Australian Credit Law Bulletin - Vol 7, No 2, February 2006
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:
- What do you do when your debtor is about to sell her land?
And how should the would-be buyer of the land respond – not like this! - The judgment debtor dies. Then what?
A finance company gets sick of waiting. - A cunning use of the garnishee process
Lawyers ensure that they get their bill paid - Deposit of duplicate certificate of title over mum’s land protects creditor
Mothers! Beware of manipulative and dishonest sons!
1. What do you do when your debtor is about to sell her land?
Garnock & (3) Ors v Black & (4) Ors [2005] NSWSC 1217 (21 November 2005)
http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2005/1052.html
http://www.austlii.edu.au/au/cases/nsw/NSWCA/2005/475.html
http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2005/1218.html
http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2005/1217.html
Messrs Black, Chapman and Carter, were creditors of Mrs Smith and on September 2004 obtained judgment against her for $228,000. Mrs Smith was the registered owner of some rural land. In July 2005 Mr and Mrs Garnock entered a contract to purchase the property from Mrs Smith for $1 million. Settlement of the sale was meant to take place on 24 August 2005 at 11am.
The day before, at 4.53pm, Black, Chapman and Carter obtained from the District Court a writ for the levy of the property against Mrs Smith. A writ is ultimately executed by a sheriff who seizes and sells the property.
On 24 August Black, Chapman and Carter obtained a charging order from the District Court against the deposit money for the purchase of the property. This purported to give them a charge over the money. The same day an application was made to record the writ.
Also on 24 August a solicitor acting for Black, Chapman and Carter, the creditors, phoned the solicitors acting for the Garnocks, the buyers, and explained the situation. They were informed that unless satisfactory arrangements were made, Mrs Smith would be declared bankrupt and the sale of the land was liable to be set aside.
Later that day Black spoke to the Garnocks and said that he intended to stop the sale. Despite this, that afternoon the Garnocks completed paid the balance of the purchase price to Mrs Smith. Unbeknown to the Garnocks the writ was registered.
On 26 August, two days later, the certificates of title, transfers and other documents relating to the sale were sent for registration. On the same day, the writ was delivered to the sheriff.
Two weeks later, the Garnocks received a letter informing them that the certificates of title could not be registered due to the registration of the writ.
The judge said that the question to be decided was whether the plaintiffs had acquired title to the land before the registration of the writ? Title under the Torrens system of land registration is only acquired upon registration. In this case, the writ had been registered before Mr and Mrs Gardock registered the certificates of title, transfers and other documents. This stopped them getting title to the land. The issue was thrashed out in four reported judgments. The bottom line was that their purchase was not valid.
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2. The judgment debtor dies. Then what?
RIVWEST FINANCE LTD v BAUN & ORS
Daphne Rose Robbins gave a guarantee in 1997 in relation to a financing agreement between Rivwest Finance and Puroil Pty Ltd for vehicles and various items of office and farm equipment.
On June 2002 Rivwest Finance sued her under this guarantee and got judgment for $16,886.77 plus expenses and interest. In November 2002 the NSW sheriff made an attempt to seize goods from her to sell to pay the debt but said that “the debtor owns no goods on the premises upon which to make a seizure.” Daphne Rose Robbins died on December 2002.
No executor was appointed to her estate so in December 2004 Rivwest Finance took the matter to court. They sought an order that the estate be administered in bankruptcy. Rivwest asked the court who the bankruptcy petition should be served on. On 11 January 2005 a registrar ordered that the petition be served on Robbins’ next of kin, Mr Andrew Robbins, Mrs Elaine Ridding and Mr Robert Ridding.
On 15 February 2005 a grant of probate was made in the Supreme Court of NSW to a Ms Baun describing her as executrix, trustee and sole beneficiary. On 8 March 2005 the Riddings opposed the petition on the grounds that the deceased’s estate was not bankrupt. Shortly after this, Ms Baun (Mr Robbins’ partner) discovered she was the sole beneficiary under the will and she too filed a notice of objection.
They argued that the deceased’s estate was in fact solvent. Ms Baun also claimed that she would be best to administer the estate rather than an independent trustee.
The judge pointed out that there is no requirement that the court address the solvency of the estate when looking at an application like this. He was “far from satisfied” that the estate was solvent.
He said that the court should give a legal personal representative an opportunity to be appointed, look into the affairs of the deceased, and carry out the necessary jobs before the estate creditors should be paid. However, in this case, “over two years have passed since the deceased’s death without any step being taken other than the recent obtaining of a grant of probate.” He was also concerned at suggestions that the Riddings and Ms Baun “have sought in the past to conduct themselves in relation to property of the deceased with the object of preventing the petitioning creditor from ever being paid.” He decided that it would be in the best interests of the unsecured creditors of the estate for it to be administered by an independent trustee.
