Australian Credit Law Bulletin - Vol 8, No 4, June 2007
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: aus-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Banned director lodges constitutional claim in High Court
And loses. - Money lender prosecuted for collecting debts without a licence for franchisee
Franchisor was making profit of $24 per summons - Privacy Commissioner acts to protect bankrupts' feelings
Bankruptcy Trustee disclosing trustees' opinions about bankruptcy offences on website - If the wedding's off, do you have to return the ring?
A fascinating case with contract and bailment issues which have a slim link with credit management
1. Banned director lodges constitutional claim in High Court
Visnic v Australian Securities and Investments Commission [2007] HCA 24 (24 May 2007)
Milan Visnic had been a director of 14 companies which had been wound up with the appointment of liquidators. According the ASIC website, these companies left debts of approximately $5.9 million. For a list of the failed companies, see http://asic.gov.au/asic/asic.nsf/byheadline/06-019+ASIC+bans+directors+for+five+years?OpenDocument&Click=
Corporations Act 2001 gives ASIC the power to disqualify a person from managing corporations for up to five years. That person must have been an officer of 2 or more failed companies on which a liquidator has lodged reports under subsection 533(1) about their inability to pay their creditors more than 50 cents in the dollar. It is an offence for a disqualified person to manage a corporation (s206A(1)).
On 4 November 2005 ASIC served Visnic with a 'Notice To Demonstrate Why A Disqualification Should Not Occur'. A decision by ASIC under s206F may be reviewed by the Administrative Appeals Tribunal (s1317B). However, Visnic responded by advising ASIC that he would be commencing a High Court challenge to the constitutional validity of section 206F of the Act. He declined to attend any hearing arranged by ASIC.
On 24 January 2006, the ASIC served on Visnic a notice stating that he had been disqualified from managing corporations for five years. The statement by ASIC published concluded that the plaintiff was: "not fit to manage corporations and should be prohibited from further managing corporations as he has demonstrated a lack of responsibility towards his duties and responsibilities to creditors, to the detriment of those creditors?"
Nine days later Mr Visnic filed a writ and a statement of claim in which he challenged the constitutional validity of section 206F of the Act. Being a constitutional matter of some significance, it was ultimately heard in the High Court.
The central issue was whether s206F gives ASIC a judicial power which it shouldn't have. The Constitution endeavours to separate judicial, executive and legislative power. If an Act purported to give judicial power to an administrative body, it would be invalid.
Here, ASIC made no determination of guilt with respect to any law dealing with an offence. The court held that ASIC was exercising administrative discretion, not determining or punishing guilt. Section 206F was therefore valid. Visnic's disqualification stood.
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2. Money lender prosecuted for collecting debts without a licence for franchisee
FAZIO -v- INTERIM ADVANCE CORPORATION PTY LTD & ANOR [2007] WASC 108 (11 May 2007)
Interim Advance Corporation Pty Ltd traded as Aussie Cash, a business that made cash advances of $100 to $1000.
Interim Advance also operated as a franchisor to a number of independent franchise Aussie Cash stores throughout Western Australia. Susan and Malcolm Macdonald traded in partnership as Aussie Cash Northam, one of these independent franchisees. Aussie Cash Northam made cash advances to their borrowers using their own money, not that of Interim Advance.
Clients would make an application and, if successful, Aussie Cash Northam purchased a promissory note issued by the client. The promissory notes required the borrower repay the cash plus interest within three months. Twenty per cent of that interest was paid to Interim Advance as franchisor.
The main way of collecting repayments was by way of direct debit from the borrower's bank account. Interim Advance provided the direct debiting service to Aussie Cash Northam. Interim Advance would deduct its share first and pay the balance to Aussie Cash Northam.
Aussie Cash Northam instructed Interim Advance to recover the debts from defaulters on Aussie Cash Northam's behalf in return for specified fees. Interim Advance looked to defaulting clients for the collections costs eventually, but Aussie Cash Northam was charged in the first instance, being reimbursed in due course in the event of recovery action proving successful.
