Southern Cross Credit Union Ltd v Reavill Farm Pty Ltd [2018] NSWSC 999 | Case summary

Supreme Court of NSW|2017-12-13|Before: Walton J

Solicitors: Collection Law Partners (Plaintiff) File Number(s): 2016/360541

INTRODUCTION

HIS HONOUR: By a notice of motion brought on 24 October 2017, Southern Cross Credit Union Ltd ("the plaintiff") sought judgment for possession of land owned by Reavill Farm Pty Ltd ("the defendant") at 141 Hazlemount Lane, Tuckurimba NSW 2480 - specifically the parcel of land with folio identifier 2/1086613 (formerly identified as the commercial premises at Lot 23 Hazlemount Lane, with folio identifier 23/1021621) ("the property") ("the application").
By way of background, the defendant is the registered proprietor of two addresses: 1. 141 Hazlemount Lane, Tuckurimba NSW 2480 (folio identifiers 1/1191905, 2/1191905, 1/1086613, 2/1086613 and 22/1021621, 2/1086613); and 2. 1-8/4 Dixon Place, Lismore NSW 2480 (folio identifiers 6/SP85141, 7/SP85141, 8/SP85141, 9/SP85141, 10/SP85141, 11/SP85141 and 12/SP85141). (For completeness, I note that a reverse street address search of folio identifier 2/1191905 also included 142 Hazlemount Lane, Tuckurimba. However, that result is of no great moment in these proceedings).
However, the application for possession before the Court only concerns, as mentioned above, the property identified by folio identifier 2/1086613.
The defendant is a small company with two employees and two directors. The directors of the defendant are Jeffrey and Diana Champion ("the Champions"). The Champions are involved in several commercial operations including, inter alia, Wilsons College, Ballina Manor Boutique Hotel and Champions Quarry (collectively referred to as "the Champion Group").
The defendant is involved in three aspects of the Champion Group: cattle operations, student accommodation and quarrying operations (the extent of its involvement was a point of contention which attracted significant attention in these proceedings). These may be briefly outlined as follows: 1. The cattle operations of the defendant concern the production and sale of cattle. 2. Wilsons College accommodates 135 Australian and international university students. Students are required to enter into a lodger's agreement for a 40 week period, with fees ranging between $140-150 per week. The defendant is listed as the holder of the business name "Wilsons College" on Australian Securities & Investment Commission's records. The defendant's ABN is listed on, inter alia, the Wilsons College website and documentation. It is also the registrant for the Wilsons College website. The defendant owns seven parcels of land at 4 Dixon Place, Lismore; the site from which Wilsons College operates. 3. Champions Quarry is a gravel and road base quarrying operation near Lismore. The quarrying operation received "Project Approval", pursuant to s 75J of the Environmental Planning and Assessment Act 1979 (NSW), by the Minister for Planning and Infrastructure on 30 August 2012, with subsequent modifications in October 2013, September 2016 and August 2017 ("the Project Approval"). The Project Approval identified the defendant as a proponent of the operation (it should be noted that Tucki Hills Pty Ltd was a former proponent but had since been deregistered). Pursuant to Sch 2 of the Project Approval, "[t]he Proponent may carry out quarrying operations on the site until 31 December 2038". The site consisted of six parcels of land with the following folio identifiers: 5/85750, 1/729118, 4/588125, 183/1013042, 1/127550 and 101/755746. (Both folio identifiers 1/729118 and 4/588125 are now known as folio identifier 2/1191905 (as of 27 February 2014), and were purchased by the defendant in or around December 2004).
On 11 October 2004, the Champions applied to the plaintiff for a loan in the amount of $420,000 to purchase vacant land ("the 2004 loan application"). Annexed to the application was a "Fact Sheet", which noted that the plaintiff had previously granted the Champions a loan in the amount of $502,779, on or around 15 February 2001, for the purpose of "refinance" (no further details were included) (hereinafter referred to as "the 2001 loan application"). The Fact Sheet differentiated between two sums, namely, "the application amount" and "the loan amount" (with the application amount being included within the calculation of the loan amount). As at the date of the 2004 loan application, the two amounts were defined as follows: 1. application amount: $420,000; and 2. loan amount: $928,767.76.
On 13 December 2004, the plaintiff provided the Champions with a "letter of conditional approval" for the 2004 loan application; which required, inter alia, security in the form of a "guarantee and indemnity" by the defendant. Annexed to the letter was a copy of the following documents: loan offer, terms and conditions, guarantee and indemnity, "Things You Should Know about Guarantees" brochure, mortgage document and acknowledgement to the plaintiff.
That same day the Champions entered into the "Offer and Loan Contract" with the plaintiff for an amount of credit in the sum of $930,073.23 ("the loan agreement"). The plaintiff provided, inter alia, $420,000 as directed by the defendant ("the debt"). The debt was secured by, inter alia, the property in respect of which the defendant was the registered proprietor. The property was mortgaged to by the defendant to the plaintiff ("the mortgage") pursuant to the guarantee by the defendant, which secured the Champions' obligations under the loan agreement ("the guarantee").
The loan agreement required a guarantee from the defendant in the form of a mortgage over the following properties: 1. the property; and 2. two rural properties at 1586 and 1586A Wyrallah Road, Tucki (folio identifiers 4/588125 and 1/729118, respectively).
On 13 December 2004, the defendant executed an acknowledgement of guarantee & indemnity secured by the mortgage to the plaintiff ("the acknowledgment"). The security property was described as "1586 and 1586A Wyrallah Road, Tucki Tucki NSW 2480" with folio identifiers 4/588125 and 1/729118, respectively. (It should be noted that whilst the acknowledgement did not include Lot 23 Hazlemount Lane, as stated above, the property was included in the guarantee that formed part of the loan agreement executed by the Champions). On 22 December 2004, the plaintiff sent a letter to the Champions advising that settlement had occurred, with respect to the 2004 loan application, on 17 December 2004 "to purchase vacant rural land". There is no evidence before the Court as to the specific land that was purchased.
The Champions have since defaulted in their repayments pursuant to the loan agreement and the plaintiff, accordingly, instituted possession proceedings against the defendant on 1 December 2016.
Prior to turning to the specific relief sought by the plaintiff, in that respect, it is necessary to set out the procedural background to the application.

