Australian Credit Law Bulletin - Vol 3, No 3, May 2002 - Collection Special

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@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:

Suing and enforcing judgment in other states
Suing your debtor
Entering judgment
Execution
Seizing land
Garnishee generally
Garnishee of wages
Examination of debtors
Instalment orders
Conclusion

1. Suing and enforcing judgment in other states

It's easy to fall into the trap of assuming that the process of suing and enforcing judgment is the same everywhere. Even those who are familiar with the different processes in different jurisdictions, fall into this trap. They assume that what they'd do in their home state is possible (and the best option) elsewhere in Australia. I heard a Sydney lawyer recently advise a creditor to garnishee a debtor's wages - a process under which the debtor's employer pays the money to the creditor. Unfortunately, the debtor was in Western Australia, and WA has no process for garnisheeing wages!

This bulletin is a brief (and therefore not comprehensive) comparative study of the various processes in New Zealand and five Australian states - New South Wales, Victoria, Queensland, South Australia and Western Australia - and some of the implications of these differences for creditors. If you do business in more than one state, or you have debtors who have left your state, this will be relevant to you.

The process of getting and enforcing judgment is similar in every state of Australia, and in New Zealand, but there are some important differences. The legislation for civil litigation and enforcement of civil court judgments is controlled by the various States and Territories in Australia. Commonwealth law covers insolvency. We won't cover bankruptcy and liquidation in this Bulletin except to say that, in general, the law in New Zealand, as it applies to a creditor taking action to force money from a debtor, is very much the same as the law that applies throughout Australia.

The other issue we'll gloss over is the fact that each state has a number of court levels, and with the exception of Queensland, different rules apply to each. In terms of getting to judgment, we are usually referring to the process in the lowest court in the state - the

Magistrates (Vic, SA, and Qld) or Local Court (NSW and WA). We'll ignore the Small Claims Tribunals and similar organs which exist in all these jurisdictions.

Queensland has Uniform Civil Procedure Rules which remove many (but not all) of the differences between the state's Magistrates, District, and Supreme Courts as far as debt matters are concerned. One other thing this Bulletin won't do, is list or explain the different terms (plaint, writ, complaint, summons, notice of proceeding, notice of liquidated claim, etc) that are used for what are essentially the same documents and processes. We'll use generic terms instead.

2. Suing your debtor

First, some thoughts on getting to judgment. In South Australia you have to give the debtor a formal warning notice before you sue. Aside from this incongruity, perhaps the most important differences here are in terms of the service of initiating documents. In New South Wales, South Australia and Queensland, the lower level courts will, if the creditor chooses, serve the documents on individuals by ordinary post. A set number of days later, the document is deemed to be served, and judgment can be entered by default. Not surprisingly, debtors who claim that they never got the notice can later overturn many of these judgments.

Our experience is that personal service by private process servers, working under an appropriate incentive system, gives the best chance of getting documents served. (In New Zealand, creditors don't have any option; court staff do not serve pre-judgment documents.)

3. Entering judgment

Every jurisdiction has a default judgment process and it is estimated that (at least in the lowest level courts) 60-90% of judgments are by default. (In the higher courts, with higher dollar values, there are more defences filed.)

Judgment by default is entered when the creditor files an application for judgment a certain number of days after serving the initial documents, provided the debtor hasn't filed an intention to defend. Judgment is entered without further ado. The time you have to wait before applying for judgment varies between jurisdictions. At one extreme, in Western Australia, you need only wait 14 days; at the other extreme, in New Zealand or Queensland it's 28 days.

This is important in some cases. For example, if you know that your debtor is owed some money by someone else, in all jurisdictions you can "garnishee" that money. That means you ask the court to tell your debtor's debtor to pay the money to you instead. However, you need to have a judgment first. If you don't have a judgment when you find out about this forthcoming payment, can you get a default judgment in time (before the money is paid to the debtor)?

Once judgment is entered, it becomes a matter of public record and will appear on the Baycorp Advantage databases in Australia (the old CRAA database) or New Zealand, as the case may be. New South Wales is the exception. Judgment debts in that state are still a matter of public record but may not be passed on to credit reporters.

Once you've got your judgment, how do you enforce it?

4. Execution

"Execution" against the debtor's goods - sending the bailiff or sheriff out to seize and sell goods - is possible in all jurisdictions. An informal survey of senior court staff in Australia suggests that this is the number one method of enforcement of judgment in Western Australia, Victoria, and New South Wales.

It reportedly works best in Western Australia. This is because Western Australia takes seriously the matter of "poundage". Essentially, the bailiff gets a 5% commission on the judgment debt recovered. The ineffectiveness of court staff in serving documents and executing warrants is one of the major problems in any court system, and Western Australia, with its more entrepreneurial bailiffs, seems to have a useful approach.

In Queensland, court staff serve a copy of the execution warrant on the debtor before it is executed. In New Zealand the standard practice is to inform the debtor by post, before serving the warrant in person. Both of these approaches would seem to reduce the likelihood of the bailiff finding any goods to seize and perhaps partly explain why execution is less popular in these jurisdictions than some other options. And in New South Wales, sheriffs, when serving documents, wear uniforms and drive marked court vehicles. This doesn't help them to sneak up on debtors unawares.

5. Seizing land

If the debtor owns land, seizing it is generally a very good option for creditors. Throughout Australasia there are reliable, searchable records of who owns land and what mortgages there are over it. And of course, land is also generally much more valuable than goods. It's often a debtor's biggest asset and an attack on it often brings payment. In all of the Australian states there must be an attempt to proceed against personal property first.