On or about 30 April 2004, Interim Advance prepared and signed six Local Court summonses. Interim Advance forwarded the summonses with a cheque for the filing fees to Aussie Cash Northam. It was Aussie Cash Northam's responsibility to process them through the Northam Local Court and serve them.
These six summonses were the basis of a prosecution against Interim Advance and its director, Oliver George Douglas, in the Magistrates Court at Perth, for collecting debts without a licence under the WA Debt Collectors Licensing Act. The Act says in essence, that you can't collect debts for other businesses for a fee unless you have a licence under the Act. It says that:
"'debt collector' means a person ? who on behalf of any other person and for or in expectation of any gain, fee or reward whatever, by whomsoever paid or payable and either on his own account or in conjunction with another, carries on the business of collecting requesting or demanding payment of debts or who advertises or notifies that he carries on that business;"
Interim Advance's "fee" for each summons was $75 (and at some point in the arrangement, this changed to $85). The Northam Local Court charged $51 to issue each summons (in round figures), an effective "fee" of $24 per summons less postage.
The Magistrate concluded that Interim Advance was not carrying out debt collection. "In my view the definition is not sufficiently wide to cover a situation such as existed between head office and its franchisees, that is, the provision of a service involving the preparation and possible service of a summons for little or no reward, perhaps at a loss, in circumstances where such a service could be regarded simply as a means by which head office seeks to ingratiate itself with its franchisees?
For the sake of completeness, I should say that if the prosecution could prove that [Interim Advance] charged its franchisees not only for court fees, service fees, staff time, stationery, telephone calls, use of motor vehicles and so on, and then, on top of that, levied a fee of [$75 or] $85, the case would, of course, [bear] a different complexion.
I find on the evidence that IAC in preparing, signing and sending the summonses to McDonald was not exercising a function of debt collector. I accept it is, in a sense, a gratuitous service."
The police appealed. (Fazio, the appellant, was the policeman concerned.) In the WA Supreme Court, the judge found that "the learned Magistrate" was completely wrong. It wasn't relevant to consider the costs incurred by Interim Advance, or its profit margin. The $75 or $85 fee to Interim Advance was 'a fee or gain within the meaning of the definition of "debt collector"? Interim Advance had acted in expectation of a gain.' The appeal was allowed and the matter was sent back to the Magistrates Court for a further hearing.
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3. Privacy Commissioner acts to protect bankrupts' feelings
Own Motion Investigation v Bankruptcy Trustee Firm [2007] PrivCmrA 5
A member of the public advised the Privacy Commissioner that a bankruptcy trustee firm was publishing on its website a wide range of personal information of bankrupts whose estates the firm was administering.� This including financial details and the trustee firm's opinion as to whether individuals had committed an offence under the Bankruptcy Act.
The Commissioner conducted an 'own motion investigation' under section 40(2) of the Privacy Act which allows the Commissioner to investigate an act or practice where there hasn't been a complaint.
Organisations may only use or disclose information that identifies an individual where the use or disclosure is for the primary purpose for which the information was collected; or related to the primary purpose of collection and within the reasonable expectations of the individual. So the key issues were, was it related to the primary purpose, and would the bankrupt reasonably expect this?
The trustee firm argued that the information was from the publicly available sections of the bankrupt's Statement of Affairs and from the Insolvency and Trustee Service of Australia's National Personal Insolvency Index (NPII).� The Commissioner said that this it did not exempt the records held by the trustee firm from the application of the Privacy Act. Moreover, whilst some of the information on the website was already available to the public on the NPII, the general public could only access this by applying for a specific record and paying fees.� The Commissioner didn't think the bankrupt would reasonably expect unrestricted disclosure of their bankruptcy information.
