McMahon and Anor v Permanent Custodians Limited

[2013] HCATrans 254

[2013] HCATrans 254

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S177 of 2013

B e t w e e n -

JOHN TERENCE MICHAEL McMAHON

First Applicant

ROBYN SANDRA McMAHON

Second Applicant

and

PERMANENT CUSTODIANS LIMITED

Respondent

Summons for a stay

GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 24 OCTOBER 2013, AT 10.01 AM

Copyright in the High Court of Australia

MR G.L. BOSKOVITZ:   If your Honour please, I appear for the applicants.  (instructed by Boskovitz & Associates)

MR R.A. DICK, SC:   I appear for the respondent, your Honour, with my learned friend, MR D.J. BARNETT.  (instructed by Gills Delaney Lawyers)

HIS HONOUR:   Mr Boskovitz, we are concerned with your summons of 18 September and I see that on the file there are two affidavits, both sworn by you, one of 17 September and the other of 21 October.  Do you seek to rely on those affidavits?

MR BOSKOVITZ:   I read those affidavits, yes.

HIS HONOUR:   Very well, I have read those affidavits.  Mr Dick, I take it you have no objection to them?

MR DICK:   I do not, your Honour.

HIS HONOUR:   Mr Dick, you have one affidavit, I believe?

MR DICK:   Yes, your Honour, that is the affidavit of Mr Perkes sworn 17 October 2013 and there is an exhibit to that affidavit as well.

HIS HONOUR:   Yes.  You have no objection to those, Mr Boskovitz?

MR BOSKOVITZ:   No objections.

HIS HONOUR:   I read the affidavit and I admit the exhibit.

MR DICK:   If it please the Court.

HIS HONOUR:   I take it that that is the evidence.  Mr Boskovitz, I have your written submissions which I have considered.  Is there anything you wish to add to those?

MR BOSKOVITZ:   No, that is our claim in the submissions.  There is nothing except to embellish them, so they are the basis.

HIS HONOUR:   Yes, thank you.  Can I ask you just two questions?  I do not see that an undertaking as to damages is proffered and it is difficult to see that an undertaking as to damages would have any meaning in the circumstances ‑ ‑ ‑

MR BOSKOVITZ:   It would be proffered but as your Honour observes that is probably valueless.

HIS HONOUR:   Thank you.  The other question is this.  The proceedings that are currently in the Federal Circuit Court, the bankruptcy proceedings have been adjourned at least once.  Is that right?

MR BOSKOVITZ:   Yes.

HIS HONOUR:   I do not see in your affidavit that any application has been made for a further adjournment.

MR BOSKOVITZ:   It is adjourned to, I think, the 30th of this month.

HIS HONOUR:   Yes.

MR BOSKOVITZ:   At that stage something else may happen, but depending on what the outcome of these proceedings ‑ ‑ ‑

HIS HONOUR:   Of course, thank you.  Mr Dick, I have looked at your submissions as well.  Is there anything you wish to add to those?

MR DICK:   Not unless your Honour needs me to elaborate on any of the matters.

HIS HONOUR:   No, thank you.  Very well, I am in a position to deal with this application now. 

The applicants, Mr and Mrs McMahon, are the owners of rural properties known as “Wyrallah” and “Summerdowns”.  They mortgaged those properties to the respondent, Permanent Custodians Limited, to secure borrowings of approximately $3.3 million which they failed to repay. 

The applicants have filed an application for special leave to appeal from a judgment of the Court of Appeal of the Supreme Court of New South Wales by which they were refused leave to appeal from orders of Justice Davies which dismissed an application by them for orders which would have had the effect of preventing the respondent from enforcing the mortgages.

Before me now is a summons accompanying that application for special leave to appeal by which the applicants seek orders, first, that the proceedings in the Federal Circuit Court of Australia in respect of creditors’ petitions presented against them by the respondent be stayed until further order and, secondly, that the respondent be restrained from auctioning, selling, alienating, leasing or otherwise disposing of the properties until further order.

There is no dispute that the mortgages were “farm mortgages” within the meaning of the Farm Debt Mediation Act 1994 (NSW). On 11 August 2011, the respondent sought and obtained from the Rural Assistance Authority a certificate under section 11 of that Act. That such a certificate be in force is, by section 10 of the Act, a precondition to the taking of enforcement action.

The respondent on 15 September 2011 served notices under section 57(2)(b) of the Real Property Act 1900 (NSW) and in December 2011 commenced proceedings against the applicants in the Supreme Court of New South Wales. In March 2012, the applicants consented, in those proceedings, to orders for possession of the properties and judgment for the respondent in the sum of approximately $3.75 million.