In New Zealand and South Australia, a charging order can be put against the land. The charging order sits on the title, similar, in some ways to a mortgage, and the creditor must be paid before the land can be transferred. This is a good option where the creditor knows the land is being sold, or where the debtor appears to have no equity in the land, but it may one day appreciate.

6. Garnishee generally

As described earlier, if your judgment debtor is owed a debt by someone else, you can ask the court to order that third party to pay the money to you. Ignoring the garnishee of wages, which we'll come to shortly, the process is much the same throughout the jurisdictions we are discussing. It is seldom utilised, but is most commonly used to seize the contents of bank accounts.

7. Garnishee of wages

Most states have some form of garnishee of wages, where the employer is ordered to pay some or all of the debtor's wages to the creditor. The exceptions are Western Australia where there is no garnishee of wages at all, and South Australia where garnishee of wages is not permitted except with the debtor's consent.

New South Wales has an unusual system for garnishee of wages. The process is limited to, at best, four weeks, unless the debtor applies for an instalment order during the four-week period, in which case the garnishee continues on, but only at the instalment rate. Say, for example, a debtor earns $1000 a week. A creditor, owed $10,000, applies for a garnishee order over the debtor's wages for four weeks. Most of the first week's wages are paid to the creditor by the debtor's employer. The debtor's finances are severely disrupted, so he rushes down to the court and applies for an instalment order (discussed below). He convinces the court staff that $50 a week is a more reasonable rate. This amount is now paid to the debtor by the employer until the debt is paid. (Instalment orders put a stay on other enforcement action.)

In New Zealand, creditors can garnishee social security payments. This is particularly valuable and is not possible in Australia under the Commonwealth Social < a href =" http://www.hattaways.com/linkout.php?url=http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186/">

Security Act 1991.

8. Examination of debtors

Generally, some form of examination is required before wages will be garnisheed. In some states an instalment order may follow an examination. Generally the court will issue an order for the debtor to be arrested if he or she doesn't turn up. Examination also applies to directors of companies, and in Western Australia managers can also be examined. Examination is usually carried out by the creditor or the creditor's representative.

9. Instalment orders

Instalment orders - requested by the debtor or ordered by the court - are available in all Australian states. In our rough survey of court staff it was considered the most popular method of enforcement of judgment in South Australia.

Creditors generally have an option to either reject or request a review of the amount. The case of Red Lea Chickens v Tansey (unreported, 17 July 1995) in the New South Wales Court of Appeal sent a message to court staff that they should not accept instalments which delay payment too long. In that case, the creditor was unhappy

over the fact that the instalments ($400 per month) weren't even covering interest ($829 per month) so the debt could never be paid. The problem for creditors is that an instalment order stops them taking other action. Two or three years is not generally seen as unreasonably long. New Zealand doesn't have a formal instalment option but a debtor who fails to keep to an arrangement made following an examination may be ordered to do periodic detention (typically, Saturdays spent doing supervised weeding in public parks).

In Western Australia, a debtor who fails to keep to the payments ordered after a "judgment summons" may be sent to prison. South Australia and Victroria also imprison people for "persistent and wilful default", but more rarely, and the punishment is milder. For example, in South Australia, bail is automatic so debtors are unlikely to be incarcerated for more than an hour or two while bail is organised. In none of these states are there large numbers of people being incarcerated for non-payment of debt.

10. Conclusion

So which state's process, from a creditor's perspective, is the best? Queensland's rules are the most recent and seem to have few obvious anomalies, but little in the way of innovation (except for being relatively easy to understand, which is a novelty in itself). New South Wales' rules are probably the most out of date. The fact that NSW judgments will not be passed on to Baycorp Advantage (previously CRAA) is a major drawback, and for this reason some creditors should think seriously about specifying in their contracts that all legal action will take place in some other state.

South Australia's process for garnishee of wages is ludicrous and Western Australia's non-existent. The Law Reform Commisson in Western Australia carried out a review in 1999 but there is no sign of actual reform. WA's incentive system for bailiff's works well and its more vigorous approach to imprisonment will appeal to some creditors. Victoria hardly gets a mention - none of it's processes are especially innovative, but none are especially bad (at least in comparison to the norm). Certainly, every state has something to learn from the others. Sadly, improvements in this area are generally low on any government's list of priorities.

David Francis LL.M. B.A. has been presenting legal seminars to credit staff since the 1970s and is a Fellow of the Australian Institute of Credit Management. David holds masters degrees in law from both the University of Sydney and the University of Technology, Sydney. He presents legal seminars for Hattaway & Associates throughout Australia.
David Francis

Elke Meyer has vast experience in credit management and debt collection, the security industry, and the police and Corrective Services. She currently holds a position as Credit Manager at John Paul College in Brisbane.

Alan Liddell LL.B. B.A. presents our Law of Credit Management seminars in New Zealand. He is the principal of law firm Capamagian Liddell and a leading expert on the Personal Property Securities Act. He is the co-author of Credit Revolution: A Practical Guide to Surviving the Personal Property Securities Act and all attendees will receive a copy of this book. Alan has worked with the credit staff of Australian-based businesses for a number of years and says: "It is enormously difficult for Australian creditors to understand the New Zealand Personal Property Securities Act. It's so different to retention of title."
Alan Liddell

There are other important differences between New Zealand and Australian credit law - no voluntary administrations yet, some different views on privacy, a regime for enforcing judgments which is generally more effective than in Australia, and a variety of other issues. However there are lots of similarities. The Personal Property Securities Act is dramatically different and this is the main focus of this seminar. Any creditor selling into New Zealand and attempting to take security under what in Australia would be a romalpa clause should move heaven and earth to attend. Failing to understand the PPSA could cost your company an awful lot of money.