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Debt Recovery

   04 Jun 2018
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“A person A who resides in Eastwood lent the amount of $8,000 to his friend B. B promised that he would repay $1,000 per month for eight months and at the end of the last month, B would pay interest of $400. However, B has not repaid any money for five months, and ultimately, he started ignoring A’s contact at all. As such, A wishes to bring a court action against B for the debt recovery.”

 1. Mediation through Community Justice Centre
Before commencing a legal proceeding, parties are recommended to resolve their issues through mediation service provided by the local Community Justice Centre. Disputes are sometimes resolved and settled in this stage, and these procedures are beneficial to the parties in disputes in order to ascertain each other’s positions. One of the advantages for mediation in the Community Justice Centre is that it does not require any legal assistance by lawyers. Mediation procedures generally take two hours and are free of charge. If A and B execute a settlement document through the mediation and register it to the court, such a document will have legally binding effects. A settlement through mediation procedures is particularly efficient in the sense that parties do not need to spend time and costs for legal proceedings. It is generally known that around 80% of cases are settled in this stage. To get more information, please contact 1800-990-777.

2. Letter of demand
If parties are unable to reach an agreement in mediation, party A may send a letter of demand to party B. That letter may include an amount of debt and a due date, and that A would initiate a court action by submitting a complaint to the court unless B repays the debt by the due date. For instance, A can send the letter stating that “I hereby demand that you repay me $8,400 by 30 April 2018. Otherwise, I will commence legal proceedings against you to recover the debt without any further notice”. It would be good to include in the letter that both legal costs and an interest on the debt would be charged. Although sending a letter alone to B’s address by post is the best way, sending an email or a facsimile together with the letter is even more effective. 

3. Court proceedings
If B doesn’t repay the debt by the due date indicated in the letter of demand, A can initiate a court proceeding in the Small Claims Division of the Local Court given that the amount of debt is less than $10,000. One of the benefits of lodging a claim in the Small Claims Division is that the rules of evidence do not apply, and a trial is conducted faster and simpler than by a judicial panel. Hence, a claimant can be self-represented without appointing a lawyer if he or she has no difficulty speaking in English. If the amount of debt is more than $10,000, a claimant should bring an action in the General Division of the Local Court, and if it is more than $750,000, he or she should bring an action in the Supreme Court. In litigations that are not in the Small Claims Division, it is commonplace for claimants to appoint lawyers in trials due to the complexity of facts and numerous potential sources of disputes. On this occasion, claimants should be noted that a limitation period for a debt recovery is six years from the date of accrual of a debt.  If more than six years has already elapsed, a claimant may be unable to bring a court action for a debt recovery against a debtor. 

4. Statement of Claim
A has to attest an object of and a reason for a claim in a complaint called the Statement of Claim and submit the document to the Local Court Registry with a filing fee of $99, which begins an official court proceeding. In the Statement of Claim, a claimant can also demand the other administrative fees      incurred for a proceeding including a filing fee as well as a legal interest (the  average interest rate from January 2018 to June 2018 ranged from 5.50% to 7.50% and can vary before and after a trial). Also, if a lawyer represents a claimant in a court proceeding, A can also demand a legal fee in the Statement of Claim. Once A completes the Statement of Claim and submits both the original copy and two      replicated copies (total three copies) to the Local Court Registry, A will be immediately granted a confirmation stamp and a case number. The original copy would be stored at the court, and the other two replicate copies would be returned to A. A has to serve one of the two replicate copies which have the court’s stamps to B within six months thereafter. The most recommended way of a service is either in person or via post by the court. When intending to use the court’s postal service, A can apply for it upon the submission of the Statement of Claim, and the application fee for the service is $42 as of now, the amount which can be also claimed from B by including the amount in the Statement of Claim. 

5. Default Judgment
B has to submit a Defence to the court within 28 days of being served with the Statement of Claim. If B fails to do so, A can apply for a Default Judgment. A Default Judgment is when the court unilaterally makes a judgment against a defendant without a hearing, and this judgment concludes with final costs inclusive of an amount of debt, legal costs and interests. When applying for a Default Judgment, A has to submit to the court both an Affidavit of Service which proves that the Statement of Claim is properly served to B either in person or via post by the court and a Notice of Motion-Default Judgment for liquidated claim.

