CATCHWORDS

STATUTES - Interpretation - application for vacation of hearing dates of the proceedings due to the commencement of the Farm Debt Mediation Act 1994 (NSW) - "enforcement action" - whether stock mortgage a "farm mortgage".

Farm Debt Mediation Act 1994 (NSW)

FRANK UNDERWOOD & ORS v COMMONWEALTH BANK OF AUSTRALIA & ORS

No NG 99 of 1993

Lindgren J

2 March 1995

Sydney

IN THE FEDERAL COURT OF AUSTRALIA     )

NEW SOUTH WALES DISTRICT REGISTRY     )    No G 0099 of 1993

GENERAL DIVISION                      )

BETWEEN:

FRANK UNDERWOOD

First Applicant

SHIRLEY ELIZABETH UNDERWOOD

Second Applicant

HARRY NOEL CARROLL

Third Applicant

ETHEL OLIVE CARROLL

Fourth Applicant

SHELAGAN PTY LIMITED

ACN 006 068 024

Fifth Applicant

ROTO PASTORAL COMPANY PTY LIMITED

ACN 000 018 244

Sixth Applicant

AND:

COMMONWEALTH BANK OF AUSTRALIA

ACN 123 123 124

First Respondent

DALGETY RURAL FINANCE LIMITED

ACN 000 034 917

Second Respondent

DALGETY FARMERS LIMITED

ACN 004 302 390

Third Respondent

CORAM:    Lindgren J

PLACE:    Sydney

DATE:     2 March 1995

                      MINUTE OF ORDERS

THE COURT:

1.   ORDERS that the applicants' application for the vacation of the hearing dates for the proceedings be dismissed.

2.   ORDERS that the applicants pay the respondents' costs of that application.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA     )

NEW SOUTH WALES DISTRICT REGISTRY     )    No G 0099 of 1993

GENERAL DIVISION                      )

BETWEEN:

FRANK UNDERWOOD

First Applicant

SHIRLEY ELIZABETH UNDERWOOD

Second Applicant

HARRY NOEL CARROLL

Third Applicant

ETHEL OLIVE CARROLL

Fourth Applicant

SHELAGAN PTY LIMITED

ACN 006 068 024

Fifth Applicant

ROTO PASTORAL COMPANY PTY LIMITED

ACN 000 018 244

Sixth Applicant

AND:

COMMONWEALTH BANK OF AUSTRALIA

ACN 123 123 124

First Respondent

DALGETY RURAL FINANCE LIMITED

ACN 000 034 917

Second Respondent

DALGETY FARMERS LIMITED

ACN 004 302 390

Third Respondent

CORAM:    Lindgren J

PLACE:    Sydney

DATE:     2 March 1995

                    REASONS FOR JUDGMENT

INTRODUCTION

There is before the Court an application by the applicants for
an order vacating the hearing dates assigned for these proceedings.  They are currently fixed for hearing before me commencing next Monday 6 March.  Three weeks have been set aside for the hearing (for reasons unconnected with the present application, I have vacated the third week).

The application for vacation is based on the mandatory mediation provisions of the recently enacted Farm Debt Mediation Act 1994 (NSW) (Act No 91 of 1994) ("the Act").  The Act commenced to operate on 12 February 1995.

In the proceedings there is a cross-claim by the second and third respondents (I will refer to them collectively as ("Dalgetys").  The applicants say that if Dalgetys pursue their cross-claim to hearing commencing next Monday, this would involve the taking by them of "enforcement action" in respect of a "farm mortgage" in contravention of the Act.

BACKGROUND FACTS

The sixth applicant ("Roto") is the registered proprietor of a farm at Hillston in New South Wales ("the Farm").  The fifth applicant ("Shelagan") carries on a sheep farming operation on the Farm.  The first and second applicants ("Mr and Mrs Underwood") are directors of Shelagan.  I need not refer to the other parties.

