Australian Credit Law Bulletin - Vol 9, No 2, May 2008
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:
- Are you bound by an honest mistake in a document?
Oops! $76,000 error in acknowledgement of debt document - Claim of discrimination against mentally ill man in debt
An example of the challenges for all those involved when a debtor is mentally ill - Company with no workers defends winding up for unpaid workers comp policy
Insurance agent refuses to cancel policy that company says it never agreed to - Directors shift business into another company but forget to tell creditor
Judge calls it “an example of the folly of not obtaining proper legal advice”
1. Are you bound by an honest mistake in a document?
Freight & Logistic Services Pty Ltd v Pogroske and Anor [2007] VSC 392 (10 October 2007)
Bon McArthur Pty Ltd (trading as McArthur Express) distributed goods from various depots throughout Australia. Freight & Logistic Services Pty Ltd, a freight forwarder, was a customer. Freight & Logistic had an arrangement by which four of its customers arranged for the collection and delivery of the goods by McArthur. The customers would be invoiced by Freight & Logistic.
Trevor Pogroske and Paul Billingham were appointed receivers of McArthur on 24 September 2007. Freight & Logistic immediately found that there were problems getting its customers’ goods released by McArthur Express. Its solicitor, Timothy Davies spoke to Alan Hunt, the debt recovery consultant employed by the receivers on the phone, on 26 and 27 September. After these discussions, Hunt sent Davies a letter, dated 27 September, to be signed by Freight & Logistics. It acknowledged that Freight & Logistics owed “approximately $40,000 [which would be paid] in accordance with the usual trading terms (ie by 31 October 2007), without any deduction, counterclaim or setoff.” In return, the receivers consented to releasing the goods. Davies signed for Freight & Logistics.
However, in early October, Freight & Logistics found that McArthur Express was refusing to say where goods were and refusing to release all of those goods. McArthur Express now claimed that the figure of $40,000 was a mistake.
Hunt later explained that, “[t]he incorrect figure of $40,000 was inserted by genuine mistake. At this time, my team was negotiating with numerous parties and sifting through large amounts of information. It seems that the figure of ‘$40,000’ had not been changed from an earlier letter to a separate debtor which had been used as a precedent.”
On realising his mistake, he telephoned Davies and said that “the correct figure should be $122,007.13 and not $40,000”. Davies responded that his client would stand by the consent agreement.
On 9 October, the parties went to court to sort this out. Freight & Logistics wanted to enforce the letter of 27 September as a binding agreement between the parties. It sought a mandatory interlocutory injunction to force McArthur Express to release the goods. In order to be entitled to an interlocutory injunction, the plaintiff must establish that there is a serious issue to be tried, and that the balance of convenience is in favour of the grant of the injunction.
Davies and Hunt both produced affidavits which, in part, set out the telephone conversation between the two, but which differed in important respects.
Hunt’s affidavit said that he told Davies that the records said that Freight & Logistics appeared to owe approximately $116,000. Davies version said that Hunt said Freight & Logistics owed about $80,000. Davies said that he didn’t not know whether that debt included amounts which had not been delivered or invoiced.
The receivers argued that the agreement set aside on the basis of unilateral mistake. In essence, if one party makes a mistake about the content of an agreement, and the other party knows that they have made this mistake but allows them to make it, the second party can’t rely on the error.
The judge felt that even if Hunt’s version of events was accepted (which would suggest that Davies must have known the figure was a mistake) the McArthur case was weak. There was no conduct on behalf of the plaintiff which contributed to the error made by the defendant.
He said, “in my view the balance of convenience… strongly favours the grant of an injunction. If [Freight & Logistics] is not able to obtain access to its customers’ goods, [it] will suffer substantial harm... “
However, it was conceded by Davies for Freight & Logistics that the acknowledgement of $40,000 of debt did not mean that McArthur couldn’t pursue the rest. The judge said that Freight & Logistics must give an undertaking that in any proceedings between itself and McArthur in relation to this debt Freight & Logistics would not claim that as a result of the letter, the maximum they would have to pay was $40,000.
