Category Archives: Updates

ACAT’s Missing Powers; Episode 4 – A New Limit

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On 15 December 2016 the ACAT will change its civil jurisdiction from $10,000 to $25,000. In the explanatory memoranda, then-Attorney-General Simon Corbell MLA, explained that this increase was to ensure that the jurisdiction of the ACAT kept up in real terms with the original jurisdiction of $10,000 as it existed in 1997 under the Small Claims Court which was then superseded by the ACAT in 2008 when it was set up.

Unfortunately, the more likely result will be that recovering debts for small businesses and individuals is about to get a lot harder and a lot more expensive.

Ulterior Reasons

The reasons behind the changes are likely more chimeric than the explanatory memoranda stated and have the serendipitous benefit of alleviating the busy court system with no additional expenditure. For numerous years, the legal fraternity and the judiciary were calling for a 5th full-time Supreme Court Judge to try to deal with the back-log and for a long time were allocated several Acting Justices and supplementary Federal and interstate judges, but even with the appointment of a 5th Justice in July 2016 the situation does not appear to have significantly eased. This is not limited to the Supreme Court with a similar situation existing in the Magistrates Court, where Special Magistrates are used to help meet the immense work load faced by the Court there.

Over the last few years there has been bandaid tweaking to the court administration such as creating new listing allocations and making it easier to transfer matters such as the simplified committal process. Some methods such as the bulk call-overs and multiple listings on the same day seem to be having limited success but overall fail to address the underlying problem that our courts are over-worked. Additionally, as the government has just committed $150 million for a new courts precinct it is unlikely that any of the more expensive fixes will be employed soon.

With this in mind, it would make sense that an easy, cheap solution would be to change the jurisdictional limits and shift a lot of the smaller litigation away from the Magistrate’s Court towards the ACAT.

Shifting the Buck

The biggest problem with this approach is that the ACAT is also overworked and in fact overworked to the point of not being fit for purpose. The ACAT is designed to resolve disputes quickly, simply and inexpensively. For those who have dealt with the ACAT, this is often simply not the case. Reasonably simple cases such as return of residential bond cases often take months, yet alone the more complex issues dealt with by ACAT such as reviewing large development application or decisions relating to the discipline of the legal profession.

The involvement of lawyers probably contributes to the back-log but at the end of the day there are real stakes on the line and the Tribunal still deals with issues in a manner mostly corresponding to the Courts such as following precedent and applying legislation making it still largely inscrutable to the average member of the public. The jurisdiction of ACAT stretches far beyond returns of bonds and it is not uncommon for multi-million dollar developments to be subjected to ACAT’s jurisdiction and with that amount of money you can guarantee that both sides will have lawyers and they will raise every possible point in favour of their client, much against the simple, inexpensive model originally envisaged.

The Impact on Business

The impact on small business should not be understated. Some of the toughest times for a small business is when they are dealing with recalcitrant debtors. Waiting 6-12 months to get paid, or not paid at all, can really put the squeeze on small businesses. Even businesses that can afford to absorb that debt still have to take on that burden; whether through reshuffling finances, allocating staff resources to recover the debt or ultimately hiring outsiders to recover that debt on their behalf.

This final step usually involves lawyers. Once lawyers get involved, very few creditors ever recover 100% of their outlay. If they are lucky, a simple quick process such as a statutory demand can be a cheap way to recover debts but the problem with this mechanism is that if the debtor raises a “genuine dispute” then Statutory Demands will usually fail. “Genuine disputes” are simple enough to raise and are often red herrings not actually deterring from whether the debt is payable. The reasoning being is that Statutory Demands are not meant to resolve disputes.

If a dispute is raised then the courts will usually need to become involved and when they do, at least there is the probability that if a creditor is successful in proving their debt that they will recover around 60-80% of the legal costs they have outlaid. Recovering 60-80% makes it commercially viable to outlay $8-10,000 in legal costs to pursue a debt of $20,000. Of course people are free to pursue their debts without lawyers, but in the courts this is usually at their own peril, especially if the debtor “lawyers up”.

This is where the real problem becomes apparent. The increased jurisdiction of ACAT hasn’t corresponded with a re-visiting of the other rules, including the practice that ACAT generally doesn’t award costs. ACAT has the ability to award costs in instances where one party has acted in such a way that causes unreasonable delay or obstruction but in practice if a losing party can prove that it had a case to argue, even if wrong, then they’ll almost never face a costs order.

This drastically changes the commercial considerations faced by small businesses. After 15 December 2016 a small business will need to assess whether they are willing to incur $10,000 in costs to pursue a $15,000 or $20,000 debt, when previously this would have been a no-brainer due to the 60-80% costs recovery.

I’ve heard it defended that this approach will encourage settlement. But generally speaking, if the debt is truly owing then this does not encourage settlement but instead just makes it harder to recover debts against those parties willing to take advantage of the system against small businesses simply trying to play by the rules.

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To accept the argument that real-term jurisdiction hasn’t increased since 1997 is a valid point, but utilising the Reserve Bank calculators show that the new limit should be closer to $15,000 rather than $25,000; and this difference makes all the difference to a small business.