PROCEDURAL BACKGROUND

The following represents a summary of the relevant background to the application. The summary is derived from, inter alia, the statement of claim filed on 1 December 2016, the defence filed on 6 January 2017 and the submissions of the plaintiff with respect to the same (noting the defendant did not file any written submissions in support of its application).
By a statement of claim, the plaintiff commenced possession proceedings against the defendant ("the proceedings").The statement of claim, together with possession of land coversheet and notice to occupier, was served on the Champions personally on 13 December 2016 in accordance with r 6.8 of the Uniform Civil Procedure Rules 2005 (NSW) (the Champions were in occupation of whole or part of the property pursuant to a right of occupation under a residential tenancy agreement within the meaning of the Residential Tenancies Act 2010 (NSW)).
The plaintiff sought default judgment against the defendant, with possession of the property, and relevantly pleaded as follows: 1. The defendant is the registered proprietor of the land at 141 Hazlemount Lane, Tuckurimba, New South Wales, being folio identifier 2/1086613. 2. By a registered mortgage (9502204) under the Real Property Act 1900 (NSW) dated 14 February 2003, the defendant mortgaged the property to the plaintiff ("the mortgage"). 3. On or about 13 December 2004: 1. the Champions entered into a loan agreement with the plaintiff; and 2. The defendant provided the plaintiff with a guarantee securing the Champions' obligations under the loan agreement. 1. The guarantee is secured by the mortgage. 2. The defendant and the Champions failed to make payments as required by the loan agreement and the guarantee and are in default. Particulars of the default: $31,276.52 (total arrears). 3. On 19 October 2016, the plaintiff gave notice to the defendant pursuant to s 57(2)(b) of the Real Property Act (and a letter of demand to the Champions to remedy their default under the mortgage and loan agreement. 4. The defendant and the Champions did not remedy the default. 5. The guarantee and loan agreement are not regulated by the National Credit Code; notices pursuant to ss 88 and 92 of the National Credit Code are not required. 6. The mortgage is not a "farm mortgage" and does not secure a "farm debt" for the purposes of the Farm Debt Mediation Act 1994 (NSW) ("the Act").
The relief sought by the plaintiff was "default judgment for the plaintiff against the defendant(s)". By its statement of claim, the plaintiff relied on at least two instances of default, both of which related to the defendant. First, a default by the Champions under the loan agreement, which was secured by the guarantee. Second, a default by the defendant under the mortgage. The breadth of the pleading (to incorporate both the Champions and the defendant) may be attributed to the potential for the Champions to be added as defendants (discussed below). It should also be noted, that the mortgage was not before the Court. However, in light of the notice served pursuant to s 57(2)(b) of the Real Property Act, and in the absence of submissions to the contrary, it may be presumed that these proceedings were brought pursuant to s 60(c) of that same Act.
The Champions, as occupiers, were advised of their right "to apply to the court for an order that [they] be added as a defendant in the proceedings". They did not respond to the notice within the requisite 10 days after service and did not seek to be added to the proceedings. Accordingly, the possession proceedings only concern the defendant.
The defence subsequently filed by the defendant did not respond to the plaintiff's pleaded case; save for admitting that "payments have been in arrears". In particular, the defendant did not traverse the issue of "farm mortgage" or "farm debt" with respect to the Act (it was not admitted or denied). As will be later discussed, whether or not the Act applied became pivotal in the submissions addressed to the application; with the submissions of both parties being reduced to two issues, with respect to ss 8 and 9(1A) and corresponding definitions within s 4, in that respect: the primary issue being whether or not the defendant may be properly described as a "farmer" and, secondly, whether or not the debt incurred was a "farm debt".
On or about 4 August 2017, the plaintiff, the defendant and the Champions agreed to a payment plan as proposed by the Financial Ombudsman Service ("the payment plan"). The terms included an agreement by the plaintiff to place on hold all legal proceedings unless a default under the payment plan was not remedied after 7 days' notice.
On 25 August 2017, the plaintiff provided written notice to the Champions and the defendant to remedy defaults under the payment plan. The defaults were not remedied and the proceedings were reinstated.
On 7 September 2017, the proceedings returned before the Common Law Registrar. Registrar Bradford directed, inter alia, "[the] Defendant to provide authorities to the Court that Ms Nott has authority to act to appear on behalf of the Defendant. Such authority to be filed by 15 September 2017 and copy sent to Plaintiff's Solicitor". The matter was stood over for directions on 26 September 2017.
The requisite authority was executed by the Champions on 14 September 2017 and filed on 19 September 2017. The authority confirmed that Ms Belinda Catherine Nott, an employee of the defendant, was authorised to act and appear on behalf of the defendant with regard to, inter alia, "matters against [the plaintiff] in the Supreme Court of NSW".
On 26 September 2017, the proceedings came before Schmidt J for directions. Her Honour stood the proceedings over to 3 October 2017 to provide the parties a further opportunity to confer and for defendant to clear the arrears. The defendant failed to do so.
On 3 October 2017, the proceedings returned for mention before Schmidt J. Her Honour made the following orders: 1. The plaintiff to inform the defendants within 7 days of the amount outstanding under the loan as at 23 October 2017. 2. Unless that sum is paid by direct deposit by the defendants on or before 23 October 2017 the defence will be struck out.
On 6 October 2017, the plaintiff's solicitors wrote to the defendant advising that the total arrears outstanding were $65,283.95. On 23 October 2017, the defendant presented the plaintiff with a cheque for that amount. The cheque was dishonoured on 26 October 2017.
On 24 October 2017, the plaintiff filed a notice of motion (the application presently before the Court) seeking, inter alia, the defence filed by the defendant be struck out and judgement for the plaintiff for possession.
On 31 October 2017, the defendant served the plaintiff with a document purporting to be a "Form 7 - Notice to Creditor", namely, requesting mediation in relation to "the farm debt" involved, pursuant to s 9(1A) of the Act.
On 8 November 2017, the matter returned for mention before Schmidt J. In light of the default not being remedied, the plaintiff sought orders, pursuant to the application, striking out the defence and entering judgment for the plaintiff. On that occasion the defendant confirmed an intention to pursue mediation under the Act. The plaintiff opposed this course as the plaintiff had pleaded "the mortgage is not a farm mortgage". The plaintiff submitted, it had been open to the defendant to raise the issue in its defence or by some other way during the course of proceedings (over the past 11 months); it should not be accepted at this stage of the proceedings.
Her Honour made, inter alia, the following orders and directions: 1. The plaintiff's motion is adjourned. 2. The defendant is to file and serve evidence on which it seeks to rely to establish that the Farm Debt Mediation Act applies to the debt, on or before 15 November 2017. 3. The plaintiff is to file and serve, firstly, any evidence on which it seeks to rely; secondly, any amendment to the motion, on or before 22 November 2017. 4. The matter is listed for mention at 9:30am on 24 November 2017. 5. Parties directed to confer.
On 14 November 2017, the plaintiff filed a notice to produce that required the defendant to produce the following documents or things to Court: 1. Copies of any taxation returns prepared by or on behalf of [the defendant] in respect of the 2016-2017 year. 2. Copies of any document (including ledgers, balance sheets, profit & loss statements and depreciation schedules) containing financial records of [the defendant] for the period 1 July 2017 onwards.
On 24 November 2017, the matter returned for mention before Schmidt J. Her Honour made the following orders and directions: 1. That the documents falling within clause 2 of the notice to produce dated 14 November should be produced on or before 1 December 2017. 2. Matter listed before the Registrar's return of subpoena list on 1 December 2017. 3. Any non-production of documents by the defendant is to be explained by way of affidavit filed and served on or before 30 Nov 2017 4. Leave granted to the parties to approach the Manager Listings to obtain a hearing date of no more than half a day
The return of subpoena was subsequently adjourned to 8 December 2017 before Registrar Hedge. On that date there was no appearance by the defendant and no documents produced.
On 8 December 2017, as an explanation for its non-production of documents, the defendant emailed the affidavit of Ms Nott sworn on 7 December 2017 to the Registrar Bradford. The defendant was directed to file the document through the Registry (this course was not undertaken but the affidavit was taken as filed before the Court during the hearing of the application).
The defendant provided the following explanation as to its failure to produce the requested documents in the affidavit of Ms Nott dated 7 December 2017: 3. In relation to the Notice to Produce dated 14 November 2017, we respond as follows: a. "Copies of any taxation returns prepared by or on behalf of [the defendant] in respect of the 2016-2017 year." I am unable to comply with the Notice to Produce for the following reason, that the financial statements for [the defendant] have not been completed for the year ended 30 June 2017. b. "Copies of any document (including ledgers, balance sheets, profit & loss statements and depreciation schedules) containing financial records of [the defendant] for the period 1 July 2017 onwards." I am unable to comply fully with the Notice to Produce for the following reason that there are no management accounts available as these are prepared on a 6 monthly basis.
The matter was ultimately stood over to 13 December 2017, the date fixed for the hearing the application presently before the Court as presently constituted.

THE APPLICATION AND THE ISSUES

The orders sought by the plaintiff were as follows: 1. The defence filed by the defendant 6 January 2017 is struck out. 2. Judgment for the plaintiff for possession of the land comprised in 2/1086612 being the land situated at and known as 141 Hazlemount Lane, Tuckurimba, NSW. 3. Leave to issue a writ for possession of land.
In relation to the order sought at [36(1)] above, the plaintiff contended that Schmidt J's orders of 3 October 2017 constituted self-executing orders that had the effect, in consequence of the non-payment of arrears, of striking out the defence. However, the orders made do not on their face have that effect (such a conclusion is reinforced by recourse to the record of the proceedings on 8 November 2017). Thus, the application to strike out the defence remains extant. This matter ultimately went forward on that basis.
Notwithstanding the fact there were no pleadings in the defence vis-à-vis the Act, the Court entertained a contention developed by the defendant (although never fully developed), following the service of a s 9A notice, that the plaintiff could not bring possession proceedings by virtue of the operation of s 8 of the Act. It would appear the questions raised as to the application of the Act represented a recognition that the Act, if engaged, may operate as a barrier to obtaining a judgment for possession irrespective of the fate of the defence.
As to the application of the Act in the present case, the parties confined the issues requiring adjudication to the following questions: 1. whether or not the defendant is a "farmer" for the purposes of the Act ("the first issue"); and 2. whether the debt incurred was a "farm debt" ("the second issue"). (The first and second issues shall hereinafter, collectively, be referred to as "the issues").
The issues did not invoke the consideration of whether the Champions were farmers for the purposes of the Act or whether the debt was a farm debt held by them.
Other than those two issues as to the operation of the Act, there was no dispute that the debt was in arrears and the plaintiff was entitled to possession.
I now turn to the relevant legislation and an analysis of the relevant authorities with respect to the application of the Act.

RELEVANT LEGISLATION

The following terms are defined in s 4 of the Act and are relevant to the present application: farm means land on which a farmer engages in a farming operation. farm debt means 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. 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 means: (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. farmer means 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 means: (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.
For completeness, the definitions of "creditor" and "enforcement action" are also included below: creditor means a person to whom a farm debt is for the time being owed by a farmer. enforcement action, in relation to a farm mortgage, means 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.
An "enforcement action" under the Act is relevantly governed by the following provisions: 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. 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). (3) This section does not apply if a certificate is in force under section 11 in respect of the farm mortgage concerned.
Section 9(1A) of the Act provides: A farmer who has not been given notice under section 8 but who owes money to a creditor in relation to a farm debt may notify the creditor in writing that the farmer requests mediation concerning the farm debt involved. A farmer may request mediation under this subsection whether or not the farmer is in default.
The primary submission of the defendant is that the plaintiff is barred from obtaining possession owing to operation of the Act and the defendant's non-compliance with the prescribed procedures of the Act (see ss 6 and 8).

