The High Court has recently held that where multiple farm debts are secured by a farm mortgage, a certificate issued by the NSW Rural Assistance Authority (Authority) under s 11 of the Farm Debt Mediation Act 1994 (NSW) (NSW Act) in respect of an earlier farm debt, will not relieve the mortgagee of its obligation to mediate a dispute relating to a subsequent farm debt.
Relevance to the Victorian Farm Debt Mediation Act
In Victoria, the Farm Debt Mediation Act 2011 (Vic) (Victorian Act) came into force on 1 December 2011. The Act imposes an obligation on mortgagees to provide farmers with the option to mediate before taking possession of mortgaged farm property or other enforcement action under a farm mortgage.
Under s 8(1) of the Victorian Act, a creditor cannot take enforcement action under a farm mortgage unless written notice has been given to the farmer and 21 days have elapsed since the date of the notice.
The requirement to mediate does not arise if an exemption certificate has been issued by the Small Business Commissioner (SBC). The SBC may issue the exemption certificate where the farmer is in default under the farm mortgage, and no prohibition certificate is in force in relation to the farm mortgage, and the SBC is satisfied that satisfactory mediation has taken place in respect of the farm debt involved, or the farmer has refused to mediate.
There may be instances where a creditor is a mortgagee under an "all monies" mortgage securing amounts that may be owed to the creditor by the farmer from time to time. In such a case, an issue may arise as to whether an exemption certificate awarded in respect of a particular farm debt will enable the mortgagee to take enforcement action in respect of future farm debts secured by the same farm mortgage.
This question was addressed by the High Court in Waller v Hargraves Secured Investments Limited. Although the High Court's decision relates to the NSW Act, it is likely that the same conclusion would have been reached if the question had arisen under the Victorian Act. This is because the provisions in the Victorian Act relating to the issue of exemption certificates mirror those considered by the High Court.
Ms Waller (Borrower) borrowed $450,000 from Hargraves Secured Investments Limited (Lender) which was secured by an "all monies" mortgage registered over the Borrower's farm.
The Borrower defaulted in her repayments, and the Lender gave the Borrower notice pursuant to the NSW Act that it intended to take enforcement action in relation to the Borrower's default. The parties engaged in mediation, which resulted in the parties entering into a deed of settlement and a new loan agreement, pursuant to which the Lender was to advance $640,000 to the Borrower.
The parties subsequently made a further loan agreement under which the time for repayment of the principal sum of $640,000 was postponed. The Borrower failed to meet the interest repayments and the Lender brought proceedings against the Borrower seeking possession of the farm property and judgment for the principal sum and interest.
The Borrower argued that the Lender had not complied with the NSW Act as the certificate that had been issued by the relevant Authority under the NSW Act (Certificate) related only to the farm debt created by the first loan agreement, while the legal proceedings constituted enforcement action in relation to the farm debt created by the third loan agreement.
At first instance, the trial judge rejected these arguments and held that a certificate issued under s 11 of the NSW Act was a certificate that the provisions of the Act did not apply to the farm mortgage and that section 8(3) of the NSW Act permitted enforcement action by the Lender in respect of the farm mortgage to which the certificate related, irrespective of what farm debt was involved. The Court of Appeal also found in favour of the Lender.
The Borrower applied for and was granted special leave to appeal against the decision of the Court of Appeal to the High Court.
The High Court held that the Certificate did not enable the Lender to take enforcement action in relation to the farm debt created by the third loan agreement.
After reviewing the relevant provisions of the NSW Act, the High Court concluded that the key provisions of the NSW Act centred on "farm debts" and not "farm mortgages", and that mediation could only take place in relation to a "farm debt".
It was found that the reference to a "certificate" in s 8(3) is a reference to a certificate that the Authority is satisfied that satisfactory mediation has taken place in respect of the "farm debt" involved.
The High Court also considered that the issue of a certificate will not depend on the Authority being satisfied that satisfactory mediation has taken place in respect of the farm mortgage at large, rather the Authority must be satisfied that satisfactory mediation has taken place in respect of the "farm debt" involved in the mediated dispute.
The High Court was also critical of the Lender's construction of the legislative provisions, because it would create a situation where farmers who had incurred several farm debts from a creditor giving rise to several distinct disputes, would only be required to mediate the first dispute notwithstanding the distinct nature of each dispute.
The other question addressed by the High Court was whether a bar on the enforceability of the farm mortgage precluded recovery of a money judgment. The High Court observed that the definition of "enforcement action" in the NSW Act 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. It was therefore held that the legal action to obtain a money judgment after the commencement of the NSW Act is "enforcement action" if it is action to enforce the farm mortgage.
Effect of Waller
The decision in Waller highlights the need for mortgagees under Victorian farm mortgages to give notice under s 8(1) of the Victorian Act in respect of each farm debt that is secured under a farm mortgage, notwithstanding that the SBC may have previously issued an exemption certificate in respect of an earlier farm debt.
Mortgagees should also be aware that s 8(1) of the Victorian Act will preclude them from obtaining a money judgment where such action can be characterised as action to enforce the farm mortgage unless the mortgagee has complied with the notice requirements under the Victorian Act and obtained a certificate from the SBC in respect of the farm debt.