Sharpe v Heywood
[2013] FCCA 1788
•4 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SHARPE v HEYWOOD | [2013] FCCA 1788 |
| Catchwords: BANKRUPTCY – Application to set aside Bankruptcy Notice based on a consent judgment of the District Court of NSW – whether the debt arose from a loan agreement, or constituted a new farm mortgage, covered by the Farm Debt Mediation Act 1994 (NSW) – application dismissed – the mere making and entry of a consent order does not constitute “enforcement action” in relation to a new farm mortgage within the meaning of s4 of the said Act – whether a Bankruptcy Notice arising out of a farm debt constitutes “enforcement action” under the said Act – whether existing authorities need to be reconsidered in context of such debts. |
| Legislation: Farm Debt Mediation Act 1994, ss.4, 8 Bankruptcy Act 1966, s.306 |
| Cases cited: CSR Ltd v Muscat [2002] FMCA 257 Hargreaves Secured Investments Limited v Sharpe [2013] NSWSC 539 Sharpe v Heywood [2013] NSWCA 192 Waller v Hargreaves [2012] HFCA 4 |
| Applicant: | DAVID GEORGE SHARPE |
| Respondent: | CHRISTOPHER JOHN HEYWOOD |
| File Number: | SYG 349 of 2013 |
| Judgment of: | Judge Altobelli |
| Hearing date: | 6 August 2013 |
| Date of Last Submission: | 6 August 2013 |
| Delivered at: | Wollongong |
| Delivered on: | 4 November 2013 |
REPRESENTATION
| The Applicant in person (self-represented) |
| Counsel for the Respondent: | Mr Chia |
ORDERS
The Application filed 22 February 2013 is dismissed.
The applicant to pay the respondent’s costs as agreed or as assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 349 of 2013
| DAVID GEORGE SHARPE |
Applicant
And
| CHRISTOPHER JOHN HEYWOOD |
Respondent
REASONS FOR JUDGMENT
Introduction
By way of an Application filed 22 February 2013 the applicant asks the Court to set aside Bankruptcy Notice BN-312 issued 17 January 2013. The respondent opposes the application and asks that it be dismissed. District Registrar Wall dismissed the application. The applicant now seeks to review that decision.
The Bankruptcy Notice claims a debt of $90,000 being a judgment the respondent obtained against the applicant in the District Court of NSW on 6 June 2012.
The applicant relied on a number of affidavits namely those sworn by him on:
a)22 February 2013;
b)12 March 2013;
c)19 March 2013;
d)25 June 2013;
e)16 July 2013.
The respondent relied on one affidavit sworn by Leslie Juhasz on 19 July 2013.
The applicant represented himself. He is clearly an intelligent and articulate man who seemed quite at home in the courtroom. He described himself as a Grazier. The respondent was represented by solicitor and counsel.
In short the applicant’s argument is that as the debt arose from a loan agreement which created a debt that was covered by the Farm Debt Mediation Act 1994, the effect of that legislation was to preclude the respondent from enforcing the debt in the way he has purported to do. He does not dispute that he defaulted on his agreement with the respondent. He asserts that the High Court’s decision in Waller v Hargreaves [2012] HFCA 4 (26 February 2012) means that the action to obtain a money judgment is “enforcement action” and it thus barred by s.8(1) of the Farm Debt Mediation Act 1994, unless the other requirements of that legislation are complied with.
The applicant applied to set aside the judgment obtained against him on 6 June 2012. His Honour Neilson DCJ declined to set aside the judgment, though the applicant contends did not deal with the Farm Debt Mediation Act 1994 issue. The applicant sought leave to appeal in the NSW Court of Appeal, but this leave was declined. It is necessary to examine this judgment.
In Sharpe v Heywood [2013] NSWCA 192 (19 June 2013) their Honours Barrett JA and Gleeson JA dismissed the summons for leave to appeal, and ordered the applicant to pay the respondent’s costs. A useful history of the matter is set out at paragraphs 4 to 17 of the reasons of Gleeson JA.
4. The entry of judgment on 6 June 2011 was pursuant to a Consent Order made on 6 June 2011 following the settlement of the proceedings below between Mr Sharpe and Mr Heywood. Those proceedings concerned a dispute relating to a loan agreement entered into between the parties on 26 May 2010. The principal sum under that loan agreement was $25,800. The terms of the loan agreement included security over certain farm machinery and an agreement that in the event of default by Mr Sharpe, he consented to a caveat being lodged by Mr Heywood against a property of Mr Sharpe situated at Dorrigo.
