mortgagor and the exercise of any security right or power of the Bank. Therefore the Bank was contractually entitled to debit and charge to Jiwira's account all the costs, charges and expenses in fact incurred by it with respect to the exercise of its right to take possession and the subsequent occupation of Weetawaa pending sale. 219 There is voluminous documentary evidence relating to demands by Mr Baker for particulars of the amounts claimed by the Bank for farming expenses, legal costs and other matters. The Bank debited Jiwira's account with legal costs and disbursements totalling $226,556.36. The evidence shows that Mr Baker took proceedings against Phillips Fox for an assessment of costs, proceedings that were resisted by Phillips Fox on the ground, essentially, that they had no duty to account to Mr Baker for Jiwira. Eventually, however, a number of costs assessments were completed by a costs assessor and in December 1995 the Bank's solicitors made a payment of $85,913.78 to the plaintiffs' solicitors. That amount was accepted without prejudice to the plaintiffs' right to assert that the payment did not fully satisfied their claim. 220 As already mentioned, Mr Baker's solicitors sought to obtain information about the sale transactions to provide to Jiwira's liquidator, but the Bank said it would make the information available only to the liquidator directly. 221 Mr Baker, Jiwira and Larry Baker took proceedings in this Court in 1994 for an account of its dealings and transactions with respect to Weetawaa. The proceedings were commenced by Mr Baker personally, and were challenged on the ground that under the Supreme Court Rules applicable at that time, a company could take proceedings only by a solicitor. In his reasons for judgment handed down on 17 February 1995 Master McLaughlin agreed with that submission. Further, he held that as far as Larry Baker and Mr Baker were concerned, they had by that time been released by the Bank from their obligations under the guarantee and they therefore had no standing. Accordingly he dismissed the proceedings. 222 Information was provided by the Bank, rather slowly, and at various stages Mr Baker challenged the information supplied and sought to supplement it. Eventually a reasonably complete statement of the position was supplied by Mr Caves, in his affidavit in the present proceedings sworn on 25 November 1996, the figures in which were corrected by his affidavit of 12 May 1998. On 25 October 1991 judgment had been entered for the Bank against Jiwira, Mr Baker and Larry Baker in the sum of $ 1,300,000 inclusive of costs. Subsequently interest accrued on this amount and the Bank incurred expenses in connection with the running of the farm and other matters. The expenses included expenses with respect to the wheat crop, and the cotton crop up to the time of sale of the Jiwira land in December 1992. 223 In his affidavits, Mr Caves set out some calculations showing the total amount claimed by the Bank and the payments which extinguished that amount. The total amount of interest from 16 October 1991 to 28 June 1993 was $256,549.71, and interest continued to accrue until 13 December 1993 when Mr Baker paid the balance claimed by the Bank (at that stage $5,502.34) as part of the arrangements to terminate the winding up of Jiwira. In fact that produced a credit in the account of $2,134.77. 224 Mr Caves' affidavit set out a list of the specific farm expenses and costs totalling $366,646.74. It also sets out a detailed list of amounts received by the Bank in reduction of the outstanding balance of the loan account, totalling $56,451.32. 225 Mr Clark, Mr Baker's accountant, gave evidence of calculations he made with respect to the charges for the Bank to grow cotton on the DLM land, and interest on those charges at the Supreme Court scale. His evidence is supported by some vouchers. He calculated that the total cost and interest amounted to $134,307.80, up to 8 January 1997. He made a similar calculation with respect to costs paid by the Bank apportioned to the DLM land, other than in respect of cotton, including interest at the Supreme Court rates. As at 8 January 1997 the figure was $10,474.84. In my opinion this evidence has no real significance to the case. The Bank was entitled, contractually, to deduct certain costs and expenses with respect to the mortgaged land from the amount for which it was accountable to the mortgagor upon sale. It was entitled to deduct the expenses actually incurred by it, provided they were not unreasonable. Unless the plaintiffs are able to point to particular amounts which have been unreasonably charged to Jiwira's account, the amount to be deducted is the amount of costs and expenses actually incurred by the Bank together with interest at the rate the Bank is entitled to charge. ********** 226 I shall now turn to the ten claims to relief made in the Statement of Claim.