According to the amended statement of claim, in about March 1987 an agreement for loan was entered into between Dalgetys as lenders and Shelagan as borrower ("the Dalgety agreement"), a term of which was that Shelagan would execute a stock mortgage in favour of Dalgetys which it did on 28 May 1987. Indeed, the stock mortgage dated 28 May 1987 from Shelagan as mortgagor to Dalgetys as mortgagees ("the Stock Mortgage") is in evidence.  The applicants plead against Dalgetys various causes of action which assert negligent misrepresentation, misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974, breach of an implied term of the Stock Mortgage that Dalgetys would exercise their rights under the Dalgety agreement in good faith, and breach of a general law duty to act with good faith.

Dalgetys have filed a defence and cross-claim.  By the cross-claim they seek to recover from Mr and Mrs Underwood and Shelagan, or alternatively from Shelagan alone, money which was borrowed from Dalgetys on a "pastoral account" operated with Dalgetys.  The cross-claim pleads that the money borrowed was repayable on demand and that interest was also payable.  It pleads that as at 12 May 1993 the amount outstanding was $365,895.38 inclusive of interest, and that interest is accruing at the rate of 14.25% per annum ($142.18 per day).  Dalgetys seek a money judgment against Mr and Mrs Underwood and Shelagan, or alternatively against Shelagan alone.  The cross-claim does not refer to the Stock Mortgage, although it is not in dispute that any indebtedness of the kind referred to in the cross-claim which may be found to exist is in fact secured by the Stock Mortgage.

THE ACT

The purpose of the Farm Debt Mediation Bill was stated in the Second Reading Speech in the Legislative Assembly on 27 October 1994 in the following terms:

     "The purpose of the bill is to establish legislation to not only enable a farmer and a credit provider to apply for voluntary mediation concerning farm debts but also to make provisions for mandatory mediation covering farm debts before a creditor can take possession of property or other enforcement action under a farm mortgage."

The Explanatory Note relating to the Bill said:

     "The objects of this Bill are:

     (a)  ................................................

     (b)  to make provision for mandatory mediation concerning farm debts before a farmer's creditor can take possession of property or other enforcement action under a farm mortgage."

The Act itself, in s 3, states its object as follows:

     "3.  The object of this Act is to provide for mediation concerning farm debts before a creditor can take possession of property or other enforcement action under a farm mortgage."

The applicants rely upon s 6 and sub-ss 8 (1) and (2) of the
Act which are as follows:

     "6.    Enforcement action taken by a creditor to whom this Act applies otherwise than in compliance with this Act is void.

            .................................................

      8.(1)A creditor to whom money under a farm mortgage is owed by a farmer must not take enforcement action against the farmer in respect of the farm mortgage until at least 21 days have elapsed after the creditor has given a notice to the farmer under this section.

        (2)Notice to the farmer is to be in writing in a form approved by the Authority (informing the farmer of the creditor's intention to take enforcement action in respect of the farm mortgage and of the availability of mediation under this Act in respect of farm debts)."

The effect of these provisions depends upon the following definitions in sub-s 4 (1) of the Act:

     "'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;

     'farm' means land on which a farmer engages in a farming operation;

     'farm machinery' means:

     (a)  a harvester, binder, tractor, plough or other agricultural implement; or

     (b)  any other goods of a class commonly used for the purposes of a farming operation that are prescribed by the regulations as being farm machinery for the purposes of this Act,

     if the goods are acquired for the purposes of a farming operation;

     'farm mortgage' includes any interest in, or power over, property (comprising a farm or part of a farm or farm machinery used by a farmer in connection with a farming operation, or both) securing obligations of the farmer (whether as a debtor or guarantor)".

It is not in dispute that Dalgetys fall within the expression "a creditor to whom [the] Act applies", that Shelagan is a "farmer", and that Shelagan engages in a farming operation on Roto's farm at Hillston with Roto's authority.

SUBMISSIONS AND REASONS.

