Australian Credit Law Bulletin - Vol 4, No 6, June 2003
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:
- Administrators flog off stock cheap, making dealer unhappy
But will the courts allow the dealer's $150,000 proof of debt for loss of profits? - ‘Her account is in arrears’ – statements like this may cause you problems with the Privacy Commissioner!
If it's made to the account-holder's ex-partner. - The problem of doing business when you don’t speak English
For example, you can be made bankrupt without realising what's happening. - Four years for credit offences not manifestly excessive
The result of an appeal against length of sentence which is encouraging for creditors to see.
1. Administrators flog off stock cheap, making dealer unhappy
Anntam Pty Ltd v Sherman and Ors [2003] NSWSC 52 (14 February 2003)
OMC supplied outboard motors, parts and spares to retailers under dealership agreements. Anntam Pty Ltd serviced and sold boats and other marine equipment to the public. During December 2000 Anntam purchased a large quantity of stock from OMC.
On 20 December 2000 Anntam executed a dealership agreement and sent it to OMC, but OMC never returned the counterpart because on 2 January 2001 administrators were appointed to OMC. The administrators immediately wrote to all OMC dealers notifying them that administrators had been appointed and that there would be a change in prices and terms upon which goods would be supplied in the future. The administrators offered very large discounts which a number of dealers took up. That meant that those dealers could on-sell those products to the public at lower prices than Anntam could sell the stock it purchased in December.
In April 2001 OMC was put into liquidation and the administrators were appointed its liquidators. Anntam lodged a proof of debt of $158,997.45. This represented the loss of profits that Anntam claimed it should have been able to make on the stock it purchased in December. In January 2002 the liquidators rejected the proof of debt.
The claim that Anntam pursued was for unliquidated damages for breach of covenant contained in a dealership agreement of 20 December 2000. This covenant stated that OMC agreed to produce and provide outboard motors, parts and spares at “fair and competitive prices”.
The liquidators rejected those claims because, they said, the dealership agreement executed on 20 December was never executed by OMC. The judge accepted this argument. The liquidators further argued that even if the dealership agreement was binding, the conduct of OMC did not amount to a breach of any covenant in that agreement.
The judge decided that all OMC promised was to sell goods to Anntam at “fair and competitive prices”. This meant the goods must be sold at fair and competitive prices at the time they are provided to Anntam, having regard to market conditions and wholesale prices for other similar goods. Whether Anntam could make a profit on the on-sale of these goods depended on things like their overheads, market conditions and Anntam’s efficiency. There was no evidence that when Anntam placed the large order in December, the prices were not fair and competitive.
Therefore the liquidators were justified in rejecting Anntam’s proof of debt. Anntam’s claim was dismissed.
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2. ‘Her account is in arrears’ – statements like this may cause you problems with the Privacy Commissioner!
F v Credit Provider [2003] PrivCmrA 4
F had been in a relationship with a male partner. Together they were buying an appliance on credit from a retail store. F also maintained a separate general credit account with the store. When the relationship ended, F and her former partner agreed that he would continue to meet the monthly payments on the consumer loan and he would keep the appliance. F asked the store not to disclose her personal information to her former partner.
F said that when her former partner had gone to the store to make a payment in person, a store employee told him not only the amount owing in relation to the appliance, but also the balance of F’s general credit account.
F said that she suffered anger and embarrassment over the disclosure and sought an apology and monetary compensation. The store apologised and, while not accepting that a disclosure had occurred, offered her a $50 gift voucher. F did not feel that the offer was enough to compensate her for the injury to her feelings and complained to the Privacy Commissioner.
Section 18N(1) of the Privacy Act 1988 states that a credit provider in possession or control of a ‘report’ must not disclose it, or any personal information derived from it, to another person for any purpose unless one of a number of exceptions applies.
The retail store argued that, while it did not disclose the balance of her account, it did say to the former partner that “her account was in arrears”, with the implication that this did not amount to a disclosure of a ‘report’.
The Commissioner took the view that to tell a third party that an individual was in arrears in relation to a credit account was to disclose a ‘report’ because the information had a bearing on the individual’s credit worthiness, credit standing, credit history or credit capacity. The Commissioner also took the view, on the balance of probabilities, that the store disclosed the balance of the F’s account to her former partner.