The negligence claim in relation to the fire 227 The Statement of Claim asserts that the Bank had a duty to the plaintiffs to preserve Weetawaa so as to minimise any shortfall which the plaintiffs would owe to the Bank pursuant to the securities (paragraph 8). I shall assume that such a duty was owed by the Bank. Nevertheless, the plaintiffs must fail on this ground for two reasons: the evidence does not establish breach of the duty of care, nor any causal link between the Bank's conduct and the fire that destroyed the homestead. In effect, the plaintiffs conceded the second point in final submissions. As to the first point, I shall set out the particulars of the breach of duty as pleaded in the Statement of Claim, and summarise briefly my relevant findings of fact.

(a) failing adequately to secure the property and/or homestead

I have found that the standard of security adopted by the Bank was in conformity with the security arrangements employed by Mr Baker and the security arrangements generally adopted in the vicinity. There was no reasonable ground for employing additional security measures.

(b) failing to appoint a sufficiently experienced person or persons to safeguard the property

In my view Anthony Simshauser was not an inappropriate person for the Bank to retain as caretaker. Having regard to the generally low security risk in rural properties in the vicinity, it was unnecessary to engage a person with experience in security work.

(c) failing properly to supervise or instruct personnel employed at the property

The Bank engaged Maurice Simshauser as agent for sale and Anthony Simshauser as caretaker of the property. He received regular instructions from his father who was the agent for sale of the property. Mr Dobbin instructed him to take responsibility for the property's security, and not to leave it unattended unless there were exceptional circumstances. In my opinion the arrangements constituted adequate supervision and instruction in the circumstances.

The homestead was left unlocked so that Anthony Simshauser could have access to the telephone. Mr Baker was aware of this and there is no evidence that he objected prior to the fire. Mr Baker retained keys and did not make them available to Anthony Simshauser.

(e) failing to secure gates Securing gates was unnecessary in view of the availability of access to the property at points where there were no gates, and the general standard of security in the rural environment.

(f) failing to observe that the homestead was on fire until the homestead was well alight

An accelerant was used to light the fire. The fire was lit in the middle of the night when it would have been reasonable for the caretaker to have been sleeping. In fact Mr Simshauser was awake and responded promptly on two occasions, when he heard a noise that required investigation.

(g) failing to take any, or any proper measures to extinguish the fire

The homestead was ablaze and the flames were above the roof by the time Mr Simshauser saw it. He responded reasonably by seeking to alert the authorities rather than to attempt to extinguish the fire.

(h) failing to alert fire authorities with proper diligence

With the benefit of hindsight, it can be seen that an emergency telephone call could have been made more swiftly by using the telephone at the airstrip, instead of driving 4 km to a public telephone. However, responding in the heat of the moment, Mr Simshauser made his way to the telephone he knew to be available. I do not regard his conduct as unreasonable or negligent.

(i) failing to check the property to discover the presence of trespassers or intruders

Mr Simshauser heard a loud noise some time before the fire began. He did not go across to the homestead to investigate. I do not regard his failure to do so as amounting to negligence in the circumstances, and it is far from clear that if he had made further investigations, he would have prevented the fire.

(j) failing to consult, retain or engage suitable persons to provide or advise in relation to appropriate security measures

In my view of the Bank had no duty to retain or consult a security expert before taking possession, given that the property was a rural property and there was no discernible threat to security.