The applicants submitted that the relevant "farm mortgage" was, or was to be found in, the Stock Mortgage.  By the Stock Mortgage, in consideration of advances already made and/or to be made by Dalgetys to, for on account of Shelagan, and in consideration of the forbearance of Dalgetys for one day from the date of the Stock Mortgage to sue for past advances, Shelagan as beneficial owner assigned to Dalgetys the "sheep and livestock" then depasturing on, or belonging to "[Shelagan's] run or property known as 'Roto Station'" and other sheep and livestock which might thereafter be acquired by Shelagan and be on that land or other land then or thereafter "owned, leased or occupied by [Shelagan] or which may be used by [it] in the conduct or management of [its] operations, business, trade or occupation ... AND all the present and future increase and progeny of the said sheep and livestock ...".  I will say more about individual terms of the Stock Mortgage later.

In my opinion Dalgetys' submission that the pursuing of its cross-claim is not "enforcement action" as defined should be accepted.  Dalgetys may never take possession of or sell any property under the Stock Mortgage or enforce any term of it.  According to the cross-claim, Dalgetys seek to enforce, not the Stock Mortgage, but an agreement between Dalgetys and Mr and Mrs Underwood and Shelagan or Shelagan alone for the operation of a pastoral account with Dalgetys on which money was in fact borrowed repayable on demand with interest.  Dalgetys will be able to prove the elements of its cross-claim without tendering the Stock Mortgage.  If Dalgetys succeed on their cross-claim, the result will be a money judgment.  This is not a judgment which will authorise Dalgetys to take possession of property or to sell anything or to enforce any term contained in the Stock Mortgage.

Reference was made in submissions to the "non-inclusions" referred to in paras (a) and (b) in the definition of "enforcement action".  These paragraphs are referable to the retrospectivity provided for by the words "including the continuing of action already commenced to enforce a farm mortgage" (the commencement after 12 February 1995 of action to enforce a farm mortgage is, a fortiori, within the
definition of "enforcement action").  Paragraph (b) would, for example, allow the enforcement after 12 February 1995 of a judgment for possession of a farm obtained before that date.  But the commencement after that date of proceedings for possession of a farm would be caught as "enforcement action".

A second reason why, in my view, the prohibitions in ss 6 and 8 of the Act do not apply to Dalgetys' cross-claim is that the Stock Mortgage is not a "farm mortgage" as defined.  Dalgetys point out that "farm" is defined to mean land or "farm machinery" as defined, and so sheep and livestock are not caught.  The applicants make two submissions, in the alternative, in reply.  The first submission depends upon the inclusive nature of the definition of "farm mortgage".  The applicants submit that a result of this is that the word "property" in the definition is not limited by reference to the words within parenthesis.  They also submit that "the word 'includes' at the beginning of the definition ... is a phrase of extension".  The applicants submit that the word "property" in the definition of "farm mortgage" includes sheep used by a farmer in connection with the farming operation.

Putting to one side the terms of the definition of the expression "farm mortgage" in sub-s 4 (1), I would have understood that composite expression to mean a mortgage over land on which farming takes place or which is apt to accommodate that activity.  I would have had that understanding for two reasons.  The first is that the noun
"farm" according to its ordinary meaning refers to land (including fixtures).  I refer to the following relevant dictionary definitions of "farm":

     The Macquarie Dictionary, 2nd Revised Edition, 1990.

     "farm n. 1. a tract of land devoted to agriculture. 2. a farmhouse. 3. a tract of land or water devoted to some other industry, esp. the raising of livestock, fish, etc.: a chicken farm, an oyster farm. ..."

     The New Shorter Oxford English Dictionary (1993).

     "farm ... 4 A tract of land held (orig. on lease) under one management for the purposes of cultivation or the rearing of certain animals (for food or fur etc.). ... 5 A farmhouse ..."

My own understanding of the word "farm" as used in common parlance is also that it refers to land and not to animals which are "on" the farm.

Secondly, the word "farm" is, in any event, defined in sub-s 4 (1) as meaning in the Act "land on which a farmer engages in a farming operation" and the word "farm" bearing that meaning forms part of the composite expression "farm mortgage".  Since the latter expression is used in the Act, even in the absence of a definition of it, it would mean a mortgage of a "farm" as defined.

