Supreme Court New South Wales Medium Neutral Citation: National Australia Bank v Jellyman [2012] NSWSC 847 Hearing dates: 26 July 2012 Decision date: 27 July 2012 Jurisdiction: Common Law Before: Barr AJ Decision: 1. Direct the entry of a verdict and judgment for the plaintiff in the sum of $11 719 657.54. 2. Order the defendant to pay the plaintiff's costs. Legislation Cited: Banking Act 1959 (Cth) Trade Practices Act 1974 (Cth) Category: Principal judgment Parties: National Australia Bank (Plaintiff) Rodney Harold Jellyman (Defendant) Representation: J Hynes (Plaintiff) In person (Defendant) Turks Legal (Plaintiff) File Number(s): 2010/414217 Judgment 1HIS HONOUR: The plaintiff, National Australia Bank Limited (NAB), sues the defendant, Rodney Harold Jellyman, under a guarantee. At all material times the defendant had an interest in and acted on behalf of Hillston Grove Vineyards Limited (the company). He applied on the company's behalf for loans from the plaintiff. On 28 February 2006 the plaintiff made available a sum of money in an account called Farmer's Choice Farm Management facility. The company used the money. On 6 February 2009 the plaintiff made further monies available to the company at the defendant's request this time in the form of a bill facility. The company used the money. On 13 February 2009 the defendant executed a guarantee and indemnity securing the company's performance of its obligations under the loans and agreeing to pay monies owed by the company up to a limit of $10 000 000 together with certain other amounts. The company failed to pay monies the plaintiff considered due and owing under the terms of the two loan facilities. It served notices of default and demand, the first dated 15 April 2010 demanding payment of $221 198.85 and the second dated 1 June 2010 demanding payment of $10 857 053.99. The company did not pay. On 21 July 2010 the plaintiff made a written demand on the defendant under the guarantee, requiring payment of $11 182 975.50.The defendant did not pay. 2The issues on the pleadings were narrow. The execution of the loan facilities, the lending of the monies and the execution of the guarantee and indemnity were not in dispute. Neither were the assertion that the company did not pay the amounts demanded and that the defendant did not pay the amount demanded of him or any of it. 3The defendant did not admit that the amounts demanded of the company and of himself were accurately calculated. He denied that any amount was due and owing. 4In his amended defence filed on 12 March 2012 the defendant pleaded two grounds. The first, purporting to rely on the provisions of the Trade Practices Act 1974 (Cth) asserted that in or around January or February 2008 the plaintiff in trade or commerce made a representation to him as to the value of the property which was the subject of the guarantee, intending him to rely on the representation when deciding whether to execute the guarantee, and inducing the company and him to execute the loan agreements and the guarantee. The representation was made in the valuation of Brian Quinlan of Quinlan's Property Consultants dated on or about 30 December 2007. By paragraph 2(c)(vi) of the amended defence the representation was assertedly untrue "in that the valuation represented that the property was worth significantly more than was in fact the case". By paragraph 2(c)(vii) it was pleaded that if he had known the true value of the property the defendant would not have signed the guarantee. No particulars of the assertedly true value were given. All that was stated was that further (sic) particulars would be provided after discovery and the exchange of experts' reports. 5The second ground of defence pleaded a representation by the silence of the plaintiff that, in relation to two valuations provided by Mr Quinlan at the plaintiff's request, it had complied with Prudential Standard (APS) 220 issued by the Australian Prudential Authority (APRA) under s 11AF of the Banking Act 1959 (Cth) ("the Act") and that it was satisfied as to the accuracy of the valuations. The representation was said to be false in that the plaintiff had not complied with the APS and the Act. If he had known that the representation was false the defendant would not have signed the loan agreements or the guarantee. 6When the parties opened the case the issues became even narrower. Mr Hynes, for the plaintiff, sought to rely only the default under the second loan. Whereas by the terms of the guarantee the plaintiff claimed entitlement to payment of $10 000 000 together with other costs, expenses and interest, it limited its claim to $10 000 000 plus interest at rates set by the Court. 