RELEVANT PRINCIPLES

The plaintiff relied on the authorities of Constantinidis v Equititrust Ltd [2010] NSWSC 299 ("Constantinidis") and Varga v Commonwealth Bank of Australia (1996) 7 BPR 97,617 ("Varga"), with respect to the Act and its application in possession proceedings.
In Constantinidis, Barrett J summarised the effect of the Act with respect to the definitions of "creditor", "farm debt" and "farmer" (at [12]-[14]): [12] For a person to have "creditor" status at the particular time, it must be found that a "farm debt" is at that time owed to that person by a person who is a "farmer" at that time. [13] When one comes to the definition of "farm debt" and the question whether a particular debt is today a "farm debt", however, it is necessary to look not only to the present but also to the past. This is because the definition of "farm debt" has regard to circumstances existing when the debt was "incurred". In speaking of a debt "incurred . . . for the purposes of the conduct of a farming operation" and directing attention to the purposes for which the debt was incurred, the definition of "farm debt" necessarily pays attention to purposes existing at the past time when the debt was incurred. But that, it seems to me, is the only past aspect to which attention is directed. To the extent that the definition of "farm debt" refers to incurring by a "farmer" and security under a "farm mortgage", it directs attention to the present status of the person who incurred the debt in the past and the present status of the mortgage by which the debt is secured. [14] I am of the opinion, in particular, that one does not look for either "farmer" status or the existence of the mortgage at the time of the incurring of the debt. This is because the aim of the Act is to protect persons who are for the time being farmers from action under mortgages which for the time being exist over properties that are for the time being farm properties - but only where the secured debt incurred in the past was obtained for farming purposes. Applying the approach I consider to be correct, a person who is today a farmer and whose farm property stands today as security for a debt will be protected if the purpose of the original incurring of the debt was a relevant farming purpose (and whether or not the person was then a farmer), but not if the original incurring was for some non-farming purpose; while, if the original incurring was for a relevant farming purpose but either the person by whom the debt is owed is not today a farmer or the security property is not today a farming property, the protection will not be attracted.
Applying this authority, with which I respectfully agree, to issues in the present matter, as to the first issue, if the property is a farm property securing the debt under mortgage (with "the debt" being the loan from the plaintiff to the Champions, which pursuant to the guarantee is secured by the mortgage), but the defendant, as registered proprietor of the property, was not a farmer at the hearing of the matter, then the protections provided by the Act will not be attracted.
This is consistent with the approach of Heydon J in Waller v Hargraves Secured Investments Ltd (2012) 245 CLR 311; [2012] HCA 4 ("Waller v Hargraves").
In Waller v Hargraves, Heydon J observed (at [48] and [51]): [48] … s 4(1) defines "farm mortgage" as including "any interest in, or power over, any farm property securing obligations of the farmer whether as a debtor or guarantor". Because, as also noted above, s 4(1) defines a "farm debt" 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", "obligations of [a] farmer … as a debtor" are "farm debts". Thus a "creditor" to whom the Act applies will always be owed a "farm debt" secured by a "farm mortgage". Hence although a "farm mortgage" can secure debts other than a "farm debt", the key operative provisions require the creditor who is mortgagee under a farm mortgage to be owed a "farm debt" secured by a "farm mortgage". Although s 8(1) read by itself prevents a creditor to whom money under a farm mortgage is owed by a farmer (whether or not it is a farm debt) from taking enforcement action, s 5(1) ensures that s 8(1) only applies to creditors in so far as they are creditors under a farm debt. [49] There is thus, for the purposes of the Act, a close connection between a farm mortgage in relation to which the creditor desires to take enforcement action and any farm debt which it secures. It is not possible to identify what a relevant "farm mortgage" is without identifying the particular "farm debt" which is secured wholly or partly by it. [51] To draw a dichotomy between, on the one hand, the "money under a farm mortgage … owed by a farmer" (s 8(1)), which is "the farm debt involved" (s 9(1)), and, on the other hand, the "farm mortgage" referred to in ss 8(3) and 11(1), is to draw a false distinction. Section 8(3) refers to the "certificate … in force under s 11 in respect of the farm mortgage concerned". [Original emphasis of Heydon J.] The reference to a "farm mortgage" is a reference to a farm mortgage under which money is owed by a farmer to a creditor - that is, a particular farm debt in respect of which the creditor intends to take enforcement action against the farmer. … [Emphasis added, unless otherwise stated.]
His Honour continued (at [52]): [52] Section 8(1) forbids enforcement action by a creditor against a farmer "in respect of" a farm mortgage. The expression "in respect of" can encompass several farm debts secured by the farm mortgage. Similarly, "enforcement action" can encompass remedies sought by the creditor in relation to several distinct disputes about distinct farm debts. Section 8(3) only operates to permit enforcement action under s 8(1) in relation to a dispute about a farm debt if a s 11 certificate is in force in respect of the farm mortgage. [Footnotes omitted.]
Only upon being satisfied that the relevant party is a "farmer" would the Court be required to turn the second issue. In that event, the Court is required to determine whether, with respect to a farm property which stands today as security for the debt, the purpose of the debt incurred was for "the purposes of the conduct of a farming operation" and remains in current use for a farming purpose.
His Honour described his analysis as "consistent with the legislative intention as recognised in decided cases and in line with previous decisions" and cited the decision of the Court of Appeal in Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337 ("Australian Cherry") and that of Young J in Varga.
The Court of Appeal in Australian Cherry relevantly observed that the Act applies to the enforcement of a "farm mortgage" and not the enforcement of the loan itself (at 340).
In Varga, Young J considered the scope of the Act, in particular the appropriate construction with respect to definitions in s 4. His Honour's judgment provides particular guidance with respect to the definition of farmer. As to the determination of a person being "solely or principally engaged in a farming operation", Young J observed (at 97,617/3): The word "principally" was recently construed by the Court of Appeal in Warringah Shire Council v Pittwater Provisional Council (1992) 26 NSWLR 491 at 506; 76 LGRA 321 (with whom Clarke JA agreed at 523) construed the word "principally" as being a qualitative word not a quantitative word. So that when one was looking to see if an employee was principally employed in connection with certain work one did not just assess whether or not the employee spent 50% of his or her time on that work, but rather the distinctive and essential character of the work which was performed. A similar approach was taken by Gummow J when in the Federal Court in Universal Press Pty Ltd v FCT (1989) 90 ALR 332. The question before the court on that occasion was whether a book comprising street maps indexes and editorial content dealing with points of interest in the subject geographical area was a book consisting wholly or principally of maps. The judge found that the word "principally" was concerned with the characterisation of the finished product. Even if there was less than 50% of the pages of the book occupied by maps, if the other contents were ancillary to the maps, the book would principally consist of maps. Of course, the word may have a quantitative sense. Thus in Federal Commissioner of Taxation v FH Faulding and Co Ltd (1950) 83 CLR 594; BC5000040 where the High Court had to consider the words "consisting … principally of juices of Australian fruits" one looked to see whether the product was by weight or volume more than 50% Australian fruit juice. It seems to me that the guidance given by the Pittwater Council case is far more helpful in the instant case than the decision about fruit juices. The question in the instant case is whether the person concerned is principally engaged in a farming operation. I do not consider that the word "principally" means one has to work out what percentage of the person's time is spent in farming operations and what otherwise. One has got to look at the person and say in all the circumstances is farming that person's principal activity. It may be that from time to time that person may do something else. For instance, it is not at all unusual in our community for persons engaged in primary production to spend part of the year using their farm machinery for contract slashing or the like on someone else's property. It is not at all unusual where husband and wife are both farmers and there is a season of drought or a depressed market for one of those people to take a full-time remunerative position outside the farm so that the income can be funnelled in to the farming operation and keep it alive. Although it will be necessary to look at each case on its merits and on its facts, it would not seem to me that the mere fact that a person from time to time is involved in using the farm machinery for contract work outside the farm or is earning income outside the farm disqualifies that person from being a farmer within the meaning of the definition. [Emphasis added.]
Thus, I accept the submission of the plaintiff that the question of whether a person is solely or principally engaged in a farming operation is to be determined using a qualitative approach (see also Lawloan Mortgages Pty Ltd v Hancock [2001] NSWSC 607 at [70]).