Against the above background, the definition of "farm mortgage" is correctly understood as extending the notion of "farm mortgage" to which I have referred to include that which would or might not otherwise have been included within it. 
Thus, "any interest in, or power over, a farm" is referred to in the definition.  The definition also makes clear that a part of a farm as well as an entire farm is caught.  Finally, farm machinery as well as a farm itself is covered.  But there is no warrant for extending the notion of a "farm mortgage" yet further by construing the word "property" as comprising more than what is referred to in parenthesis.  Accordingly, the Stock Mortgage will only be a "farm mortgage" if either it falls within the notion of a farm mortgage to which I referred (the applicants did not suggest that the Stock Mortgage fell within that notion) or it is caught by the words of extension in sub-s 4 (1).

The applicants' second submission was that the Stock Mortgage is indeed caught by the extended statutory definition, because it gave Dalgetys a power over Roto's farm.  This submission depends upon the following clauses in the Stock Mortgage:

     "9.THAT it shall be lawful for the Mortgagee at any time and from time to time although no default shall have been made by the Mortgagor hereunder and notwithstanding any previous default or other matter or thing whatsoever and without giving to the Mortgagor any notice to enter upon the said lands and take possession of the mortgaged stock and in particular of all future and after-acquired live stock of the Mortgagor upon the said lands of any part of parts thereof and wherever the same may be and for the purpose of getting in managing or selling the mortgaged stock or any part of parts thereof or otherwise dealing with the same or giving effect to the security of for any purpose connected therewith to enter upon occupy and use the said lands or any part thereof and any other lands upon which any of the mortgaged stock may be with full right and liberty of ingress egress and regress into and from the same and any part thereof at all times.

     16.THAT the Mortgagee by its agents or servants may at all reasonable times during the continuance of this security enter upon the lands upon which the said stock shall be or be depasturing for the purpose of inspecting or examining the same or for any purpose connected with this security or for satisfying itself whether the covenants and stipulations herein contained on the part of the Mortgagor have been observed and performed, and for better enabling the Mortgagee to make such an inspection and e  examination the Mortgagor will upon request from or on behalf of the Mortgagee so to do muster the said stock in some convenient place upon the said lands."

The precise source and nature of Shelagan's tenure in respect of Roto's farm is not before me.  The applicants do not submit that the Stock Mortgage clauses to which I have referred gave Shelagan "any interest in" the farm.

The expression "power over", must, in my view, be read in conjunction with the words "interest in" and "securing obligations of the farmer".  In the context in which they appear, the powers of entry given by clauses 9 and 16 are not, in my view, within the notion of a power given over the farm itself to secure Shelagan's obligations.  It is common ground that Shelagan is not the owner of the farm.  The background against which the Stock Mortgage is to be construed is that it is only Roto which could give any interest in or power over the farm itself to secure Shelagan's obligations.  A power to appoint a receiver in respect of a farm itself could be an example of such a power.  The powers given in clauses 9 and 16, however, are merely incidental to other powers given by the Stock Mortgage in respect of the sheep.  That this is the proper view of those powers is supported by the fact that the
Stock Mortgage is given in respect of existing and after-acquired livestock on any lands owned, leased, occupied or used by Shelagan.  The powers given by clauses 9 and 16 may however, assume a different complexion against a background of the mortgagor's ownership of the farm in question.  I need not deal with this matter.

In my view, the Stock Mortgage does not give a "power over" Roto's farm "securing obligations of" Shelagan for the purpose of the definition of "farm mortgage".

CONCLUSION

For all the foregoing reasons I am of the view that the Act does not operate to prohibit Dalgetys from pursuing their cross-claim at the hearing due to commence next Monday 6 March.  Accordingly the applicants' application for a vacation of the hearing dates is refused and the applicants are ordered to pay Dalgetys' costs of that application.

              I certify that this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

              Associate:

              Dated:             6 March 1995

Heard:        1 March 1995

Place:        Sydney

Decision:     2 March 1995

Appearances:  Mr D J Higgs and Ms R Sofroniou of counsel instructed by Walsh James solicitors appeared for the applicants.

              Mr J E Maconachie QC and Mr M T McCulloch of counsel instructed by Minter Ellison Morris Fletcher appeared for the second and third respondents.