Almond Land Pty Ltd v Geoffjoy Enterprises Pty Ltd & Ors [2014] VCC 196

5. In response, the plaintiff, firstly, submitted that although consideration must move from the promisee, it need not move to the promisor. Secondly, that although the requisite notices had not been given under the Act, this was not a defence given the Act did not apply.

6. It followed that the two issues for determination were:

(a) whether the fourth and fifth defendants were bound by the February agreement;

7. The defendants accepted that if they were unsuccessful in relation to these issues, then the plaintiff was entitled to judgment in the amount of $1,742,118.66.

8. Before resolution of these issues a short description of the background facts is necessary.

9. The plaintiff is a corporate entity related to the Timbercorp group of companies and engaged in "water rights" acquisition as part of its functions in overseeing various horticultural operations

10. The defendants are Geoffjoy Enterprises Pty Ltd (Geoffjoy), Wayne and Rhonda Somerville and David and Melissa Somerville. The directors of Geoffjoy were Wayne and Rhonda Somerville. Wayne (the sole witness for the defendants) was the husband of Rhonda; the father of David; and the father-in-law of Melissa.

11. Immediately prior to November 2007, Geoffjoy was the owner of two water rights; one of 1000 megalitres (the relevant water share); and another smaller one of 500 megalitres

12. These "water rights" gave a legal title to take the equivalent number of litres out of the river system. However, the actual amount of water that could be taken by the holder of the right varied depending on the allocation the Water Authority had determined at any point in time.

13. In this case, the evidence of Wayne Somerville was that there were very low water allocations given the drought. He therefore contacted a water broker, Mr Tim Elstone, to arrange a sale of the water rights.

14. On or around 26 November 2007 the plaintiff entered into two agreements with the first defendant, Geoffjoy, to purchase the two water shares for a total consideration of $3,825,000.

15. The first agreement was to purchase the relevant 1000 megalitre water share for $2,550,000.

16. The second agreement was to purchase the other 500 megalitre water share for $1,275,000.

17. A 10% deposit was payable on signing with the balance to be paid within seven business days of written approval of the transfer by the Water Authorities (being Goulburn Murray Water (GMW), and the Lower Murray Water Authority) (clause 3).

18. If the transfer was not approved within three months of the date of signing the purchaser was entitled to terminate the agreements (clause 7). However, if the transfer was not approved "due to the 4% limit being reached in the Torrumbarry Irrigation district" the parties could continue with the agreement (clause 10).

19. The "4% trading limit" was designed to prevent more than 4% of a district's total permanent water holdings from being traded out of that district during any one financial year.

20. At some point in late December 2007, an application was lodged with GMW to approve the transfer of the water shares.

21. However, prior to any approval by the Water Authorities, entities associated with the Somervilles purchased some property in South Australia. According to the evidence of Mr Wayne Somerville, this was because Mr Elstone had assured them that the deal would get through with the "cap" not being an issue.

22. Two rural contracts dated 28 November 2007 were placed into evidence by the defendants as to the identity of the purchasers of the propert(ies) in South Australia. These contracts show that one landholding was purchased by Geoffjoy Enterprises Pty Ltd for a price of $1,654,950; while the other was purchased by Somerville Property Holdings Pty Ltd for $1,495,050. According to Wayne Somerville, the directors of Somerville Property Holdings (which he described as a 'family trust") were David and Melissa as well as himself and his wife. Both contracts were due to settle on 30 January 2008.

23. During January 2008 to February 2008 it became clear that the 4% cap had been reached in the Torrumbarry District such that the Water Authorities would not approve the transfer of the water shares within the three month time limit.

24. Negotiations then ensued for a continuation/variation of the water sale agreements.

25. There is correspondence from Mr Elstone on behalf of the vendors dated 10 January 2008 which expresses that the vendors were "very keen" to continue the agreement and proposed an offer on the basis of a "declaration of trust" arrangement.

26. By correspondence of 24 January, 2008, Almond Land forwarded a counter offer in response which gave an extension of time for approval to 20 June 2011. It also proposed an advance of a loan of $3,825,000 on 20 June 2008.

27. The reason for the advance of the loan is not stated. However, by correspondence of 24 January 2008, Mr Elstone sought that the loan advance be brought forward since the "Sommervilles had committed themselves to another property."

