Introduction – letter of demand
This Information Sheet assumes that the contracts under which money is owed are legally enforceable, and that the debts are not subject to the Consumer Credit Code and equivalents. If you are unsure, please contact Arts Law on (02) 9356 2566 or toll free on 1800 221 457.
When chasing payment for goods or services, the first step is generally to send a letter of demand to the other party telling them of the dispute and the money outstanding, and giving them a defined period within which to settle the matter or else face legal action.
When sending a letter of demand, you should be careful not to:
• harass the debtor – they have the right to complain about this behaviour to particular government agencies and the police; or
• send a letter which is designed to look like a court document because this is illegal.
For assistance with drafting a letter of demand see Arts Law's Information Sheet "Letter of Demand".
Response to letter of demand
In response to a letter of demand, a debtor may:
• pay the full amount owing;
• show that no money is owed;
• negotiate a compromise, for example, payment by installments or part payment. If a compromise is agreed to, make sure that it is, or is confirmed, in writing to avoid later disputes; or
• ignore the letter or respond to it in a way that is unsatisfactory to the creditor.
You may consider writing off the debt – either because the debtor’s response to your letter of demand is unsatisfactory, or because the debtor has asked you to do this and you have agreed.
If you decide to write the debt off, you may be able to claim a tax benefit to lessen the loss. If the debt is relatively small – say under $2,000 – many people decide to write off the debt because of the perception that it is too difficult and expensive to pursue, especially if lawyers are retained.
Small Claims debt recovery action
A "do it yourself" legal action is, however, available. All State and Territory courts in Australia offer a small claims division of their local court or tribunal that provides a simple debt recovery procedure. Advantages are that the process is relatively informal, and that costs awarded against an unsuccessful party are limited.
So, what is a “small claim”? A small claim is a claim:
• in respect of money, goods purchased or delivered, labour or a combination of these; and
• up to an amount of between $2,000 and $10,000 depending on the State or Territory in which the legal action is conducted.
If the debt is over the limit provided for in the relevant small claims division, you can still bring an action against the debtor, but you will probably need legal representation or at least legal advice. In Queensland, the Magistrates Court deals with debt recovery claims up to the value of $50,000. If the amount that is owed exceeds $50,000 you will be required to commence action in either the District or Supreme Court of Queensland.
Debt recovery court action is actually a two-step process:
• you must either negotiate a settlement after having commenced proceedings (which you can do at any time up to the hearing) or obtain a judgment in your favour; and
• you must actually recover the money owed to you, which may involve taking enforcement action against the debtor. Briefly, these measures include obtaining a writ of execution against the debtor's property, securing a garnishee order against the debtor's wages or bank account, or (but this is uncommon with small claims) forcing the debtor into bankruptcy.
To sue or not to sue…
Things to think about when deciding whether or not to commence a debt recovery action and when you should do this, include:
• whether the debtor can pay. If the debtor has a number of creditors seeking payment of debts and is basically insolvent (i.e. unable to pay their debts as they fall due) it may not be worth pursuing legal action. If, after a company search, you find that the company is in the hands of a receiver or liquidator, contact that person directly;
• whether there is a genuine dispute over the facts, and whether the evidence to support your claim is strong. If your claim is unsuccessful and the other party retains a solicitor to represent them (this is not common in small claims), the party will apply for a legal costs order against you;
• that it is generally worth the effort to settle a matter out of court as this is unquestionably preferable to spending time and money on court proceedings. Again, if you do reach agreement with a debtor, make sure that the agreement is in (or is at least confirmed in) writing, to avoid later disputes. In Queensland, there are Dispute Resolution Centres that offer a free mediation service;
• wherever you start debt recovery court action, there is a time limit on bringing it, which is generally 6 years from the date the debt first arose. Limitation periods can start again, though, in certain circumstances, such as when a debt is confirmed by a debtor signing a contract that states the money owed to the creditor. You may need help from a lawyer to work out the relevant time limits, if they are an issue.
Who can I sue?