(k) failing to use the telephone on the airstrip of the property to telephone authorities about the fire instead of driving 4 km to use a phone

The power of sale claim 228 The Statement of Claim asserts that the Bank owed a duty to the plaintiffs to exercise its power of sale in good faith, not in reckless disregard of their interests, in such manner as to minimise any shortfall for which the plaintiffs may become liable pursuant to the security, and with all reasonable care so as to sell the property for not less than market value or the best price reasonably obtainable (paragraph 12). Particulars of breach of the duty are pleaded. 229 Again I shall assume that the Bank owed the plaintiffs a duty as pleaded. The exact nature and scope of the mortgagee's duty when exercising a power of sale is to a degree controversial: see Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676; Forsyth v Blundell (1973) 129 CLR 477; ANZ Banking Group Ltd v Bangadilly Pastoral Co Limited (1978) 139 CLR 195; Commercial and General Acceptance Limited v Nixon (1981) 152 CLR 491. Counsel for the Bank supplied me with a brief summary of relevant aspects of the mortgagee's duty which I am happy to adopt for the purposes of this case. Thus: (a) the power of sale is given to the mortgagee for its own benefit, to enable it to realise its debt: Forsyth v Blundell at 483-4; (b) the mortgagee is not a trustee of the power of the mortgagor: Commercial & General Acceptance Ltd v Nixon ; (c) the mortgagee may consult its own convenience as regards the time of sale subject to its duty to act bona fide in the conduct of the sale: Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700; (d) the mortgagee is not bound to postpone the sale in the hope of obtaining a better price later: Bangadilly ; Nixon ; (e) while the mortgagee may look to its own interests, it must pay some regard to the interests of the mortgagor. Where their interests conflict, it is not entitled to act in a manner which sacrifices the interests of the mortgagor: Forsyth v Blundell ; Nixon ; (f) it is part of the duty to act in good faith, to take reasonable precautions to obtain a proper price: Forsyth v Blundell at 481; National Commercial Banking Corporation of Australia Ltd v Solanowski (1984) NSW ConvR 55-194; (g) the burden of proof is on the mortgagor seeking to impugn the sale to prove breach of duty by the mortgagee: Bangadilly ; State Bank of New South Wales v Kissner (Macready M, 12 Nov 1998, unreported); (h) a selling mortgagee need not consult the mortgagor, and if it elects to keep the mortgagor informed of the progress of negotiations for the sale, it does not thereby limit its freedom of action: Fisher & Lightwood's Law of Mortgage, Australian Edition, paragraph 20.27; (i) a mortgagee may sell when it considers appropriate: Mailman v Challenge Bank Ltd (1991) 5 BPR 11721. 230 The plaintiffs must fail because the evidence does not show that the Bank has breached any such duty. I shall summarise my findings of fact in relation to each particular of breach pleaded in the Statement of Claim.

(a) wilfully and recklessly delayed the sale of property so as to diminish its value

There was no intentional delay. An element of delay was involved but there were good reasons for it.

(b) failed to seek reinstatement of the homestead by making a claim and prosecuting a claim pursuant to insurance policy 24003389RPP prior to the sale of the property, thereby selling the property at an undervalue

This issue is discussed below, under the heading 'The policy claim'.

I have concluded, after reviewing the evidence, that the property was preserved and maintained to an adequate standard, bearing in mind that it was not well maintained by Mr Baker.

(d) failed to sell separately the Jiwira land and the DLM land

The Bank's duty did not entail an obligation to sell the two parcels of land separately. In light of the legal and valuation advice received by the Bank before it put the property to auction, it was reasonable for the Bank to proceed in the way that it did. There is evidence that the price obtained at the auction was enhanced by offering rights over the DLM land to the purchaser of the Jiwira land. The plaintiffs submit that the Bank should not have proceeded with the sale arrangements once it became aware that D L Management Pty Ltd had been reinstated, and that this occurred well before the auction sale. But the reinstatement of the company did not itself solve the title problem, since it would be necessary to identify the controllers of the company and negotiate a transfer of title by the company. There is no evidence that the Bank was aware, prior to the auction, that a transfer had become available.

(e) failed to advertise the property having regard to its potential use for tourism

I have found there was no viable tourist proposal at the time of the marketing of the sale, and no enhanced value by reference to any tourist potential, and consequently it would have been a waste of time to refer to any potential use for tourism in the advertising.

(f) failed to obtain a proper value for the cotton crop on the DLM land

The cotton crop was sold to the purchaser of the DLM land at the auction, and so its value is to be determined as at December 1992 rather than February or April 1993 when it was a more mature crop. I have accepted the valuation evidence of Mr Thomas and Mr Gunning, according to which the cotton crop was worth no more than $50,000 in December 1992. The price obtained at the auction was above the Bank's valuation (which I regard as reasonable), and there is nothing to indicate that the price did not reflect the value of the cotton crop at that time.

