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REASONS FOR DECISION Background 1 This is an application by Ms Rosemary Gill, seeking review of a decision by the New South Wales Rural Assistance Authority ("the Authority") to issue a certificate, under section 11(1)(c)(iii) of the Farm Debt Mediation Act 1994 ("the Act"), in respect of a mortgage ("the mortgage") that Ms Gill and Mr Arthur Charles Gill ("the Gills") entered with La Trobe Capital & Mortgage Corporation Limited ("La Trobe") on 16 October 2002. 2 La Trobe were also a party to the proceedings. The essence of this application is whether the Authority in deciding to issue a certificate under section 11 of the Act could be satisfied that La Trobe attempted to mediate in good faith. 3 The Gills also sought a stay of the Authority's decision. The stay application came before me on 13 April 2004. Each of Ms Gill and Mr Kevin Ekerick, Manager of the Authority's Farm Debt Mediation Unit, appeared by telephone. Ms Carroll, solicitor, appeared in person on behalf of La Trobe. That matter was adjourned to allow La Trobe and the Gills to negotiate in an attempt to resolve the matter. The stay hearing resumed on 18 May 2004 at which time Mr Legsdin, solicitor, appeared in person on behalf of La Trobe and Ms Gill and Mr Ekerick appeared by telephone. 4 Following that hearing I determined that the stay ought not to be granted and gave brief reasons for that decision. I made directions for the filing of further submissions in the substantive matter with a view to a decision being made on the basis of the evidence already given and any further submissions received. Written submissions were filed on behalf of the Authority however no further material was filed by either the Gills or La Trobe. Applicable legislation 5 The Tribunal has jurisdiction to hear this application by virtue of section 29A(1) of the Act and section 38 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act"). 6 Pursuant to section 63 of the ADT Act the role of the Tribunal in determining this review application is to decide whether the Authority's decision is the correct and preferred decision having regard to the relevant facts and the applicable law. In this case the applicable statutory framework is contained in the Act. The objects of the Act are set out in section 3, which provides as follows: "The object of this Act is to provide for the efficient and equitable resolution of farm debt disputes. Mediation is required before a creditor can take possession of property or other enforcement action under a farm mortgage." 7 The essential feature of the Act is its provision for mediation between a creditor and a farmer before the creditor can bring enforcement action in relation to a farm debt. Section 6 of the Act provides that any enforcement action taken by a creditor to whom this Act applies, is void unless there is compliance with the Act. 8 The terms "farm", "farmer", "farm debt", "farm mortgage", "farm property" and "farming operation"are defined in section 4 of the Act as follows: "farm means land on which a farmer engages in a farming operation. farm debt means 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. farm mortgage includes 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 does not include: (a) any stock mortgage or any crop or wool lien, or (b) the interest of the lessor of any farm machinery that is leased. farm property means: (a) a farm or part of a farm, or (b) farm machinery used by a farmer in connection with a farming operation. farmer means a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation and includes a person who owns land cultivated under a share-farming agreement and the personal representatives of a deceased farmer. farming operation means: (a) a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or (b) any other operation prescribed by the regulations for the purposes of this definition." 9 There is some uncertainty as to whether Mr and Ms Gill are "farmers" for the purposes of the Act and also as to whether the mortgage entered into in October 2002 is a "farm mortgage" for the purposes of the Act. This uncertainty arises because the loan to which the mortgage relates was at least partly in relation to the purchase of a fruit and vegetable business in Casino. 10 There is no obligation on the farmer or the creditor to agree to a mediation and a failure to mediate, or an unsuccessful mediation, does not mean that the creditor is prohibited from taking enforcement action. That action is merely postponed in order to offer the farmer and creditor an opportunity to mediate. Section 8 of the Act provides: "8 No enforcement action until notice of availability of mediation given (1) A creditor to whom money under a farm mortgage is owed by a farmer must not take enforcement action against the farmer in respect of the farm mortgage until at least 21 days have elapsed after the creditor has given a notice to the farmer under this section. (2) Notice to the farmer is to be in writing in a form approved by the Authority (informing the farmer of the creditor's intention to take enforcement action in respect of the farm mortgage and of the availability of mediation under this Act in respect of farm debts). (3) This section does not apply if a certificate is in force under section 11 in respect of the farm mortgage concerned." 