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2. Claim of discrimination against mentally ill man in debt
Byrne v Kelly & Anor [2008] QADT 6 (1 April 2008)
Mr Byrne had a psychiatric illness, bipolar disorder. He had substantial equity in the property, but his mortgage debt and other debts exceeded $180,000 and he was not able to repay these. The mortgagee had been threatening to take possession of the property and exercise its power of sale and was refusing to negotiate another repayment plan. Byrne’s debt to the Australian Taxation Office and credit card debts were attracting high rates of interest. Byrne also has a very large collection of jumble in his house and in his yard which had resulted in the Brisbane City Council issuing him with a vermin control notice.
On 30 October 2003, the Guardianship and Administration Tribunal (“GAAT”) appointed administrators for Byrne for all financial matters. The administrators later applied to GAAT for leave to withdraw as the administrators and were replaced by the Public Trustee of Queensland. Gerard Kelly was the officer appointed by the Public Trustee to handle Byrne’s financial affairs.
Byrne strongly believed that the Public Trustee should investigate and take legal action against a number of insurance companies which he claimed owed him money and against a firm of solicitors.
Kelly wrote to one of the previous administrators, Mr de Silva, seeking information as to whether any of the claims were viable, whether there was any basis for the claims and whether claims would provide Byrne with any financial benefit. Mr de Silva, who was Byrne’s solicitor for many years, said that he was not aware of any valid claim. Kelly also sought advice from the Official Solicitor for the Public Trustee. He then decided that it was not viable to pursue those claims.
The Public Trustee decided to proceed with the sale of Byrne’s home. Byrne’s principal complaint is that the Public Trustee has discriminated against him by refusing to take any legal action on his behalf against the insurance companies and the firm of solicitors.
Byrne alleged that Kelly and the Public Trustee of Queensland discriminated against him on the basis of his mental illness. The complaint seems to have been accepted by the Anti-Discrimination Commissioner as an allegation that the Public Trustee contravened s.10 of the Anti-Discrimination Act 1991 (Commonwealth) by treating Mr Byrne less favourably than a person without his impairment would have been treated in circumstances that are the same or not materially different. In other words, he claimed that if he wasn’t mentally ill, the Public Trustee would have sued the insurance companies and lawyers.
It was clear to the judge that Byrne (who represented himself) genuinely believed that he had valid claims which he felt the Public Trustee should pursue. However, he could not establish a case of discrimination by merely asserting that the Public Trustee was wrong not to pursue the claims.
“In my opinion, if the Public Trustee were administering the financial affairs of a person without Mr Byrne’s incapacity (say, a prisoner sentenced to more than three years imprisonment whose estate was being managed pursuant to s.91 of the [Queensland] Public Trustee Act 1978), he would make the same decision to not pursue the proceedings in the best interests of the person.”
In the circumstances, the judge concluded that it would be unfair to make a costs order against Byrne. “The Public Trustee is a statutory officer whose appointment is for the public benefit. This is one of the situations in which his costs must be borne by the public purse.”
Postscript: The sale of Byrne’s house was eventually averted by the Public Trustee. Several of Byrne’s creditors reduced or wrote off their debts and the mortgagee eventually relented and agreed to a different repayment schedule. Byrne continues to live in his home.
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3. Company with no workers defends winding up for unpaid workers comp policy
Cambridge Integrated Services Australia Pty Ltd served a statutory demand for $6,675.35 dated 10 September 2007 on Parkes Terminal Land Corporation Pty Ltd. A statutory demand is the first step towards winding up a company for not paying its debts. If the debtor company fails to satisfy the statutory demand, it is deemed to be insolvent.
