Sharpe v W H Bailey & Sons Pty Ltd

EX TEMPORE Judgment 1HIS HONOUR: The plaintiff, by summons filed on 4 June 2013 seeks leave to appeal from a decision of his Honour, Magistrate Evans, given in the Local Court on 23 May 2013. The decision of the learned magistrate was the dismissal with costs of a motion brought on notice by the plaintiff to set aside a judgment against him entered on 6 December 2011 for a certain sum of money. The plaintiff's application in the court below was based upon rule 36.15 Uniform Civil Procedure Rules 2005 (NSW). 2By notice of motion filed on 25 June 2013 the plaintiff seeks orders seeking to stay any enforcement of the original Local Court judgment against him. 3It is necessary to set out a little of the background facts. The plaintiff (to whom I shall refer hereafter as 'Mr Sharpe') is a farmer. The defendant, the judgment creditor below, is a farm supplier. I will refer to the defendant as 'W H Bailey'. The company name is 'W H Bailey & Sons Pty Limited'. 4According to a commercial arrangement between them, W H Bailey supplied the plaintiff with various supplies for his farm business on what might be referred to as a 'running account basis'. 5By November 2010 Mr Sharpe's account had blown out to a debt of in excess of $57,000 and, after a letter of demand went unsatisfied, W H Bailey commenced proceedings by statement of claim in the Local Court at Bellingen, proceedings number 2010/373958. 6In July of 2011 the parties entered into settlement negotiations through their lawyers. Before I detail the settlement arrived at and about which there is no dispute, it should be said that the debt owed by Mr Sharpe to W H Bailey was a normal commercial, unsecured debt. In any event, on 21 July 2011 the parties entered into a compromise of the Local Court proceedings. The terms of their agreement were recorded in terms of settlement which form part of exhibit A before me, and which are as follows: (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 32 October 2011 and thereafter on each following 30th April and 31st October each year until the debt, including cost 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 cent per month until the debt is paid in full. This rate to be calculated from 1 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 Auto Consol 6278-159. (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. 7It is significant that the terms did not give effect to the settlement by providing for the immediate entry of any judgment made in favour of W H Bailey. Rather, as can be seen, they consist of an acknowledgement of the amount of a debt by Mr Sharpe and stipulations providing for the payment of that debt by instalment, the addition to the debt of the legal costs of W H Bailey and the specification of a rate of interest in respect of the outstanding balance "until the debt is paid in full". 8Clauses 6 and 7 of the terms of settlement are, on Mr Sharpe's argument, of particular significance and I will set them out again. (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 Auto Consol 6278-159. (7)In the event of any default by the defendant in pursuance to these terms, the Court to issue judgment against the defendant for the amount still owing. 9In the terms of settlement Mr Sharpe is the defendant and W H Bailey is the plaintiff. There is no dispute that Mr Sharpe defaulted in the terms of the agreement recorded in the terms of settlement and that judgment was entered in favour of W H Bailey. 10Initially a judgment was entered on 24 November for an erroneous sum; the errors were corrected and judgment was finally entered on 6 December 2010. The judgment was entered before the High Court of Australia handed down its decision in Waller v Hargraves Secured Investments Limited [2012] HCA 4; 245 CLR 311. 11Mr Sharpe, who later became aware of that decision, sought to have the Local Court judgment set aside as being void by force of s 6 of the Farm Debt Mediation Act 1994 (NSW). 12I will leave aside any questions not agitated before me concerning whether a judgment of a statutory court like the Local Court, which is void pursuant to statute, needs to be set aside: See State of New South Wales v Kable [2013] HCA 26; 298 ALR 144. 13The essential argument that was advanced before his Honour Magistrate Evans was that the agreement embodied in the terms of settlement gave rise to a new farm debt within the meaning of the Farm Debt Mediation Act and could not be validly enforced unless s 8 of the Act had been complied with. If this premise is correct, so the argument runs, then the entry of judgment on 6 December 2011, presumably pursuant to the provisions of s 73 Civil Procedure Act 2005 (NSW), was of no legal effect and Mr Sharpe was entitled to have it set aside ex debito justitiae. Mr Sharpe did not quite articulate his argument in those terms, but that is what I understood the thrust of his argument to be. 14The learned magistrate rejected the argument. He considered that there was no new farm debt within the meaning of the legislation and that no other ground had been shown, or made good, under the rules for the judgment to be set aside. As I have said, it is from that decision that Mr Sharpe seeks leave to appeal. 15At the outset I described the relief sought as a stay. I am using that expression in general terms. True enough, prayer 1 in the motion seeks a stay, but the relief sought extends to an interim injunction restraining W H Bailey from taking any action to enforce the judgment and prayer 3, to restraining the sheriff from taking any action pursuant to any lawful process in respect of the judgment. 