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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2008-11-26 Daily Xml
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STATUTES AMENDMENT (BULK GOODS) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 25 November 2008. Page 819.)

The Hon. C.V. SCHAEFER (12:27): The Liberal Party will be supporting this bill and, as a result, I will not be proceeding with the private member's bill that I put on motion on this matter. About a month ago, when I was driving back from Eyre Peninsula and listening to the Country Hour (which I consider to be relatively compulsory), I was surprised, to say the least, to hear Jamie Smith, the Chair of the South Australian Farmers Federation Grains Council, say that this legislation had been introduced and that minister McEwen was doing his best to get it through for this harvest, when no such legislation was before either house, nor had it been discussed in any great detail with any member of the Liberal Party.

I spent some time trying to trace just where it was and became so frustrated that I gave notice that I would be introducing this amending legislation. That seems to have had the desired effect and, indeed, the Attorney-General (whose purview this comes under, not the Minister for Primary Industries) has introduced this bill. The Minister for Agriculture did, indeed, then take the lead role in another place.

In my view, even though the government has been particularly tardy in putting forward this legislation, I am pleased to support it at this time. This bill provides some protection for those who have goods stored in bulk. It does not provide the protection that some of my colleagues in another place and, indeed, some farmers, appear to think it provides.

It does not give the seller of, in this case, grapes or in fact any bulk goods the status of a secured creditor, and at this stage that is quite wise because an unintended consequence of doing that could mean that the private purchasers of grain in particular, or any purchasers of grain, may find themselves unable to secure credit and therefore unable to purchase the bulk goods or grain. To make every seller of grain a secured creditor would have the reverse effect of that which people would like and think that it has.

This bill seeks to protect those who have goods stored in bulk. Its purpose is two-fold: it protects those who deposit goods and are at risk and protects the seller who has deposited grain but has not been paid for it. This problem, as has been mentioned in another place, was highlighted in New South Wales in 2005 when a silo operator became insolvent and the creditors were not prepared to release the grain to the original growers as it was considered to be a saleable asset of the insolvent silo operator as opposed to being the property of those who had placed that grain in the silo. This is particularly relevant at a time when on-farm storage and warehousing is becoming a much more frequently used method of marketing or stalling marketing by farmers.

Since the deregulation of the grain market, farmers have been required to use much more flexible methods in their marketing. Many are finding that warehousing grain for a number of months allows them to control when they sell their grain and at what price and to assist them with their cash flow (although, as an aside, rain would assist them with their cash flow considerably more than any marketing).

There is a proliferation, as anyone who drives into the country would know, of on-farm storage. Private operators are warehousing grain outside the two majors, that is, ABB and to a limited degree AWB. ABB has a monopoly on storage handling and shipping of grain out of this state, but others are using their facilities on farm and in other places to warehouse grain not only for themselves but for third parties. This legislation will protect those people until their property is paid for. The difficulty with this as opposed to an individually owned piece of property is that, when the grain, grapes or any bulk goods are deposited, the legal argument has been that it is impossible to disseminate which grain belongs to, for instance, me and which belongs to Mr Gazzola. This would now allow us both to take back the tonnage of grain we had deposited, assuming that because it is bulk deposited it is of similar, if not the same, value and quality. Essentially this allows those who have deposited the goods in bulk to be owners in common.

It is a mirror of the New South Wales legislation, which in turn is a mirror of some UK legislation of a number of years ago. I note that it is not retrospective, hence the urgency that this piece of legislation passes both houses this week. I also note that it does not go as far as some growers would like and does not do what some growers have the belief it does. The South Australian Farmers Federation, in comments to the minister back in September 2008, said:

While the proposed amendments are supported, SAFF would like the changes to go further, with retention of title clauses added as in the NACMA terms and conditions—

NACMA stands for National Agricultural Commodities Marketing Association, and it is an organisation run by the majority of the private traders as opposed to the two major traders that were formerly grower owned, that is, the Australian Barley Board and the Australian Wheat Board. NACMA is a voluntary organisation of the other private traders. The SAFF submission to the government continues:

...SAFF would like the changes to go further, with the retention of title clauses added, as in the NACMA terms and conditions, so that passing of title does not happen until payment in full has been received by the seller. This needs to be for all goods and not just those in bulk.

As I have said, an even cursory referral of this matter to some of my legally trained colleagues pointed out some real difficulties with legislating in that way and, indeed, there would have been absolutely no hope of getting this legislation through this week had we gone down that path.

