Permanent Custodians Ltd v McMahon

Supreme Court of NSW|2013-06-13|Before: Davies J, Button J

Judgment 1This is an application by the Defendants who are the borrowers, guarantors and mortgagors of a number of parcels of rural property seeking Declarations that a Certificate issued by the Rural Assistance Authority pursuant to s 11 Farm Debt Mediation Act 1994 ("the Act") on 11 August 2011 was ultra vires and void, and that enforcement proceedings by the mortgagee are prohibited by that Act.

Loans, default and mediation 2On 28 August 2009 and 19 March 2010 the Plaintiff entered into two loan agreements with the First and Second Defendants pursuant to which the Plaintiff agreed to lend a total of $3.3 million to those Defendants. Guarantees and mortgages ("farm mortgages") over various properties were provided by various of the First to Fifth Defendants. The two loan agreements were designated MCMOO81B and MCMOO81C respectively. 3It is common ground that the First and Second Defendants defaulted under the loan agreements and the farm mortgages by not making the monthly payments due under the loan agreements. On 18 March 2011 the Plaintiff served a notice on the First and Second Defendants pursuant to s 8 of the Act. 4On 14 June 2011 the parties attended a mediation pursuant to the Act and entered into Heads of Agreement. The Heads of Agreement relevantly provided: 1. ... b) The parties agree that this agreement has been reached as a result of a mediation having taken place under the Farm Debt Mediation Act 1994 and that a Section 11 Certificate under the Act may be issued upon the Creditor's Application ... 2. The Farmers agree that by 15 August 2011 they would either: (a) Refinance Loan MCM0081C with a lender other than the Creditor and payout all arrears of interest and costs arising under Loan MCM0081B to the date of repayment of loan MCM0081C. or (b) Provide to the Creditor an unconditional 42 day Contract of Sale (satisfactory to the Creditor) of at least one property that will enable payment by the Farmers of all arrears of interest and costs accrued on loans MCM0081B and MCM0081C as at date of settlement of the contract of sale and effect settlement of such Contract of Sale and payout all arrears of interest and costs as aforesaid. (c) In the event that the property subject of the Contract of Sale referred to in sub-clause (b) hereof is security for loan MCM0081B the Farmers shall also repay out of the sale proceeds, principal calculated at 55% of the original loan valuation of the property sold obtained by the Creditor of East Point Valuations in or about July/August 2009. 3. Subject to compliance by the Farmers with Clause 2 hereof, the Creditor will send out to the Farmers an offer of renewal of any remaining loans no later than a further 14 days after repayment by the Farmers of accrued interest and costs on any remaining loans with the Creditor. 4. On compliance by the Farmers with the provisions of Clause 2 hereof, the Farmers undertake to pay interest and any costs on the remaining loans when due and owing. 5. Any default under this Agreement allows the Creditor at its discretion to commence recovery action against the Farmers. 5It is common ground that the First and Second Defendants did not comply with clause 2 of the Heads of Agreement in any respect. 6On 11 August 2011 the Authority issued the Certificate to the Plaintiff pursuant to s 11 of the Act in respect of the mediation which took place on 14 June 2011. The Certificate identified the two loan agreements and identified the relevant security properties. 7The effect of the Certificate was that the Act did not apply to the farm mortgages with the result that the lender was entitled to enforce its remedies.