Quarterly Bankruptcy Stats Show Slow ACT Economy

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The Australian Financial Security Authority (AFSA) have released their quarterly statistics of personal insolvency and it’s not great news for the ACT. The Territory recorded a slight increase of 4.2% in personal bankruptcies.

The ACT didn’t fair the worst though with the Northern Territory seeing a whopping 29.6% increase, Western Australia 17.4% and Tasmania an unimpressive 19%. All other states saw a decrease in personal insolvencies with New South Wales seeing a 8.4% drop, Queensland 1.8%, South Australia 4.6% but Victoria being the kings by achieving a giant 11.9% decrease in personal bankruptcy.

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There were somewhat comparable increases in other types of personal insolvency agreements such as Part X and Part XI insolvency agreements. All in all the ACT experienced a total rise of 12.5% in all types of personal insolvency, but that was still better than WA with a 29.3% increase and NT with 38.7%.

 

Generally speaking these stats can be used to indicate the general economic status of each jurisdiction. More accurately speaking it more likely shows the general economic status of each jurisdiction in the previous year or two.

Personal insolvency will usually take roughly one year or more before taking effect. First bills start getting missed, followed by demands, followed by either court action, then bankruptcy notices then finally a debtor is made bankrupt.

The mining boom to gloom would seem to be the most obvious answer for the NT and WA, with both being overly reliant on the hole-digging industry. Tasmania is a bit harder to explain but possibly just part of the general economic woes that afflict the Apple Isle. The Northern Territory stats particularly seem to mesh with data showing an 18% drop in new houses and a 15% drop in business hiring intentions in NT, demonstrating a true slowdown. Queensland, also being heavily reliant on mining managed to buck the trend of increased personal insolvency. This is probably a result of their more diversified economy and certainly shows the issues that can befall states that overly rely on any one industry which is probably a lesson for Australia as a whole.

As far as the ACT is concerned the uptick in personal insolvency would seem to fit well with the aftereffects of the public servant cuts that disproportionately effected the Territory. I suspect the corporate insolvency states will be somewhat similar once they are released.

Owning and operating a soapbox gives me the opportunity to make unsolicited, unqualified predictions. AND I PREDICT that with the Federal Government realising their mistake by mass firing public servants and with numbers now basically back to where they were, that the ACT will see its insolvency numbers improve over the next few quarters and being a relatively tiny jurisdiction will likely even see a complete recovery by the time the next stats are released in January. 

Builder Not Entitled to Payment for $400k Work

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If you haven’t followed the building contract then you won’t get paid, regardless of how much work you have performed.

R Developments Pty Ltd -v- Forth & Anor saw a big shift towards stricter operation of the contract as the stating point when determining how a builder should be compensated for a claim for unpaid work.

R Developments (the builder) quoted and agreed to build a property in Yarralumla for $972,000. After the initial $72,900 deposit, the builder was entitled to be paid $100,000 once the property reached the slab stage, with payments set up for the other stages in the usual manner.

The builder no doubt realised his folly when he had completed $380,000 in work without reaching the slab stage. There were also a number of deposits for materials and the builders profit margin which had been incurred but not paid. The builder claimed a number of variation notices for additional work had been submitted to the owner and accepted by virtue of getting no reply.

The builder then alleged that the owner had not shown a capacity to pay for the extra works and purported to terminate on this basis, claiming short of $600,000 in damages.

Strict contract – no right to estoppel

Estoppel can be broadly defined as a group of rules of equity by which the Courts can prevent injustice, including in cases where they would not otherwise be able to, ie. even if a contract doesn’t provide for it.

Part of the builders claim was that the contract was validly terminated under the requirement to prove finance, or in the alternative, as they had performed $380,000 worth of work, they were entitled to be reimbursed for that work to prevent injustice.

David Robens of Kamy Saeedi Law, successfully argued that the owners had fulfilled their requirements under the contract and that the bank had previously shown that finance was guaranteed even in light of the variations.

Under the contract, the builder was entitled to insist on finance but not once works had been commenced as this was enough to show the builder’s acceptance of meeting this requirement. This acceptance included losing the right to terminate for non-compliance of it. Therefore the termination was invalid and the builder was entitled to no compensation for the work performed.

Normally the builder may then experience some relief through equity, but the court was not particularly receptive on this occasion.

As the owner had already received a benefit resulting from the breach of contract ($300k free work) they were only awarded nominal damages and costs in defending the action.

Implications

The implications of such a decision are wide-ranging for construction law in the ACT. The Courts had previously been somewhat reticent to punish builders too harshly for under-quoting. Sure they were required to take a hit, but usually nothing like this.

The fact that the builder walked away from a claim for almost $600,000 worth of work and materials and got nothing with costs awarded against them should serve as a stark warning to builders or indeed any tradesman in the Territory.

Further to this, and excuse the brag, but the Kamy Saeedi Team poked some pretty big holes in the arguments of a well used construction law firm relying on the pro forma contract prepared by another prominent construction law firm and used by builders as a matter of practice. More than a brag, this certainly raises issues about how construction litigation will result in the future given the hard right turn this case indicates.

After a lengthy dispute, the owner now has the benefit of a lot of free work and is able to recommence building their dream home.

If you would like to discuss this matter further, please contact either Tom Barrington-Smith or David Robens from the Kamy Saeedi Law Commercial Team.