Kiriwina Investment Company Pty Ltd v Green Lees Developments Pty Limited

Supreme Court of NSW|2017-09-11

Judgment

HER HONOUR: This judgment concerns whether these proceedings were commenced in contravention of the Farm Debt Mediation Act 1994 (NSW).
The plaintiff is Kiriwina Investment Company Pty Ltd ("Kiriwina"). The first defendant is Green Lees Developments Pty Ltd ("Green Lees Developments"). The second defendant is Warwick Denshire ("Mr Denshire"). Mr Denshire is the sole director and shareholder of Green Lees Developments. Mr Denshire was the registered proprietor of a property known as "Greenlees" ("Greenlees") at Cranky Corner Road, Glendonbrook, New South Wales.
Kiriwina relied upon three affidavits of David Kristian Woods dated 9 June 2017, 28 July 2017 and 23 August 2017, the affidavit of Penelope McGill sworn 28 August 2017 and the affidavit of William West dated 5 September 2017. The defendants relied upon two affidavits of Warwick Denshire dated 12 July 2017 and 20 July 2017 and the affidavit of Dr Alan Post dated 22 August 2017. Mr Woods, Mr West, Dr Post and Mr Denshire all gave evidence and were cross examined. All of the witnesses, including Mr Denshire, gave evidence and I accept it.
By statement of claim filed on 5 December 2016, Kiriwina seeks to recover a debt owed by Green Lees Developments and Mr Denshire. The loan was for an initial advance of $1,400,000 drawn down on 20 March 2006. On 29 October 2010, a further sum of $200,000 was advanced. On 18 May 2012, additional funding of $500,000 was made available. The total of the advances amounted to $2,100,000. The loan had been secured by a mortgage over Greenlees. The mortgage also secured the further advances and both variations of mortgage were registered.
Mr Denshire, was the owner of Greenlees and jointly liable with Greens Lees Developments for the debt. As owner and mortgagor, Mr Denshire was a party and signatory to the mortgage and the two variations.
It is not in dispute that the last payment under the loan was on 26 July 2012 and, as a consequence, the loan was in default from 20 August 2012.

The factual background

Mr Denshire was born in Sydney in 1955. He attended James Ruse Agricultural high school and then went jackerooing in Mudgee. He attended Orange Agricultural College, graduating in 1990 with an Associate Diploma in Farm Management. (Aff, Denshire 12 July 2017, [44]). At that time Mr Denshire and his father owned a 52 acre farm at Kulnura, where they grew and cultivated protea flowers, avocados, angora goats and cattle. The farm at Kulnura was sold and Mr Denshire stayed on as the manager buying additional land for the new owner and eventually developing over 500 acres for grazing. This involved a "paper subdivision" of neighbouring properties to buy additional land to add to the original farm.
In approximately 1992, Mr Denshire bought a 600 acre property at Willow Tree, NSW, where he operated a grazing enterprise and a pre embarkation quarantine facility for exporting live animals. Mr Denshire has always carried out agricultural contracting in conjunction with his own personal farming activities. Those activities included driving heavy transport, firewood production and sales, contract livestock handling, fencing, irrigation installation, land clearing and pasture improvement, road and dam construction, and live animal quarantine and import/export. (Aff, Denshire 12 July 2017, [46]-[48]).
In 1999, Mr Denshire and his family moved to Newcastle to improve the educational opportunities for his children. He met a Dr Hardy who owned 200 acres of land at Fletcher on the outskirts of Newcastle; Mr Denshire helped Dr Hardy restore his land by fencing and grazing goats on it. Mr Denshire and Dr Hardy jointly agreed to subdivide Dr Hardy's land for residential use. Dr Hardy's land was eventually sold for housing. To fund the development of Dr Hardy's land and in order for Mr Denshire to meet his obligations under the joint venture agreement, Mr Denshire sold his livestock and then the Willow Tree farm. (Aff, Denshire 12 July 2017, [50]).
In 2004, Greenlees was purchased by the defendants with a short term loan from Suncorp Metway Limited ("Suncorp"). Mr Denshire says that the purpose of the Suncorp loan was to purchase the property and livestock to enable him to carry on a farming business.
At the time of purchase of Greenlees, development consent existed to subdivide the property into 8 lots. Mr Denshire viewed this as "an exit strategy if required", although it also improved the valuation of Greenlees for security purposes with Suncorp. Mr Denshire says that the proposed development by way of subdivision and sale was ancillary to his farming activities. (I will provide details of the loan documents later in this judgment).
Between 2004 and December 2005, Dr Alan Post, a veterinary surgeon, lived in a dwelling at Greenlees. He was the farm manager. He was not aware that Mr Denshire had a development approval for 8 lots. Mr Denshire had mentioned to Dr Post that one day in the future he might be interested in subdividing the property, but there was no plan to do so at the time that Dr Post was working there. (T67.30.36).
During this time, 50% of lots 3 and 4 of the 8 lot subdivision were cleared of lantana and regrowth. Pasture improvement was also effected on lot 4. (T42.14-46). Mr Denshire and Dr Post did a lot of clearing to what they colloquially referred to as "a mountain". From the beginning of 2004 until the end of 2005 they also did a lot of fencing. (T42.11-46). After two years, Dr Post left Greenlees to work as a vet in Dubai.
In 2006, the loan was refinanced with Mr John Price (the lender prior to Kiriwina) in the names of Green Lee Developments and Mr Denshire (I will set out this refinance document later in this judgment when I deal with the documentary financial records). At that time, Mr Denshire's eldest son was showing an interest in farming and enrolled at Tocal Agricultural College. His son assisted him with stock work and developing Greenlees. The property's fencing was rundown and it had been adversely affected by other stock. Mr Denshire and his son also cleared, fertilised and pasture improved much of the land thereby improving its carrying capacity. (Aff, Denshire 12 July 2017, [54]).
In 2007, Mr Denshire purchased Aravia, a macadamia farm at Federal on the North Coast of New South Wales. This was to enable him to diversify his farming operations by growing macadamias. There was a manager at Aravia and Mr Denshire remotely managed the farm from Newcastle. (Aff, Denshire 12 July 2017, [19]).
In 2010, there was a downturn in the price of macadamias. Mr Denshire was unable to meet the property's financial payments and participated in a farm debt mediation with the mortgagee of Aravia. This resulted in an agreement being reached which allowed the repayment of the loan in terms that Mr Denshire was able to meet. Unfortunately, Mr Denshire's venture into macadamia farming used up all of his surplus funds. In 2011, Mr Denshire sold Aravia and repaid the Aravia debt to the mortgagee. (Aff, Denshire 12 July 2017, [20] and [23]-[24]).
After purchasing Greenlees, Mr Denshire reconfigured the development approval to create 17 instead of 8 lots in such a fashion that if some lots were to be sold, it would have little effect on the agricultural operations of the property. He also considered that the approval of additional lots would improve the potential sales alternatives without affecting the agricultural viability of the farm and improve the security in value of the property for mortgage purposes. (Aff, Denshire 12 July 2017, [25]).
Greenlees was subdivided into 4 lots being 2 small 10 hectare lifestyle lots which Mr Denshire put on the market, as well as a 60 hectare and 90 hectare farming lots with approval for further subdivision, plus a 500 hectare community title lot suitable for grazing. (Aff, Denshire 12 July 2017, [26]).
In May 2011, a contract was entered into for the sale of lot 2 for $342,000 but the purchasers sought to rescind the contract due to alleged damage to the land and, after a lengthy dispute, the matter did not proceed to completion. (Aff, Denshire 12 July 2017 [28]).
Mr Denshire has been a farmer and engaged in farming activities for all of his working life. His principal occupation throughout his working life has been that of both a horticultural and animal farmer. The only income he generated from Greenlees was from farming. During 2011 and 2012, sales of cattle from Greenlees totalled approximately $5,000. (Aff, Denshire 12 July 2017, [17]-[18]). He has always obtained primary producer's registration for his motor vehicles. His farming expenses have been a tax deduction over the last 30 years.
Greenlees was zoned as "Rural 1A (Agricultural) in the Singleton LEP (Local Environmental Plan)". Mr Denshire received rural rating status from Singleton Council in relation to rates payable on Greenlees and he obtained a land tax exemption from the Office of State Revenue NSW due to the use of the land for primary production. He paid local land services rates for Greenlees on the basis that it was rural. (Aff, Denshire 12 July 2017, [67]-[72]).