(g) failed to protect maintain and preserve, protect maintain and/or grow a wheat crop growing on the Jiwira land

The Bank maintained the wheat crop in an appropriate fashion, having regard to its condition and principles of good husbandry, on the basis of expert advice.

(h) failed to obtain a proper yield from the wheat crop

See (g) above. The Bank's decision not to water part of the wheat crop was reasonable in the light of the advice it received and the condition of the crop. Mr Baker did not take up the opportunity given to him to make timely submissions as to the proper tending of the crop.

(i) failed to promote or market the property with specific reference to there being an artesian bore licence that attached to the DLM land

I have rejected Mr Stone's valuation of the licence, and I have accepted the opinions of the Bank's witnesses to the effect that the licence had no sufficiently substantial value to justify any reference to it in the marketing of the property.

I have rejected the evidence adduced on behalf of the plaintiff which alleged that Mr Simshauser did so.

(k) improperly charging to the first plaintiff a cost incurred and paid after sale of the property namely $10,000 paid to WB Findley for 'creek tailwater drain costs' on or about 8 March 1993

I have accepted evidence adduced on behalf of the Bank that the expenditure incurred was an appropriate response to the Bank's legitimate concern that tailwater drainage was an illegal pollution hazard. The expenditure was incurred while the Bank remained the legal owner of the property, exposed to the risk of prosecution for any contravention of the law. It was therefore an expenditure connected to the exercise of the Bank's right to take possession of and sell the property, properly chargeable to Jiwira's account pursuant to the deed of mortgage.

The policy claim 231 The Statement of Claim (paragraphs 15-19) pleads that policy No 240003389RPP ('the first policy') was renewed by the Bank in the name of Mr Baker on about 20 July 1992, the Bank being noted as an interested party. In substance, this is correct. It is asserted that the Bank owed the plaintiffs a duty to act in good faith in relation to the policy and not to deal with the policy in a manner that would compromise or otherwise adversely affect the interests of the plaintiffs. Again, I shall assume that the Bank owed such a duty. 232 The Statement of Claim asserts that the Bank breached its duty. The particulars are that the Bank made an insurance claim on about 13 January 1993 which it did not prosecute, at a time when the property had already been sold. The Bank accepted payment of $137,302.60 pursuant to the terms of policy No 980980469RPP ('the second policy') which it entered into with MMI on about 30 October 1992 to insure its own interest in respect of any shortfall on the security. It is said that the plaintiffs thereby lost the benefit of the right of reinstatement of the homestead under the policy, which would have reduced their liability under the securities. 233 In my opinion the Bank was entitled to make a claim on the insurer limited to recovery of its own loss. By April 1993 the Bank was able to calculate its loss with some precision, the sale of Weetawaa having been settled. Its loss was the shortfall between moneys owing to it and moneys recovered on the sale. There was nothing improper, in my view, in the Bank making a claim for that shortfall in April 1993. 234 The claim made on 13 January 1993 was for $826,700. But that figure represented the limit of the insurer's liability under the policy, which was an indemnity policy. The nature of an indemnity policy was explored in the well-known case of Castellain v Preston (1883) 11 QBD 380; see also Leopard v Excess Insurance Co Limited [1979] 1 WLR 512; Lucas v The New Zealand Insurance Co Limited [1983] VR 698. 235 The Bank had no entitlement to receive the whole amount of $826,700 unless it could establish that its loss was of that amount or greater. The application of the principles of indemnity insurance to the circumstances of this case was explained in the unreported judgment of Cohen J in Jiwira v MMI, discussed above. 236 The plaintiffs contend that the Bank, being in possession, was in a position to rebuild the homestead and could have sought reinstatement of the homestead. As the cost of reinstatement would have exceeded the amount insured, the claim based on reinstatement would have been paid in money. Had the Bank proceeded in this way, say the plaintiffs, it would have recovered from MMI the difference between $826,700 and the $250,000 ordered to be paid by Cohen J. It would hold that balance for their benefit. The plaintiffs contend that, having charged Jiwira the insurance premium for renewal of the policy, the Bank had a duty to pursue such a claim for the plaintiffs' benefit. 237 The answer to these contentions lies in the nature of the policy as a policy of indemnity. The plaintiffs and the Bank were each entitled to make a claim under the policy, but in each case the claim was limited to an indemnity with respect to the claimant's interest. The sole purpose of an indemnity policy is the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk: British Traders' Insurance Company Limited v Monson (1964) 111 CLR 86. 238 The interest of the plaintiffs was limited in the manner explained by Cohen J because they were out of possession. The interest of the Bank was limited to the shortfall upon realisation of its security. Being in possession did not conjure up a right for the Bank to claim full reinstatement (let alone an obligation of MMI to meet such a claim), since the Bank's possession was only as mortgagee, for the purpose of enforcing and protecting its security interest. The security interest, not some greater interest enlarged by the Bank exercising its right as mortgagee to take possession, was the interest noted by the insurer on the policy, and therefore the interest protected by the insurer's indemnity.