The trustee firm also argued that the opinion of the trustee about whether the bankrupt had broken the law did not constitute the personal information of the bankrupt. The Commissioner said that any information that identifies an individual (including an opinion) is considered personal information under the Privacy Act (section 6).�
It appeared that the trustee firm included the bankruptcy information on its website as a means of providing this information to relevant creditors not for the purpose of producing a generally available publication. This was permitted under the Privacy Act, except for the disclosure of the trustee's opinion regarding whether an offence had been committed; this information was not required to be disclosed to the creditors.�
The Commissioner did not believe that putting the information on a website where anyone could find it, met the primary purpose of collection, or would have been reasonably expected by bankrupts.
By failing to take steps to limit the access to, and disclosure of, the information on the website the Commissioner was of the view that the trustee firm had also interfered with the privacy of the bankrupts.
The Commissioner recommended that the trustee firm take steps to prevent general internet users from browsing the bankruptcy files.� The Commissioner also recommended that the trustee's opinion on whether bankrupts had breached the Bankruptcy Act be removed from the file made available to creditors.
The trustee firm agreed to these recommendations and, once satisfied that they had been implemented, the Commissioner closed investigation.
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4. If the wedding's off, do you have to return the ring?
Papathanasopoulos v Vacopoulos [2007] NSWSC 502 (18 May 2007)
Andrew Vacopoulos had been keeping company (as the judge later put it) with Vicki Papathanasopoulos. On 6 August 2005 at their engagement party they exchanged rings. The engagement ring which he gave her cost about $15,250.
Relations between them deteriorated. In the early evening of about 16 August 2005 they were at the home of Vicki's parents. Vicki said to Andrew words to this effect, "the wedding is off, here take the ring, I don't want it." She removed the engagement ring and put it on the coffee table in front of Andrew. Andrew said, "I do not want the ring it is a gift for you, you can keep it." For the next half hour, until he left, the ring sat on the table in front of him. He didn't pick up the ring or take it with him. Vicki put it in a box in her wardrobe.
About 29 September 2005 Andrew telephoned her at work, declared his love for her and said he wanted her back. She said that she told him to stop telephoning her and leave her alone. She telephoned her mother and told her to throw out all the items Andrew had given her. Her father threw the box in the rubbish bin.
Andrew subsequently sued for the return of the ring or the value of the ring. The magistrate decided that in saying, "it is a gift for you, you can keep it," Andrew was trying to keep the engagement going. The magistrate said, "It's not a question of saying 'Well he has to come and pick it up'. It's something that was given as a symbol, if nothing else, of the expected ongoing relationship between the parties. If she was rejecting him, then that quite plainly should have been returned."
So Andrew won in the Local Court. Vicki appealed to the New South Wales Supreme Court. The essence of the judge's view in the Supreme Court was:
When Andrew left the engagement ring on the coffee table it did not become her property to keep or dispose of as she wished. Vicki rejected the gift. When it was left on the table she couldn't then claim it as a gift (especially when she continued to say that she didn't want it, and in fact proved that by throwing it away). She became, in law, "a bailee" of that item so long as she had it in her control. A bailee can't throw such an item into the rubbish. This is especially so where the item is valuable? no proper notice was given and only a short time had passed. Andrew succeeded in recovering the value of the ring.
For anyone who is facing this issue, or thinks they might at some point in the future, here are the basic rules as set out in the Supreme Court:
"1. If a woman who has received a ring in contemplation of marriage refuses to [marry], she must return it.
2. If a man has, without a recognised legal justification, refused to carry out his promise of marriage, he cannot demand the return of the engagement ring?
3. If the engagement to marry be dissolved by mutual consent, then in the absence of agreement to the contrary, the engagement ring and like gifts must be returned by each party to the other.
It seems that a woman would also be able to raise a plea of legal justification of her decision to refuse to carry out her promise of marriage?[through], for example, acts of violence towards the woman or having a steady and sexual relationship with another woman. In such circumstances the woman can probably keep the ring."
(Of course, if you are facing this situation, you should get some legal advice.)
