We will be drafting a series of articles focused on the enforcement of Court judgments. This is the first in the series. This series discusses different methods of enforcing judgments in Courts and outline best ways to get paid depending on the debtor’s financial position.
It is advisable to firstly seek repayment of the judgment debt informally through demands and negotiations as these options are usually cheaper and could result in a more favourable outcome. Enforcement of judgments through Courts should be pursued where the judgment debtor is not willing to cooperate.
In this issue, we discuss attachment orders.
Overview
An attachment order is an order directing the judgment debtor’s employer to deduct a specific sum (or percentage) of the judgment debtor’s wage/salary (or even benefit) and pay that sum directly to the creditor. Such deductions could be made until the judgment debt, costs and interest are repaid in full.
An employer who, without reasonable excuse, fails to comply with the directions of the attachment order, commits an offence and could be liable on conviction to a fine.
The attachment order is appropriate in situations where the judgment debtor does not have any substantial assets of value that could be sold and result in immediate payment, but the judgment debtor is employed or on a benefit. The attachment order could also be obtained in combination with other enforcement methods, for example a sales order, where that enforcement method is not sufficient to satisfy the debt in full.
Assessment of debtor’s position
Before you decide to apply for an attachment order, you need to consider whether the order is capable of being enforced. The judgment debt cannot be enforced if the judgment is more than 6 years old. Further, the judgment debtor has to be in a paid employment or on a benefit. The attachment order cannot be enforced against a debtor who is a contractor or receives income from other sources.
This information might already be known by the time you obtain judgment, however, if it is not, the judgment creditor has a range of options to assess the judgment debtor’s financial circumstances.
First, the judgment creditor can serve a notice on the judgment debtor requiring the judgment debtor to complete a statement of financial position. Once the notice is served, the judgment debtor has 10 working days to complete and return the statement to the judgment creditor. This process avoids court fees; however, it demands the judgment debtor’s cooperation as the judgment debtor can choose not to comply with the request.
Alternatively, if the judgment debtor is not willing to cooperate, the judgment creditor can apply for financial assessment at Court. The Court will make orders requiring the judgment debtor to disclose their financial position. This could be done either through the Court officer corresponding with the judgment creditor (available in District Court), or by summoning the judgment creditor (or in case of a company, an officer of the judgment creditor) to Court for examination (available in both District Court and High Court). The judgment debtor will be under an obligation to cooperate, and if he/she fails to do so, arrest orders could be issued.
Assessing the debtor’s position will demonstrate whether an attachment order is capable of being enforced, and whether there are other methods of enforcement that could be sought instead of, or in addition to, the attachment order.
Obtaining an attachment order at District Court
If the judgment was obtained at the District Court, the attachment order can be sought at the District Court.
In order to apply for the attachment order, you need to provide the debtors’ employment details, if they are employed, or the benefit number or date of birth, if they receive benefit.
When you make the application, you can propose the amount or percent of the payments that you believe should be deducted from the judgment debtor’s salary/wage. The Court will then assess, after making contact with the judgment debtor, if this amount is reasonable taking into account their personal circumstances.
The Court could change the amount in the future if it believes that the debtor will not be able to keep up with the payments or their circumstances change.
Obtaining an attachment order at High Court
If the judgment was obtained at the High Court, the attachment order can be sought at the High Court.
The process of obtaining an attachment order in the High Court is slightly more complex. Before the judgment creditor can obtain an attachment order, the judgment debtor must be orally examined in Court to assess their assets and liabilities. Whereas, in the District Court examination in Court is optional. During examination, after taking into account the debtor’s personal circumstances, the Court will assess the amount/percentage that should be deducted from the salary/wages.
Once the judgment debtor has been examined, the judgment creditor can then make an application to Court for an attachment order.
Conclusion
An attachment order could be an efficient method of debt recovery as it guarantees that the employer will make regular deductions from the judgment debtor’s salary, wage or benefit. The downside of this method, especially in cases where the debt is of a substantial value, is that it might take a while until the debt is repaid in full. Further, if the debtor moves employment, a variation to the order will be necessary to bind the new employer.
In the articles to follow, we will discuss other enforcement options that may be more suitable to the situation.
If you are considering applying for enforcement of judgment, or require legal assistance with the application, we invite you to contact our specialists for a no obligation discussion.
This guide has been prepared to assist you in keeping your legal costs down. By following these few simple steps, you will be able to significantly reduce your costs in commencing legal proceedings.
All it requires is some preparation on your behalf before you hand your file over to your lawyer. While your lawyer is able to do these steps for you, it is in your best interests to complete this preparation yourself as this will reduce the time spent by your lawyer which will impact costs for you.
Summary of the matter
This step paints the overall picture for your lawyer.
You can keep the summary brief, however, if you put as many details as possible, this may resolve many questions that your lawyer might have in the future.
Goals
By setting out what you want to achieve, you give your lawyer a clear view of what exactly they need to do so they can form a strategy to ensure the best result for you.
Chronology
Create a chronology of events listing the date of the event and what happened on that date.
By creating a chronology of events, it is much easier for the lawyer to pick up your file and understand quickly what has happened. As the client, you have the best understanding and knowledge of the events so this step is important.
Bundle of documents
Collate all relevant documents. If you are not sure whether something is important, it is best practice to include it as it is better to have it and not need it.
Once you have collated all relevant documents, organise them in chronological order from earliest to latest. Write a number in the corner of each document, then prepare an index which lists the number of each document and a one-line explanation of the document. This will be your bundle of documents.
Once the bundle of documents is ready, go back to your chronology. Add page numbers of the documents to the relevant events.
This is a time-consuming task, but in most cases, an important task. It will reduce your legal costs significantly.
List of witnesses
Create a list of all relevant people that have had some involvement or can provide evidence to support your story.
Organising documents and information
Take all the documents you have collated including your summary, goals, chronology, the bundle of documents and the list of witnesses. Then, put all the hard copy documents in a folder with tabs. For example, tab 1 would be the summary, tab 2 would be your goals, tab 3 would be your chronology, tab 4 would be your bundle of documents and tab 5 would be your list of witnesses.
Alternatively, you can create an electronic folder with subfolders and name the subfolders in the same manner.
You can also create an index page to go at the front of this folder. Or, in the case of the electronic folder, a separate file.
Then, deliver the folder in electronic and/or hard copy and copy to your lawyer.
Moving forward
By completing these steps, you can save yourself significant legal costs. A prepared file is incredibly useful and enables your lawyer to efficiently focus and gain an understanding of all important aspects of your case, rather than hours of review and organisation of your file.
Throughout the progression of the matter, there are many of steps that you can take yourself that will reduce the time of the lawyer involved and therefore reduce your costs.
The High Court has ordered the (funded) liquidators of Property Ventures Limited (“PVL”) and other related entities (“the PVL Group”), to provide security of costs of $2.78 million in their $302 million lawsuit against the directors of the entities from the PVL Group and PricewaterhouseCoopers (“PWC”).
This decision provides guidance to prospective plaintiffs as to how the Court will assess security for costs when the plaintiff has litigation funding. Funders and prospective plaintiffs ought to take note.
Background
The PVL Group operated business in property developments and investments and was led by Christchurch based property developer Dave Henderson.
The PVL Group collapsed in the aftermath of the 2008 global financial crisis, leaving in its wake significant debts and insufficient assets to meet those debts. The liquidators of the entities, Robert Walker and John Scutter, claim that the entities should have been wound up in 2007, which would have allowed the loans to be called in, asset sales and a more orderly liquidation. Instead, majority of the entities were liquidated in 2010 or even later.
In 2012, the liquidators commenced proceedings against the directors of the PVL Group for a total sum of approximately $302 million. The liquidators claim that the companies in the PVL Group suffered losses of that amount as a result of alleged breaches of their director duties. These breaches are mainly based on the facts that the directors allegedly allowed the companies to trade whilst they were insolvent, and permitted Mr Henderson to use the entities for personal interests.
The liquidators also sue PWC for the same sum in respect of breaches of duties it is alleged to have owed to the PVL Group when auditing the financial statements in respect of the 2006 – 2008 financial years. The liquidators argue that if not for PWC giving positive audits and advising how to skirt insolvency, the entities would have been liquidated sooner.
The liquidators have engaged a litigation funder, SPF No 10 Limited (“SPF”), to fund the proceeding. The funding agreement requires SPF to fund the cost of the litigation, including any sum the plaintiffs might be required to provide by way of security for costs. SPF will also fund any adverse award of costs. In return for meeting these obligations, SPF will receive 42.5% of any proceeds of the proceeding, or a sum equivalent to twice the amount expended by way of project costs, whichever is the greater. SPF also holds a first ranking general security agreement over the assets of PVL.
The proceeding has been set down for a 12 weeks trial starting in February 2018.
In 2013, PWC applied for the plaintiffs’ claim to be stayed on the ground that it was an abuse of process for the plaintiffs to pursue a claim that was for the sole benefit of SPF. The application failed at first instance, and the Court of Appeal upheld that decision. The Supreme Court has granted leave to PWC to appeal, but the appeal is yet to be heard.
Subsequently, the defendants applied for an order that the plaintiffs provide security for their costs.
Issues
In order to determine the application, Lang J relied on well-established principles and in the context of a case such as the present, was requited to consider the following issues:
If there was a reason to believe that the plaintiffs would not be able to pay the defendants’ costs if the claim is unsuccessful.
If the Court should exercise its discretion.
Ability of the plaintiffs to meet a cost award
The Judge recorded that there was no dispute that, without third party assistance, the plaintiffs would be unable to meet the awards of costs that would inevitably be made if their claims were unsuccessful.
Lang J held that the litigation funder was not a party to the proceeding, and had no direct interest in it other than the right to share in the proceeds of a successful outcome.
Discretion
Two factors were particularly relevant to Lang J in the exercise of the discretion: the involvement of the litigation funder and the alleged merits of the plaintiffs’ case.
In relation to the former factor, Lang J firstly considered an earlier High Court decision in Saunders v Houghton [2009] NZCA 610, the litigation involving representative claims by shareholders of a failed company. In that case, Dobson J was similarly required to determine an application by the defendants for security for costs. When considering the weight to be given to the fact that a litigation funder was involved, Dobson J referred to the approach taken by the New South Wales Court of Appeal in Green (as liquidator of Arimco Mining Pty Ltd v CGU Insurance Ltd) [2008] NSWCA 148. In that case, the New South Wales Court of Appeal ordered security for costs as it considered that a person whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails. In Saunders v Houghton, Dobson J agreed with this point and ordered security for costs.
Lang J agreed with the approaches taken by both decisions and held:
…The existence of a litigation funder in the present case is an important factor that influences the exercise of the discretion for several reasons. The first of these is that the plaintiffs will not be precluded from continuing with their claims if a significant order for security is made. Further, SPF stands to receive most, if not all, of the proceeds of any successful claim. It has no interest in the litigation beyond the profit it hopes to derive form what it clearly regards as a commercial venture. Commercial ventures generally require an investor to take risks and to incur expenditure as the price to be paid for the chance of success. SPF should therefore be required, as a matter of policy, to contribute significantly to the defendants’ costs if the claims are unsuccessful.
In relation to the merits of the case, Lang J held that the material before the court did not allow him to make a meaningful assessment on the merits. As such, he concluded that the merits of the claim were largely a neutral factor.
Nevertheless, Lang J could identify two areas of potential vulnerability for PWC, which were its alleged failure to ensure valuations ascribed to PVL’s key assets such as undeveloped land “were robust and could be relied upon”. Another area of risk was PWC’s failure to scrutinise the arrangement pursuant to which Mr Henderson and other companies owed PVL approximately $7.5 million by early 2008.
Making a modest allowance for the likely merits that could be identified, Lang J ordered that the plaintiffs are to provide security for costs in the sum of $2.78 million.
Conclusion
It appears that where plaintiffs have litigation funding, the Court is likely to require that the funder provides security for costs upfront.
The likelihood of security for costs being ordered in these situations ought to be considered by litigants who have litigation funding and funders alike.
Depending on the specific funder, security for costs of this magnitude could be a deal breaker for funding.
The Judicature Modernisation Bill is the first major overhaul of the legislation governing New Zealand’s courts since 1908. It introduces five new Acts, being:
District Court Act 2016;
Senior Courts Act 2016;
Judicial Review Procedure Act 2016;
Electronic Courts and Tribunal Acts 2016.