11 Section 9(1) of the Act provides that a farmer to whom notice has been given under section 8 may, within 21 days after the notice was given, notify the creditor in writing that the farmer requests mediation concerning the farm debt involved. Subsection 10(1) of the Act provides that once a farmer has given a creditor notice in accordance with section 9 requesting mediation, the creditor must not take enforcement action in respect of the farm mortgage concerned unless a certificate is in force under section 11 of the Act. Insofar as is relevant to these proceedings section 11 of the Act provides: "11 Certificate that Act does not apply to farm mortgage (1) The Authority must, on the application of a creditor under a farm mortgage, issue a certificate that this Act does not apply to the farm mortgage if: (a) the farmer is in default under the farm mortgage, and (b) no exemption certificate is in force in relation to the farm mortgage, and (c) the Authority is satisfied that: (i) satisfactory mediation has taken place in respect of the farm debt involved, or (ii) the farmer has declined to mediate, or (iii) 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith (whether or not a mediation session or satisfactory mediation took place during that period)." 12 The term "satisfactory mediation" is defined in subsection 4(1A) of the Act as the following: "(1A) A reference in this Act to satisfactory mediation is a reference to: (a) a mediation that has achieved a resolution of a farm debt dispute, or (b) a mediation that has proceeded as far as it reasonably can in an attempt to achieve a resolution of a farm debt dispute but has nevertheless failed to resolve the dispute, or (c) a mediation specified or of a class described in regulations made for the purposes of this subsection to be a satisfactory mediation." 13 No regulations have been made pursuant to the Act. 14 Pursuant to section 12A of the Act, where the parties agree to enter into mediation the farmer is given the right to nominate a mediator. Section 12A provides: "12A Farmer to nominate mediator (1) If a farmer and creditor agree to enter into mediation in respect of a farm debt, the farmer must nominate a mediator. (2) A creditor cannot nominate a mediator but must accept or reject the mediator nominated by a farmer. (3) If a creditor rejects the mediator nominated by a farmer, the farmer must nominate a panel of at least 3 other mediators. The creditor must choose from the panel one mediator to mediate between the farmer and the creditor." 15 Section 13 of the Act provides for the functions of the mediator. Section 14 of the Act makes provision for the conduct of a mediation session. 16 It is clear that under the Act the Authority has four functions: (i) to accredit mediators in terms of section 12(1). (ii) to approve forms for use under the Act in terms of sections 8 and 9, (iii) to develop a procedure for commencing and conducting a mediation session in terms of section 14, and (iv) the issuing of certificates in terms of section 11. The evidence 17 The evidence filed comprises copies of correspondence between the parties. Ms Gill and Mr Ekerick also appeared and gave oral evidence in regard to the events that preceded the application to the Tribunal. 18 In this matter, the evidence shows that on 21 October 2003 Searson Shannon, the solicitors for La Trobe ("Searson Shannon"), issued a notice to the Gills in terms of section 8 of the Act ("the section 8 notice"). On 28 October 2003 the Gills responded to Searson Shannon, in terms of section 9 of the Act, accepting the offer of mediation. Their notice indicated that they had received the section 8 notice on 27 October 2003. On 31 October 2003, Searson Shannon requested the Authority to issue mediation kits to assist the parties to arrange a mediation session. The mediation kits were issued on 5 November 2003. 19 On 10 November 2003 the solicitors for La Trobe wrote to the Gills, issuing an invitation to commence mediation. On 21 November 2003, Ms Gill responded to the invitation and, amongst other things, advised that the Gills were pursuing refinance and preparing for mediation. On 25 November 2003, Searson Shannon responded to Ms Gill requesting details of arrangements for mediation. The parties subsequently discussed arrangements for mediation by telephone. 20 On 18 November 2003 Mr Gill was admitted to hospital with stress related illness. He was released from hospital on 1 December 2003 and on that day the Gills applied for refinance with National Farm Finance of Australia Pty Ltd. On 15 December 2003 Ms Gill was involved in a car accident which aggravated a back injury and she was incapacitated for 3 weeks. 21 On 11 December 2003 and 19 December 2003, Searson Shannon wrote to the Gills regarding arrangements for mediation. During January 2004 a number of conversations took place between the Gills and Searson Shannon. During these conversations Ms Gill advised that Coffs Harbour NSW would be a suitable venue for mediation and that they would be happy to use a mediator based in that town. It appears that Searson Shannon suggested Sydney as a venue with David Bogan as mediator. 22 On 20 January 2004 Searson Shannon wrote to the Gills referring to a telephone conversation of 14 January 2004. Searson Shannon proposed David Bogan as mediator and gave a comparison of his charges as against those of a particular Lismore based mediator. The Gills were requested to respond to the suggestion as a matter of urgency. 