Musumeci Property Investments Pty Limited in its capacity as the trustee of the ABC Discretionary Trust v National Australia Bank Ltd & Ors

By Summons filed on 19 January 2024, the Plaintiffs, Musumeci Property Investments Pty Ltd (“MPI”) in its capacity as the trustee of the ABC Discretionary Trust and Cheeky Farms Pty Ltd (“CFPL”) seek a declaration that the appointment, by National Australia Bank Ltd (“NAB”), of Messrs Marsden and Heenan as joint and several receivers and managers (“Receivers”) in respect of the secured property of MPI and CFPL be set aside and consequential relief. The Plaintiffs seek that relief under s 418A of the Corporations Act 2001 (Cth) (“Act”), to which I refer below. The issue raised involves a question as to whether the Farm Debt Mediation Act 1994 (NSW) (“FDMA”) extends to an appointment of receivers that occurred in New South Wales in respect of property situated wholly outside New South Wales. The Fourth Defendant, Ms Kathie Musumeci, has undertaken to the Court to indemnify the Plaintiffs for all costs incurred by them in respect of this proceeding and any adverse costs order that is made against them in this proceeding.

The parties ultimately did not read any affidavit evidence. They agreed several background facts, which were noted by orders made by Rees J on 25 January 2024, to which I refer below, and tendered documents relating to their relationship.

It is common ground that the Plaintiffs borrowed in excess of $9 million from NAB in connection with a substantial mango farming operation in the Northern Territory and that CFPL operates that business on land owned by MPI. NAB and MPI are party to a Business Letter of Offer dated 24 August 2020 recording a loan to MPI of $3.5 million in respect of working capital and $5.88 million in respect of the purchase of real property located in the Northern Territory. It is an agreed fact that the governing law of the loan facilities provided by NAB to MPI pursuant to that Business Letter of Offer is the law of New South Wales. CFPL and NAB are party to an Equipment Loan and Goods Mortgage dated 14 October 2016 recording a loan of $1 million in respect of equipment that was located in the Northern Territory. It is also an agreed fact that the governing law of that Equipment Loan and Goods Mortgage is the law of New South Wales.

By General Security Agreements dated 5 July 2018, CFPL and MPI granted security interests over the present and future rights, property and undertaking of CFPL and MPI respectively, including farm machinery situated wholly in the Northern Territory. Each of those agreements is expressed to secure the amount owing as a security interest over personal property and a charge over “other property to NAB by way of fixed charge” and the “other property” is defined in each agreement to include present and after acquired rights and interests in land. There are agreed facts that the governing law of the General Security Agreements are also the law of New South Wales. MPI also granted a registered mortgage in favour of NAB on 20 July 2018 in respect of the Berry Springs and Lambells Lagoon properties located in the Northern Territory and also granted a registered mortgage dated 3 September 2020 in respect of a third property also located in the Northern Territory. It is an agreed fact that the governing law of those registered mortgages is the law of the Northern Territory.

On 1 November 2022, NAB gave notice to MPI and CFPL under s 89(2) of the Law of Property Act 2000 (NT) of the exercise of a power of sale, referring to default in respect of the General Security Agreement and mortgages, arising from a failure to pay the total amount owing of $9,710,408.86 and giving notice that NAB as mortgagee may proceed to take specified steps unless MPI remedied the default. By a Deed of Forbearance and Settlement dated 2 February 2023 between NAB, MPI, CFPL and Ms Musumeci, the parties recited that one or more Existing Events of Default (as defined) had occurred under the terms of the Facilities and Securities and that NAB was entitled to take enforcement action and recorded the terms on which NAB then agreed to forbear from undertaking such action. On 1 November 2023, NAB gave a further notice under s 89(2) of the Law of Property Act 2000 (NT) of the exercise of power of sale, relating to a debt that had then increased to $9,746,087.14. There are agreed facts that NAB has not served a notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) on MPI and that NAB has served notice pursuant to s 89(2) of the Law of Property Act 2000 (NT).

