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[2013] NSWSC 1887
Supreme Court of NSW
2013-12-16
Beech-Jones J, Campbell J
Original judgment source is linked above.
EX TEMPORE Judgment 1Before me is a summons seeking leave to appeal from a judgment of the Local Court refusing to set aside an earlier judgment of that Court. The earlier judgment had been entered in December 2011 in favour of W.H. Bailey & Sons Pty Ltd ("Bailey") against the plaintiff in this Court, Mr David Sharpe, in the amount of $73,499.56 (the "first judgment"). 2While there is some doubt about the particular power that Mr Sharpe sought to have the Local Court exercise when applying to set aside the first judgment, there is no doubt that the refusal of his application was an interlocutory order or judgment of the Local Court. Accordingly, Mr Sharpe requires a grant of leave to appeal against that judgment or order (Local Court Act 2007, s 40(2)). Further, if leave was granted, such an appeal would only be on a question of law (s 39(1)), unless there was a further grant of leave to appeal in respect of a question of "mixed law and fact" (s 40(1)). 3I addressed some of the factors relevant to a grant of leave to appeal from an interlocutory order of the Local Court in Sayed v Deng [2012] NSWSC 851 at [26] and [34]. Two factors in this case that favour a grant of leave to appeal are the relatively large amount in issue and the fact that the judgment or order appealed from effectively represents Mr Sharpe's last opportunity to challenge the first judgment. However, there are other significant factors affecting whether or not to grant leave to appeal which I will outline.
Background 4It is not easy to ascertain the factual basis upon which this matter proceeded in the Local Court. For example, I have not been provided with the pleadings that initiated the proceedings that led to the first judgment. The following is, in part, taken from the recitation of the facts set out by Campbell J in an interlocutory judgment in these proceedings, which neither party sought to contest (see Sharpe v W H Bailey and Sons Pty Ltd [2013] NSWSC 913). 5At the relevant times Mr Sharpe conducted a farming business from a property at Bellingen. At some point Bailey commenced supplying him with goods on a running account basis. Mr Sharpe contends that at least some, perhaps most, of those goods were for the purposes of conducting his farming operation. The running account was not secured over Mr Sharpe's farming property. 6It seems that by November 2010 Mr Sharpe owed in excess of $57,000. After a letter of demand had been unsatisfied, Bailey commenced proceedings in the Local Court at Bellingen. 7On 21 July 2011 the parties signed a document entitled "Terms of Settlement". The document was drafted on a standard Uniform Civil Procedure Rules 2005 ("UCPR) title page, although no such form is recognised by those Rules. The substantive parts of the document stated: "1. The defendant admits the claim of $58,772.96. 2. The Defendant will pay to the plaintiff the sum of $10,000 each 6 months commencing 31 October 2011 and thereafter on each following 30th April and 31st October each year until the debt, including cost[s] as below are paid in full. 3. The plaintiff to issue 6 monthly statements of account to the defendant within 28 days of the payment dates above. 4. Interest on the debt will be at the rate of 1% per month until the debt is paid in full. This rate to be calculated from 01 November 2010 and added to the debt each month. 5. Costs of the plaintiff in the sum of $9,316.00 to be added to the total of the debt. 6. The defendant to do all things and sign all documents necessary to grant the plaintiff a second mortgage on his property at Bellingen being recorded on the folio of the register as [details provided]. 7. In the event of any default by the defendant pursuant to these terms the court to issue judgment against the defendant for the amount still owing." 8It does not appear that any orders were immediately made as a consequence of the parties entering into the Terms of Settlement, other than possibly an adjournment. There appears to be some dispute about what occurred in relation to the provision of a mortgage as contemplated by clause 6 of the Terms of Settlement. Mr Sharpe contends, and Bailey denies, that in October 2011 Bailey effectively abandoned the Terms of Settlement when its solicitors protested about some of the conditions of the mortgage that Mr Sharpe proposed. It is common ground that Mr Sharpe did not pay any moneys to Bailey as contemplated by paragraph 2. 9In late November 2011 Bailey moved to enter judgment. It appears that it initially did so on 24 November 2011, but the judgment entered was corrected on 6 December 2011. As I understand it, the amount of the judgment reflected paragraphs 1 and 5 of the Terms of Settlement, together with interest. There is no doubt that Mr Sharpe received notice that judgment was proposed to be entered but there is a dispute about how much notice he received. At the hearing of his Notice of Motion to set aside the first judgment, when referring to the date upon which that judgment was entered, Mr Sharpe told the Court: "We had difficulty attending at the time your Honour and then once judgment was entered, we decided well look when they come back to us for further enforcement action, we address it then, simple." 10On 29 February 2012, the High Court published its judgment in Waller v Hargraves Secured Investments Limited [2012] HCA 4; 245 CLR 311 ("Waller"). Waller addressed the proper construction of the Farm Debt Mediation Act 1994 (the "FDMA"). It is not necessary to further outline the decision in Waller at this point, but the general operation of the FDMA should be noted. Part 2 of the FDMA operates to regulate and, in some places, prohibit the taking of "enforcement action" (as defined) in respect of a "farm mortgage" (as defined) by a creditor. Subject to certain exceptions, it precludes such enforcement action unless and until mediation has occurred. Section 6 provides: "Enforcement action taken by a creditor to whom this Act applies otherwise than in compliance with this Act is void." I will return to discuss this provision and other provisions of the FDMA later in this judgment. 11It seems that during 2012 Bailey sought to enforce the first judgment. Eventually it issued a bankruptcy notice against Mr Sharpe. This prompted Mr Sharpe to apply to set aside the first judgment.
