Australian Credit Law Bulletin - Vol 7, No 5, June 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:
- Punishing lawyers for taking hopeless claims.
If someone sues you where there’s no chance of success, you may be able to can get their lawyer to pay your legal fees. - Can you get your husband to collect the company’s debts?
In this case, not without falling foul of the Privacy Commissioner - Lender allows cancelled additional cardholder access to main cardholder’s account
Oops! This is a no no! - “Free trial” leads to bill which leads to default listing on credit reporting database.
No. You can’t do that either. - When can you default a guarantor who hasn’t paid under the guarantee?
A phone company gets it wrong. - Who can apply to have a deregistered company reinstated?
A case of relevance to unpaid creditors of deregistered companies.
1. Punishing lawyers for taking hopeless claims.
K Muc Trading As G H Healey & Co Sydney v Descaretes Pty Ltd [2006] NSWCA 69 (24 April 2006)
Mary June Lincoln brought an action for negligence against Descaretes Pty Ltd, as first defendant, and Dr David Gronow, as second defendant. On 1 October 2004, Garling DCJ dismissed Ms Lincoln’s claims against Descaretes and Dr Gronow.
Dr Gronow and Descaretes both sought an order from the court that Ms Lincoln’s solicitor pay their costs of the proceedings. Ms Lincoln’s law firm was Katarina Muc who traded as G H Healey & Co.
The Legal Profession Act provides among other things, that:
A solicitor ... must not provide legal services on a claim or defence of a claim for damages unless the solicitor or barrister reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success (section 198J).
Garling DCJ dismissed Dr Gronow’s claim against Lincoln’s lawyer. He found that Ms Lincoln had a reasonably arguable case against him and her solicitor should not be ordered to pay costs. However, he said that “a lot of evidence” indicated that “the plaintiff could never have succeeded against [Descaretes]”.
Descaretes traded as the Sydney Pain Management Centre. Ms Lincoln would ring Sydney Pain Management Centre to make an appointment with Dr Gronow which was carried out at rooms in Macquarie Street, Sydney. After Ms Lincoln sued Descaretes, the response of its lawyers (Phillips Fox) was (as paraphrased by Garling DCJ),
“You have the wrong defendant. The treatment was not carried out at the Sydney Pain Management Centre but was carried out at another place. If you are alleging they were negligent in what they did then you should be bringing proceedings against them.”
For that reason his Honour concluded that “the plaintiff’s solicitor should pay [Descaretes] costs of the proceedings”.
Ms Muc appealed. The Court of Appeal held that “it was perfectly reasonable for G H Healey & Co to refuse to accept the bald assertion of Phillips Fox that, by suing Descaretes, Ms Lincoln had sued the wrong defendant”. Dr Gronow was a director of Descaretes. Descaretes never filed a defence and none of the affidavits denied Descaretes’ role. The appeal was upheld. G H Healey & Co did not have to pay Descaretes’ costs in the Lincoln case.
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2. Can you get your husband to collect the company’s debts?
P v Electrical Goods Retailer [2006] PrivCmrA 15
P paid a deposit for a fridge to a retailer. The retailer delivered the fridge, but didn’t get the rest of the money. For reasons which are not explained in the case note, the sales person got his/her spouse to visit the customer to ask for the money or the return of the fridge. We suspect that the sales person had not followed the right procedure in allowing the fridge to be delivered without being paid in full. The retailer didn’t know the spouse had been asked to do this.
The customer complained to the Privacy Commissioner over the fact that his/her personal information had been passed on to and used by the spouse.
The Commissioner said that the complainant would reasonably expect a representative from the retailer to contact them regarding the debt and that this was a reasonable use of the information. However, the Commissioner found that disclosing the complainant's personal information to the sales representative's spouse wasn’t acceptable. The case note is not entirely clear but it would appear that if the spouse was in the business of collecting unpaid accounts it would have been okay. The parties agreed on a confidential settlement and the Commissioner closed the complaint.
