Waller v Hargraves Secured Investments Limited

[2011] HCATrans 153

[2011] HCATrans 153

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S285 of 2010

B e t w e e n -

ROSLYN EDWINA WALLER

Applicant

and

HARGRAVES SECURED INVESTMENTS LIMITED

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 JUNE 2011, AT 10.42 AM

Copyright in the High Court of Australia

MR J.B. KING:   May it please your Honours, I appear for the applicant.  (instructed by Jackson Lalic Lawyers)

MR D.M. LOEWENSTEIN:   May it please the Court, I appear with my learned friend, MR A.R.A. KUKLIK, for the respondent.  (instructed by Hargraves Solicitors)

GUMMOW J:   Yes, Mr King.

MR KING:   May it please the Court.  At the heart of the two issues raised by this case is the troubling circumstance that the certificate relied upon by the respondent was purportedly based on a debt that had been extinguished.  The two issues raised are these.  First, whether on the proper construction of the words “farm mortgage” in section 8 of the Act ‑ ‑ ‑

GUMMOW J:   Wait a minute, where do we see section 8?  It is set out at page 9, is that right?

MR KING:   I beg your pardon, your Honours.

GUMMOW J:   It is set out at page 9, the text of section 8.

MR KING:   Yes, your Honour, section 8 of the Act, subsection (3).  Subsection (1), to begin with, imposes a prohibition on enforcement by a creditor.  Subsection (3) lifts that prohibition if there is a certificate in force under section 11 of the Act.  The critical words are “the farm mortgage concerned.”

GUMMOW J:   Yes, it is that word “concerned”, is it not?

MR KING:   Yes, your Honours.  The Court of Appeal approached that question on the basis that the farm mortgage concerned was the mortgage sought to be enforced by the respondent in the proceeding.  The question therefore became whether the certificate that the respondent relied on was a certificate that had been issued in respect of that farm mortgage.  It is on that point that the applicant submits the Court of Appeal erred.

GUMMOW J:   Well, is not section 6 the starting point?

MR KING:   Section 6 prescribes the consequences of a contravention of the Act such as occurred in this case.

GUMMOW J:   Is there a definition of “enforcement action”?

MR KING:   There is.  That appears in section 4, your Honours.  “Enforcement action” has a broad definition:

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 –

That is also a defined term in section 4 further down the section.  It includes, for example:

a notice under section 57(2)(b) of the Real Property Act 1900 –

It is the applicant’s submission that the term ‑ ‑ ‑

GUMMOW J:   Wait a minute. What does section 57(2)(b) of the Real Property Act do?

MR KING:   That permits the enforcement of the mortgage ‑ ‑ ‑

GUMMOW J:   .....notice?

MR KING:   That is correct, your Honours.  Your Honours will see from those definitions and the words of section 6 that where there has been no section 8 notice issued by a creditor and there is no certificate in force in respect of the farm mortgage concerned, the enforcement action taken by the creditor is void, including the issue of a 57(2)(b) notice and, in my submission, necessarily including the filing, for example, of process in the Supreme Court to enforce a mortgage.

GUMMOW J:   What was the process in this case?

MR KING:   It is a statement of claim.

GUMMOW J:   To seek what remedy?

MR KING:   An order for possession and judgment debt.

GUMMOW J:   I see.  Now, there was a history of default and renegotiation and as part of that, this certificate we see at 129, was that issued?  Is that the critical one?

MR KING:   That is the critical document, your Honours.

GUMMOW J:   That was 20 October?

MR KING:   2006.

GUMMOW J:   2006.

MR KING:   On the previous page, 127, your Honours will see the section 8 notice, the date of which was October 2004, two years prior to the issue of the certificate.  That was a notice that was issued after there was default in respect of the first loan agreement and mediation took place after that notice was issued.  Two years later, the certificate ‑ ‑ ‑

HAYNE J:   The outcome of the mediation was to, in effect, restructure the debt?

MR KING:   Yes, your Honours.  In this particular case, the restructuring took the form of extinguishing the old debt, advancing a new debt.  That is a critical distinction as well, yes, your Honours.