On 21 December 2023, MPI, CFPL and Ms Musumeci sent an Intake Agreement for Farm Debt Mediation to the NSW Rural Assistance Authority (“Authority”), which was copied to NAB, seeking to invoke the provisions of the FDMA.

By Deeds of Appointment of Receivers and Managers dated 15 January 2024, NAB appointed the Receivers as joint and several receivers and managers in respect of the Secured Property (as defined) in respect of each of MPI, relying on the relevant General Security Agreement and the mortgages, and CFPL, there relying on the General Security Agreement. It is an agreed fact that, if the FDMA otherwise applies, the appointment of the Receivers was “enforcement action” for the purposes of the FDMA: Constaninidis v Equity Trust Ltd [2010] NSWSC 299. For the purposes of this hearing, the Plaintiffs do not dispute that NAB was entitled to appoint the Receivers, other than by the claim which they advance in respect of the FDMA.

The Plaintiffs contend that the Court should find that the appointment of the Receivers was made in New South Wales and point to the facts that each Deed of Appointment was sent by NAB from an address in Sydney; was received by the Receivers at an address in Sydney; required service of any notices under the Deeds to the Receivers at the specified addresses in New South Wales (cl 6.3); nominated the laws of New South Wales as the governing law (cl 7.2); and the registered address of each of MPI and CFPL was in Sydney. After a degree of vacillation in oral submissions, Mr Leopold, with whom Mr Koch appeared for NAB, accepted that the Deeds of Appointment were executed in New South Wales or at least that the Court should properly reach a finding to that effect where both NAB and the Receivers are there recorded as having addresses in New South Wales and NAB led no evidence to seek to establish the contrary. That acknowledgment, properly made, significantly narrows the scope of the issues in the application and marginalises aspects of wider issues raised by both parties.

For completeness, consistent with the matters noted above, it is also an agreed fact that all of the property to which the Receivers are appointed is located in the Northern Territory. The Receivers are not appointed in respect of any access licence within the meaning of the Water Management Act 2000 (NSW).

Section 5(1) of the FDMA provides that the FDMA applies in respect of creditors only in so far as they are creditors under a farm debt (as defined). As amended with effect from 3 September 2018, s 8 of the FDMA in turn provides:

The term “creditor” is defined in s 4 of the FDMA as “a person to whom a farm debt is for the time being owed by a farmer.” The term “enforcement action” is defined, in relation to a farm mortgage, as taking possession of property under the mortgage or any other action to enforce the mortgage including specified matters. The term “farm” means “land on which a farmer engages in a farming operation.” The term "farm debt" is defined as a debt incurred by a farmer for the purposes of the conduct of a farming operation that is secured wholly or partly by a farm mortgage. The term “farm mortgage” is defined as including “any interest in, or power over, any farm property securing obligations of the farmer whether as a debtor or guarantor, including any interest in, or power arising from, a hire purchase agreement relating to farm machinery”, but excludes specified matters that are not presently relevant. The term “farm property” includes, relevantly, a farm or part of a farm or farm machinery used by a farmer in connection with a farming operation. The term "farmer" is defined as including a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation, as defined, and the term “farming operation” is defined in s 4AB of the FDMA as including, relevantly, “a business undertaking that primarily involves one or more of” specified activities, the first of which is “agriculture (for example, crop growing and livestock or grain farming).”