28. In the result, the plaintiff agreed to bring the loan "forward" as the defendants requested.

29. On 30 January 2008 the water shares were transferred such that Melissa Somerville and David Somerville became registered proprietors of the water shares with Geoffjoy.

30. The plaintiff and all five defendant "Borrowers" then entered into the February variation and loan agreement with David and Melissa agreeing to be bound by the original 2007 agreements (clause 2.1). The February agreement further made provision for two important matters.

31. Firstly, the February agreement extended the period within which the parties were to secure the Authority's approval for transfer of the water shares to 20 June 2011 (clause 2.2(1)).

32. Secondly, the plaintiff agreed to advance the sum of $3,825,000 to the defendant "Borrowers" by way of loan (clause 3.1). The agreement provides for repayment on the "Water Sale Completion Date" (being the date on which the shares were transferred pursuant to the 2007 sale agreements (clauses 6.1 & 1.1)). However, in the absence of such transfer the agreement provides for a "Repayment date" as the earlier of 20 June 2011 and the Water Sale Completion Date (clause 1.1).

33. The agreement was executed by Wayne and Rhonda Somerville as directors of Geoffjoy and also by each of the four individual "borrowers" (being Wayne, Rhonda, Melissa and David).

34. On the same date, Geoffjoy, Melissa and David Somerville also granted a mortgage over the water shares in favour of the plaintiff.

35. The plaintiff then advanced the sum of $3,825,000 to Obst Lawyers (constituted by the net sum advanced of $3,434,250; the deposit already paid of $382,500; plus loan costs of $8250).[1]

36. The evidence was sketchy as to how this occurred. However, the evidence of Mr Somerville was that Obst lawyers were acting in relation to the purchase of the SA property and that he "guessed" that Geoffjoy would have instructed Almond land as to the payments of the funds.

37. There was also an earlier facsimile from Rabobank to Wayne and Rhonda Somerville dated 16 November 2007 which sought confirmation that they were to "reduce the Rabo facility $3.9m from the sale of 1,500 ml water." Further that Rabobank was then to provide $3.2m to purchase the Mt Gambier property (in South Australia).

38. The evidence of Mr Somerville was that Geoffjoy had borrowed money from Rabobank though he was very unclear on the details. He agreed however that the funds from the sale were to be used to repay an existing facility held with Rabobank of $3.9M (who held a mortgage over the water shares). Further, that Rabobank was then to provide a further $3.2M facility to purchase the South Australian property (plus $700,000 for a shed and other costs), taking a mortgage over that property.

39. On 6 October 2008 the water share of 500 megalitres was transferred to the plaintiff after approval was granted by the Authorities.

40. However, despite the lodgement of applications to transfer the relevant 1000 megalitre water share, these were rejected (apparently on the basis that it would cause the 4% limit imposed on the movement of water out of the relevant district to be exceeded).

41. On 23 April 2009 the plaintiff entered into voluntary administration, and was ultimately placed into liquidation on 29 June 2009.

42. As at 20 June 2011 no approval had been granted for the transfer of the relevant water share.

43. On 20 July 2011 the plaintiff terminated the 2007 agreement (as varied) and demanded that Geoffjoy, Melissa and David Somerville repay the sum of $2,550,000 (relating to the relevant share) to the plaintiff.

44. On 15 November 2011 the plaintiff then served a demand on Geoffjoy, Melissa and David Somerville requiring the repayment of $2,550,000 and notifying that if the notice was not complied with, it may exercise its power of sale over the relevant water share pursuant to the mortgage and Schedule 12A of the Water Act.

46. By correspondence of 14 February 2012, Corrs, solicitors for the plaintiff, advised that given non-compliance with the notice of 15 November the plaintiff would now take steps to sell the water share.

47. In April 2012 the plaintiff listed the sale of the relevant water share on the market.

48. The water share was then sold by the plaintiff as mortgagee in possession for a purchase price of $1,400,000 (with net sales proceeds of $1,369,146.70 received on 31 May).

49. On 2 November 2012 the plaintiff demanded that Geoffjoy, Melissa and David Somerville pay the outstanding balance of $1,546,414.43 under the February agreement.

51. On 6 September 2013 the plaintiff also demanded that Wayne and Rhonda Somerville repay the plaintiff the outstanding amount under the February agreement.