Cattle on Greenlees

From 2004 until the end of 2012, the entire grazing operation at Greenlees was cattle, which started with an initial herd of 100 Angus cows. (T39.40-43).
In late 2004 when Dr Post was the manager at Greenlees, he cared for the cattle and carried out farm duties including fencing, clearing and stock work. He was the one who assisted Mr Denshire select the initial herd of 100 Angus cows and their progeny, two bulls and a few horses. (T51.7). The cattle were familiar with those that were on the farm and it was a good start for the commencement of Mr Denshire's herd. (T60.11-16; T66.3-7). When Dr Post left Greenlees, the size of the herd was still at about 100 Angus cows. (T66.29-40).
By the end of 2012, all Green Lees Developments' cattle had gone. (T38.49-50).
In about October 2013, a severe fire destroyed about half of Greenlees and a boundary fence between Greenlees and the adjoining property. They probably lost about 10,000 acres all together. It was impractical for the owner of the adjoining property, Mr Thomas, to retain stock on his property because of the lack of any boundary fence. Mr Denshire agreed that Mr Thomas could run his cattle on Greenlees as a share farming arrangement. When Mr Denshire and Mr Thomas had regrouped after the fire, Mr Thomas' cattle were running on Greenlees. (T38.4-32).
In 2015, a flood occurred on Greenlees that washed out fences on the main access road and bridge abutments. (Aff, Denshire 12 July 2017, [39]).

Snakes and rodents

Mr Denshire has been in the business of farming snakes for over 10 years. He started farming rodents and snakes about 18 months after he bought Greenlees. (T63.47-48). He has a substantial rodent farm business as a result of his frustration of not being able to source good and reliable frozen rats to feed his snakes. His snakes are mainly pythons, including the sought after olive albino variety, the second biggest python in Australia. (T50.15-49). He sells the pythons as pets. He is the biggest online rodent food supplier in Australia, where food is produced, grown, bred, packed, distributed and sold to consumers who have reptiles, predominantly snakes. These activities were initially carried out at Greenlees, then later at a property at Tomago near Newcastle Airport, before having ultimately moved to a property Mr Denshire owns in Frederickton.
While counsel for Kiriwina correctly pointed out that rodents and snakes were not mentioned in Mr Denshire's affidavits, I accept that Mr Denshire did and still does breed them.
In addition to rats and mice, Mr Denshire breeds quail and rabbits as part of his rodent farm business. He is not only in the market of producing reptile food, but also supplies rats and mice to zoos as well as to educational institutions such as schools and universities for the purposes of dissection in classrooms.
By the end of 2012, Green Lees Developments and Mr Denshire also had rats, mice and snakes at Greenlees. (T39.45-50). He was still farming snakes and rodents at Greenlees as of September 2014 when they were transferred to the Tomago property.

