Kiriwina Investment Company Pty Ltd v Green Lees Developments Pty Ltd

Court of Appeal (NSW)|2018-08-08|Before: Gleeson JA, White JA

Solicitors: Laycock Burke Castaldi Lawyers (Appellant) Patey & Murphy Solicitors (Respondents) File Number(s): 2017/383704 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Division Citation: [2017] NSWSC 1727 Date of Decision: 13 December 2017 Before: Harrison AsJ File Number(s): 2016/363641

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

In relation to the appellant's grounds: White JA (Gleeson JA and Sackville AJA agreeing) held that there was no evidence to justify a finding that the "share-farming agreement" would satisfy either definition of "farmer". The available evidence of the "share-farming agreement" was evidence given by the second respondent in the form of a non-responsive answer in cross-examination which was not subsequently explored nor did it establish the second respondent's understanding of the term. There was no evidence to demonstrate the sharing of produce, income and profits nor was there evidence as to whether the land was "cultivated", being the improvement of land: [44] [83]-[84]

In relation to the notice of contention: White JA (Gleeson JA and Sackville AJA agreeing) held that the definition of "farming operation" is not confined to the production of food for human consumption, nor is it confined to traditional farming operations. The respondents were unable to discharge the onus that required proof that Mr Denshire was solely or principally engaged in a farming operation: [59]-[69] Sackville AJA provided further reasons holding that there was no evidence that the rodent production would need to be conducted on agricultural or pastoral land nor was there evidence that the production could be considered an intermediate step providing food for human consumption: [81].

Judgment

GLEESON JA: I agree with the orders proposed by White JA for the reasons given by his Honour.
WHITE JA: This is an appeal from orders made on 13 December 2017 in the Common Law Division (Harrison AsJ) that the plaintiff's proceedings be dismissed with costs (Kiriwina Investment Company Pty Ltd v Green Lees Developments Pty Limited [2017] NSWSC 1727).
The appellant commenced proceedings by statement of claim filed on 5 December 2016 against the first respondent, Green Lees Developments Pty Ltd ("Green Lees Developments") and the second respondent, Mr Warwick Denshire, seeking judgment in the sum of $1,361,724.14 plus interest. The debt arose from advances made by a Mr Alan Price on 20 March 2006 and 29 October 2010 in the sums of $1,400,000 and $200,000 respectively to Green Lees Developments. The loans were secured by a mortgage given over land known as "Green Lees" at Glendonbrook, of which Mr Denshire was the registered proprietor. The terms of the loan agreement are contained in an annexure to the mortgage instrument, as varied by an instrument of variation of mortgage dated 29 October 2010. On 20 November 2010 the mortgage and the debts secured by the mortgage were transferred by Mr Price to the appellant. On 18 May 2012 the appellant advanced a further sum of $500,000 secured by a second variation of mortgage.
The time for repayment of the principal of the first advance was 20 March 2011. That term was extended by the first variation of mortgage to 29 October 2015. The variation of mortgage provided that $200,000 was to be paid by 29 April 2011 in reduction of the then principal sum of $1,600,000. After the principal sum was increased to $2,100,000, there was no further extension of the time for repayment of principal.
The mortgage provided for the monthly payment of interest at 11.75 per cent per annum reducible to 9.75 per cent per annum if the mortgagor were not in default. The mortgage provided that Mr Denshire promised to pay the principal and interest and that Green Lees Development was jointly and severally liable with him for payment on the due dates of the principal sum and interest secured by the mortgage.
The respondents made their last payment on 26 July 2012. The loan was in default from 20 August 2012.
On 10 September 2014 the appellant served notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW). The Green Lees property was sold by the appellant in its exercise of its power of sale as mortgagee. Contracts for the sale of the property were exchanged on 23 December 2015 and the settlement of the sale was completed on 17 June 2016. The mortgage would then have been discharged. After expenses of sale the appellant received $1,548,143.04 which was credited against the debt due by the respondents. This left a balance due of $1,346,100.55.
The only defence to the appellant's claim was a defence arising under the Farm Debt Mediation Act 1994 (NSW). The respondents alleged that the mortgaged property was a "farm" within the meaning of s 4(1) of the Farm Debt Mediation Act, that the mortgaged property was a "farm property", the mortgage was a "farm mortgage" and the loan pleaded in the statement of claim was a "farm debt" within the meaning of that subsection. The appellant did not give notice to the respondents under s 8 of the Act informing them of its intention to take enforcement action in respect of the alleged farm mortgage and of the availability of mediation under the Act. There was no exemption certificate. The respondents contended and the primary judge found that the filing of the statement of claim was enforcement action taken by the appellant within the meaning of s 4 of the Act, that enforcement action was not taken in compliance with the Act and the enforcement action was void. Hence, the proceedings were dismissed.

