In HCI Ventures Ltd. v. S.O.L. Acres, 2020 SKCA 24, Saskatchewan’s Court of Appeal dismissed two (2) appeals stemming from application of the province’s Farm Debt Mediation Act, SC 1997, c 21 which imposes mediation between insolvent farmers and their creditors pending a stay of any proceedings. “[D]esigned as a tool for farmers to work with creditors in order to keep the farming operation afloat during difficult financial times”, the mediation-and-stay applies to “any proceedings or any action, execution or other proceedings, judicial or extra-judicial, for the recovery of a debt, the realization of any security or the taking of any property of the farmer”.
HCI Ventures Ltd. (“HCI”) claimed rent, interest and taxes owing by S.O.L. Acres (“S.O.L.”) under a February 27, 2014 two (2) year lease of 5,538 acres of farmland, including 4,850 under cultivation. Following defaults in payment and land maintenance, S.O.L. abandoned the leased land and HCI released the land to a replacement tenant beginning April 23, 2015.
HCI’s claim against S.O.L. was subject to the Farm Debt Mediation Act (“FDMA”) which provides for a mandatory stay of any proceedings to enforce a remedy against the farmer’s property to commence or continue any proceedings once mediation is sought by the farmer. The FDMA defines “farmer” and “farming” as follows:
“farmer means any person, cooperative, partnership or other association of persons that is engaged in farming for commercial purposes and that meets any prescribed criteria.
(a) the production of field-grown crops, cultivated and uncultivated, and horticultural crops;
(b) the raising of livestock, poultry and fur-bearing animals;
(c) the production of eggs, milk, honey, maple syrup, tobacco, fibre, wood from woodlots and fodder crops; and
(d) the production or raising of any other prescribed thing or animal”.
Section 12 of the FDMA imposes a stay on the commencement of any proceedings as well as continuing any proceedings and any enforcement of a remedy against the farmer’s property. The scope of section 12(b) is broad.
“Section 12 Notwithstanding any other law, during any period in which a stay of proceedings is in effect, no creditor of the farmer
(a) shall enforce any remedy against the property of the farmer; or
(b) shall commence or continue any proceedings or any action, execution or other proceedings, judicial or extra-judicial, for the recovery of a debt, the realization of any security or the taking of any property of the farmer”.
The stay is triggered, at the option of the farmer, by way of an application:
“Section 5 (1) Subject to section 6, a farmer may apply to an administrator for either
(a) a stay of proceedings against the farmer by all the farmer’s creditors, a review of the farmer’s financial affairs, and mediation between the farmer and all the farmer’s creditors for the purpose of assisting them to reach a mutually acceptable arrangement; or
(b) a review of the farmer’s financial affairs, and mediation between the farmer and all the farmer’s secured creditors for the purpose of assisting them to reach a mutually acceptable arrangement”.
The farmer must be insolvent and the criteria for being insolvent are listed at section 6.
The stay issues for a period of thirty (30) days under section 7(1)(b) but can be extended under section 13(1) if the administrator considers an extension “to be essential to the formulation of an arrangement between a farmer and the farmer’s creditors”. The extension can be for a maximum of three (3) further periods of thirty (30) days.
Mediation can also terminate if the administrator “is of the opinion” under section 11(2) the either the farmer or the majority of the creditors listed in the farmer’s application under section 10(1)(b)(ii) refuse to participate or to continue to participate in good faith in the mediation.
In the facts before the Court of Appeal, HCI had made two (2) attempts to pursue its claims against S.O.L HCI failed the first time due to non-compliance with notice requirements in the FDMA: HCI Ventures LTD. v. S.O.L. ACRES, 2017 SKQB 264. It appealed that decision. HCI did not fail the second time, prevailing on a summary judgment motion and obtaining an order against S.O.L. for payment of $687,137.40: HCI Ventures Ltd. v. S.O.L. Acres (17 December 2018) Regina, QBG 1458/18 (Sask QB) (not posted as of the date of this note). S.O.L. appealed that decision.
The Court of Appeal dismissed both appeals, effectively granting judgment in HCI’s favour for the amount ordered in the second decision. In its reasons, the Court gave a broad reading to the application of the FDMA and disagreed with HCI’s arguments that HCI did not have to give notice to S.O.L. under the FDMA before pursuing its remedies. See paras 41-42.
“ Second, s. 21 is an extremely broad provision and, on a plain reading, casts a wide net over the actions of a secured creditor that warrant notice being given to the farmer of their rights under the FDMA. In my view, a broad interpretation best accords with the objects of the FDMA, which are meant to afford farmers facing financial difficulties an opportunity to mediate with their creditors. It also accords with the overall legislative scheme, which gives only farmers the power to apply for a stay of proceedings and/or financial review and mediation (s. 5). Secured creditors are of particular concern to farmers facing financial difficulties because such creditors often hold as security key elements of their farming operations, such as land, equipment, cattle or inventory. Without those assets, a farmer would struggle to remain viable. It is thus not surprising that s. 21 refers to “secured creditors” as opposed to all creditors”.
The Court of Appeal also dismissed HCI’s arguments that its proceeding was not subject to the FDMA because HCI claimed damages and not a debt. See paras 55-66. Though it readily accepted that different legal principles applied to debts and to damages, the Court held that the distinction did not arise in the claim filed by HCI. See paras 65-66.
“ In my view, whether a secured creditor frames its action against a farmer in damages or in debt is irrelevant to the question of whether s. 21 of the FDMA applies. The relevant consideration is not how the action is framed but, rather, whether the secured creditor is seeking “the recovery of a debt”. Thus, while HCI’s action against S.O.L. Acres sought damages for breach of contract and unjust enrichment, in reality it was seeking a fixed sum consisting of overdue rent (plus GST); property taxes and the return of money paid for services that were not provided, i.e., the removal of the hemp straw. No injury was claimed for which an assessment of damages was required. In substance, HCI was seeking to recover a debt owed by S.O.L. Acres to it pursuant to the lease. HCI’s action clearly falls within the terms of s. 21 of the FDMA. To hold otherwise would, as pointed out by the Chambers judge, enable secure creditors to avoid the operation of that section merely by framing their actions as a claim for damages”.
urbitral note – First, the farmer applies to an “administrator” appointed for the purposes of the FDMA in accordance with the Public Service Employment Act, SC 2003, c 22, ss 12, 13. An administrator is authorized, but not obliged, to enter into agreements for “the services of mediators, subject to the regulations”. See the Farm Debt Mediation Regulations, SOR/98-168 which sets out the rules applicable to mediator appointment including “if the person is knowledgeable about or has experience with the mediation of disputes”.
Second, the scope of section 12(b) is broad and can be read to include attempts to initiate arbitration or pursue it pending mediation. The FDMA’s impact and role should be considered when invoking any agreement to arbitrate applicable in contractual disputes between insolvent farmers and their creditors.
Third, the legislation operates independently of any court-ordered mediation or agreement of the parties and affirms a role for provincial jurisdiction in insolvency.