Dealing with entry into possession by a mortgagee, Kekewich J said:
"In my opinion, by entering into possession the mortgagee says he requires payment."
11 The rationale for not allowing the mortgagee to insist on the payment of interest up to the agreed date for repayment of principal is some overt act of the mortgagee amounting to a requirement that the mortgagor pay the principal at an earlier time. Steps by the mortgagee clearly and unequivocally directed towards obtaining payment of the principal before the stipulated date carry with them acceptance by the mortgagee of a position inconsistent with insistence upon interest up to that date. This rationale is recognised in the judgment of Holland J in Van Kempen v Finance & Investments Pty Ltd (1984) 6 NSWLR 293 and the judgments of Street CJ and Samuels JA in Stocks & Enterprises Pty Ltd v McBurney (1977) 1 BPR 9521.
12 Demand for payment by the mortgagee and the taking of steps to enforce the security are examples of overt acts of the mortgagee amounting to a requirement for early repayment of principal. They are not, as I see it, necessarily the only examples of actions that cause a mortgagee to become bound to accept repayment of principal before the stipulated payment date with interest to the date of payment only.
13 Mr Johnson of counsel who appeared for the plaintiff submitted that, in the present case, the defendant has incurred a disentitlement to insist on payment of interest to 12 July 2004 because of a manifested willingness to accept early repayment of principal in a particular event, being an event that has happened. That manifestation of willingness is, Mr Johnson submits, to be found in the parties' agreement of 8 November 2002. Clause 1 of that agreement contains a promise by the plaintiff to do one of three things, it being clear (or, at least, not disputed) that the plaintiff itself may choose which of the three things it will do. In the events that have happened, the plaintiff has done the first of the three things, that is, the thing specified in clause 1.1, by making on a date not later than 31 March 2003 a contact for the sale of the property to an arm's length purchaser. The ability of the mortgagor, as vendor, to perform that contract by conveying to the purchaser an unencumbered estate in fee simple in possession depended, clearly enough, on the defendant's discharging its mortgage upon completion. It must follow, according to the submission, that there was implicit in the agreement of 8 November 2002 an acknowledgement by the mortgagee that it would provide the discharge of mortgage the mortgagor requires in order to complete a contract for sale entered into by 31 March 2003; and since it could not have been contemplated that the discharge of mortgage would be forthcoming except upon payment of the whole of the secured moneys, that implied acknowledgement entailed a manifestation of willingness to accept payment of the principal sum before 12 July 2004. The acquiescence of the defendant in the proposal evidenced by clause 1.1 that there be a sale of the property (being a sale attended, of necessity, by discharge of the mortgage and therefore early repayment of the principal sum) was, in Mr Johnson's submission, sufficient to preclude the defendant's insisting on interest up to 12 July 2004.
14 Mr Johnson also submitted that the notice given by the defendant under s.8(1) of the Farm Debt Mediation Act represented, in reality, a step towards enforcing the mortgage and that that action of itself was enough to disentitle the defendant to insist upon payment of interest to 12 July 2004.
15 Mr Ellicott of counsel, who appeared for the defendant, submitted that the agreement of 8 November 2002 does not evidence any acknowledgement by the defendant of the kind asserted by the mortgagor. By clause 2, the defendant agreed to desist from enforcement action in the certain events, being events which have happened. It also reserved the right to enter into possession if there was a failure of the plaintiff to comply with the agreement of 8 November 2002 or the mortgage itself after 15 May 2003, but since such a state of non-compliance now cannot arise, that reservation of right is merely academic - besides which mere reservation of an existing right cannot be regarded as an expression of intention to resort to or exercise the right. The whole tenor of the agreement was therefore against enforcement or realisation of the security, so that there was no manifestation by the defendant of a willingness to accept early repayment of principal.
16 I deal first with the question arising in relation to the Farm Debt Mediation Act, namely, whether the giving by the defendant to the plaintiff of notice under s.8(1) of that Act may be said to have been a step towards enforcement evidencing the imposition by the defendant of a requirement for payment of principal. In approaching the Farm Debt Mediation Act question, I put to one side the amendments made by the Farm Debt Mediation Amendment Act 2002. Those amendments became effective on 3 January 2003. All the statutory procedures relevant in the present case were completed before that date.