Mr Pesman, with whom Mr Brezniak appears for the Plaintiffs, draws attention to, and I also have regard to, the observations of Stern JA concerning the scope of s 8 of the FDMA in Edmonds v Barrington Winstanley Group [2023] NSWCA 166 at [103]-[120]. Her Honour there observed (at [103]) that the FDMA was amended in 2018, with the amendments commencing on 1 September 2018, and Mr Pesman rightly notes that those amendments took place before the enforcement action which is here contested by the Plaintiffs. Her Honour also there observed (at [119]-[120]) that:

Section 14 of the FDMA refers to the circumstances in which the Authority may grant or refuse an exemption certificate which requires, inter alia, that at least one “additional ground” for granting the exemption certificate as specified in s 14(3) is established. Relevantly, s 14(3)(b) of the FDMA specifies an additional ground that:

Mr Pesman submits and I accept that the Court has jurisdiction, in a proper case, to declare the appointment of the Receivers to be invalid under 418A(2) of the Act. This section allows the Court to make an order declaring whether the purported appointment of a controller is valid on the application of, relevantly, the corporation concerned: Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223; 22 ACLC 1508; [2004] FCA 1352; Jones, Weaver and Saker as Receivers and Managers of Narrogin Beef Producers Pty Ltd (recs and mgrs apptd) v Narrogin Beef Producers Pty Ltd (recs and mgrs apptd) (No 2) [2010] WASC 365; National Australia Bank v Redside Pty Ltd (2023) 69 VR 539; 167 ACSR 668; [2023] VSC 145.

Mr Pesman submits that NAB’s appointment of the Receivers is void by reason of NAB’s suggested failure to comply with the mediation provisions of the FDMA prior to their appointment. Obviously enough, that submission depends upon the premise that the FDMA was applicable in the relevant circumstances. Mr Pesman identified the issues raised by the proceedings as follows:

Mr Pesman points out that the prohibition in s 8 of the FDMA is directed to “enforcement action” taken by a creditor, and he submits that that enforcement action here took place in New South Wales so that, properly considered, no issue arises as to any extraterritorial application of the FDMA in relation to the appointment of the Receivers. I accept that submission, the correctness of which is the necessary consequence of the matters to which I referred in paragraph 8 above. While no question arises here whether the FDMA extends to enforcement action taken outside New South Wales, a question arises whether the FDMA extends to enforcement action taken in New South Wales in respect of secured property that is situated wholly outside New South Wales. Mr Pesman identified a further question whether, if the relevant events involved the extraterritorial application of the FDMA, sufficient connection to New South Wales was established for the FDMA to apply. That question is of lesser significance where the relevant enforcement action, namely the appointment of the Receivers, took place in New South Wales.

Mr Pesman also draws attention to s 14(3)(b) of the FDMA, to which I referred above. Mr Pesman submits, by reference to that provision, that the FDMA proceeds on the basis that a mediation in respect of land in New South Wales can take place under cognate legislation in other states, and identifies that legislation as including the Farm Debt Mediation Act 2018 (SA), the Farm Debt Mediation Act 2011 (Vic) and the Farm Debt Mediation Act 2017 (Qld). Mr Pesman also submits that:

Mr Leopold in turn refers to Commonwealth Bank of Australia v Ellis (unreported, 2 April 1997) (“CBA v Ellis”) where Coldrey J observed, in a short judgment dealing with the FDMA as it stood prior to the amendments that took effect from 3 September 2018, that:

Mr Leopold acknowledges that the MPI loan and the CFPL loan, and each of the General Security Agreements, are governed by the laws of New South Wales, although the mortgages are governed by the laws of the Northern Territory and each of the properties and the other property (including the farm machinery) secured by the General Security Agreements is situated in the Northern Territory. It does not seem to me that the choice of governing law advances matters very far, other than to raise the question of the content and effect of the FDMA, so far as it is part of the law that is applicable to those agreements.

Mr Leopold also submits, adopting an observation of Coldrey J in CBA v Ellis, that the procedures contemplated by the FDMA are to be observed by the Authority in New South Wales, and he refers to ss 9(1), 10, 11, 13, 14, 15(2)(c), 16(1), 18E(1), 18P and 19A of the FDMA in that regard. He places particular emphasis on s 18P of the FDMA, which provides that an application for an internal review of decisions by the Authority is to be dealt with by the Chief Executive of the Authority and points out that proceedings for an offence against the FDMA are to be dealt with summarily before the Local Court of New South Wales under s 25 of the FDMA. He submits that it would not be expected those procedures are to be applied to property outside New South Wales. I do not consider that I can make that assumption, particularly where the appointment of a receiver occurs in New South Wales. The scope of the FDMA must be determined by its text and the principles of statutory construction that I review below rather than by an a priori assumption as to how the Authority’s resources are to be applied.