The evidence of Mr West and the documentary financial records

Between 1998 and 2011, Mr West was the manager of Kiriwina. (Aff, West, [1]). Mr Woods, a manager later in time of Kiriwina, gave similar evidence in relation to the loan documents. The loan documents were provided in a bundle exhibited to Mr Woods' affidavit sworn on 9 June 2017 (which I shall refer to as "Ex DW-1" in this judgment).
In February 2006, Mr Denshire went to Mr West's office and said words to the following effect (Aff, West, [8]): "I have property up at Glendonbrook on the road north from Branxton. It is 1700 acres I bought a couple of years ago with funding from Suncorp. There is development approval for a subdivision into eight 100 acre lots, but I want to amend it to 17 lots. I am after 1.4 million funding to complete the subdivision. Kiriwina will be repaid from the sale of the subdivided lots."
It was Mr West's practice to view the properties being offered as security. In around February 2006, he went to Glendonbrook to look at Greenlees and Mr Denshire drove him around. Mr West observed that there was a lot of new fencing and dams, some cleared areas and a new access road to the parts of the property on the hill. Mr Denshire pointed these things out to Mr West and said (Aff, West, [10]): "This is where the road will go if it is the eight lot subdivision. There will be additional roads if there is a 17 lot subdivision" and "these are the boundary fences which we have put up since purchasing the property."
While Mr West has no recollection of seeing any cattle on Greenlees, he believes he would have noted the existence of any cattle had he seen them. Nor did he see any snakes or reptiles, rats, mice or other rodents, or any quail or chickens being farmed or kept on Greenlees. (Aff, West, [11]).
Mr West deposed that at no stage did Mr Denshire mention that he was undertaking a farming operation or any primary production on Greenlees. Nor did he state that the loan was for a farming purpose. However, Mr West recalls that in about September 2010, Mr Denshire mentioned to him that he had started mice breeding in the farmhouse to feed his snakes. (Aff, West, [19]).
It is fair to say that the documentary evidence of the loans refer to both property development and farming. I shall briefly refer to them here. The bank statement of Suncorp for the period 1 January 2006 to 31 January 2006 records (Ex DW-1, 3): "Loan Purpose: "Green Lees" Glendonbrook … Loan Type: Dev Finance R/e" (Development Finance Real Estate) … Loan Expiry Date 10/03/2006"
On 21 February 2006, Mr Denshire applied to Mr Price for a loan. The mortgage approval form reads (Ex DW-1,1-2): "PURPOSE OF LOAN - To take over existing debt to Suncorp Metway Bank P/L. SECURITY - Registered first mortgage over rural property comprising 1700 acres known as "Greenlees", Cranky Corner Road Glendonbrook. Directors Guarantees. VALUATION OF PROPERTIES - Owners Assessment $2.5M. The property was purchased in January 2004 for $1.98M and has been improved since that time. Apart from substantial new fencing, dams and improvements to the dwellings, a new access road to the higher parts of the property has been substantially completed. There is a council approved Development Application to subdivide the property into 8 lots however applicant is submitting an amendment to allow 17 lots. The area is popular with lifestyle investors and is situated approx. 2 hours by road to Sydney and 20 minutes to Branxton. Despite the improvements, I have adopted the purchase price of 2 years ago as a fair market assessment. … BW SUMMATION - The principal of the applicant company is Warwick Denshire. Although this is our first application for him, I first met Warwick 6 years ago in relation to a development site he was considering at Elermore Vale. He did purchase that site (without our assistance) and still holds it in his land bank. He also owns properties at Greta (26 lot approved subdivision), Fletcher (82 lot approved subdivision), 16 completed lots at Fletcher and a house at Black Hill. The current debt to Suncorp Metway matures early next month and he is not pleased with their fee structure. He derives his income from land sales and undertaking minor civil works. Evidence of his payment record to Suncorp Metway has been sighted. I am well acquainted with his solicitor, Richard Murphy, who recommends him highly."
The materials provided to Mr Price included: 1. A valuation report by Jurd's Real Estate. (Ex DW-1. 4). The first page of the report provides that Greenlees is "currently utilised as a grazing property ~ carrying approx 300 head…Quality sheds, yards and outbuildings". It refers to the presence of "cattleyards…"nine (9) internal paddocks" and zoning in "Rural I (A)". The report also refers to the property offering an opportunity to "[o]btain a viable grazing property with associated lifestyle and tax benefits". 2. A letter from Mr Denshire dated 21 December 2005 which provides (Ex DW-1, 30-31): 1. "Construction for subdivision into 8 lots is all but complete". 2. "I would be keen to lease back Lots 1, 2, 3, & 4, where I currently run cattle & use as a weekender."
On 20 March 2006, a mortgage was signed. (Ex DW-1, 23). The mortgagor was Mr Denshire. The mortgage was between Mr Price (mortgagee) and Mr Denshire (mortgagor). The covenants were set out in Annexure A to the mortgage and Greenlees was identified as the "Debtor". The covenants in the mortgage included the following (Ex DW-1, 24 and 26): 1. Mr Denshire would pay the principal sum (or so much as was unpaid) to Mr Price by 20 March 2011. 2. Interest would be paid monthly. 3. Certain warranties were given by Mr Denshire. Clause 7.1.7, 7.2, 8.2 and 8.3. These clauses read: "7.1.7 (for agricultural land) the mortgagor has not received and is not 7.1.7.1 any past, existing or contemplated notice or investigation under the Stock (Chemical Residues) Act 1975 in respect of the land; 7.1.7.2 any notice or declaration in respect of the land or stock situated on the land under the Stock Diseases Act 1923; 7.1.7.3 any unsatisfied notice or requirement of NSW Agriculture or its predecessor, the Department of Agriculture, in respect of the land or stock situated on the land. 7.2 7.2.1 The warranties contained in this clause are accurate, contain no material omissions and are not misleading. 7.2.2 In the event of it being established that there was a breach of any of the warranties contained in this clause at the date when the principal sum was advanced, the breach constitutes a default under this mortgage and the mortgagee is entitled to require immediate repayment of the principal sum. Eighthly - Ongoing obligation not to contaminate land The mortgagor covenants that, during the continuance of the mortgage, the mortgagor will: ... 8.2 (for agricultural land) not use or permit to be used on the property any chemicals or herbicides except those in concentrations not exceeding that recommended or authorised by NSW agriculture and any other regulatory authorities so as to ensure that the property and stock grazing on it will not become contaminated; 8.3 (for agricultural land) not bring or allow to be brought on to the property any diseased or contaminated stock; …"
On around 30 September 2010, Green Lees Developments applied for an increase under the loan. (Aff, Woods 9 June 2017, [19]). The application for increase mortgage approval form stated (Ex DW-1, 30-31): "PURPOSE OF LOAN - To provide additional development funding to assist with the subdivision of a large rural allotment at Glendonbrook." SECURITY - Registered first mortgage over rural property comprising 1700 acres known as "Greenlees", Cranky Corner Road Glendonbrook. Directors Guarantees. VALUATION OF PROPERTIES - Owners Assessment $3.5M. The property was purchased in January 2004 for $1.98M and has been improved since that time. Apart from substantial new fencing, dams and improvements to the dwellings, a new access road to the higher parts of the property has been substantially completed. There is a council approved Development Application to subdivide the property into 17 community title lots of 25 acres each plus a common area of 1200 acres. The area is popular with lifestyle investors and is situated approx. 2 hours by road to Sydney and 20 minutes to Branxton. The owners assessment is considered OK. BW SUMMATION - The principal of the applicant company is Warwick Denshire. This loan has been in place since March 06 and has been well conducted. A new D/A has been approved which substantially increases the value of the property. Sales and marketing will commence shortly through Peter Dunn Real Estate at Singleton. Fencing, minor road works and electricity connection needs to be completed to allow registration of subdivision. I am well acquainted with his solicitor, Richard Murphy, who recommends him highly. We will take this opportunity to transfer the loan to Kiriwina."
On 5 October 2010, an email was sent by Kiriwina to the defendants' solicitor, communicating agreement to vary the mortgage advance by way of an increase of $200,000 taking total borrowings to $1,600,000. (Ex DW-1, 32). These funds were used by Mr Denshire to pay the interest on the existing loan. (T27.34-36; T90.39-43). On 29 October 2010, there was a variation of mortgage in respect of the increase in loan. (Ex DW-1, 33). On 20 November 2010, there was a transfer of the mortgage from Mr Price to the Kiriwina. (Ex DW-1, 36). The proceeds of this loan were used to repay the interest component of the total borrowings.
As I have previously stated, at some time before May 2011, Greenlees was subdivided into 4 lots, with 2 small 10 hectare lifestyle lots and 60 hectare and 90 hectare farming lots with approval for further subdivision, plus a 500 hectare community title lot suitable for grazing (Aff, Denshire 12 July 2017, [26]). A contract for sale of one of the 10 hectare lots was not completed. (Aff, Denshire 12 July 2017, [28]).
On around 27 April 2012, Greenlees applied for an increase in the loan for an additional $500,000. (Aff, Woods 9 June 2017, [24]). The application for increase mortgage approval form read (Ex DW-1, 37): 1. "PURPOSE OF LOAN - To provide additional development funding to assist with the subdivision of a large rural allotment at Glendonbrook. 2. SECURITY - Registered first mortgage over rural property comprising 1700 acres known as "Greenlees", Cranky Corner Road Glendonbrook. Directors Guarantees. 3. VALUATION OF PROPERTIES - Real Estate agents assessment $5.9mil on completion. The property was purchased in January 2004 for $1.98M and has been improved since that time. The balance is almost identical to the loan application dated around 30 September 2010 except rather than the owner, the agents assessment is considered OK. 4. BW SUMMATION - The summation is almost identical to the loan application dated 30 September 2010, except it says that the marketing will take place shortly through White Real Estate at Singleton. And added that a new D/A has been approved. This increase will cover councils costs to have first 9 blocks completed and be able to be sold. R/E has estimate the first 9 blocks to be a combined value of $3.65mil."
On 1 May 2012, Kiriwina sent a letter to the defendants' solicitor, communicating agreement to increase the loan by $500,000 to $2,100,000. (Ex DW-1, 39).
On 18 May 2012, a variation of mortgage was signed in respect of the new loan amount. (Ex DW-1, 40).
It is not in dispute that, after July 2012, the defendants did not pay interest to Kiriwina (Aff, Woods 9 June 2017, [30]; Aff, Denshire 12 July 2017,[10]) and that on 10 September 2014, s 57(2)(b) were served. (Aff, Denshire 12 July 2017, [31]; Ex DW-1, 54-55).
On around 19 November 2014, letters were sent by Kiriwina's solicitor to the defendants indicating that Kiriwina was exercising its power of sale. (Ex DW-1, 58-61).
Mr Denshire in his individual tax return for the year ending 30 June 2015 describes his main business or professional activity as being "Other Livestock Farming nec." (Ex A).
On 11 November 2015, in preparation for an auction on 19 November 2015, a valuation was provided by MVS Valuers (giving an estimated value of $1,700,000 on an "as is" basis or $1,350,000 on a "fire sale" basis). (Ex DW-1, 62-113). The valuation stated the following: 1. The land is currently used for grazing (including bushland areas). (Ex DW-1, 63). 2. The site is irregular in shape, with the main access road traversing the mainly cleared pastured valley floor on the eastern side of the property. There is an intermittent watercourse through this area, which provides the most accessible and useful grazing land, with suitable building site. (Ex DW-1, 72). 3. The subject property is currently used as grazing property. We are aware the past use may have included dairying and beef cattle production. (Ex DW-1, 75). 4. It may be possible to agist stock on the property, depending on seasonable conditions. Currently neighbour's stock are grazing on the property, mainly due to lack of stock proof fencing. (Ex DW-1, 83).
On 19 November 2015, Greenlees was passed in at auction. An offer subsequently came in for $1,600,000. The offer was accepted by Kiriwina. (Aff, Woods 9 June 2017, [36]).
On 23 December 2015, contracts were exchanged. (Aff, Woods 9 June 2017, [37], Ex DW-1, 114).
Around 11 January 2016, Mr Denshire was advised that Kiriwina had taken possession on about 11 October 2014 (Aff, Denshire 12 July 2017, [35]), and that Kiriwina had sold Greenlees. (Aff, Denshire 12 July 2017, [58]). Around this time, Mr Denshire attended hospital with extremely high blood pressure and was unable to attend to his affairs. He was required to ease back on activities while his heart was being investigated. He was not able to be actively involved in the farm so allowed his neighbours to continue to graze on the property. (Aff, Denshire 12 July 2017, [36]).