As a result of the investigation, the retail store agreed to apologise to F and pay compensation of $750. F accepted this offer and the Commissioner discontinued his investigation on the grounds that the respondent had dealt adequately with the matter.
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3. The problem of doing business when you don’t speak English
Leung v United Housewares Pty Ltd [2003] FMCA 98 (3 March 2003)
Kim Leung (also known as Hing Cheung Leung) and Hon Kwan Lau were directors of New World Pacific Pty Ltd. Lau handled all business documents and dealings with customers that were in English and Leung dealt solely with Cantonese speaking customers.
Leung said that when the main creditor changed it’s name from Zyliss Australia Pty Ltd to United Housewares Pty Ltd he became “highly confused” as to the status of the debts owed to Zyliss. When United Housewares wasn't paid, the company pursued Leung personally. A judgment debt from the Penrith court was entered against Leung and others trading as New World Pacific Homeware, for an amount of $22,685.45.
A bankruptcy petition followed and Leung was made bankrupt. He then finally consulted a solicitor and began to discover and understand the meaning of bankruptcy and the documents served.
On 14 October 2002, Leung applied to have the sequestration order annulled, because the debt of $22, 685.45 was an unsecured company debt and not a personal debt. An application for annulment can be made under section 153B of the Bankruptcy Act 1966. This section provides that a court may go behind an earlier decision and decide under the circumstances whether the sequestration order should have been made.
Leung argued that all debts were owed by New World Pacific Pty Ltd. He said the problem was his inability to read or speak English. His affadavit said, "I was not aware of the District Court proceedings in the Penrith court... Even if I had received such documents, there would have been no way for me to understand what they meant at the time... I did not understand the concept of personal consequences of bankruptcy proceedings at the time which have since been explained to me by my solicitors."
The magistrate said Leung’s lack of English was not an excuse for a company director to ignore business and court documents. He said that as a director, Leung should have had the documents read by a solicitor or translated without delay. However, the magistrate found that the debt was in fact a company debt and not a personal one, and when it was properly apportioned to the company then Leung was solvent, therefore the sequestration order was annulled and Leung was ordered to pay the official bankruptcy trustee’s costs.
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4. Four years for credit offences not manifestly excessive
Kosta Sivov left school at Form 4. He completed a two–year course in electronics and then went into business. He moved from electronics into car hire and in 1992, with financial assistance from his family, bought into an airline charter business which collapsed taking with it his parents' entire savings and their home.
In September 1994, Sivov was convicted for attempting to obtain financial advantage by deception. He was placed on a community-based order for 12 months.
From 21 December 1994 (while the community based order was in force) to September 1996, Sivov applied for credit - either in the form of a credit card or a leasing facility - six times from Australian Guarantee Corporation and seven times from Westpac Bank. Each application was supported with false statements and false documentary evidence.
When sentenced to 4 years imprisonment, with a non parole period of 3 years, the judge found Sivov’s offences to be "sophisticated, devious and persistent". He appeared to accept a report on Sivov, that "in the face of devastating financial loss, Sivov engaged in illegal procedures in an attempt to retrieve something for his family." This he held as a clue to Sivov’s offending.
Sivov applied for permission to appeal. The total value of credit obtained was approximately $630,000 over the whole period, but the judge had been under the impression it was $900,000. The judge also refused to accept, without evidence, that $19,575 had been repaid. Sivov also argued that the overall sentence was manifestly excessive.
In dismissing the application for leave to appeal, the Appeal Court Judges said, in essence, that any errors were minor and wouldn't have made a difference to the sentence. "The main ground, I think," said Hampel A.J.A., "and the main basis of the applicant's complaint is concerned with the sentence overall and particularly the length of the non-parole period. When one looks at the manner in which his Honour categorised the offending, which in my view was open to him, it is difficult to see how a sentence of four years is manifestly excessive. This is particularly so in the light of the period over which the fraud took place, its persistence and the fact of the previous conviction."
Sivov cooperated with the police and pleaded guilty early. He felt that this showed that he was remorseful., and that this should be taken into account in the sentence. The court felt that the County Court judge had done so.
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