New Zealand Credit Law Bulletin - Vol 6, No 4, August 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: nz-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 bills can a beneficiary get paid via a special benefit?
A fascinating and useful case for those offering credit to consumers - What do you do when you’re not happy with your lawyer’s bill?
Old Chinese saying: going to law is like losing cow for the sake of a cat. Old Italian saying: A lawsuit is a fruit tree planted in a lawyer’s garden. - Payment by electronic funds transfer is the commercial equivalent of cash
Court of Appeal considers a case where EFT was used instead of a bank cheque - Forfeiture of the property under the Proceeds of Crime Act 1991
Another thing consumer creditors should be aware of (and a fascinating case of Lotto and drugs)
1. What bills can a beneficiary get paid via a special benefit?
Ms Bruce suffers from rheumatoid arthritis and hyperthyroidism and has been on social welfare benefits since 1995. She made a number of applications for a special benefit, the first of these in 2001.
Bruce’s third application was made in May 2002. The application was made on the basis of travel needs for treatment following surgery. A special benefit was granted from 8 May 2002 at the rate of $82.00 per week. On review, the Benefits Review Committee backdated the special benefit and increased it to include 50% of payments being made by the respondent on a personal loan. Bruce appealed this to the Social Security Appeal Authority. She challenged the rate and the refusal to backdate the benefit to an earlier date.
A special benefit is assistance available to beneficiaries when they can’t make ends meet on their ordinary benefit. The main criteria are that:
• the beneficiary is able to show that without such a benefit he or she would suffer financial hardship, and
• the deficiency in income over expenditure is reasonably substantial, and
• the costs are essential and not reasonably avoidable, and
• the beneficiary is unable to pay from his or her own resources.
On appeal, the Authority refused to backdate the respondent’s benefit to any earlier date. The Authority also questioned whether a number of the respondent’s costs were "essential" expenses:
• a debt of $1,600 to her lawyer for costs relating to litigation the respondent brought against her kennel club in 1999. She was paying those costs at the rate of $10 per week.
• costs relating to the respondent’s three dogs which she displayed in dog shows
• excessive telephone calls (the respondent was incurring telephone costs of up to $110 per month, i.e. some $60 per month more than the basic rental charge.)
• costs for a personal loan of $4,550.40 - some of which had been used to pay a credit card bill.
Bruce appealed to the High Court which agreed with her. Work & Income appealed to the Court of Appeal. To summarise some fairly intricate arguments, the key question was: what does "essential" mean?
The court said, “an essential item will be one relating to the basic necessities.”
The court used the lawyer’s fees as an example. They fees were incurred when Bruce sued a kennel club. “That seems unlikely to be an essential expenditure,” said Judge Ellen France.
It was also excluded because of the definition of “allowable costs” in terms of the Social Security Act 1964. Allowable costs include matters such as actual accommodation costs; hire purchase and other types of regular payments for a washing machine or refrigerator; disability related expenses; and motor vehicle repayments and reasonable running costs in certain circumstances. Any payments required to be made by the applicant or spouse in respect of a debt, fine, or other liability, other than those set out as allowable.
The lawyer’s bill is a debt. It was being paid off at $10 a week but that “does not alter its nature”. It was therefore not an allowable cost.
“As to … the dogs, the excessive telephone calls, and part of the costs of the personal loan,” said the Court of Appeal, “it was open to the Authority to conclude that these costs were not an essential expense.”
The order of the High Court was set aside and that of the Social Security Appeal Authority was reinstated.
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2. What do you do when you’re not happy with your lawyer’s bill?
Filmer and anor v Jamieson Castles (A Firm) [2006] NZCA 32 (16 March 2006)
Messrs Filmer and Luyt, were shareholders and directors in a company called Vusion International Limited. It designed, produced and manufactured advertising signage and displays.
Filmer and Luyt entered into an agreement with a Mr Witton, whereby he acquired a 20% interest in the shares of Vusion, for a sum of $500,000. Mr Witton also became a director of the company. The parties fell out in 2001.
Filmer and Luyt consulted an Auckland law firm, Jamieson Castles. Legal fees of over $200,000 were incurred. Filmer and Luyt weren’t happy with the bill. They applied to the Auckland District Law Society for a revision of around $159,000 of invoices, under s 145 of the Law Practitioners Act 1982. The Law Society costs reviewers reduced the invoices by $4,711.50 (inclusive of GST), leaving a balance of $154,262.60.
Filmer and Luyt appealed to the Registrar and lost, then to the High Court, and lost, and finally to the Court of Appeal… and lost. Costs of another $6000 were awarded against them after the Court of Appeal decision. Going to law can be an expensive process.
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3. Payment by electronic funds transfer is the commercial equivalent of cash
Rick Dees Limited v Larsen [2006] NZCA 25 (13 March 2006)
Rick Dees Ltd contracted to buy ten residential units from Mr Larsen. Difficulties arose with settlement and the vendor issued a settlement notice which required the buyer to settle by 5 March 2004.
The settlement notice required the payment of a bank cheque into Larson’s solicitors’ trust account. On 5 March, the purchaser’s solicitor, Mr Richards, telephoned Turner Hopkins at 3.46pm and talked to the secretary of the legal executive handling the matter. He told her that the money would be paid by electronic funds transfer into the vendor’s solicitor’s account. There was no other means of settling at such a late stage. He thought that there would be no difficulty with this because Turner Hopkins, Larson’s lawyers, had previously accepted payment of the deposit this way.