 

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Debt Recovery in Australia

Debt recovery is rarely a straightforward exercise.In the current economic climate, businesses and individuals frequently encounter difficulties in recovering outstanding accounts. This can result in interrupted cash flow and heightened financial pressure.While debt recovery is commonly associated with Court proceedings, litigation is not always the first or most appropriate step. There are several other options that may be pursued before formal legal action becomes necessary.Whether you are a business owner, contractor, or private creditor, an understanding of the debt recovery mechanisms available in Australia is essential to determining the most effective course of action.The following outlines the principal debt recovery options available across Australian jurisdictions, progressing from the least litigious to the most litigious. Alternative Dispute ResolutionGiven that litigation can be both expensive and time-intensive, creditors are generally encouraged to explore alternative dispute resolution (ADR) processes in the first instance.ADR methods, including negotiation and mediation, involve structured discussions between the creditor and debtor, often with the assistance of legal representatives. These processes aim to resolve disputes without recourse to the Courts.As ADR occurs outside the formal Court system, it is not subject to rigid procedural rules. This allows greater flexibility and enables parties to reach practical and mutually acceptable outcomes that may not otherwise be available through litigation. The most commonly used ADR methods include:•    Negotiation: Direct discussions between the parties and their legal representatives with the objective of reaching an agreed resolution.•    Mediation: Engagement of an independent mediator who facilitates discussions and assists the parties in identifying common ground, without imposing a decision.Although ADR is less adversarial than Court proceedings, the involvement of solicitors underscores the seriousness of the debt recovery effort and signals that further action may be taken if negotiations fail.This distinguishes ADR from informal discussions. From the debtor’s perspective, ADR may also be preferable, as it can reduce exposure to legal costs, accrued interest, and prolonged litigation. Issuing a Letter of DemandWhere ADR processes do not result in an agreement, a creditor will often proceed by issuing a letter of demand. A letter of demand is a formal legal notice that clearly outlines the amount owing, specifies a timeframe for payment, and advises of the consequences should the debt remain unpaid. It commonly serves as a final opportunity for the debtor to resolve the matter prior to the commencement of legal proceedings.It is generally advisable to engage legal practitioners to prepare and issue a letter of demand.A carefully drafted letter not only increases the likelihood of payment but also establishes an important foundation should Court proceedings later become necessary. Commencing Court ProceedingsIf earlier attempts at resolution are unsuccessful, a creditor may elect to commence legal proceedings.This generally requires the preparation and filing of a claim in a Court with appropriate jurisdiction. Each Australian state and territory has its own Court structure, and the relevant Court is typically determined by the value of the claim. The following is a summary of the principal jurisdictional thresholds in three key states.New South Wales•    Claims of up to $20,000 are generally heard in the Small Claims Division of the Local Court.•    Claims between $20,000 and $100,000 are generally heard in the General Division of the Local Court.•    Claims up to $1,250,000 are generally heard in the District Court.•    Claims exceeding $750,000 may be commenced in the Supreme Court.The overlapping jurisdiction of the District Court and the Supreme Court provides some discretion; however, the Supreme Court typically hears matters involving higher monetary values, greater complexity, or issues of legal significance.Victoria•    Claims up to $100,000 are generally heard in the Magistrates’ Court.•    Claims exceeding $100,000 are generally heard in the County Court, which has unlimited civil jurisdiction.•    The Supreme Court of Victoria also has unlimited jurisdiction and typically hears matters of greater complexity or legal significance. Queensland•    Claims up to $150,000 are generally heard in the Magistrates Court.•    Claims between $150,000 and $750,000 are generally heard in the District Court.•    Claims exceeding $750,000 may be commenced in the Supreme Court. If the claim is successful, the Court will usually issue orders requiring the debtor to pay the full judgment amount. Enforcement of a Judgment DebtOnce judgment has been entered, the debtor is ordinarily given 28 days to satisfy the debt voluntarily.In circumstances where the debtor fails to comply with the Court order, enforcement action may be required.The limitation period for enforcing a judgment debt varies by jurisdiction but is generally 12 years from the date of judgment. In New South Wales, for example, a judgment debt may be enforced for up to 12 years pursuant to section 17 of the Limitation Act 1969 (NSW).Several enforcement options are available across Australian jurisdictions, with the most common being garnishee orders and writs:•    Garnishee Orders: Court orders that permit the creditor to recover the judgment debt directly from the debtor’s wages, bank accounts, or from third parties who owe money to the debtor.•    Writs of Levy of Property: Orders authorising the seizure and sale of the debtor’s personal or real property to satisfy the judgment debt.Given the complexity of debt recovery and enforcement procedures, and the differences between state and territory jurisdictions, obtaining legal advice or engaging solicitors to manage the process is strongly recommended.H & H Lawyers has extensive experience in both Australian and international debt recovery matters and is available to provide guidance or assistance where required. This article is intended for general informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you require assistance with a debt recovery matter, please contact H & H Lawyers directly.