A small claims action can be brought against a person (sole trader), a group of people (partnership) or a corporate entity (company, incorporated association). If the debtor is trading under a business name you need to do a business name search to identify the owner of the business. This can be done by carrying out a search at the Business and Consumer Affairs Office (or its equivalent) in your State or Territory or using the Australian Securities and Investments Commission's (ASIC) National Names Index which can be accessed free, via their website, at www.asic.gov.au.
The owner of the business has to be identified in the Defendant or Respondent details of your claim form (often referred to as the Statement of Claim) as follows: Defendant – Glen X of 99 Surreal Crescent, Brisbane, Qld trading as (or "t/a") Fantasy Dressers.
If the debtor is a company – for example, Fantasy Dressers Pty Ltd – any business documents (such as invoices and business letters) should have its nine digit Australian Company Number (ACN) after the company name. A company search, using this ACN, should be conducted through ASIC to identify the address of the registered office at which to serve the Statement of Claim and to ensure that the company is not in liquidation (you will have to pay a fee to ASIC to complete a registered office address search. See www.asic.gov.au for more information).
Small claims procedure
Small claims can be dealt with by the Magistrates Court ("Court") or the Small Claims Tribunal ("Tribunal"), depending on the nature of the claim. It is important to determine which avenue is appropriate.
When can I use the Court?
The Court is used to take action against someone who owes you a fixed sum of money (for example, an IOU, a dishonoured cheque, wages or an amount agreed on before the dispute arose). The Court can hear claims up to $50,000. If the debt is for less than $7,500. it is referred to and treated as a “minor debt claim”.
The action must be brought either in the Court located in the district where the dispute began, or where the other person lives or carries on a business, or where the other person agreed in writing to repay the debt.
When can I use the Tribunal?
The Tribunal can hear claims up to the value of $7,500 on particular subjects, when it is more than a straight forward debt dispute. Generally disputes in the Tribunal are between consumers and traders. The Tribunal can deal with a variety of disputes including those relating to residential tenancy bonds, dividing fences and disputes between traders over the provision of goods or services. For a more detailed list of actions that can be commenced in the Tribunal refer to the website: Minor Debt Claims
Do not use the Tribunal if you are only owed a set amount of money, that is, a straight forward debt. This would be a minor debt claim and must be heard in the Court. You could consider using the Tribunal if you were disputing the quality of a product or service that someone provided and as part of that you wanted them to reimburse or pay you a monetary amount of less than $7,500.
What should I do?
To bring an action in the Court you need to complete and file a Minor Debt Claim form. To “file” this form, you must hand it in at the court office or registry. You can obtain a copy of this form from your local Magistrates Court office or online at http://www.courts.qld.gov.au/Forms/UCPR/UCPR-f-3-070614.doc A copy of the claim must be delivered to (served) on each other party. The court can do this for an extra fee, you can do it yourself, or you can arrange for a private process server to serve the other parties. Shortly after that, both parties will be notified of the time, date and place for the hearing of the claim.
To bring an action in the Tribunal, you need to complete and file a Small Claims Tribunal Claim form. You can obtain this form, and a free guide, from the Small Claims Tribunal in Brisbane at 363 George Street, Brisbane Qld 4000, ph (07) 3247 4578 or from the Queensland court’s website at : Forms If you live in a country centre you can obtain this form and guide from the local office of a Clerk of the Magistrates Court (who is also a Registrar of the Tribunal), or any Legal Aid Office. For the Tribunal, the registrar will send a copy of your claim with a Notice of Hearing to the respondent. You will also receive a Notice of Hearing shortly after you have filed your claim.
The Registrar of the Tribunal or Court can help you lodge your claim.
Both claim forms must include your full name and address ("plaintiff or claimant") and those of the other party ("defendant or respondent") (see the “Who Can I sue?” section of this information sheet). It should be lodged with a copy of any contract and other documents, such as receipts, which relate to the claim. You will have to provide multiple copies to the Court or Tribunal: usually one for you, one for the Court or Tribunal and one for each other party.
What does the other party do?