7The defendant, who conducted his own defence, abandoned the assertion that the first representation was untrue in that the property had been overvalued and asserted instead that the plaintiff had, by commissioning the valuation from Mr Quinlan, improperly used it to give "comfort" to him and so induce him enter into an agreement he could not afford to enter into and would not otherwise have entered into. 8Whatever may be said about the defendant's ability to derive a defence in whole or in part from an inducement to enter into the loan agreements and the guarantee by the "comfort" provided by the valuation, it was an essential part of the defence that the valuation be seen to be one commissioned by the plaintiff. That was what the defendant asserted. The bank denied that it had commissioned the valuation. 9In his affidavit sworn on the 6 December 2011 the defendant stated that Mr Quinlan's principal was the plaintiff. There were these passages - 41. Quinlan's provided a valuation to the NAB (as mortgagee). 45. Quinlan's were again used by the NAB as valuers... 10Those passages were objected to and I did not admit them into evidence. 11The defendant also pointed to passages in the affidavit of Mr Glenn Cox, Regional Agribusiness Manager of the plaintiff, sworn on June 2012, to the effect that he had received a copy of the relevant valuation from Mr Quinlan. The evidence was equivocal, however. One would have expected, irrespective of who gave Mr Quinlan his instructions, for him to send a copy of the valuation to the intending lender. 12The defendant was thus left without evidence of his principal assertion. 13The defendant knew that Mr Quinlan had sworn an affidavit and had read the contents of it. He knew that Mr Quinlan was asserting, inter alia, that it was the defendant, not the plaintiff, who had commissioned him to value the property and that it was the defendant who had paid his fee. That affidavit was reserved by Mr Hynes against the need to bring a case in reply. 14Over the objection of Mr Hynes I permitted the defendant to call Mr Quinlan, though not to cross-examine him. The result was that Mr Quinlan's affidavit was read in the defence case. The defendant's examination of Mr Quinlan was short. He asked one admissible question possibly going to the second ground of defence but received an answer that did not assist the defence case. 15Although the defendant's calling Mr Quinlan might be thought to have damaged his case, in fact until that point he had no case. He was and remained without evidence of his principal assertion that it was the plaintiff who commissioned Mr Quinlan to value the property. 16For more abundant caution Mr Hynes read Mr Quinlan's affidavit in the plaintiff's case in reply. 17I am of the opinion that the defendant has failed to establish an essential plank of his first ground of defence. The evidence is to the contrary. I find that he himself commissioned Mr Quinlan to value the property and used the valuation to support his case for borrowing the moneys. 18The second ground of defence relied on the provisions of Guidance Note AGN220.2, issued by the APRA under APS220. 19In his affidavit of June 2012 Mr Cox stated that notwithstanding something he had said in an earlier affidavit he had established that a copy of the valuation had been emailed to him by Mr Quinlan at the request of Mr Jellyman. He had received it on 18 January 2008. He continued - 4. I recall being comfortable with the content in the valuation dated 29 and 30 December 2007 based on my local knowledge of the area and the familiarity with what other vineyards in the region were selling for at around the same time. For this reason, I did not arrange for the Bank to obtain a second valuation from the Bank's internal valuations division known as "NAB Rural Valuations" or another valuer. ... 6. On 8 January 2009 I emailed a copy of the valuation to Peter Walpole, a Rural Valuations Manager for NAB Valuations. I sought Mr Walpole's opinion on the valuation. Annexed hereto and marked "B" is a copy of Mr Walpole's email response to me sent 8 January 2009. 20The substance of Mr Cox's email to Mr Walpole and Mr Walpole's reply was - Peter, Please find attached a copy of a revised valuation for a property we have extended finance against ($8.5m in various facilities). They have approached us seeking additional finance and this is the updated valuation that was provided (I did not issue Letter of Instruction to the valuer however). The valuer is not on our Panel (at least I don't think so) but I have found his valuation to be quite thorough and well researched. I would however value your opinion before we proceed with formal submission Could you please respond at your earliest convenience so we know if the bank is comfortable extending further funding against this valuation. ... Glenn You may adopt this valuation at the stated mtg value of $21,000,000. The report is addressed to the bank for mtg purposes though the valuer is not on the banks rural valuation panel. The land values are supported by the sales evidence supplied. There appears to be support for the value of water from the analysis of the sales provided. There is no support for the vineyard value and I am intrigued by the valuer's comment concerning