Lisa Dorman | March 2013 | Banking
In current NSW Supreme Court proceedings the Court is to consider whether the operation of a deed of settlement between the lender and the farmer creates a new ‘farm debt’ for the purpose of the Farm Debt Mediation Act NSW 1994 (the ‘Act’) – thus giving rise to a fresh obligation to mediate.1
Hargraves Secured Investments Limited (‘Hargraves’) obtained judgment for possession of two farming properties known as ‘The Old Farm’ and ‘Campbell’s Hill’. A writ for possession was executed in respect of The Old Farm with an auction scheduled to take place on 1 March 2013. The farmer applied to the Court to restrain the sale.
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Deeds of settlement and ‘fresh debt’ under the Farm Debt Mediation Act: Stay Tuned!
Background The farmer first entered into a loan agreement with Hargraves in 2004. The original loan was refinanced on a number of occasions. In accordance with the principles in Waller v Hargraves,2 it was accepted that each of those advances were farm debts within the meaning of the Act. Following mediation under the Act, the parties entered into a further loan agreement. The farmer then defaulted in his obligations under that loan agreement. Hargraves obtained the issue of a section 11 certificate under the Act and commenced proceedings for possession. The proceedings were settled on terms recorded in a Deed of Settlement (the ‘Settlement’). The Settlement was detailed and included: •
consent judgment for possession;
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a stay on execution of the judgment;
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higher interest rate than on the previous borrowings;
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capitalisation of approved marketing costs for the sale of The Old Farm;
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compromise on and capitalisation of Hargraves legal costs;
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a detailed regime for payment; and
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that in the event that the farmer defaulted under the Settlement the stay on execution of the judgment would be lifted.
Hargraves obtained writs of possession of both properties in October 2012. The farmer made application to set aside the writs on the basis that Hargraves’ entitlement to obtain them had not yet arisen under the Deed. Harrison J in Hargraves v Sharp3 set aside the writ in respect of Campbell’s Hill but declined to grant the relief sought in respect of The Old Farm. On the same day as Harrison J’s judgment, the farmer served a notice pursuant to section 9(1A) of the Act requesting Hargraves mediate. Plainly, a failure by Hargraves to mediate would result in the farmer being entitled to obtain from the Authority an exemption certificate under section 9B of the Act that then prevents Hargraves from taking any enforcement action. The farmer’s application to the Court raised a narrow but important question as to the construction of the Act and whether the Settlement created a new ‘farm debt’ which gave rise to a further obligation to mediate. Hargraves submitted that as it had the benefit of a section 11 certificate, the farmer’s application was doomed to fail because the only ‘farm mortgage’ to which the certificate could relate was the registered mortgage granted by the farmer.
Decision The application for a stay was heard by McCallum J. Her Honour accepted that the registered mortgage was a farm mortgage within the meaning of the Act, but said that it did not follow that the section 11 certificate only applied to that farm mortgage. Her Honour found that the matters covered by the Settlement were capable of leading to a conclusion that the Settlement was a new farm debt - the obligations under which were secured by an interest or power over a farm property. Her Honour noted that where the lender’s entitlement to ultimate relief is uncertain, the
Court, in deciding to whether to grant or refuse an interlocutory stay of execution, must consider what is the best course to achieve justice pending resolution of the uncertainty. As the uncertainty depended on a contested question of law, her Honour considered that the point raised by the farmer was at least uncertain and appeared to be a matter which could properly be argued. In granting the interim stay sought by the farmer, the judge observed the importance of promoting the objectives of the Act, which were “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”. A stay was granted pending a final hearing. We will continue to watch this case with interest.
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Deeds of settlement and ‘fresh debt’ under the Farm Debt Mediation Act: Stay Tuned! Lisa Dorman | March 2013
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Hargraves Secured Investments Ltd v Sharpe [2013] NSWSC 177 2 [2012] HCA 4 3 [2012] NSW 1519
For more information, please contact: Lisa Dorman Partner T: 02 8257 5734 M: 0417 236 786 lisa.dorman@turkslegal.com.au
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