Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 539

Supreme Court New South Wales

Medium Neutral Citation: Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 539 Hearing dates: 6 & 7 May 2013 Decision date: 13 May 2013 Jurisdiction: Common Law Before: Harrison J Decision: Notices of motion dated 27 February 2013 and 7 May 2013 dismissed with costs. Catchwords: MORTGAGES - farm mortgage and farm debt - Farm Debt Mediation Act - whether enforcement action void - whether settlement terms created a new loan agreement and farm debt - whether enforcement conditional upon further mediation Legislation Cited: Farm Debt Mediation Act 1994 Cases Cited: Hargraves Secured Investments Limited v Sharpe [2012] NSWSC 1519 Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 177 Waller v Hargraves Secured Investments Limited [2012] HCA 4; (2012) 245 CLR 311 Category: Principal judgment Parties: Hargraves Secured Investments Limited (Plaintiff) David George Sharpe (Defendant) Representation: Solicitors: Hargraves Solicitors (Plaintiff) Stephen Wawn & Associates (Defendant) File Number(s): 2012/41764 Publication restriction: Nil

Judgment 1HIS HONOUR: This is but the latest chapter in a faltering commercial relationship that appears to be lurching precariously to an inevitable and unsatisfactory conclusion.

Background 2These proceedings first came before me on 7 December 2012. I published my reasons for judgment on 11 December 2012: see Hargraves Secured Investments Limited v Sharpe [2012] NSWSC 1519. Mr Sharpe took no appeal from that decision. A familiarity with the matters considered in my judgment is assumed for present purposes. 3The mediation of a dispute between Mr Sharpe and Hargraves with respect to a farm mortgage that secured advances made by Hargraves to Mr Sharpe had earlier been conducted under the Farm Debt Mediation Act 1994 on 3 November 2010 and an agreement was entered into between the parties on that date. No further funds were advanced to Mr Sharpe. Hargraves then sought and obtained a certificate under s 11 of the Act from the NSW Rural Assistance Authority on 26 September 2011 following Mr Sharpe's failure to comply with the terms of the agreement reached at the mediation. The effect of that certificate was that the Act did not apply to the farm mortgage in question so that Hargraves was authorised or permitted to take action to enforce the terms of its securities against Mr Sharpe. 4These proceedings were thereafter commenced on 8 February 2012. By 5 June 2012, Mr Sharpe was indebted to Hargraves in the sum of almost $1.87M. On that day Mr Sharpe and Hargraves entered into a Deed of Settlement in accordance with which the parties agreed to compromise these proceedings upon certain terms and conditions. Appendix I to that deed was a Consent Judgment dated 6 June 2012 giving Hargraves a money judgment and judgment for possession of the properties. The latter was stayed until 15 September 2012. 5When the matter came before me on 7 December 2012, Mr Sharpe was seeking orders setting aside two writs of possession obtained by Hargraves in accordance with, and in order to enforce, the terms of the Deed of Settlement and the Consent Judgment. He also sought a declaration that the Deed of Settlement was valid and enforceable. I set aside one of the writs for possession but made no other substantive order. Hargraves thereafter proceeded to take steps to enforce the terms of the Deed of Settlement and to seek to recover possession of its security. Mr Sharpe contends that Hargraves was not, and is still not, entitled to do so because of the application of the Act as explained in what follows. Mr Sharpe did not otherwise contest the fact that he had breached the terms of the Deed of Settlement in a way that would authorise, quite apart from the Farm Debt Mediation Act arguments that he wishes to propound, the enforcement steps that Hargraves is attempting to take. 6The proceedings came in due course before McCallum J as the Duty Judge on 28 February 2013. Her Honour published her reasons for judgment that day: see Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 177. Her Honour made orders restraining Hargraves from auctioning or selling one of the security properties until further order. That interlocutory decision was made upon the basis that Mr Sharpe had an arguable case that the Deed of Settlement amounted to a new farm mortgage and secured a new farm debt within the meaning of those expressions contemplated by the Act, and that the s 11 certificate originally issued to Hargraves following the mediation did not apply to or permit the enforcement action it was then purporting to take. Her Honour quite properly contemplated the agitation and determination of that issue on a final basis at some later time convenient to the Court 7In the events that occurred, the matter returned to me for a final hearing of that contest. The relief sought by Mr Sharpe in his notice of motion dated 27 February 2012 is as follows: 1. A declaration that the enforcement action by Hargraves of the farm debt owed by Mr Sharpe to Hargraves is void pursuant to s 6 of the Farm Debt Mediation Act 1994. 2. Additionally or in the alternative, an order that Mr Sharpe is entitled to apply to the NSW Rural Assistance Authority for an exemption certificate under s 9B of the Farm Debt Mediation Act 1994. 3. An order that Hargraves be stayed from enforcing the writ of possession for "The Old Farm", Dorrigo, pending the outcome of the application for an exemption certificate by Mr Sharpe. 4. Costs. 8It is Mr Sharpe's contention in these proceedings that he is effectively in the same position as the appellant in Waller v Hargraves Secured Investments Limited [2012] HCA 4; (2012) 245 CLR 311. In my opinion, that contention is incorrect. This is for the reasons that follow. Waller v Hargraves Secured Investments Limited 9In order to understand the argument upon which Mr Sharpe relies, it becomes necessary to examine the facts and the decision of the High Court in Waller. 