Key Takeaways

Farm Debt Mediation Act 1994 (NSW) (FDMA) does not apply in circumstances where the governing law of a security instrument is New South Wales, but the farm property is situated wholly outside of the State.

Brief Facts

In Musumeci Property Investments Pty Ltd v National Australia Bank Ltd¹, the Court considered the application of the FDMA to a property situated wholly outside of New South Wales.

Key points to note are:

• Musumeci Property Investments Pty Ltd (MPI) as trustee of the ABC Discretionary Trust and Cheeky Farms Pty Ltd (CFPL) (Borrowers) borrowed in excess of $9M from NAB in connection with a substantial mango farming operation located in the Northern Territory.
• CFPL operated the business on the land owned by MPI.
• MPI and CFPL granted a general security agreement in favour of NAB granting a security interest over present and future rights, property and undertakings of MPI and CFPL respectively - relevantly, including over farm machinery situated in the Northern Territory.
• MPI granted real property mortgages in favour of NAB over three properties all situated in the Northern Territory.
• The governing law of the loan facilities and the general security agreement was the law of New South Wales.
• The governing law of the real property mortgages was the law of the Northern Territory.
• In December 2023 MPI, CFPL and Ms Musumeci sent an ‘Intake Agreement’ for Farm Debt Mediation to the NSW Rural Assistance Authority seeking to invoke provisions of the FDMA.
• On 15 January 2024 NAB appointed receivers over the Secured Property (as defined in the general security agreement) of MPI and CFPL.

MPI and CFPL applied to the Supreme Court of New South Wales for declarations that the appointment of the receivers by NAB was invalid due to NAB’s failure to comply with s5 of the FDMA. That section provides that a creditor must not take enforcement action in respect of a farm mortgage unless an exemption certificate has been granted.

The question before the Court was whether the FDMA applies in respect of property that is situated wholly outside of New South Wales.

Judgment

The Court ruled that the FDMA does not apply to farm property situated wholly outside of New South Wales. The appointment of the receivers was not invalidated.

Implications

Despite the favourable outcome for NAB in this case, it is a reminder to lenders in the agricultural sector that they must be alert to the governing law of their facility agreements and the location of secured property so as to ensure all necessary pre-enforcement steps are complied with prior to taking enforcement action. Failure to comply with those requirements may result in any enforcement action being void.

Presently, farm debt mediation is mandatory in each of:

• New South Wales (Farm Debt Mediation Act 1994)
• Queensland (Farm Business Debt Mediation Act 2017)
• Victoria (Farm Debt Mediation Act 2011)
• South Australia (Farm Debt Mediation Act 2018)

Western Australia has a voluntary farm debt mediation scheme.

In addition to farm debt mediation, lenders must also take care to ensure strict compliance with all other legislative instruments (such as the National Credit Code) prior to enforcement.

1 [2024] NSWSC 43