The Farm Debt Mediation Act

It is necessary to set out the relevant provisions of the Farm Debt Mediation Act here. Before I do that, however, I will refer to the second reading speech of Richard Amery, a member of the New South Wales Legislative Assembly, on 27 October 1994. The Minister stated at 4 (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 27 October 1994): "The purpose of the bill is to establish legislation to not only enable a farmer and a credit provider to apply for voluntary mediation concerning farm debts but also to make provisions for mandatory mediation covering farm debts before a creditor can take possession of property or other enforcement action under a farm mortgage. The history of farm debt mediation started with the rural crisis in the United States during the early 1980s. Voluntary farmer-creditor mediation services were first introduced in Iowa and Minnesota. The voluntary system failed and both States soon legislated for mandatory mediation schemes. By the end of 1986 farmer-creditor mediation services had been established in Alabama, Iowa, Kansas, Minnesota, Missisippi [sic] , Nebraska, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming. …"
Section 3 of the Farm Debt Mediation Act sets out its object. It reads: "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."
A number of definitions contained in s 4 of the Farm Debt Mediation Act are relevant to these proceedings. They are as follows: "4 Definitions (1) In this Act: … "Creditor" means a person to whom a farm debt is for the time being owed by a farmer. "default", in relation to a farm mortgage, means failure to perform an obligation that, under the terms of the mortgage, is a ground for enforcement action. … "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, … … "Farm" means land on which a farmer engages in a farming operation. "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 machinery" means: (a) a harvester, binder, tractor, plough or other agricultural implement, or (b) any other goods of a class commonly used for the purposes of a farming operation that are prescribed by the regulations as being farm machinery for the purposes of this Act, if the goods are acquired for the purposes of a farming operation. "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. "farm property" means: (a) a farm or part of a farm, or (b) farm machinery used by a farmer in connection with a farming operation, or (c) an access licence (within the meaning of the Water Management Act 2000) held by a farmer in connection with a farming operation. "Farmer" means a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation and includes a person who owns land cultivated under a share-farming agreement and the personal representatives of a deceased farmer. "farming operation" means: (a) a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or (b) any other operation prescribed by the regulations for the purposes of this definition. … "statutory enforcement notice" means: (a) a notice under section 57 (2) (b) of the Real Property Act 1900, or (b) a notice under section 111 (2) (b) of the Conveyancing Act 1919, or (b1) a notice under section 71X (1) (b) of the Water Management Act 2000, or (c) a notice, given under any Act or statutory instrument, that is prescribed by the regulations as being within the scope of this definition. …"
Sections 5, 6 and 8 of the Act are in the following terms: "5 Application of Act (1) This Act applies in respect of creditors only in so far as they are creditors under a farm debt. (2) This Act does not apply in respect of: (a) a farmer whose property is subject to control under Division 2 of Part X of the Bankruptcy Act 1966 of the Commonwealth, or (b) a farmer whose property is the subject of a bankruptcy petition presented by any person, or (c) a farmer, being a corporation, that is an externally administered corporation within the meaning of the Corporations Act 2001 of the Commonwealth." 6 Enforcement action in contravention of Act void Enforcement action taken by a creditor to whom this Act applies otherwise than in compliance with this Act is void." 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."
Before I deal with the parties' submissions, it is important to note that Young J set out the approach to be adopted when construing the Farm Debt Mediation Act in Varga v Commonwealth Bank of Australia [1996] NSWSC 86; (1996) 7 BPR 15,052 ("Varga") (a case to which I will continue to refer to throughout this judgment). Young J stated at 5: "One must construe the Act to fulfil its purpose. The purpose was to prevent persons being driven off their farms because of inability to pay debt where it was possible for the debt to be rearranged after a bona fide mediation process. To fulfil the purposes of the Act, one must construe it, to my mind, favourably to the farmer, an unless completed by the language, not permit the overriding purposes of the Act to be defeated by technicalities."
Kiriwina submitted firstly, that the farm was conducted by Denshire Enterprises Pty Ltd ("Denshire Enterprises"), a company personally owned by Mr Denshire, but not conducted by him personally, and even if it was conducted by Mr Denshire, he does not fall within the definition of "farmer"; secondly, while cattle grazing 100 cows may be a "farming operation" Mr Denshire was not "solely or principally a farmer"; thirdly, if Mr Denshire was not a farmer, he did not incur a farm debt; fourthly, breeding rats and snakes is not a "farming operation"; and finally, that by virtue of s 5(1) of the Farm Debt Mediation Act, Kiriwina is not a "creditor under a farm debt" and therefore the Farm Debt Mediation Act does not apply.
Mr Denshire submitted that the proceedings were commenced in contravention of the Farm Debt Mediation Act and, pursuant to s 6, the statement of claim is void and should be dismissed.
I will now consider the issues raised by the parties. However, as the issues overlap in some areas, I will not deal with them in the order raised by Kiriwina.

A farmer

All of Mr Denshire's snake and rodent farming, and his livestock trading were conducted through Denshire Enterprises. The plaintiff submitted that according to Mr Denshire's oral evidence at the hearing, all the livestock trading as well as the snake and rodent business was owned by Denshire Enterprises. As such, the plaintiff contends that the legal person engaged in this farming operation was the company, rather than Mr Denshire himself. This distinction does not matter, however, because "farmer" is defined under s 4 of the Farm Debt Mediation Act as meaning a person "whether an individual person or corporation". Mr Denshire's snake and rodent farming, and his livestock trading was conducted through Denshire Enterprises, which was owned by him personally so it falls within the definition of "farmer". So Kiriwina's submission fails.

Farming Operation

In Varga, Young J stated at 5 that s 4 indicates that it is at the time when the creditor is seeking to take possession of the property or other enforcement action that the debtor must be a "farmer" for the purposes of the Act. Young J adopted a beneficial approach to interpretation of the Act for the purpose of concluding that it was not necessary that the person be a farmer at the date when he or she incurred the debt so long as the debt was incurred for the purposes of the conduct of a farming operation.
In Varga, Young J also stated that so far as the definition of "farmer" is concerned, the concept of "principally engaged in farming operation" must follow the proposition of a qualitative as opposed to a quantitative analysis. His Honour stated at 3-4: "The question in the instant case is whether the person concerned is principally engaged in a farming operation. I do not consider that the word "principally" means one has to work out what percentage of the person's time is spent in farming operations and what otherwise. One has got to look at the person and say in all the circumstances is farming that person's principal activity."
This was affirmed in Roxo v Normandie Farm (Dairy) Pty Ltd [2012] NSWSC 765 ("Roxo"), where Adamson J stated at [30]: "The question whether a person is "solely or principally" engaged in a farming operation is not resolved by a mathematical calculation of what percentage of the time the defendant spends farming. It is a matter of substance."
The plaintiff conceded that while cattle grazing may qualify as a farming operation, rodents and snakes do not.
Mr Denshire submitted that firstly, he was at all times engaged in farming on the property and proposed to develop Greenlees by way of subdivision and sale to his farming activities; secondly, he was engaged in agricultural activities on Greenlees; thirdly, he denied the allegation that he had never conducted a farming business on the property or used Greenlees to generate income by way of a farming operation and that the only income ever generated from Greenlees by him was from farming; fourthly, during 2011 and 2012 sales of cattle from Greenlees totalled approximately $59,000; fifthly, he has always carried out agricultural contracting in conjunction with his own personal farming activities in order to make ends meet; sixthly, the activities he carried included driving heavy transport, firewood production and sales, contract livestock handling, fencing, irrigation installation, land clearing and pasture improvement, road and dam construction and live animal quarantine and import/export; and finally, he had been a farmer and engaged in farming activities for all of his working life. His principal occupation throughout his working life had been that of both a horticultural and animal farmer.
A farming operation is defined to include "a grazing operation". The evidence that supports that there was a "farming operation" on Greenlees is as follows.
In 2004 when Greenlees was purchased, Mr Denshire ran 100 or more cattle and two bulls on the property. During 2011 and 2012, Mr Denshire sold cattle from Greenlees that totalled approximately $59,000. Through his company, he continued to run at least 100 cattle on Greenlees until December 2012, when all Green Lees Developments cattle had left Greenlees. After the severe fire in 2013, he entered into a share farming agreement with his neighbour, Mr Thomas, whereby Mr Thomas ran cattle on Greenlees. There is no evidence as to the duration of this share farming agreement.
Some documentary evidence refers to cattle being run on Greenlees as previously set out.
The Jurds valuation refers to Greenlees being used as "a grazing property ~ carrying approx 300 head", quality sheds, yards and outbuildings, cattleyards, 9 internal paddocks and zoning of Rural 1(A) referring to Greenlees as offering and opportunity to obtain viable grazing property with associated lifestyle and tax benefits. On 21 December 2005, Mr Denshire advised Mr Jurd, a real estate agent, by letter that he currently ran cattle on Greenlees.
In November 2005, the valuation by MVS valuers stated that "The land is currently used for grazing (including bushland areas)" and "The subject property is currently used as grazing property."

Is breeding snakes and rodents a farming operation?

Kiriwina submitted that neither snake nor rodent farming is a "farming operation". Farming operations are confined to traditional agricultural pursuits. Those pursuits are identified in the plain language of the definition of "farming operation". Of relevance is that the rodents were not being bred for human consumption, a factor identified by Hodgson JA in Craigie & Anor v Champion Mortgage Services Pty Ltd [2007] NSWCA 15. Because neither snake nor rodent farming is a farming operation, snake nor rodent farmers do not fall within the definition of farmer. Further, Kiriwina submitted that there is no evidence that the Mr Denshire's debt was incurred for the purpose of a snake or rodent operation.
Kiriwina also referred to Champion Mortgage Services Pty Limited v Craigie [2006] NSWSC 869 ("Champion") in support of its proposition that rats and snakes do not fall within the definition of "farming operation".