The misleading conduct claim 239 The Statement of Claim alleges that the Bank engaged in conduct for the purpose of, or with the effect of, denying the plaintiffs the benefit of reinstatement of the homestead pursuant to the first policy. The conduct relied upon is particularised in the Statement of the Claim (paragraph 20). The particulars refer to the correspondence concerning the insurance claim which I summarised earlier in this judgment, under the heading 'Insurance negotiations after the fire'. The Statement of Claim alleges that the second policy was issued by MMI on 30 October 1992 pursuant to an agreement between the Bank and MMI to issue a retrospective policy to cover only the Bank's interest. 240 The Statement of Claim asserts that the conduct so specified was misleading and/or deceptive or alternatively unconscionable conduct within the meaning of ss 52 and 51AA and 51AB of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW), and the common law as to unconscionable conduct. The conduct is alleged to be misleading or deceptive on the ground that the Bank did not prosecute the claim made on 13 January 1993, and purported to represent that any claim by the Plaintiff under the first policy was limited to the shortfall on the security, whereas in fact the plaintiffs were entitled to the reinstatement value of the homestead. 241 The conduct relied upon in paragraph 20 of the Statement of Claim occurred, except that in my opinion there was no agreement for the issue of the second policy. In my view, however, nothing about the Bank's conduct was unconscionable or misleading or deceptive. The Bank was entitled to act in its own interest by limiting its claim against MMI to the amount of the shortfall on realisation of its security. It had no obligation to make or prosecute an insurance claim on behalf of the plaintiffs. 242 There is room for debate as to whether the Bank was entitled to refuse to provide information to the plaintiffs in the latter half of 1992. But the plaintiffs do not complain about the mere lack of information, but rather about an alleged representation that any claim under the first policy was limited to the shortfall. In my opinion no such representation was made by the Bank. It merely made a claim, in its own interest, which was eventually limited to the shortfall, leaving it to the plaintiffs to look after themselves. The Bank also told the plaintiffs that its insurance dealings with MMI were of no concern to them. That is not misleading if it is (as it appears to be) a statement about the Bank's pursuit of its own interest by claim against MMI. 243 In fact the plaintiffs did look after themselves by taking the proceedings against MMI which led to the judgment of Cohen J on 7 February 1997, which found that the plaintiffs were entitled to be indemnified under the first policy for an amount calculated as the difference between the value of the homestead and the amount already paid out by MMI to the Bank to meet its claim for the shortfall. The value of the homestead would have been higher, and consequently the plaintiffs would have recovered more, if Mr Baker and his family had not forfeited their right to continue to live there because of Jiwira's default under the mortgage and the Bank's entry into possession. 244 The Bank contended, and the plaintiffs denied, that the misleading conduct claim is statute barred. In light of my findings it is unnecessary for me to resolve this issue, but I propose to make some observations in case the matter goes further. The limitation period for claims under s 52 of the Trade Practices Act and s 42 of the Fair Trading Act is three years after the date upon which the cause of action accrued (Trade Practices Act, s 82(3); Fair Trading Act, s 68(2)). These proceedings were commenced by statement of claim, which included the misleading conduct claim, filed on 19 July 1995. The question is whether the statutory causes of action accrued more than three years before that time. To the extent that they rely on conduct in the latter half of 1992 and the first half of 1993, it would appear that the proceedings are in time. The common law claim is obviously not out of time.