Scheme of legislation

Section 8 of the Farm Debt Mediation Act relevantly provides: "8 No enforcement action until notice of availability of mediation given (1) A creditor to whom money under a farm mortgage is owed by a farmer must not take enforcement action against the farmer in respect of the farm mortgage until at least 21 days have elapsed after the creditor has given a notice to the farmer under this section. (2) Notice to the farmer is to be in writing in a form approved by the Authority (informing the farmer of the creditor's intention to take enforcement action in respect of the farm mortgage and of the availability of mediation under this Act in respect of farm debts). ..."
Section 6 of the Act provides that: "6 Enforcement action in contravention of Act void Enforcement action taken by a creditor to whom this Act applies otherwise than in compliance with this Act is void."
"Enforcement action" in relation to a farm mortgage is defined in s 4(1) as: "... taking possession of property under the mortgage or any other action to enforce the mortgage, including the giving of any statutory enforcement notice, or the continuation of any action to that end already commenced, but does not include: (a) the completion of the sale of property held under the mortgage in respect of which contracts were exchanged before the commencement of this Act, or (b) the enforcement of a judgment that was obtained before the commencement of this Act."
"Creditor" is defined as follows: "... a person to whom a farm debt is for the time being owed by a farmer."
Subsection 5(1) provides: "5 Application of Act (1) This Act applies in respect of creditors only in so far as they are creditors under a farm debt."
"Farm debt" is defined in s 4(1) as: "... a debt incurred by a farmer for the purposes of the conduct of a farming operation that is secured wholly or partly by a farm mortgage."
A "farmer" is: "... a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation and includes a person who owns land cultivated under a share-farming agreement and the personal representatives of a deceased farmer."
"Farming operation" is: "(a) a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or (b) any other operation prescribed by the regulations for the purposes of this definition."
"Farm mortgage": "... includes any interest in, or power over, any farm property securing obligations of the farmer whether as a debtor or guarantor, including any interest in, or power arising from, a hire purchase agreement relating to farm machinery, but does not include: (a) any stock mortgage or any crop or wool lien, or (b) the interest of the lessor of any farm machinery that is leased."
"Farm property" is: "(a) a farm or part of a farm, or (b) farm machinery used by a farmer in connection with a farming operation, or (c) an access licence (within the meaning of the Water Management Act 2000) held by a farmer in connection with a farming operation."
A "farm" means: "land on which a farmer engages in a farming operation."
Finally, "farm machinery" is defined as follows: "(a) a harvester, binder, tractor, plough or other agricultural implement, or (b) any other goods of a class commonly used for the purposes of a farming operation that are prescribed by the regulations as being farm machinery for the purposes of this Act, if the goods are acquired for the purposes of a farming operation."

Matters not in issue on appeal

There was no dispute that up to and including 2012 Mr Denshire was a "farmer" within the meaning of the Act. On appeal, the appellant did not dispute that the debt for which it sued was incurred for the purposes of the conduct of a farming operation (definition of "farm debt"). Although the respondent had pleaded that the commencement of proceedings by the appellant was an enforcement action within the meaning of s 4(1) of the Farm Debt Mediation Act, it was argued at trial and the primary judge found that enforcement action was taken when s 57(2)(b) notices were served, that is, on 10 September 2014. The appellant did not take issue with that finding. Nor did the appellant dispute that the institution of proceedings was also enforcement action, notwithstanding that at the time proceedings were commenced the mortgage had been discharged. Nor did the appellant dispute that the enforcement action taken by commencement of proceedings for recovery of the debt outstanding after the mortgaged property was sold was the same enforcement action commenced by service of the s 57(2)(b) notices. Each of these matters that might have raised potential issues in the proceedings may be put aside.
The respondents did not claim that the first respondent, Green Lees Developments, was itself a farmer. They claim that because the enforcement action was void pursuant to s 6 of the Act and Green Lees Developments was joined as a party to the statement of claim, the action to claim repayment of the debt against it as well as the action to claim repayment of the debt from the second respondent, Mr Denshire, was void.
Both parties accepted that for Mr Denshire to succeed he needed to show that he was a farmer within the definition of s 4(1) at the time enforcement action was taken (Constantinidis v Equititrust Ltd [2010] NSWSC 299; (2010) 14 BPR 27,217 at [11], [12], and [14]). As noted above, it was common ground on appeal that the relevant time at which enforcement action was taken was 10 September 2014 and not 5 December 2016. As there was common ground on this question I express no view on the correctness of the position taken.
Up to the end of 2012 Mr Denshire had grazed cows on the property. In cross-examination Mr Denshire accepted that all of the cattle had gone by the end of 2012.