17 Section 8 of the Farm Debt Mediation Act should be quoted in full:
"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."
18 The s.8(1) notice given by the defendant to the plaintiff is not in evidence. The certificate issued by the Rural Assistance Authority under s.11 of the Act is in evidence. It contains an item "BALANCE O/S as at date of issue of Section 8 Notice". Against that item appears "As at date of issue of Section 8 Notice $8,125". It is thus made clear that the basis upon which the s.8 notice was issued was default in the payment of $8,1250.00, presumably being interest only.
19 The Farm Debt Mediation Act contains, in s.4(1), a definition of "enforcement action" the scope of which was the subject of observations by member of the Court of Appeal in Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337. The definition is 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 of this Act, or
(b) the enforcement of a judgment that was obtained before the commencement of this Act. "
20 A central feature of a notice under s.8(1) is a statement of the mortgagee's intention to take possession of the mortgaged property or to take action to enforce the mortgage. The question in the present case is whether that statement made by the defendant by means of the s.8(1) notice which apparently referred to an outstanding balance of $8,125 represented a step by the defendant, as mortgagee, showing a requirement that the mortgagor make early payment of the principal of $650,000. That question must, of course, be approached in the whole of the context created by the Act.
21 The object of the Farm Debt Mediation Act is stated in s.3:
"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."
22 In furtherance of that object, the Act precludes enforcement action by a mortgagee under a farm mortgage unless the mortgagor has had a period of 21 days in which to decide whether to request mediation. If the mortgagor does request mediation, enforcement action by the mortgagee is precluded until a s.11 certificate comes into force in relation to the farm mortgage. The Rural Assistance Authority must issue such a certificate on the application of the mortgagee if it is satisfied that satisfactory mediation has occurred, or that the mortgagor has declined to mediate, or that three months have elapsed during which the mortgagee has attempted to mediate in good faith. These matters emerge from ss.8, 9, 10 and 11.
23 The Act's purpose is thus to require a mortgagee to hold his hand on enforcement of the farm mortgage until there has been an opportunity for resolution of differences with respect to the mortgage by mediation and either an arrangement acceptable to mortgagor and mortgagee has been reached or the possibility of resolution is seen to be exhausted. Only at that point is the mortgagee free to resort to enforcement action.
24 A mortgagee's statement of "intention to take enforcement action in respect of the farm mortgage" conveyed by a s.8(1) notice cannot be regarded as an unconditional threat to enter into possession or to resort to other mortgagee remedies. Nor can it be regarded as conveying any express or implied demand. On the contrary, it is no more than a statement that the mortgagee wishes to proceed to enforcement if any mediation under the Act does not produce some other solution or, in the absence of such a solution, the issue of a certificate under s.11 removes the embargo placed upon enforcement action by s.8(1). It would be inconsistent with the moratorium objective of the Act for the giving of a s.8(1) notice to be recognised as of itself affecting the parties' rights and obligations in relation to the moneys secured by the mortgage concerned.
25 In the present case, the defendant as mortgagee gave a s.8(1) notice apparently referring to a balance outstanding of $8,125. On the basis that I have just described, that notice stated, at most, a conditional intention to resort to enforcement action. In the events that happened, there was a mediation which gave rise to a new agreement between the parties. Nothing said or implied by the defendant in giving the s.8(1) notice can, in my opinion, be said to have involved overt action by the mortgagee amounting to a requirement that the principal sum be paid before 12 July 2004 or acquiescing in any such early payment.
26 I turn now to the effect of the agreement made on 8 November 2002. It is true, as Mr Ellicott submitted, that the agreement does not contain any express requirement that the principal sum be paid early or any express acknowledgment by the defendant that it will be accepted before 14 July 2004. Nor is there anything amounting to any express resort to mortgagee rights of enforcement. But, as Mr Johnson submitted, early payment is a necessary corollary of one of the three courses of action clause 1.1 placed at the disposal of the plaintiff, with a requirement that the plaintiff take one of those courses.