The judgment appealed from 12Mr Sharpe's Notice of Motion was returnable in the Local Court at Bellingen on 18 April 2013. Argument was heard on that day and then the matter was adjourned part heard to 23 May 2013 when further argument ensued and the Court gave its judgment. Although it is not entirely clear, the argument put by Mr Sharpe to the Presiding Magistrate was that the Terms of Settlement gave rise to a new "farm debt" within the meaning of the FDMA, and that the entry of the first judgment without compliance with Part 2 thereof was precluded by s 6 of the FDMA. 13It seems there was some confusion before his Honour about what power was sought to be invoked to set aside the first judgment. This confusion, in part, turned upon some uncertainty about the precise bases upon which the judgment was entered. There were two possible powers that may have been available to his Honour. The first was UCPR 36.15(1) which enabled his Honour to set aside the first judgment if it was made "irregularly, illegally or against good faith". Alternatively, UCPR 36.16(2)(b) enabled his Honour to set aside the first judgment if it was given in the absence of Mr Sharpe and even if he received notice of the hearing. 14His Honour found that a "farm debt" was not created by the Terms of Settlement with the consequence that the FDMA did not apply. His Honour also found that Mr Sharpe had delayed for too long in bringing his application and that he should have, but did not, raise his argument about the FDMA prior to the entry of the first judgment. 15At the hearing before me Mr Sharpe indicated that he disputed that the Terms of Settlement were operative and thus whether Bailey had the ability to enter the judgment that it did in December 2011. I have reviewed the transcript of the hearing of Mr Sharpe's Notice of Motion to set aside the first judgment. No such argument was sought to be made before his Honour. This argument can be put aside.
Enforcement action 16Section 4 of the FDMA defines "enforcement action", "farm debt" and "farm mortgage" 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. 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 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." 17Mr Sharpe's contention that the entry of the first judgment was prohibited by s 6 of the FDMA ultimately was refined as follows. First, as I have stated, he contends that the original running account debt to Bailey was incurred by him for the purposes of conducting his farming operation. Second, he contends that the debt became secured by a farm mortgage upon the execution of the Terms of Settlement. In particular, he contends that clause 6 of the Terms of Settlement conferred an interest in, or power over, farm property notwithstanding that no mortgage was entered into. I note that that clause was certainly capable of supporting a caveat. Third, Mr Sharpe contends that the entry of the first judgment was "enforcement action". In particular, he contends that that step involved taking "action to enforce the mortgage" in that the "mortgage" was said to have been constituted by the entirety of the Terms of Settlement and that the "rights" conferred by clauses 1 and 7 were enforced by the entry of the first judgment (see in that regard Sharpe v Bailey [2013] NSWSC 913 at [40] per Campbell J). 18The solicitor for Bailey, Mr Mulquiney, took issue with this analysis, but the real point of engagement was at the third step. Mr Mulquiney contended that only clause 6 of the Terms of Settlement could be said to constitute a "farm mortgage". Alternatively, he submitted that, even if the entirety of that document constituted a "farm mortgage", clause 1 was no more than an acknowledgment of the debt originally sued upon and clause 7 did not purport to confer any "rights". Instead it was submitted that clause 7 simply made a statement as to the consequences for the parties if payments were not made. Thus, Mr Mulquiney submitted that, in entering judgment, Bailey was not enforcing any rights under a farm mortgage but simply pursuing its rights in respect of the original indebtedness, the existence of which was merely acknowledged by clause 1 of the Terms of Settlement. To that end, in Waller at [66] Heydon J (with whom French CJ, Hayne and Kiefel JJ agreed on this point), stated: "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." 19Mr Mulquiney submitted that by entering judgment there was no enforcement of or reliance on any "rights in the farm mortgage". He contended that the entry of judgment was not enforcement action, just as the entry of a consent order for a money judgment was not found to be enforcement action in Sharpe v Heywood [2013] NSWCA 192 at [33] per Gleeson JA (with whom Barrett JA agreed), notwithstanding that it was secured by an agreement to provide a mortgage over farming property. 20I do not propose to resolve the debate over this issue because of another consideration which I will outline. It suffices to state that I will address the application for leave to appeal on the basis that Mr Sharpe has, at the very least, raised an arguable basis for demonstrating error. Nevertheless, for the reasons next addressed I consider this application is futile.