The insurance duty of care claim 245 The Statement of Claim asserts that the Bank as mortgagee in possession had a duty to the plaintiffs to exercise reasonable care and skill in dealing with any insurance interest or potential or available benefits of the plaintiffs (paragraph 23). The Bank breached that duty by the conduct particularised in the policy claim and the misleading conduct claim, discussed above. 246 Assuming, once again, that such a duty existed, in my view there was no breach, essentially for the reasons that I gave in rejecting the policy claim and the misleading conduct claim. The Bank made a claim in pursuance of its own interest, as it was entitled to do, and recovered the amount of its loss represented by the shortfall on realisation of its security. I should note that the Bank tested the assumption that such a duty exists, and asserted that in any event no damage was suffered by the plaintiffs: see Preece v Colonial Mutual General Insurance Co (NZ) Limited (1995) 3 NZLR 730.

The cotton crop claim 247 The Statement of Claim asserts that the Bank owed a duty to the plaintiffs to act in good faith, not in reckless disregard of their interests, and in a manner so as to minimise any shortfall for which the plaintiffs may be liable pursuant to the security, and to take all reasonable care to sell the cotton crop at not less than market value or the best price reasonably obtainable. It asserts that the Bank did not realise or attempt adequately to realise the value of the cotton crop, and therefore breached its duty. 248 Assuming the existence of such a duty, my view is that there was no breach. The cotton crop was sold by the auction held on 21 December 1992. I have found that there was nothing in the circumstances of the auction to suggest that an inadequate price was obtained for the crop, having regard to its value at that time.

The conversion claim 249 The Statement of Claim asserts that at the time when the Bank took possession of Weetawaa, Mr Baker had an immediate right to possession of some chattels on the property. The items claimed are two 50 tonne silos, an irrigation pump and a demountable office block. The Statement of Claim alleges that the Bank has refused to return the items. Mr Baker claims $18,450, the value that he attributes to the items. 250 In my opinion the evidence establishes that Mr Baker had an immediate right to the possession of the items. He was the owner of the two silos and the office block. The pump had been lent to him but he was entitled to protect his possession as bailee. The evidence also establishes that the Bank refused to return them, by asserting (by inference from the letters of 15 and 29 January 1993) that the items were fixtures which had been sold to the purchasers of the Jiwira land. Therefore Mr Baker is entitled to recover damages for conversion unless the items were fixtures rather than chattels. 251 In Australasian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700, at 712-713 Jordan CJ, with whom Davidson and Nicholas JJ concurred, said: 'The question whether a chattel has become a fixture depends upon whether it has been fixed to the land, and if so for what purpose. If a chattel is actually fixed to the land to any extent, by any means other than its own weight, then prima facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not; if it is not otherwise fixed but is kept in position by its own weight, then prima facie it is not a fixture; and the burden of proof is on anyone who asserts that it is.... The test of whether a chattel which has been to some extent affixed to the land as a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period..., or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose.... In the former case, it is a fixture, whether it has been fixed for the better enjoyment of the land or building, or fixed merely to steady the thing itself, for the better use or enjoyment of the thing fixed.... If it is proved to have been fixed merely for a temporary purpose it is not a fixture.... The intention of the person fixing it must be gathered from the purpose for which and the time during which user in the fixed position is contemplated.... If the thing has been securely fixed, and in particular if it has been so fixed that it cannot be detached without substantial injury to the thing itself or to that to which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intended.... On the other hand, the fact that the fixing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts.'