At 4.25pm, Mr Newdick, one of the Turner Hopkins partners, advised Richards by fax that settlement had to take place in person. It was late on a Friday and the offices were 30 to 40 km apart (Manukau and Takapuna) so Richards considered that this was impossible. He phoned Turner Hopkins twice and was told that Newdick was unavailable. He paid the money into the trust account by electronic transfer just before 5pm.
Richards tried to send a fax confirming the transfer, together with an undertaking not to reverse the transaction, before 5pm but the line was engaged. Law Society guidelines require solicitors to give a personal undertaking stating the time and date of banking, the method of payment (either by bank cheque or electronic payment), a statement that the funds paid are cleared funds and irrevocable and an unconditional undertaking that the transaction will not be reversed.
At 5.03pm, Richards received a fax from Newdick purporting to cancel the contracts on the basis that the Rick Dees Ltd had failed to settle in accordance with the terms of the settlement notice. Richards’ fax was received by Turner Hopkins at 5.07pm. Richards telephoned Turner Hopkins and this time Newdick was available. He told Richards that in his view the cancellations were valid. The money was returned to Richards the following Monday by electronic funds transfer.
Rick Dees Ltd went to court to ask for specific performance – an order that the vendor keep its side of the deal. Newdick stated under cross-examination that his instructions from Larson were that, if the opportunity arose, he was to cancel the contract. Did the fact that the payment was made the wrong way allow him to do so? The judge in the High Court said it did.
Rick Dees Ltd appealed to the Court of Appeal. An expert who gave evidence at the trial said that in his view, there was no effective difference between settlement by bank cheque and settlement by electronic funds transfer.
Rick Dees Ltd’s solicitors used the ASB Bank to pay the money into Turner Hopkins’ National Bank account. The expert said that, as far as the ASB Bank is concerned, it will not for any reason revoke a remittance by electronic payment except in exceptional circumstances where there has been some technical transmission malfunction. The bank will not reverse the funds if the solicitors telephone to say that they have made a mistake.
The Court of Appeal said that in this case, unless it was explicitly stated that failure to comply strictly with the payment terms was a breach of an essential term (which it didn’t) payment by electronic funds transfer would not let the seller get out of the contract.
Turner Hopkins used the National Bank which did not have direct real time banking at the relevant time. However, payment by electronic funds transfer is the commercial equivalent of cash. Placement of the funds in Turner Hopkins’ account gives the right to unconditional use of the funds, whether or not the firm had notice of it.
This payment was made before 5pm so Rick Dees Ltd had settled in terms of the settlement notice. Fax confirmation was a necessary part of the transaction but “the settlement obligations of the purchaser under the settlement notice were complete upon lodgement of the funds and fax notification was not required to have been given on or before 5pm.”
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4. Forfeiture of the property under the Proceeds of Crime Act 1991
Cooksley-Mellish v Solicitor General [2006] NZCA 49 (27 March 2006)
Mr Cooksley-Mellish had a troubled childhood and became involved in drugs and a criminal lifestyle. He appeared regularly before the Courts until he was in his mid-twenties when, he says, he gave up hard drugs and committed to a change of lifestyle. He continued, however, to use cannabis which he grew for his own use. Over the next ten years he was twice convicted of cultivating cannabis; the sentences suggest they were not commercial quantities. He has been on ACC and unable to work since being hit by a falling tree in 1987. He found cannabis to be an effective painkiller and became a heavy user. By his own account, he usually grew enough to meet his personal needs but no more.
In 2001 he won a first division prize in Lotto - $430,000. He put $330,000 into a 10-acre lifestyle block in a quiet rural location in Northland. He grazed a few animals and planted a garden. It was the first time he had owned a home of his own. He lived there with his partner. He said the property was ideally suited to his needs. He could occupy his time productively in a garden fed by natural spring water, in a shed suited to wood carving and looking after a small number of animals. The property has a pool and spa which were good for his injuries. He also bought a shade house and raised a crop of cannabis. “Then,” as the judges of the Court of Appeal put it, “his luck ran out.” The police raided and found 20kg of cannabis. He admitted cultivating cannabis but claimed he had grown it for his own needs. He said he had decided to do one "big grow" of cannabis to last him several years. He claimed the crop was more abundant than he expected. He was convicted of possession for supply and unlawful possession of a firearm. He was sentenced to two years prison, at the lower end of the scale, because there was no evidence of sale.
Where a person has been convicted of a serious crime (punishable by prison of five years or more) the Solicitor-General may apply for forfeiture of “tainted property” under the Proceeds of Crime Act 1991. Tainted property means property used to commit or to facilitate the offence, or proceeds of the offence. The Solicitor-General applied to the High Court for forfeiture of the 10-acre block.
The Judge accepted that the main reason for buying the property was to live on it. He commented on the short time between the purchase in January 2002 and the offending, and on the appellant’s previous drug convictions. He concluded that very quickly its predominant use became for illegal purposes.
One reason for not ordering forfeiture is “undue hardship.” The judge said that, “if a confiscation order were made, it would merely put the appellant... a few short years later, back in the same position he was and would have been but for his stroke of luck and the offending.” It wasn’t the same as a property which had been built up over years of hard word. He therefore ordered forfeiture.
Cooksley-Mellish appealed. His luck had not quite run out. The Court of Appeal felt the judge should have considered that Cooksley-Mellish “is unable to work and now aged 50, there is no realistic prospect of his ever acquiring another property; he will have lost his major asset.” The court held that, “the consequences would be out of proportion to offending which lacked many of the aggravating features often found in large scale cannabis growing operations. In particular, there is no evidence of selling or of personal gain. Of relevance also is that the property was intended and used primarily for residential purposes.”
The order for confiscation of the appellant’s property was set aside.