Enforcement 8On 15 September 2011 the Plaintiff served a Notice under s 57(2)(b) Real Property Act 1900. 9On 12 December 2011 the Plaintiff issued its Statement of Claim in these proceedings claiming possession of the properties and the amounts owing from the Defendants. 10After negotiations the parties signed Consent Orders as follows: 1. The first defendant John Terence Michael McMahon is to give possession to Permanent Custodians Limited ACN 001 426 384 the plaintiff, of the lands described in first schedule hereto. 2. The defendants, John Terence Michael McMahon the first defendant and Robyn Sandra McMahon the second defendant are to give possession to Permanent Custodians Limited ACN 001 426 384 the plaintiff of the lands described in the second schedule hereto. 3. The third defendant Coraki Properties Pty Ltd ACN 067 482 044 is to give possession to Permanent Custodians Limited ACN 001 426 384 the plaintiff, of the lands described in the third schedule hereto. 4. The plaintiff Permanent Custodians Limited ACN 001 426 384 to have leave to issue a Writ of Possession in relation to each Property after 15 May 2012. 5. The defendants are to pay the plaintiff Permanent Custodians Limited ACN 001 426 384 the sum of $3,750,539.06. 6. The defendants are to pay the plaintiff costs of and incidental to the proceedings. THE COURT NOTES 1. The plaintiff agrees not to seek the entering of Orders 1 to 5 before 16 May 2012. First Schedule 1. The land comprised in Certificates of Title Folio Identifiers 1/1/889, 42/755728, 215/755728 and 217/75528 and Auto Consols 3258-123, 5842-149, 14382-99, 11540-58, 11540-59 and 6368-9, being the land situated at and known as "Claremont" 1426 Coraki Road, Coraki NSW 2471. 2. The land comprised in Certificate of Title Folio Identifier 51/755728 being the land situated and known as "Kellys" Lot 51 Goswells Lane, Coraki NSW 2471. 3. Land comprised in Certificates of Title Folio identifier 2/1089882 and 3/1089882 being the land situated and known as "Wyralla" 498 Coraki Road, South Gundurimba via Lismore, NSW 2480. Second Schedule 1. The land comprised In Certificate of Title Folio Identifier 50/755728 being the land situated at and known as "Bruggys" Lot 50 Caseys Lane, Coraki NSW 2471. 2. The land comprised in Certificates of Title Folio Identifier 1/576154, 2/547143 and 327/755727 being the land situated and known as "Summer Downs" Reynolds Road, Casino NSW 2470. 3. The land comprised in Certificate of Title Folio Identifier 51/755728 being the land situated and known as "Dougherty's" 122 Goswell Lane, Coraki NSW 2471. 4. The land comprised in Certificates of Title 42/751062, 43/751062, 44/751062, 67/751062, 79/751062, 80/752397 and 1/242632 being the land situated and known as "Lisheen" Tabulam Road, Tabulam NSW 2469. Third Schedule 1. The land comprised in Auto Consol 8648-41 being the land situated and known as "McDermotts' Lots 48 and 49 Caseys Lane, Coraki NSW 2471. 11It is to be observed that there was a notation that the Plaintiff agreed not to seek the entering of orders 1-5 before 16 May 2012. The purpose of that was to enable the Defendants until 15 May to sell sufficient of the properties to clear all the arrears and costs and reduce the loans to an acceptable loan to value ratio (LVR). So much appeared in a letter from the Plaintiff's solicitors to the Defendants' solicitors of 3 February 2012. 12When the Consent Orders were returned signed by the Defendants the Plaintiff's solicitors instructed their agent to file the Consent Orders at the Supreme Court Registry. The instruction sheet stated: Please file the attached documents although do not have the orders entered - we will do this after 16 May 2012. 13On 16 May 2012 the Plaintiff's solicitors instructed their agent to "take out" the orders and have them "entered by the Court". 14A sealed copy of the judgment received on 16 May 2012, although dated 16 May 2012, showed that the date of the judgment entered was 23 April 2012. The Court appears, perhaps not surprisingly, to have regarded the date of filing the Consent Order as the date for entry of the judgment notwithstanding the notation in the orders. Whether the Plaintiff's agents drew the notation to the registry's attention was not disclosed. 15When the Defendants did not sell any of the security properties or otherwise clear the arrears and costs or reduce the applicable loan to value ratios the Plaintiff obtained writs of possession. 16The Defendants made application to Schmidt J on 24 September 2012 to stay orders including, it would seem, the writs. Schmidt J dismissed the application. Thereafter the Defendants applied to Garling J on 7 December 2012 to defer auctions which appear to have been arranged following execution of the writs. That application was also unsuccessful. 17On 8 December 2012 following the auctions the Plaintiff entered into contracts to sell three of the properties. On 18 March 2013 the Plaintiff entered into a further contract for sale of a fourth property. All of those contracts have completed.