GUMMOW J:   Yes.  Well, then one asks oneself, what is the farm mortgage concerned?

MR KING:   Yes, in my submission ‑ ‑ ‑

GUMMOW J:   It is not a piece of paper.

MR KING:   No, it is not, your Honours.

GUMMOW J:   The complex of legal obligations.

MR KING:   Yes, your Honours.  It is not assisted by the absence of a definition of the words “farm mortgage” in the Act either, but, in my submission, those words must mean, leaving aside the inclusive definition in the Act for the time being, a mortgage of a farm property securing a farm debt, and that base definition of the words “farm mortgage” is expanded by the inclusive words to include – I will take your Honours to the provision – to include an interest, not merely a mortgage, but an interest:

securing obligations of the farmer whether as a debtor or guarantor –

From the certificate at the last page of the application book, the farm mortgage in respect of which the certificate was issued can be identified in this way, by looking first for the mortgage component of the farm mortgage and then looking for the farm debt secured by it.  Of course, the mortgage is identified as a Real Property Act mortgage at about line 30 and the details of the farm debt secured by the mortgage, which together gave rise to the farm mortgage in respect of which the certificate was issued, is set out below.

GUMMOW J:   When there was this mediation which produced this restructure, did that lead to registration of a variation ‑ ‑ ‑

MR KING:   Registration?

GUMMOW J:   Variation of a mortgage.

MR KING:   No, your Honours.  I pause to emphasise the critical distinction between a mortgage and a farm mortgage.  A mortgage without more would not be a farm mortgage, in my submission.  Could I draw your Honours’ attention to the identity between the farm debt set out in the certificate on the last page of the application book, the table which is headed with the word “Facility” and the table on the immediately preceding page in the section 8 notice also headed with the word “Facility”.  Your Honours will see that the details of the farm debt from the notice have been transposed directly into the certificate.  That was a debt which existed only at the time of the mediation and not at the time that the certificate was issued.

GUMMOW J:   What is the mischief that this legislation was designed to alleviate?

MR KING:   The legislation is beneficial legislation, your Honours, and it was intended to protect a class of persons identified ‑ ‑ ‑

GUMMOW J:   Section 3.

MR KING:   Yes, your Honours.  From the object of the Act in section 3 your Honours will see that the intention is:

to provide for the efficient and equitable resolution of farm debt disputes –

in particular, by providing for a disentitlement on the part of creditors to –

take possession of property or other enforcement action –

unless there has been a mediation.  The nature of that disentitlement is one of the issues that arises in this case because of the words of section 6 and the use of the words “is void”.  The mischief to which the Act is directed, as seen from the object of the Act and the scheme provided for by the Act which cuts swathes across the rights of mortgagees, is one to protect a vulnerable class of persons, being farmers, in this State and from the terms of the Act by the restriction of the definition of “farm debt” to being:

a debt incurred by a farmer for the purposes of the conduct of a farming operation –

The class of persons can be seen to be those farmers who are forced to borrow on the security of their farms for the purpose of continuing to operate their farms.  It is the enforcement by creditors of mortgages in the first instance without giving the opportunity to farmers to restructure and/or mediate in good faith the debts that are between them that this Act seeks to prevent.

GUMMOW J:   The Act does not seem to expressly cope with a situation where there is a sequence of default, restructuring, default, restructuring ‑ ‑ ‑

MR KING:   It does not, your Honour.  There are no express provisions ‑ ‑ ‑

GUMMOW J:   Prospect of consecutive mediations, as it were, at each stage.

MR KING:   That is correct.  The Act simply does not deal with that in any express terms.  All we have is the terms of the Act before us which apply to farm debts and farm mortgages and the analysis must necessarily be centred on the farm debts and farm mortgages that have arisen.  The Court of Appeal, of course, held that there were three different farm debts, one for each of the loan agreements and, in my submission, where a mortgage secures only one farm debt and that farm debt is later extinguished, the farm mortgage which was constituted by the mortgage in a farm debt must necessarily have also been extinguished.  That occurred in this case at the conclusion of the mediation when the second loan agreement was executed, extinguishing the farm debt which formed a necessary component of the farm mortgage then in existence.