Primary judge's findings

The primary judge found that in about October 2013 a severe fire destroyed about half of the Green Lees property and a boundary fence between Green Lees and the adjoining property. The neighbour's stock could not be kept within the neighbour's property because of the lack of any boundary fence. Her Honour found that Mr Denshire agreed that his neighbour (a Mr Thomas) could run his cattle on Green Lees as a share-farming arrangement (Judgment [27]). That finding is challenged.
The primary judge found that Mr Denshire had been in the business of "farming" snakes. Her Honour found that Mr Denshire started farming rodents and snakes about 18 months after he bought the Green Lees property. Her Honour found: "He has a substantial rodent farm business as a result of his frustration of not being able to source good and reliable frozen rats to feed his snakes. His snakes are mainly pythons, including the sought after olive albino variety, the second biggest python in Australia. (T50.15-49). He sells the pythons as pets. He is the biggest online rodent food supplier in Australia, where food is produced, grown, bred, packed, distributed and sold to consumers who have reptiles, predominantly snakes. These activities were initially carried out at Greenlees, then later at a property at Tomago near Newcastle Airport, before having ultimately moved to a property Mr Denshire owns in Frederickton." (Judgment [29])
Her Honour found: "By the end of 2012, Green Lees Developments and Mr Denshire also had rats, mice and snakes at Greenlees. (T39.45-50). He was still farming snakes and rodents at Greenlees as of September 2014 when they were transferred to the Tomago property." (Judgment [32])
The primary judge also found: "90 From 2004 to the end of 2012, Mr Denshire was engaged in a farming operation as he grazed cows on Greenlees. In 2013, Mr Denshire entered into a share farming agreement with his neighbour, Mr Thomas, so his cows could graze on Greenlees. As at November 2015, Greenlees was still being used as a grazing property. 91 It is my view that from 2004 to 11 November 2015, there was a farming operation of cattle on Greenlees." (Judgment [90]-[91])
The primary judge dealt with a submission advanced by the appellant that Mr Denshire was not solely or principally engaged in a farming operation because his primary commercial objective was to carry out a residential subdivision of the Green Lees property and it was for that purpose he obtained the loan from the appellant. The primary judge rejected that contention and it is not pursued on appeal. Her Honour concluded: "From 2004 until December 2012, it does not appear that not much activity in the nature of property development had taken place as noted in the structural improvement report. The report provided that during this period, Greenlees had continually been used to graze cattle. Mr Denshire's evidence was that he was engaged at all times in farming on Greenlees and proposed to develop Greenlees by way of subdivision and sale ancillary to his farming activities. (Aff, Denshire 12 July 2017, [12]). However, as I have previously noted, Mr Denshire had a share farming agreement with his neighbour from 2013 to at least 11 November 2015. A 'farmer' includes a person in these circumstances who owns land cultivated under a share farming agreement. It is my view that Mr Denshrie was principally engaged in the farming operation of cattle being conducted on Greenlees up until November 2015." (Judgment [103])
The finding that Mr Denshire was principally engaged in the farming operation as at 10 September 2014 when s 57(2)(b) notices were served, depended upon her Honour's finding that Mr Denshire's land was being cultivated under a share-farming agreement, and hence Mr Denshire was a "farmer" within the meaning of the Act.
On appeal, although without having filed a notice of contention, the respondents contend that even if that finding cannot be supported, the actions of Mr Denshire in allowing Mr Thomas to graze his cattle on the land is sufficient to mean that he was a person solely or principally engaged in the farming operation.
The primary judge considered and rejected a submission by the appellant that all of the livestock grazing business carried on on the land up to 2012 was a business owned by a company, Denshire Enterprises Pty Ltd, and that a stock, snake and rodent business carried on on the land was also owned by Denshire Enterprises rather than by Mr Denshire himself. Her Honour said (at Judgment [63]): "This distinction does not matter, however, because 'farmer' is defined under s 4 of the Farm Debt Mediation Act as meaning a person 'whether an individual person or corporation'. Mr Denshire's snake and rodent farming, and his livestock trading was conducted through Denshire Enterprises, which was owned by him personally so it falls within the definition of 'farmer'. So Kiriwina's submission fails." That reasoning is challenged on appeal.
Mr Denshire gave evidence of using the Green Lees property to grow snakes and rats. The primary judge made the following findings: "29 Mr Denshire has been in the business of farming snakes for over 10 years. He started farming rodents and snakes about 18 months after he bought Greenlees. (T63.47-48). He has a substantial rodent farm business as a result of his frustration of not being able to source good and reliable frozen rats to feed his snakes. His snakes are mainly pythons, including the sought after olive albino variety, the second biggest python in Australia. (T50.15-49). He sells the pythons as pets. He is the biggest online rodent food supplier in Australia, where food is produced, grown, bred, packed, distributed and sold to consumers who have reptiles, predominantly snakes. These activities were initially carried out at Greenlees, then later at a property at Tomago near Newcastle Airport, before having ultimately moved to a property Mr Denshire owns in Frederickton. 30 While counsel for Kiriwina correctly pointed out that rodents and snakes were not mentioned in Mr Denshire's affidavits, I accept that Mr Denshire did and still does breed them. 31 In addition to rats and mice, Mr Denshire breeds quail and rabbits as part of his rodent farm business. He is not only in the market of producing reptile food, but also supplies rats and mice to zoos as well as to educational institutions such as schools and universities for the purposes of dissection in classrooms. 32 By the end of 2012, Green Lees Developments and Mr Denshire also had rats, mice and snakes at Greenlees. (T39.45-50). He was still farming snakes and rodents at Greenlees as of September 2014 when they were transferred to the Tomago property."
The primary judge recorded with apparent approval a submission of the appellant that neither snake nor rodent farming was a "farming operation" within the meaning of s 4 because farming operations were confined to traditional agricultural pursuits and that it was relevant that neither the rodents nor snakes were not being bred for human consumption. Her Honour cited the decision of Johnson J in Champion Mortgage Services Pty Ltd v Craigie [2006] NSWSC 869 where his Honour held that "farming operations" covered by the Act ought to be confined to traditional agricultural pursuits, extended only so far as the Act provides (at [87]). An application for leave to appeal from the judgment of Johnson J was rejected in Craigie v Champion Mortgage Services Pty Ltd [2007] NSWCA 15. The primary judge found: "83 Denshire Enterprises' snakes were bred and sold as pets. In the rodent operation, Mr Denshire produced, grew, bred and packed, distributed and sold them to consumers (as food for their reptiles), and to schools and universities for research. Snakes and rodents are not included in the definition of 'farming operation'. There are no regulations prescribing any other operation as a 'farming operation' for the purposes of paragraph (b) of the definition of that term in s 4(1) of the Act. The snakes and rodents were not sold for human consumption. 84 In my view, the operation or operations involving snakes and rodents do not fall within the definition of farming operation in the Farm Debt Mediation Act."
The respondents have filed a notice of contention in which they contend that the primary judge erred in concluding that: "The snake and/or rodent farming operation or operations carried out by the respondents ... did not satisfy the definition of 'farming operation' in s 4 of the Farm Debt Mediation Act".
In argument on the appeal the respondents accepted that only the alleged rodent farming operation could satisfy the definition of 'farming operation' in s 4 and that the raising of snakes as pets was not a farming operation.

