Roxo v Normandie Farm

History of the proceedings 14On 19 May 2005, the defendant granted a mortgage to the plaintiff to secure a loan obtained to enable the defendant to purchase a rural property known as "Jacqua" at Bungonia in New South Wales (the Property). On 11 November 2011, the plaintiff served a s 57(2)(b) notice. In November 2011, the defendant contacted the Rural Assistance Authority (the Authority) to seek advice, following which the defendant served a notice on the defendant pursuant to s 9(1A) of the Act. 15Prior to the mediation the plaintiff asked Ms McKay, the principal of the defendant, to select a mediator and showed her a list of accredited mediators. Ms McKay acquiesced in the plaintiff's choosing the mediator. 16On 15 December 2011, the parties met at the premises of the plaintiff's solicitor to mediate their disputes. The mediation did not resolve the matter. 17On 19 December 2011, the plaintiff lodged an application for the issue of a s 11 certificate under the Act. The following day, on 20 December 2011, the plaintiff commenced these proceedings by filing a statement of claim. Shortly after 16 January 2012, the defendant, by its agent Ms McKay, received a letter from the Authority advising of the plaintiff's application for a s 11 certificate. 18On 3 February 2012, the plaintiff filed a notice of motion seeking default judgment on his claim for possession of the Property. A requisition was issued regarding the affidavit of service but an affidavit sworn by the plaintiff was filed on 15 February 2012. 19On 20 February 2012, the Authority advised the parties that it would not grant the plaintiff's application for a certificate pursuant to s 11 because the mediation was not conducted in accordance with the Act. The Authority wrote to the plaintiff in the following terms: "The Committee has considered your request for the issue of a Section 11 Certificate in the terms of Section 11 (1C)(i) that satisfactory mediation has taken place under the Farm Debt Mediation Act, 1994. The mediator has advised the Authority that at no time was she advised that the mediation was to proceed under the Farm Debt Mediation Act, 1994 and she was of the opinion that it was a private mediation (a farm debt can be mediated between parties and not under the Act). Section 12A(ii) of the Act states that a creditor cannot nominate a mediator, but must accept or reject the mediator nominated by a farmer, it would appear this matter between the parties, as stated in both Ms McKay's submissions and your response, is contradictory. Mediation should be held in a mutually convenient and neutral place. The mediation was conducted in the office of your solicitor, which would suggest that the neutrality was not in the interests of the farmer. The Committee has considered this information and has made the decision not to issue a Certificate as the mediation was not conducted in terms of the Farm Debt Mediation Act." 20On 13 March 2012, default judgment was entered against the defendant. On 15 March 2012, the plaintiff filed a notice of motion seeking a writ of possession of the Property. On 4 April 2012, a writ of possession issued and a notice to vacate the Property was served. 21On 25 May 2012, the defendant by notice of motion applied ex parte for a stay of the writ of possession. It also sought in the notice of motion an order that default judgment be set aside and that the proceedings be dismissed. The notice of motion was stood over for hearing on 5 June 2012 but on that date it was adjourned until 18 June 2012. On 18 June 2012 it was further adjourned at the request of the plaintiff to 4 July 2012.

The plaintiff's application for an adjournment 22When the matter came before me as Duty Judge on 4 July 2012, the plaintiff applied for an adjournment of the matter on two bases. First, the defendant sought to rely on a further affidavit of Ms McKay sworn 27 June 2012 which was served on 29 June 2012. The plaintiff submitted that he required time to deal with the affidavit. The defendant then confirmed that, given the objection, it would not rely on that affidavit. Secondly, the defendant submitted that it had made another application for a s 11 certificate and that if the certificate was forthcoming, it would cure any defect in the proceedings occasioned by any earlier non-compliance with the Act, since s 11 certificate operated retrospectively. 23I do not consider that s 11 has the effect for which the plaintiff contended. I will address this matter further below, since it is the basis on which the defendants sought to have the proceedings as a whole dismissed. Because I did not consider that the subsequent issue of a s 11 certificate would cure retrospectively any such defect, I declined to adjourn the matter further.