GUMMOW J:   Now, Justice Macfarlan was in your favour on the recovery of possession point, was he not?

MR KING:   Yes, your Honours.

GUMMOW J:   He treated the moneys recovery differently, is that right?

MR KING:   His Honour did deal with that point differently.  His Honour appears to have adopted a practical approach to that point, which is that his Honour took the view that the Act is not intended to prevent recovery of debts owed under loan agreements.  It is directed instead to enforcement action under mortgages and his Honour appears to have taken the view that given that it would have been open to the respondent to recover its debt without seeking enforcement or possession, had it chosen to do so, the monetary judgment should stand. 

It is a submission of the applicant that on the proper analysis of the Act and what has transpired in this case, the monetary judgment cannot stand principally because the covenant that was sued upon by the respondent was a covenant contained in the mortgage and not a covenant that was contained in the loan agreement.  It was therefore a critical element of the respondent’s case at trial that it tender and prove the mortgage, that findings being made about the existence of the mortgage, obligations owed under it and defaults in respect of the mortgage, all of which would preclude the applicant from raising those issues were the possession order to be set aside and the monetary judgment to stand.  Putting that another way ‑ ‑ ‑

GUMMOW J:   It comes down to is the definition of “enforcement action”, I suppose, does it?

MR KING:   I beg your pardon, your Honour, I did not hear that.

GUMMOW J:   The debate comes down to this definition of “enforcement action”?

MR KING:   Yes, your Honours.

GUMMOW J:   Is an action on the covenant.....enforcement of the mortgage?

MR KING:   Your Honours will see that there are two limbs that are excluded from the definition of “enforcement action” (a) and (b).  Subparagraph (b) refers to and excludes:

the enforcement of a judgment that was obtained before the commencement of this Act.

Which necessarily implies that the enforcement of a judgment obtained after the commencement of the Act is not excluded and is included in the definition.

GUMMOW J:   A judgment for what, though?

MR KING:   It does not say that, your Honour.  That is correct.  One of the other reasons advanced in the applicant’s written submissions as to why the monetary judgment could not stand if the order for possession was set aside related to what is required by the statutory scheme, in particular, that there be parties in existence with the status of creditor, a creditor being a person

who is owed farm debt.  Now that the monetary judgment has been made, the farm debt that was owed to the respondent has merged in the monetary judgment and no longer exists.  There is no longer therefore a creditor under the Act capable of engaging in the mediation, a process contemplated by the Act.  For that reason, the statutory scheme would require the monetary judgment to be set aside if the order for possession is also set aside, quite apart from other considerations such as the particular covenant that was sued upon.

GUMMOW J:   Yes, we do not need to hear you any more.

MR KING:   Thank you, your Honours.  May it please the Court.

GUMMOW J:   Yes, Mr Loewenstein.

MR LOEWENSTEIN:   May it please the Court.  Your Honours, there are four issues before the Court or issues that arise as a consequence of the plaintiff’s case at trial.

GUMMOW J:   You are both brought here through no particular fault of your own.  You are both brought here by this rather loose drafting in New South Wales, I am afraid.

MR LOEWENSTEIN:   Yes.  The question that arises on the facts of this case, the first question to be addressed, is the asserted jurisdictional error by the delegate of the Rural Assistance Authority and the validity of the certificate under section 11 of the Act.  The method by which these proceedings were brought or the defence that the proceedings was constituted was a defence of the notice seeking position.  The certificate that issued remained in force for its life of three years.

GUMMOW J:   Yes, but it was certifying what?

MR LOEWENSTEIN:   What it certified was that the mortgage – well, that the Act does not apply to the mortgage.  The question that arises is, what constitutes the mortgage?

GUMMOW J:   You may be quite right about all of this, but it does look as if there is a question, so no one can say it is as plain as a pikestaff, can they?

MR LOEWENSTEIN:   The question, though, that arises is whether each farm debt constitutes a new mortgage and what we say, with respect, is that that strains the concept of mortgage ‑ ‑ ‑

GUMMOW J:   No, it does not.  That is what a mortgage is, in equity at any rate.  It is a security for a debt.