On 27 March 2013, the applicants applied to have the consent orders of March 2012 set aside.  That was the application with which Justice Davies was concerned.  The argument of the applicants before Justice Davies concerned the effect of Heads of Agreement entered into between the applicants and the respondent on 14 June 2011 as a result of mediation which took place under the Act.  The applicants had agreed in those Heads of Agreement to take certain steps to meet their loan obligations under the loan agreements by 15 August 2011, but failed to do so. 

The applicants argued unsuccessfully before Justice Davies that the Heads of Agreement “deferred the time for repayment of the loan until 15 August 2011” with the result that on 11 August 2011, when the certificate was issued, they were not “in default under the farm mortgage” and the section 11 certificate was “void”.

In their application for leave to appeal to the Court of Appeal the applicants no longer argued that the Heads of Agreement deferred the time for repayment of the loan.  They did not argue that the mediation had resulted in any new farm mortgage or any variation of the existing farm mortgages.  They did not dispute that they remained in default under the farm mortgages on 11 August 2011 when the section 11 certificate was issued. 

Their argument rather focused on the language of section 11(1)(a) of the Act, which makes it a precondition to the issue of a section 11 certificate that “the farmer is in default under the farm mortgage” and on the fact that the section 11 certificate was issued four days before the expiration of the time which the Heads of Agreement had allowed to them to take steps to meet their loan obligations.  They argued that the expression “farm mortgage” in section 11(1)(a) of the Act should be construed as encompassing a farm mortgage which is affected in accordance with an agreement reached at mediation.  The result of that construction, they argued, was that they were not in default within the meaning of section 11(1)(a) on 11 August 2011 and that the precondition to the issue of the section 11 certificate purportedly issued on that date was therefore not fulfilled.

The Court of Appeal refused leave to appeal on the basis that the construction of section 11(1)(a) of the Act, for which the applicants contended, was untenable. 

In their application for special leave to appeal against the decision of the Court of Appeal, the applicants seek to reagitate the same construction of section 11(1)(a) of the Act. 

The respondent submits that there is some doubt about the power of this Court to grant the stay the applicants seek of the bankruptcy proceedings pending in the Federal Circuit Court given that there is no appeal or application for special leave to appeal from any order of the Federal Circuit Court.  It is not necessary to rule on that submission.  Absent power to stay the bankruptcy proceedings, this Court would undoubtedly still have power to enjoin the respondent from pursuing those proceedings pending the hearing and determination of the special leave application.

There is, for present purposes, no relevant difference between the principles which inform the discretion of the Court to grant a stay pending the determination of an application for special leave to appeal and the principles which inform the discretion of the Court to grant injunctive relief to preserve the subject matter of litigation pending the determination of an application for special leave to appeal.  The former were addressed by Justice Brennan in Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681 and the latter by Chief Justice Mason in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1991) 65 ALJR 360.

A stay or an injunction will in each case be granted only in “exceptional circumstances”, being circumstances where there is at least a “substantial prospect” that special leave will be granted and where the balance of convenience favours the grant of a stay or injunction.  Ordinarily it is to be expected that the applicant for the stay or injunction will have exhausted other potential avenues of interlocutory redress before approaching this Court. 

In the present case I am not persuaded that such exceptional circumstances exist as would justify making either of the orders the applicants seek in the summons. 

In particular, I am not persuaded that the present is a case in which the application for special leave to appeal has the requisite substantial prospects of success.  The construction of the Farm Debt Mediation Act for which the applicants contend was rejected in the Court of Appeal in reasons for judgment given by Justice Ward, with which Justices Meagher and Barrett agreed.  The reasons given by Justice Ward, in particular at paragraphs 45 to 56 of those published reasons for judgment, provide a very strong basis for rejecting the construction.  Moreover, the applicants do not dispute that a section 11 certificate could validly have issued just four days after the certificate they challenge was in fact issued and they do not suggest that anything done by the respondent before that time amounted to the commencement of enforcement action.  Added to those difficulties in the way of grant of special leave to appeal are that the orders now sought to be set aside were made by consent and that the decision of Justice Davies was interlocutory in character. 

As to the balance of convenience, were it necessary to address it, the evidence before me establishes that in excess of $3 million remains owing by the applicants to the respondent on which interest continues to accrue and that if the properties in issue are sold for the highest valuation estimates, almost $2 million is likely to remain outstanding.  Plainly, there is prejudice to the respondent the longer the respondent is kept out of its money and it is quite properly not suggested by Mr Boskovitz, who appears for the applicants, that such prejudice could meaningfully be alleviated by an undertaking as to damages.

The orders I therefore make are as follows:

1.The applicants’ summons filed on 18 September 2013 is dismissed.

2.The costs of the summons are to be the respondent’s costs in the application for special leave to appeal.

The Court will now adjourn.

AT 10.14 AM THE MATTER WAS CONCLUDED