Debt Recovery

VSCA highlights the importance of distinguishing between debt and damages in debt recovery claims

In the matter of Yang v Finder Earth Pty Ltd [2019] VSCA 22, the Victorian Supreme Court of Appeal set aside a default judgement for recovery of an unpaid debt on the basis that the underlying claim was better characterised as one for damages. Ultimately, the case illustrates the importance of properly and clearly pleading a claim when seeking to recover a debt through litigation.

The case ensued after the parties entered into two agreements where the second respondent, Ms Luo, loaned Mr Yang two sums of money totalling $700,000. The terms of the agreements noted that the money was to be applied solely for the purpose of establishing a business. Relevantly, the business was established for the purpose of obtaining an investment-based migrant visa for Ms Luo and her family.

Pursuant to the terms of the agreement, Mr Yang guaranteed and indemnified Ms Luo for the money she lent and for ‘any further loss and damage she sustained’ in connection with the agreement. If the agreement was breached by Mr Yang, all funds lent to the company in advance were to be returned to Ms Luo.

Mr Yang was alleged to have misapplied both the loan money and business revenue for his own benefit, constituting a breach of the agreement. Proceedings were initiated in the County Court where Ms Luo pleaded on the following basis:

By reason of the conduct alleged, Luo has suffered loss and damage being:

(a) a loss of the $700,000; and

(b) exposure to creditors of Finder Earth for which she has provided personal guarantees and has or will need to compensate.

The relief sought by Luo was particularised in the following terms:

$700,000 owing to [Luo] under the Finder Earth Loan Agreement and LL Loan Agreement.

…

A declaration as to the validity of the Yang/Luo Guarantee and Indemnity and an order for such loss and damage owing pursuant to the Yang/Luo Guarantee and Indemnity.

Damages.

Mr Yang’s defence was struck out pursuant to rule 21.02 of the County Court Civil Procedure Rules 2008 (Vic). In the absence of a defence, Ms Luo entered default judgment for $700,000 plus interest and costs. Mr Yang applied to set aside the default judgment, arguing the claim was not for recovery of debt under the guarantee and indemnity but rather a claim for damages arising from Mr Yang’s alleged misapplication of the loan. The application was refused on the basis that Ms Luo’s pleading made it sufficiently clear the claim was for a fixed monetary sum. Mr Yang appealed.

The Court of Appeal allowed Mr Yang’s appeal agreeing that while the foundation of Ms Luo’s claim was the guarantee and indemnity, the money sought was the ‘loss and damage’ suffered as a result of misapplication of the loan. On this basis, Ms Luo was not entitled to enter judgment in the manner she did. The Court noted that had the pleadings mentioned a debt arising under the guarantee by reason of default under the loan agreement, their conclusion would have been different. However, this was not the case as ‘loss and damage’ had been sought instead.

Ultimately this case serves as a reminder to creditors that when seeking to recover a debt through the courts, it is crucial that the relief sought is properly and clearly expressed as a fixed sum owing and not as a recovery of damages suffered by reason of non-payment. If the claim is not properly pleaded, a judgement obtained will be open to scrutiny from higher courts.

by James Conomos Lawyers

Full Federal Court clarifies tax obligations for Australian’s living and working abroad

When is a person living overseas no longer a resident for tax purposes?  A recent decision of the Full Federal Court provides an interesting perspective but will the Tax Office accept the determination or apply for special leave to appeal the High Court for reconsideration – Watch this space.

In Harding v Commissioner of Taxation [2019] FCAFC 29, the Full Federal Court allowed an appeal by a taxpayer after he disputed the Court’s earlier determination that he was an Australian tax resident.

Mr Harding was an Australian citizen who had worked in the Middle East for over 15 years.  In 2006, he returned to Australia to live with his wife and children, but later relocated to Bahrain in 2009 to pursue a work opportunity in Saudi Arabia.

The ATO sought to have Mr Harding pay Australian income tax in respect of the salary paid to him for the 2011 financial year. In doing so, the ATO asserted that despite being employed in Saudi Arabia, Mr Harding was an Australian tax resident pursuant to section 6 of the Income Tax Assessment Act 1936 (Cth).

Relevantly, section 6 provides that a ‘resident of Australia’ is a person who ‘resides in Australia’ (the resides test) and includes persons ‘whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside of Australia’ (the permanent place test).

In assessing his taxpayer status, the court heard that in Bahrain, Mr Harding leased a fully furnished 2-bedroom apartment. During that time Mr Harding’s wife and children remained in Australia and he regularly returned to visit them. It was his intention that his family would later relocate to join him, upon which he would purchase a larger property to serve as the family home. However, in 2011 his marriage broke down and so Mr Harding instead moved to a smaller apartment in the same building.

The resides test

At both instances the court was satisfied that Mr Harding did not reside in Australia, noting that Mr Harding did not intend to return to Australia after his departure in 2009 and that despite having a place to stay in Australia, Mr Harding did not treat this place as his home.

In doing so, the court rejected the Commissioner’s contention that Mr Harding’s Australian citizenship, bank accounts and his family’s retention of his Australian property, were sufficient to establish a finding that he considered Australia to be his home.

