New South Wales Supreme Court CITATION : Hargraves Secured Investments Ltd v Ryan [2007] NSWSC 404 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 19 March 2007 JUDGMENT DATE : 27 April 2007 JUDGMENT OF : Price J at 1 DECISION : 1. Verdict and judgment for the plaintiff against the first, second, third and fourth defendants jointly and severally in the sum of $842,082.39. 2. Verdict and judgment for the plaintiff (cross-defendant) against the first, second, third and fourth defendants (cross-claimants) on the cross-claim. 3. That the first defendant and the second defendant give the plaintiff possession of the property known as "Ben Lomond" Tullibigeal in the State of New South Wales being the whole of the land comprised in auto-consol 15365-246 and Lot 14 in Deposited Plan 752313 in the Parish of Brotheroney, County of Dowling. 4. That the plaintiff be given leave to issue a writ of possession for the property known as "Ben Lomond" Tullibigeal in the State of New South Wales being the whole of the land comprised in auto-consol 15365-246 and Lot 14 in Deposited Plan 752313 in the Parish of Brotheroney, County of Dowling. 5. That the first, second, third and fourth defendants pay the plaintiff's costs. 6. That the execution of the writ of possession be stayed until 27 June 2007. CATCHWORDS : Action for possession of a farm - farm mortgage - s 8 notice - mediation - heads of agreement - lenders certificate - s 11(1) certificate - no misleading or deceptive conduct. Australian Securities and Investments Commission Act 2001 (Cth) s 12DA, Contracts Review Act 1980 s 7, s 7(1) Credit (Home Finance Contract) Act 1984 LEGISLATION CITED : Consumer Credit (New South Wales) Act 1995 Farm Debt Mediation Act 1994 s 3, s 4, s 8, s 9, s 9A, s 10, s 11AA, s 11B, s 11C Real Property Act 1900 s 57(2)(b) Trade Practices Act 1974 (Cth) s 52, s 52(1), s 82 CASES CITED : Walton Stores (Interstate) Limited v Maher and Anor (1987) 164 CLR 387 PARTIES : Hargraves Secured Investments Limited Thomas Edward Ryan and Others FILE NUMBER(S) : SC 14298 of 2005 COUNSEL : Mr D Loewenstein - plaintiff Mr Thomas Ryan - in person IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST Price J 27 April 2007 14298 of 2005 Hargraves Secured Investments Limited v Thomas Edward Ryan and Others JUDGMENT 1 HIS HONOUR: Thomas Edward Ryan (the first defendant) and Anthony Richard Ryan (the second defendant) are the registered proprietors of the whole of the land comprised in auto-consol 15365-246 and lot 14 in Deposited Plan 752313 collectively known as "Ben Lomond" Tullibigeal in the State of New South Wales. 2 On 25 September 2003 the first defendant, the second defendant, Veronica Ellen Ryan (the third defendant) and Elizabeth Ann Ryan (the fourth defendant) entered into a loan agreement (the loan agreement) with Hargraves Secured Investments Limited (the plaintiff) whereby the plaintiff agreed to lend to the defendants the sum of $655,000.00. 3 Under the mortgage entered into on the same date (the mortgage) the first defendant and the second defendant mortgaged to the plaintiff all their estate and interest in "Ben Lomond" in consideration of the monies advanced under the loan agreement. The third and fourth defendants signed Annexure "A" to the mortgage as borrowers. 4 It is common ground that "Ben Lomond" is a farm, the mortgage is a farm mortgage and the defendants were 'farmer'(s) as defined in s 4 of the Farm Debt Mediation Act 1994 (FDM Act). It is not in dispute that the loan agreement was at all relevant times governed by the provisions of the FDM Act. 5 On 16 September 2005 the plaintiff commenced proceedings against the defendants seeking, inter alia, possession of "Ben Lomond" and judgment in the sum of $730,252.65 (being the amount said to be owing as at 19 July 2005). The plaintiff claims that in breach of the loan agreement the defendants failed to make payments of interest due in the months of October 2004 to July 2005 inclusive. 6 The defendants have filed a defence in which it is pleaded (shortly stated): (i) the plaintiff's issue of a s 8 notice under the FDM Act on 15 October 2004 was not in compliance with the FDM Act; (ii) the plaintiff is in breach of the intentions and the written agreement executed on 4 August 2004 documented by way of Heads of Agreement; (iii) subsequent to supporting the application by the defendants for [an] interest subsidy grant the plaintiff 'during the period from 15 October 2004' was taking steps to enforce the mortgage in contravention of the FDM Act and the Rural Adjustment Scheme; (iv) during the period from 15 October 2004 the plaintiff executed documents stating that the plaintiff would support the defendants for a further twelve months to assist the defendants in obtaining the second round of Federal Government interest rate subsidy grant; and (v) the unconscionable conduct of the plaintiff has caused the defendants damage and continued damage. 7 The entry into the loan agreement and the mortgage is not in dispute. The defendants, however, admit liability to the "principal debt only being $655,000.00" (see defence para 1). 