Farm Debt Mediation Act 1994 (NSW): a different landscape

In 1994, the NSW Government introduced the Farm Debt Mediation Act 1994 (NSW) (the Act). The object of the legislation is to provide for the efficient and equitable resolution of farm debt disputes. Mediation is required before a creditor can take possession of a property or other enforcement action under a farm mortgage.

The legislation was introduced to provide a circuit-breaker for farmers in what were very challenging times. In the words of the Hon Niall Blair (Minister for Primary Industries, Minister for Regional Water, and Minister for Trade and Industry) recently, the “legislation was introduced in 1994 after a tough drought, when pressure for bank accountability was mounting.New South Wales led the nation by providing this alternative dispute resolution.”¹

Many in the industry, including the writer, thought the measures were temporary. Once the rains come and agribusiness turns the corner, the legislation would be repealed and life for debtors and creditors would return to “normal”. But life for a farmer never gets easier and pressures imposed by both the weather and the economy are unrelenting. And so more than 20 years since its inception, the Act is still with us.

The legislation would not still be with us if it had been a failure. It works and it works well. But over 20 years of operation has allowed the legislature to make some practical improvements. Last year, the NSW Rural Assistance Authority (RAA) conducted a farm debt mediation review in which it sought opinions from a broad spectrum of people and organisations deeply involved in the industry on how the legislation might be improved. That has led in turn to a number of very important amendments which have just passed into law through the Farm Debt Mediation Amendment Act 2018 (NSW) which was assented to on 9 May 2018 and is to commence on a day or days to be appointed by a proclamation.

The amendments are aimed at enhancing the Act “by strengthening its accessibility, flexibility and fairness.”² The aim is to encourage both farmers and creditors to seek realistic solutions.

The object of the Act has been clarified so that it is clear that the Act extends to the resolution of any matter involving a farm debt and not just disputes.³ The Act has been extended to a broader group of farmers, including for example on-farm and offshore aquaculture, timber and native vegetation cultivation and harvesting; and excluding wild harvest fishing, hunting and trapping of animals. The definition of “farm machinery” has also been broadened so that it applies to all vehicles, machines and implements used for the purpose of a farming operation, whether they were acquired for the purposes of a farming operation or not.⁴

The second area of amendments is aimed at encouraging farmers to seek mediation earlier. The earlier the parties sit down at the negotiating table, the more likely it is that a resolution will be reached. An incentive is provided for early mediation by enabling farmers to request mediation prior to default. Additionally, repeated mediations have led, it is suggested, to a worsening position for farmers in the long run as their debt is usually compounded. So the amendments require an offer of just one mandatory mediation by the creditor.⁵

The third area of amendments is directed to ensuring that farmers are fully aware of their rights including when and how they might or must act. The amendments include provisions for the service of notices and make time frames for response clearer and more flexible:

• The name of the notice given by a creditor to a farmer has been renamed to a “notice inviting mediation” and it no longer requires the creditor to say it intends to take enforcement action.
• The farmer now has 20 business days (up from 21 ordinary days) to respond to the notice inviting mediation.
• The farmer may initiate a request by giving the creditor a “mediation request” and the creditor must respond within 20 business days. The farmer does not have to be in default to give a mediation request. It is intended to encourage farmers to seek early mediation, when they are in a stronger bargaining position and their emotional stress is lower.

If the only impediment to a creditor ignoring the Act is unenforceability of a judgment, then temptation might remain for a creditor to proceed without regard for the Act, as a farmer who is unaware of their rights might well voluntarily subject themselves to the creditor’s will. Accordingly, the amendments introduce a penalty to discourage enforcement action being taken outside the Act. Individuals currently can be fined $55,000 and corporations up to $275,000.⁶

A new part inserted prohibits enforcement action without mediation. That part includes the following provisions:⁷

• If a farmer requests mediation and the creditor does not respond within 20 days, that is ground for the RAA to grant a “prohibition certificate” which prohibits a creditor from taking enforcement action. The RAA must grant a prohibition certificate if:
  • the farmer is in default
  • they have given the creditor a mediation request
  • no exemption certificate is enforced
  • the RAA is satisfied there is at least one additional ground for granting prohibition certificate

  Those additional grounds are, in essence, grounds where the creditor has failed to respond to or refused a mediation request.

• The prohibition certificate remains in force for 6 months

The fifth area of amendments relates specifically to the mediation itself and the mediation process. And for those of us who have been unlucky enough to have had a confidential piece of information unlawfully disclosed by the mediator, the penalty for that (which applies to any person) has been increased to $11,000 and should be more than enough to wipe out the mediators fee at the very least.⁸ The mediator has been given additional power to adjourn or terminate the mediation session where it is inappropriate to continue on. For example:⁹

• The parties are no longer willing to negotiate and are not engaging in good faith.
• The mediator facilitates the exchange of information between the parties to assist them to resolve the issues between them. For that purpose, a party must give the mediator a copy of any request for information before giving it to the other party.
• Clarification is given regarding the costs of the mediation. Either party is to pay their own costs of attending, generally to pay equal shares for the mediators’ fees.

As to the mediation agreement, these were previously referred to as “Heads of Agreement”. They have been renamed “mediation agreement” and the cooling off period (which expires at 5 pm on the 10th business day after the day on which the agreement was entered into) for a mediation agreement can be waived or varied by agreement in writing between the parties.¹⁰

A little more power has been handed to the RAA. It is now able to require both parties to provide necessary information to come to a conclusion about whether the Act applies (a very commonly raised jurisdictional point).¹¹ Consistent with administrative law principles, farmers, creditors and mediators will have access to informal reviews of certain decisions made by the RAA.¹²

New provisions have been inserted giving the RAA more power to deal with the accreditation of mediators, and they are no longer required to consult with representative bodies including banks or farming industry bodies before instituting arrangements for accreditation.¹³

For a nation that prides itself on its national footprint, we are abysmally slow at shaking off ancient notions of reserved state powers. This country might have been built on the sheep’s back, but we can’t bring ourselves to support our farmers consistently as a nation. As a snapshot, the current national picture is as follows:

The current amendments move us a step closer to reaching harmony nationally. At the very least, the Act provides a model Act that stands to be adopted. Among the current changes, they enable mediations concluded under corresponding legislation in another state to be recognised in NSW. This of course will be important in circumstances in which a farmer has a farm mortgage in NSW and in other jurisdictions. Farmers all suffer the same hardships. It is a harsh country and it is proper to ensure that they are not subjected to the inequities and inconsistencies arising from different statutory requirements.

While there have no doubt been some exceptions, generally it is accepted by both debtors and creditors alike that the farm debt mediation structure has been an outstanding success in achieving its objectives. The recent amendments will further improve the position and both the RAA and the NSW legislature ought to be applauded for the changes.

About the author

Mark Hilton specialises in banking recovery, including all forms of consumer and corporate recovery and insolvency. He has acted for banks and other financial institutions, receivers, liquidators and administrators for over 30 years.

This article originally appeared in ​​the June 2018 edition of Lexis Nexis’ Australian Banking & Finance Law Bulletin. It is reproduced with permission.