Australia: To mediate or not to mediate? Or how many times? The impact of a recent case on the farm mediation laws

The Impact of Waller v Hargraves Secured Investments Ltd [2012] 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 ("NSW Act").

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 [2010] NSWCA 300 are:

  1. The lender advanced $450,000 to the borrower on security of a mortgage over a farming property.
  2. The borrower defaulted on the loan repayments and the parties participated in a farm debt mediation under the NSW Act.
  3. 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.
  4. The agreement reached at mediation involved the lender providing a further loan of $640,000 to the borrower.
  5. 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.
  6. 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.
  7. Following the borrower's further default, the lender commenced proceedings against the borrower for possession of the farm property.

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:

  1. where the farmer is in default under the "farm mortgage"; and
  2. 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) .

The decision

In allowing the borrower to appeal the decision of the NSW Court of Appeal, the High Court took the view that:

  1. each of the second and third loan agreements discharged the preceding loan agreement;
  2. 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;
  3. the third loan agreement, when read with the registered mortgage, created a new farm mortgage;
  4. the mediation and the section 11 certificate related to the first loan agreement and not the third loan agreement; and
  5. therefore, at the time of the enforcement action, there was no section 11 certificate in force in respect of the farm mortgage.

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 mediation.

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:

  1. Documenting any mediation agreement to vary payment obligations by deed of forbearance rather than re-documenting or varying the loan agreement.
  2. 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.
  3. 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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