Security of Payment NSW - Know your right to receive progress payments for construction works and related goods and services

As a direct or indirect result of the COVID-19 pandemic and uncertainty in a global economy, various issues have been adversely impacting the construction industry, such as an increase in raw material price and supply chain disruption. Particularly, contractors and subcontractors are struggling with their cash flow due to their outstanding payments for the works carried out. Accordingly, security of payment legislation in each state has played a role in ensuring that anyone carrying out construction work, and supplying related goods and services under a construction contract gets paid promptly. This article discusses and explains your rights under the NSW Security of Payment Act, and each state has its own security of payment legislation, which may differ from each other in detail.   Know Your Rights In New South Wales, the relevant security of payment legislation is the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). The significance of the SOPA is that it grants contractors rights to receive progress payment even if there is no formal written contract or even if a contract says that you are only allowed to receive a payment at the end of works, i.e., after the completion of works. Fundamentally, the SOPA entitles a person or a company, who carried out construction work or supplied construction related goods and services, to receive progress payment. A progress payment means a partial payment for works as the project progresses even if the assigned works are not completed. Therefore, the progress payment facilitates cash flow for contractors and suppliers in the construction industry. Under SOPA, the following rights are granted to you:         A right to receive a progress payment at least on a monthly basis;         Maximum time limits to respond to claims for progress payments;         Maximum payment terms;         A right to suspend work in the event of non-payment;         No ‘pay when paid’ clause: No need to wait until a contractor you worked for gets paid by a head contractor or principal; and         Interest rates applicable on unpaid progress payment.   Who is entitled to receive a progress payment? A person or company who, under a construction contract or any other construction arrangement, has undertaken to carry out construction work or supply construction related goods or services in New South Wales is eligible to receive a progress payment under the SOPA.[1] The “construction work” is broadly defined, including construction, alteration, repair, maintenance or demolition of buildings or structures forming part of land.[2] The “related goods and services” also include various related goods and services such as materials for construction or plant for use in construction work, labour service, design or engineering service.[3] While the SOPA is drafted to cover contractors, subcontractors, suppliers and service providers as broadly as possible, it should be noted that there are also exceptions such as those engaged in the extraction of oil, natural gas or minerals.   Payment Claims The procedure for receiving a progress payment is triggered by a person entitled under the SOPA (Claimant) making a Payment Claim in writing to the other person who is responsible to make a payment under a construction contract (Respondent) In making a Payment Claim, Claimants must ensure that the following requirements are met:[4] 1) The construction work related to the progress payment must be identified; 2) The amount of the progress payment must be indicated; 3) A statement that a Payment Claim is made under this SOPA must be inserted; 4) A Payment Claim must be served on the Respondent within 12 months after the construction work was last carried out; and 5) A Payment Claim is only made one (1) time in a month on and from the last day of each month in which the construction work was carried out.   How to respond to a Payment Claim? The Respondent is required to respond to the Payment Claim by providing a Payment Schedule to the Claimant within 10 business days after receipt of the Payment Claim. By failing to do so, the amount claimed in the Payment Claim is fixed and Respondents are liable for such amount on the due date. In issuing a Payment Schedule, Respondents also are required to comply with the following requirements:[5] 1) A Payment Claim related to a Payment Schedule must be identified; 2) The amount of the payment the Respondents propose to make must be indicated; and 3) If applicable, reasons why the amount in the Payment Schedule is less than that in the Payment Claim and reasons for withholding payment must be identified.   Maximum payment terms One of the most important benefits available under the SOPA is that there are statutory deadlines for a progress payment to be made.