23 The Gills were suffering financial hardship and were unable to afford cost of travel and accommodation to attend mediation in Sydney. They therefore sought to have the Mediation take place on the North Coast. The Gills contacted Lindsay Wootten in Byron Bay who indicated that he was available to mediate. 24 On 30 January 2004, Searson Shannon applied for a certificate pursuant to section 11 of the Act on the grounds that the farmer had failed to take part in mediation in good faith or had unreasonably delayed in entering into or proceeding with mediation. 25 On 6 February 2004, the Authority wrote to the Gills advising them of the section 11 certificate application, and, amongst other things, advised them of the grounds upon which the certificate had been claimed. The Gills were also advised that the Authority would be considering the application in terms of section 11(1)(c)(iii) of the Act on the grounds that 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith (whether or not a mediation session or satisfactory mediation took place during that period). 26 On 19 February 2004, the Authority received written submissions from Ms Gill in response to the Authority's correspondence of 6 February 2004. In her submission Ms Gill made the following statement: "1. On the 16th October 2002 we took out a Mortgage Loan of $110,000 interest only with La Trobe. 2. The Loan was for 1 year initially with rollover due 16th October 2003. 3. On the 20th May 2003 a fire destroyed our leased business premises in Casino and we have been unable to trade since that date. To date the premises have not been rebuilt and our insurance is yet to be finalised. 4. There was an error with a direct debit which caused us to be in default and even though the interest payment was made we were penalised by the sum of approximately $8,000 which has been paid ... 5. La Trobe were advised of our situation but would not reduce the penalty which was substantial. 6. Arthur took on employment to help make the interest payments to La Trobe. 7. On maturity of the loan La Trobe refused to rollover the loan and immediately placed us into default. 8. On the 6th November 2003 La Trobe raised the interest rate from 10.5% to 15.5% which placed us into even more serious hardship. 9. On 18th November 2003 Arthur was admitted to hospital with stress related illness and was off work for 3 weeks. Mr Searson was advised of this. 10. On the 1st December 2003 we applied for refinance with National Farm Finance of Australia Pty Ltd at Mr Searson's recommendation. We are still awaiting the outcome of that application... 11. Around that time we also placed the mortgaged property on the market voluntarily in an attempt to sell and payout the loan... 12. On 15th December Rosemary was involved in a major car accident which aggravated a back injury and she was incapacitated for 3 weeks with pain management. 13. In attempting to find a suitable mediator Mr Searson continually suggested that Mediation take place in Sydney. Due to the financial hardship caused by the extra penalties applied by La Trobe we are unable to afford the extra travel and accommodation. We would need to have the Mediation take place on the North Coast and have contacted Lindsay Wootten in Byron Bay who is available to mediate for us. Due to the stress and health problems we acknowledge that this matter has not proceeded in a timely manner however we do not believe that we have unnecessarily delayed the Mediation. We would ask that given the circumstances the Authority may be able to grant an extension of time to enable the Mediation to take place. Our hope from Mediation is that whilst we continue to make the interest payment and actively attempt to refinance or voluntarily sell the property that La Trobe will withhold further action. Our general feeling is that La Trobe is not committed to Mediation other than to obtain the section 11 Certificate." 27 On 25 February 2004, Mr Ekerick rang Ms Gill regarding her submission. His contemporaneous file note of the conversation was placed in evidence and states: "Rang Mrs Gill in response to their submission. The matters raised with her were her statement that "Mr Searson continually suggested that Mediation take place in Sydney" and her statement that "We would need to have the mediation take place on the North Coast and have contacted Lindsay Wotten in Byron Bay who is available to mediate for us". Mrs Gill stated that Mr Searson did not insist that mediation take place in Sydney but only said that it would suit him better. With respect to the matter of Lindsay Wotten being available to mediate, Mrs Gill said that she did not put the availability of Lindsay Wotten to Searson. Mrs Gill still claims that she believes that Searson has not attempted to mediate in good faith. Suggested to her that set out her reasons for this belief in a further submission. During the discussion Mrs Gill said that the loan was in relation to the purchase of a fruit and vegetable business in Casino. Indicated to her that for La Trobe to be a creditor under the Act the debt would need to be a farm debt being a debt that was incurred by a farmer for the conduct of a farming operation that is secured wholly or partly by a farm mortgage. However, application of the Act is not a matter for the Authority to worry about at this time." 28 Mr Ekerick reasserted this information before the Tribunal on 18 May 2004. Ms Gill did not dispute these matters. She indicated that about 60% of the borrowed funds were used for a business in Casino and the remainder was used for farming activities. 