Farm Debt Mediation – WA misses the carrot Farm debt mediation schemes oblige mortgagee – creditor

Farm debt mediation schemes oblige mortgagee – creditors to mediate with their farmer customers before taking possession of farm land.

These mandatory legislative schemes currently exist in New South Wales and Victoria, applying within those States’ boundaries. Similar schemes exist in Queensland and Western Australia; although in both latter States, the schemes are voluntary and therefore appear to have significantly lower rates of participation.

Anecdotally, the mandatory schemes are viewed, on the whole, as a positive forum for farmers to ventilate their grievances. They are said to provide a controlled forum to allow the parties, particularly the farmers, to work through the options available to them and to come to an early (and quick) resolution without the expense of protracted litigation.

Mandatory schemes

The NSW farm debt mediation scheme is simple and concise. It specifies as follows:

  • A creditor who is owed money under a farm mortgage cannot take enforcement action until after it has given notice to the farmer that mediation is available under the scheme. Twenty-one days must have passed before any enforcement action is actually commenced.
  • If the farmer elects to mediate, he or she must do so within the agreed timeframes failing which he or she forgoes the protection of the Act, and therefore, the usual enforcement regime is reinstated.
  • A farmer can ask to mediate any matter relating to a farm mortgage. It is not necessary that the farmer is in default of the mortgage to enliven the mediation service. If no default exists at the time of the request, the creditor will not be prejudiced from later commencing enforcement action if it declines the mediation request.
  • If the farmer is in default and a creditor declines to mediate (after a request is made to it to do so), the presiding authority can issue an exemption certificate the effect of which is to prevent the creditor from commencing enforcement action for a period of 6 months.
  • It provides for the documenting of terms of settlement at any mediation convened, and a cooling off period before the agreement takes effect.

The scheme recognises the rights and interests of both parties. It provides for remedies to both in the event that either the creditor or the farmer refuses, or declines, to participate in mediation or does not actively participate in any mediation convened.

It preserves the creditor’s rights to issue relevant enforcement notices under competing legislation or the securities, but prohibits the creditor from acting upon those notices until the scheme processes are completed. It encourages active participation in the mediation but does not oblige the creditor to reduce or forgive a debt as a means to show good faith in the mediation process.

WA farm debt mediation scheme

The Western Australian model is, in some respects, similar to the mandatory schemes save that it is, of course, voluntary. It provides for eligible farming applicants to participate in mediation with their financial institution provided the parties so agree and the farmer is willing to contribute to the costs of the mediation. The scheme is overseen by the Department of Agriculture and Food under the purview of the Rural Business Development Corporation.

It is limited to applicants who have operated a farming enterprise for at least three consecutive years and is only available for commercial farming loans, and not home loans, personal debt or the like (even, it appears, if they are in respect of farm assets).

The scheme is less prescriptive and less formal than the mandatory schemes and designed as a non-legal process. As a result, it seems the scheme’s mediators have little power to compel, or indeed encourage, either of the parties to attend mediation, actively participate in that mediation and to genuinely appreciate the subsequent enforcement processes.

In this sense, the WA scheme lacks both the carrot and the stick that the mandatory schemes provide. The latter clearly set out the remedies and consequences to both creditor and farmer which, in our view, equalises the parties’ negotiating position and enables the farmer to be abreast of the available options, and potential outcomes, at the outset of any default or dispute.

Lavan Legal comment

The rural sector is clearly generating significant attention in respect of its lending transactions. The mandatory mediation scheme models offer certainty to both parties at the outset, and gives the farmer a clear framework, and importantly timeline, within which to negotiate.

While the WA scheme provides a forum for parties to ventilate grievances, the lack of defined mediation criterion and timeframes makes the process indistinguishable from other, currently available forms of alternative dispute resolution. Perhaps the most unsatisfactory aspect of the WA voluntary scheme is that is lists, as an option for unresolved matters, the availability of the Financial Ombudsman Service as a next step.

So, is it time for Western Australia to introduce a mandatory scheme?

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.