16I understand that on the facts that have been put before me, substantially on the basis of Mr Sharpe's affidavit, no writ of execution has been issued out of the Local Court. Rather, W H Bailey have served a bankruptcy notice to lay a foundation for the commission by Mr Sharpe of an act of bankruptcy to lay a foundation for a creditor's petition. I will return to those matters in due course. 17The grant of a stay in support of an appeal is a discretionary matter. The general rule is that a judgment creditor is entitled to the fruits of the successful litigation. A stay will be granted by way of exception to that general rule if two 'conditions' are satisfied. I do not mean to suggest a legal entitlement to a stay if the conditions are made good. Those conditions are: (1)The appellant, or here plaintiff, demonstrates a fairly arguable case on appeal; and (2)The statutory right of appeal is likely to be rendered nugatory if - I will put it this way - the status quo is not preserved pending the determination of the appeal. 18Dealing with the first consideration, I have set out in broad terms the argument advanced by Mr Sharpe, which is the argument he wishes to advance in this Court if granted leave to appeal. Mr Sharpe relies substantially upon the decision of the High Court in Waller, particularly the reasoning of Heydon J. 19On an interlocutory application of this type, it is not appropriate that I determine definitively whether the argument is good or bad. It is sufficient for present purposes that Mr Sharpe satisfy me that it is fairly arguable, as I have said. 20Before deciding that question, I should say that Mr Mulquiney, solicitor, who appears for W H Bailey, strongly disputes that the argument advanced by Mr Sharpe is fairly arguable. He submits that the terms of settlement created no new farm debt and that what was enforced by entry of judgment on 6 December 2011 was the old, if I may put it that way, unsecured commercial debt arising out of the balance of the running account. 21If that argument is correct, in my judgment, no question can fairly arise about the judgment being void by dint of section 6 of the Act. I will not in this judgment set out in full the terms of the Act, but 'farm debt' is defined in terms of 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 (my emphasis). The expression 'farm mortgage', as the judgments in Waller demonstrate, is given a definition that extends beyond the understanding of a mortgage under the general law, or specifically under the Real Property Act 1900 (NSW). 22Under the Act, '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. There are exclusions which are not presently relevant. 23It is to my mind beyond argument that the original commercial debt was not a farm debt within the meaning of the legislation. Mr Mulquiney relies upon the decisions of Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 539 and Sharpe v Heywood [2013] NSWCA 192 to support this proposition. 24I should also point out that, in accordance with the decision of the High Court in Waller, an enforcement action in relation to a farm mortgage may extend to an action to enforce the debt secured by the mortgage by way of money judgment only. 25At page 332 [57], Justice Heydon, in disposing of an argument put on behalf of the creditor in that case, said: The respondent submitted that one consequence of the appellant's construction was so unsatisfactory as to suggest it was not correct. The consequence was that if a farmer and a creditor fall into disputation about a farm debt secured under a farm mortgage, participate in a successful mediation, agree on terms settling the dispute, and then fall into disputation about the farmer's alleged breach of the settlement terms, s 8(1) would prevent enforcement action in relation to the settlement terms even if a s 11 certificate had been issued. This submission assumes that a new farm debt would have been created. The respondent concedes that the consequence, unsatisfactory or not, could be brought about if the obligations under the settlement terms were secured by a fresh instrument of mortgage. But the unsatisfactory consequence would not follow if the settlement terms involved only adjustments to the farm debt such as extending the term to pay, reducing the principal or capitalising interest. These adjustments would leave the initial farm debt in place; to that initial farm debt the s 11 certificate could apply; and s 8(3) would affect the s 8(1) immunity from enforcement action. [Emphasis added]. 26Before me both parties drew comfort from that statement of principle. Mr Sharpe relied on the part I have emphasised by delineation. Mr Mulquiney relied upon the part immediately following. Indeed, it was reliance upon that passage which led Harrison J in Hargraves Secured v Sharpe to decide that the agreement recorded in the Deed of Settlement the subject of that case did not give rise to a new farm debt. 27Mr Sharpe's prospects of success on his appeal then depend upon persuading the Court, in due course, that the compromise of the previous debt was, "secured by a fresh instrument of mortgage". In that regard, he relies upon the agreement recorded in term 6 that he grant W H Bailey a second mortgage over his Bellingen property. 28Both parties have referred me to the decision of Sharpe v Heywood. Mr Mulquiney argues that that decision of the Court of Appeal supports W H Bailey's position in the present application. In that case, there was a farm debt between Mr Sharpe and Mr Heywood. The loan was secured by a charge over certain farm machinery. Mr Sharpe, in the original loan agreement, also consented to a caveat being lodged against his Dorrigo property. Mr Sharpe defaulted on the loan and proceedings were commenced, the creditor obtaining judgment by default in the District Court of New South Wales. Subsequently, Mr Sharpe applied to set aside the default judgment and when that application came on for hearing, "the parties reached a compromise which was recorded in a document headed 'Consent Order', signed by both Mr Sharpe and Mr Heywood and their legal representatives" (Sharpe v Heywood at [7]). Consent orders were entered that day, including a judgment in favour of Mr Heywood against Mr Sharpe in the sum of $90,000. 