Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 177

Supreme Court New South Wales

Medium Neutral Citation: Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 177 Hearing dates: 28 February 2013 Decision date: 28 February 2013 Before: McCallum J Decision: The Plaintiff by itself, its servants and agents be restrained from auctioning, selling, alienating or otherwise disposing of The Old Farm, Dorrigo, until further order. Catchwords: MORTGAGES - possession - application to restrain sale Legislation Cited: Farm Debt Mediation Act 1994 Real Property Act 1900 Cases Cited: Kolback Securities v Epoch Mining (1987) 8 NSWLR 533 Waller v Hargraves Secured Investments Ltd [2012] HCA 4 Category: Interlocutory applications Parties: Hargraves Secured Investments Limited (plaintiff)

David George Sharpe (defendant) Representation: Counsel: M Loewenstein (plaintiff) S Wawn (solicitor for the defendant) Solicitors: Hargraves Solicitors (plaintiff) Stephen Warn & Associates File Number(s): 2012/41764 Publication restriction: None

judgment - EX TEMPORE 1HER HONOUR: These are proceedings for possession of two farming properties known as "The Old Farm" and "Campbell's Hill". The proceedings were commenced by Hargraves Secured Investments Ltd on 8 February 2012. On 25 October 2012 Hargraves obtained writs of possession in respect of both properties. However, the writ in respect of Campbell's Hill was subsequently set aside. 2On 12 December 2012 the sheriff executed the writ in respect of The Old Farm and that property is scheduled for sale by auction tomorrow at 11am. Yesterday the defendant, Mr David Sharpe, moved the Court for an order restraining that sale. The order sought on an interlocutory basis is that the plaintiff by itself, its servants and agents be restrained from auctioning, selling, alienating, leasing or otherwise disposing of The Old Farm until further order. 3Leaving aside the question of leasing, as to which the parties did not address me, I am satisfied that the plaintiff should be restrained in the terms proposed, pending the determination of the final relief sought in the defendant's notice of motion, for the following reasons. 4The circumstances in which the application was brought are as follows. Mr Sharpe first entered into a loan agreement with Hargraves in May 2004 for a loan in the sum of $575,000. According to his affidavit evidence relied upon in support of the application, that was a refinance of earlier loans obtained by him. The original loan agreement with Hargraves was varied from time to time, seeing eight re-financings by agreement with Hargraves. 5It is common ground that those advances were "farm debts" within the meaning of the Farm Debt Mediation Act 1994. That Act establishes a system of mandatory mediation before a creditor can take possession of a property or other enforcement action under a farm mortgage. To adopt the less formal description of the objects of the Act propounded by Mr Wawn on behalf of the defendant, the purpose of the Act is "to help farmers", whose financial difficulties and importance to the economy in this country are well known. 6Following default under the ninth loan on the part of Mr Sharpe, Hargraves served a notice under s 8 of the Act. The provisions of that section are 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. 7A mediation took place as contemplated by the section, resulting in a further agreement being entered into between Hargraves and Mr Sharpe. Mr Sharpe again fell into default of that agreement, following which Hargraves sought from the Authority a certificate under s 11 of the Act, subs (1) of which provides: 11 Certificate that Act does not apply to farm mortgage (1) The Authority must, on the application of a creditor under a farm mortgage, issue a certificate that this Act does not apply to the farm mortgage if: (a) the farmer is in default under the farm mortgage, and (b) no exemption certificate is in force in relation to the farm mortgage, and (c) the Authority is satisfied that: (i) satisfactory mediation has taken place in respect of the farm debt involved, or (ii) the farmer has declined to mediate, or (iii) 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith (whether or not a mediation session or satisfactory mediation took place during that period). 8The Authority issued a certificate under s 11, following which Hargraves commenced these proceedings. 9Without any hearing, the proceedings were settled on terms recorded in a deed of settlement dated 5 June 2012. The deed provided that the proceedings were settled in accordance with a consent judgment annexed to the deed. The terms of the judgment included orders for possession of each of the two farming properties. However, the terms of the deed qualified Hargraves' entitlement to enforce that judgment, providing a detailed regime for further payments and for the sale of The Old Farm and staying the enforcement of the judgment in a number of specific respects. 