Waller v Hargraves Secured Investments [2012] HCA 4

This High Court decision involved the NSW Farm Debt Mediation Act.

Under the Act there is a mechanism designed to assist farmers but which in practice makes lenders loathe to deal with them–this case being a prime example.

Under the Act, a lender, before taking any steps to enforce a farm mortgage, must first send the farmer 21 days prior written notice by the creditor s 8(1).

In response the farmer may request mediation. s 9

Once a farmer has given a creditor a notification requesting mediation, the creditor must not take enforcement action in respect of the farm mortgage s10

The bar to enforcement created by the farmer requesting mediation can is lifted by the lender obtaining a s 11 certificate. This is available if:

  1. satisfactory mediation has taken place in respect of the farm debt involved, or
  2. the farmer has declined to mediate, or
  3. 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith (whether or not a mediation session or satisfactory mediation took place during that period).

In this case a certificate was awarded to a creditor under s 11 of the Act following a mediated settlement of a dispute arising out of the breach of a loan agreement which had given rise to a farm debt.

As part of the settlement a second loan agreement was negotiated and a third loan agreement negotiated when the second loan agreement was breached. Monies advanced under each subsequent loan agreement were secured by the same “all monies” mortgage.

The question before the court was whether the certificate issued under s 11 lifted the bar on the enforceability of the mortgage for the advances made under the third loan agreement.

The High Court decided against a lender holding that Farm Mortgage in the Act does not actually mean Farm Mortgage but rather means Loan Agreement:

The definition of “farm mortgage”, however, extends beyond the general law it extends to an “interest” or a “power” over farm property securing obligations of the farmer “as a debtor”.

The successive discharge of the debts secured by Hargraves registered mortgage under the first and second loan agreements extinguished Ms Waller’s obligations arising under that mortgage by reason of those agreements.

No enforcement action could thereafter be taken under the mortgage by reference to obligations arising under those agreements. The answer to the question whether the third loan agreement, read with the Hargraves mortgage, created a new interest or power over Ms Waller’s farm, is in the affirmative. ‘

The question of construction should be answered in favour of Ms Waller. That answer cannot be met in this case by a general appeal to absurdities that might arise in particular circumstances. Absurd or unintended consequences of this broadly drawn legislation can be conjured in opposition to the competing constructions. The policy of the statute is remedial. The construction advanced by Ms Waller is within the scope of its remedial purpose.

Once again the Court has opted for an absurd construction on the grounds that the intention of the legislature is that the legislation be remedial. While this principle may sound very grand it is not a valid legal principle in the tradition of the rule of law. This is because to ignore the plain meaning of the words of a statute, in favour of stretching their meaning so that the consumer will always prevail, is in fact an abandonment of the rule of law.

As Cesare Beccaria  observed:

There is nothing more dangerous than the common axiom, ‘the spirit of the laws is to be considered’. To adopt it is to give way to the torrent of opinions. This may seem a paradox to vulgar minds, which are more strongly affected by the smallest disorder before their eyes, than by the most pernicious though remote consequences produced by one false principle adopted by a nation.

John Locke in Two Treatises on Government explained that for justice to prevail the law cannot have favourites–even if they are consumers:

Freedom of men under government is, to have a standing rule to live by, common to every one of that society

They are to govern by promulgated established laws, not to be varied in particular cases, but to have one rule for rich and poor, for the favorite at court, and the countryman at plough.

If the normal rules of construction are to be abandoned, and instead legislation is to be interpreted broadly and liberally in favour of one party, the law will be uncertain. Montesquieu explained this in Spirit of the Laws:

The judgments ought to be fixed, and to such a degree, as to be always conformable to the exact letter of the law. Were they to be the private opinion of the judge, people would then live in a society without knowing exactly the obligation it lays them under.

Click here to read the full judgment

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