Futility of the appeal 21Section 5(2) of the FDMA provides: "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." 22On 23 October 2013 Ward and Leeming JJA refused Mr Sharpe leave to appeal from a judgment of Harrison J which in turn had dismissed an application by Mr Sharpe for declaratory relief and other orders relating to enforcement action taken by Hargraves Secured Investments Limited in respect of a judgment entered with Mr Sharpe's consent (Sharpe v Hargraves Secured Investments Ltd [2013] NSWCA 288). At [32] to [33] Ward JA outlined the history to that time of attempts by another creditor, Mr Heywood, to pursue bankruptcy proceedings against Mr Sharpe. "[32] Finally, by way of background, it is also relevant to note that on 10 July 2013, hence after the dismissal by Harrison J of Mr Sharpe's application and after the issue of the new s 11 certificate, a creditor's petition was filed in the Federal Circuit Court of Australia by a creditor (Mr Heywood), applying for a sequestration order against Mr Sharpe. The act of bankruptcy on which Mr Heywood relies in that petition is Mr Sharpe's failure to comply with a bankruptcy notice served on him on 4 February 2013 in respect of a judgment debt obtained in the District Court in Coffs Harbour. An application by Mr Hargraves for that bankruptcy notice to be set aside was dismissed by the Federal Circuit Court on 25 June 2013. Mr Sharpe has apparently lodged an appeal from the dismissal of that application. (In separate proceedings in this court, Sharpe v Heywood [2013] NSWSCA 192, Mr Sharpe has unsuccessfully sought leave to appeal from a decision dismissing his challenge to the entry of a consent order in favour of Mr Heywood on the basis that the lodgement of the consent order recorded the terms of a new farm mortgage and was enforcement action precluded by the Act.) [33] The significance of the presentation of a creditor's petition against Mr Sharpe is that s 5(2)(b) of the Farm Debt Mediation Act provides that the Act does not apply in respect of a farmer whose property is the subject of a 'bankruptcy petition presented by any person'. Accordingly, Hargraves submits that, whatever might otherwise be the position in relation to the alleged new farm debt, the Farm Debt Mediation Act does not apply. As will be seen from the discussion later in these reasons, Mr Sharpe contends that s 5(2)(b) should be construed, in effect, as if it applies only where a sequestration order has been made and that it does not apply to the situation where a creditor's petition has been presented." 23Mr Sharpe did not dispute this history. Further, he advised the Court that subsequently he appealed the decision to refuse to set aside Mr Heywood's bankruptcy notice but his appeal was dismissed (Sharpe v Heywood [2013] FCCA 1788). However, Mr Sharpe pointed out that in the course of that judgment Judge Altobelli found, at [16]: "There is an arguable case, therefore, that a Bankruptcy Notice is enforcement action as defined in s 4(1) of the Farm Debt Mediation Act 1994 on the expansive view adopted by Heydon J [in Waller]." 24Further, Mr Sharpe tendered his filed notice of objection to Mr Heywood's creditor's petition. As best I can ascertain, his grounds of opposition principally involved him seeking to re-agitate the same arguments that he has pursued to date in respect of action taken against him under the Bankruptcy Act 1966 (Cth). 25In Sharpe v Hargraves Ward JA stated at [71]: "There is no utility in a grant of leave in circumstances where the [FDMA], in my opinion, does not now apply to Mr Hargraves, his property having been the subject of a petition presented in the bankruptcy jurisdiction by Mr Heywood." 26Leeming JA stated, at [74] to [76] "[74] If leave were granted to appeal from the orders made by Harrison J on 13 May 2013, the appeal would not be confined to the matters in evidence before his Honour, but would include evidence of material matters which have occurred more recently: Supreme Court Act 1970, s 75 A. Those matters include a certificate issued under s 11 of the Farm Debt Mediation Act 1994 on 10 May 2013 (after Harrison J had reserved judgment, although his Honour mentioned the application for the certificate at [22]-[25]), and the creditor's petition subsequently filed by Mr Heywood. [75] The starting point for considering the strength of Mr Sharpe's arguments, all of which are necessarily based upon the Farm Debt Mediation Act (because he candidly acknowledges his indebtedness and the efficacy of the settlement deed and the consent orders), are the provisions of that Act which limit the circumstances in which it applies. The Act makes enforcement action taken by a creditor to whom this Act applies void: s 6. The Act does not apply in respect of "a farmer whose property is the subject of a bankruptcy petition presented by any person" (s 5(2)(b)), or where a s 11 certificate has issued. [76] Contrary to Mr Sharpe's submission that s 5(2)(b) only applies once a sequestration order is made, in my opinion the paragraph bears its ordinary meaning. Mr Sharpe pointed to the textual difference between the current and original form of that paragraph. The Farm Debt Mediation Amendment Act 1998 replaced the words "the farmer or the creditor" by the words "any person": Sch 1, item [3]. That amendment does not narrow the scope of the paragraph. Instead, it fends off an argument that the Act