10On 25 October 2012 Hargraves obtained writs of possession in respect of both properties. There was a dispute between the parties at that stage as to whether it was entitled to do so. Mr Sharpe brought forward an application to this Court to have the writs set aside on the premise that Hargraves' entitlement to obtain them had not yet arisen under the deed. 11That dispute was determined by Harrison J: see Hargraves v Sharpe [2012] NSWSC 1519. His Honour set aside the writ in respect of Campbell's Hill but declined to grant the relief sought in respect of The Old Farm. 12The decision of Harrison J was given on 11 December 2012. On the same day, Mr Sharpe served a notice pursuant to s 9(1A) of the Farm Debt Mediation Act, which provides: 9 Farmer may request mediation ... (1A) 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. 13The effect of the service by a farmer of notice under that provision, coupled with a refusal of the creditor to mediate (evidently also comprehending the creditor's ignoring the request) is that the farmer may then seek from the Authority an exemption certificate under s 9B of the Act. The effect of an exemption certificate is that no enforcement action can be taken by the creditor. Mr Sharpe has not yet moved to the stage of seeking the issue of an exemption certificate under that section. 14In the circumstances I have recited, Mr Sharpe's application raises a narrow but important question as to the construction of the Farm Debt Mediation Act, namely, whether a deed of settlement of the kind entered into following the commencement of these proceedings amounts to a fresh farm debt for the purposes of the Act, giving rise to a fresh obligation to mediate. 15At first blush, to entertain that proposition may be seen to be inconsistent with the scheme of the Act and, in particular, the provisions of ss 8, 9 and 11 to which I have already referred. Specifically, s 11 evidently contemplates that, after a creditor has engaged in a satisfactory mediation in respect of the farm debt involved, the commencement of proceedings and the enforcement of the relevant securities should not be precluded. That indeed would appear to be the very purpose of obtaining a certificate under s 11. 16Upon closer reflection, however, the position is far from clear, particularly where a deed of settlement contains provisions of the kind contained in the deed in the present case. Mr Lowenstein, who appeared for Hargraves, submitted that the existence of a certificate under s 11 in the present case is fatal to Mr Sharpe's application. He submitted that the only "farm mortgage" to which the certificate can be understood to relate is the mortgage under the Real Property Act 1900 granted by Mr Sharpe. 17However, as explained by the High Court in Waller v Hargraves Secured Investments Ltd [2012] HCA 4, it is necessary to pay close attention to the definition of a "farm mortgage" under the Act. It may be accepted that in the present case the mortgage registered under the Real Property Act is a "farm mortgage" within the meaning of s 4 of the Act, but it does not follow that the s 11 certificate applies only to that mortgage to the exclusion of any other "farm mortgage" within the meaning of the Act. The Act defines the terms "farm debt" and "farm mortgage" as follows: "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. 18The simple proposition Mr Sharpe seeks to have determined on a final basis by the present application is whether the deed of settlement included any interest in, or power over, The Old Farm securing his obligations to Hargraves (so as to be a "farm mortgage" within the meaning of the Act). The factors pointing to the conclusion that it does include the following clauses of the deed of settlement. 19First, clause 1.3 of the deed provides for a higher interest rate, being a fixed rate of 10.25% per annum, whereas previous borrowings had a variable interest rate. Secondly, clause 2.3 of the deed records Hargraves' agreement to capitalise approved marketing costs for the sale of The Old Farm. Thirdly, clause 4.1 of the deed records Hargraves' agreement to compromise and capitalise legal costs of the proceedings in the sum of $17,500. Those capitalised amounts were provided to be included in the debt defined in the deed as "the judgment debt". Fourthly, clause 5 of the deed provides a detailed regime for payment of the judgment debt. Finally, clause 7 of the deed provides that, in the event of failure on the part of Mr Sharpe to make a payment pursuant to clause 5, the lender would be entitled to immediate possession of the Campbell's Hill farm. 20I should also have referred to provisions in the deed in respect of the sale of The Old Farm. The deed provides for sale of The Old Farm in accordance with clause 2, which includes provisions about the date on which that would occur, the lender's agreement to add approved marketing costs of that sale to the judgment debt and deferral of the date in the event of certain payments. 21Those matters, in my view, are capable of pointing to the conclusion that the deed of settlement amounts to a fresh farm debt agreement the obligations under which are secured by an interest in or power over a farm property. 