The Motion and the submissions 18On 27 March 2013, with new solicitors acting for them, the Defendants sought a deferral of the auctions in respect of the two remaining properties one of which was scheduled for the following day. The basis for deferring the auctions was said to be that the Act applied to the properties because of the High Court's decision in Waller v Hargraves Secured Investments Ltd [2012] HCA 4; (2012) 245 CLR 311. Button J restrained the sale of the properties and made directions for the Notice of Motion to be prepared for hearing. It is that Notice of Motion which I am asked to determine. 19The relief now sought is as follows: 2. A Declaration that the certificate issued by the Rural Assistance Authority ("the Authority") pursuant to section 11 of the Farm Debt Mediation Act ("the Act") to the Plaintiff on 11 August 2011 was issued ultra vires. 3. A Declaration that the certificate issued by the Authority pursuant to section 11 the Act (sic) to the Plaintiff on 11 August 2011 is void. 4. A Declaration that the enforcement proceedings, namely the issue of the Statement of Claim in these proceedings on 12 December 2011, was prohibited by the Act. 5. The Consent Judgment/Order entered on 23 April 2012 be set aside. 20In the written submissions prepared on behalf of the Defendants it was said that there were three issues to be determined on the motion: first, whether the commencement of proceedings on 12 December 2011 was an enforcement action under the Act; secondly, whether the enforcement action (if it so determined to be) was void because the Certificate issued on 11 August was void; thirdly, whether the judgment should be set aside. 21As the submissions were developed the Defendants accepted that the only issue was whether the Certificate was void or ultra vires (as the Defendants put it) because it was issued prior to the last day for the doing of acts by the Defendants pursuant to the Heads of Agreement. It was not disputed that the commencement of proceedings would be enforcement within the meaning of the Act. For reasons which will be given later in the judgment, if the Certificate was void or otherwise inoperative the enforcement proceedings would be a nullity and the judgment would have to be set aside. 22I note in passing that the basis put to Button J for obtaining the injunction (which remains in place) was that it was reasonably arguable that the Heads of Agreement became the farm mortgage in place of the mortgages entered into at the time of the loans. The Defendants then called in aid the High Court's decision in Waller to suggest that there was no default under this new farm mortgage, presumably leading to the result that, as in Waller, the mediation process would need to be gone through again. By contrast, in submissions made to me the Defendants said that the present case was to be distinguished from Waller in that all the Heads of Agreement did was to extend the time to repay the loan. 23The Defendants submitted that the certificate was void because the pre-conditions in s 11 of the Act were not complied with. Section 11 relevantly provides: Certificate that Act does not apply to farm mortgage (1) The Authority must, on the application of a creditor under a farm mortgage, issue a certificate that this Act does not apply to the farm mortgage if: (a) the farmer is in default under the farm mortgage, and (b) no exemption certificate is in force in relation to the farm mortgage, and (c) the Authority is satisfied that: (i) satisfactory mediation has taken place in respect of the farm debt involved, or (ii) the farmer has declined to mediate, or (iii) 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith (whether or not a mediation session or satisfactory mediation took place during that period) (emphasis added) 24The Defendants said that they were not in default under the farm mortgages because they had until 15 August to fulfil either of the conditions in paragraph 2(a) or 2(b) and (c). They stressed that s 11(1)(a) says "is" in default and not "was" or "has been". The Defendants accept that they had been in default but they submitted that the effect of the Heads of Agreement was that the debt had been postponed. 25In that regard they pointed to Hollyburton UK Ltd v Irani [2006] VSC 403 where Whelan J adopted what had been said in Osborn v McDermott [1998] 3 VR 1 at 10-11 and continued: [27] In between the two types of case referred to above, the Court of Appeal in Osborn identified a third category of case, adopting in that respect the analysis of Fullagar J in Scott v English ("Scott").3 Phillips JA described this third category as accord and conditional satisfaction. Here, there is an immediately binding agreement for a compromise but satisfaction and discharge of the pre-existing liabilities is deferred until performance. The original liabilities are suspended unless and until there is performance, and the plaintiff is bound to await the time for performance before seeking to enforce those original liabilities and to accept performance if it is tendered. Phillips JA explained the consequences of default as follows: ... but if there is no performance, then the plaintiff may proceed according to general principles called into play when any agreement is repudiated; the plaintiff may either treat the agreement (the accord) as at an end and proceed on his original cause of action; or he may, at his option, sue on the compromise agreement, in face of the original cause of action. 26The Plaintiff submitted that the Defendants remained in default under the farm mortgages and that what was contained in the Heads of Agreement was all predicated on the fact that they remained in default. The Plaintiff submitted that the Heads of Agreement contemplated the issue of the Certificate in clause 1(b). No enforcement action was taken before 15 August. 27The Plaintiff further submitted that even if the Certificate was wrongly issued or was held to be void that would not mean that the judgment should necessarily be set aside. In that regard the Plaintiff submitted that that the defective Certificate would not mean that judgment was entered irregularly. The voidness could have been pleaded as a defence or as a basis for dismissal of the claim but did not amount to an irregularity. Reference was made to Avery v Saree Holdings Ltd [2012] NSWSC 463 and Dimitrovski v Australian Executor Trustees Limited [2013] NSWSC 337 at [3].