MR LOEWENSTEIN:   Yes.

GUMMOW J:   At common law it is a conveyance, but in equity it is a charge on the land to secure a debt.

MR LOEWENSTEIN:   Yes, but the all moneys mortgage makes provision for the creation of additional advances.  It does not make provision for the creation of initial mortgages.  What we respectfully submit is that it strains the concept of mortgage to say that under an all moneys mortgage what occurred was the creation of separate mortgages.  It also begets the question of what constitutes a discharge of each of the mortgages.

HAYNE J:   But where you have “farm debt” defined as it is, plus section 5(1):

This Act applies in respect of creditors only in so far as they are creditors under a farm debt.

is “farm debt” to be treated as referring or having different application after there is a restructure, as there was here, more than once?

MR LOEWENSTEIN:   No.

HAYNE J:   Is there a different farm debt after restructure?  I thought there was.

MR LOEWENSTEIN:   There may be a different farm debt, but it does not, in our respectful submission, create a different farm mortgage.

GUMMOW J:   We have to answer that question by then looking at the object of the Act, do we not, and taking that into account?

MR LOEWENSTEIN:   Yes.  There was a tension, if you like, between the casting of what the objects of the Act were between their Honours Justice Macfarlan and his Honour Justice Sackville.  The question is whether the object of the Act was to provide a one‑time opportunity for mediation under a farm ‑ ‑ ‑

GUMMOW J:   The difficulty is this expression “one‑time”.  That is the area of debate.

MR LOEWENSTEIN:   Yes.  It is also a question of the efficient and equitable resolution, your Honours, and – I am sorry, your Honour Justice Hayne is amused by ‑ ‑ ‑

HAYNE J:   Well, “efficient and equitable” is a phrase that drips off the legislative tongue, but ‑ ‑ ‑

MR LOEWENSTEIN:   It is, however, an aspect of the Act.  The beneficial nature of the Act was one that persuaded his Honour Justice Macfarlan to tip towards an interpretation of mortgage that was, with respect, a little unusual in the circumstances.  It is recasting a debt as a mortgage.  His Honour recognised that the debate about what constitutes a mortgage is evenly poised, is evenly balanced and was persuaded by what he understood to be the overarching considerations of the Act, the beneficial aspect of the Act, to recast a notion of a mortgage in a particular way.  What we submit is that that strains the concept of mortgage.

GUMMOW J:   You may well be right about that, but at the level of a special leave we have to see whether it looks like a real question.  There is a division of opinion in the Court of Appeal.

MR LOEWENSTEIN:   Yes. 

GUMMOW J:   Though that division itself has a wrinkle to it which has been discussed with your opponent.

MR LOEWENSTEIN:   Yes.  Your Honours, there is something also about the way the proceedings were brought.  This was a proceedings at trial for possession of the property.  There were no proceedings brought for judicial review other than administrative action.  We do not know what considerations were in the minds of the delegate of the chief executive of the Rural Assistance Authority.  It is to be noted in section 11 of the Act that:

satisfactory mediation has taken place in respect of the farm debt involved –

Now, it may very well be that, as his Honour Justice Sackville recognised and his Honour Justice Tobias embraced, there is no clear distinction.  The concept of “in respect of”, as this Court has found on a number of occasions, is a broad concept.  So merely because there was ‑ ‑ ‑

GUMMOW J:   Where is that particular passage in Justice Sackville on this administrative law point?

MR LOEWENSTEIN:   Yes, thank you, your Honour, in application book 97, paragraph 126, with which his Honour Justice Tobias agrees at application book 56, paragraph 11.

GUMMOW J:   Yes.

MR LOEWENSTEIN:   The delegate may well have had regard to, and we just do not know, the third debt.  We just do not know because the delegate, or the Rural Assistance Authority, was never given the opportunity to be heard in the proceedings because the attack upon the validity of the section 11 certificate was, in a collateral sense, in fact developed even more after trial.

GUMMOW J:   It is properly open to collateral attack, is it not?