29 On 12 March 2004 Terry Pearce of the Northern Rivers Rural Financial Counselling Service lodged a submission is support of the Gills' position. That submission stated: "I am writing in support of Mr & Mrs Gill's request for an extension of time to proceed with Farm Debt Mediation. La Trobe Capital & Management Corporation Limited whilst no doubt within its rights under the Loan Contract, have applied extraordinarily heavy penalties on Mr & Mrs Gill when they were late with payment and since the expiration of the contract in October have significantly increased the interest burden. None of which has helped the Gill's to meet their commitments and in full knowledge of their hardship. On the 11th November 2003 the Solicitor for the financier, Mr Searson, stated to me that they did not believe that the Farm Debt Mediation Act should apply to this loan however that mediation was the only way they could obtain the necessary section 11 certificate to enable them to realise upon the security and clear the debt. Since that time Mr & Mrs Gill have attempted to: - Meet their obligations under the Loan Contract - Refinance the debt - Arrange mediation - Voluntarily sell the security to repay the debt Due to various personal factors they have not been able to arrange mediation within the specified period. Some of these factors are ill health and Me Gill's work as a truck driver, which he took on so that they could meet their obligations to La Trobe. I fully support their request for an extension of time to mediate and believe that the mediation process would be of some benefit to both the financier and their solicitor in this case." 30 On 12 March 2004, Searson Shannon provided a statement to the effect that as at that date the Gills were in default under their mortgage. On 12 March 2004, the Authority determined the section 11 certificate application and issued a certificate in terms of section 11(1)(c)(iii) of the Act. The Gill's submissions 31 Ms Gill's submissions are essentially as presented in the submissions to the Authority on 19 February 2004. She asserted that the Authority should not have issued the section 11 certificate because it could not have been satisfied that La Trobe had attempted to mediate in good faith. She argued that she and Mr Gill were prepared to enter mediation but could not afford to travel to Sydney. They had found a mediator who was available to undertake the mediation locally but La Trobe had proceeded to seek the section 11 certificate notwithstanding the opportunity for mediation to still proceed. 32 Ms Gill did not dispute that in her conversation with Mr Ekerick on 25 February 2004 she had told Mr Ekerick that Mr Searson had not insisted that mediation take place in Sydney but that he had only said that a Sydney mediation would suit him better. Further, Ms Gill did not dispute that she had also told Mr Ekerick that she had not advised Mr Searson that Lindsay Wotten was available to mediate on the North Coast. The Authority's submissions 33 The Authority's submissions are as set out in written submissions filed on 19 May 2004. Those submissions set out a summary of the legislative provisions and a chronology of events leading to the decision. The Authority's reasoning behind the decision is set out as follows: "Reasoning behind Decision The Farm Debt Mediation Act 1994 focuses totally on process. The Act imposes a compulsion on a creditor to advise a farmer of the availability of mediation. Once a farmer accepts mediation any enforcement action by the creditor is postponed to allow for mediation. A creditor must not take enforcement action unless a certificate is in force under section 11 of the Act in respect of the farm mortgage. In this matter, there is no dispute that the section 8 notice was issued by Searson Shannon on 21 October 2003, and received by Mr & Mrs Gill on 27 October 2003. There is also no dispute that Mr & Mrs Gill returned a notice in terms of section 9 of the Act on 28 October 2003. In her submission of 12 February 2004, Mrs Gill made the following statement: … On 25 February 2004, Mr Kevin Ekerick, Manager Farm Debt Mediation, rang Mrs Gill to discuss her submission of 12 February 2004. Mrs Gill stated that Mr George Searson of Searson Shannon did not insist that mediation take place in Sydney, rather only that it would suit him better. With respect to the matter of Lindsay Wotten (Byron Bay NSW based mediator) being available to mediate, Mrs Gill stated that she did not put the availability of Mr Wotten as a mediator to Mr Searson. With respect to the statement "Our general feeling is that La Trobe is not committed to Mediation other than to obtain the Section 11 Certificate." When this was raised with Mrs Gill she stated that Mr Sear son was not attempting to mediate in good faith. It was suggested to her that she make a further written submission and address the matter of good faith. As at 12 March 2004, a further submission had not been received from Mrs Gill. The Authority is satisfied that the creditor has met the requirements of section 11(1)(c)(iii) of the Act." Decision and Reasons 34 It seems to me that there is a preliminary issue to be determined as to whether the Act applies to the mortgage in issue. The legislation is not drafted in a way that makes this determination a simple process. On the application of a creditor under a farm mortgage the Authority must issue a certificate that the Act does not apply to the farm mortgage under section 11(1)(c)(iii) of the Act if: (a) the farmer is in default under the farm mortgage (b) no exemption certificate is in force in relation to the farm mortgage, and (c) the Authority is satisfied that 3 months have elapsed after a notice was given by the creditor under section 8 and the creditor has throughout that period attempted to mediate in good faith. 