27 By acknowledging, through clause 1.1(a), that the plaintiff might, if it so chose, sell the property on an arm's length basis by 31 March 2003, the defendant must be taken to have accepted that it would discharge the mortgage upon completion of such a sale; and it cannot have been envisaged that the defendant would discharge the mortgage except upon payment to it of the whole of the secured moneys. No one would have contemplated that the defendant would forego its mortgage and remain a creditor without security for a principal sum of $650,000 to be paid on 12 July 2004.
28 A useful summary of the principles as to the implication of terms is to be found in the judgment of Tadgell JA (with whom Buchanan JA and Chernov JA agreed) in Narni v National Australia Bank Ltd [2001] VSCA 31:
"It is trite but nevertheless useful to recall that, as Mason J noted (with the concurrence of Stephen and Wilson JJ) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [(1982) 149 CLR 337], the implication of a term in a contract is designed to give effect to the parties' presumed intention. What his Honour there called "the conditions necessary to ground the implication of a term" were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [(1977) 180 CLR 266 at 283] thus '... (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract'. Although Codelfa and various other earlier and later decisions of the High Court indicate that the above-quoted formulation of principle may be regarded as authoritative, it is fair to say that some of the five conditions are sometimes seen to be difficult to apply and not always to serve as practical criteria. For example, Aickin J in Codelfa suggested that, in approaching 'the question whether there is to be a term implied into the contract', a consideration of the remark of the 'officious bystander' postulated by MacKinnon LJ, from which the condition numbered (3) evidently draws inspiration, is not always helpful or useful; and that 'it seems no longer the exclusive means of approaching the question'. The five conditions, although evidently expressed to operate cumulatively, may nevertheless overlap; and in some cases, I think this is one of them, a more simplified approach may be appropriate and permissible. Thus, in Marcan Shipping (London) Ltd v Polish Steamship Co (The Manigest Lipkowy) [(1989) 2 Lloyd's Rep 138 at 142] May LJ remarked -
'For my part, I think that reference to the officious bystander frequently does not assist in deciding whether or not a term is to be implied. Officious bystanders may well take different views depending on which side they happen to be standing. In my judgment it is quite clear from such cases as Liverpool City Council v Irwin [1997] AC 239, that the real basis upon which a term can be implied in contracts such as this is that they are necessary in order to make the contract work.'
In the same case Bingham LJ expressed this succinct dictum on the point,
'I take it to be well-established law that a term will be implied only where it is necessary in a business sense to give efficacy to the contract or where the term is one which the parties must obviously have intended.'"
29 It was necessary in a business sense that the plaintiff should be able to convey an unencumbered estate upon completion of a sale in accordance with clause 1.1. It was necessary, in order to make that clause work, that the defendant's mortgage should be discharged upon completion. The defendant must therefore be taken to have agreed to provide a discharge in return for payment of the mortgage moneys in full on completion, even though that would entail receipt by it of the principal sum of $650,000 before 12 July 2004.
30 I find that it was an implied term of the agreement of 8 November 2002 that, upon completion of any sale made by the plaintiff in conformity with clause 1.1, the defendant would accept early repayment of the principal sum of $650,000 and discharge the mortgage. That being so, the contractual arrangement between the parties was such that there was a right to redeem in accordance with the implied term, being a contractual right that co-existed with the plaintiff's statutory right of early redemption under s.93(1) of the Conveyancing Act. Because of the implied term, the defendant could not refuse early tender of the principal sum and interest to the date of payment. It was accordingly bound to accept, upon completion of the sale on 28 February 2003, the principal sum of $650,000 together with interest up to that date only, plus any fees and charges required by the mortgage to be paid.
31 The plaintiff's summons was filed before completion of the sale on 28 February 2003. Subsequent events make it possible to frame a declaration in terms more specific than those sought in the summons. The court: