Westpac Banking Corporation v Hodgson Pastoral Co (1996) NSWConvR 55-765

The Facility Agreement replaced a previous secured loan facility of $6.2 million which was agreed upon with the consent of the second and third defendants. In 1994, the facility was increased by $500,000.

In January 1995, a budget was prepared that outlined Hodgson Pastoral Co’s planned business activities for the year. The budget indicated that the company’s current account with the bank would remain in credit, and it projected a net income of approximately $1.9 million for Hodgson Pastoral Co over the course of 12 months. However, Hodgson Pastoral Co was unable to pay the $500,000 increase from 1994 that was due at the time.

The bank conditionally approved the continuation of the term loan on the condition that Torry Plains, one of the secured properties, be sold by auction before 31 August 1995. The bank also stipulated that a working account would only be allowed on a credit basis and that all other terms and conditions of the facility would remain unchanged. However, negotiations regarding the terms of the documents to implement this approval broke down in September 1995.

Subsequently, the bank sent Hodgson Pastoral Co documents pursuant to s 8 of the Farm Debt Mediation Act, and it responded, requesting mediation.

Westpac sent a letter to each defendant, asking them to provide a preferred lien over any harvested crop and confirm in writing that the proceeds from crop sales would be credited to Hodgson Pastoral Co’s account with the bank. The defendants’ solicitors informed the bank that the clients would not execute crop liens as the crops had already been mortgaged and any further mortgage would breach existing obligations.

Several charges had been registered over Hodgson Pastoral Co’s property including by Barrier Engineering registering a Fixed and Floating charge over Hodgson Pastoral Co’s assets to secure $100,000 plus interest of $4,000. This charge was said to be secured by a crop lien over a wheat crop on 4,000 hectares of land in addition to a crop lien granted to Seedex Pty Ltd.

None of these securities were granted with the consent of Westpac. The proceedings before the court were initiated as a result of these developments.

Westpac claimed to be entitled to receive/control payments generated in return of harvesting the wheat crop. The defendant however contended that this amounted to an enforcement action by the bank which was prohibited due to the ongoing mediation process under the Farm Debt Mediation Act.

The court had to decide whether the banks claim for relief could be determined before the mediation under the Farm Debt Mediation Act had been completed. In deciding this, the court considered whether the relief claimed fell within the meaning of an ‘enforcement action’. Under the Farm Debt Mediation Act an enforcement action is prohibited before the conclusion of the Mediation.

The bank claimed that the legislation did not preclude any action which has the effect of confirming the existence of its rights. The bank further contended that the opportunity to bring proceedings and obtain an order to ensure that rights are preserved is not proscribed by the legislation. What is in fact proscribed is bringing any action that would have the effect of dispossessing the farmer of the farm.

The court agreed with this characterisation of an enforcement action. The court said that the legislation does not show any intention to forbid the bringing of all legal proceedings or taking of any step in any legal proceedings. The prohibition in effect relates to enforcement actions.

Therefore, the court held that to give the act a construction that would allow the farmer an opportunity to alter the right of the creditor would defeat the purpose of the act.

The court further held that the grant of orders to which the plaintiff is otherwise entitled i.e. an order granting injunction, does not fall within the ambit of an enforcement action. In coming to this conclusion, the court affirmed the validity of the security interests held by the bank which it was entitled to protect by seeking an injunction.