[6] If the Respondents fail to pay the progress payment by the deadline in the diagram below, such amount is deemed due and payable, and interest on the unpaid amount is also payable at the prescribed rate. Your rights to suspend works A Claimant also has a right to suspend construction work or supply of related goods and services if a Respondent fails to pay the amount by the due date for payment as described above.[7] At least two (2) business days prior to the suspension, the Claimant must serve on the Respondent a Notice of Intention to Suspend Work in writing. As the date on which the Notice is given is not counted, the Claimant is eligible to suspend work on and from the fourth day of the Notice. Please see the above diagram. Once the work is suspended under SOPA, the Claimant is not liable for any loss or damage suffered by the Respondent as a result of such suspension. However, once the whole outstanding amount is paid, the Claimant must resume the work within three (3) business days from the payment date.   Don’t wait until a head contractor gets paid The SOPA expressly prohibits and invalidates any clause in a construction contract that the payment of money is contingent on a milestone or an event in other contracts including a head contract.[8] A common example of these clauses is that a payment under a subcontract is made upon the payment by a principal under a head contract or upon the practical completion of a head contract. Such clauses are deemed unenforceable under the SOPA, and you have a right to claim the progress payment regardless of the operation of other contracts.   Adjudication A person eligible under the SOPA also can start an adjudication process for unpaid or disputed progress payments. Adjudication is an informal and independent process which an issue or issues are determined by an independent adjudicator regarding the payment claims. The adjudicator’s determination can be enforced as if it is a judgment rendered in a Court. However, the Claimant must file an adjudication application in writing by the following deadlines:[9] Type Deadline When: 1)        Respondent issues a Payment Schedule, and 2)        the amount in a Payment Schedule is less than the amount in a Payment Claim Within 10 business days after a Payment Schedule is issued When: 1)        Respondent issues a Payment Schedule; and 2)        Respondent fails to pay the amount in the Payment Schedule by the due date Within 20 business days after a Payment Schedule is issued When 1)        Respondent fails to issue a Payment Schedule; 2)        Respondent fails to pay the amount in a Payment Claim by the due date; 3)        Claimant serves written notice of intention to apply for adjudication of the payment claim on Respondent within 20 business days from the due date; and 4)        Respondent has been given an opportunity to provide a Payment Schedule within 5 business days after receiving notice of intention to apply for adjudication of the payment claim Within 10 business days after the end of the 5 business days for Respondent to provide a Payment Schedule after receiving notice of intention to apply for adjudication of the payment claim                                                   Detailed procedures, requirements for adjudication and enforcing the adjudicator’s determination will be discussed in future articles.   Payment Withholding A subcontractor who has made an adjudication application for a progress payment is also entitled to request a principal contractor to retain money owed to a head contractor to cover the claimed amount.[10] This is called a ‘payment withholding request’. Upon receipt of the payment withholding request, the principal must retain the amount of money to which the payment claim relates.[11]  When a successful outcome is given in the adjudication process, a subcontractor is able to recover the withheld money from the principal through the procedures set out in the Contractors Debts Act 1997 (NSW).   How can we assist  If you are involved in construction work in New South Wales, the SOPA entitles you to claim the progress payment and have protections accordingly. However, your rights under SOPA may vary depending on your satisfactory fulfilment of requirements and on whether you took proper actions in a timely manner. Although the SOPA sets out a statutory regime for prompt payment for construction work, there are still a number of disputes arising from unpaid progress payments in a construction contract, which ends up with unsatisfactory outcomes for unpaid contractors and suppliers. If you are unsure what rights you have in your construction payment issues, H & H Lawyers will be happy to review your case to check whether it might fall within a case protected under the Security of Payment Act or other relevant laws. We can further assist in finding a way to enforce your rights.   Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication. [1] SOPA ss4 and 8. [2] SOPA s5 [3] SOPA s5 [4] SOPA s13 [5] SOPA s14 [6] SOPA s11 [7] SOPA s27 [8] SOPA s12 [9] SOPA s17 [10] SOPA s26A [11] SOPA s26B