Champion

The facts in Champion are as follows.
From 1973, the first and second defendants, Charles Craigie and Michael Craigie, respectively owned, occupied and conducted a fish hatchery business, the Wyong Creek Hatchery Pty Ltd, on a property which harvested fish to sell to pet shops and aquariums.
The Craigie's had extensively renovated the property for commercial fish-breeding purposes by installing approximately 50 concrete fishponds ranging in size from 4m x 4m to 10m x 10m, together with 60 fishpond earth bottom dams and a number of temperature and humidity controlled sheds for tropical and other fish. The maintenance of the commercial fish breeding business required daily work including daily feeding of the fish and maintenance of water quality and temperatures for the different types of fish. Michael Craigie and his family relied upon the farm to operate their fish breeding business. The income earned from the fish breeding business was said to be the family's sole income and means of support. (Champion, [21]).
On 7 February 2006, a court order was made to wind up Wyong Creek Hatchery Pty Ltd of which Michael Craigie was the director and secretary and a liquidator was appointed. He continued to operate the fish hatchery business on the property and attended Sydney at least three or four times per week predominantly to deliver fish to aquariums and pet shop. (Champion, [26]-[27]).
In Champion, Johnson J stated at [69], [70], [77], [78] and [87]: "69 It is necessary to determine whether the activities carried out by the Defendants on the subject land fall within the FDM Act. For this purpose, it is necessary to construe a number of provisions within that Act. 70 The contemporary approach to statutory interpretation is literal but not literalistic and requires words to be construed in their total context: Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 141 (paragraph 115). In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, McHugh, Gummow, Kirby and Hayne JJ said at 381 [69] and 384 [78] (footnotes omitted): "[69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'. In Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397, Dixon CJ pointed out that 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'. Thus, the process of construction must always begin by examining the context of the provision that is being construed. [78] … the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning." … [77] In Underwood v Commonwealth Bank of Australia (1995) 56 FCR 145, Lindgren J considered the FDM Act. His Honour said at 149-150: "Putting to one side the terms of the definition of the expression 'farm mortgage' in s4(1), I would have understood that composite expression to mean a mortgage over land on which farming takes place or which is apt to accommodate that activity. I would have had that understanding for two reasons. The first is that the noun 'farm' according to its ordinary meaning refers to land (including fixtures). I refer to the following relevant dictionary definitions of 'farm': The Macquarie Dictionary (2nd revised edition, 1990). 'farm n. 1. a tract of land devoted to agriculture. 2. a farmhouse. 3. a tract of land or water devoted to some other industry, esp. the raising of livestock, fish, etc: a chicken farm, an oyster farm … ' The New Shorter Oxford English Dictionary (1993). farm … 4 A tract of land held (orig. on lease) under one management for the purposes of cultivation or the rearing of certain animals (for food or fur etc) … 5 A farmhouse …' My own understanding of the word 'farm' as used in common parlance is also that it refers to land and not to animals which are 'on' the farm. Secondly, the word 'farm' is, in any event, defined in s4(1) as meaning in the Act 'land on which a farmer engages in a farming operation' and the word 'farm' bearing that meaning forms part of the composite expression 'farm mortgage'. Since the latter expression is used in the Act, even in the absence of a definition of it, it would mean a mortgage of a 'farm' as defined." … 87 Insofar as a range of express terms are used in the definitions of "farm", "farm machinery" and "farming operation", the words used are directed towards the carrying out of traditional agricultural activities on land amplified by a number of specific additional activities. In each case, the definition (which uses the word "means") is conclusive and exhaustive: Sherritt Gordon Mines Ltd v Federal Commissioner of Taxation (1976) 10 ALR 441 at 455; Pearce and Geddes, Statutory Interpretation in Australia, 2006, 6th edn, paragraph [6.56]. A conclusive and exhaustive definition of "farming operation" refers to farming (extended to include dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operations. The conclusive and exhaustive definition of "farm machinery" refers to a harvester, binder, tractor, plough or other agricultural implement. The term "farm" means land on which a farmer engages in a farming operation. There is provision within the definitions of "farming operation" and "farm machinery" for extension of these terms to other operations which are prescribed for the purposes of the definitions. No such other operations have been prescribed. In my view, these features lend powerful support to the Plaintiff's submission that the 'farming operations" covered by the FDM Act ought be confined to traditional agricultural pursuits extended only so far as the Act provides."
For these reasons, Johnson J concluded that the Farm Debt Mediation Act did not apply.
On appeal in Craigie & Anor v Champion Mortgage Services Pty Ltd, the Court of Appeal per Hodgson JA (with whom Santow and McColl JJA agreed) dismissed the application for leave to appeal. Hodgson JA stated at [7]: "In my opinion, insofar as the primary judge concluded that a fish hatchery operation for the purpose of supplying fish for pet shops and aquariums is not in the meaning of farming operation within the Act, his conclusion was correct. There may be more difficult questions in determining whether operations of the nature of raising fish for the purpose of human consumption fall within that meaning, but it would not be appropriate to grant leave in this case so that that matter could be considered."

Consideration

Denshire Enterprises' snakes were bred and sold as pets. In the rodent operation, Mr Denshire produced, grew, bred and packed, distributed and sold them to consumers (as food for their reptiles), and to schools and universities for research. Snakes and rodents are not included in the definition of "farming operation". There are no regulations prescribing any other operation as a "farming operation" for the purposes of paragraph (b) of the definition of that term in s 4(1) of the Act. The snakes and rodents were not sold for human consumption.
In my view, the operation or operations involving snakes and rodents do not fall within the definition of farming operation in the Farm Debt Mediation Act. So far as rabbits and quails are concerned, quails may fall within the definition of farming operation as it can be considered poultry. "Poultry" falls within the definition of farming operation.
The online Macquarie Dictionary (Macmillan Publishers Australia, 'Macquarie Dictionary Online' https://www.macquariedictionary.com.au/features/word/search/?word=Poultry&search_word_type=Dictionary) defines poultry as: "noun: domestic fowls collectively, as chickens, turkeys, guineafowls, ducks, and geese. [Middle English pult(e)rie, from Old French pouleterie, from poulet PULLET]."
The Oxford English Dictionary defines poultry as (Oxford University Press, Oxford English Dictionary', http://www.oed.com/view/Entry/149003?redirectedFrom=poultry#eid): "1. Domestic fowl collectively; birds which are commonly reared for their flesh, eggs, or feathers, as chickens, ducks, geese, turkeys, etc. (usually excluding game birds); such birds prepared for sale or for food; the meat of such birds; (occasionally) chickens, as opposed to other domestic fowl. Also as a count noun: a bird of this type."
The online Macquarie Dictionary defines quail as (Macmillan Publishers Australia, 'Macquarie Dictionary Online' https://www.macquariedictionary.com.au/features/word/search/?word=quail&search_word_type=Dictionary): "noun (plural quails or, especially collectively, quail) 1. in Australia a. any of several small ground-dwelling birds of the family Phasianidae, heavy-bodied with small heads, short legs and rounded wings, as the stubble quail, Coturnix pectoralis. b. → button quail. c. → plains-wanderer. 2. elsewhere a. a small migratory gallinaceous game bird, Coturnix coturnix. b. any of several other birds of the genus Coturnix and allied genera. [Middle English quayle, from Old French quaille; ? of Germanic origin]"
The online Oxford Dictionary defines quail as (Oxford University Press, 'Oxford English Dictionary', http://www.oed.com/view/Entry/155818?rskey=ps5Hla&result=1&isAdvanced=false#eid): "I. A bird. 1. Any of various small short-tailed game birds of the Old World subfamily Perdicinae (family Phasianidae), esp. of the genera Coturnix and Perdicula, which resemble tiny partridges and typically have brown camouflaged plumage; esp. the widespread and migratory C. coturnix, which has a distinctive liquid call. Domestic quail usually belong to the species C. japonica, the Japanese quail, but this is indistinguishable from C. coturnix except by call, and is sometimes regarded as a subspecies of it."
Rabbits do not fall within the definition of farming operation in s 4 of the Act. However, as quails are poultry, they do fall within the definition of farming operation. As there was no further evidence given about them and none as to whether the quails were bred for human consumption, they cannot be considered as falling within the definition of a farming operation. I conclude that rabbits and quails do not fall within the definition of "farming operation".

