Australian Credit Law Bulletin - Vol 4, No 3, March 2003
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:
- Did the retention of title clause mean there was no credit insurance?
The insurer argued that retention of title clause meant that the goods had not been "delivered" and - This collector assaulted a debtor's wife when pursuing payment of $1,700 arrears. Was it worth it?
Collector charged with assault, fined $30,000 - It's their word against yours - do you have a thorough system for receipting documents?
The bankrupt argued that he had delivered a statement of affairs, but the trustee disagreed. Who ca - No chance of paying - should the court remit a costs order?
With a disposable income of $30 per fortnight, should the court remit a $19,000 costs order? - This loan was part business, part personal...did the Consumer Credit Code apply?
One loan for 9 acres business, and 1 acre personal land. Court says "artificial" to divide loan int - Thoughts on risk
Here are some interesting quotes on the topic of risk.
1. Did the retention of title clause mean there was no credit insurance?
On 1 November 1998, Messagemate Aust P/L agreed to provide Logicom with product, with 30 days free credit. Ownership of the product would remain with Messagemate until Logicom paid.
To protect themselves, Messagemate contacted with Mr Carlier, the State Manager for National Credit Insurance (Brokers). Mr Carlier sold Messagemate an FAI General (Insurance) Co Ltd trade credit insurance policy. The policy was effective from 1 November 1998 to 1 November 1999.
The policy said that if Logicom did not pay for the product and they were in financial difficulty then the insurance policy would cover the loss. A claim could be made and FAI would pay 85% of the total sales, less the excess of $5000. The insurance policy cost Messagemate $25,000.00.
Logicom became insolvent on 10 December 1998, went into voluntary administration on 29 December 1998 and finally Logicom were wound up on 2 February 1999. The total owed to Messagemate was $700,250.00.
On 15 December 1998, Messagemate’s director Mr Basheer filed a claim with FAI for 85% of the unpaid Logicom debt. On 8 January 1999, NCI advised FAI that Messagemate received some product back from Logicom. It was reworked and sold to the Omni Group for $145, 677.54, and this amount was deducted from Messagemate’s claim.
On 13 January 1999, FAI’s lawyers advised NCI that Messagemate’s agreement with Logicom was not covered by the insurance policy. FAI believed Logicom did not own the product until they paid Messagemate, because, they said, the goods had not been “delivered” within the definition intended by the policy. FAI said that the deal was an agreement to sell the goods and not a sale of goods agreement. They stated that the insurance policy only covered sale of goods agreements and did not extend to circumstances in which, by the terms of trading, there had been reservation of title.
Messagemate sued FAI, on a number of grounds, for not paying the claim. Messagemate argued that the interpretation of the policy put forward by FAI was absurd, and that they could not rely on an unusual provision in the contract of insurance without prior notification to the insured of the effect of the provision.
NCI wrote to FAI asking for reasons justifying their decision not to pay Messagemate. NCI described FAI’s decision as “quite a departure from precedent previously set.” NCI were clearly concerned, as they pointed out that if this line of thought was to continue, then other clients would effectively be rendered uninsured.
The judge said that “[i]n my opinion the construction [of the insurance contract] which FAI now advances should be regarded as absurd.” The court said that the insurance policy issued by FAI did cover the deal between Messagemate and Logicom. Messagemate was awarded $466,386.59 plus interest at 6.5% per annum from 1 February 1999 to 1 October 2002.
The judge also commented that if FAI’s construction had been accepted (contrary to his judgment) then FAI would have been in breach of the Trade Practices Act (and the ) for misleading and deceptive conduct.
Messagemate also sued Mr Carlier and NCI for misleading and deceptive behaviour and for breach of duty. In the time between the claim being made and reaching court, FAI had become insolvent. Messagemate claimed that because of "an unsatisfactory insurance policy ... it lost an opportunity to obtain an early judgment against a solvent insurer." However, the judge said that NCI had reasonably relied on FAI’s past decisions for the purpose of representing to Messagemate how FAI might be expected to respond to a claim under the policy in the future. The judge also concluded that Mr Carlier and NCI were not in breach of any duty of care.
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2. This collector assaulted a debtor's wife when pursuing payment of $1,700 arrears. Was it worth it?
Mr Dennis had a vehicle hire purchase agreement with Toyota Finance Australia Ltd. As of 7 February 1997 Mr Dennis was behind in his payments to the amount of $1,743.52. Toyota then authorised and empowered Nanpay Pty Ltd to take possession of the vehicle. Nanpay requested Petzat Pty Ltd (a company controlled by Mr Toweel) to collect payment of the arrears or repossess the vehicle.
Mr Toweel approached Mr and Mrs Dennis in a car park in Richmond. He told them that he was going to repossess the car, he reached for the car keys. Mrs Dennis, in the driver’s seat, got to the keys first, Mr Toweel grabbed Mrs Dennis’ upper arm trying to remove her hand from the keys in the ignition. Mr Dennis got out of the car and went around to Mr Toweel and pushed him. Mr Toweel then got into the back seat of the car and tried reaching over Mrs Dennis to get the keys. The Dennis’ eventually got away from Mr Toweel with the car. Mrs Dennis bruised from the encounter, was later diagnosed as suffering from tenosynovitis and carpal tunnel syndrome related to the affray.
The decision by the District Court on 14 September 2000 was that Mr Toweel had assaulted Mrs Dennis when repossessing her husband’s car. Toyota Finance Australia Ltd, Tekitu Pty Ltd and Petzat Pty Ltd were held responsible for Mr Toweel’s actions because he was representing them. Mrs Dennis was awarded damages of $30,000.00.