8 In a cross-claim the defendants seek (shortly stated): (i) a judgment that the cross-defendant is in breach of contract and of the FDM Act; (ii) a judgment that the s 8 notice issued on 15 October 2004, the mediation session held on 17 January 2005, the Heads of Agreement dated 17 January 2005, the s 11 certificate issued on 8 July 2005 under the FDM Act are declared void; (iii) a judgment for damages and continuing damage for the amount [of which] the defendants have been deprived from round two of the Federal Government interest subsidy grant and any continuing grant (said to be $88,000.00 at the time of filing of the cross-claim on 16 January 2006); and (iv) a judgment for damages in favour of the NSW Rural Assistance Authority in the sum of $54,050.00 plus interest. 9 An order for costs is also sought. 10 At the hearing the defendants were granted leave to amend the particulars in paragraph 23 of the defence by the inclusion of ss 52 and 82 of the Trade Practices Act 1974 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). The cross-claim was also amended by the inclusion of the same sections of the same Acts in the particulars under paragraph numbered 2. 11 The second defendant attended the hearing and represented himself. The first, third and fourth defendants did not attend and leave was granted, in the circumstances, for the second defendant to appear on their behalf. The first and third defendants are the second defendant's parents and the fourth defendant is his spouse. 12 At the hearing affidavits of John Brian Gorman (Exhibits A and B) were read and Mr Gorman was cross-examined by the second defendant. The second defendant's affidavits (Exhibits 1 and 2) were also read and the second defendant was cross-examined. 13 The loan agreement required the defendants to pay interest on the principal sum outstanding, computed on a quarterly basis and payable on the 5th day of each quarter. On the 5 January 2004 the defendants failed to make the quarterly payment due and were then in default of their obligations under the loan agreement. 14 Part 2 of the FDM Act provides for mediation. Included within Part 2 are ss 8 to 11C. 15 Section 8 is as follows: "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." 16 Section 9 enables a farmer to whom notice has been given under s 8 to notify the creditor in writing, within 21 days after the notice was given, that the farmer requests mediation concerning the farm debt involved. A creditor who has received a request to mediate may, by notice in writing given to the farmer, agree or decline to mediate (s 9A). A s 9 notification prevents the creditor taking enforcement action in respect of the farm mortgage unless a s 11 certificate is in force (s 10). Section 11AA provides for the entry by the parties into a document setting out the main points of agreement (Heads of Agreement) following mediation. Sections 11A and 11B make provision for a cooling off period and rights during that period. Section 11C provides: "11C Implementing Heads of Agreement (1) A contract, deed, mortgage or other instrument entered into as a result of, or pursuant to, Heads of Agreement between a farmer and a creditor must reflect the relevant Heads of Agreement. (2) A creditor who is a party to any contract, deed, mortgage or other instrument which purportedly results from, or is pursuant to, Heads of Agreement between the creditor and a farmer but which fails to reflect the relevant Heads of Agreement is guilty of any offence. Maximum penalty (subsection (2)): 100 penalty units." 17 In accordance with Part 2 of the FDM Act mediation was held on 4 August 2004 at Wagga Wagga (the first mediation) and Heads of Agreement (the first Heads of Agreement) were entered into by the plaintiff and the defendants. The defendants acknowledged in the first Heads of Agreement an indebtedness to the plaintiff in the sum of $707,657.97 (comprising $655,000.00 principal and $52,657.97 interest) and the obligation to repay that sum secured by the mortgage. 18 In September 2004 the plaintiff completed a Lenders Certificate required by the NSW Rural Assistance Authority (the Authority) to assist in the provision of interest subsidy support under the exceptional circumstances provisions of the Rural Adjustment Scheme. 19 The defendants had been advised by the Authority by a letter dated 13 September 2004 (Exhibit 3) that the Authority's Appeal Committee had approved an interest subsidy of $54,050.00 under the Exceptional Circumstances Scheme which amount was paid to the plaintiff on 24 September 2004 (see Exhibit A annexure J and Exhibit B – Statement of Loan account) and not as stated by Mr Gorman at paragraph 6 of Exhibit A on 24 December 2004. The payment satisfied the amount of interest outstanding at that time with a small surplus. The amount of the surplus was estimated by Mr Gorman to have been "a thousand dollars or slightly a bit more" (T13). 20 The next quarterly instalment of interest due under the loan agreement on 5 October 2004 was, however, not paid save for the credit of the small surplus. As the defendants had missed the interest payment a notice under s 8 of the FDM Act (the s 8 notice) was issued and served on the defendants. 