Cattle

From 2004 to the end of 2012, Mr Denshire was engaged in a farming operation as he grazed cows on Greenlees. In 2013, Mr Denshire entered into a share farming agreement with his neighbour, Mr Thomas, so his cows could graze on Greenlees. As at November 2015, Greenlees was still being used as a grazing property.
It is my view that from 2004 to 11 November 2015, there was a farming operation of cattle on Greenlees.

Sole or principal engagement in a farming operation

For Mr Denshire to fall within the definition of farmer, he has to be solely and principally engaged in a farming operation.
Kiriwina submitted that Mr Denshire was not solely or principally engaged in that grazing operation, as his primary commercial objective was concerned with developing Greenlees as well as other land at Greta, Maclean and Fletcher. This was in circumstances where Greenlees had been purchased for $1,900,800 and the initial loan from Kiriwina was for a real estate development advance of $1,400,000, and a maximum of 200 head of cattle were run on the property at any one time. Kiriwina argued that it cannot be maintained that Mr Denshire or Green Lees Developments were solely or principally engaged in a cattle farming operation.
Further, Kiriwina submitted that there is no evidence that the loan funds had been expended on a cattle enterprise, the debt was not incurred by a farmer who was solely or principally engaged in a farming operation and the evidence establishes that the debt was incurred for real estate development purposes. According to Kiriwina, there is no mention in any of its records that the debt was incurred for the purpose of conducting any farming operation, or similar notions.
I accept that when the property was purchased with finance from Suncorp. The loan type was "Development Finance R/E". The initial loan advance by Kiriwina of $1,400,000. The purpose of the loan was recorded by Kiriwina on its mortgage approval form as "To take over existing debt to Suncorp Metway Bank P/L". The summary of Kiriwina's manager dated 21 February 2006 included that Mr Denshire (Ex DW-1, 2): "... owns properties at Greta (26 lot approved subdivision), Fletcher (82 lot approved subdivision), 16 completed lots at Fletcher. .... He derives his income from land sales and undertaking minor civil works."
But it is fair to say there was mention of both property development and farming in the loan documentation, albeit the loan type was described as "Dev Finance R/E" (development finance real estate). (Ex DW-1, 3).
When Mr Denshire originally purchased Greenlees it was a farm. Mr Woods, the manager of Kiriwina, was asked during cross examination whether he would accept that Greenlees was used for grazing prior to purchase. He answered that when Greenlees was originally purchased it was a farm with an 8 lot subdivision going through and therefore it may have previously been a grazing property. (T34.38-42).
Mr Denshire's main business or professional activity in 2010 was 'Beef Cattle Farming'. (Ex C, 1.5). In his 2014 and 2015 tax return statements, Mr Denshire's main business or professional activity was 'Other Livestock Farming n.e.c.'. (Ex C, 1.45 and 1.54). However, Mr Denshire specified his main business activity as 'Residential Property Operators' in his 2011, 2012, and 2013 returns. (Ex C, 1.20, 1.31 and 1.38). Therefore, for the financial years of 2010, 2014 and 2015, Mr Denshire gave his principal occupation as farming.
As previously stated, Mr Denshire has been a farmer and engaged in farming activities for all of his working life. His principal occupation throughout his working life has been that of both a horticultural and animal farmer. He has always obtained primary producer's registration for his motor vehicles. His farming expenses have been a tax deduction over the last 30 years. Greenlees was zoned as "Rural 1A (Agricultural)" in the Singleton Local Environmental Plan. Mr Denshire received rural rating status from Singleton Council in relation to rates payable on Greenlees and he obtained a land tax exemption from the Office of State Revenue NSW due to the use of the land for primary production. He paid local land services rates for Greenlees on the basis that it was rural.

From 2004 to 11 November 2015

The farming operation was running 100 head of cattle on an area of 1700 acres from 2004. There is more involved in the grazing of cattle such as clearing the land, putting up fences and carrying out pasture improvement. In 2006, Mr Denshire (and he gave evidence that his son Tasman assisted with the work from 2006) and Dr Post gave evidence of their developing the property by clearing, fertilising and pasture improving much of the land, thereby improving its carrying capacity. In short, there were dual purposes which are borne out by the evidence referred to throughout this judgment, namely grazing and property development.
As at 11 November 2015, Greenlees was still being used as a grazing property, including bushland areas. (Ex DW-1, 92). This was in accordance with the share farming agreement between Mr Denshire and his neighbour. At this time, the structural improvements on the property comprised of: "Lot 3: A dilapidated cottage with an adjacent granny flat, 2 steel sheds, an old dairy and bails, an old hayshed and old timber cattle yards. Lot 4: A dilapidated cottage with an adjacent steel shed, east of the road traversing the cleared valley section. Infrastructure: Fencing, stock dams, domestic water supply, septic systems, electricity supply and formed gravel roads., The granny flat and the 3 steel sheds add some value, and the cottage of Lot 4 has nominal value. Other structures are of no value. (MVS Valuers' report)."
In Liberty Funding Pty Limited v Ivosevich [2002] NSWSC 140, Simpson J considered whether the defendant was "principally engaged in a farming operation" so as to attract the provisions of the Farm Debt Mediation Act. The defendant owned and operated a spray painting business and concurrently operated a market garden and retail nursery together with a shop front on the property. Having regard to the evidence and the definition of "farming operation" as a "horticultural" operation, Simpson J was satisfied that the enterprise carried on by the defendant was a "farming operation" within the Act and that the defendant was principally engaged in that farming operation.
From 2004 until December 2012, it does not appear that not much activity in the nature of property development had taken place as noted in the structural improvement report. The report provided that during this period, Greenlees had continually been used to graze cattle. Mr Denshire's evidence was that he was engaged at all times in farming on Greenlees and proposed to develop Greenlees by way of subdivision and sale ancillary to his farming activities. (Aff, Denshire 12 July 2017, [12]). However, as I have previously noted, Mr Denshire had a share farming agreement with his neighbour from 2013 to at least 11 November 2015. A "farmer" includes a person in these circumstances who owns land cultivated under a share farming agreement. It is my view that Mr Denshire was principally engaged in a farming operation from 2004 until at November 2015. In my opinion, Mr Denshire falls within the definition of farmer as he was principally engaged in the farming operation of cattle being conducted on Greenlees up until November 2015.