5. Mr Sharpe failed to pay the principal sum and interest pursuant to the loan agreement. On 28 April 2011, Mr Sharpe and Mr Heywood attended a farm debt mediation, which was unsuccessful. Subsequently on 18 July 2011, the creditor, Mr Heywood, obtained a certificate under s 11 of the Act. Mr Heywood then commenced the proceedings below on 15 September 2011 in which he claimed the sum of $107,389.67 which included principal and interest.
6. On 31 January 2012, a default judgment was entered against Mr Sharpe in the sum of $132,692.39.
7. On 5 April 2012, Mr Sharpe applied by notice of motion to set aside the default judgment. That application came on for hearing before the District Court at Coffs Harbour on 6 June 2012. The parties reached a compromise which was recorded in a document headed "Consent Order", which was signed by both Mr Sharpe and Mr Heywood and their legal representatives. Orders were made on that day by Murrell DCJ in the following terms:"1 The Judgment entered by default on 31 January 2012 is set aside.
2 Judgment for the Plaintiff in the amount of $90,000.00.
3 Interest is payable on so much of the Judgment as is from time to time unpaid at the prescribed rate as from 16 November 2012.
4 No order as to costs.
AND THE COURT NOTES
1. The Plaintiff will accept the sum of $60,000.00 in full satisfaction of the Judgment if paid on or before 15 October 2012.
2. The Plaintiff will accept $70,000,00 in full satisfaction of the judgment if paid on or before 15 November 2012.
3. The Defendant will discontinue the proceedings in the Federal Magistrates Court on or before 18 June 2012.
4. The Plaintiff undertakes to take no further action in relation to the Defendant's non-compliance with the Bankruptcy Notice served on 15 March 2012.
5. The Plaintiff undertakes not to seek the issue of a bankruptcy notice in relation to the Judgment unless and until the Judgment remains unsatisfied as at 16 November 2012.
6. The Defendant charges the land and consents to the lodgement of Caveats on the properties located at "Campbells Hill" 485 Rimbanda Road, Woolbrook, NSW, being all of the land in Folio Identifier 2/567241 and Folio Identifier 3/206327, as security for the Defendant's obligation to pay the Judgment debt.
7. The Defendant undertakes not to seek a lapsing notice in relation to the Caveat and not to make an application to the Supreme Court for removal of the Caveat unless and until the Judgement is satisfied in accordance with the terms of this agreement.
8. The Plaintiff agrees to lodge a withdrawal of caveat from within 7 days after the Judgment is satisfied in accordance with the terms of this agreement.
9. The Plaintiff undertakes not to take any enforcement action in respect of the Judgement unless the Judgment remains unsatisfied as at 16 November 2012.
10. The Defendant undertakes not to seek a stay of enforcement of the Judgment except by way of an application under rule 37.2 of the Uniform Civil Procedure Rules to pay the Judgment by instalments on or after 16 November 2012. The Plaintiff reserves his rights to oppose any instalment application and to object to any instalment order.
11. The Plaintiff and the Defendant consent to the above orders and enter the agreement set out in this document as a genuine compromise of the issues between them arising from the loan agreements between the Plaintiff and the Defendant on 17 May 2010 and 26 May 2010, the proceedings in the District Court of NSW at Coffs Harbour, the bankruptcy notice and the Federal Magistrates Court proceedings between them.
12. The Plaintiff and the Defendant each acknowledges that he has received independent legal advice before consenting to the orders and entering the agreement set out in this document."8. On 25 June 2012, Mr Heywood lodged a caveat over the Campbell's Hill property (referred to in [6] of the notation to the Consent Order).
9. Mr Sharpe subsequently applied for an order to pay the judgment of $90,000 by instalments. On 19 November 2012 an instalment order was made requiring Mr Sharpe to pay monthly instalments of $5000, the first instalment to be made by 16 December 2012. No instalment payments were made.
10. On 3 January 2013, the District Court issued a certificate of judgment in favour of Mr Heywood against Mr Sharpe in the sum of $90,000. Shortly thereafter a bankruptcy notice was issued at the request of Mr Heywood against Mr Sharpe and served on 4 February 2013. Mr Sharpe thereafter applied in the Federal Magistrates Court to set aside the bankruptcy notice.
11. On 21 February 2013, Mr Sharpe applied by notice of motion in the District Court at Coffs Harbour to set aside the Consent Order entered on 6 June 2012, and for stay of enforcement of the judgment until the notice of motion was determined. That application was heard by Nielson DCJ on 15 March 2013 and his Honour dismissed the application and ordered Mr Sharpe to pay Mr Heywood's costs of the motion.
