The borrower and the lender had attended mediation under the Farm Debt Mediation Act. The mediation agreement included terms that the borrowers had until a particular date to refinance the properties or sell the properties to repay all arrears. The lender obtained a certificate under s11 of the Act four days before that date (i.e. prior to the last date on which the borrowers were able to repay/refinance the loans). The borrowers did not refinance or repay as required by the mediation agreement, and the lender brought proceedings. The borrowers and the lender settled proceedings with consent orders
The lender sought to enforce the consent orders and the borrower resisted arguing that the original certificate under the Farm Debt Mediation Act was void, because it was issued prematurely. They argued that the Farm Debt Mediation Act therefore prohibited the proceedings and that the court should set aside the Consent Orders that they had entered many months ago.
The question was whether the borrowers were in “default” on the day the certificate was issued. They argued they weren’t because the mediation agreement gave them until the final date to fulfil the conditions of that agreement. While they agreed they had been in default under the loan agreements, they argued that once they signed the mediation agreement the debt had been ‘postponed’ by that agreement.
The judge disagreed, and stated that the mediation agreement and its terms did not replace the farm mortgages or postpone the debt. All the mediation agreement did was allow the borrowers a period of time in which they could sell or refinance their home. It still contained the necessary assumption that they were in default and, although the lender could not enforce their remedies under the mortgage until the time for performance of the agreement had passed, it did not mean the borrower was no longer in default.
Accordingly the judge held that at the time the certificate was issued the borrowers were in default and therefore the certificate was valid. The lenders had not taken any enforcement action until after the relevant date had passed and therefore their action was valid. The judge therefore dissolved the injunction that had been preventing the lenders from selling the properties and dismissed the borrower’s application to set aside the consent orders.
Note – an appeal was filed in this matter, and the borrowers obtained a short injunction in the Court of Appeal – click here to read our case note.