Mr Leopold submits that:

Mr Leopold also places weight on the fact that “enforcement action”, as defined in s 4 of the FDMA, includes the giving of a “statutory enforcement notice”, which is defined in s 4 to mean several notices given pursuant to New South Wales legislation, namely a notice under s 57(2)(b) of the Real Property Act 1900 (NSW); a notice under s 111(2)(b) of the Conveyancing Act 1919 (NSW); and a notice under s 71X(1)(b) of the Water Management Act 2000 (NSW). I accept these references focus upon the New South Wales statutory regimes, but I also recognise that they form part of the wider definition of “enforcement action” to which I referred above.

Mr Leopold also submits that:

Mr Leopold also refers to s 12(1)(b) of the Interpretation Act 1987 (NSW) (“Interpretation Act and an associated common law “presumption” that legislation does not have extraterritorial effect, which I address further below. Mr Pesman responds that s 12 of the Interpretation Act is “much more complicated than it may seem” (referring to DRJ v Commissioner of Victims’ Rights (No 2) (2020) 103 NSWLR 692; [2020] NSWCA 242 (“DRJ”) at [97] per Leeming JA; special leave refused [2021] HCASL 53), although he also submits that such complexity does not arise here where the enforcement action to which the statutory prohibition relates occurred in New South Wales. Mr Pesman also draws attention to the observation of Bell P (as the Chief Justice then was) in DRJ (at [11]) that s 12 of the Interpretation Act “is at best a starting point for analysis but it is a starting point that may readily be rebutted”, and he draws attention to the matters identified by Bell P (at [10(ii)-(iv)]) as available to rebut the presumption against extraterritorial operation. Mr Pesman also submits that the “hinge” (DRJ at [35], [157]; BHP Group Ltd v Impiombato (2022) 405 ALR 402; [2022] HCA 33 (“BHP”) at [59]-[63]; Wipro Ltd v State of New South Wales [2022] NSWCA 265 at [40]-[46]) which here supports the extraterritorial application of the FDMA (if, I interpolate, it were necessary to do so) is the protection of New South Wales farmers from enforcement action in New South Wales. I address these cases further below, although I consider they are of lesser assistance where the relevant enforcement action here took place in New South Wales by the appointment of the Receivers, and the question whether the FDMA applies is a matter of its proper construction, as applying to conduct in New South Wales, rather than one of any extraterritorial application of it.

I approach the question of construction raised by these proceedings, primarily in respect of ss 8 and 14 of the FDMA in this case, by reference to well-established principles of statutory construction. Counsel did not address those principles and I adopt my summary of them in Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 at [35]ff as follows:

I have referred above to Counsels’ submissions as to the case law dealing with extraterritorial application of legislation. I have regard to the observation of Emmett JA and Ball J in Chubb Insurance Company of Australia Ltd v Moore (2013) 302 ALR 101; [2013] NSWCA 212 at [145] that:

I also recognise that the Court of Appeal’s decision in DRJ indicates (adopting the summary in the headnote) that a State has extraterritorial legislative competence if there is any real connection, which may be a remote or general connection, between the subject matter of the legislation and the State (per Bell P at [20]; per Leeming JA at [128]). Bell P there observed that:

Leeming JA also there observed (at [111]-[114]) that:

His Honour also noted (at [157]) that:

