The High Court determined that this settlement resulted in a new loan agreement, effectively refinancing the original secured debt. Although the lender had initially obtained a certificate under the Farm Debt Mediation Act 1994, which allowed them to enforce their mortgage without further mediation, this certificate was deemed ineffective for the new loans. Therefore, an additional mediation was required before the lender could enforce their mortgage that secured the loan entered into after the mediation. Any enforcement action taken without further mediation would be considered invalid.
In summary, the borrower had borrowed $45,000 from the lender and secured the loan by a mortgage on her farm. After defaulting on her repayments, the lender notified the borrower of their intention to take enforcement action under the Farm Debt Mediation Act. Following mediation, the parties reached a settlement and entered into a new loan agreement, with the lender providing an additional $640,000 to the borrower. Subsequently, they entered into another agreement that postponed the repayment of the principal sum. However, the borrower failed to make the required interest repayments, leading the lender to initiate legal proceedings to gain possession of the farm property and seek judgement for the principal sum and interest.
The borrower argued that the lender had not complied with the Act, as the certificate issued under the Act only pertained to the debt from the initial loan agreement. The legal proceedings, according to the borrower, constituted enforcement action for the debt arising from the subsequent loan agreement and was therefore void. Initially, both the trial judge and the Court of Appeal ruled in favour of the lender, stating that the certificate authorised enforcement action regardless of the specific farm debt involved. However, the borrower was granted special leave to appeal to the High Court.
Ultimately, the High Court determined that the certificate did not permit the lender to take enforcement action regarding the debt arising from the subsequent loan agreement. The concluded that the Act focuses on “farm debt” rather than “farm mortgages” and that mediation could only occur in relation to a “farm debt”. The reference to a certificate in s8(3) of the Act denotes a certificate confirming satisfactory mediation specifically for the “farm debt” in question.
The appeal was accordingly allowed. Hargraves was required to participate in a mediation with Ms Waller before commencing enforcement procedures.