The permanent place test

At first instance the primary judge found in favour of the ATO, ruling that Mr Harding did not satisfy the ‘permanent place of abode test’ as the rented Bahrain apartment was only temporary.

However, on appeal the full court was satisfied that the primary judge had applied a ‘too narrow conception’ of what constituted a ‘permanent place of abode outside of Australia’.

In doing so, the court held that the temporary nature of the accommodation did not render it incapable of proving ‘permanent’. That is, the court held that this test should not be determined by reference to whether a person is permanently located at a specific house, flat or dwelling, but rather ‘permanent place’ requires the identification of a country or state in which the person is living permanently.

Here, Justice Logan ­­­­­­­­­­­noted that “… to focus on whether a particular tree (temporary accommodation) is present runs the risk of losing sight of the fact that this tree forms part of a wider wood (permanent place of abode outside of Australia).”

Ultimately, the court was satisfied that Mr Harding lived in Bahrain in 2011, because, among other factors, he had:

1. Enrolled his youngest son in a Bahrain school for the 2011 year;
2. Purchased a second car for his wife to drive upon relocating to Bahrain;
3. Attempted on several occasions to convince his wife to join him in Bahrain as originally planned; and
4. Expressed no intention of leaving his Saudi Arabian based employment.

This decision comes in the wake of the Government’s impending consideration of the Board of Taxation’s review of Australian residency rules for individuals. It signals a positive outcome for all Australian’s living and working abroad, namely that they will not automatically be treated as Australian tax residents. However, it will be interesting to see if the ATO seeks special leave to appeal this decision to the High Court.

by James Conomos Lawyers

ASIC charges director and pre-insolvency advisers with dealing with proceeds of crime

Following an investigation into the affairs of Cap Coast Telecoms Pty Ltd, ASIC has charged a company director and two pre-insolvency advisers with dealing with proceeds of crime, alleging the trio were complicit in the removal of almost $750 000 in company funds.

On 1 March 2019, the trio appeared in the Brisbane Magistrates Court which heard that Richard Ludwig, former Director of Cap Coast Telecoms, had garnered advice from Stephen O’Neill and John Narramore of SME’s R Us following a dispute with a creditor.

ASIC alleged that between October 2014 and January 2015, the duo aided Ludwig in the removal of $743,050 of company funds to accounts in their control before the company was wound up in liquidation.

The majority of the money was then forwarded to Ludwig, with duo retaining a portion.

Mr Ludwig has subsequently been charged with ten counts of breaching his director duties pursuant to the Corporations Act 2001 (Cth) and faces a maximum penalty of 2000 penalty units and/or five years imprisonment.

All three men are charged with one count of dealing in the proceeds of crime worth $100,000 or more under to the Criminal Code 1995 (Cth), for which they face up to 1,200 penalty units and/or 20 years imprisonment.

The trio were bailed and the matter is now due to return to the Brisbane Magistrates Court on 3 May 2019.

by James Conomos Lawyers

HCA allows appeal in Chorley Exception case

In the matter of Bell Lawyers Pty Ltd v Pentelow & Anor [2018] HCATrans 264, the High Court has granted special leave to appeal an earlier decision of the New South Wales Supreme Court, after it held that the Chorley exception may extend to barristers.

The case follows a lengthy legal battle between Sydney barrister Janet Penetelow and Bell Lawyers, after the firm failed to pay Ms Pentelow $25,988.55 for work she performed on a family law case in 2008.

Ms Pentelow subsequently initiated proceedings and was successful in her claim. However Bell Lawyers refused to pay when Ms Pentelow claimed almost $45,000 for work she did as a self-represented litigant on that case.

In August 2018, a 2-1 majority of the New South Wales Supreme Court held that the Chorley rule that allowed solicitors to recover costs when acting as  self-represented litigants also applied to barristers. Bell Lawyers subsequently applied to the High Court for special leave to appeal that decision.

The matter was heard before Chief Justice Kiefel and Justice Gordon in December, where counsel acting for Ms Pentelow contended that special leave ought to be refused as the costs in question were no more than $44,000 and the costs of running an appeal would far exceed that amount for both parties. In doing so, they submitted that granting special leave would be inappropriate on the basis that 'it would be inimical to the interests of justice and ... the established requirement that litigation be just, cheap and quick.'

However Bell Lawyers argued that 'cost shifting is a crucial part of the administration of justice' and subsequently that Ms Pentelow's contention about the amount of costs being relatively modest 'ought not to be seen as a disqualification from special leave.'

Ultimately the court granted special leave, concluding that the matter should be remitted to the full court. In doing so, Gordon J submitted that regard should be had to three questions:

1. Is the Chorley exception still good law?
2. Does it extend to barristers?
3. Does it extend to barristers who have retained a solicitor and counsel to appear for them?

The case is likely to be heard in the first half of this year, with both parties agreeing it should only take one day. It highlights a highly contentious area of Australian law and it will be interesting to note the outcome and its implications for future cases.

by James Conomos Lawyers