Interest on Money Claims Act 2016;
The Interest on Money Claims Act 2016 will come into force on 1 January 2018. All other Acts came into force on 1 March 2017.
These new Acts upon their 3 month anniversary.
The purpose of these Acts is to update a century-old law that has underpinned New Zealand Courts in the past. These new Acts generally modernise and tidy up the law by using modern language and terminology and make it more applicable in the modern day.
It is important for the public and professionals to understand the changes introduced by the new Acts as these changes effect current and future proceedings.
The District Court Act 2016
The District Court Act 2016 repeals the District Courts Act 1947.
Prior to the 2016 Act, each District Court was treated as a separate unit. However, the 2016 Act has created a single District Court for New Zealand in the same way that there has been a single High Court.
The most significant change is the increase in the monetary jurisdiction of the District Court. Previously, the jurisdiction of the District Courts had a ceiling of $200,000.00. Now, the jurisdiction has increased to $350,000.00. Litigants can now file proceedings at the District Court for larger amounts which is beneficial for plaintiffs as the District Court can be more streamlined and more cost effective than the High Court when it comes to relatively simple claims (i.e debt collection).
The District Court Act 2016 also introduces a restriction on commencing or continuing civil proceedings. Under the Act, judges have powers to make an order restricting a person from commencing or continuing civil proceedings. There are two orders that judges can make – a limited order or an extended order:
A limited order restrains a party from commencing or continuing civil proceedings on a particular matter in the relevant court if two or more proceedings in the same court are or were totally without merit.
An extended order is the same as a limited order but the crucial difference is that it can be two proceedings in any court that are or were totally without merit.
In determining whether proceedings are or were totally without merit, the judge may consider the nature of any other interlocutory application, appeal, or criminal prosecution involving the party to be restrained, but is not limited to those considerations.
Further, a great initiative that is being introduced under the District Court Act 2016 is the requirement that the Chief District Court Judge publish information about the process by which parties to proceedings before the Court may obtain information about the status of any reserved judgment in those proceedings. Further to this, they must periodically publish information about the number of judgments that he or she considers are outstanding beyond a reasonable time for delivery. This creates accountability for judges and ensures that parties are not waiting an unreasonable time for a judgment to be delivered.
Senior Courts Act 2016
The Senior Courts Act 2016 replaces the Judicature Act 1908 and the Supreme Court Act 2003. The High Court Rules 2016 form part of the Act, but are not published in the Act for practical purposes.
Just like the District Court Act 2016, the Senior Courts Act allows judges to make an order restricting a person from commencing or continuing civil proceedings. However, in addition to the limited or extended order, High Court judges have powers to make a general order. A general order restrains a party from commencing or continuing civil proceedings in all New Zealand Courts and tribunals. Such order can be made only on the application of the Attorney General.
The initiative that has been introduced in the District Court Act 2016 requiring the Chief District Court Judge to provide information has also been introduced in the Senior Courts Act 2016.
Judicial Review Procedure Act 2016
The Judicial Review Procedure Act 2016 has replaced the Judicature Amendment Act 1972. This piece of legislation covers judicial reviews in the High Court and modernises the language that has previously been used.
Interest on Money Claims Act 2016
The Interest on Money Claims Act 2016 comes into force on 1 January 2018. This Act centralises the law regarding the award of, and calculation of interest on money claims and simplifies the period for which interest is granted.
Interest rates no longer need to be adjusted through the issuing of Orders in Council, but will fluctuate in accordance with the term deposit rate. The idea behind this is that interest will better reflect the costs to a creditor of delayed payment.
The period on which interest is granted begins on the day the cause of action arose and ends when the judgment debt is paid in full. Interest will not be awarded if it was a penalty sum.
As always, if there is no contract, an explicit pleading for interest in the claim is required.
Electronic Court and Tribunals Act 2016
This Act came into force on 1 March 2017 but is yet to have an operational effect. It is waiting on an Order in Council to apply it to the specified courts and documents.
When this Act comes into force, it will enable the use of electronic documents in courts and tribunals. However, there are some limits on this and it will not include all documents.
While it will not be compulsory for lawyers to use electronic documents, once this Act comes into force it will give lawyers the choice as to how they prefer to work.