Was the defendant a "farmer"? 24The plaintiff contended that the defendant was not a farmer within the meaning of the Act because it had not established that it was "solely or principally engaged in a farming operation". Ms McKay, who is sole director and secretary of the defendant, deposed to its operations in her affidavit of 25 May 2012. She was cross-examined extensively. I accept her evidence that the defendant has used the Property since its acquisition in 2005 for the purposes of the farming operations of building up a suitable dairy herd. Animals have been bred and reared there and either sold, in the case of male cattle, or transported to another property owned by the defendant in Warwick, Queensland, in the case of female cattle. Indeed, Ms McKay gave evidence that all of the calves that were raised at Warwick between 2005 and 2011 came from the Property. 25Ms McKay has a Property Identification Code, issued by the Department of Primary Industry, with which cattle from the Property are tagged and which enables her to sell cattle in New South Wales and elsewhere. 26It was put to Ms McKay in cross-examination that, in substance, because the defendant had not submitted any tax returns for the financial years ended 30 June 2005 to 2011, the defendant was not conducting farming operations on the Property. Her responses included the following: " ...I am a farmer. I have been a farmer all my life. I have farmed cattle, I have farmed horses. I look after the cattle, I feed the cattle, I do the fencing, I carry out the hay to the animals. I don't know what more I have to do to prove I am a farmer. ... Q. You see, I would suggest to you that the company's purchase of the farm itself and the loan that was taken out to fund the purchase of the farm is entirely consistent with investment services rather than farming operations? A. Well, I am sorry, I disagree. I mean, every day I go out on the farm. I move the cattle around. I clean the paddocks of weeds. I have planted crops and pasture on the property. I've done all sorts of things. I have put in a bore for the water supply. I have organised the water supply for the cattle. I mean, they are farming activities. ... Q. Well, I suggest to you that that is a lifestyle activity? A. It's not a lifestyle activity. If it were a lifestyle activity I would simply have a nice garden and have a few chooks. ...Since I acquired the Bungonia farm in 2005 I had Mr Catteau's cattle there, I raised cattle for him, for the La Surs, I sold male cattle, I got the females pregnant and sent them up to Queensland. I had them dehorned. I have had them inoculated. I can't think of all the other things I have done. I have had them pregnancy tested prior to their departure. I can't tell you any more that I have done. I mean, I have done all the electric fencing there. These are not lifestyle issues. I don't have any other staff. I'm it." 27Ms McKay said that because of the severe drought between 2005 until late 2009, early 2010, there were "virtually no farmers in the area of the Southern Tablelands making any money from the farming of any enterprise". 28I accept Ms McKay's evidence. 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. As Young J said in Varga v Commonwealth Bank of Australia [1996] NSWSC 86 (Varga): "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'm 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." 29I do not consider that the fact that the defendant has not lodged tax returns for the relevant years alters its status as a farmer. Although the plaintiff put to Ms McKay, in the passage set out above, that the defendant had engaged in investment services (there being some evidence that it had done so before the purchase of the Property), I accept Ms McKay's denial that at the relevant time the defendant was conducting investment services such that it was not solely or principally engaged in a farming operation. In correspondence annexed to affidavits read in the proceedings, the plaintiff alleged that Ms McKay was not a farmer since she was a student. As she was not cross-examined about this, I do not propose to consider it further except to say that the relevant person said to be the "farmer" was the defendant, which, being a company, was not capable of being a student, in any event. 30The 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. As Young J said, in Varga: "One has got to look at the person and say in all the circumstances is farming that person's principal activity." 31It follows that the Act applied to the enforcement action by the plaintiff in these proceedings and the plaintiff was prohibited from giving a s 57(2)(b) notice to the defendant unless and until it had obtained a s 11 certificate. The proceedings were commenced in contravention of s 10 and thus were void by reason of s 6 of the Act. The plaintiff failed to comply with s 8 of the Act; accordingly the s 57(2)(b) notice was prohibited and accordingly void under s 6.

