what advice should be given to Alan?

Mick Cochrane was a grazier based at Mataranka in the Northern Territory. The land that he worked was really two properties, each on separate titles, but they were used together as one for Mick's single grazing business.

The main one was Camfield River Station, a good savannah block of 300,000 hectares about 70 kilometres from the main road. The second property located next door, was Dinner Camp, and was 147,500 hectares of lesser quality stony country but it had one big advantage - it was on the main road. The two properties were not separated by any defined physical boundary. The fencing of the paddocks was put in to suit the conformation of the land not the separate titles. The two properties were arranged so that both needed to be worked as one.

However, in a production and economic sense, they were interdependent. Stock pastured on some parts of Camfield River had to traverse parts of Dinner Camp to get to water. The homestead and other buildings were on Camfield River, but the main cattle yards and the dip were on Dinner Camp.

Camfield River had been in the Cochrane family since the early days of the settlement of the Northern Territory. Dinner Camp had come into the family from Mick's mother's family. Subject to a few small loans Mick owned Camfield River outright, but his father had made provision for Mick's two sisters, Mrs Knowles, and Mrs Shadforth, by leaving Dinner Camp to him with his two sisters in equal shares as tenants in common.

Under a succession of agreements with his two sisters Mick worked the whole area as one piece of property as the tenant of Dinner Camp. The current lease was for five years at a fair yearly rental.The lease had a clause giving Mick an option to purchase the interests of the sisters at any time during the term of the lease. The option purchase price was set at $700,000 and had been agreed on after getting a valuation before the latest lease was signed.

Four years into that lease Mick died. His estate was valued at $12,147,200 after deducting debts including mortgage debts.The value of the livestock and plant was $6,228,600 and the value of Mick's one third interest in Dinner Camp was $350,000. So, the surplus land value in Camfield River was worth well over $5,000,000.

The Will left Mick's estate to a trustee on trust to be sold and converted to general investments. Seventh State Trustee and Executor Co. Ltd. was named as the executor and trustee.The Will contained a direction for the trustee to carry on the pastoral business and postpone conversion until Mick's youngest surviving child turned twenty-one or for a shorter period if the Trustee, in its absolute and uncontrolled discretion, thought that was appropriate. This was Mick's way of trying to give one of the next generation the opportunity to continue in the grazing business by purchasing everything but, in the last resort, he had left it to the Trustee to decide when to sell.

The main trusts of the Will were to provide for his widow and children and on the death of the widow to distribute the whole estate between his children with the share of a son to be double that of a daughter. The Will also gave the trustee an express power, in its absolute and uncontrolled discretion, to borrow money and, if appropriate, mortgage the assets if it was the trustee's opinion that loan funds were required for the purpose of carrying on the business. That would inevitably be necessary because of the way the grazing business is dependent on seasonal income. To facilitate the carrying on of the business after the Mick's death the trustee arranged with a sister company that was a financier for an overdraft facility of $500,000 and that company became, in effect, the trustee's banker for the Cochrane estate. This estate account fluctuated from time to time. Sometimes it was in debit, sometimes in credit.

Mick's grazing business was carried on by the trustee with Mick's eldest son Alan being appointed as station manager. He was twenty-one and had been working on the place before his father's death.The widow continued to live in the homestead on Camfield River and the children lived there except when they were away at school. Alan devoted himself to the running of the property in a competent way. At a time when the lease agreement with the sisters in respect of Dinner Camp was to expire in 12 months, Alan told the Trustee that the estate should borrow the necessary money to pay the sisters out and take Dinner Camp over absolutely, but the Trustee's manager said this would be an unnecessary financial risk and that it would be more prudent to make a new agreement with the sisters. Discussions between the trustee and Mrs Knowles and Mrs Shadforth took place.

The result was a new agreement for a further term of five years at an increased rental. Again, there was an option to purchase. This option was better than the original option because it allowed the estate to purchase for the same total sum of $700,000 but it could be exercised in stages over eighteen different parts of the land specified in a schedule described by reference to portion numbers specified in the Surveyor General's plan for the area. The prices for each of them were different but they totalled $700,000. So, the right to buy the interests of Mrs Knowles and Mrs Shadforth in Dinner Camp was retained for another five years at the same price but now it could be exercised piecemeal and from time to time.

During the next four years the great "climate change" drought began to have a serious impact on the grazing industry. Although there was a good market for livestock, the animals raised on reduced rainfall grassland were very difficult to sell in any volume because their condition was sub-standard. Most of the animals were just too skinny. Nonetheless by favouring some of the herd over other animals (reserving the better pasture for them) Alan managed to keep a reasonable level of revenue coming into the business. Inevitably however the business did not make any reduction of the $500,000 overdraft and instead of it fluctuating, as it used to, it was persistently at its limit.Strangely, however there was an upside.As the business suffered this reduced profitability, instead of the value of pastoral land going down (as it had in all previous droughts) it escalated dramatically because emissions traders were investing in broad acres as a means of securing carbon credits.

Alan kept his eye on the Dinner Camp situation very carefully during that fresh lease period. He felt that it was essential that this property be purchased to ensure that the overall operation could continue effectively. He knew that he could rely on the goodwill of his aunts, but he also knew that the emission trading people would be approaching them with good offers for the purchase of their property. They had approached everyone in the industry with bids of crazy money to buy their properties. Alan also knew, as his mother had told him more than once, that his aunts were not getting any younger and sooner or later one or both would die and there was no guarantee that whoever took over their interest would be happy to keep going with a similar arrangement. Alan talked these matters over regularly with the trustee company's representative responsible for the Cochrane estate. He was Malcolm Hourigan an accountant and land economist.

Alan asked Mr Hourigan to allow the estate to borrow the money to pay the sisters out, but his answer was that he felt that times were too uncertain to raise another loan when the business was having trouble paying off the overdraft loan of $500,000. The two of men had 3 or 4 similar conversations over the period of the last 12 months of the fresh lease. Ultimately in the last month of the lease Alan had a heated conversation with Mr Hourigan. He said that it need not be as hard as Mr Hourigan was making it look. Alan suggested that with a loan of $700,000 the estate could buy Dinner Camp for that figure and then sell a part of it to the emissions trading people for more. Mr Hourigan laughed at that and said he didn't think so.

Mr Hourigan actually said "Look now you are talking funny money. Just get the estate's debts paid off and then we can look at something like that but in the meantime it would be a breach of trust if I authorised more debt on top of existing debt that is difficult to manage.Your aunts will extend the lease and option and that is all that you need for the moment until this drought is over."Two weeks later Mr Hourigan went to visit the solicitor for the aunts to discuss the renewal of the lease and option.This was the proposed final meeting on the subject that had been discussed co-operatively at three previous meetings over the last several months. Mr Hourigan was expecting that the final form of a new lease would be available for signature at that meeting but there was a very unpleasant development.With 8 days to run on the term of the lease and option, the solicitor told him that the sisters would not be renewing the lease because they had an offer from the climate change industry for the purchase of their interest in Dinner Camp at $10,000,000.

Mr Hourigan withdrew from the meeting and immediately contacted Alan. He told Alan what had happened and said that he was very sorry, but nothing could be done to solve the situation. He said that theoretically, if the estate had the money, it could still purchase Dinner Camp for $700,00 within the next 8 days but the reality was that even if he, as trustee's officer, was prepared to authorize a borrowing for that purpose (and he was not) there was no possibility of raising the money within that short period of time.