See also National Dairies WA Limited v Commissioner of State Revenue (WA) [1999] WASCA 152. 252 My task is to apply these principles to the three items of property in question in this case. As to the pump, such an item of equipment, bolted to concrete and attached to an irrigation system, will often be a fixture, but it may not be, as it may be detached easily enough. In the present case Mr Baker says the pump was borrowed by him from a neighbour. His evidence on this point has not been challenged. It implies, in my view, an intention to use the pump only temporarily, and therefore no intention to fix it into the irrigation system permanently or indefinitely. Therefore in my view, the pump is not a fixture. 253 Applying as best I can the principles enunciated by Jordan CJ, I have decided that the silos were not fixtures. I accept evidence given on behalf of the plaintiffs to the following effect: (a) the silos were marketed and supplied as transportable items, and although a special transport vehicle was needed to transport them, they were of a kind that are frequently moved around rural properties; (b) to a substantial degree they rested on the concrete slabs because of their own weight; (c) they were attached to the concrete slabs by the clamps, secured by large nuts screwed onto bolts cemented into the concrete slabs, but this was to make sure that they did not blow away when they were empty or near empty, rather than to attach them permanently or indefinitely to the slabs; (d) they could be removed from the concrete slabs simply by unscrewing the nuts, without causing any damage to the property. 254 A similar analysis applies, in my view, to the demountable office block. Mr Baker and the plaintiffs' witnesses all described the structure as 'demountable'. This implies that they regarded it as essentially detachable from the land, and that it had been erected with this characteristic in mind. It was not bolted or otherwise fixed to the ground, except by attachment to the awning which was, in turn, concreted into the ground. It was not attached to sewerage or plumbing. It was not a fixture. 255 I conclude, therefore, that Mr Baker has made out his entitlement to damages for conversion in respect of the pump, the silos and the demountable office block. The only remaining question is as to the measure of damages. 256 The general principle governing assessment of damages for conversion is that the loss must be compensated by an award of money which represents the full value of the goods: Furness v Adrium Industries Pty Ltd [1996] 1 VR 668, 675. Accordingly, the relevant value is the amount of money required to buy a similar article in the market at the date of the act of conversion: Western Credits Pty Ltd v Dragan Motors Pty Ltd [1973] WAR 184, 187; Chubb Cash Ltd v John Crilley & Son [1983] 2 All ER 294, 296. Mr Baker is therefore entitled to damages equivalent to the market price of goods of similar quality and condition to those converted. He is not entitled to the amount needed to buy new versions of those goods, as this would place him in a better position than if he had not suffered any wrong, in contravention of the underlying principle: J & E Hall Ltd v Barclays [1937] 3 All ER 620, 623. On that basis the loss to Mr Baker related to the fair market value of the items, rather than the replacement cost relied upon by Mr Baker. 257 I accept Mr Binskin's estimate of value of the silos and office block. Since there is no clear evidence that the items in question were in a particularly good or poor condition, I shall fix their values at the midway points of the ranges given by Mr Binskin. On that basis the value of the demountable office block is $ 1,250; and the value of each silo is $ 2,250. The total value of these items, and therefore the total loss to Mr Baker, is $5,750. 258 I am unable to accept Mr Binskin's estimate of value of the pump, because I have found that he was given a photograph of the wrong pump. On the other hand, I cannot accept Mr Baker's evidence of value, because it is based on the incorrect principle that he is entitled to recover the replacement cost of the item. When I publish these reasons for judgment, I shall stand the proceedings over to another day to hear argument as to costs and the form of my orders. If, in the meantime, the parties cannot agree on a value for the pump, in light of the principles set out above, it may be necessary for me to direct an inquiry with respect to its value. I hope very much that it will not be necessary to do so.