His Honour then identified the "time when the person must be a farmer" as the second necessary consideration (at 97,617/5): The next matter to look at is the time when the person must be a farmer. It would seem to me that the whole flavour of s 4 indicates that it is at the time when the creditor is seeking to take possession of the property or other enforcement action. It will be noted that in s 4(1) all verbs are in the present tense except in the definition of "Farm Debt" which looks back to some previous time. However, this is not the whole of the answer to the problem because the definition of "farm debt" itself uses the word "farmer". A "farm debt" is "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". The question that arises is, does the definition require that the person be a farmer at the date when he or she incurred the debt? Does the farming operation have to be conducted at the time when the debt is contracted?
Young J resolved the question of timing by reference to the object of the Act (at 97,617/5): One must construe the Act to fulfil its purpose. The purpose was to prevent persons being driven off their farms because of inability to pay debt where it was possible for the debt to be rearranged after a bona fide mediation process. To fulfil the purposes of the Act, one must construe it, to my mind, favourably to the farmer, and unless compelled by the language, not permit the overriding purposes of the Act to be defeated by technicalities. I cannot see any warrant for preferring the construction that the debtor must be a farmer at the time when he or she incurred the debt so long as the debt was incurred for the purposes of the conduct of a farming operation…
His Honour concluded (at 97,617/6): I repeat that we are here dealing with a statute the object and purpose of which is to protect persons who are now conducting farming operations on land from being ejected by creditors. I am of the view that the word "purposes" in the definition of "farm debt" includes a debt incurred for the purpose of acquiring the land or an interest in the land on which the farming operation is conducted.
The plaintiff also referred to Bergin J's judgment in Lawloan Mortgages Pty Ltd v Hancock. His Honour applied the reasoning in Varga to his determination of whether or not any of the defendants were farmers (see generally at [69]-[89]).
As to determining whether or not an operation is a "farming operation", Bergin J observed (at [77]-[83]): [77] The next matter to be determined is whether the H Ranch is a farming operation. Farming operation is rather unhelpfully defined as a "farming operation". It includes dairy, poultry and bee farming operations. It also includes pastoral, horticultural and grazing operations. There is no separate definition of these "operations". [78] There are numerous types of "operations" that have been considered by courts and tribunals over the years, including railway operations, mining operations and forest/logging operations: Biga Nominees Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia (1991) 104 FLR 74; Regional Director of Customs (WA) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108; Re McDermott Industries (Aust) Pty Ltd & Anor & Chief Executive Officer of Customs (1997) 47 ALD 134; Miles v Ficuga Pty Ltd (1996) 20 ACSR 156 (referred to as 19 ACSR in 20 ACSR). In Miles Dowd J, in considering whether forest activities or operations fell within the definition of "farming operation" in the Act, expressed the view, at 157, that it was a "limiting definition" and included "matters which would clearly involve grazing". [79] In Re McDermott Industries the Full Tribunal, in following Regional Director of Customs (WA) v Dampier Salt, expressed the view that regard should be paid to the "desired end product" for the person engaged in the relevant operation. It seems to me that this approach is similar to the approach adopted by Young J in Varga referring to farming as primary production. [80] The desired end product of the H Ranch is in my view an operation which generates income from its "principal activities" as described in its Annual Returns of a company (Ex. A) as "horse riding, accommodation and function centre operation" and its "main business activity" as described in its tax returns (Ex. E) as "motel and tourist facilities". [81] The H Ranch "operation" is the sale of accommodation, the sale of meals, the provision of buildings for hire in which weddings and conferences may be held, the sale of "rides" on horses and the provision of tuition in the riding of horses. The horses are not sold. The horses are used for the business of the horse riding school and the sale of rides, which in my view falls outside the activities contemplated in the definition "farming operation". [82] It is true that the operation is conducted on rural land which has been categorised as farmland for the purpose of the assessment of the rates that are payable, but in my view it is not a farming operation within that definition in the Act. [83] Even if I were to assume that the cattle sales were somehow part of the H Ranch business by reason of the payment of Mr Hancock's receipts for the sales into the H Ranch account, I am satisfied that such operation was not conducted solely or principally by H Ranch. Its principal activities are those to which I have referred above. I am satisfied that H Ranch is not a farmer.
Returning to the relevance of the two time periods, with respect to the second issue (as identified in Constantinidis and discussed above), McCallum J in Bendigo & Adelaide Bank Ltd v McMahon [2013] NSWSC 629 ("McMahon"), made the following observations (at [10]-[14]): [10] As to current farming operations, the importance of that issue derives from the terms of the legislation, which direct attention to two periods of time. [11] Some of the provisions of the Act turn on whether a debt is a "farm debt" within the meaning of the Act. A farm debt is one incurred by a farmer for the purposes of the conduct of a farming operation that is secured wholly or partly by a farm mortgage. In focusing attention on the purpose for which the debt was incurred, plainly the legislation directs attention to the time at which the debt was incurred. That is a historical matter. [12] There was no issue in the present proceedings as to whether the debt incurred by Mr and Mrs McMahon for the acquisition of the two-ha property was incurred for the purposes of conducting a farming operation. Rather, the principal dispute in the application before me focused on the present. [13] The provisions of s 8 plainly direct attention to the position as at the time the creditor seeks to enforce a mortgage. So much is plain not only from the clear terms of the Act but from authorities which have considered this legislation, including the decision of Barrett J in Constantinidis v Equititrust [2010] NSWSC 299 where his Honour said at para 14: I am of the opinion, in particular, that one does not look for either "farmer" status or the existence of the mortgage at the time of the incurring of the debt. This is because the aim of the Act is to protect persons who are for the time being farmers from action under mortgages which for the time being exist over properties that are for the time being farm properties - but only where the secured debt incurred in the past was obtained for farming purposes. Applying the approach I consider to be correct, a person who is today a farmer and whose farm property stands today as security for a debt will be protected if the purpose of the original incurring of the debt was a relevant farming purpose (and whether or not the person was then a farmer), but not if the original incurring was for some non-farming purpose; while, if the original incurring was for a relevant farming purpose but either the person by whom the debt is owed is not today a farmer or the security property is not today a farming property, the protection will not be attracted. [14] Thus, in order to establish a basis for the discretionary relief now sought, it was necessary for the defendants to establish a respectable basis for the contention that the money owed to the plaintiff is owed under a "farm mortgage" and owed by "a farmer", each within the terms of the legislation.
McCallum J also accepted the purposes of the Act to be "well-established" and "ameliorative": "to provide for the efficient and equitable resolution of farm debt disputes by requiring mediation before the creditor can take possession of a property" (at [24]). Her Honour then observed: "[i]t seems to me that the Act would plainly contemplate that, from time to time owing to the seasonal and uncertain nature of farming in this country, farmers will have more or less involvement in their farming activities and from time to time will require financial 'breathing space'" (at [24]).
In the above extract from McMahon, McCallum J observed that the onus is upon the defendant "to establish a respectable basis for the contention that the money owed to the plaintiff is owed under a 'farm mortgage' and owed by 'a farmer', each within the terms of the legislation". The question of onus was also dealt with by Schmidt J in Commonwealth Bank of Australia v Bird [2011] NSWSC 586 ("Bird") at [16]; a passage more recently cited by Wilson J in Secure Funding Pty Ltd v Bee [2016] NSWSC 521 ("Bee") at [59].
In Bird, Schmidt J observed (at [16]): [16] There is an onus falling upon Mr Bird to establish that the s 8 prohibition on which he relies, applies to him. Thus, he has to establish that he is a 'farmer'; that the plaintiff is a 'creditor'; that the mortgage is a 'farm mortgage'; that it secures a 'farm debt'; and that the debt was incurred for the purpose of the conduct of a 'farming operation'. In order to establish these matters, it is necessary to have regard both to the present and to the past. As Barrett J discussed in Constantinidis v Equititrust Ltd [2010] NSWSC 299 at [13] …
In that case her Honour also applied Varga and ultimately found (at [23]): [23] The evidence is simply incapable of establishing that Mr Bird is either now, or in the past was ever a 'farmer', namely that he was ever 'solely or principally engaged in a farming operation'. The word 'principally' must be construed qualitatively, not quantitatively (see Varga v Commonwealth Bank of Australia[1996] NSWSC 86). The test there discussed by Young J was whether in all the circumstances farming is shown to be the person's principal activity. That was not shown here.

