Australian Credit Law Bulletin - Vol 7, No 4, April 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:
- The "dirty, stinking, dobbing cyclist" case
“Litigation is not a steeplechase nor even a bike race where a fall can determine the outcome.” - Is your ROT valid when you deliver direct to your debtor’s customer?
An expensive lesson in the complexities of retention of title clauses - The bankruptcy debt is paid – should the court set aside or annul?
The decision determines whether the debtor has to pay the trustee’s fees - Man acquires debt in order to be able to try to halt proceedings
Judge calls it an “orchestrated attempt” to halt liquidator’s examinations
1. The "dirty, stinking, dobbing cyclist" case
French v Triple M Melbourne Pty Ltd & Ors [2006] VSC 36 (13 February 2006)
Mark French is a professional cyclist. Triple M Melbourne Pty Ltd operates a radio station in Melbourne. Two other similarly named companies run Triple M Sydney and Triple M Adelaide. Broadcast on these stations is a show called ‘The Cage”. It was on this show, in a discussion of the use of illegal performance-enhancing drugs that the phrase “dirty, stinking, dobbing cyclist’ was used.
French considered that various comments made about him were defamatory and filed a statement of claim and a writ against Triple M Melbourne for defaming him on one of their shows.
The writ was served on 26 August 2005. If Triple M Melbourne were to defend the matter, it needed to file what’s known as “an appearance” by 5 September 2005.
No appearances were filed. The following day judgment was entered against Triple M Melbourne by default. Triple M Melbourne applied to have the judgment set aside.
In order for a judgment to be entered “in default of appearance”, three documents must be filed. There must be a notice to an official called the prothonotary requiring him to search for an appearance. There must also be an affidavit of service of the writ, and a draft judgment in the required form.
All these documents were lodged and stamped with a special stamp which stamps the time on the document. Triple M argued that because the draft judgment was stamped at 9:41am and the request for search at 9:42am the requirements were not complied with. In other words, judgment was entered against the defendants before the notice requesting a search for an appearance had been filed.
The judge held that the stamp did not carry any evidential weight. It was not at all conclusive that this was the order in which things were done.
However, the judge then turned his mind to other discretionary considerations. He said there were a number of reasons why the judgment should be set aside on discretionary grounds. Judgment by default is very rarely entered in a defamation case. Triple M Melbourne had a number of arguments they wished to raise - justification, fair comment and various other matters in mitigation of damages. The defendant and its lawyers had made a mistake in not filing an appearance. It was not fair for the plaintiff to profit from this.
The judge said, “In the circumstances of this case, the entry of a default judgment at the earliest possible opportunity without warning against parties known to the plaintiff’s solicitor to be represented constituted a precipitate and unwarranted, if nonetheless legal, attempt to advance his client’s case by taking advantage of what any reasonable and experienced solicitor should have realised was an oversight or perhaps several oversights by the defendant and their legal advisors. It would be contrary to justice for this Court to allow this tactic to be successful by refusing to set aside the judgment entered by default. Litigation is not a steeplechase nor even a bike race where a fall can determine the outcome.”
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2. Is your ROT valid when you deliver direct to your debtor’s customer?
HARDY WINE COMPANY LIMITED v TASMAN LIQUOR TRADERS PTY LTD (IN LIQ)
Hardy Wine Company supplied goods to Tasman Liquor Traders Pty Ltd, a liquor wholesaler and distributor.
In February 1997 Hardy entered into an agreement with Tasman. The terms and conditions of this agreement were contained in a credit application.
The credit application contained, among other things, a Romalpa clause, also known as a retention of title (“ROT”) clause. This means that ownership in the goods does not pass until payment has been received. Under an ROT, the debtor can on-sell the goods and pass good title. If the debtor defaults, the creditor can take back any goods still in the debtor’s possession.
In addition to this ROT in the credit application, on the front of all invoices were the words, “These goods are subject to Retention of Title and Right of Entry…”
In about 1999/2000 a change was made to the arrangement. Hardy was now required to deliver the goods direct to one of Tasman’s clients, The Eaglehawk Inn. Eaglehawk were to provide orders direct to Hardy; Hardy would then dispatch to Eaglehawk; Hardy would invoice Tasman; and Tasman would then invoice Eaglehawk. This was known as the “Eaglehawk agreement”.
This agreement continued from 1999/2000 to November 2003.
On 27 January 2004, Tasman was placed into voluntary administration. At this time Eaglehawk was in possession of $282,269.75 worth of Eaglehawk agreement goods.
Hardy asserted that due to the retention of title clauses it retained title to the Eaglehawk agreement goods. The parties agreed that Eaglehawk would pay the value of the Hardy’s stock it had in its possession into a joint account for Hardy and the liquidator of Tasman. Tasman was to take out approximately $18,000 leaving $285,000 in the account. The court was then to decide who the $285,000 belonged to.