MR LOEWENSTEIN:   It may be, but not in this circumstance, we say, and that is because we just do not know, without the joinder of the chief executive or his delegate, or the Rural Assistance Authority itself, what the decision‑making process was and we say for that reason this is an unsuitable vehicle to determine the issue.

GUMMOW J:   Thank you.

MR LOEWENSTEIN:   There was raised in the submissions an asserted lack of jurisdiction of the Supreme Court to hear the proceedings.  We do not quite understand exactly the basis upon which that was put.  The parties consented or agreed by their participation in the proceedings to have the matter determined, so we do not quite understand where that argument goes.  The proposition that the judgment on the monetary claim cannot be sustained if the enforcement action on the mortgage is to be held invalid, we simply embrace the position adopted by his Honour Justice Macfarlan in that case.  To imbue the occupation or the preoccupation of the Act with a separate indebtedness and the judgment for the debt amount seems to be again a strain upon what the Act is actually concerned with and for that reason we embrace Justice Macfarlan’s position that the two must be treated separately.

GUMMOW J:   Now, the proceeding before Justice Harrison was not one that devolved into separate questions, was it?  I am looking at page 3.  He says “the following issues arise”, but he then disposes of the action.

MR LOEWENSTEIN:   Yes.

GUMMOW J:   Thank you.

MR LOEWENSTEIN:   May it please the Court.

GUMMOW J:   Yes, Mr King.

MR KING:   Two points in reply, your Honours, first concerning the absence of proceedings for judicial review.  My learned friend has submitted that the delegate may well have had regard to the third debt and that we do not know what the decision‑making process was.  In my submission, the question of the validity of the certificate is a question of law only depending on the proper construction of section 11 and whatever considerations the authority may have had in mind are not capable of affecting the resolution of that question.  There was only one debt owed at the time the certificate was issued and that was the debt which has satisfied the definition of “creditor” and the parties were agreed that there had been no mediation in respect of that debt.  The conclusion that the authority had no power to issue a certificate in those circumstances follows as a matter of cause, in my submission.

The second submission relates to jurisdiction.  My friend sought some assistance as to how that ground was to be articulated.  In short form, the absence of jurisdiction follows necessarily from the words of section 6 “is void” and the definition of “enforcement action” which in ‑ ‑ ‑

GUMMOW J:   That does not mean the Supreme Court does not have jurisdiction to determine whether it is void.

MR KING:   It has jurisdiction to determine its own jurisdiction, to that extent only, your Honours.

GUMMOW J:   I think that is a bit of a phantom.  Now, does it appear in your draft grounds of appeal?  Where do we see that?

MR KING:   The draft grounds of appeal are at 105, your Honours.

GUMMOW J:   That does not explicitly deal with the question of inclusion of the debt as well as the order for possession, does it?  The complaint about that, in other words.

MR KING:   The word “proceeding” in the court at first instance was intended to encompass all of the orders that were made in that proceeding, including the debt as well as the order for possession, but that can be clarified, if necessary.

GUMMOW J:   I think you have to say that the proceedings should have been dismissed, do you not, by reason of the operation of section 6.

MR KING:   That is the order that is sought in paragraph 6 ‑ ‑ ‑

GUMMOW J:   We are looking at the grounds.  If you are going to get special leave, you have to have the grounds in proper order and at the

moment that is not so.  Justice Harrison was not doing anything he should not have been doing.

MR KING:   Yes, I appreciate the point, your Honours.

GUMMOW J:   So that would need to be revised, and you would also need to take into account your complaint, I think.  Not only should there have been no order for recovery, but there should not have been an action recovered on the debt.

MR KING:   That should be an explicit ground, yes, your Honours.

GUMMOW J:   Yes.

MR KING:   Yes, may it please the Court.

GUMMOW J:   Yes.  There will be a grant of special leave in this matter.  The grounds of appeal as they presently appear in the draft at page 105 should be revised to reflect the matters put in the course of argument this morning on the special leave application.  The matter will be a one half to one day appeal, I should think.

AT 11.13 AM THE MATTER WAS CONCLUDED