EVIDENCE ON THE APPLICATION

Prior to turning to the submissions of the parties, I will set out the evidence relied upon in the proceedings.
In support of the application, the plaintiff relied upon the following evidence by way of affidavit: 1. Mr Richard Fargo affirmed 24 and 26 October 2017; 2. Mr Craig Barker affirmed 21 November 2017; and 3. Mr Philip Beresford-Harvey affirmed 22 November 2017 (which included the documents within Exhibit PH-1).
The defendant relied upon the affidavit of Ms Nott sworn 15 November 2017.
Further affidavit evidence was produced by both parties with respect the plaintiff's notice to produced issued on 14 November 2017. They were as follows: 1. Mr Moussa Mourad affirmed 22 November 2017; and 2. Ms Belinda Nott affirmed 7 December 2017.
I also note, at this juncture, there was a significant absence of evidence to support some of the contentions of the defendant. This is particularly significant in light of the authorities, discussed above at [66]-[68], which confirm that the onus to establish whether or not the defendant is in fact a "farmer" and conducting "farming operations" for the purpose of the Act falls to the defendant.
At the closure of the defendant's submissions, the Court summarised and categorised the apparent absence or shortfall of evidence into three categories as follows: 1. evidence as to the purpose of the purchase of land, being the subject of these proceedings, ("the area of the land in conjunction with the quarry[ing] operation"); 2. the nature, extent and income received from the Wilsons College operation; and 3. the nature and extent of the connection between the defendant and Champions quarry - in particular, whether the defendant has an economic interest in that quarrying operation.
The defendant subsequently sought leave to provide further evidence, in light of the categories identified by the Court, which was opposed by the plaintiff. The plaintiff contended that such evidence had fallen within the scope of the notice to produce and/or, with respect to any additional evidence that may be sought by way of affidavit, directions for evidence had already been adjudicated on two occasions before Schmidt J.
In support of its application, the defendant turned to the time at which the defendant received the plaintiff's submissions, namely, the day before the hearing before the Court as presently constituted. Further, in reply to the defendant's contention with respect to the notice to produce, it was submitted that the defendant was not aware of the need to produce evidence with respect to "the purpose of the purchase of the land or [the defendant's] connection with Champion quarry".
At the close of the defendant's submissions, the Court adjourned to consider the application in light of the submissions before it and in doing so identified to the parties that two possible courses of action were available. In the event the application was declined, the plaintiff would be permitted to provide written submissions in reply. If the application was granted, the proceedings would be listed for directions on a date to be determined to program for the taking of evidence (from both parties). The Court ultimately "declined to grant the application to adjourn for the purposes of permitting the defendant to call further evidence and any other consequential orders".
The Court's ruling, in this respect, was communicated to the parties via an email dated 14 December 2017 (without the need for a further appearance). The plaintiff, in turn, provided its written submissions in reply on 18 December 2017. The short reasons for that ruling appear below.
The application was brought by the defendant at the close of oral submissions was undefined and made without particular limits save for referencing the three matters as defined by this Court (see above at [74]). I accepted the submission of the plaintiff that the defendant had ample opportunity to either put on further evidence or seek leave to do so prior to the hearing of the proceedings presently before the Court. In particular, I note the two directions hearings before Schmidt J that followed the defendant's contention that the Act applied on 8 and 24 November 2017, respectively. During the former, her Honour specifically directed "[t]he defendant is to file and serve evidence on which it seeks to rely to establish that the Farm Debt Mediation Act applies to the debt, on or before 15 November 2017".
Further, as to the arguments advanced with respect to the notice to produce, having failed to produce documents with respect to taxation returns and financial records, which would have been necessary to establish the income of the defendant both in absolute and comparative terms (vis-à-vis the defendant's submission the its cattle operations represented in excess of 50% of its predominant income), the defendant could not subsequently be permitted to lead evidence in the same areas, including evidence concerning the relative contribution to income from various sources such as the nature, extent and of any income received in relation to Wilsons College and any economic interest in Champions quarry. It should also be noted that the taking of the course proposed, by the defendant would have required not only the defendant go into evidence but the whole of the evidence to be re-opened.
In all the circumstances, it was determined that the grant such an application to be unfair and inappropriate and contrary to the provisions of ss 56-58 of the Civil Procedure Act 2005 (NSW).

The Plaintiff

The plaintiff submitted that the sole issue before the Court is to determine whether or not the mortgage issued by the plaintiff to the defendant was subject to the Act; in other words, whether the debt incurred was a "farm debt" as defined by s 4 of the Act. The plaintiff's primary submission in that respect is twofold, reflecting the first and second issue, namely, the Act does not apply because: 1. the defendant is not a "farmer" for the purposes of the Act as it is not "principally engaged in farming operations"; and 2. the loan cannot be properly categorised as a "farm debt" under the Act, owing to the fact that the original purpose of the loan is unknown (save for a reference to the purchase of "vacant land") and, significantly, cannot be shown to be incurred for "the purposes of the conduct of a farming operation".
At this juncture, it is convenient to summarise certain facts relied upon by the plaintiff, as pleaded in its statement of claim, which provide the foundation for its argument on the application: 1. the defendant is the registered proprietor of the property; 2. the defendant mortgaged the property to the plaintiff; 3. the Champions entered into a loan agreement with the plaintiff; 4. the defendant is guarantor of the loan agreement, which secures the obligations of the Champions; and 5. the guarantee is secured by the mortgage; and 6. the defendant and the Champions are in default of the loan agreement, guarantee and mortgage.

First Issue

Turning to the first contention (the primary issue in these proceedings), it was submitted that the main commercial operation the defendant is involved in is student accommodation and not farming. In this respect, reliance was placed upon the 135 student accommodation capacity and fee structure published (and publically available) on the Wilsons College website. The fee structure is before the Court in a document titled "Accommodation Information and Fees - 2017" (annexed to the affidavit of Mr Beresford-Harvey) ("the fee document"). The fee document outlined a fee instalment schedule that required fee instalments of $1,400-1,500 (dependent upon the type of accommodation). I accept the fee document as an indication of the fees charged to students lodging at Wilsons College and as the basis for the plaintiff's estimation of the defendant's turnover of $756,000 per 40 week period (noting, in that respect, the paucity of financial evidence as to Wilsons College; the defendant did not produce any financial records in accordance with the notice to produce and, furthermore, did not adduce any evidence with respect to either its relationship with Wilsons College or any taxation returns concerning income derived from the same).
The plaintiff also identified the defendant's status as the proponent to Champions Quarry as significant. First, attention was drawn to the parcels of land identified at Appendix 1 of the Project Approval and its close proximity to the secured land (the subject of its present application). It was submitted that upon conducting a "reverse street address search" the address produced was "141 Hazlemount Land" (the same address as the secured land). However, the plaintiff qualified its submission, noting that the significance of the result is limited to the indication that the quarry site is "in the very near vicinity" the secured land. This was supported by reference to a letter from Mr Champion to the defendant dated 28 March 2010. The letter included a brief report on the Champion Group. Under the heading of "Reavill Farm Pty Ltd and Tucki Hills Pty Ltd", it was recorded: [t]he property continues to trade well in cattle production … In addition, it provides excellent buffer zones for the quarry and approximately 20 millions tonnes of sandstone and sand reserves for the next 80-100 years.
It was submitted that the reference to a "buffer zone" indicated that the quarry was also located at the property. This was supported with reference to title searches which show the defendant is the registered proprietor (including, folio identifier 2/1191905, which, as earlier mentioned, includes the land recorded on the Project Application and formerly identified by folio identifiers 1/729118 and 4/588125).
Further, whilst it was accepted that the defendant conducts cattle sales, it was submitted that that "farming operation" forms a minor part of its operations as a whole. Reference was also made, in that respect, to the inaccurate assertion of income from cattle by Ms Nott during the course of proceedings, namely, that income derived from cattle for the 2016/17 financial year was "in excess of $143,732.86". The plaintiff contended that the stock accounts indicate a gross income for that period of "$91,538.45". It was submitted that this figure, when contrasted against the other commercial interests of the defendant, suggested that cattle operations were a minor operation.

The Second Issue

As to the second issue, the plaintiff noted the absence of evidence put on by the defendant and advanced the following submissions: 1. The original loan application by the Champions was annexed to the affidavit of Mr Baker. That document listed the purpose of the loan as: "PCH vacant land" ("PCH" was presumed to stand for "purchase"). The plaintiff submitted, taking the evidence at its highest it may be inferred that the defendant provided the guarantee to the plaintiff for the purpose of securing a purchase of vacant land. Ultimately, it was submitted, there is no evidence before the Court which would demonstrate that the debt was acquired for the purposes of farming, whether wholly or substantially. 2. The loan agreement with the Champions and the operations conducted by the Champions (in either the Champions company group and/or their personal capacity) are not of themselves relevant to the Court's present determination. This is because "[i]t is only the guarantee [by the defendant] that is secured [by the mortgage]". Further, the defendant is the registered proprietor of the property that comprises the security. Hence, possession proceedings were commenced against the defendant and not the Champions. 3. In any event, as previously submitted, the defendant is involved in significant commercial operations unrelated to farming. It is not a company that meets the definition of farmer pursuant to s 4 and, accordingly, does not attract the protection of the Act.
As at 20 November 2017, the defendant was $70,870.13 in arrears. It remains in continuing default under the mortgage. Hence, it was submitted, after finding that the Act does not apply, judgment should be entered for the plaintiff.

The Defendant

The defendant did not provide any written submissions in support of its application. A summary of its oral submissions appears below.