Share-farming agreement

The respondents argued that the share-farming arrangement would satisfy either requirement set out in the definition of "farmer". The evidence of the asserted share-farming arrangement was meagre. This might be because it was never an issue raised on the pleadings. The respondents pleaded that a beef cattle grazing business was carried out by them on the mortgaged property. It is accepted on appeal that that business was not conducted by the first respondent, Green Lees Developments. It is also accepted that after December 2012 Mr Denshire did not himself carry on a cattle grazing business, unless it could be said that he did so by entering into the alleged share-farming agreement with Mr Thomas, or by allowing Mr Thomas to graze his cattle on Mr Denshire's land.
The definition of "farmer" includes a person who owns land cultivated under a share-farming agreement. The primary judge found that Mr Denshire was a farmer.
The respondents did not plead that Mr Denshire was a farmer because he was the owner of the land that was cultivated under a share-farming agreement. Nor did they make that submission before the primary judge. The only evidence of a share-farming agreement was evidence given by Mr Denshire in cross-examination. He was asked about the fire that destroyed about half of his land and destroyed the boundary fence between Mr Denshire's land and Mr Thomas' property. He then gave the following evidence: "Q. It came impracticable for Mr Thomas' stock to be retained on his property because of the lack of any boundary fence and you agreed for Mr Thomas to run his cattle on your property, that's right, isn't it? A. That is right, yeah, we did a share-farming deal. Q. You haven't mentioned share-farming anywhere in your affidavit, have you? A. I don't think so."
The cross-examiner did not pursue the issue. He had no occasion to do so because the respondents had not raised as an issue that Mr Denshire was a farmer because he owned land cultivated under a share-farming agreement. Nor was there any re-examination on the topic. The answer that "we did a share-farming deal" was not responsive to the questions asked. The questions asked were as to the impracticality of Mr Thomas' stock being retained on his property and, relevantly, whether Mr Denshire had agreed for Mr Thomas to run his cattle on Mr Denshire's property. The answer to the latter question was "yes". The cross-examiner did not ask about the terms or nature of the agreement. There is no evidence of what Mr Denshire understood a "share-farming deal" to be.
The term "share-farming agreement" is not defined in the Act. The expression (or variations of it) has been defined in various Acts, since repealed, (Agricultural Holdings Act 1941 (NSW), s 5(2); Wheat Quotas Act 1969 (NSW), s 3; Security Interests in Goods Act 2005 (NSW), s 3). In all of the statutory definitions, consistently with the dictionary definition, the elements of a share-farming agreement are that land of one share-farmer is made available to the other share-farmer who provides labour or stock or does other work, and either the produce or the income or profits thereby derived are shared. Without a sharing of produce, income, profits (or perhaps expenses) there can be no share-farming agreement (Salienta v Clancy [1999] NSWSC 916 at [104], [106] per Bryson J). [1]
The respondents had the onus to establish that the Farm Debt Mediation Act applied. They led no evidence of the terms of the arrangement between Mr Denshire and Mr Thomas. Such evidence had to be adduced if it could be concluded that the agreement between them was a share-farming agreement. The primary judge's conclusion that Mr Denshire was a farmer by reason of the asserted share-farming arrangement cannot be sustained having regard to the facts that: 1. the issue was not pleaded; 2. it was not raised in submissions; 3. the only evidence given about it was in a non-responsive answer to a question in cross-examination; 4. what Mr Denshire understood to be a share-farming deal was not explored; and 5. there was no evidence of the terms of his arrangement with Mr Thomas.
The fact that the possible existence of a share-farming agreement was raised in an unresponsive answer to a question asked in cross-examination did not shift an evidentiary onus onto the appellant to explore the terms of the agreement, particularly as it was not a pleaded issue.