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3. Lender allows cancelled additional cardholder access to main cardholder’s account
Q v Financial Institution [2006] PrivCmrA 16
Q had a credit card with an unnamed financial institution. There was an additional cardholder on the account. Q asked the institution to remove the name of an additional cardholder and stop his/her access rights to Q’s account. The institution did part of the job but didn’t stop internet access to the account. The other cardholder could still see the complainant's transactions. Naturally, Q was not happy and complained to the Privacy Commissioner.
The financial institution resolved the matter directly with the complainant by providing an explanation of the incident, amending its practices and by agreeing to pay compensation to the complainant. According to the institution, there is now no delay in de-activating the internet account access.
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4. “Free trial” leads to bill which leads to default listing on credit reporting database.
R v Medical Equipment Supplier [2006] 17
R hired and paid for some medical equipment. The supplier also provided additional equipment on a free trial basis. The receipt provided to Q on collection of these items did not indicate a rental at the end of the trial period, or how much it would be. However, when the supplier wasn’t paid, it listed Q as a default on his/her consumer credit information file at a credit reporting agency.
The Commissioner found that there was no clear evidence that the complainant had entered into a loan agreement or understanding with the medical equipment supplier with regard to these items. As there was no credit agreement, it had no right to do this.
The supplier removed the default listing from the complainant's record, developed a privacy policy for publication, limited the provision of credit, and implemented a new rental agreement.
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5. When can you default a guarantor who hasn’t paid under the guarantee?
S v Telecommunications Provider [2006] 18
S guaranteed another customer’s account with a telecommunications provider. The customer didn’t pay. The creditor listed a default on S’s consumer credit information file. The guarantor said, “why didn’t you ask me to pay me first?”
It turned out that the creditor had tried to recover from the debtor but hadn’t given any notice to the guarantor. It therefore hadn’t complied with the Privacy Act and the Credit Reporting Code of Conduct.
The creditor had already removed the default listing. S accepted the telecommunications provider's offer to provide a letter of apology and compensation (the amount of which was not specified in the case note). The creditor also waived 50 per cent of the outstanding debt owed to it.
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6. Who can apply to have a deregistered company reinstated?
Piccoli Tesori Pty Ltd was registered in Western Australia on 25 February 2000. The directors of the company, Mr and Mrs Bertuol, lived in Canberra. The registered office of the company was at the office of a firm of accountants in WA who prepared accounts and filed returns with the Australian Securities and Investments Commission (ASIC). In 2002, Mr Bertuol instructed a Canberra firm of accountants to take over from the WA firm.
ASIC deregistered the company on 17 July 2005 because the "review fee" in respect of a "review date" has not been paid in full twelve months after the "due date". The payment of a "review fee" is tied by the Act to the resolution the directors must make annually as to the solvency of a company.. Under s 601AD of theAct the company "cease(d) to exist" on deregistration and all of its property vested in ASIC.
Mr Bertuol said that the ASIC notice which, presumably, had been sent to the company’s registered office in WA had not been forwarded to him. After 1 July 2003 a change in the law meant that the company, as a "small proprietary company" did not have to file documents such as financial or directors’ reports. It was only in February 2006 that the directors became aware that the company had been deregistered. The company was apparently operating profitably.
The company applied to be reinstated. However, a deregistered company, because it has ceased to exist, generally has no standing to commence legal proceedings. While this situation might be an exception, Mr Bertuol, the former director, sought to be substituted for the company as plaintiff to avoid doubt as to whether the company had the capacity to make the application.
Only an “aggrieved person” could apply to have the company reinstated. A creditor who was unable to collect his debtor would be “aggrieved”. A shareholder or director isn’t necessarily “aggrieved” but a shareholder who had not been paid his or her share of the profits (if the company was profitable, as here) could be described as “aggrieved” and could therefore apply to have it reinstated. “I am satisfied that it is appropriate that Mr Bertuol be substituted for the company as plaintiff in the matter.”
It did not appear that any third party could be adversely affected by an order for reinstatement and ASIC did not object. The judge ordered reinstatement and validated any acts carried out by the company between deregistration and reinstatement.