Farm debt and ss 6 and 8 of the Act

The last issues to be determined are whether there is a farm debt and whether ss 6 and 8 of the Farm Debt Mediation Act apply. This is an unusual case as Greenlees has already been sold and the mortgage discharged before the issue of the Farm Debt Mediation Act was raised by Mr Denshire.
Mr Denshire was aware of the relief afforded under the Farm Debt Mediation Act. As I have previously stated, Mr Denshire had purchased a macadamia farm (called Aravia) in 2007 and during a downturn in macadamia prices in 2010, had participated in a mediation under the Farm Debt Mediation Act. An agreement was reached where Aravia was sold in 2011. (Aff, Denshire 12 July 2017, [19]-[24]). So as of 2010, Mr Denshire was aware of the availability of farm debt mediation.
When Mr Denshire and Greenlees Developments were served with the s 57(2)(b) notices on 10 September 2014, Mr Denshire did not raise the issue of mediation under the Farm Debt Mediation Act with Kiriwina. Mr Denshire formed the opinion that his best course of action was to sell the property in order to assist the purchaser receive the best possible price and help quantify the real value of the property. In other words, Mr Denshire had made a strategic decision to sell the property to a purchaser who planned to subdivide the land to ensure he received the best possible price. (Aff, Denshire 12 July 2017, [62]).
On 5 December 2016, the statement of claim was filed seeking payment of a debt. This debt was the shortfall of the sale proceeds from the amount owing under the loan.
It was not until February 2016 (after the statement of claim was filed) that Mr Denshire first raised his rights under the Farm Debt Mediation Act. (Aff, Woods 9 June 2017, [54]; Aff, Denshire 12 July 2017, [18] and [59]). This was at a time after the contracts had been exchanged with the purchaser but prior to settlement in June 2016.
Kiriwina submitted that firstly, so far as "farm debt" is concerned, the definition of "creditor" refers to a person who provides financial accommodation to a farmer that creates or increases a farm debt; secondly, because the land had been sold and the security had been realised, the mortgage no longer operates as security, therefore as the debt is no longer "secured wholly or partly by a farm mortgage" there is no longer a farm debt for the purposes of the Farm Debt Mediation Act; thirdly, in order to satisfy the criteria for protection of a "farm debt" under the Farm Debt Mediation Act, there must be both a debt and a mortgage securing the debt, as the debt must be secured in whole or in part; fourthly, the filing of the statement of claim for the recovery of the debt is a distinct "enforcement action" from the taking of possession of the property; and finally, as at December 2016, when Kiriwina commenced proceedings, Mr Denshire did not own a "farm" or "farm property" and therefore Kiriwina was no longer a "creditor" under a farm debt. As a consequence, Kiriwina submitted that the Farm Debt Mediation Act did not prevent Kiriwina from taking action to enforce its rights against the defendants.
Kiriwina referred to Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337 ("Cherry Exports"), where Priestly JA stated at [1]: "…the Act appears quite plainly to be imposing its temporary moratorium on actions to enforce farm mortgages, not farm debts. The distinction is significant. A farm debt is two things, a debt and a secured debt. It does not cease to be a debt because it is also a secured debt. Had the purpose been directed against actions to enforce farm debts, both as debts and as secured debts, nothing would have been easier to say so."
However, it seems to me that Cherry Exports has been superseded by the High Court's decision in Waller v Hargraves Secured Investments Ltd (2012) 245 CLR 311; [2012] HCA 4 ("Waller"). In Waller, Heydon J (with whom French CJ and Crennan and Kiefel JJ agreed) considered at [14] the width of the expression "enforcement action" in s 4 of the Farm Debt Mediation Act. In that case, the lender submitted that a claim for debt was not an "enforcement action" because it did not involve the enforcement of security. His Honour concluded that this submission was wrong, and the definition was wide enough to extend beyond enforcement of security and include reliance on rights created by the mortgage. Heydon J went on to find that, because the claim for possession of the farm was based solely on the breach of the money obligations, it was "inextricably interlinked" with the claim for a money judgment. Heydon J stated at [66] and [67]: "66 The expression "enforcement action" is defined in s 4(1) of the Act as meaning not only taking possession of the property, but "any other action to enforce the mortgage". In the Amended Statement of Claim the respondent pleaded that it was a term of the Registered First Mortgage that interest be paid monthly in accordance with, inter alia, the Third Loan Agreement. In the Amended Statement of Claim the respondent also pleaded that the appellant was obliged, under the Registered First Mortgage, to pay the principal sum ($640,000) with interest owing. The respondent contended that a claim for a debt is not "enforcement action" because it does not involve the enforcement of security over the farm property. The better view, with respect, is that the definition of "enforcement action" is wide enough to extend beyond enforcement of the security by taking possession to include reliance on any of the rights in the farm mortgage. And since the claim to the order for possession was solely based on the breach of the money obligations arising under the Registered First Mortgage and the Third Loan Agreement, it was inextricably interlinked with the claim for a money judgment. The definition of "enforcement order" in s 4(1) provides that it does not include "the enforcement of a judgment that was obtained before the commencement of this Act". The word "judgment" is not limited to judgments other than money judgments. Had that type of enforcement action not been excluded, it would have fallen within the definition of "enforcement action". The exclusion leaves the enforcement of judgments (including money judgments) open if they were obtained after the commencement of the Act. It follows that action to obtain a money judgment after the commencement of the Act is "enforcement action" so long as it is action to enforce the mortgage. The structure of the Amended Statement of Claim, and the manner in which the proceedings were conducted, justify the characterisation of the respondent's conduct as action to enforce the mortgage, and hence as "enforcement action". 67 Hence the attempt in the Supreme Court proceedings to obtain a money judgment was an action barred by s 8(1) as much as the seeking of possession."
Mr Denshire submitted that the money advanced by Mr Price, as secured by the mortgage, in around February 2006 was for refinancing a loan due to expire a short time later. That loan, from Suncorp, was used to purchase Greenlees. The purpose of the loan being a refinance is made plain in the reference to the purpose of the February 2006 loan being "To take over existing debt to Suncorp Metway Bank". Mr Denshire argued that on the basis of certain passages from Varga and Roxo (which I will set out below), the initial loan from Suncorp Metway for the purchase of Greenlees would be for "the purposes of the conduct of a farming operation". This was because the substance of the transaction was concerned with the pay out of the first lender (Suncorp) and insertion of a new lender (Mr Price) so as to permit Mr Denshire to continue in possession of Greenlees and to continue with his "farming operation".
This conclusion that Mr Denshire was engaged in a farm operation was said to follow from firstly, the ordinary meaning of the words; secondly, the remedial purpose of the Act; thirdly the desirability of avoiding technicalities that defeat the Act's purpose. Together, these are matters which favour a construction of a refinance of a loan falling within the meaning of s 4 as at the time of the entry into the debt agreement.
Mr Denshire says that despite the further advances made by Suncorp and Mr Price being described as for the purpose of property development, this alone does not prevent the debt from being a "farm debt".
In Varga, Young J stated at 6: "I repeat that we are here dealing with a statute the object and purpose of which is to protect persons who are now conducting farming operations on land from being ejected by creditors. I am of the view that the word "purposes" in the definition of "farm debt" includes a debt incurred for the purpose of acquiring the land or an interest in the land on which the farming operation is conducted."
In Roxo, the defendant borrowed money from the plaintiff for the purchase of a rural property. Adamson J referred to Varga and reached a similar conclusion when Her Honour stated at [28]: "… I find that the defendant was a farmer who was solely or principally engaged in a farming operation. The debt was a "farm debt" because it was incurred for the purpose of acquiring the Property which was then used for farming operations."
So far as Kiriwina's submission that the filing of the statement of claim for recovery of debt is a distinct "enforcement action" from its taking of possession, Mr Denshire submitted that this was at odds with the conclusion in Waller and contrary to the purpose of the Farm Debt Mediation Act. To the contrary, the s 57(2)(b) notices and the present debt recovery proceedings are "inextricably intertwined" and, on the proper construction of "enforcement action", the correct conclusion is that there was one "enforcement action" that is continuing to the present proceedings.
In Waller (which I have set out earlier in this judgment), the claim for possession and monetary judgment was made in the same statement of claim. ([30]). According to Mr Denshire, this is not the case in these current proceedings. On 10 September 2014, Kiriwina issued the s 57(2)(b) notices on the defendants. On 19 November 2014 after no response from the defendants, Kiriwina gave further notice that it was exercising its power of sale. (Ex DW-1, 58-61) On 23 December 2015, contracts were exchanged for the purchase price of $1,600,000. (Aff, Woods 9 June 2017, [36]). The s 57(2)(b) notices were therefore issued prior to sale as required by the default procedure for written notice under ss 57(2)(b) and (3) of the Real Property Act.
The relevant rights asserted by Kiriwina are contained in the mortgage. In these proceedings, paras [5] and [8] of the statement of claim refer to the creditor's rights and those paragraphs only linked the mortgage to the first loan. There were two subsequent variations to the loan as recorded in variations of the mortgage dated 29 October 2010 and 18 May 2012. Mr Denshire argued that the "inextricably interlinked" relationship of the claim for possession and money judgment arises because: 1. both the right to take possession and the right to sue for unpaid money arise from the conditions of the mortgage (which was the case in Waller); and 2. the quantum of the money able to be recovered in debt was affected by the price at which the property sold.
According to Mr Denshire, the extent of the expression "taking possession of property under the mortgage or any other action to enforce the mortgage" in s 4 of the Farm Debt Mediation Act permits acceptance of the proposition that there is one "enforcement action" under the mortgage, commencing with the service of the s 57(2)(b) notices and continuing with the filing of the statement of claim. Mr Denshire submitted that if this argument were to be accepted, it would follow that the various interlocking definitions in s 4 are satisfied.
Both parties referred to Constantinidis v Equititrust Ltd [2010] NSWSC 299 ("Constantinidis"), where Barrett J referred to timing issues arising from the definitions of "farm debt", "farmer" and "creditor", and s 8(1). Barrett J stated at [11]-[14]: "11 The s 8(1) prohibition operates to preclude action by a person who, at the time the action is taken, is a "creditor" to whom money is, at that time, owed under a mortgage which is at that time a "farm mortgage" by a person who is, at that time, a "farmer". Thus, the prohibition does not operate unless all of "creditor" status of the person taking action, the "farm mortgage" status of the mortgage under which money is owed to that person and the "farmer" status of the person owing the money exist at the time the action is taken. 12 For a person to have "creditor" status at the particular time, it must be found that a "farm debt" is at that time owed to that person by a person who is a "farmer" at that time. 13 When one comes to the definition of "farm debt" and the question whether a particular debt is today a "farm debt", however, it is necessary to look not only to the present but also to the past. This is because the definition of "farm debt" has regard to circumstances existing when the debt was "incurred". In speaking of a debt "incurred ... for the purposes of the conduct of a farming operation" and directing attention to the purposes for which the debt was incurred, the definition of "farm debt" necessarily pays attention to purposes existing at the past time when the debt was incurred. But that, it seems to me, is the only past aspect to which attention is directed. To the extent that the definition of "farm debt" refers to incurring by a "farm" and security under a "farm mortgage", it directs attention to the present status of the person who incurred the debt in the past and the present status of the mortgage by which the debt is secured. 14 I am of the opinion, in particular, that one does not look for either "farmer" status or the existence of the mortgage at the time of the incurring of the debt. This is because the aim of the Act is to protect persons who are for the time being farmers from action under mortgages which for the time being exist over properties that are for the time being farm properties - but only where the secured debt incurred in the past was obtained for farming purposes. Applying the approach I consider to be correct, a person who is today a farmer and whose farm property stands today as security for a debt will be protected if the purpose of the original incurring of the debt was a relevant farming purpose (and whether or not the person was then a farmer), but not if the original incurring was for some non-farming purpose; while, if the original incurring was for a relevant farming purpose but either the person by whom the debt is owed is not today a farmer or the security property is not today a farming property, the protection will not be attracted."
The relevant considerations according to Constantinidis are: 1. In determining whether there is a farm debt, it is necessary to look not only at the present but to the past; 2. Mr Denshire "is today a farmer and whose farm property stands today as security for a debt"; and 3. The "purpose" of the original incurring of the debt was a relevant farming purpose".
Mr Denshire will not be protected by the Farm Debt Mediation Act if he "is not today a farmer or the property is not today a farming property" (Constantinidis, [14]).
Mr Denshire argued that the reference by Barrett J to "today" gives rise to concepts within the definition of "enforcement action" and that the critical time referred to is the date on which the enforcement action is taken: Constantinidis [11] and s 8(1) of the Farm Debt Mediation Act. The date of "enforcement action" would therefore be the date on which the s 57(2)(b) notices were issued by Kiriwina, being September 2014. If this submission is accepted, it would follow that Kiriwina is a "creditor" within the meaning of s 6, that an "enforcement action" was taken by it in contravention of s 8 of the Farm Debt Mediation Act. Pursuant to s 6, that enforcement action, being these proceedings, is void.