52. The plaintiff called Mr Antony Munro, chartered accountant from Korda Mentha, (the liquidator of the plaintiff), and Mr Darren Lipton who was General Manager at Timbercorp at the time.

53. They gave no evidence of significance and had little independent memory of events.

54. The defendants called Mr Wayne Somerville. His evidence was also affected by gaps in recollection although there appeared to be some reluctance to provide details of relevant transactions.

55. In any event there was little in the way of any credit issues in this case which must be largely determined on the basis of the relevant contemporaneous documentary evidence.

56. Regardless of the ultimate destination/direction of the loan funds, the February agreement is clear that the loan was made to all of the "Borrowers" which specifically included Wayne and Rhonda Somerville.

57. Thus, pursuant to clause 3.1 the Lender was to advance the Principal Sum "to the Borrowers" plural. The "Borrowers" were further defined to mean and include each party described as "Borrowers" jointly and severally (clause 1.2(n)). Clause 2.2(4) further provides that the monies were to be repaid by the Borrowers "in consideration of the advance by Almond Land of the Principal Sum to the Borrowers."

58. In any event, even if the fourth and fifth defendants are not seen as receiving any consideration in their own right this does not assist them. Thus, in the decision of Pico Holdings Inc v Wave Vistas Pty Ltd ,[2] the High Court was called upon to consider a similar argument to the effect that the lender had conferred no benefit on a particular party.

59. At [66] the Court (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ) stated:**

"The first respondent advanced one other consideration argument - that the lender conferred no benefit on the first respondent, and that the first respondent "was not a party to any consideration". This argument is fallacious. Consideration must move from the promisee (the lender); it need not move to the promisor (the first respondent)."

**60. The situation is analogous to that of a guarantee. Thus in a contract of guarantee the consideration given in exchange for the guarantor's promise is the lender's promise of, or the actual making of, a loan to the third party/borrower. Thus consideration moves from the lender but does not need to specifically move to the promisor/guarantor.[3]

61. It follows that the defence based on an alleged lack of consideration cannot succeed.

62. As indicated already, the Act commenced on 1 December 2011, although there has been a similar Act in operation in New South Wales for several years (the Farm Debt Mediation Act 1994 (NSW)).

63. The purpose of the Act was to provide "for the efficient and equitable resolution of farm debt disputes by requiring a creditor to provide a farmer with the option to mediate before taking possession of property or other enforcement action under a farm mortgage".

64. In outline, the scheme of the Act is that if a farmer incurs a "farm debt" that is secured by a "farm mortgage" the "creditor" is unable to take "enforcement action" under the farm mortgage until, inter alia, a certificate is issued that a satisfactory mediation has taken place. A "farm mortgage" was defined to include an interest over "farm property" which included a water share (s3).

65. In the current case, the defendants relied upon s6 which provided that "Enforcement action taken by a creditor to whom this Act applies otherwise than in compliance with this Act is void."

66. In particular, the defendants submitted that the current proceeding constituted "enforcement action" which was properly characterised as a continuation of the exercise of the power of sale to obtain the shortfall.

67. It was common ground that the notices required by the Act had not been served (in particular by s8). However, the plaintiff made 3 submissions as to why the Act did not apply.

68. Firstly, it was submitted that, even if there was a "farm debt" it was outside the terms of the Act which did not apply by reason of the Transitional provisions contained in s37.

69. Secondly, it was submitted that the institution of this proceeding was not "enforcement action" within the meaning of s6 of the Act since it had no relation to a farm mortgage, but was solely an action to enforce a personal debt.

70. Thirdly, the plaintiff submitted that no "farm debt" had been established in this case in any event.

71. The debt in this case was incurred prior to the commencement date of 1 December 2011 at which time the Act did not apply and the plaintiff was unrestricted in its rights to enforce that debt.

72. This position is unchanged by the terms of s37(b) of the Act which provides that the Act applies to a farm debt that is incurred on or after the commencement day.

73. However section 37 (a) of the Act makes specific provision for the application of the Act to circumstances where the farm debt was incurred prior to the commencement date. It states that the Act applies to:

(a) a farm debt that is outstanding on the commencement day irrespective of when the farm debt was incurred and in respect of which enforcement action has not commenced...

74. Given the farm debt was outstanding on the commencement day, the real issue became whether "enforcement action" had not commenced in respect of the farm debt.