On appeal, Tekitu was let off because it was never involved. Toyota was let off because Mr Toweel was not an employee of theirs, so there was no responsibility because the job had been contracted out. Petzat was held responsible because of the employment of Mr Toweel and the fact that he controlled the company. The court agreed that Mr Toweel had used excessive force and that therefore was assault. The award of $30,000.00 remained, completely dwarfing the arrears that were being pursued in the first place.
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3. It's their word against yours - do you have a thorough system for receipting documents?
Cincotta v Jones [2002] FCA 937 (16 July 2002)
Norman Cincotta was a bankrupt who had been made subject to a sequestration order in early 1995. Before that he had been sentenced to prison for a considerable period for a dishonesty offence. Central to these proceedings was Mr Cincotta’s claim that he had delivered to the office of the trustee a statement of affairs in July or August of 1995. The trustee, Mr Jones, argued that no such statement was ever delivered by Mr Cincotta.
Whether this document was delivered or not was quite an important matter. If Mr Cincotta was correct in his assertion then he should have been discharged as a bankrupt in September 1998. If Mr Jones was correct then Mr Cincotta would have continued due to the lack of the statement of affairs.
The judge said that one of two things must have happened. Either Mr Cincotta’s evidence was truthful and reliable, therefore, he did deliver the statement of affairs as he said to the trustee's office but it had been misfiled, misplaced or lost. Otherwise he did not and he was either misremembering what occurred or he was lying.
The judge had suspicions as to Mr Cincotta’s version of events, however, Mr Jones failed to produce any argument that clearly opposed Mr Cincotta’s version. The judge was of the opinion that a trustee should have in place a thorough system for receipting documents delivered to the office. However, no evidence of any such practice was offered by Mr Jones. "Despite my suspicions, there are distinct limits to the extent that I can give effect to mere suspicions if no party wishes or has taken steps to test the applicant's claims as in the public interest, they ought to have been tested." That would involve putting before the Court evidence of an accurate process of document receipt.
The judge decided that Mr Jones’ lack of argument in opposition meant that he must find in favour of Mr Cincotta. He therefore ordered that the statement of affairs was deemed to have been received in 1995 and Mr Cincotta was discharged from bankruptcy in September 1998.
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4. No chance of paying - should the court remit a costs order?
Muldowney v Flinders University No. SCCIV-02-267 [2002] SASC 313 (17 September 2002)
In 1995 the registrar of Flinders University sought a restraining order against Muldowney. The Magistrate ordered, among other things, that Muldowney pay Flinders University’s costs of around $19,000. Over 6 years Muldowney paid $650 in instalments. In January 2000 the Magistrate heard an application to remit the outstanding sum owed by Muldowney. This application was refused and it was ordered that instalments continued at $50/month.
Due to a legislation change the Registrar was able to carry out an investigation into the means and ability of Muldowney to be able to pay what he owed. The Registrar found that Muldowney had no hope of being able to pay back what he owed without him or his dependants suffering hardship – at this stage Muldowney and his partner had a disposable income of only $30/fortnight and had no assets other than a $400 car.
In July 2001 Muldowney appeared at a hearing to have what he owed remitted, however the Magistrate declined to do this.
The grounds of the complaint here was that, on both occasions, the Magistrates erred in declining to remit the amount of the costs due. In this hearing the judge found that there was no prospect of Muldowney paying the costs he owed within his working lifetime. The Magistrate erred in not remitting the costs; “it is simply an amount which [Muldowney] cannot pay.”
The decisions of both the previous Magistrates were set aside. No substitute penalty was imposed either as all alternatives would cause hardship to his family, he had already undergone deprivations under the original penalty and because there were no assets to be sold.
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5. This loan was part business, part personal...did the Consumer Credit Code apply?
Mummery v IMMS Financial Services Ltd [2002] VCAT 383 (24 May 2002)
The Mummery’s borrowed money to purchase 10 acres of land. On 9 acres of that there was a caravan park and a motel. The remaining land was their residence. The Mummery’s claimed that the residence was the main reason they bought the land.
When their loan was refinanced, the Mummery’s claimed that the amount requested by the respondents (IMMS) to discharge the loan was more than they owed under it. IMMS has applied to dismiss the claim lodged by the Mummery’s because it was “manifestly hopeless” (which they could do under the Victorian Civil and Administrative Tribunal Act 1998). This was because, according to IMMS, the Consumer Credit (Victoria) Code under which the Mummery’s lodged their claim, did not actually apply to their loan as their loan was not predominantly for personal, domestic or household purposes.
The judge viewed it as “artificial” to divide up the loan and attribute part of it to the business and part of it to the residence. What the judge had to balance was the fact that most of the land was used for the business however the primary reason for buying the land was the residence.
In the end it was decided that there was nothing presented to the lender that the loan was for anything other than business purposes. The loan could therefore not be classified as being “primarily for personal, domestic or household purposes”. Therefore the Code under which the Mummery’s bought their claim did not apply to their situation. So the IMMS application to have the claim struck out was successful as the Mummery’s case was “hopeless. ”
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6. Thoughts on risk
"The four most dangerous words in investing are: It's different this time."
- Sir John Templeton
"Risk is good. Not properly managing your risk is a dangerous leap."
- Evel Knievel
"There are risks and costs to action. But they are far less that the long-range risks of comfortable inaction."
- John F. Kennedy
"Why not go out on a limb? Isn't that where the fruit is?"
- Frank Scully
"Educated risks are the key to success."
- William Olsten