29Apart from entering the judgment, the Court noted the terms of another agreement entered into by the parties. Paragraphs [6] - [8] of the agreement included the following: The defendant charges the land and consents to the lodgement of a caveat on the property located at 'Campbell's Hill'...as security for the defendant's obligation to pay the judgment debt. 30The Campbell's Hill property was a different property from the Dorrigo property and represented the grant of an additional security in respect of the discharge by payment of the amount of the consent judgment. 31The decision of the Court of Appeal related to an application for leave to appeal from an interlocutory order of Neilson DCJ refusing Mr Sharpe's application to have the consent judgment set aside. There may be some nuances, but as I understand what is recorded in the Court of Appeal's judgment (Gleeson JA, Barrett J A agreeing), the argument which Mr Sharpe sought to ventilate was rejected by the District Court Judge. His Honour refused to set aside the judgment. On appeal, Mr Sharpe's solicitor advanced the same argument as he advanced before me and Magistrate Evans. Gleeson JA referred to Waller at [24] - [27]. 32There is one distinction which may be important. Before Neilson DCJ and in the Court of Appeal, it was put that any action enforcing the consent order would be contrary to section 8 of the Act, because that action would be an enforcement action in relation to a new farm mortgage. Reference was made to clause 6 of the notations. The Court of Appeal did not decide that point because it was unnecessary for the decision in the case. Their Honours left the question of the merit of that contention open (see [32]). Rather, Gleeson JA said at [33]: In my view, it is not fairly arguable that the mere making and entry of the consent order constituted an 'enforcement action' in relation to a new farm mortgage within the meaning of section 4 of the Act, even assuming the agreement recorded in [6] of the notation to the consent order constituted a new farm mortgage. 33It seems to me that there are differences in the present case, which are, or may be - it is unnecessary for me to finally decide - material. Firstly, as I have said, it is fairly arguable that the terms of settlement here recorded a new farm agreement as envisaged by Heydon J in Waller at 57, because no order or judgment is encapsulated or embodied in the terms of the agreement. Rather, compliance with Mr Sharpe's obligations under the terms of settlement was secured by clauses 6 and 7 of the terms. 34It seems to me arguable that - to adapt the language of Heydon J - the obligations under the settlement terms were secured by a fresh instrument of mortgage. True enough no legal mortgage was ever entered into by the parties, but again it is fairly arguable that clause 6 conferred equitable rights in W H Bailey, which would satisfy the statutory language of any interest in, or power over, the Bellingen property. 35As I have said already, Waller stands as authority, inter alia, for the principle that the term "farm mortgage" is defined in the Act "broadly": At 317 [9] per French CJ, Crennan and Kiefel JJ. As their Honours pointed out, it is sufficiently broad to cover a mortgage under the general law, a mortgage as defined under the Conveyancing Act 1919 (NSW) and the statutory charge created by the Real Property Act in respect of torrens system land. 36At 317 [10] their Honours said: The definition of 'farm mortgage', however, extends beyond the general law and statutory categories mentioned above. It extends to an 'interest' or 'power' over farm property securing obligations of the farmer 'as a debtor'. 37It seems to me arguable that clause 6 fits that definition. For what it is worth, the obligation assumed by Mr Sharpe under clause 6 was probably amenable to a decree of specific performance; see Walsh v Lonsdale [1882] 21 Ch D 9; Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd 1977 QB [580]. 38If, in due course, this court were to determine after a final hearing that this analysis is correct, then it becomes fairly arguable that by taking the step contemplated by clause 7 of the terms of settlement, that is, the step of specific enforcement pursuant to s 73 Civil Procedure Act, W H Bailey may have been taking enforcement action within the meaning of the Act. 39In a passage expressly agreed with by the plurality in Waller, Heydon J at 335 [66] said: 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. 40This case, of course, is not so clear so far as that matter is concerned, but I think it fairly arguable that the step contemplated by clause 7 by way of enforcement of the obligations embodied in the terms of settlement was an enforcement action in respect of a farm mortgage, given the creation of an equitable security, at least, arguably, by clause 6 of the terms of settlement. 41For those reasons, I am of the view that Mr Sharpe has demonstrated, in the undemanding way appropriate to this interlocutory application, a fairly arguable appeal point. 