12. The reasons for judgment of Nielson DCJ record two significant matters.
13. First, that it was conceded by Mr Sharpe's counsel that the judgment entered on 6 June 2012 was not obtained contrary to any rule of court; the judgment was not obtained illegally and the judgment was not obtained against good faith. Nor was there any suggestion that the judgment was obtained by fraud. The transcript of the oral argument before Nielson DCJ bears out this statement.
14. Secondly, the primary judge did consider Mr Sharpe's argument under the Act, as the judgment below records:
"Essentially the argument of the judgment debtor [Mr Sharpe] is that the form of the judgment, notations made by her Honour Judge Murrell, raise a new 'farm debt' within the meaning of the Farm Debt Mediation Act 1994 and therefore further mediation is required before the judgment can be enforced. Bearing in mind that there is no ground on which to grant any of the relief sought however, Mr Roser, to seek to find some accommodation for his client, asked for a stay of execution of the judgment debt until after the final decision of McCallum J in Hargraves Secured Investments Limited v Sharpe the first part of which was decided at [2013] NSWSC 177."
15. The transcript of the argument before Nielson DCJ confirms that in addition to conceding that the judgment entered pursuant to the Consent Order on 6 June 2012 had not been entered either irregularly, illegally or against good faith or by fraud, counsel for Mr Sharpe submitted to the primary judge that the Act "has significant consequences so far as the question of enforcement and it's the question of enforcement which we're concerned with".
16. Further, the following exchange subsequently occurred:
"HIS HONOUR: All right, so no grounds for setting aside the judgment. What your argument really goes to is enforcement?
ROSER: Yes your Honour.
...
HIS HONOUR: So you want a stay until after that [Hargraves Secured Investments Ltd v Sharpe] is decided?
ROSER: Yes your Honour."
17. The primary judge delivered an ex tempore judgment giving reasons for dismissal of Mr Sharpe's application to set aside the Consent Order. No application was made by Mr Sharpe for a stay of enforcement of the judgment below.After noting that there was no contention on behalf of the applicant that the consent order was void or voidable, Gleeson JA referred to the Farm Debt Mediation Act issue at paragraphs 21 and 22.
21. It was accepted on behalf of Mr Sharpe in oral submissions that the Consent Order did not involve a different loan (although described in his written submissions as the second loan agreement) and hence there was no new farm debt. Rather, Mr Sharpe's contention is that the Consent Order records the terms of a new farm mortgage (being the charge given over the Campbell's Hill property to secure the judgment debt), which was orally agreed between the parties on 6 June 2012, that is new and distinct from the earlier farm mortgage entered into between the parties on 26 May 2010. He refers in this regard to the approach taken by the High Court in Waller v Hargraves Secured Investments Ltd [2012] HCA 4, (2012) 245 CLR 311, and submits that the s 11 certificate issued in this case on 8 July 2011, was given only in respect of the earlier loan agreement.
22. Mr Sharpe submits that the entry of judgment as contemplated in the Consent Order, is an "enforcement action" under the Act, because one of the "rights" contemplated in the second loan agreement (which is contended to be a farm mortgage) was that judgment was to be entered. The entry of judgment is said to be void pursuant to s 6 of that Act. This is because the creditor, Mr Heywood, had not given Mr Sharpe a notice of intention to take enforcement action as required by s 8 of the Act, and there was no certificate in force under s 11 of the Act in respect of the farm mortgage concerned.
Gleeson JA then concludes at paragraphs 23-33 as follows:
23. The expression "enforcement action" in relation to a farm mortgage is defined in s 4 of the Act to mean 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 the action to that end already commenced. It does not include certain specified actions which are not presently relevant.
24. In Waller v Hargraves Secured Investments, Heydon J said at [66] that the better view is that the definition of "enforcement action" is wide enough to extend beyond enforcement of the security by taking a possession to include reliance on any of the rights in the farm mortgage. His Honour considered that action to obtain a money judgment after the commencement of the Act is "enforcement action", so long as it is action to enforce the mortgage.
25. In Waller v Hargraves Secured Investments, the structure of the pleadings and the manner in which the proceedings were conducted, which included seeking orders for possession of property as well as a money judgment, was considered by Heydon J to be sufficient to justify the characterisation of the creditor's conduct as action to enforce the mortgage and hence as "enforcement action". French CJ, Crennan and Kiefel JJ at [17] agreed with the reasons given by Heydon J, that the proceedings to obtain a money judgment was an action barred by s 8(1) of the Act as much as the seeking of possession. Hayne J at [25] left open the question whether a claim for a money judgment, brought only by reference to a (successive) loan agreement and not the farm mortgage, was "enforcement action" within the meaning of the Act.