Consideration

In my view, the reference to "today" by Barrett J in Constantinidis concerns the date at which the "enforcement action" was taken. This requires a consideration of whether it is the s 57(2)(b) notices or the commencement of these proceedings that constitute the "enforcement action".
It is first necessary that I compare the mortgage arrangements in Waller to those in the present proceedings.
In Waller, the loans constituted an "all moneys" mortgage which secured loan agreements and two variations to the loan agreement. The mortgagor defaulted twice and a subsequent agreement was entered into both times. This resulted in the first and second agreement being respectively discharged. The third loan agreement remained in effect at the time the proceedings were commenced. The enforcement action under consideration was the bringing of proceedings for debt. The claim was held to be inextricably linked to the third agreement as secured by the mortgage and therefore the action was barred for failing to give the requisite notice.
In the present proceedings, the original mortgage of $1,400,000 was entered into on 20 March 2006. This mortgage can be similarly characterised as an "all moneys" mortgage as the principle sum was defined as including "all further or other advances made by the Mortgagee to the Mortgagor…". (Ex DW-1, 27). Two subsequent variations were then agreed upon. On 29 October 2010, a $200,000 variation was approved. On 18 May 2010, a further variation of $500,000 was approved. Both of these were secured by the mortgage. Unlike Waller, however, each variation was not discharged as the variations did not constitute new agreements following a default by Mr Denshire.
If Waller is applicable, the s 57(2)(b) notices are inextricably interlinked to the commencement of the present proceedings so as to constitute a single action of enforcement. The money owed by Mr Denshire, including the two subsequent variations, was secured by the same all monies mortgage. Kiriwina is also seeking a money judgment for a debt in accordance with the provisions of the mortgage. As in Waller, the right of Kiriwina to take possession and sue for unpaid money is based upon the covenants arising from the mortgage instrument.
However, unlike the facts in Waller, after the s 57(2)(b) notices were issued, the property was sold with the consent of Mr Denshire. The quantum of the debt that forms the basis of Kiriwina's present claim is the shortfall of the debt owed after Greenlees was sold. The order by which funds received from the mortgagee's sale of the property are set out in s 58(3). That sale only occurred after the issue of the s 57(2)(b) notices.
On 23 December 2015 when Kiriwina exercised its power of sale under s 58, Mr Denshire lost his beneficial interest in Greenlees. However, his obligations under his personal covenant to repay the debt contained within the mortgage instrument still existed. (See the first covenant in Annexure A of the mortgage instrument which I have set out earlier in this judgment). Kiriwina (as mortgagor) was also entitled to bring proceedings for the shortfall of any debt after Greenlees' sale on the basis of this covenant. To my mind, because the statutory process in exercising the power of sale under s 58 requires the issue of s 57(2)(b) notices, these notices cannot be separated from either the sale or proceedings or the remaining obligations that still remain. In other words, the issuing of default notices and the subsequent proceedings brought for a shortfall following sale are viewed as a single, inextricably interlinked process founded upon Mr Denshire's personal covenant to repay. It is my view that the current proceedings arise from the reliance upon rights arising from Greenlees' mortgage which are inextricably interlinked to the issue of the s 57(2)(b) notices. In this respect, the proceedings are similar to Waller despite no s 57(2)(b) notices being issued in that case.
Kiriwina has not made any submissions to this Court as to why the commencement of these proceedings should be viewed as a separate action to the s 57(2)(b) notices. It is my view that the evidence leads to a contrary conclusion.
Hence, the time of the enforcement action was 10 September 2014, being the date on which the s 57(2)(b) notices were issued. At that time, Kiriwina had not yet exercised its power of sale pursuant to s 58 of the Real Property Act. As the mortgage debt was secured by Greenlees it fell into the definition of farm debt contained in s 3 of the Farm Debt Mediation Act. It follows that Kiriwina was also a creditor within the meaning of the Act at the relevant time. As a creditor under a farm debt, the Act applies pursuant to s 5(1).
While Mr Denshire was aware of the provisions of the Farm Debt Mediation Act at the time the s 57(2)(b) notices were issued, there is nothing in the Act that suggests this would deprive him of the benefits the Act confers upon him. This conclusion is also supported by s 9(1A) of the Act, which provides that a farmer may request a mediation where notice under s 8 has not been given. (My emphasis). It is my view that the provisions of s 9(1A) of the Act means that there is no statutory obligation upon Mr Denshire to request such a mediation even if he knew of its availability.
In these circumstances, Kiriwina was required to give notice of availability of mediation under s 8 of the Farm Debt Mediation Act. Kiriwina did not do so. As a consequence, s 6 of the Farm Debt Mediation Act renders the current proceedings void.

Conclusion

In summary, firstly, Mr Denshire and Denshire Enterprises fall within the definition of "farmer"; Mr Denshire was engaged in a "farming operation" at all relevant times; and he owed a farm debt that was secured by the Greenlees property at the time of commencement of the enforcement action. Kiriwina is therefore a creditor within the meaning of the Act. The nature of the all monies mortgage and Kiriwina's current claim for debt are inextricably interlinked. On this basis, there is a single enforcement action running from 10 September 2014, being the date on which the s 57(2)(b) notices were issued.
Kiriwina did not provide Mr Denshire with notice as to the availability of mediation as required by s 8 of the Farm Debt Mediation Act. Nor was Mr Denshire required to request mediation. Kiriwina had no right to commence the proceedings when it did. Accordingly, the proceedings are void pursuant to s 6 of the Farm Debt Mediation Act.
The proceedings are a nullity and must be dismissed. (Roxo, [38]).
Costs are discretionary. Costs follow the event. The plaintiff is to pay the defendant's costs on an ordinary basis.

The Court orders that: 1. The proceedings are dismissed. 2. The plaintiff is to pay the defendant's costs on an ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 December 2017

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