The Impact of Waller v Hargraves Secured Investments
Ltd  HCA 4 on Farm Debt Mediations
The High Court has recently considered a lender's
entitlement to enforce a "farm mortgage" after mediating
under the NSW Farm Debt Mediation Act 1994
Although the case relates to the NSW Act, the decision has the
potential to impact on the enforcement of farm mortgages and the
recovery of farm debts in other jurisdictions, including
Queensland, which has the voluntary Queensland Farm Finance
Strategy and Victoria, which enacted the Farm Debt Mediation
Act 2011 (Vic) in December 2011.
The relevant facts of Waller v Hargraves Secured Investments
Ltd  NSWCA 300 are:
The lender advanced $450,000 to the borrower on security of a
mortgage over a farming property.
The borrower defaulted on the loan repayments and the parties
participated in a farm debt mediation under the NSW Act.
Following the mediation, a section 11 certificate was issued by
the Rural Assistance Authority, entitling the lender to proceed
with the enforcement of its farm mortgage.
The agreement reached at mediation involved the lender
providing a further loan of $640,000 to the borrower.
The borrower was unable to meet its obligations under the
second loan by the end of the facility term, so the lender agreed
to provide a third loan to the farmer and extended the repayment
date under the facility.
Each of the loans was secured by an "all monies
mortgage" securing all debts owed by the borrower to the
lender from time to time.
Following the borrower's further default, the lender
commenced proceedings against the borrower for possession of the
The NSW Act
Section 8 of the NSW Act requires that a lender must not take
"enforcement action" against a farmer unless the farmer
has been given an opportunity to participate in mediation under the
NSW Act. Section 8 does not apply once a section 11 certificate is
in force in respect of the "farm mortgage" concerned (a
section 11 certificate generally remains in force for 3 years after
it is issued).
Under the NSW Act the Rural Assistance Authority must issue a
section 11 certificate:
where the farmer is in default under the "farm
the Authority is satisfied a satisfactory mediation has taken
place in respect of the "farm debt" involved (or, having
been offered mediation, the farmer did not wish to mediate) .
In allowing the borrower to appeal the decision of the NSW Court
of Appeal, the High Court took the view that:
each of the second and third loan agreements discharged the
preceding loan agreement;
at the date of the enforcement action (i.e., the claim for
possession and/or the claim for money judgement), the only
obligations secured by the registered mortgage were those under the
third loan agreement;
the third loan agreement, when read with the registered
mortgage, created a new farm mortgage;
the mediation and the section 11 certificate related to the
first loan agreement and not the third loan agreement; and
therefore, at the time of the enforcement action, there was no
section 11 certificate in force in respect of the farm
The High Court considered this to be the case even though the
second and third loan agreements had been entered into to give
effect to the agreed terms of the mediation.
The effect of the decision is that a lender may be obliged,
subject to the mediation outcomes under the NSW Act (including how
a continuing forbearance is documented), to offer a borrower a new
mediation before the lender is entitled to commence proceedings for
the enforcement of a loan agreement entered into after the original
Impact for lenders
If the mediation agreement or post-mediation negotiations
concern the re-documentation or variation of the borrower's
loan agreement (or taking a new or additional farm mortgage), then
a lender should consider:
Documenting any mediation agreement to vary payment obligations
by deed of forbearance rather than re-documenting or varying the
Ensuring any re-documentation or variation of a loan agreement
is described as a variation, includes a statement that any existing
loan agreement is not discharged by the new documentation and
reserves the lender's rights in relation to the borrower's
default under the earlier loan agreement and/or farm mortgage.
Offering a further mediation before the lender takes
enforcement action. From a practical perspective, although the
prospect of another mediation may be attractive to farmers seeking
more time to meet their obligations, the emotional and monetary
costs of mediation may deter others from electing to keep open the
possibility of or right to a further mediation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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