In any event, there was no evidence that the Green Lees property was cultivated under the asserted share-farming agreement, as required by the definition of "farmer". There was no evidence that the grazing of cattle cultivated the land. The respondents submitted that "cultivation" includes grazing by reference to dictionary definitions. The definition of "cultivate" in the Macquarie Dictionary (7 ed 2017) is "to bestow labour upon (land) in raising crops; till; improve by husbandry". The definition of "husbandry" is "the business of a farmer; agriculture farming". The respondents submitted that in s 4 the definition of "farmer" was wide enough to include land "cultivated" by way of "husbandry" which was not limited to crop-growing, but was broad enough to encompass grazing cattle.
As the appellant submitted, this submission did not address the requirement in the dictionary definitions that for there to be cultivation of land the land must be improved by husbandry.
The use of dictionary definitions to interpret legislation is often problematic. As Leeming JA said in South Western Sydney Local Health District v Gould [2018] NSWCA 69 at [78]: "The legal meaning of a statutory term is but rarely assisted by resort to a dictionary definition. On at least three occasions, joint judgments of a majority of the High Court have approved Learned Hand J's statement in Cabell v Markham 148 F 2d 737 at 739 (1945) to the effect that a mature and developed jurisprudence does not "make a fortress out of the dictionary." But even the dictionary definitions relied upon by the respondents do not lead to the conclusion that the land was cultivated by the grazing of cattle on it.
The respondents submitted that a wide meaning should be given to the word "cultivated" in the definition of "farmer" to accord with the wide definition of "farming operation". A "farming operation" includes a grazing operation. The respondents submitted that there was no reason that the legislature would have intended that there be a wider class of persons who would be a "farmer" by reason of conducting a "farming operation", than there would be by reason of the land being subject to a share-farming agreement.
I do not agree. The effect of the submission is that the word "cultivated" be read as "used in a farming operation". To adopt such a construction would be to amend the legislation not to construe it. It would not satisfy the criteria referred to in Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 at [22]-[24] and [39]-[40] for departing from the text of the Act to give what is asserted to be a remedial construction. There is no clear identification that the class of persons for whose benefit the legislation was passed should include owners of land whose land was used under a share-farming agreement that did not involve cultivation of the land. There is no suggestion of inadvertence in the drafting process. The construction propounded is not consistent with the language in fact used by the legislature. As the appellant submitted, there is good reason for Parliament to have limited the definition of "farmer" where the landowner is not solely or principally engaged in the farming operation, but owns land which is subject to a share-farming agreement, to be limited to a case where, under the share-farming agreement, the land is cultivated. Cultivation improves the land. There was no evidence of cultivation on Green Lees.
The respondents submitted that the cattle owned by Mr Denshire (or one of his companies, Denshire Enterprises Pty Ltd) were removed from the land at the end of 2012 due to economic circumstances. They submitted, as they had submitted below, that a farm need not necessarily be continuously operating in order to fall within the Act. I agree. A temporary cessation of farming operations, for example because of drought, where the farmer intends to resume farming operations when conditions enable that to be done, should not deprive a farmer of the benefits of the Act. But that is not the present case. There was no evidence from Mr Denshire that his cessation of cattle grazing was temporary. His cessation of cattle grazing was not caused by the fire. All of his cattle had been removed months before the fire.
For these reasons the basis upon which the primary judge found that Mr Denshire was a farmer at the time enforcement action was taken cannot be sustained.
The respondents submitted that Mr Denshire was engaged in a farming operation by allowing Mr Thomas to graze his cattle on the land even without the inclusion of "share farming agreement". I do not agree. A landowner does not itself engage in a farming operation merely by allowing another farmer to conduct that farmer's farming operations on its land, whether gratuitously or for reward.