21 The second defendant described in his evidence being "absolutely flabbergasted" when he received the notice on 20 October 2004. He said if he realised the plaintiff was going to serve a notice he would have [ensured] he got the money. As a result of the receipt of the s 8 notice, the second defendant claimed that the defendants were unable to obtain interest subsidy grants from the Federal Government which he calculated to be almost $260,000.00. 22 It is further contended that the issue of the s 8 notice approximately three weeks after the completion of the lenders certificate by the plaintiff was a contravention of s 3 of the FDM Act. 23 Section 3 of the FDM Act is as follows: "3 Object The object of this Act is to provide for the efficient and equitable resolution of farm debt disputes. Mediation is required before a creditor can take possession of property or other enforcement action under a farm mortgage." 24 The first Heads of Agreement did not waive the requirement to make quarterly payments of interest. The defendants acknowledged when they signed the Heads of Agreement the obligation to repay the sums secured by the mortgage which were "valid and forcible in accordance with their terms" (see Exhibit 1 annexure B, clause 1.1). A quarterly instalment was due on 5 October 2004 which the defendants did not pay. As a result the plaintiff was entitled to issue and serve a s 8 notice which enabled the defendants to seek mediation before enforcement action was taken. The service of the notice was consistent with and not, as the defendants claim, contrary to the objects of the FDM Act. 25 The second defendant agreed in cross-examination that following the obtaining of assistance from the Authority, he failed to pay interest. The quarterly instalment of interest due on 5 January 2005 was not paid. 26 As will be discussed later on in this judgment, the defendants claims of inability to obtain interest subsidy grants as a result of the issue of the s 8 notice is without foundation. 27 On 17 January 2005 the parties following mediation (the second mediation) entered into a Heads of Agreement (the second Heads of Agreement). 28 Clauses 3.3 and 4 of the second Heads of Agreement are as follows: "3.3 In the event of the Farmer:- 3.3.1 not having paid all outstanding interest due as at 30 April 2005; or 3.3.2 defaults in payment of any subsequent instalment of interest due and payable from 30 April 2005 to 5 October 2006 (being the date the principal is due and payable) then, the Farmer undertakes to offer the property the subject of security for sale by way of public auction with the intent that they will enter into unconditional contracts for sale of the property no later than three months from the date of any such default with settlement to be effected not later than six weeks thereafter. In this regard it is acknowledged by the farmers that they will employ as the agent Rawlinson & Brown of Griffith and that they will through Mr Norman Thomas Markham ensure that the Creditor is kept appraised of developments in relation to that sale, be it advertising the reserved price and prospective buyers. 4. JUDGMENT 4.1 It is acknowledged by the Farmer that in the event of the farmers non compliance with 3.3.2 above then they will immediately:- 4.1.1 consent to judgment in favour of the Creditor for the full amount of the debt plus the then accumulated and unpaid interest and for possession of the property which is the subject of the Mortgage; and 4.1.2 at the request of the Creditor vacate the Property." 29 On 14 January 2005 the plaintiff provided a lenders certificate to assist in the provision of interest subsidy support under the exceptional circumstances provisions by the Authority. The application for assistance, unfortunately, for the defendants was unsuccessful. 30 After the mediation no payments were made and "all outstanding interest due as at 30 April 2005" was not paid. As a result the terms of clause 3.3.1 of the second Heads of Agreement were not complied with and on the further failure to pay subsequent instalments, the defendants were obliged to auction "Ben Lomond" in accordance with clause 3.3.2. The defendants failed to offer the property for sale and no moneys have been paid. 31 The defendants submit that the calculations of interest in clause 3.2 of the second Heads of Agreement include costs associated with the first and second mediations which contravenes s 20(3) of the FDM Act. No questions were asked by the second defendant of Mr Gorman in cross-examination as to how the amounts referred to in clause 3.2 were arrived at. Mr Gorman was, however, questioned as to the calculation of the amount said to be owing by the defendants as at 5 February 2007. I am unable to conclude on the evidence whether the sums mentioned in clause 3.2 include amounts for costs. In any event clause 3.2 is not a provision "seeking to have" the defendant "indemnify" the plaintiff for any loss or liability arising under the FDM Act. Clause 3.2 is a provision which enabled the financial arrangements between the parties to continue notwithstanding the defendants' inability to fully repay by 30 April 2005 the amount of $671,211.10 plus accrued interest as specified in clause 3.1. Clause 3.2 does not contravene s 20(3) of the FDM Act. 32 The defendants further submit that the second Heads of Agreement are unjust and rely on s 7 of the Contracts Review Act 1980. This contention was essentially founded on the submission dealt with in paragraph 31. There is no evidence upon which this Court can find that the second Heads of Agreement was "unjust in the circumstances relating to the contract at the time it was made": s 7(1) Contracts Review Act 1980. The parties entered into the Heads of Agreement following mediation. The agreement advantaged the defendants as they were in default and enforcement action was not taken by the plaintiff. A fourteen day "cooling off" period, provided in clause 6.1 of the agreement, in compliance with s11A(2) of the FDM Act, was not utilised by the defendants. The defendants' contention is rejected. 