the value of the vines being "soft asset". Given the location and knowing the level of value applied to vines around Griffith I am inclined to think it's a way of giving the client one figure and the bank the more likely market value of the property. At $21 million the vineyards inclusive of vines are valued at $32,395/ha which I am comfortable with. As a general comment while the report is sound in terms of reporting the assets and provides some analysis of sales there are gaps in the presentation and for a property of this value I would have expected a more detailed report in terms of valuation rationale. The valuer has also not provided an insurance figure. However as I stated I am comfortable with the levels applied and the valuation may be adopted at Market Value $21 million. Bank Valuation $12.6 million. Security should comprise mortgage over titles, chattel mtg or bill of sale other assets and that the banks interest in the water licences be noted. 21Clause 20 of AGN 220.2 is as follows - Policies and procedures must also provide for the formulation of instructions for the conduct of valuations. Each valuation request must be the subject of specific instructions to the appraiser or valuer. These instructions must cover (as relevant in each instance) appropriate issues such as valuation purpose; valuation basis required; valuation for insurance purposes; valuation method; market summary/commentary; and form of report required. Where a party other than the ADI instructs the valuer, the valuation must be appropriately endorsed for the ADI's use. Good practice in these circumstances would be to have the valuation confirmed by an internal appraiser, or an external valuer, with the appropriate expertise. 22ADI means an authorised deposit-taking institution. The plaintiff comes within that definition. 23The defendant submitted first that the plaintiff was the principal and that the evidence showed that its valuation request had not been the subject of specific instructions to the valuer, as required by clause 20. The defendant accepted that that requirement would arise only if the plaintiff were commissioning the valuer to provide a valuation. I have already decided that question against the defendant. 24The defendant submitted alternatively that the valuation had to be appropriately endorsed for use by the bank. His initial submission, I think, was that it had not been appropriately endorsed, so that clause 20 had not been complied with. However, he ultimately acknowledged that it had. In the circumstances that ground of defence failed as well. 25It is unnecessary to consider whether or to what extent any asserted failure of the plaintiff to act in accordance with the requirements of AGN 220.2 would have provided the defendant with a defence. No such failure has been established. 26I am satisfied that the moneys pleaded were lent to the company, that the company defaulted under the terms of the second loan, that the company has not complied with a demand for payment, that the defendant is party to an enforceable guarantee, that he has not complied with a demand to pay as required by the guarantee and that the plaintiff is consequently entitled to recover from him all proper amounts owing under the terms of the second loan and contemplated by the guarantee. 27On the hearing the defendant raised no issue about the calculation of the amount claimed. However, because the amount claimed was different from that set forth in the statement of claim (though less), because it was not admitted and because the defendant is self represented I have closely examined the documents on which the plaintiff's claim is based. By paragraph 22 of the Provisions of Guarantee and Indemnity NAB may certify any amount due under the guarantee. The clause provides that to the full extent permitted by law such a certificate is conclusive evidence of the accuracy of its content. I am satisfied that the defendant certified to the plaintiff that the nature and effect of the guarantee had been explained to him and that he understood that under its provisions he might become liable to the plaintiff. I am satisfied that the amount of $10 000 000 said to be owing under the guarantee was appropriately certified by a document signed on behalf of the plaintiff signed on 25 July 2012. I am satisfied that the principal debt giving rise to that liability was more than $17 000 000. 28Exhibit A is a schedule which calculates interest at rates set by the Court from time to time on a debt of $10 000 000 falling due on 21 July 2010. The total interest calculated to 25 July 2012 is $1 719 657.54. The plaintiff has established an entitlement to that amount in addition to the principal amount of $10 000 000. 29I make the following orders - 1. Direct the entry of a verdict and judgment for the plaintiff in the sum of $11 719 657.54. 2. Order the defendant to pay the plaintiff's costs. 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: 27 July 2012