26. Mr Heywood submits in response that the Consent Order does not constitute a new and distinct farm debt from the earlier loan agreement dated 26 May 2010. Rather the Consent Order simply changed certain items in the earlier loan agreement, in particular:
(1) Reducing the amount payable in the judgment from $132,692.39 to $90,000.
(2) Reducing the interest rate from 0.666% per day to (or 243.09% per annum) to the rate prescribed by the Court, approximately 9% per annum.
(3) Extending the time for Mr Sharpe to pay the judgment sum.
(4) Allowed Mr Heywood to lodge a caveat over two properties located at Campbell's Hill.27. Mr Heywood referred to a statement by Heydon J in Waller v Hargraves Secured Investments Limited at [57] that adjustments to a farm debt such as extending the term to pay, reducing the principal or capitalising interest would leave the initial farm debt in place, and thus the Consent Order does not constitute a new farm debt. It was also submitted that similar reasoning was applied by Harrison J in Hargraves Secured Investments Limited v Sharpe [2013] NSWSC 539 at [17].
28. One qualification to applying this reasoning in the present case is that insofar as the obligations under the Consent Order were secured by a new charge over additional property at Campbell's Hill, then the existing s 11 certificate obtained by Mr Heywood before the commencement of the proceedings below, would arguably not apply to any enforcement action, such as by way of sale by a court appointment receiver, in respect of that new charge.
29. That however is not what Mr Sharpe complains about. Rather, Mr Sharpe contends that the s 11 certificate which was in force in respect of the proceedings below does not apply to the Consent Order made on 6 June 2012 which set aside the existing default judgment and entered judgment for a lesser sum.
30. Mr Sharpe does not contend that the s 11 certificate did not apply in relation to the default judgment entered on 31 January 2012 for a larger sum. Mr Sharpe contends for the somewhat incongruous result that the judgment entered on 6 June 2012 for a lesser sum should be set aside, even though this would result in the default judgment for a larger sum (which was itself set aside by the Consent Order) being restored.
31. It is apparent that Mr Sharpe's essential complaint is directed to enforcement of the judgment the subject of the Consent Order. This is on the ground that enforcement action is void, because the Consent Order records a new farm mortgage and any enforcement action would be contrary to s 8 of the Act, there being no s 11 certificate permitting such enforcement action in respect of the asserted new farm mortgage.
32. Whatever the merit of this contention, it does not provide the basis for complaint in respect of the orders of the primary judge below dismissing Mr Sharpe's application to set aside the Consent Order made on 6 June 2012. Mr Sharpe's complaint is directed to the consequences of the entry of the Consent Order, in terms of the enforcement action which may flow from the Consent Order, not the circumstances in which the Consent Order was made and entered.
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 s 4 of the Act, even assuming that the agreement recorded in [6] of the notation to the Consent Order constituted a new farm mortgage.
Leave to appeal was declined as the applicant had not made out the case that the decision appealed from was attended with sufficient doubt to warrant its reconsideration on appeal. Barrett JA was of the same opinion as Gleeson JA.
When it was suggested by the Court to the applicant that he was asking this Court to accept an argument about the interpretation of the Farm Debt Mediation Act 1994 that had been rejected by the NSW Court of Appeal in Sharpe v Heywood he could not really explain how this Court would get around that decision. Clearly the applicant does not accept what Gleeson JA says at paragraph 33 of the judgment and, indeed, hinted at the desire to have this issue aired in the High Court.
The respondent naturally urged the Court to reject the applicant’s argument on the basis that the Court of Appeal’s reasoning was cogent and highly persuasive. The respondent also pointed to the similarity between the present facts and the decision of Harrison J in Hargreaves Secured Investments Limited v Sharpe [2013] NSWSC 539 (13 May 2013) particularly at [14] – [15] and [19]. Moreover, even if the consent judgment did create an obligation covered under the Farm Debt Mediation Act 1994 the Bankruptcy Notice was not “enforcement action” under the said Act. The respondent referred to a decision of Raphael FM (as he then was) in CSR Ltd v Muscat [2002] FMCA 257 at paragraph 22 where his Honour said:
One thing that is not a method of enforcement of a judgment debt is a bankruptcy petition. This was confirmed by Tamberlin J in Re Gualtieri; Ex parte Martin & Savage Pty Ltd [1995] FCA 1381; (1995) 130 ALR 523, where His Honour says that a bankruptcy notice cannot be described as a `process' for the enforcement of a judgment. In his judgment he relied on a statement taken from Re Kassab; Ex parte DCT (1994) 127 ALR 373 at 377-8:
"The construction so contended for could not in our opinion, extend to the service of bankruptcy notices. In Re Maddox; Ex parte the Debtor [1979] FCA 14; (1978) 24 ALR 279; 36 FLR 392 Lockhart J held that the issue of bankruptcy notice is a ministerial or administrative act and not part of the judicial process. It was therefore held not to be an act within the meaning of the word `proceedings'..."