Does certificate issued under s 11 of the Act have retrospective operation? 32As referred to above, I declined the plaintiff's application for an adjournment since I did not accept that s 11 could operate retrospectively to validate proceedings that were otherwise a nullity by reason of s 6. In my view clear words would have been required in the Act to resuscitate the s 57(2)(b) notice which was void because it was issued in breach of the Act. No such clear words are to be found in the Act. Furthermore I consider that it would be at odds with the purpose of the Act to permit a creditor to stand-over a farmer with proceedings on foot before mediation had been conducted or refused by the farmer. 33The plaintiff contended that the wording of s 11(4) indicated a Parliamentary intention that if a s 11 certificate were obtained at any time, proceedings which had already been commenced could remain on foot and a s 57(2)(b) notice which had already been issued would be validated. Section 11(4) provides: "A certificate may be given under this section (except where subsection (1)(c)(iii) applies) whether or not any notice has been given under section 8." 34I consider that s 11(4) is designed to provide for a situation where a farmer refuses to engage in mediation at all. To require a creditor to give a notice under s 8 of the Act in such circumstances would be a solemn farce. Section 11(4) makes it clear that a creditor may apply for a certificate, and a certificate may be given in such circumstances. I reject the plaintiff's argument that it has the effect of validating either a s 57(2)(b) notice or proceedings that are void by reason of s 6. 35A creditor's right to take enforcement action when the Act applies was considered in Cherryop Pty Ltd v Commonwealth Bank of Australia [1996] NSWSC 194. Cole JA said, at [5]: "The only 'enforcement action' which the Act contemplates as being permissible is enforcement action after the provisions of Part 2 of the Act have been complied with. Part 2 contemplates mediation. Shortly stated, Part 2 permits a creditor to take enforcement action 'in respect of a farm mortgage' only after 21 days have elapsed from it giving the farmer a notice informing the farmer of the creditor's intention to take action 'in respect of the farm mortgage', and of the availability of mediation in respect of farm debts (Section 9(1) and (2)). The farmer on receipt of such notice may within 21 days request mediation 'concerning the farm debt involved' (Section 9(1)). Once that notice has been given, the creditor must not take enforcement action "in respect of the farm mortgage concerned' unless and until the Authority has given a Certificate under Section 11 in respect of the farm mortgage (Section 10). That Certificate is to be issued by the Authority only when it is satisfied that either satisfactory mediation in respect of the farm debt has taken place, the farmer has declined mediation in respect of the farm debt or three months have elapsed since the creditor gave the Notice under Section 8 and the creditor has, during that period, attempted to mediate in good faith." 36The consequences of the plaintiff's failure to comply with the provisions of the Act are, as Cole JA said, at [6]: "It follows, in my view, that the effect of Section 6 is to extinguish all rights of the secured creditor in respect of farm debts, being those incurred by a farmer for the purpose of the conduct of farming operations and secured over farm property, except rights to take 'enforcement action' in relation to the farm mortgage, and then only after the mediation process contemplated by Part 2 has been implemented, or attempted and failed because the farmer has declined mediation, or bona fide attempts at mediation by the creditor have been unsuccessful. Only then may the secured creditor take enforcement action in relation to the farm mortgage." 37The defendant submitted that it would be inconsistent with the objects of the Act to permit these proceedings to be maintained. The defendant submitted that it cannot be expected to participate fairly in a mediation process as is required by the Act while the proceedings remain on foot. 38It follows from what I have said above that the plaintiff had no right to commence the proceedings when it did. The proceedings and the s 57(2)(b) notice are a nullity. Accordingly the proceedings must be dismissed. 39In deference to the defendant's submissions I propose to consider the remaining bases on which it contended that the default judgment ought be set aside.