33 The plaintiff, as the first and second defendants were in default under the mortgage, applied for and obtained a certificate dated 8 July 2005 pursuant to s 11(1) of the FDM Act. The Authority certified its satisfaction that the FDM Act did not apply to the mortgage. As a consequence the plaintiff was no longer obliged to provide a s 8 notice to the defendants before taking action to enforce its rights under the mortgage. 34 It is argued for the defendants (T52) that "paragraph 8 of the Heads of Agreement 17 January 2005 states that the defendants will honour the terms and conditions of the valuer's contract. Consequently, the section 11 certificate ……… is worthless". I quite frankly do not understand what is meant by this submission, however I apprehend that the second defendant intended to refer to the plaintiff. Clause 8 of the agreement referred to provides: " 8. The creditor undertakes not to seek a Section 11A (sic) Certificate from the Rural Assistance Authority unless there has been default by the farmer in respect of the terms and conditions cited herein." The s 11 certificate was sought by the plaintiff as the defendants were in breach of the terms of clauses 3.3.1 and 3.3.2 of the Heads of Agreement and the certificate is not 'worthless' as the defendants contend. The application for the s 11 certificate complied with the FDM Act. 35 Furthermore, the defendants contend that the plaintiff is estopped from "denying" the second Heads of Agreement and cited Walton Stores (Interstate) Limited v Maher and Anor (1987) 164 CLR 387. This argument was advanced in the context of the reference to clause 8. The defendants further argue that the plaintiff is estopped from denying the existence of the first Heads of Agreement. Estoppel was not pleaded by the defendants. In any event, it suffices to re-iterate that there have been defaults by the defendants and the plaintiff was neither estopped from serving the s 8 notice nor applying for a s 11 certificate. 36 Notices expressed to be pursuant to s 57(2)(b) of the Real Property Act 1900 (the s 57(2)(b) notices) were sent by registered post to each of the defendants on 4 August 2005 which I am satisfied each of the defendants received. The notices were statutory enforcement notices as defined in s 4 of the FDM Act. 37 The defendants argue that the notices are worthless as they breach s 6 of the FDM Act. Section 6 is as follows: " 6 Enforcement action in contravention of Act void Enforcement action taken by a creditor to whom the Act applies otherwise than in compliance with the Act is void." 38 The service of the statutory enforcement notices and the commencement of the present proceedings is enforcement action as defined in s 4 of the FDM Act. The enforcement action taken by the plaintiff has been and is in compliance with the FDM Act and is not void. 39 In an affidavit sworn on 8 May 2006 (Exhibit 1 annexure G) the second defendant asserts [at para 6] that at no time did he or any member of his family receive "any form of a notice of default" and [at para 7] points out that a notice of default is required to be served according to paragraph 6.7 of the loan agreement. 40 The s 57(2)(b) notices identified, inter alia, the loan agreement and specified the default by the defendants in their obligations, namely, the failure to make "repayments of principal and interest as agreed". The amount of $69,372.65 was identified as being outstanding. The notices complied with the requirements of paragraph 6.7 and the defendants' contention is rejected. 41 The statement of claim in the present proceedings was filed on 16 September 2005 and, it seems, was not served until mid-December 2005. By letter dated 16 September 2005 the second defendant asked the plaintiff to provide a lenders certificate. In his affidavit (Exhibit A at para 13), Mr Gorman acknowledges that the certificate requested was not provided. Contrary to this acknowledgement it emerged in cross-examination that a lenders certificate sealed and dated on the 19 September 2005 was in fact prepared by the plaintiff. A copy of the certificate is annexed to the second defendant's affidavit (Exhibit 1). The Authority once more declined to provide exceptional circumstances assistance to the defendants. 