Snake and rodent business

On the second day of the hearing before the primary judge the respondents were given leave to amend their defence to plead that from April 2004 to June 2016 they carried on a snake and/or rodent farming business on the property.
The evidence about this business was scant. It had not been an issue until leave to amend was given. On the first day of the hearing, before the amendment, counsel then appearing for the appellant cross-examined Mr Denshire on his 2015 tax return which showed a primary production loss from a business of livestock farming. Mr Denshire agreed that that business did not relate to cattle-farming on the Green Lees property. In cross-examination Mr Denshire had said that he also ran rats and snakes on the property. He said that the business referred to in his 2015 tax return included business relating to snakes and reptile food. He gave the following evidence in cross-examination: "Q. It's the case, isn't it, that you have been keeping and breeding animals for as long as you can remember and got into the snake game over 10 years ago, that's right, isn't it? A. Yes, approximately just after I bought Green Lees, that's where I started. Q. You've put yourself forward as well renowned for you high quality snakes, that's right? A. Quite possibly, yes. Q. That's out of your website, Mr Denshire? A. Which website is that? Q. The rodent farm website? A. Yes, okay, I thought it might have been out of my snake farmer, that's why I asked you. Q. I haven't found that yet but I won't be able to resist later; you started rodent farm through the frustration of not being able to source good quality reliable frozen rats to feed your snakes, didn't you? A. That's right. Q. You saw the need for a reliable, high quality product that most people could trust, right? A. Yes, that sounds right. Q. You were looking for an alternative to the backyard suppliers where ethics assured supply and quality can go by the wayside and this business of yours, I'm referring initially to the rodent farm business, is a substantial business, isn't it? A. Yes, relatively, yes. Q. Aren't you the biggest online rodent food supplier in Australia? A. I think that would be right, yes. Q. That's the claim you've made in the website, isn't it? A. Probably, if you've looked at it, yes. It's somewhat outdated but, yes, that's the case. Q. The rodent farm, that's one word, rodent farm? A. Yes. Q. Is a business which sells food to consumers who have reptiles, snakes and other reptiles, correct? A. That's probably simplifying it. Q. Mainly snakes? A. It produces, it grows it, breeds it, grows it, sells it, packs it, distributes it, yeah, it's a vertically integrated agricultural pursuit, yes."
He also gave evidence about his snake business conducted from the property. He said: "Q. In fact, you've not too long ago set some sort of a record, a price record with the purchase of a python, did you not? A. I may have, yes, but I don't know. Q. $100,000 was it or something of that order? A. I have spent $100,000 on snakes, yes. Q. On a snake? A. On a pair of snakes - I spent $200,000 on a pair of snakes. So, I guess you could say one of them was 100. HER HONOUR Q. They're to breed from, are they? A. Yeah, they were what's - I don't know if you know anything about snakes, but. Q. I don't know anything about them, if I saw one I'd go the other way? A. They were albino olive snakes and olive pythons are the biggest pythons - they're scrub pythons but the second biggest pythons in Australia. An albino is a genetic trait. Q. It's quite rare, I gather, is it? A. Yeah and so you're breeding for a specialty animal, people want - it's a bit like a green budgie, no-one wants it but it's purple polka dotted, everyone wants it and it's the same principal with the snakes. You're breeding snakes like a stud industry, I suppose, it's creating a perception that that snake is better than that snake. ... Q. What sort of snakes are they? A. Pythons. Q. No, the-- A. Albino olive. Q. The albino snakes, you expect them to lay eggs? A. I bought them probably ten years ago. Q. What happened to them? A. I've bred them annually, we've bred about half of the albino olives in the world. Theoretically, there shouldn't be any outside Australia because you're not allowed to export reptiles but I can assure you there are albino olives outside Australia, not through my - not by me but they do get smuggled out regularly. Q. But, in a year, how many albino olive snakes would you see or is it - varies? A. You could have - if you work on pythons in general, you might get ten offspring a year. Q. Still, that's not bad money? A. And then albino olives are worth - at the moment, the price is coming back as they get less popular but they're worth probably $3,000 to $4,000 each and I'm not suggesting that you should but you can keep a pair under your bed. You don't leave a lot of area to do it. Q. You might tread on them? A. That's right but we keep them in a cage."
This evidence was elicited when it was not an issue that the breeding of rodents and snakes was a farming operation. In further cross-examination on his 2015 tax return, Mr Denshire gave the following evidence: "Q. Do you accept this, that in summary in 2015 the other livestock farming related principally to your snake and rodent businesses that you conducted or through by you or one of your companies? A. What do mean by principally? Q. Mostly? A. Do you mean in terms of income or time or expenses or what? Q. I'll take it through to you, in terms of firstly income? A. I think the majority of the income would've been from snakes and rodents. Q. In terms of value, overall value of the assets? A. I'm not sure what value of the assets, I think the value of the assets would, well the principal would've been land if that's the - but that's not really, like this is referring to a like a profit and loss, isn't it, it's not a balance sheet? Q. This is referring to a business? A. Yeah and when you say the value, the value, I suppose the value of a business is the balance sheet, isn't it? Q. I'm talking about the value of the assets in the business that you were operating, let's take the snake business? A. The value of the assets in the business I'm operating, yeah. Q. You had a lot of value in the snakes? A. Yeah, I had a fair value in snakes."
He said that his principal business when he had Green Lees was the snake and rodent business.
Both the snake business and the rodent business were conducted through Denshire Enterprises which was owned by Mr Denshire. If that business were a farming operation, then, in so far as Mr Denshire participated in it, he engaged in the farming operation, notwithstanding that it was conducted through a company.
On appeal the respondents did not contend that the snake-breeding component of the business was a farming operation. Rather, they contended that rodent farming was a farming operation in which Mr Denshire was principally engaged.
