Australian Credit Law Bulletin - Vol 3, No 9, Christmas 2002
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe, visit the Australian bulletin index and enter your details on the right
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:
- Some initial results from the Hattaways/MG Business Credit Management Remuneration Survey 2002
We've had 256 responses so far but we'd like more. - Life’s hard enough in Melbourne Cup week without complex legal issues
A bankrupt fails to avoid paying his creditors so sues his lawyer for not getting him off the hook. - Director not liable - a trap for creditors with complex Romalpa clauses
The wording of the retention of title clause allowed the director to avoid his personal guarantee! - Test of NSW Building and Construction Industry Security of Payment Act 1999
Could the subcontractor make one claim or did it have to make a separate claim for each missed progress - New service - contract credit managers
When you need a credit manager for 3 or 6 months to sort out a problem, we know the people to call.
1. Some initial results from the Hattaways/MG Business Credit Management Remuneration Survey 2002
If you work in credit go to http://www.hattaways.com/surveys/pay2002.php and fill in the 10 questions in our survey. 256 people have already done so.
Some broad initial conclusions. The average annual rate for front line staff in Australia is $37,820. The salaries for people calling themselves credit controllers average $49,922, credit managers $51,092 and national credit managers $64,444. Bigger sample sizes will give us better data (by city, business size, staff numbers, etc) so fill in the survey now! Final numbers will be reported in detail in the New Year to anyone who requests them.
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2. Life’s hard enough in Melbourne Cup week without complex legal issues
Carew Counsel Pty Ltd v French [2002] VSCA 1 (15 February 2002)
This case relates to “the untried and untested provisions of Division 2A of the Bankruptcy Act 1966” which deal with a declaration of intention to present debtor's petition. In the Supreme Court, the judge notes “the exquisite difficulty of the situation confronted by Mr. Williams of Carew Counsel in the tight time frame available.” It didn’t help issues all arose in Melbourne Cup week.
Mr Williams, a solicitor of Carew Counsel acted for Mr French in a personal injury case. The case was settled and the Transport Accident Commisson (TAC) agreed to pay French $185,000. TAC kept the money whilst competing claims were forthcoming from creditors of French.
French decided that he would present to the Official Receiver a declaration of his intention to present a debtor's petition (under section 54A of the Bankruptcy Act 1966). The personal injury damages in the settlement fund would then be protected in bankruptcy under section 116(2)(g) of the Act.
There were two main creditors, Centrelink and law firm Testart Robertson. Centrelink claimed French owed them $34,547. Testart claimed French owed them $34,829. (There were also another two law firms chasing payments out of the TAC money.)
Testart served a garnishee order on TAC. This is where a creditor has obtained an order from a court that its debtor’s debtor should pay the money direct to the creditor. In this case Testart served a garnishee order on TAC ordering it to pay Testart $34,829 of the money it was owed to French.
Williams, acting on instructions from French, wrote to TAC requesting them to pay Centrelink, insisting that no money be paid to Testart on the garnishee order and telling them to forward the balance to him. He told TAC that French intended to declare himself bankrupt and that Section 54H prohibited TAC from using any of the settlement funds to pay any debts once it was served notice.
French made his bankruptcy declaration and Williams served it on TAC. He did not serve it on Testart who was a creditor of French. Two days later, TAC told Williams that, acting on independent legal advice, it had paid out the debts owing to both Centrelink and Testart. Their advice said that they had to comply with the garnishee order as it was an order of the court.
French sued Williams’ firm, Carew Counsel, for reimbursement of $34,829 paid by TAC to Testart. He claimed that Williams was negligent because he didn’t serve a copy of the declaration on Testart and was therefore in breach of S54E, which prevents enforcement of a debt by a creditor when the notice is served on it. He claimed that, “had Testart been advised of his declaration of intention, they would have been obliged not to accept the cheque sent to them by the TAC and/or to have returned it to the TAC.”
The County Court concluded that Mr Williams was negligent. However, on appeal, the Supreme Court decided he wasn’t. He had served a copy of his client’s section 54A declaration of bankruptcy on TAC, who was in control of the settlement fund. He had a reasonable belief that TAC would act in accordance with section 54H and not pay out any money from the fund to outstanding debts.
In addition, even if Williams was required to serve on Testart notice of his client’s bankruptcy, he was entitled to believe that Section 54E did not apply to Testart. Section 54E (which suspends enforcement) does not prohibit creditors from accepting payment for debts when they are a secured creditor (within the meaning of s.54L) as Testart was under the garnishee order.