35 This presupposes that before this certificate is issued: a) there is a farm mortgage; b) there is a farmer; c) there is a creditor; and d) that the farmer and the creditor are parties to the farm mortgage. 36 A farm mortgage secures obligations of a farmer. The term "farmer" is defined in section 4 of the Act as a person who is solely or principally engaged in a farming operation. a farming operation includes a dairy farming, poultry farming, bee farming, pastoral, horticultural or grazing operation 37 In the present matter there is doubt as to whether the Gills are farmers because it is not certain whether they are solely or principally engaged in a farming operation. The evidence is that even though they lived on a rural property they engaged in off-farm activities as a source of income and that they conducted a fruit and vegetable business in Casino. 38 In Liberty Funding Pty Ltd v Jovan Ivosevich [2002] NSWSC 140 the Supreme Court considered the issue of whether the defendant was principally engaged in a farming operation for the purposes of the Act. The defendant engaged in a range of off-farm activities to supplement his income however he used the funds obtained under the relevant loan to improve the property including fencing, construction of a dam, a truck for transporting produce and plants to the markets and the acquisition of stock and items required for the operation of the nursery. In concluding that he was principally engaged in a farming operation Simpson J considered the extent to which horticultural activities were carried on at the property and whether the off-farm activities outweigh the farming activities. 39 In the present matter there is no evidence of any farming activities undertaken by the Gills. It appears that the Gills' property is a hobby farm and is not used as a source of income. The loan from La Trobe was used in relation to the purchase of the fruit and vegetable business in Casino. Ms Gill indicated that 60% of the loan was used for the fruit and vegetable business and 40% for the property. It appears that the debt to La Trobe was wholly serviced from income generated by the fruit and vegetable business. When fire destroyed the business premises the Gills were unable to trade and unable to meet the loan repayments. Mr Gill obtained other off-farm employment in an effort to do so. 40 In the circumstances it seems to me that the Gills' off-farm activities outweigh their farming activities. That being the case they cannot be said to be farmers for the purposes of the Act. It follows that the Authority had no power to issue the section 11 certificate. 41 If I am wrong on this assessment, I am satisfied that La Trobe has met the requirements of section 11(1)(c)(iii) of the Act. It is clear that the section 8 notice was issue on 21 October 2003 and that the Gills received it on 271 October 2003. It is now over seven months since that notice was issued. La Trobe has followed the procedures set out under the Act even though it was of the view that the Act did not apply to the mortgage. It is apparent that La Trobe would have preferred to use a Sydney-based mediator, and that Searson Shannon in fact nominated a mediator contrary to the clear provision of section 12A of the Act. Nevertheless, I am not satisfied on the evidence presented to me that La Trobe insisted that mediation take place in Sydney. Therefore, the nominated mediator must be seen merely as a suggestion made by Searson Shannon. 42 At all times it was open to the Gills to nominate a mediator who could conduct the mediation on the North Coast but they did not do so. This was despite the fact that they had located a mediator based in Byron Bay. In those circumstances it cannot be said that La Trobe had not attempted to mediate in good faith. Therefore, if the Act does apply to the mortgage, La Trobe has satisfied the requirements of section 11(1)(c)(iii) of the Act and the Authority was obligated to issue the certificate. 43 However, on the basis of the finding that the Act does not apply to the mortgage, it must follow that the Authority's decision to issue the certificate pursuant to section 11 of the Act should be set aside. This is on the basis that the Authority had no power to issue the certificate. I appreciate that this will be of no benefit to the Gills as it will not prevent La Trobe from taking enforcement action under the mortgage. Orders 44 The decision by the New South Wales Rural Assistance Authority to issue a certificate under section 11(1)(c)(iii) of the Farm Debt Mediation Act 1994 is set aside.