“Enforcement action” is defined in s.4(1) of the Farm Debt Mediation Act as follows:
“enforcement action”, in relation to a farm mortgage, means taking possession of property under a farm mortgage, the sale of property under a farm mortgage, or any other action to enforce a farm mortgage including the continuing of action already commenced to enforce a farm mortgage but does not include:
a.the completion of the sale of property held under a farm mortgage in respect of which contracts were exchanged before the commencement of section 6; or
b.the enforcement of a judgment that was obtained before the commencement of that section.
The question is whether the issue of a Bankruptcy Notice is enforcement action as so defined. Heydon J in Waller v Hargraves Secured Investments Ltd [2012] HCA 4 (29 February 2012) examined the meaning of enforcement action at [66]-[68] of his reasons for judgment.
66. The expression "enforcement action" is defined in s 4(1) of the Act as meaning not only taking possession of the property, but "any other action to enforce the mortgage". In the Amended Statement of Claim the respondent pleaded that it was a term of the Registered First Mortgage that interest be paid monthly in accordance with, inter alia, the Third Loan Agreement. In the Amended Statement of Claim the respondent also pleaded that the appellant was obliged, under the Registered First Mortgage, to pay the principal sum ($640,000) with interest owing. The respondent contended that a claim for a debt is not "enforcement action" because it does not involve the enforcement of security over the farm property. 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. The definition of "enforcement order" in s 4(1) provides that it does not include "the enforcement of a judgment that was obtained before the commencement of this Act". The word "judgment" is not limited to judgments other than money judgments. Had that type of enforcement action not been excluded, it would have fallen within the definition of "enforcement action". The exclusion leaves the enforcement of judgments (including money judgments) open if they were obtained after the commencement of the Act. It follows that action to obtain a money judgment after the commencement of the Act is "enforcement action" so long as it is action to enforce the mortgage. The structure of the Amended Statement of Claim, and the manner in which the proceedings were conducted, justify the characterisation of the respondent's conduct as action to enforce the mortgage, and hence as "enforcement action".
67. Hence the attempt in the Supreme Court proceedings to obtain a money judgment was an action barred by s 8(1) as much as the seeking of possession.
68. The contrary construction would have consequences pointing against its correctness. One of those consequences is that if the effect of the definition of "enforcement order" read with s 8(1) was to debar the claim for possession but not the money claim, the appellant's victory would be a hollow one. The respondent could simply obtain the money judgment, use it to bankrupt the appellant, and then take whatever its share of her bankrupt estate was. Depending on the extent of claims by other secured creditors and by unsecured creditors, this might be, for the respondent, an inferior result to that obtainable by enforcement of the respondent's security interest in priority to the general creditors. But it would be just as damaging to the appellant, for she would have lost her farm despite s 8(1).
The issue that Heydon J had to decide was whether a claim to a money judgment was barred, even if the relevant provisions of the Farm Debt Mediation Act 1994 barred a claim to possession. He concluded that it was so barred because of the inextricable link between the rights in the farm mortgage and the obligation to pay. Thus seeking to enforce the monetary obligation to pay was as much enforcement action as seeking possession of the farm itself. 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. A Bankruptcy Notice may, in the circumstances of a debt that arises under an obligation covered by the Farm Debt Mediation Act 1994, be “an action to enforce the mortgage” or “the giving of [a] statutory enforcement notice” within s.4(1) of the said Act. In certain circumstances, therefore, CSR Ltd v Muscat, and the authorities referred to therein, may need to be reconsidered.
That does not change the outcome in this case, however. The entry of the Consent Order on 6 June 2012 does not constitute a new farm mortgage within the meaning of s.4 of the said Act, even assuming that the agreement recorded in the notations to the consent order constituted a new farm mortgage.
The applicant also argued that the Bankruptcy Notice misstates the amount that is due and payable because it does not claim interest on the judgment debt. This argument has no merit. The effect of s.306 of the Bankruptcy Act 1966 is that a formal defect on a bankruptcy notice does not invalidate it unless it has resulted in substantial injustice. There is no substantial injustice demonstrated on the evidence.
The application filed 22 February 2013 should be dismissed. The applicant should pay the respondent’s costs as agreed or as assessed.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Associate:
Date: 4 November 2013
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