I have a copy of the NACMA contracts, and they do appear to be excellent contracts which could be superimposed for other bulk commodities such as wine grapes. But, as with any contract, in my view the contract needs to be between a willing seller and a willing buyer. The contracts are readily available to all people who choose to trade with members of NACMA and are countersigned by those members. So, it would seem to me that those people who wish to avail themselves of a NACMA contract will find themselves a NACMA operator, and those who wish to trade in the pools where they would not be paid in full for some 18 months can continue to do so.

I fully recognise that many, if not the majority of, farmers—grain farmers, in particular—are struggling with deregulation. I believe that, in time, they will avail themselves of the services of agents to do their marketing for them, but we do live in a deregulated economy. We do live in an era of deregulated grain marketing and, as such, I believe that the more options that can be offered to farmers the better off they will be.

There is always the concern of someone trading with an insolvent buyer. Probably no more or less than that same concern applies to someone who is having a house built or, indeed, has supplied building materials to a builder who becomes insolvent. It is a difficulty, and I had hoped that the licensing powers of ESCOSA that were put into our barley marketing act would have provided sufficient security. That does not appear to be the case, and perhaps some time in the future that barley marketing act needs to be looked at to give ESCOSA some real teeth to determine those who have sufficient surety to trade in the grain market and those who do not. In the meantime, the Liberal Party supports this bill without amendment.

The Hon. R.D. LAWSON (12:40): I want to speak very briefly on this amendment, and I agree with the comments made by my colleague the Hon. Caroline Schaefer a moment ago. I believe this is a valuable facilitative amendment. It will enable parties to reach agreements which actually reflect their particular intentions. Presently, section 16 of the Sale of Goods Act provides an impediment which cannot easily be contracted around. That impediment is now being removed. I commend to members who are interested the paper issued by The Law Commission and The Scottish Law Commission entitled 'Sale of goods forming part of a bulk' which is referred to in the discussion paper the government introduced on this topic.

The only point that I wish to make is to reinforce one made by my colleague a moment ago. This legislation will not provide farmers with the sort of protection to which some of them think they are entitled.

The honourable member mentioned the NACMA contract for grain and oil seeds in bulk, which is entitled contract No. 2. It contains the provisions which, on their face, would appear to provide protection for farmers selling grain to members of this association who use this particular type of contract. I must say that it is a contract that favours the seller of grain. It provides a retention of title clause in clause 9, which inter alia provides:

Until full payment is received the buyer and/or its agents and third parties hold the goods as bailees only.

The buyer here is the wheat or grain trader. It continues:

On breach of any payment terms, the buyer on its behalf and on behalf of its agents and third parties authorises the seller [the farmer] to enter any premises and retake possession of the goods without notice to the buyer, its agents and third parties. Where the goods have been co-mingled with other goods, the buyer becomes an owner in common of the bulk goods and the undivided share of the seller shall be such share as the quantity of seller's goods bears to the quantity of the goods in the bulk. Until such time as the seller has received payment in full, any on-sale by the buyer is made as the seller's agent and the buyer holds the proceeds of any on-sale of goods as trustee for and on behalf of the seller and must account to the seller for those proceeds on demand. Where at the time of default in any payment terms to the seller the buyer has not received proceeds of any on-sale the seller is expressly authorised to receive the proceeds of the on-sale direct from the buyer's customer.

That is all well and good in theory. It provides farmers with probably as much protection as they could hope to obtain. However, this protection is by no means ironclad and, as everyone who has any knowledge of this business knows, goods are on-sold by traders. Traders may have received the proceeds from their buyer well before the time the farmer is paid. The proceeds may not be available to the farmer and may not be easily obtainable.

In commercial transactions of this kind there is no escape from the fact that people can lose money if traders go broke or get into financial difficulty. Indeed, it is those dealers who might get into financial difficulty who will create the problems in relation to this trading. I support the free trading of grain and the opening up of the market for grain. I think it is ultimately to the benefit of the whole community, including farmers and consumers, but there are inherent risks. How ever good the contract you sign, if you are dealing with people who are not credit worthy or in financial difficulty you may well suffer financial consequences, no matter how ironclad the contract you sign is.

I agree that the NACMA contract from the farmers' point of view is a good one, but it is not possible for the legislature to impose upon the market contracts of that kind. That is a matter for individual negotiation. I would be very much against insisting in a legislative way that parties adhere to a particular form of contract. I believe in freedom of contract. People ought to be able to adjust and amend contractual arrangements to meet their particular requirements. I support the passage of the bill.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (12:48): I understand there are a number of members who wished to speak to the bill, and I am aware that there are other members who have indicated their support for the bill. I thank the Hon. Caroline Schaefer and the Hon. Robert Lawson for their contributions, and I thank all members of the council for their indulgence in allowing this bill to be passed at such short notice. I commend the bill to the council.

Bill read a second time and taken through its remaining stages.

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