42I turn then to the second consideration, that is to say, whether it is necessary to preserve the status quo by the exceptional order of denying W H Bailey its legal entitlements under the judgment of the Local Court. In this regard I bear in mind that if Mr Sharpe is correct, then he is entitled to have that judgment set aside ex debito justitiae. However, I am prepared to infer that W H Bailey would be capable of rendering restitution of the judgment sum, if paid pending a successful appeal. 43In that regard, this case is different from those cases of an application for a stay, which turn upon the argument that the appellant's statutory right of appeal may be rendered nugatory if the judgment is satisfied and the respondent, or here defendant, dissipates the sum of it. In that circumstance, if the defendant is a man of straw the plaintiff would be deprived of the utility of the right the statute envisages he should enjoy. 44However, there is another consideration in this case. It is common ground, from what I was told in argument, that Mr Sharpe has committed an act of bankruptcy by failing to comply with a bankruptcy notice served on him by Mr Heywood. As yet, no creditor's petition has been issued out of the federal courts. I will not second-guess the matter but, given the history of that interwoven litigation, it is reasonable to expect that that step will be taken sooner rather than later. If that occurs and a sequestration or bankruptcy order is made, Mr Sharpe's statutory right of appeal from the decision of Magistrate Evans will be property which will vest in his trustee in bankruptcy. It will then be a matter for the trustee's discretion as to whether an appeal will proceed. 45I think, however, it would be wrong for me to anticipate those developments by refusing Mr Sharpe a stay at this time. It is not for the Court to attempt to forecast the future developments in the litigation. Certainly, any forecast cannot be made with any semblance of certainty. 46I also understand, however, that WH Bailey have served a bankruptcy notice on Mr Sharpe, from what I have been told by the parties today. The bankruptcy notice issued by WH Bailey is attached to Mr Sharpe's summons seeking leave to appeal or at least an order extending the time for compliance with it to 25 June 2013 is attached. The affidavit of Mr Sharpe sworn 25 June was drafted and sworn, I infer, earlier that day, before the matter was dealt with in court. 47I understand from the order extending time that the extension of time was conditional upon the applicant, first, filing his application for leave to appeal and, secondly, taking steps to have any application to stay the consent judgment listed and determined before the next return date, which was 25 June. 48I have now been informed the time for compliance with the requirements of WH Bailey's bankruptcy notice has been extended until Tuesday, 9 July 2013. In these circumstances it would not be futile to grant Mr Sharpe the relief he seeks in regard to that matter, that is to say, to stay the steps taken by WH Bailey to enforce its judgment. 49There will no doubt be complexities if a creditor's petition issues in respect of Mr Heywood's debt. Doubtless there will be complexities in relation to the rights of Hargrave Securities, another creditor against Mr Sharpe. It may be that in the end that granting Mr Sharpe this relief will serve no practical purpose, if, for instance, he is made bankrupt at the suit of another creditor and his trustee decides not to prosecute this appeal. 50In my judgment the interests of justice, for the reasons I have expressed, require me to grant Mr Sharpe the relief he seeks in respect of the Local Court judgment he challenges or wishes to challenge, if leave is granted in this Court. 51As no writ of execution is currently extant it is unnecessary for me to grant the order sought against the sheriff. The stay I will grant in respect of the judgment in the Local Court will suffice. I think, however, given that WH Bailey is exercising lawfully its legal rights in another place, prayer 2, on an interim basis, should be acceded to. 52Until further order of the Court I order: (1)Execution of the judgment entered for WH Bailey & Sons Pty Ltd in proceedings 2010/00373958 in the Local Court at Bellingen on 6 December 2011 be stayed pending the disposition of the summons seeking leave to appeal. (2)WH Bailey & Sons Pty Ltd are restrained from taking any action to enforce the judgment entered on 6 December 2011 in proceedings 2010/00373958 in the Local Court at Bellingen, including the prosecution of matter (P)SYG690/2013 in the Federal Circuit Court of Australia at Sydney. (3)The costs of this application are the parties' costs in the appeal. Mr Mulquiney has applied for an order that the stay I have granted be conditional upon Mr Sharpe depositing a sum of money, roughly equivalent to the amount of interest likely to accrue on the judgment debt, pending the disposition of the appeal to secure Mr Sharpe's compliance with all case management requirements; and the requirements of the rules relating to the preparation of his appeal with all due diligence and despatch. As Mr Sharpe's argument, if ultimately successful, strikes fundamentally at the judgment of the Local Court in the sense that the judgment would have been shown to be of no legal effect I think it is inappropriate, in the exercise of my discretion, for me to impose such a condition. However, I will impose the following condition by adding to the orders I have just pronounced. (4)Order 1 and 2 hereof are conditional upon Mr Sharpe strictly complying with the requirements of the rules and any orders or directions made for the purpose of prosecution of his application for leave to appeal. (5)In default of compliance with order 4 hereof WH Bailey & Sons Pty Ltd to have leave to apply for summary dissolution of orders 1 and 2 on three days prior written notice to Mr Sharpe and the Court.