Hargraves Secured Investments v Waller [2009] NSWSC 1210

This case involved a farm mortgage. A defence was raised alleging contravention of the Farm Debts Mediation Act and unjustness pursuant to the Contracts Review Act. The issue was whether the lender could rely on a Farm Debts Mediation certificate when the loan was renegotiated after the mediation took place. The borrower argued the renegotiated loan was a new debt. The lender argued the debt was secured by the same mortgage and therefore the certificate was still good. The judge agreed with the lender:

“It is apparent from s 9 and from the Act generally that the Act is principally concerned to deal with farm mortgages rather than farm debts. The enforcement action that is constrained by the Act is the taking possession of property or other enforcement action under a farm mortgage.”

The judge also noted that the renegotiated loan resulted from a successful mediation and that it would not encourage lenders to reach mediated agreements if in doing so they were obliged to resubmit to the entire mediation process again in the event of a subsequent default.

The Contracts Review Act defence was based on the allegation of “asset lending”. The court noted that asset lending is not illegal. The judge found for the lender holding:

“At the time she entered the loan agreement the defendant was content for any sale of her farm to be delayed as long as possible. Indeed, the fact that the defendant has not sold the property in the two years since the commencement of the proceedings promotes the strong inference that she was and remains unrealistically hopeful of never having to sell it despite the most obvious and pressing indications that she should do so. Her present predicament, including accruals to her debt by accumulating interest, is clearly caused by a failure to recognise that she could never afford to keep the farm. It is not the result of any unjust aspect of the loan agreement. This is not a case of a borrower raising finance against the security of an otherwise unencumbered asset, thereby putting it at risk, when there was never any realistic prospect of making interest payments on the loan.”

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