42 It appears that the defendants appealed to the Authority Review Committee. In a letter dated 27 October 2005 to the second and fourth defendants, Mr Glover for the chief executive provides reasons for the rejection of the appeal. The Committee noted: (a) the information presented in a personal interview by Mr and Mrs A Ryan; (b) written information provided by Mr W Davis, Barrister; (c) the disputation which occurred with the Commonwealth Bank, and its predecessor organisations over an extended period from 1994 to 2003; (d) that these debts were refinanced in September 2003, with the principal financier being Hargraves Secured Investments Limited; (e) a very substantial operating loss incurred in the 2003-04 financial year and that Lenders Certificates indicated present levels of indebtedness in excess of facility limits; (f) the Committee acknowledged revised repayment arrangements with some of the creditors. It was however noted that the only significant repayment made to Hargraves Secured Investments Limited in over two years was interest subsidy assistance. The Committee finally noted that this creditor had commenced legal action for debt recovery. Based on all available information the Committee did not consider that the farming enterprise demonstrated long-term commercial viability. 43 It is evident that unprofitability and the lack of commercial viability are the substantial causes of the defendants' inability to obtain interest subsidy grants. The defendants' claim that the action of the plaintiff deprived them from round two of the Federal Government interest subsidy grant (and continuing grants) is unsupported and without merit. 44 The defendants contend that the issue of the certificate, the statement of claim having been filed, amounted to misleading or deceptive conduct by the plaintiff contrary to s 52 of the Trade Practices Act 1974 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). 45 Section 52(1) of the Trade Practices Act provides: " 52 Misleading or deceptive conduct (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 46 Section 12DA of the ASIC Act is essentially in the same terms. 47 The s 57(2)(b) notices which had been served on the defendants expressly stated that if the sum of $69,752.65 was not paid within 31 days of service of the notice that the plaintiff [would] exercise its power of sale under the mortgage. The amount outstanding was not paid and the defendants continued to be in default. The plaintiff's support for the defendants' efforts to obtain exceptional circumstances assistance was not accompanied by waiver of the plaintiff's rights to enforce the mortgage. Furthermore, each of the lenders certificates included a statement that: " Unless default occurs , (emphasis added) for the purpose of this enterprise obtaining Exceptional Circumstances assistance, we agree to continue to support this enterprise for 12 months, to at least the limit of the facilities above and not increase the risk margins in this period." 48 The terms of the certificate did not, as the defendants appear to contend, represent that the plaintiff had agreed to support the defendants for 12 months irrespective of default. The defendants continued to be in default of their obligations. "Ben Lomond" was not offered for sale nor was the capital and interest outstanding paid. 49 There was no misleading or deceptive conduct engaged in by the plaintiff nor was it likely to mislead or deceive. The service of the Statement of Claim would not, in the circumstances, have been unexpected. 50 The institution of these proceedings has not breached the FDM Act, the Credit (Home Finance Contract) Act 1984 or the Consumer Credit (New South Wales) Act 1995. 51 The last payment of interest was made on 24 September 2004 and no moneys have been paid since that time. "Ben Lomond" has not been offered for sale. As a consequence, the defendants continue to be in breach of the terms of the loan agreement and the second Heads of Agreement. The first and second defendants are in default under the mortgage. The total amount owing by the defendants to the plaintiff as at 19 March 2007 amounts to $842,082.36 (see Exhibit B). 52 The defendants have not established that they are entitled to the relief and damages sought in the cross-claim. 53 The plaintiff is entitled to an order for possession of "Ben Lomond". 54 I make the following orders: 1 Verdict and judgment for the plaintiff against the first, second, third and fourth defendants jointly and severally in the sum of $842,082.39. 2 Verdict and judgment for the plaintiff (cross-defendant) against the first, second, third and fourth defendants (cross-claimants) on the cross-claim. 3 That the first defendant and the second defendant give the plaintiff possession of the property known as "Ben Lomond" Tullibigeal in the State of New South Wales being the whole of the land comprised in auto-consol 15365-246 and Lot 14 in Deposited Plan 752313 in the Parish of Brotheroney, County of Dowling. 4 That the plaintiff be given leave to issue a writ of possession for the property known as "Ben Lomond" Tullibigeal in the State of New South Wales being the whole of the land comprised in auto-consol 15365-246 and Lot 14 in Deposited Plan 752313 in the Parish of Brotheroney, County of Dowling. 5 That the first, second, third and fourth defendants pay the plaintiff's costs. 6 That the execution of the writ of possession be stayed until 27 June 2007. ********** 27/04/2007 - Typographical error - Paragraph(s) 42 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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