22Mr Lowenstein submitted that the deed of settlement was not capable of amounting to a farm mortgage because the borrowings in question are secured by the Real Property Act mortgage to which I have already referred. In my view, that is a false dichotomy. As revealed by the reasoning of the High Court in the decision in Waller v Hargraves, the fact that a debt is secured by a mortgage registered under the Real Property Act does not preclude the conclusion that some other agreement, instrument or dealing may also be a farm mortgage in respect of the same liability within the meaning of the Act. 23In order to obtain the relief sought on an interim basis, Mr Sharpe must establish, first, that he has an arguable case in respect of the point raised. In Kolback Securities v Epoch Mining (1987) 8 NSWLR 533, McLelland J observed: Where a plaintiff's entitlement to ultimate relief is uncertain, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled. 24His Honour proceeded to observe that, where the uncertainty in question depends in whole or in part on a contested question of law, it may or may not be appropriate for the Court to decide that question on the interlocutory application, depending on the circumstances, including whether the question is novel or difficult, or is susceptible of resolution on the state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question. 25As I have already indicated, I had at the outset of the hearing some reservations as to the apparent inconsistency between the defendant's argument and the scheme evidently contemplated by s 11 of the Act. However, Mr Wawn's submissions have persuaded me that the point is at least uncertain and appears, if I may say so with respect, to be a point that can properly be argued. It is certainly novel. It is not a point resolved by the decision of the High Court in Waller v Hargraves. And it is sufficiently difficult that, combined with the urgency of the matter (having regard to the fact that the auction is tomorrow morning), I do not consider it to be practicable to give the issue proper final consideration at this stage. 26Turning to the further matters required to be established in order to obtain the relief sought, Mr Sharpe has to point to matters in the balance of convenience that favour granting the relief sought. That is perhaps a more simple consideration in the present case. On the one hand, if the auction is not deferred, Mr Sharpe will lose the farm. The delay of the auction of course will occasion prejudice to Hargraves in the cost of marketing the property and the risk of erosion of the equity in the two security properties. I note on that issue that there was no evidence before me one way or the other as to whether any further delay at this point will produce the difference between the debt being adequately secured or not. 27I take into account the importance of promoting the objects of the Farm Debt Mediation Act which, as I have said, is directed to providing special concessions to farmers in respect of claims for possession that are not available to other members of the community, for good historical and economic reasons. 28On the question of my discretion whether to grant relief the relief sought, I have taken into account the fact that the application was brought at a late point, having regard to the timing of the auction. However, I accept Mr Wawn's explanation for the delay, which included the proposition that, until receiving the determination of Harrison J in the earlier application, Mr Sharpe was not sure whether indeed he was in default of the deed of settlement. That is a significant factor because the entitlement of a farmer to obtain the benefit of an exemption certificate following the service of a notice under s 9(1A) seeking mediation arises only in the case that the farmer is "in default". 29Finally, I have consulted with the list clerk and have been informed that a final hearing of the matter can be obtained relatively quickly, having regard to the fact that the application raises a short point of statutory construction that should be able to be determined in a half-day hearing. 30I should note one matter argued on behalf of the plaintiff at the outset of the proceedings. Mr Lowenstein noted that the evidence before Harrison J included the contention that the deed of settlement was a new and distinct farm debt for the purpose of the Act. He submitted on than basis that the defendant should be estopped from raising the matter again on the grounds of Anshun or otherwise that the application should not be entertained on the basis that it amounts to an abuse of process. 31It may be accepted that there is some overlap between the evidence put forward before Harrison J and the position now raised following the publication of his Honour's judgment and the service of the s 9(1A) notice. However, I am not persuaded that the present application amounts to an abuse of process. In the first instance, as I have already recorded, Mr Wawn put forward a sensible explanation for Mr Sharpe's not having served the notice until after receiving the judgment of Harrison J. Secondly, it is clear that the proceedings before his Honour were not determined on the basis of any argument as to the application of the Farm Debt Mediation Act. Finally, it is clear on a plain reading of the Act that if the point now raised is a good point, the operation of the Act is mandatory and should not in that circumstance, in my view, see the defendant's being precluded from raising it. 32For those reasons, I determined that I should grant the relief sought on the basis that I propose to list the proceedings for final hearing as early as is practicable from the point of view of the parties.