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3. Director not liable - a trap for creditors with complex Romalpa clauses
Rondo Building Services Pty Ltd v Casaron Pty Ltd & Anor [2002] QDC 128 (17 May 2002)
Rondo Building Services Ltd supplied steel frame work products used in the construction of walls and ceilings to Casaron Pty Ltd. Mr Dance, a director of Casaron, provided Rondo with a guarantee for the debts incurred by Casaron.
The contract for supply contained a romalpa clause. This clause provided that if the goods became affixed to other materials, then the entire proceeds from any sale thereof were to be held in a separate account on trust for Rondo.
Casaron failed to pay Rondo. The goods had become fixtures in a building, so Rondo had no right to repossess them. No money had been set aside in an account on trust. Rondo sued Casaron and Mr Dance, arguing that he was personally liable for Casaron’s debt under the guarantee.
Rondo obtained a judgment against Casaron and this present case concerns the action against Mr Dance. Mr Dance raised a number of issues in his defence. Firstly, he argued that any guarantee which was signed by him was signed in his capacity as a director of Casaron and he was not personally liable. His second argument was that because of the trust provision in the Romalpa clause, the true relationship between Rondo and Casaron was trustee/beneficiary. If this was so, he argued, that there were in fact no debts owed to Rondo. His guarantee should have no application to money held on ‘trust’.
The court found Mr Dance had intended to sign the guarantee in his personal capacity, even though the company seal was attached. Unfortunately for Rondo however, the guarantee was worthless. Once the obligation of the debt was extinguished because of the goods being affixed in a building, Mr Dance as a guarantor of that debt was no longer liable. This was because the guarantee document only guaranteed the ‘indebtedness or liability’ of Casaron to Rondo. Once the goods had been incorporated into a building, the money became due on the basis of a trust, rather than a debt. The only remedy left was for Rondo pursue Casaron for the money held on trust principles pursuant to the Romalpa clause.
If your company has a Romalpa clause which requires the proceeds from any sale of its goods to be held in a separate account on trust, perhaps you should review the wording of the clause!
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4. Test of NSW Building and Construction Industry Security of Payment Act 1999
Fyntray was the main contractor on the Mount Annan Leisure Centre and sub-contracted the plumbing work to Macind Drainage. In May 2001 Macind made a claim for payment under the Building and Construction Industry Security of Payment Act 1999 for three months unpaid work from earlier that year. In December 2001 the District Court awarded over $77,000 in progress payments due to Macind. Fyntray appealed.
Under the Act, a claimant must serve a “payment claim” in order to receive “a progress payment”. Under s.14(4) if a payment claim is served and the other party does not provide a payment schedule within 10 working days they will be liable to pay the claimed amount. Fyntray did not submit a payment schedule.
Fyntray said that the payment claim was invalid because the due date for earlier progress payments had expired. They argued that the delay in making separate claims and only making a ‘multiple progressive claim’ could cause unjust damage. One of the effects of a payment claim being lodged immediately and separately was that inspections could be done regularly. Fyntray had been unable to make regular inspections of the work. Fyntray argued that the Act had granted sub-contractors considerable rights of recovery and suspension of work. The cost of this is making their claims in a timely fashion.
The Court disagreed. Even if a claim was delayed, a contractor is still liable for that “passed” payment. To suggest that Macind had to serve separate payment claims immediately after each contractual period had passed was hollow in view of Fyntray’s record of late or non-payment on each of those occasions. What’s more, nothing in the Act suggested that a payment claim could not include entitlements to more than one progress payment.
The Court held that Macind was able to serve a payment claim on Fyntray even though the claim related to work done previous to the month in which the payment claim was served.
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5. New service - contract credit managers
We've recently had clients approaching us with problems which we couldn't attempt to solve with training or a report. Instead, what they have needed was a practical, experienced, hands-on, senior credit manager on a contract basis. They needed someone experienced to go in for perhaps three months or six months to sort out their ledger/centralise their credit operations/manage the introduction of their new systems. It so happens that we know people like that in many cities in Australasia - people who have worked their way out of their previous jobs and are looking for new challenges.
We'll only offer a few people whose skills we have great confidence in. And we're also there to give them support over the length of their assignment. Our new web page currently has details of senior people available in Sydney, Wellington, and Christchurch, but if you need someone in another city, call us. We can probably help.