The First Issue

First, as to the primary issue in these proceedings, the defendant contended that it was a "farmer" under the Act and relied upon the following assertions: 1. The defendant owns approximately 300 acres in Tucki and has generated an income between $140,000-150,000 from its cattle operations. 2. As to proof of the defendant's involvement in farming operations, specifically cattle trading, reference was made to the "Tail Tag Identification Register" annexed to the affidavit of Ms Nott dated 15 November 2017. 3. The defendant has only two employees. Ms Nott submitted, in that respect, "one which is part time which is myself, and one which is full time, and his job is the property manager. We have no staff. I work part time to run Wilsons college, and I'm only employed 14 to 16 hours a week. The property manager is actually employed 40 to 50 hours a week". 4. Reference was also made to its involvement with the NSW Rural Assistance Authority since October 2017 and the relevance of an apparent entitlement to flood grants.
As to its submissions with respect to income derived from its beef cattle operations, the defendant maintained that its cattle operations were currently its main source of income (and had been in the past) and contended that more than 50% of its "predominant income is from the farm" (a figure which, it was contended, that had contributed to the NSW Rural Assistance Authority recognising an entitlement to flood grants). In this respect, reliance was placed upon a single "George & Fuhrmann" stock account statement, which provided a record of cattle sales for the period 1 July 2015 to 9 September 2017 (annexed to both affidavits of Ms Nott). The defendant specifically contended that the income for the 2016/17 financial year from cattle operations was in excess of $145,732.86.
In reply to the discrepancies identified by the plaintiff, the defendant contended that that figure ($145,732.86) also included private treaty sales (i.e. sales not through an agent and, it may be inferred, not recorded on the abovementioned stock account statement); however, no evidence was tendered in that respect. Further, whilst the defendant conceded that the "gross proceeds… after expenses" were lower, it was submitted that the "gross" figure that should be accepted is "$98,732.86" (not $91,538.45 as contended by the plaintiff). Again, all the Court had before it in that respect was the "George & Fuhrmann" stock account statement.
The defendant also relied upon a letter addressed to Mr Wilson from Mr Champion dated 5 August 2009, which outlined the activities of the Champion Group and referred to the cattle operations conducted by the defendant (annexed to the affidavit of Ms Nott dated 15 November 2017). Under the heading "Reavill Farm Pty Ltd" it was reported: we currently have approximately 300 breeders/young heifers on the property, which will give us a good number for sales for the coming financial year.
The defendant also sought to draw the Court's attention to the "Champion Group Investment Portfolio, Assets and Liabilities" chart, annexed to the affidavit of Mr Barker. However, no submissions were advanced beyond identification of the document.
Following its submissions with respect to its farming operations, the defendant replied to the submissions advanced by the plaintiff with respect to the scope of the defendant's involvement with Wilsons College and Champions Quarry.

Wilsons College

It was initially conceded that the defendant is the manager of the property and that the property consists of 135 bedrooms divided across units as stated on the Wilsons College website. However, during the course of oral submissions, Ms Nott later submitted that Wilsons College did not have the capacity to cater for 135 students: "They are six bedroom units. They can handle 42 students. It currently has five occupants in… the unit covering only three units". Reliance was also placed upon the fact that the defendant does not "own" the bedrooms.
It was also accepted that the defendant owns the units at 1-8/4 Dixon Place, Lismore. However, it was submitted that the defendant does not stand to earn the income alluded to by the plaintiff (namely, $756,000) for the following reasons: 1. "three of the units have been vacant for an extended period of time"; 2. "Wilsons College is currently undergoing a restructure"; 3. "[part of Wilsons College is] being let out to University Centre for Rural Health but has not provided any significant income"; and 4. "One of the units is rented for an amount of $300 a week, and the other unit is rented for an amount of $225 a week, and other unit has two people in it at $280 a week so it's certainly nothing like the $756,000 the plaintiff alluded to".
The defendant disputed the plaintiff's characterisation of Wilsons College as "a significant operation". It was submitted that the evidence before the Court indicates that the defendant only owns seven units (see folio identifiers 6/SP85141, 7/SP85141, 8/SP85141, 9/SP85141, 10/SP85141, 11/SP85141 and 12/SP85141).

Champions Quarry

The defendant accepted that folio identifiers 1/729118 and 4/588125 were both purchased by the defendant in December 2004 and that the lots had "changed quite significantly" (i.e. assigned new folio identifiers).
The defendant also conceded it was the proponent for the quarrying operation. However, it contended this was "purely because the land holder of the land had to… make the application". It maintained: "[the defendant] is not an owner or an operator of the quarry or the quarry land". The defendant also contended that it did not generate income from its involvement but failed to produce any evidence in support of its contention.
Reference was then made to Appendix 4 "Subdivision of Land" in the Project Approval. It was contended that the following the subdivision, Champions Quarry "became wholly encased on lots… and the land that [the defendant] retained was lot 1 and 2… They are wholly farming land, they do not have any part of the quarry operated on them or undertaken. They are referred to as what's called a 'buffer zone' because they fall within the vicinity of the quarry". Thus, the defendant accepted the existence of a "buffer zone" (as described by the plaintiff) but contended the land was "wholly farming land".
It was also contended that "[t]he land of the quarry was actually sold by [the defendant] and Tucki Hills in 2014 [the then proponents] to a third party, so [the defendant] does not own any of the property from the quarry". However, no evidence was adduced to support that contention.
Finally, it was submitted that the defendant "has no direct link to the quarry or any of its income, and it has not… created any income or generated any income since its inception in 2007 due to the capital nature of the quarry, so I just want to discount the fact that the quarry provides any income source for [the defendant]". In that respect, reference was made to both Champions Quarry 2 Pty Ltd and Champions Quarry Pty Ltd as the companies with interest in Champions quarry. In support of that contention, the defendant turned to a NSW Land Title "Owner Name" search, with respect to Champions Quarry 2 Pty Ltd, annexed to the affidavit of Mr Beresford-Harvey; however, it should be noted, that search returned "nil" results and accordingly does not assist the defendant.
Whilst the evidence before the Court does confirm that the defendant was correct to submit that it does not have an interest in "Champions Quarry 2 Pty Ltd" (pursuant to an "ASIC Current Organisational Extract of Champions Quarry 2 Pty Ltd"), that factor is of no great moment in these proceedings because it does not impact upon consideration of either the first or second issue.

The Second Issue

Turning to the second issue, the defendant made submissions with respect to both the 2001 and 2004 loan applications (distinguishing, however, between each as the "original loan" and a "second loan", respectively) as follows: 1. Whilst, the defendant accepted that it is the registered proprietor of 141 Hazlemount Lane, Tuckurimba, it submitted that the relevant land in these proceedings is 64 Hazlemount Lane, Tuckurimba (which, it may be noted, is the registered business address of the defendant). The defendant referred to the purpose of the 2001 loan application and contended it was for refinancing the property at "64 Hazlemount Lane, Tuckurimba" with folio identifier 23/1021621. It was contended that the plaintiff had incorrectly identified the property as "141 Hazlemount Lane, Tuckurimba". No evidence was produced to support that submission. In any event, on the material before the Court it is apparent that parcel of land to which folio identifier 23/1021621 concerns is the property noted on the guarantee (albeit now identified by folio identifier 2/1086613), which secures the debt granted pursuant to the 2004 loan application. 2. The defendant accepted that the 2004 loan agreement required a guarantee from the defendant in the form of a mortgage over two rural properties at 1586 and 1586A Wyrallah Road, Tucki (folio identifiers 4/588125 and 1/729118, respectively). However, it omitted reference to the commercial premises situated at Lot 23 Hazlemount Lane (folio identifier 23/1021621), which, as earlier mentioned, were also included in the guarantee and on the loan agreement. 3. It was contended that that the purpose of the loan agreement was for the purchase of 1/729118 and 4/588125 (which were earlier identified as parcels of land within the Champions quarry and the subject, together with Lot 23 Hazlemount Lane, of the guarantee). However, no evidence was produced to support that assertion. The defendant principally relied upon the purpose cited in the 2004 loan application: "PCH vacant land". It should also be noted, whilst not explicitly referred to by the defendant, that references to a purpose to "purchase vacant rural land" were also included in: 1. the letter of conditional approval dated 13 December 2004, provided by Mr Neale Wilson (a loans officer for the plaintiff) to the Champions; and 2. the letter confirming settlement dated 22 December 2004, provided by Mr Wilson to the Champions. (Both letters were before the Court as annexures to the affidavit of Mr Barker).
The defendant also appeared to concede that "the mortgage is not a farm mortgage". However, in light of the subsequent submission, the concession may be understood as misplaced speech: Now under the Act, the farm mortgage under Farm Debt Mediation Act, section 4, the farm mortgage is defined as, "Includes any interest or power over any farm property". Now we quite clearly purchased farm property with the moneys that were provided by the Credit Union amounting to the 825,000, the 500,000 odd from 2001 and the 420 from 2004. They were used for properties that only have … farming activities on them. We don't have any income from the quarry. It is not the part of our - it's not a part of our Reavill Farm business, and the income from the rental properties is quite insignificant.