I also recognise that, in BHP, the High Court addressed, as matter of construction, a question whether Pt IVA of the Federal Court Act 1976 (Cth) permitted representative proceedings to be brought in the Federal Court of Australia on behalf of group members who are not resident in Australia, Kiefel CJ and Gageler J noted (at [23]) BHP’s reliance on a common law “presumption against extraterritorial operation”, which they observed was more accurately labelled a “presumption in favour of international comity”, and held (at [32]) that it provided no basis to read down general references to “group member” in s 33A or “other persons” in s 33D of the Federal Court Act 1976 (Cth), where binding a non-consenting group member who was not resident in Australia to a judgment of the Federal Court determining a matter in which the Federal Court had jurisdiction in a representative proceeding would not infringe any principle of international law or international comity. Their Honours also addressed the scope of s 21 of the Acts Interpretation Act 1901 (Cth), broadly corresponding to s 12 of the Interpretation Act, and observed (at [37]-[38]) that:

Gordon, Edelman and Stewart JJ there referred to DRJ and observed (at [59]) that:

Their Honours also observed (at [61]-[63]) that:

I have had regard to these principles, although, as I noted above, I consider that they are of lesser relevance where the relevant enforcement action here took place in New South Wales by the appointment of the Receivers, and the question whether the FDMA applies is a matter of its proper construction, as applying to conduct in New South Wales, rather than one of any extraterritorial application of it. I can see no basis on which these principles could here lead to a different result to the application of the general principles of statutory construction to which I referred above.

It seems to me that the Plaintiffs’ construction of the FDMA cannot be accepted, irrespective of any presumption against any extraterritorial application of the FDMA in respect of the appointment of receivers to property situated wholly outside New South Wales. The Plaintiffs can only succeed if s 8 of the FDMA applies to the appointment of receivers, at least where that appointment is made in New South Wales, and the relevant secured property is wholly situated outside New South Wales. It would not assist them if the FDMA extends to enforcement action in respect of secured property located partly in New South Wales and partly outside New South Wales, as s 14(3)(b) of the FDMA may indicate, where it is an agreed fact that all of the property to which the Receivers are appointed is located in the Northern Territory.

The FDMA can operate in a coherent way where enforcement action takes place in respect of secured property located partly in New South Wales and partly outside New South Wales, since the Authority can grant an exemption under s 14(3)(b) of the FDMA where a mediation has taken place under a corresponding law of that State or Territory in respect of that part of the farm debt that is secured by a farm mortgage over farm property in New South Wales. However, if the FDMA extended to enforcement action in respect of property situated wholly outside New South Wales, as the Plaintiffs contend, the Authority could not grant such an exemption under s 14(3)(b) of the FDMA where a mediation had occurred in accordance with the requirements of corresponding legislation in the state in which that property was located. It seems that that result is so inconsistent with the language and purpose of the FDMA, as it emerges from its text and structure read as a whole, that the wider application of the FDMA that gives rise to it could not be accepted as a matter of construction.

It seems to me that there is no sensible construction of the FDMA, read as a whole, that could extend the application of s 8 of the FDMA to property held wholly outside New South Wales, while allowing no possibility of relief from the prohibition in that section where a farm debt mediation had occurred in accordance with the statutory requirements of the state in which the property was located. In my view, the construction for which the Plaintiffs contend would subvert the statutory purposes of the FDMA by prohibiting enforcement action under the FDMA although such a mediation had occurred. It is no answer to that wider outcome that, although several states have such legislation, the Northern Territory does not have such legislation. In these circumstances, it is plain enough that s 8 of the FDMA applies to the appointment of a receiver made in New South Wales where the relevant property is wholly within New South Wales; it is probable, given the exception in s 14(3)(b) of the FDMA, that it also applies where the relevant property is partly in New South Wales and partly in another state; but it does not apply, on its proper construction, where the relevant property is wholly outside New South Wales, so as to prohibit enforcement despite compliance with any applicable requirements of a corresponding statutory regime applicable in that other state.

For these reasons, I order that the proceedings be dismissed. Where Ms Musumeci has been joined as party to the proceedings and undertaken to indemnify MPI and CFPL against any adverse costs order, the proper order is that she pay the First-Third Defendants’ costs of the proceedings as agreed or as assessed.