only ceases to apply if the bankruptcy petition is presented by the farmer or the particular creditor in question. The amendment makes it clear that it does not matter who the petitioning creditor is (whether it is the creditor threatening enforcement action or some other creditor); if any person has presented a bankruptcy petition, then the Act does not apply. There is good reason for that course being taken. If the Act did not expressly cease to apply where the procedures leading to bankruptcy had been invoked, there would be large questions of whether it was inconsistent with federal law." (emphasis added) 27Unlike the Court of Appeal in Sharpe v Hargraves, if leave were granted in this case I would not be able to consider the further evidence as to the circumstances surrounding the bankruptcy action taken against him, given that the appeal is restricted to a question of law, other than perhaps when considering any question of remittal. However, this is not an appeal but an application for leave to appeal. At the point of considering whether leave to appeal from an interlocutory order should be granted, I certainly can consider the utility of the application. 28Subject to the points next addressed, the circumstance that the FDMA does not now apply in respect of Mr Sharpe has the consequence that, even if his appeal was successful and the Local Court's refusal to set aside the first judgment was itself set aside with the matter either reconsidered by this Court or remitted to the Local Court, the same result would have to ensue. Given the delay and cost incurred by Bailey to get to this point, why should it be visited with more when, on the facts as known at present, no different result can be achieved? 29Mr Sharpe made two related submissions in response to this. First, in his written submissions in reply filed on the day of the hearing, he contended that ss 5(2)(b) of the FDMA is only engaged if the enforcement action constituted by the bringing of the creditor's petition is not itself rendered void by s 6, and that Mr Heywood's actions under the Bankruptcy Act are so void. This contention is inconsistent with the Court of Appeal's approach in Sharpe v Hargraves. Mr Heywood's action has now moved from being enforcement of a judgment to the pursuit of a non-compliance with a bankruptcy notice. Mr Heywood's actions are covered by Federal legislation. As contemplated by Leeming JA in Sharpe v Hargraves at [76], it is difficult, if not impossible, to see how s 6 could possibly operate to render void the operation of a provision of a Federal bankruptcy law in circumstances where it has been found not to attack the debt on which the bankruptcy notice and the creditor's petition are founded. 30These considerations mean that, with respect to the view of Judge Altobelli, in my view the definition of "enforcement action" in s 4(1) is very likely to be construed so as to not to embrace the pursuit of a creditor's petition presumably on the basis that a creditor's petition enforces rights under the Bankruptcy Act by reason of a non-compliance with a bankruptcy notice and does not involve "reliance on any rights in the farm mortgage" (cf Waller at [66] per Heydon J). As I have indicated, were it otherwise then it is likely that a question of direct inconsistency under s 109 of the Constitution would arise. 31Mr Sharpe's second contention was to seek an adjournment of this appeal pending the outcome of the creditor's petition. In effect he contends that it is a matter of unfortunate timing that has led to this challenge to the utility of his appeal being heard while a creditor's petition has been filed against him, and that it may fall away if he successfully opposes that petition. There is some force in this application, but I will not accede to it. To further adjourn the proceedings will only occasion even more delay and cost to Bailey. Further, my assessment of the prospect of his opposition to the creditor's petition is that it has very low, if any, prospects of success. Otherwise, as noted by Leeming JA at [76] of Sharpe v Hargraves, the FDMA contemplates its own operation receding as bankruptcy proceedings are invoked. Needless to say, proceedings under the Bankruptcy Act against Mr Sharpe are now well advanced. 32In these circumstances I refuse leave to appeal. I will hear the parties as to costs. 33At this point the Court orders that: (1)Leave to appeal be refused; (2)Plaintiff's summons be dismissed. [The parties addressed on costs.] 34Mr Mulquiney seeks an order for costs on an indemnity basis. He submits that in effect Mr Sharpe is re-agitating the same point over and over. I can understand why at first glance that appears to be the case. It would appear from the reasons that I have given that Mr Sharpe has been fighting litigation against a number of creditors on a number of fronts and at the heart of his opposition at each point has been the decision in Waller and the proper construction of the FDMA. 35Nevertheless, I am not persuaded that there is anything vexatious about the manner in which he has conducted this appeal. To my mind there are matters of considerable complexity which warranted debate and consideration. I see no reason to depart from the usual basis of making a costs order. 36Accordingly, I order the plaintiff to the pay the defendant's costs on the ordinary basis.
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