75. The concept of "enforcement action" is defined in s3 as follows:**

"enforcement action, in relation to a farm mortgage, means taking possession of property under the mortgage or any other action to enforce the mortgage, including the giving of any statutory enforcement notice, or the continuation of any action to that end already commenced, but does not include-

**(a) the completion of the sale of property held under the mortgage in respect of which contracts were exchanged before the commencement day; or

(b) enforcement of a judgment that was obtained before the commencement day."

76. "Statutory enforcement notice" was further defined in s3 as including a notice under clause 5 of Schedule 12A to the Water Act 1989 or any prescribed notice given under an Act.

77. The notice of 15 November is a notice under clause 5 of Schedule 12A of the Water Act and was, accordingly, a "statutory enforcement notice". The defendants have further admitted that the November 2011 demand was a Statutory Enforcement Notice.[4] The notice was, in any event, clearly covered by the general concept of action "to enforce the mortgage" pursuant to the definition in s3.

78. The defendants however submitted that, consistent with the approach of the High Court in Waller v Hargraves Secured Investments Ltd,[5] the concept of "enforcement action" should be considered as a series of steps. Given the issue of the proceeding was a separate enforcement step/action which had not commenced at the relevant time, the Act still applied.

79. I accept that the concept of "enforcement action" is broad, as elucidated in Waller. However, the fact that there may be other steps constituting "enforcement action" taken after the commencement date is not to the point. Provided there has already been enforcement action "in respect of the [same] farm debt" s37 does not extend the application of the Act.

80. I also see nothing in Waller which assists the defendants. In that case, the High Court was concerned with similar provisions contained in the New South Wales Act. It was held that a creditor was precluded from taking enforcement action where, following a mediation, a settlement agreement was reached by which the existing farm debt was discharged and a new debt created. A further loan was also subsequently agreed on revised terms. The creditor failed because there had been no mediation and certificate in respect of the new debt.

81. In this case there is no issue of fresh debts warranting further mediation. Instead, as at the commencement day, enforcement action had already commenced in respect of the (same) debt the subject of the current proceeding.

82. The Act is clear as to the circumstances in which its provisions should be extended to farm debts incurred prior to its commencement. A statute ought generally not apply to events that have already occurred so as to affect rights unless the intention appears with reasonable certainty.[6] The ordinary meaning of s37(a) suggests that the Act does not apply to farm debts incurred prior to 1 December 2011 if any enforcement action had already commenced in relation to that debt. Such enforcement action had occurred in this case constituted by the service of the notice of 15 November, 2011.

83. It follows that s37(b) does not apply, with the result that the Act does not apply to the debt the subject of the current proceeding.

84. I am also of the view that the current proceeding does not constitute "enforcement action" pursuant to ss3 and 6.

85. As indicated already, the defendants submitted that the current proceeding was properly characterised as the "continuation" of the exercise of the power of sale since the proceeding was brought to recover the shortfall after the sale of the property. In particular, they again relied upon the decision of the High Court in Waller.

86. The plaintiff however submitted that the provision had no application where the action was solely to enforce a debt which did not rely on the enforcement of a mortgage. The plaintiff also cited Waller and a number of cases decided since.

87. The defendants' submission can have no operation in relation to the fourth and fifth defendants since they were not parties to the mortgage and no claim can, or is, made against them on the basis of that mortgage.

88. In relation to the other defendants, it is true that the Amended Statement of Claim does make some reference to the mortgage, including the terms of clause 6.1 of that mortgage.[7] This provides that the mortgagor must pay the secured money "in accordance with the obligations under any relevant document." Further that if the secured money is payable on demand or if there is no stipulated time for payment, the mortgagor must pay "on demand".

89. Clause 6.1 however, adds nothing to the obligations contained in the February agreement which contains provisions for the repayment of the debt. The current action therefore does not really depend or rely upon the terms of the mortgage when properly characterised.

90. Instead, then, the "inherent legal character" of this proceeding is a debt action which does not depend on the existence of the mortgage.[8] Moreover, a number of decisions also make it clear that the Act does not apply to simple debt claims.[9]

91. Insofar as Waller is concerned, there are two crucial points of distinction: firstly, the case was critically concerned with an action for possession of the relevant farm; secondly, the monetary claim was viewed as action "to enforce the mortgage" in that case.