Parkes applied to set aside the statutory demand. $2,897.61 of the debt related to a workers compensation insurance policy. Mr Smith, an officer of Parkes, claimed that he had asked Cambridge for a proposal for insurance via brokers. The brokers told him that, in order to obtain quotations, it would be necessary for the plaintiff to complete proposal forms for directors and officers insurance and workers compensation insurance. Some time later, Parkes claimed it received, not a proposal from Cambridge, but a bill for premium for a policy. Parkes tried to clear this up:
“I said, ‘We do not need the workers compensation insurance policy because we do not have any employees. We think that the policy was issued in error.’
[Cambridge]: ‘Ok you will not have to pay any fees then. Just send us something in writing, stating the policy number and the reason why it needs to be cancelled.’”
Despite this, Cambridge’s agent then refused to cancel the policy.
By the time of the court hearing, Cambridge had “reduced the relevant premium to $175.00 and apparently does not now claim a debt of $2,987.61.”
Most of the rest of the debt - $3,650.18 - had been the subject of a judgment in the Local Court. However, this judgment was now being appealed and was not enforceable. “There is not in existence today a judgment debt for $3,650.18. It follows that… there is a genuine dispute as to the existence of the debt…”
The statutory demand was set aside.
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4. Directors shift business into another company but forget to tell creditor
WEBB & ANOR v GLEN EDEN VALE PTY LIMITED [2008] NSWSC 123 (14 February 2008)
Mr and Mrs Webb were directors of a company called G & L Webb Pty Limited. It conducted a restaurant and catering business using the name "Lyndy's Bistro and Restaurant”. G & L Webb Pty Limited opened a credit account with Glen Eden Vale Pty Limited, a supplier of food products in 2002. The account document, which was signed by the Webbs as officers of the company, contained the following clauses:
“Personal Guarantee: I/We note the trading terms listed on this form and the attached terms and conditions of sales have been explained to us by the supplier. I/We guarantee payment of any and all accounts for goods purchased by the above company/business together with any legal personal representatives of the company/business or out-of-pocket expenses associated with the collection of any outstanding moneys. All products remain the property of [the supplier] until all moneys owing to [the supplier] have been paid. I/We understand this guarantee binds us personally.”
"Acknowledgement: I undertake to advise of any change of ownership and I agree to the trading terms listed on this form and the attached terms and conditions of sale.”
Glen Eden’s account grew to more than $50,000. When it wasn’t paid, Glen Eden demanded payment under the guarantee.
At that point, the Webbs claimed that they were not liable since they had, in 2003, before the debt was incurred, transferred the business to a new company, Lyndy's Catering Pty Limited and they had not guaranteed the debts of that company.
The matter was heard in the NSW Local Court. Glen Eden claimed that the Webbs had not notified it of any change. Mrs Webb said she thought that she had told someone over the phone, but was not certain about this. Witnesses called by Glen Eden denied that they had been given any such notice. The Magistrate concluded that the Webbs had given no notice.
Supplies were ordered in the names of various persons or businesses, all plainly associated with Mrs Webb. The Magistrate did not think that this material (which mentioned various names other than G & L Webb Pty Limited) gave notice of the change of business ownership to Glen Eden. The Webbs were held to be personally liable under the guarantee.
The Webbs appealed to the Supreme Court seeking leave to appeal, and asking for a stay of judgment until the appeal could be heard. Glen Eden intended to bankrupt the Webbs.
The judge was “of the view that the prospects of success of an appeal … are slight.” However he granted a stay subject to the condition that the plaintiffs (the defendants below) pay into Court within seven days the sum of $74,473.93 (the agreed judgment debt, not including costs). If the money wasn’t paid, Glen Eden could execute the judgment.
The judge, commenting on the wording of the guarantee, which he thought wasn’t drafted by a solicitor, said that “this case is perhaps an example of the folly of not obtaining proper legal advice.” Presumably this referred to the Webbs’ failure to understand that they needed to tell their creditors about the change of legal entity even more than the uncertainties in the wording of the guarantee.