The wheat crop claim 259 The Statement of Claim asserts that while the Bank was in possession of the property it owed a duty to Mr Baker to preserve, protect, maintain and grow the wheat crop, and it failed to do so. This was because it sold unused water rights that should have been used on the wheat crop, failed to exercise proper husbandry of the wheat crop, failed to water the crop in a timely or proper manner, and allowed weeds to grow without removing them, while nevertheless debiting Jiwira's account for costs associated with its attempts to grow the wheat. 260 Assuming that the Bank was under such a duty, there was no breach according to my findings of fact. Except for fields 32 and 33, the wheat crop was in a poor condition when the Bank took possession. The Bank encouraged Mr Baker to make a submission indicating what should be done to preserve and maintain the wheat crop and he failed to do so. In the absence of any assistance from Mr Baker, the Bank retained an expert, took his advice and acted on it. I have found that there is no proper basis for questioning the competency of the advice that the Bank received.

The abuse of process claim as to the winding up proceedings 261 The principles concerning abuse of process, recently stated by the High Court in Williams v Spautz (1998) 174 CLR 509, esp at 523, are not in doubt. A central requirement of the tort of abuse of process is that the party who has instituted proceedings has done so for a purpose or to affect an object beyond that which the legal process offers. 262 The Statement of Claim alleges that no proper commercial purpose was served by the Bank seeking and obtaining the winding up of Jiwira; further, that the winding up proceedings were an abuse of process, in that the Bank commenced or maintained the proceedings to effect an object not within the scope of the process, causing the plaintiffs to suffer damage. At the time the only asset owned by Jiwira was Weetawaa, which was about to be sold by auction, and the winding up would prevent Jiwira challenging expenses and deductions claimed by the Bank against it. 263 The Statement of Claim alleges that the Bank's purpose in commencing and maintaining the winding up proceedings was either to intimidate or frighten or to exhaust the resources and time of Jiwira and its directors, from investigating and challenging the activities of the Bank and its solicitors in relation to the insurance policy as well as expenses and deductions made by the defendant from the proceeds of the sale of the property as mortgagee; or to prevent or inhibit Mr Baker from exercising any right to claim in relation to the first policy, or from terminating the winding up. 264 Once again, this claim fails on the facts. I have found that if the matter is considered from the point of view of the Bank at the time when the decision was taken to commence the proceedings, there was a legitimate commercial purpose in commencing winding up proceedings. That legitimate commercial purpose continued until the Bank was paid and the proceedings were terminated. Conversely, the appointment of a liquidator would not necessarily prevent Jiwira from contesting deductions claimed by the Bank. In my view the evidence does not supported the plaintiffs' contentions about the purposes of the Bank in commencing and maintaining the proceedings.

The abuse of process claim as to the bankruptcy proceedings 265 The Statement of Claim asserts that the bankruptcy proceedings brought against Mr Baker were an abuse of process, in that the Bank commenced and maintained them to effect an object not within the scope of the process, and the plaintiffs suffered damage. At the time when the bankruptcy proceedings were initiated the Jiwira land had been sold and the Bank had lodged an insurance claim. Nevertheless an officer of the Bank swore an affidavit of debt. 266 The plaintiffs allege that the Bank's true purpose was either to intimidate and frighten and exhaust the resources and time of Mr Baker from investigating and challenging the activities of the Bank and its solicitors in relation to the insurance policy and the expenses charged by the Bank to Jiwira's account, or to prevent or inhibit Mr Baker from exercising his right to claim in relation to the first policy or prevent him from terminating the winding up of Jiwira. 267 This claim fails on the facts, because the evidence does not support the assertion that the Bank acted for any of the purposes alleged. Further, there was nothing improper in an affidavit of debt being executed after the sale of the Jiwira land but before settlement, and after the making of an insurance claim but before payment, since the debt remained owing even though there may have been an expectation of payment.

Conclusion 268 Nine of the 10 claims made by the plaintiffs have failed on the facts. The second plaintiff (Mr Baker) succeeds in his personal conversion claim, although there is insufficient evidence for me to decide upon the market value of the converted irrigation pump. 269 I shall stand the matter over to hear any submissions on costs and as to the form of the orders. As I have mentioned, I very much hope that some agreement can be reached in the interim as to the market value of the pump. As to the question of costs, subject to any submissions that may be made, I am inclined to order that the plaintiffs pay 9/10 of the defendant's costs, and that the defendant pay 1/10 of the plaintiffs' costs. * * * * * * * * *

Last Modified: 12/01/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.