92. In relation to the first matter, the inherent character of a mortgage is to provide some power over an asset so as to secure an obligation. This is confirmed by the definition of a "farm mortgage" contained in the Act which included an interest in, or power over, any farm property securing obligations of the farmer. An action cannot therefore be about enforcing the security interest given by a mortgage where the security (the very subject of the mortgage) has already been sold.

93. There is also nothing in the definition or the purposes of the Act which suggests that the Act should extend to the recovery of the shortfall after the "farm property" the subject of the mortgage has already been sold. Although the concept of "enforcement action" includes a continuation of any action, this must be to "that end", namely, further to taking possession or enforcing the mortgage. Further, while the reference to the "completion of the sale of the property" in part (a) suggests that the definition might extend to steps post the actual sale date, I can find no justification for an extension to steps completely removed and separate from the sale.

94. In Waller, Heydon J also emphasized that an action to obtain a money judgment is "enforcement action" so long as it is action "to enforce the mortgage".[10] For reasons already given, I do not consider the current proceeding to be properly characterised in this light. In particular, the fact that a shortfall is being sought does not convert the debt proceeding into a proceeding whereby the security interest is being enforced.

95. Accordingly, I also consider that the defendants fail on the basis that the current proceeding does not constitute "enforcement action" for the purposes of s6.

96. It is unnecessary to finally resolve whether the debt was a "farm debt" for the purposes of s5(a) given my findings, above though some brief observations will be made for the sake of completeness.

97. Section 3 defines a "farm debt" as "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."

98. There is clearly a "debt". There would also appear to be a "farm mortgage" since "farm property" specifically included a water share within the meaning of the Water Act (s3 definitions).

99. However, there was little evidence as to whether the defendants were "farmers," and certainly no financial or other records were adduced as to the activities of the entities concerned.

100. In terms of the purpose for which the debt was incurred, I do not consider that the debt was incurred in order to secure the sale of the water shares (as the plaintiff submitted). Rather, the completion of the sale was completely independent of the advance of the funds since the defendants did not need to borrow to sell their asset (which they had already agreed to sell).

101. Instead, the debt appears to have been incurred so as to enable the repayment of the Rabobank facility. In order to consider whether the requisite purpose was established it would be necessary to consider the purpose for this repayment. There was some suggestion that this repayment was made so that Rabobank would advance the further funds to settle the South Australia property (presuming it to be a farming operation). However, there was little evidence to enable a proper determination of this matter; for example, there was no documentation establishing the terms and/or purposes of the relevant facilities.

102. It is unnecessary to consider these matters further, however, given the other findings above.

103. I am not satisfied that the Act applies given the farm debt was incurred prior to its commencement date and given the transitional provisions in s37 do not apply.

104. I am also not satisfied that this proceeding constitutes "enforcement action" for the purposes of s6 of the Act.

106. I am satisfied that the fourth and fifth defendants are bound by the February agreement.

107. I am further satisfied that the Act does not apply.

108. It follows that the plaintiff is entitled to judgment in the amount of $1,742.118.66.

109. The parties are to provide a form of final order to finalise this proceeding in accordance with these reasons.**

Almond Land Pty Ltd (in liquidation) (ACN 091 460 392)

[1] Exhibit A, CB 336 Document 12, Purchase Order from Timbercorp Limited dated 5 February 2008.

[2] [2005] HCA 13; (2005) 214 ALR 392.

[3] N Seddon et al, Cheshire & Fifoot Law of Contract, (LexisNexis Butterworths Australia 10e 2012) at 4.6.

[4] Further Amended Defence of the First- Third Defendants para 19(e); Amended Defence of fourth and fifth defendants para 19(e)

[5] [2012] HCA 4; (2012) 245 CLR 311

[6] Maxwell v Murphy [1957] HCA 7; (1957) 96 CLR 261 at 267 per Dixon CJ

[7] Plaintiff's Amended Statement of Claim dated 9 September 2013, paras 12(b), 22 and 25.

[8] National Australia Bank Limited v Trim Perfect Australia Pty Ltd [2005] NSWSC 972 at [19]- [20]

[9] See KFT Investments Pty Ltd v Bullard & Ors [2012] VSC 207 per Sifris J at [13] & [15]; Rural Bank Limited v Merriba Pty Limited [2012] NSWSC 498 at [20] per White J; Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337.

[10] [2012] HCA 4; (2012) 245 CLR 311 at [66]