Setting aside default judgment 40The defendant submitted that default judgment entered against the defendant in these proceedings on 13 March 2012 was entered irregularly within the meaning of UCPR 36.15(1) which relevantly provides: "A judgment or order of the Court in any proceedings may, on sufficient cause being shown, be set aside by order of the Court if the judgment was given or entered or the order was made irregularly, illegally or against good faith." 41The defendant submitted that the statement of claim was not served and that UCPR 6.8 was not complied with.

Service of the statement of claim 42The defendant relied on an affidavit of Mr Bisley, sworn 4 June 2012, which established that the statement of claim was not served, since it was to be served by post but the tracking mechanism adopted by Australia Post was not activated. Ms McKay's evidence that the statement of claim was never delivered to the property was not challenged in cross-examination and Mr Bisley was not required for cross-examination.

Failure to comply with UCPR 6.8 43UCPR 6.8 obliged the plaintiff to serve the statement of claim, together with a prescribed notice, upon any occupier of the land. The defendant submitted that the plaintiff knew that Ms McKay had at all times lived on the defendant's land. It was common ground that no such notice was given to Ms McKay. 44UCPR 36.8 requires the plaintiff to swear an affidavit identifying any person in occupation of the land for which possession is sought, and give evidence as to the service of the statement of claim and prescribed notice on such person. In his affidavit of 13 March 2012, Mr Roxo deposed as follows, in [4]: "No persons (other than parties to the proceedings) were in occupation of the whole or part of the land when the statement of claim that sought possession of the land was filed." 45Mr Roxo was cross-examined about this statement, which he attempted to defend on the basis that, in substance, Ms McKay and the defendant were one and the same. They are clearly not since the defendant is a corporation and Ms McKay is a natural person. I do not consider that Mr Roxo intentionally misled the Court when he deposed to [4]. Nonetheless the judgment was entered irregularly since UCPR 6.8 had not been complied with and no application was made to dispense with compliance. 46The merits of any defence to the plaintiff's claim are relevant to the exercise of my discretion to set aside a default judgment. Ms McKay has annexed a draft defence to her affidavit of 5 June 2012 in which the defendant alleges non-compliance with the Act. Mr Moloney, who appeared on behalf of the defendant, submitted that the interest rate was punitive but this was not alleged in the defence. Nonetheless I consider that the defendant had a defence under the Act because of the plaintiff's non-compliance with the Act. 47Had I not been persuaded that the default judgment ought be set aside and the proceedings dismissed on the basis of the plaintiff's non-compliance with the Act, I would have set aside the default judgment on the two bases set out above for which the defendant contended.

Costs 48The plaintiff submitted that costs ought follow the event. The defendant sought costs on an indemnity basis. It submitted that the plaintiff's conduct was unreasonable and imprudent in applying for default judgment and the writ in circumstances where no warning had been given of the application and there was contact between the parties but the application had not been foreshadowed. 49The defendant also relied on the fact that the statement of claim had not been served (a matter which was not challenged at the hearing of the matter). The defendant also submitted that the plaintiff's participation in the mediation was effectively a farce engaged in to validate its invalid actions. It submitted further that faced with a compelling case where the Act applied the plaintiff should have conceded and consented to setting aside the default judgment and the dismissal of the proceedings. 50The plaintiff's conduct with respect to these proceedings has been unsatisfactory. He ought to have given notice of the application for default judgment and ought, when engaging in a mediation purportedly under the Act, have conceded that the enforcement action he had already taken was void. The only basis on which he challenged the application of the Act was the failure of the defendant to submit tax returns. Nonetheless I consider that his conduct was not such as to warrant an order for indemnity costs. Accordingly the costs will be ordered on the ordinary basis.

Orders 51I make the following orders: (1) Set aside the default judgment for possession and the writ of possession. (2) Dismiss the proceedings. (3) Order the plaintiff to pay the defendant's costs of the proceedings on the ordinary basis, including the costs of the notice of motion filed 25 May 2012 and any reserved costs.

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