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3. A cunning use of the garnishee process
Jackson v Richards [2005] NSWSC 1295 (13 December 2005)
Mr Richards was involved in a dispute property relationship with Ms Rose. He used Jackson Smith solicitors. Ultimately the dispute ended with Richards selling his house. Of the sale proceeds, 60% went to Rose and 40% to Richards.
On September 2004 his solicitors obtained an injunction freezing his funds of $137,914.14 from the sale to cover their bill. They alleged that they had a “fruits of litigation lien” over them. A fruits of litigation lien gives the relevant lawyer a form of security for payment of their debt, ahead of people who hold simply the status of unsecured creditors.
The funds remained in a “controlled interest account” until July 2005 when the court decided that Jackson Smith did not in fact have a fruits of litigation lien.
In the meantime, the firm had made up its bill, and had it assessed by a costs assessor and registered the costs assessor's decision with the District Court. The solicitors were certified as being entitled to $150,792.70 for costs.
The solicitors asked how Richards would like to be paid. He asked for a bank cheque. They asked for details of his bank account which he gave them. So Jackson Smith paid $138,138.58 into his bank account by way of bank cheque. What Richards didn’t know was that they had previously served the bank with a garnishee order. As soon as the money was paid into the account, the garnishee order operated to transfer the money back to Jackson Smith to pay its bill.
A garnishee order is used when a judgment creditor is owed money by someone else. Here, whatever money was in Richards’ bank account was owed by the bank to Richards. In this case, the bank is Richards’ debtor. So Jackson Smith served a garnishee order on its debtor’s debtor (the bank). As soon as the bank cheque went into the account, the bank owed that money to Richards. It had to pay the money it owed to Richards directly to Jackson Smith.
Mr Richards sued Jackson Smith Solicitors for the removal of the funds from his account. The judge said that, “The enquiry … as to where his bank account was located was ostensibly to help him but actually to assist the solicitors to issue their garnishee…” He thought that this was “not usually the conduct one expects from professional people, but that does not affect the result of this case.”
The judge saw the major issue to be the damage done to Mr Richards due to the injunction (which turned out not to be valid). Over ten months $137,914.14 had produced only $224.44 in interest! He ordered the lawyers to pay interest at the court rate of interest of 9% (deducting the $224 which actually accrued), a total of $10,119.
He said, “A claimant must prove his damages when seeking to be compensated for disruption caused by the grant of an injunction. However, there is also an interest in the court in seeing to it that its processes are not taken advantage of ... I consider that it is appropriate to increase the award by a further $1,000 to cover unspecified inconvenience as a result of deprivation of the money.”
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4. Deposit of duplicate certificate of title over mum’s land protects creditor
Theodore v Mistford Pty Ltd [2005] HCA 45 (1 September 2005)
Mistford owned an Air Monitoring Service. Mr Theodore acquired a shelf company called Mobile Lab Pty Ltd. In July 1996 Mobile Lab agreed to purchase Air Monitoring for $66,500, some of which would be paid on completion of the sale, and the rest over the next two years.
Theodore was the guarantor. A clause in the contract required that the duplicate certificate of title to some land at Buderim be deposited with his firm as security. Theodore told him that, while the Buderim land was in the name of his mother, he was the beneficial owner. This was not true.
The seller’s solicitor asked for a guarantee from Mrs Theodore. She was aged 71 years. She had been a widow for 10 years. Her husband had been an Area Manager with the ANZ Bank and she said in evidence later that her "whole life [had] been tied up with the ANZ Bank". Her husband had told her never to give a guarantee and she was adamant in refusing to do so.
However, she authorised her son to obtain the title deed to deliver to the ANZ Bank as security for a loan which her son proposed to obtain from that bank. The Bank declined his application for an advance of $60,000. Mrs Theodore had already received advice from her accountant that a purchase of the respondents' business at that price was not a viable proposition. She didn’t know, she said, that her son was going to deliver the deed to the seller’s solicitors, and gave him no authority for him to do so. However, that’s what he did.
The judge in the case didn’t believe Mrs Theodore. He said, “I do not think she is a liar, however I regret to say that on the balance of probabilities, I do not accept her evidence that she did not know of her son's plans to deal with the deed as he did ... I think it more probable than not that at the time of purchase of the business by the son, she did act with her heart and not her head; and that she has now convinced herself that she did not give him authority to deal with the deed, when in fact she did. ... In my opinion, it is more probable than not that she was aware, after the failure to obtain finance, that the son was going to hand over the deed as security to enable him to complete the sale of the business." He said that although Mr Glen Theodore had not given evidence, he was satisfied that he was manipulative and probably dishonest.
The decision was that the seller, Mistford, was entitled to be paid out of the proceeds of the subsequent sale of the land. The matter was appealed to the Queensland Court of Appeal, and then to the High Court. The decision remained the same.