Consideration 28It must first be determined if the requirements for the issue of the Certificate under s 11 of the Act have been satisfied. In particular, it must be determined whether or not the Defendants were in default. 29Section 4 of the Act defines default as follows: 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. Note. Examples of default on the part of a farmer include failure to pay the principal, interest or other money the payment of which is secured by a farm mortgage; failure to keep the property subject to the farm mortgage insured; and failure to submit financial statements required by the creditor. 30An examination of the Heads of Agreement demonstrates (and the Defendants do not contend otherwise) that what is contained in the Heads of Agreement does not replace the farm mortgages. As noted earlier the Defendants contend that the debt has been postponed. I do not agree. 31All that the Heads of Agreement did was to give a period of time in which the Defendants could either sell the properties or refinance them. Those provisions contained the necessary assumption that the Defendants were and remained in default. 32I do not consider that the decisions in Hollyburton and Osborn v McDermott affect that result. Even if, as a matter of general principle, satisfaction and discharge of the pre-existing liabilities is suspended until the date for performance of the new arrangements, the matter in the present case turns on a proper construction of s 11 and the definition of default. The Defendants did not make repayments under the two loan agreements when those payments were required to be paid. Those defaults were grounds for enforcement action under the farm mortgages. The Defendants remained in default after the Heads of Agreement whilst being given an opportunity to rectify that defaults by one of the methods agreed. 33Whilst the new arrangements mean that the Plaintiff cannot enforce the original liabilities until the time for performance has passed that does not entail the conclusion that the Defendants are not in default under the farm mortgage pursuant to s11. 34The position is to be contrasted with what happened in Waller. As is made clear in the judgments at [12], [16], [20]-[21] and [35]-[36] on each occasion the prior debt was extinguished and a new debt came into existence. That position was contrasted at [57] with the position where there was merely an adjustment to the prior arrangement. 35The conclusion that the Defendants were in default at the time of the issue of the Certificate is supported by clause 1(b) of the Heads of Agreement. The agreement was not that such a Certificate could only be issued after 15 August but that it might be issued on the Creditor's application. That suggests that the parties accepted that the pre-conditions stipulated in s 11 were then satisfied. 36The Defendants argued that clause 1(b) amounted to a contracting-out of the Act contrary to s 20 with the result that that clause was void. I do not agree. The clause was an acceptance of the true position that the Defendants remained in default under the farm mortgages. This was followed in the Heads of Agreement by the arrangement that gave the Defendants time to rectify the default. The clause did not purport to enable enforcement before the date stipulated. Had it done so that might have been an attempt to modify the operation of the Act. It must be remembered, in this regard, that there is no one prescribed outcome from a mediation under the Act. The parties are free to reach whatever agreement they wish provided that there is compliance with the Act. 37Accordingly, at the time the Certificate was issued the Defendants were in default under the farm mortgage. The other conditions in s 11 of the Act were satisfied - I note that the Defendants did not contend otherwise. The Certificate was not, therefore, issued ultra vires nor was it void. 38Notwithstanding the existence of a valid Certificate, the terms of the Heads of Agreement prevented any enforcement action prior to 15 August 2011. Any such enforcement would have been in breach of the Act and, contrary to the submissions of the Plaintiff, would have resulted in the proceedings being a nullity: Roxo v Normandie Farm (Dairy) Pty Ltd [2012] NSWSC 765 at [31] and [38]. 39The position is not the same as the failure to serve a s 80 Notice under the Consumer Credit (New South Wales) Code as discussed in Avery at [116] - [117]. The reasons are given in Bank of Queensland v Dutta [2010] NSWSC 574 at [142] - [156] which Slattery J followed in Avery. There was no equivalent provision to s 6 of the Act in the Consumer Credit Code. Section 6 renders void enforcement action by a creditor to whom the Act applies. Without the Certificate the Act applied to the Plaintiff. 40Any enforcement prior to 15 August 2011 would have meant that any judgment entered by the Plaintiff would have been entered in proceedings which were a nullity. Such a judgment would have been entered illegally or irregularly and the Defendants would be entitled to have it set aside. 41The first act by the Plaintiff which could be considered to amount to enforcement action as defined in the Act was the service of a s 57(2)(b) notice on 15 September 2011. At that time the Certificate issued by the Authority validly certified that the Act did not apply to the farm mortgages. There had been no compliance with the Heads of Agreement by the Defendants by 15 August 2011 or at any time thereafter. That act of enforcement was a valid act as was the commencement of the proceedings on 12 December 2011 and the maintenance of those proceedings thereafter. 42In both their written and oral submissions the Defendants asserted that the judgment entered on 23 April 2012 was entered irregularly or illegally because the Certificate was void and the proceedings were a nullity. For the reasons I have given the proceedings were validly commenced and maintained. There was no irregularity or illegality concerning entry of judgment on that ground. 43The Defendants additionally submitted in their written submissions that the judgment was entered irregularly or against good faith because the parties had agreed that it would not be entered before 16 May 2012. This submission was abandoned when the solicitor for the Defendants addressed the Court. The only basis for setting aside the judgment was said to be that the proceedings were a nullity. 44For these reasons the Defendants do not demonstrate that any of the relief claimed in the Notice of Motion should be given. 45I make the following orders: (1)Dissolve the injunction granted by Button J on 27 March 2013. (2)Dismiss the Defendants' Notice of Motion filed 27 March 2013. (3)The Defendants are to pay the Plaintiff's costs.

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: 28 June 2013

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