10In August 2003, Ms Waller, a farmer, borrowed $450,000 from Hargraves, secured by registered first "all monies" mortgage over her farm, repayable in September 2006. From February 2004, she defaulted on the payment of interest. In October 2004, Hargraves gave a notice under s 8 of the Farm Debt Mediation Act of its intention to take enforcement action. The parties undertook mediation on 5 June 2005, as a result of which, in July 2005, they entered into a deed of settlement that recited that it was agreed that all disputes between them were settled on the terms of the deed. Pursuant to the deed the parties entered into a second loan agreement under which Hargraves advanced an additional $190,000, the bulk of which it retained on account of overdue amounts, costs and interest in advance for ten months. The second loan in the aggregate sum of $640,000 was secured by the mortgage over the farm and was taken to have discharged the original loan. Ms Waller later defaulted under the second loan and in August 2006 the parties executed a third loan agreement extending the repayment date to September 2009. Hargraves applied to the Rural Assistance Authority for a certificate under s 11(1) of the Act to the effect that the Act did not apply to a farm mortgage, which the Authority duly issued in October 2006, valid until June 2008. When Ms Waller defaulted on the payment of interest in respect of the third loan agreement, Hargraves commenced proceedings in this Court seeking possession of the farm. 11Ms Waller appealed unsuccessfully to the Court of Appeal and then successfully to the High Court. It was there held that the original loan agreement and the successive loan agreements, read with the registered mortgage, in turn created distinct interests in, and powers over, the farm property owned by Ms Waller securing her obligations as debtor. Through the broad definition of "farm mortgage", the Act treated those distinct interests and powers as giving rise to three successive "farm mortgages". Hence enforcement action in respect of the farm mortgage could not occur in the absence of a further notice of intention from Hargraves as the lender and right to mediation in respect of the farm debt involved. 12Heydon J dealt with the issues in a separate judgment, with which the other members of the Court agreed. At [52] - [54] his Honour said this: "[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. But in circumstances like the present, s 11(1)(c)(i) provides that the certificate cannot be issued unless the Authority is satisfied that satisfactory mediation has taken place in respect of 'the farm debt involved' in the dispute which went to mediation. The issue of the certificate does not depend on the Authority being satisfied that satisfactory mediation has taken place in respect of any aspect of the farm mortgage at large. Thus the dispute about a farm debt - 'the farm debt involved' - which was satisfactorily mediated under s 11(1)(c)(i) must be the same dispute as that which triggered the creditor's desire to take the enforcement action referred to in s 8(1). [53] The legislative purpose stated in s 3 that mediation must take place before a creditor can take enforcement action under a farm mortgage is effected by the operative provisions. The function of mediation is to explore the means for settling a dispute. The type of dispute contemplated by the mediation referred to in ss 3, 9, 9A and 11 arises where a creditor wishes to take enforcement action under a farm mortgage on the ground that a person who owes a farm debt is in default, and the debtor disputes that. Thus ss 9(1), 9(1A), 9A(1), 9B(1), 9B(2)(b) and 11(1)(c)(i) refer to mediation concerning the 'farm debt involved' (emphasis added). Section 11(2)(b) refers to 'mediation in respect of the debt concerned' (emphasis added). Section 11(2)(c)(iii) refers to the farmer declining 'to mediate in respect of the farm debt' (emphasis added). It is the dispute about the farm debt involved or concerned which calls for mediation. The respondent's construction would have the unlikely consequence that where a farmer has incurred several farm debts from a creditor and several distinct disputes arise in relation to those farm debts, there is a requirement for that first dispute to be mediated, but not any of the others, even though the nature of each dispute may be quite different. [54] The expression 'farm mortgage' in s 8(3) refers to the interests in, or powers over, farm property which have been conferred on a creditor to secure the particular farm debt of a farmer. The s 11 certificate cannot be issued unless the Authority is satisfied that satisfactory mediation has taken place in respect to the farm debt involved - that is, the farm debt secured by particular interests in or powers over farm property. There is a difference between the interests in or powers over farm land which secured the 'farm debt involved' in the June 2005 mediation - a debt of $488,250 referred to in the Notice and in the Certificate - and the interests in or powers over the farm land which secure the 'farm debt' which the respondent wished to enforce by starting these proceedings - a much larger debt of $754,811.38 arising under the Third Loan Agreement. The greater size of the debt meant that the respondent's interests in or powers over the appellant's farm land were greater and therefore different." 13Importantly for present purposes, his Honour also said this at [57]: "[57] The respondent submitted that one consequence of the appellant's construction was so unsatisfactory as to suggest it was not correct. The consequence was that if a farmer and a creditor fall into disputation about a farm debt secured under a farm mortgage, participate in a successful mediation, agree on terms settling the dispute, and then fall into disputation about the farmer's alleged breach of the settlement terms, s 8(1) would prevent enforcement action in relation to the settlement terms even if a s 11 certificate had been issued. This submission assumes that a new farm debt would have been created. The respondent concedes that the consequence, unsatisfactory or not, could be brought about if the obligations under the settlement terms were secured by a fresh instrument of mortgage. But the unsatisfactory consequence would not follow if the settlement terms involved only adjustments to the farm debt such as extending the term to pay, reducing the principal or capitalising interest. These adjustments would leave the initial farm debt in place; to that initial farm debt the s 11 certificate could apply; and s 8(3) would affect the s 8(1) immunity from enforcement action."