The primary judge recorded the appellant's submission that farming operations are confined to traditional agricultural pursuits and it is relevant that the rodents were not being bred for human consumption (Judgment [74]). Her Honour considered the reasons of Johnson J in Champion Mortgage Services Pty Ltd v Craigie [2006] NSWSC 869. Her Honour noted that in that case the defendants conducted a fish hatchery business on a property which harvested fish for sale to pet shops and aquariums. Johnson J found that this was not a farming operation. Johnson J said: "87 Insofar as a range of express terms are used in the definitions of 'farm', 'farm machinery' and 'farming operation', the words used are directed towards the carrying out of traditional agricultural activities on land amplified by a number of specific additional activities. In each case, the definition (which uses the word 'means') is conclusive and exhaustive: Sherritt Gordon Mines Ltd v Federal Commissioner of Taxation (1976) 10 ALR 441 at 455; Pearce and Geddes, Statutory Interpretation in Australia, 2006, 6th edn, para [6.56]. A conclusive and exhaustive definition of 'farming operation' refers to farming (extended to include dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operations. The conclusive and exhaustive definition of 'farm machinery' refers to a harvester, binder, tractor, plough or other agricultural implement. The term 'farm' means land on which a farmer engages in a farming operation. There is provision within the definitions of 'farming operation' and 'farm machinery' for extension of these terms to other operations which are prescribed for the purposes of the definitions. No such other operations have been prescribed. In my view, these features lend powerful support to the Plaintiff's submission that the 'farming operations' covered by the FDM Act ought be confined to traditional agricultural pursuits extended only so far as the Act provides."
Leave to appeal from the orders made by Johnson J was refused (Craigie & Anor v Champion Mortgage Services Pty Ltd [2007] NSWCA 15). Hodgson JA, with whom Santow and McColl JJA agreed, said: "7 In my opinion, insofar as the primary judge concluded that a fish hatchery operation for the purpose of supplying fish for pet shops and aquariums is not in the meaning of farming operation within the Act, his conclusion was correct. There may be more difficult questions in determining whether operations of the nature of raising fish for the purpose of human consumption fall within that meaning, but it would not be appropriate to grant leave in this case so that that matter could be considered."
It appears that the primary judge applied the approach adopted by Johnson J in Champion Mortgage Services Pty Ltd v Craigie in concluding that neither the snake-breeding operation nor the rodent business was a farming operation. Her Honour also noted that neither snakes nor rodents were sold for human consumption.
The respondents took issue with this reasoning. They submitted that there is nothing in the text of the definitions to confine farming operations to "traditional" farming operations or to farming operations that produce food for human consumption. I agree. It may be accepted that the definition of "farm machinery" in paragraph (a) of the definition is confined to machinery used in a traditional farming operation. But the term "farm machinery" is not used in the definition of "farming operation", but only in the definition of "farm property". The definition of "farming operation" includes traditional farming operations of pastoral, horticultural and grazing operations, but also includes dairy, poultry and bee "farming" which, at least in the case of bees might not be thought to be traditional farming operations. The definition of "farming operations" is also circular. "Farming operations" is defined to include a "farming operation". Many current farming operations may not be traditional. Deer or goat farming are examples. I see no reason they should be excluded. Farming fish for human consumption may be another example. Breeding animals or fish as pets is not farming.
Nor are farming operations confined to the production of food for human consumption. Growing feed for stock is a traditional farming operation.
The respondents bore the onus of showing that Mr Denshire was solely or principally engaged in a farming operation. It is clear that he was not solely engaged in a farming operation either on the Green Lees property or otherwise. So far as the use of the Green Lees property is concerned, that property was also used for the snake-raising business, that is, for the raising of snakes to be sold as pets. That is not contended to be a farming operation.
Mr Denshire gave no evidence as to the degree of his own involvement in that business. He is the owner of the shares in Denshire Enterprises, but there was no evidence of his personal engagement in the businesses conducted by Denshire Enterprises on the land. The primary judge's finding referred to at para [32] above that Denshire Enterprises falls within the definition of 'farmer' under s 4 of the Act is not an answer to the appellant's submission before the primary judge. Denshire Enterprises does not owe the debt for which the appellant sues. That debt was incurred by Mr Denshire and by Green Lees Developments. It is necessary for at least Mr Denshire to establish that he is a 'farmer' within the meaning of the Act and therefore that he was solely or principally engaged in the farming operation. I accept that, to the extent he was engaged in a farming operation carried on by his company, he engaged in the farming operation. He did not give evidence of his own involvement in the businesses of Denshire Enterprises carried on on the land that was said to be farming operations.
Nor was there evidence of what was done in the rodent business to obtain good quality reliable frozen rats to be supplied as food, or to be supplied to zoos or to educational institutions. The evidence did not allow a comparison of the scale or intensity of the physical acts involved in breeding snakes and breeding, killing and packaging rats.
The snake-breeding was evidently substantial and breeding albino pythons had been purchased for $200,000.
As noted above the respondents accept on appeal that the snake-breeding business for the supply of snakes as pets was not a farming operation. There was no evidence to allow a comparison to be made between the scale, intensity, or profitability of the snake-breeding business on the one hand and the rodent business on the other.
Nor was there evidence as to how the breeding of quails or rabbits was part of the "rodent farm business" (Judgment [31]).
It is unnecessary to decide whether the reference to a farmer being a person who is "solely or principally engaged in a farming operation" is to be determined only by reference to what the person does on the farm. If the enquiry is so confined, for the reasons above the respondents did not establish that Mr Denshire was solely or principally engaged in the farming operation on the Green Lees property. If it is not so confined, it is clear from the financial records of Mr Denshire and Denshire Enterprises that Mr Denshire had other businesses, including extensive interests in property developments. He gave no evidence that could establish that his engagement in off-site farming operations combined with any engagement in farming rodents on the Green Lees property was his principal activity.
For these reasons the primary judge erred in concluding that Mr Denshire was a farmer. It is conceded that Green Lees Development was not a farmer. The proceedings for the recovery of the debt owed by Green Lees Development and Mr Denshire was not enforcement action taken by a creditor to whom the Act applied.
It is unnecessary to decide whether, even if Mr Denshire were a farmer and the enforcement action against him were void, judgment should have been given against Green Lees Development. My prima facie view is that the proceeding against Green Lees Development was not enforcement action within the meaning of s 6 even if the proceeding against Mr Denshire was. It is not necessary to pursue that issue.