The property, the loan agreement and the mortgage

The property that is the subject of these possession proceedings is 141 Hazlemount Lane, Tuckurimba NSW, specifically, the parcel of land identified by folio identified 2/1086613 of which the defendant is the registered proprietor. That property was previously identified by folio identifier 23/1021621. The significance of that fact is that the latter folio identifier corresponds with the property listed in the loan agreement, which the defendant mortgaged to the plaintiff. The relevant mortgage is registered and identified by dealing number 9502204.
The Champions, together with the plaintiff, made up the parties to the loan agreement. The Champions executed the loan agreement in their personal capacity and not as directors of the defendant (or any other company). The loan agreement was secured by a mortgage over, inter alia, the property, together with a guarantee and indemnity securing the Champions' obligations under the loan agreement, which was executed by the defendant on 13 December 2004 as guarantor.
From 17 October 2016 to the present, the defendant and the Champions have either partly or wholly failed to make payments as requirement by the loan agreement. As at 20 November 2017, the defendant was $70,870.13 in arrears and remains continuing in default.
On 19 October 2016, the plaintiff gave notice to the defendant, as mortgagor, pursuant to s 57(2)(b) of the Real Property Act for the default to be remedied. Notices pursuant to ss 88 and 92 of the National Credit Code were not required as neither the loan agreement nor the guarantee were regulated by the National Credit Code. The defendant and the Champions did not remedy the default.
On 1 December 2016, the plaintiff commenced possession proceedings and sought default judgment against the defendant, being the registered proprietor of the property and guarantor of the loan agreement. The Champions were not included on the originating process, as they were not listed as registered proprietors on the property. Following the personal service of a notice to occupier on 13 December 2016, the Champions did not apply to be joined as defendants. Hence, the possession proceedings only concern the defendant.
It is in that context that the issues require consideration.

The first issue

There was no dispute that the defendant was involved in three discrete aspects of the Champion Group: cattle operations, Wilsons College and quarrying operations. Nor was there any dispute that the first of those activities constituted a farming operation for the purposes of the Act and the other two did not. As to the scope of its involvement in the latter two activities, the defendant relied upon the following propositions: 1. The income generated by Wilson College for the defendant was not as significant as a $756,000 turn around each 40 week period and was not the principal source of income for the defendant; and 2. Its connection to quarrying operations was limited to its position as "proponent" on the Project Application (owing to its position as "land holder"). It maintained it was not the owner or operator of the quarry or quarry land and did not generate income from its involvement.
Having regard to the abovementioned authorities, the defendant bore the onus of establishing that it was a "farmer" for the purposes of the Act. By the definition in s 4, the defendant was required it to show that it was "principally engaged in a farming operation".
The word "principally" must be construed qualitatively, not quantitatively in order to determine whether in all the circumstances farming is shown to be the defendant's principal activity: Varga at 97,617/3. For the reasons discussed below, the defendant has not discharged the onus of demonstrating that it is a farmer for the purposes of the Act.
To establish the defendant was principally engaged in the farming operation of cattle, reliance was essentially placed upon the income derived from the first named activity, namely, cattle operation, to propound that it was a farmer for the purpose of the Act. The proposition advanced was that the defendant's cattle operations were its main source of income, with more than 50% of its "predominant income" (a concept which was not explained) being generated by the farm.
No other contention, and little by way of evidence, was advanced to demonstrate that the defendant was principally engaged in cattle operations by virtue of the size or nature of its cattle operations or its history.
Overall, the evidence as to cattle operations may properly be described, in my view, as meagre. In short, the submissions did not extend to the operations of the defendant in cattle beyond the mere existence of the operation and income received from such operations in particular periods divorced from any evidence of how that operation compared (by any measurement) in a proportional or relative sense to revenue from the defendant's non-farming operations. There was a paucity of evidence as to income in relative terms (that is, relative to other operations by the defendant).
At this juncture, it might also be observed that, notwithstanding the paucity of evidence called by the defendant as to cattle operations, the plaintiff went into evidence to demonstrate the significance of Wilsons College and Champions Quarry to the defendant's operations. That evidence established, prima facie, that those operations were significant. Putting aside questions of onus, the defendant never met, as a matter of evidence, the plaintiff's case in that respect.

Cattle operations

The defendant is engaged in a farming operation, specifically, cattle operations with respect to the production and sale of cattle. The cattle operations generate an income as evident by the George & Fuhrmann stock account statement, which provided a record of cattle sales for the period 1 July 2015 to 9 September 2017.
If, by the submission of the defendant vis-à-vis cattle operations, the defendant meant the predominant income was by the sale of cattle operations, then there was insufficient evidence to make good that proposition. The primary evidence relied upon by the defendant in that respect was the stock account statement. However, the stock account statement only demonstrates that within a particular time period that there were cattle sales for particular amounts.
There was a particular debate about sales for the 2016/17 period. It was ultimately agreed that the stock account sheet did not reveal an income of $143,732.86 (as contended by the defendant) and, depending upon analysis, revealed a gross income between $91,538.45 and $98,732.86 for the 2016/17 financial year on the parties' submissions. That material says nothing as to financial returns from cattle as a proportion of either income or the contribution of cattle operations to the defendant based on other financial measures of the defendant's operations. No statement as to the financial accounts of the defendant or any evidence as to the proportion of its income derived from cattle operations are before the Court.
It may be noted that the defendant also placed reliance upon the "Champion Group Investment Portfolio, Assets & Liabilities" spread sheet ("the Investment Portfolio"). The following observations may be noted with respect to the Investment Portfolio: 1. it sets out assets by way of land and other assets (collectively, "the assets") and liabilities are recorded as loans ("the liabilities"); 2. the assets are held by various entities across the Champion Group, which includes assets held by the defendant, some specifically identified as "farm" acreages; 3. it does not include any information with respect to income and expenditure; 4. in relation to specific assets: 1. "Stock (Animals)" is shown to be owned by two entities: the defendant and Tucki Hills Pty Ltd (a factor that was not mentioned by the defendant - the portions of holdings held by each entity were not quantified); and 2. "Farm Equipment" is mentioned but there are no particulars about how the farm equipment is employed for cattle operations or to produce revenue or undertake production in that respect. It is unclear how the equipment is of the like or treated for accounting purposes.
Whilst some of that material indicates an engagement in farming operations by the defendant, as does the stock sheet, the Investment Portfolio reveals little about other operations undertaken by the defendant (save for a reference to holdings by the defendant that are attached to Wilsons College) or, significantly, what proportion of its overall operations relate to farming. In particular, in relation to the land on which Wilsons College operates ("4 Dixon Place, Lismore"), the Investment Portfolio does not record any information as to financial returns or information that would otherwise enable an assessment as to what portion of the defendant's operations are devoted to this activity. The data does, however, at face value, indicate that the largest land holding by the defendant within the Investment Portfolio lies on the land where Wilsons College is located; as indicated by its valuation of $2.205 million and estimated market value of the same (as at 22 October 2014).
The evidence led by the defendant, such as it is, does not demonstrate that the operations of the defendant are principally related to farming operations vis-à-vis its cattle operations. All that may be properly found on the evidence is that a portion of its operations are farming vis-à-vis the cattle operations. Further, it is also apparent that, on the plaintiff's evidence, a significant portion of the defendant's operations concerns student accommodation vis-à-vis Wilsons College, which is not a farming operation. Further, whilst the defendant disputed that it operated and obtained income from Champions Quarry, it gave no explanation in evidence as to how that position may persist notwithstanding the defendant being the proponent of the Champions Quarry Project. (I will turn to further findings with respect to both Wilsons College and Champions Quarry under the subsequent headings). In order for the defendant to establish it was a farmer for the purposes of the Act, it was essential for the defendant to make good the proposition that its operations were principally farming operations. It failed to do so and failed to discharge the onus falling upon it to establish the same. This conclusion is also based upon the following discussion of the defendant's non-farming operations.

Wilsons College

It was accepted by the defendant that the student accommodation generated income and that the defendant was: 1. the manager of Wilsons College; 2. the registered holder of the business name "Wilsons College"; 3. the registered proprietor of seven parcels of land upon which Wilsons College operates its student accommodation; and 4. the registrant for the Wilsons College website and its ABN is listed on the same.
However, despite its uncontested business and financial connection to Wilsons College, the defendant did not produce or adduce any evidence that would support its contention in relation to any income generated (or, for that matter, the nature and content of its involvement in the operation). Thus, the defendant only relied upon assertions in oral submissions that its engagement with Wilsons College was not a significant operation, when compared to its cattle operations, and not its principal activity. However, assertions alone cannot discharge the onus as required.
Evidence was called, however, by the plaintiff which undermined the contentions by the defendant. This consisted of documentation downloaded from the Wilsons College website and annexed to the affidavit of Mr Beresford-Harvey, which included the following: 1. The Wilsons College 2017 brochure - a 7 page document that provided information as to description and location, services and facilities, fee structure and accommodation. 2. The fee document (described above at [84]).
From the above documentation the following extracts may be noted:

The brochure 1. "Our college accommodated 135 Australian and International university students. It provides modern furnished individual study bedroom in comfortable self-catering units in either 4 bedroom townhouses or 6 bedroom deluxe units." 2. "Students are required to sign a lodger's agreement for a 40 week period from 10th February to 16th November 2017." 3. Services at Wilson College include, inter alia, weekly monitoring "by our cleaner to maintain cleanliness in the units"; two commercial laundries; and 24 hour security service.

The fee document 1. "All Lodgers [sic] Agreements are for a minimum of 40 weeks being from 10th February to 16th November 2017." 2. Fees range between $140-150 per week.

