FARM MORTGAGES AND THE FARM DEBT MEDIATION ACT 2011 (VIC) EXPERIENCES AFTER 12 MONTHS OF THE ACT COMING INTO OPERATION Presentation by Geoff Browne, Victorian Small Business Commissioner Mortgage Disputes Legalwise Seminar, 13 March 2013 Introduction The Farm Debt Mediation Act 2011 (Vic) (‘FDM Act’) came into effect on 1 December 2011. The legislation was modelled on NSW legislation which had been established some sixteen years earlier, with some modifications 1 . The primary purpose of the FDM Act is to provide the right for farmers in default on a farm mortgage to elect to mediate with the creditor to try to resolve the matter, or agree a plan of action which avoids the need for the creditor to enforce the debt through the Courts 2 . One difference with the NSW scheme (there are a number, which are discussed in more detail below) is that the Victorian Small Business Commissioner (VSBC) provides the mediation service for farm debt mediations. The VSBC, akin to the role of the Rural Assistance Authority (RAA) under the NSW scheme, also provides a certificate function under the FDM Act. In Victoria, the FDM Act is jointly administered by the Department of Primary Industries (‘the Department’) and the VSBC. The Department provides initial information and assistance to farmers and creditors and refers farm debt disputes to the VSBC to arrange mediation. More information about the FDM Act may be found at www.dpi.vic.gov.au/mediation. The Farm Debt Mediation Officer may be contacted on 136 186. From 1 December 2011 to 31 December 2012, 96 applications for mediation had been received by the VSBC. An average of ten applications per month was received in the second half of this period, up from around 6 per month in the first half. 1 Farm Debt Mediation Act 1994 (NSW) 2 FDM Act, s 1 1
Of those 96 mediations applications, 56 mediations had been conducted, and signed Terms of Settlement were reached in 96% of cases. Seventeen matters settled between the parties before mediation. This paper: • provides an overview of the functions, jurisdiction and activities of the Victorian Small Business Commissioner; • describes in detail the requirements of the FDM Act and the operational processes employed by the VSBC; • highlights the differences between the Victorian and NSW farm debt mediation schemes; and • highlights the key issues that have emerged in the first twelve months of operation of the FDM Act. Overview of the role of the Victorian Small Business Commissioner Jurisdiction The VSBC is a statutory role established under the Small Business Commissioner Act 2003 (‘SBC Act’). The VSBC also operates under three other pieces of legislation: • Retail Leases Act 2003 (‘RL Act’) • Owner Drivers and Forestry Contractors Act 2005 (‘ODFC Act’) • Farm Debt Mediation Act 2011 (FDM Act) The VSBC provides dispute resolution services under all four Acts. In the latter three Acts, disputes must first be referred to the VSBC for attempted resolution before a party can progress the dispute to the Victorian Civil and Administrative Tribunal or the Court system (with minor exceptions). Certificates are issued to enable progress of matters to the relevant jurisdiction. In the case of the SBC Act, there is no mandatory referral of disputes to the VSBC, but the dispute resolution services provided by the VSBC can be accessed by any business with a commercial dispute with another business, or government body. 2
There is no definition of ‘small business’ in any of the four Acts. During the Second Reading Speech on the Small Business Commissioner Bill 2003, the Treasurer referred to Victoria’s small and medium businesses. The VSBC does not assess the size of a business to determine eligibility for access to the services. The VSBC has a range of other functions (other than dispute resolution and prevention functions) under the SBC Act. The objective of this Act is ‘to enhance a competitive and fair operating environment for small business in Victoria’. Services The VSBC provides three levels of services relating to dispute resolution and prevention. • Information and Education : is provided via telephone and email, presentations, publications and website information. • Preliminary Assistance : refers to the efforts of Dispute Management Officers in attempting to assist parties resolve the dispute through phone and email shuttle engagement. • Mediation : services are offered where disputes remain and the parties agree to attend mediation. Mediation is conducted by an independent, expert mediator appointed by the VSBC. The VSBC charges each party to a mediation $195, for an average 3-4 hour mediation 3 . The mediator cost is subsidised by the VSBC. All other services provided by the VSBC are at no cost to the parties. Activities and Outcomes The VSBC receives around 8,000 telephone calls per annum, and in the past two financial years has received in excess of 1,500 applications for assistance with a business dispute. 3 $95 for ODFC Act disputes. $195 applies for a complete mediation session for FDM Act disputes, regardless of duration on the day 3
Since 2003, over 11,000 applications for assistance have been received. Of these only around 2% have involved business-to-government disputes. Table 1 shows the profile of disputes by jurisdiction in 2011-12 4 . TABLE 1: 2011-12 applications for VSBC assistance by Act RL Act 1020 SBC Act 272 ODFC Act 49 FDM Act* 48 TOTAL 1510 *Commenced 1 November 2011 Not all matters progress to mediation. In 2011-12, 25% of applications were resolved through preliminary assistance prior to mediation. Also, the VSBC has no powers to compel parties to attend mediation 5 . In 2011-12, 25% of applications did not progress to mediation as the respondent party refused to participate, or the respondent party could not be contacted. Since 2003, the VSBC has consistently achieved a settlement rate at mediation around 80%. Settlement occurs where the parties agree and sign a binding Terms of Settlement. The Farm Debt Mediation Act 2011 Background As indicated above, the FDM Act is based on similar legislation in NSW and fulfils an election commitment of the State Government to force banks and creditors to offer farmers mediation before initiating debt recovery proceedings. 4 VSBC Annual Report 2011 ‐ 12 at www.sbc.vic.gov.au 5 Note, however, the VSBC has a certificate function under the RL Act, the ODFC Act and FDM Act. 4
The NSW legislation was commented upon by the High Court in 2012 6 . These comments are also of relevance to the FDM Act. In Waller v Hargraves Secured Investments , the Court stated: “It is difficult legislation. Its construction has engendered differences of judicial opinion. The difficulties may spring from the origins of the Act – in a Bill which was based on legislation in Iowa and Minnesota that had attracted criticism. The Bill was introduced by an Opposition member of the NSW Legislative Assembly. It was introduced at a time when the enactment of legislation depended on support from independents in the absence of agreement between the major parties…” The Court continued: “The background to the Act lies in the notorious problems which face Australian farmers. They include harsh climatic conditions; the vulnerability of crops and animals to disease; unpredictable volatility in prices on world markets; the tendency of farmers to be asset-rich but cash-poor; their dependence on loans; the risk of speedy ejection from their land if there is entire freedom for creditors to enforce their general law rights, despite the possibility of remedying defaults if climatic and market conditions change; and the expense of and often delay in litigation as a method of keeping creditors within their rights. In contrast, some perceive in mediation a capacity to produce much cheaper and speedier outcomes.” [emphasis added] Hence one of the roles of the VSBC under the FDM Act. Scope The FDM Act applies where a farmer undertaking a farming operation has a farm mortgage securing farm property, and the farmer is in default of the farm debt that is secured by the farm mortgage. 7 6 [2012] HCA 4 7 See FDM Act s.3 for definitions. 5
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