Security for costs in the context of the foreign judgment registration in Australia: KR & C Co Ltd v Soon Ok Hwang [2021] NSWSC 551

On 18 May 2021, the Supreme Court of New South Wales in KR & C Co Ltd v Soon Ok Hwang [2021] NSWSC 551 held that a security for costs application brought by a judgment debtor in its Notice of Motion to set aside a foreign judgment registered in Australia is to be dismissed with costs. This case provides a useful authority where there is limited case law dealing with security for costs applications in the context of the foreign judgment registrations in Australia. H & H Lawyers successfully opposed the security for costs application in these proceedings. Background In this case, the plaintiff, a foreign company, was a judgment creditor in a judgment held in the Republic of Korea against the defendant who was a judgment debtor. Based on that judgment, the plaintiff filed a Summons seeking an order for registration of the foreign judgment under the Foreign Judgments Act 1991 (Cth) (FJA). The foreign judgment from Korea was ordered to be registered, and the defendant applied to set it aside. A case concerning an application seeking to set  aside a registered foreign judgment will be discussed separately in a further case note.  Following the setting aside application, the defendant, by another Notice of Motion, sought security for costs against the plaintiff, which is the subject of this case note. The defendant by seeking the security for costs relied upon the prospects of success on the application to set aside the registration of the Korean judgment. The plaintiff opposed the security for costs on, amongst others, the following bases: 1. While security for costs under r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) is limited to applications made by a defendant in the proceeding, r 53.4 is intended to preclude a judgment debtor from making an application for security; 2. There is no reason to believe that the plaintiff would not pay any costs order if ordered; and 3. The defendant’s prospects of success are minimal.   The Court dismissed the defendant’s security for costs application by upholding the plaintiff’s 2nd and 3rd arguments above. The Supreme Court’s Reasoning The first question before the Court was the interpretation of UCPR r 53.4. That rule relevantly provides that:   “For the purposes of proceedings under the Foreign Judgments Act 1991 of the Commonwealth, the Supreme Court may make an order under rule 42.21 otherwise than on the application of the judgment debtor.”   In the previous hearing, on a motion for extension of time to apply to set aside the registration of foreign judgment before Campbell J in KR & C Co Ltd v Soon Ok Hwang [2021] NSWSC 164, one of the defendant’s contentions concerning r 53.4 was that it allows the Court to make a security for costs order of its own motion. However, Campbell J, referring to Richie’s commentary, stated to the effect that either the judgment debtor or creditor may make an application for security under r 53.4. The Court in the present proceedings disagreed with Richie’s commentary, and accepted and cited obiter dicta of Adams J in Raffaele Viscardi SRL v Qualify Centre Food Services Pty Limited (No 2) [2013] NSWSC 2055 (“Viscardi”), which stated that: “Though awkwardly drafted, this (being r 53.4) appears to prevent a judgment debtor, though a defendant, from making an application under r 42.21.” Nevertheless, the Court did not determine this issue as it was not necessary for the Court to decide that in the circumstance where the judgment creditor was found to be not impecunious.  During the proceedings, it was not contested that the plaintiff is a company registered in Korea, ordinarily resident outside Australia, and has no assets in Australia. Therefore, the threshold required in r 42.2(1)(a) of UCPR was enlivened without difficulty. The plaintiff is a wholly-owned subsidiary of a statutory authority in Korea that has a similar function to that of the Australian Prudential Regulation Authority (APRA). There was no evidence establishing that the plaintiff, despite it being a foreign entity, is impecunious or will be unable to pay any adverse costs if ordered. Further, given the substantial reciprocity of treatment of judgments between Australia and Korea, the defendant can enforce the costs order in Korea, if ordered.  As to the prospect of success on the application to set aside the registration of the Korean judgment, the defendant relied on public policy grounds under s 7(2)(a)(ix) of the FJA for reasons that: 1. There was a time interval between the foreign judgment and the registration in Australia; 2. The defendant did not receive notice of the proceedings in Korea; and 3. The quantum of the registered judgment is excessive.    The Court found that the defendant’s public policy arguments were weak. The detailed arguments and analysis of the above contentions will be discussed in a further case note as that is the gist of the further proceedings, however, in summary, it was resolved that the prospect of success in the defendant’s contentions was modest at best. Implications This case is one of the limited authorities that have decided the security for costs application in the context of foreign judgment registrations in Australia. There are three key takeaways to be learned from this case. Firstly, the mere fact that a party is not an ordinary resident and does not possess assets in Australia does not necessarily mean that that party would be unable to pay the costs. There must be something more than evidence simply showing that a party is a foreign entity, particularly in circumstances where that foreign entity is a government-owned company and where an original court and Australian courts mutually recognise judgments of each other.  Secondly, when relying on the prospect of success ground in a security for costs application, a party applying for security is required to prove more than a moderate possibility of success in their arguments. In the present case, the Court found that the prospect in the defendant’s arguments was moderate but did not accept that that was sufficient. Lastly and most importantly, it is a persuasive ground to argue that, while it is obiter dicta in this case and also in the Viscardi case, UCPR r 53.4 operates to preclude a judgment debtor from making an application for security. In New South Wales, the registration of a foreign judgment is determined ex parte (i.e. without the other party’s attendance and notice), and it is always the case that a judgment debtor applies for setting aside after the registration is completed. As such, a judgment creditor is relevantly in the position of a respondent/defendant who needs to respond to a motion brought by a judgment debtor. On that premise, it is unreasonable to view that UCPR r 53.4 is interpreted in a way that a moving party seeking a court order, i.e. a judgment debtor, is also allowed to seek security for costs that may stop a judgment creditor from responding to a judgment debtor’s motion