The plaintiff submitted that Wilsons College was the main commercial operation that the defendant is involved in - not farming. Reliance, in this respect, was placed upon the 135 student accommodation capacity and fee document before the Court, which indicated a potential income of $756,000 per 40 week period (at full capacity). The significance of the land holding by the Defendant for Wilsons College was also prima facie confirmed in the Investment Portfolio (as discussed earlier). Thus, if the defendant wished to contend that the usage was less than capacity or that some other factor reduced the significance of what is obviously a substantial business operation, it needed to produce clear evidence as to those facts.
In light of the material before the Court, it cannot be said that the defendant's involvement in the operation of Wilsons College is not significant.

Quarrying operations

With respect to the quarrying operations, upon the material before the Court, the defendant's involvement cannot properly be described as without a "direct link", as contended by the defendant, to quarrying operations because it is listed as both the registered proprietor of at least two parcels of land listed on the Project Application (folio identifiers 1/729118 and 4/588125, now known as folio identifier 2/1191905) and, more significantly, as proponent of the "Champions Quarry Project". Schedule 2 of the Project Application sets out the "Administrative Conditions" which outline responsibilities of the proponent with respect to quarrying operations. These include, inter alia: 1. "The Proponent must carry out the development … [i]n accordance with the Project Layout Plans… and the conditions of this approval." (cl 2(b)); 2. "The Proponent must comply with any reasonable requirements of the Secretary" (cl 4); 3. "The Proponent may subdivide the land" (cl 5); 4. "The Proponent must carry out quarrying operations on the site until 31 December 2038" (cl 6); 5. Clause 6 also included a note that specified: "[u]nder this approval, the Proponent is required to rehabilitate the site and carry out additional undertakings to the satisfaction of the Secretary. Consequently, this approval will continue to apply in all other respects other than the right to conduct quarrying operations until the rehabilitation of the site and those undertaking have been carried out to a satisfactory standard"; and 6. "The Proponent must not extract more than 250,000 tonnes of extractive materials from the site in any calendar year" (cl 8).
In addition to relying upon the significance of the defendant's status as proponent of the Champion's quarrying operations, the plaintiff also relied upon title searches that indicated that the defendant had holdings within Champions quarry and further noted that parcels of land attached to the quarrying project were within the vicinity of the property the subject of these proceedings. Further, reference was made to the Champion Group report in which Mr Champion made the following observations with respect to the defendant: 1. "trades well in cattle production"; and 2. "provides excellent buffer zones for the quarry and approximately 20 million tonnes of sandstone and sand reserved for the next 80-100 years".
That evidence supports the contention advanced by the plaintiff that land owned by the defendant was also utilised for quarrying operations at least to the extent of a "buffer zone". What financial transactions or returns resulted from the same is unknown.
No evidence as to the financial accounts of the defendant or any further particulars as to its engagement with Champions quarry, save for the Project Application, was before the Court.
Thus, in the absence of countervailing evidence by the defendant, the evidence called by the plaintiff is sufficient to establishing the following propositions: 1. the quarrying operations the subject of the Project Application is a significant commercial enterprise; 2. the defendant is the proponent to the Champions Quarrying Project; and 3. the defendant has a direct connection to quarrying operations as owner of land on which quarrying either wholly or partly take place and as proponent of the quarrying project.
It follows that the plaintiff's submissions, in that respect, may be accepted.
Thus, the preponderance of evidence does not support the assertion that in the absence of proof of income the defendant's involvement may be accepted as "not direct" or, by extension, irrelevant in the light of the defendant's farming operations.
The Act requires the defendant to demonstrate that it is "principally" engaged in farming operations; an assessment that was confirmed in Varga to be "qualitative" not "quantitative" (at 97,617/3). This requires an assessment of the facts before the Court on its merits, as the mere involvement of the defendant in non-farming operations, in and of itself, would not automatically deny operation of the Act: Varga at 97,617/3.
However, the plaintiff produced evidence which demonstrated that the defendant's non-farming operations were significant and, at least in the case of Wilsons College, the defendant conceded that aspect of the operations contributed financially to the defendant. Whilst the defendant contested the financial contribution of Champions Quarry to the operations of the defendant, it accepted it was the "proponent" of the quarrying operation, which is defined in the Project Application as the entity which carries out the quarrying operations. There was an implicit acceptance in the defendant's submissions that the quarrying operations were substantial.
Significantly, the defendant carried the onus to demonstrate it was principally engaged in cattle operations. The defendant produced little evidence as to the nature and size of its cattle operations in absolute or relative terms (to its non-farming operations). The reliance on income proved nothing more than at particular points in time the defendant received revenue from cattle operations (the nature of those operations was not explained). Putting aside the limitations on quantitative considerations demonstrating that an entity is a farmer for the purposes of s 4 of the Act, the evidence of the defendant as to income never rose to a point where any comparative assessment may be made between that source of revenue and the revenue derived from non-farming sources. It was not enough for the defendant to merely assert, without evidence, that its farming operations generated more than 50% of its income, particularly in the light of contradictory evidence called by the plaintiff. Finally, evidence of a qualitative nature as to the extent of the defendant's cattle operations was minimal and certainly insufficient to demonstrate that the defendant was a farmer for the purposes of the Act.

The second issue

In the absence of a positive finding that the defendant is a farmer for the purposes of the Act, it is unnecessary to deal with second issue, namely, whether the debt was a "farm debt". Whilst it is not entirely necessary to consider the submissions developed about that issue any further, in any event, it is unlikely that a positive finding would have been made in light of my conclusions with respect to the first issue. There are two significant difficulties on the evidence, to the defendant making good that contention: 1. The defendant has failed to demonstrate that it is a "farmer" for the purposes of the Act; and 2. Turning to the debt, even if the defendant had met the definition of "farmer" under the Act and had been showed to have incurred the debt, the purpose for which the debt was incurred cannot be said, pursuant to the 2004 loan application, to be "for the purposes of the conduct of a farming operation", noting the highest it can be put, on the evidence, is for the purchase of vacant rural land. Thus, the evidence does not sustain the proposition that the debt incurred was for the purposes of the conduct of a farming operation. It was not a farm debt.

CONCLUSION

The proceedings before the Court concern an action for recovery by the commencement of possession proceedings against the defendant pursuant its guarantee under the loan agreement and its mortgage with the plaintiff.
The taking of an action for possession of property under a "farm mortgage" is an "enforcement action" under the Act: s 4. Section 8 precludes action for possession against a farmer in respect of a farm mortgage until notice is given by the creditor to the farmer in accordance with that section.
Absent from consideration of the Act, the pleadings in the proceedings established a proper basis for orders for possession because the defendant admitted that payments had been in arrears and notice had been served by the plaintiff on the defendant pursuant to s 57(2)(b) of the Real Property Act. I also note that the defence filed by the defendant does not constitute a proper defence for the purposes of Pt 14, Div 3 of the Uniform Civil Procedure Rules and may, accordingly, be liable to be struck out.
Hence, a grant of relief to the plaintiff effectively came down to a consideration of whether the Act applied. In that respect, the issues were confined to two issues: the first and second issue, respectively (as previously defined).
The defendant has failed to discharge the onus falling upon it to demonstrate on the evidence that it is principally engaged in farming operations and is, therefore, not a "farmer" for the purposes of the Act. Further, whilst not finally resolving the question, it would seem the debt was not a "farm debt", namely, incurred by a farmer for the purposes of the conduct of a farming operation that is secured wholly or partly by a farm mortgage. Thus, the action brought by the plaintiff is not precluded by the Act.
As stated above, there is a proper basis to strike out the defence. By the statement of claim, the plaintiff sought "default judgment", bringing with it the provisions of r 16.4 of the Uniform Civil Procedure Rules, and the application, by the motion, sought "judgment" (without specifying the basis for such relief per se). This creates some uncertainty as to the appropriate relief to be afforded to the plaintiff, having regard to the conclusions reached by the Court in this judgment.
It is, therefore, necessary to clarify the relief sought by the plaintiff and the basis for the particular orders claimed. It is appropriate, therefore, the Court receive further short submissions on that issue in accordance with the directions that follow. Those submissions should also traverse the question of costs (noting that costs would, in the circumstances, normally favour the plaintiff as following the event) and attach draft orders reflecting this judgment and the submissions made. The Court will make orders having regard to the material received and any submissions by the defendant as to the form of relief claimed and orders proposed.

DIRECTIONS

The Court makes the following directions: 1. The plaintiff is to file and serve further written submissions together with draft orders reflecting this judgment within 7 days of its publication. 2. The defendant is to file and serve any written submissions in reply as to the relief claimed and orders proposed within 7 days of receipt of the material in (1). 3. Subject to further submissions, the defendant shall pay the costs of the plaintiff of these proceedings as agreed or, in the absence of agreement, as assessed.

Amendments 23 October 2018 - Correction to hearing dates listed on the cover sheet: 13 December 2017; 18 December 2017 (written submissions). 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: 23 October 2018

Southern Cross Credit Union Ltd v Reavill Farm Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (26 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (14)

Cited By (3)