There were a number of complex arguments raised by Hardy. Among other things it argued that Eaglehawk was an agent for Tasman and that Tasman had constructive possession of the goods when they were delivered to Eaglehawk.
All those arguments failed and they got nothing. While it may theoretically be possible to have a carefully worded retention of title agreement which applies in this sort of situation, it will clearly be extremely difficult to get a court to accept it.
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3. The bankruptcy debt is paid – should the court set aside or annul?
Vaucluse Hospital Pty Ltd v Philips & Anor [2006] FMCA 44
Luke Philips suffered an injury in 1996 when he fell three floors. After this accident he health problems and could no longer work or manage his personal and financial affairs.
Philips was hospitalised at Vaucluse Hospital Pty Ltd. He received an account for the treatment of $4,887.77 which he thought his health insurer was going to pay. Hospitals are often in a difficult position in respect of people with injuries and illnesses who incur large debts which they end up being unable to pay.
In this case, the insurer refused to pay. Philips approached Anglicare to help him resolve the dispute. However, on 3 November 2005 Philips was made bankrupt in his absence, on an application by Vaucluse. Philips argued that he was only aware that the matter was not resolved when the trustee delivered documents to him on 4 November. Philips’ father paid the bankruptcy order for him. On 23 November Philips then applied to have the registrar’s decision to make him bankrupt reviewed.
Philips set out his financial affairs in an affidavit. It outlined that he had an interest in a residential property which was not mortgaged and that he was on a disability pension. His mother and father helped him meet the costs of running the car he drove, general living expenses and costs associated with the running of the property he owned.
Vaucluse Hospital argued that as he received a disability pension and received financial support from his mother and father then he should be considered insolvent and the bankruptcy should therefore not be set aside.
The judge rejected this argument.
The key issue was: how was the bankruptcy to be brought to an end? Should the sequestration order be set aside as a result of a review order under the Federal Magistrates Court Act 1999, or annulled under the Bankruptcy Act 1966?
If it was the former, Philips would not have to pay the expenses of the Trustee who administered the estate between the time of the sequestration order and the date of setting aside or annulment. If it was the latter (the Bankruptcy Act), he would have to pay.
The judge said that it was clear this was not a case of “a flagrant, reckless or even negligent disregard of court process, nor was there any collateral advantage to the bankrupt of the type that may be sought by a commercial trader forestalling payment.” He also said that had the trustee proceeded more cautiously fewer expenses could have been incurred.
He held that the registrar’s order should be set aside and thus the bankrupt would not have to pay the expenses of the trustee. (It’s not clear from the case who, if anyone, will have to meet the trustee’s expenses.)
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4. Man acquires debt in order to be able to try to halt proceedings
Fiorentino & Anor v Mohamed [2005] NSWSC 1177
Fox Home Loans Pty Limited was a mortgage broker which arranged mortgage finance for borrowers. Fox did not actually lend money itself but introduced borrowers to third party lenders.
Fox was ultimately wound up and the liquidators ordered an examination of the directors and those involved with the company. The liquidators report said, ““The examinations which have been conducted since August 2005 … have uncovered conduct by officers and agents of the Company which on a preliminary view may constitute fraud…”
One of the people to be examined was Mr D’Angelo. On 12 October 2005, he filed for a stay of proceedings.
On 17 October the judge said that it appeared that D’Angelo was making an application for “a case which goes beyond his own interests. Why he should be concerned about other examinees is not clear.” Following this judgment D’Angelo abandoned his action.
A few days later, Mr Mohamed filed an identical action. Mohamed was not a person that the liquidators sought to examine. He provided consultancy services to a company owned by of one of the people being examined. He was not a party to the case but he had acquired a debt from a barrister who was owed $2,420 by Fox. The barrister assigned the debt to Mohamed and this gave him a formal interest in the matter which allowed him to file the stay of proceedings.
The liquidators of Fox had a number of concerns about Mohamed’s appeal. These concerns included the timing of Mohamed’s application, (just after D’Angelo’s almost identical action), the commercial and social relations between the parties, the timing of the transfer of the debt and the fact that D’Angelo and Mohamed shared the same lawyer. These matters, and the cost of the appeal, led the liquidators to demand some security from Mohamed. Mohamed’s sole income was a “carers” pension of $580 per fortnight.
The judge referred to rule 42.21 of the Uniform Civil Procedure Rules 2005 which says that if “a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so” then an order for security will be sustained.
The judge felt that Mohamed was simply picking up where D’Angelo had left off, and the debt was obtained simply to give him a standing in the matter. The judge said that, “I infer from this that Mr Mohamed is playing a part in a plan that involves an orchestrated attempt by certain persons who have been or are to be examined to halt the series of examinations upon which the liquidators have embarked and which is partially complete.”
The judge made an order of $27,570 for security for the liquidator’s costs.