Calculation of the judgment debt

It follows that the appeal should be allowed. The orders of Harrison AsJ of 13 December 2017 should be set aside. In lieu thereof judgment should be entered for the appellant against both respondents in the sum of $1,361,724.14 plus interest.
No submissions were made in respect of the amount of interest claimed. The relief claimed in the statement of claim was for "interest pursuant to s 100 of the Civil Procedure Act 2005". Section 100 of the Civil Procedure Act 2005 (NSW) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right (s 100(3)(b)). As noted above interest was payable at the rate of 11.75 per cent per annum or, if the mortgagors were not in default, at the rate of 9.75 per cent per annum. The statement of claim claimed that a debt of $1,400,614.02 was payable at the date of filing the statement of claim, that is, on 5 December 2016. Counsel who appeared for the appellant before the primary judge advised that the interest claimed in the statement of claim (which was evidently claimed only up to the date of the filing of the statement of claim) had been calculated at the lower rate in the mortgage, not the default rate.
Following the sale of the property the outstanding debt was reduced to $1,346,100.55. The manager of the appellant, Mr David Woods, deposed that interest on that debt was accruing in the sum of $4,556.16 per month. This is because, generously to the respondents, the moneys received from the sale of the mortgaged property were applied by the appellant in reduction of principal rather than outstanding interest. The appellant does not claim interest on outstanding interest and the mortgage does not provide for it.
The result is that simple interest at 9.75 per cent per annum is claimed on an outstanding principal balance of $560,758.53, that is, $4,556.16 per month. Judgment should be entered for the appellant accordingly.
It may be that interest would be payable under s 100 in respect of that part of the debt that consists of unpaid interest, but no such claim is made.
The debt outstanding as at 20 December 2016 was $1,389,355.05. Interest at the rate of $4,556.16 per month should be added to that figure. The appellant is entitled to judgment in the sum of $1,485,793.77. The respondents should be ordered to pay the appellant's costs of the appeal and of the proceedings below.
SACKVILLE AJA: Given the way this case was argued, in order to uphold the orders made by the primary Judge the respondents had to show that the second respondent (Mr Denshire) was a "farmer" as defined in the Farm Debt Mediation Act 1994 (NSW) (Mediation Act) on 10 September 2014, the date of service of the notices issued under s 57(2)(b) of the Real Property Act 1900 (NSW). The respondents relied on three arguments: (i) Contrary to the finding of the primary Judge, Mr Denshire's rodent business was a "farming operation" within the definition in s 4(1) of the Mediation Act. He was therefore a person who was "solely or principally engaged in a farming operation" for the purposes of the definition of "farmer". (ii) The cattle grazing activities conducted by Mr Denshire's neighbour on Green Lees after fire destroyed the boundary fencing amounted to the cultivation of land under a share-farming agreement. Thus at the relevant date Mr Denshire was a person "who owns land cultivated under a share-farming agreement" for the purposes of the definition of "farmer". (iii) Mr Denshire's own activities in grazing cattle on Green Lees had been interrupted at the end of 2012, but the grazing activities had not been terminated by the relevant date.

The rodent business

I accept that a "farming operation" is not limited to activities related to the production of food for human consumption. Nor is the concept limited to "traditional farming activities" (assuming content can be given to that expression). The difficulty confronting Mr Denshire is the absence of evidence as to the nature of the rodent business and the manner in which it was conducted. The paucity of the evidence was no doubt attributable to the fact that there was no issue in the proceedings concerning the rodent business until the statement of claim was amended on the second day of the trial.
In substance, the evidence shows only that Mr Denshire established a relatively large scale business producing rats as food for snakes and other reptiles. The operation has nothing to do with producing food for human consumption, even as an intermediate step in that process (for example, growing fodder for cattle or sheep). There is no evidence to indicate that the breeding of rodents for pet food must be conducted on agricultural or pastoral land. The evidence implies that in Mr Denshire's business the rodents were kept in cages before being killed. But there is nothing to suggest that the process could not be carried on in a factory, shed or similar structure. So far as the evidence goes, subject to planning requirements, the rodent business could be conducted anywhere. I would therefore set aside the primary Judge's finding that the rodent business constituted a farming operation.
In any event I agree with White JA that, even if the rodent business constituted a "farming operation" Mr Denshire was not a "farmer" for the purposes of the Mediation Act. The evidence does not establish that Mr Denshire was solely or principally engaged in a farming operation on Green Lees.

Sharefarming

I agree with White JA that the evidence is insufficient to support the primary Judge's finding that at the relevant date Mr Denshire "own[ed] land cultivated under a share-farming agreement" for the purposes of the definition of "farmer". This is hardly surprising since the respondents never pleaded that a share-farming agreement was in place between Mr Denshire and his neighbour.
I also agree with White JA that even if there was a share-farming agreement in place, it did not involve the "cultivation" of Green Lees. No doubt cultivation is not limited to the use of land to grow and harvest crops. But cultivation at least requires activities designed to encourage and promote plant life in order to facilitate, directly or indirectly, the production of food for human consumption. This might be done, for example, by planting or promoting the growth of grasses suitable for grazing cattle or sheep. There is no evidence that Mr Denshire or his neighbour carried out any such activities on the land.

Grazing

Mr Denshire's evidence was that he commenced a grazing operation on Green Lees in 2004 with a herd of 100 Angus cows. He acknowledged in his evidence that the herd had been reduced over a period of time and that by the end of 2012 the entire herd had gone from the property. There was no evidence that could support a finding that this was merely a temporary interruption to an ongoing operation. Nor was there evidence that at the relevant time Mr Denshire planned to resume grazing cattle on the land.
I agree with the orders proposed by White JA.

Endnote

The orders made by Bryson J in Salienta v Clancy were varied on appeal (Clancy v Salienta [2000] NSWCA 248; (2000) 11 BPR 20,425), but the judgments on appeal are not presently relevant. 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. Decision last updated: 25 September 2018

Agricultural Holdings Act 1941(NSW)

Local Government Act 1919(NSW)

Security Interests in Goods Act 2005(NSW)

Wheat Quotas Act 1969(NSW)

(Agricultural Holdings Act 1941(NSW)

At a glance

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Judgment (16 paragraphs)

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