For the Court, the defendant has 28 days within which to file a defence to the claim or to pay you or to settle the claim with you. After that time, you can ask the court to enter default judgment against the defendant. If the defendant defends the claim, the defendant files a Notice of Intention to Defend and Defence to a Minor Debt Claim, and you must receive a copy of this document. You will then be given a notice from the Court containing the date of the Hearing.
In Court proceedings, the parties are referred to as a plaintiff (you, or the person bringing the claim) and a defendant (the person defending or responding to the claim). The defendant (or their legal representative, or with the Court’s prior approval their non-legal representative) can attend the hearing (with their witnesses and other evidence) to defend the claim.
In the Tribunal, the parties are referred to as Claimant (you, or the person initiating the claim) and Respondent (the person responding to the claim). If the Respondent is unable to attend the hearing they may give their evidence in defence of the claim by filing a statement of oath or, with the consent of the Tribunal, they may appoint an agent to represent them. If the Respondent fails to do any of these things the claim may be heard without them, and a default judgment may be entered against them if requested. Sometimes, an application can be made for the matter to be re-heard.
In either case, if successful or if you have default judgment entered in your favour, you can apply for a warrant to recover the debt through, for example, compulsory deduction from wages or by seizing goods or property.
How much will it cost?
A small fee is payable when you lodge a claim. The amount of the fee depends on the amount claimed. This fee may be recoverable if you are successful.
Can I settle before the hearing?
Yes. If the matter is settled, you should tell the Court or Tribunal immediately and always confirm the settlement in writing.
What happens at the Tribunal hearing?
In the Tribunal parties are not allowed to be represented by a lawyer unless both parties and the Referee agree.
Both parties must organise documents required to support their case, such as contracts, bills for work done, sales slips, receipts, and photographs. Parties must also organise for their witnesses (who will assist in proving the facts of their case) to attend the hearing. Expert witnesses are called at a party's own expense. Sworn written evidence can be used but verbal evidence is preferred.
The Referee will usually ask if the parties can agree to settle. If an agreement is reached, it will be recorded by the Registrar; otherwise the Registrar will hear the dispute. It is then up to each party to the dispute to present their case and to call witnesses when necessary. After hearing both parties, the Referee will make a binding decision based on what they consider fair and equitable.
What happens at the Court hearing?
A Magistrate presides over the hearing and will resolve the dispute in a similar way to the Referee of the Tribunal. Parties may be represented by a lawyer.
Costs
For a minor debt claim, the only costs recoverable are the filing and service fees. Legal representation costs are not recoverable. This is the same for the Small Claims Tribunal.
Enforcement
Orders made by the Referee or Magistrate are final and binding on all parties. Only in exceptional circumstances is an appeal against the decision allowed.
When an order for the payment of money is not satisfied, the other party may enforce the judgment in the Magistrates Court or by contacting the Civil Court Registrar at the courthouse who will give advice on enforcing the claim.
More Information
• The Registrar of the Small Claims Tribunal 363 George Street, Brisbane QLD 4000. Tel: (07) 3247 4578 or http://www.courts.qld.gov.au/136.htm
• Self help kits can be accessed at http://www.legalaid.qld.gov.au/Publications/Factsheets+and+guides/Self-help+kits/Small+Claims+Tribunal+-+a+consumer+guide.htm
• The Registrar of the Small Debts Court at 363 George Street, Brisbane QLD 4000. Tel: (07) 3247 4578;
• If you live outside Brisbane contact the nearest Magistrates Courts Office. To locate your nearest Magistrates Court Office check the White Pages ® Directory or : Magistrates Court
• Dispute Resolution Centres: (07) 3239 6269 (Brisbane), 1800 017 288 (outside Brisbane);and
• Your local community legal centre, such as Cairns Community Legal Centre. For details contact National Association of Community Legal Centres at (02) 9264 9595 or visit www.naclc.org.au which has a directory of community legal centres in all States and Territories.
© 2002, 2006, 2007, 2008 Arts Law Centre of Australia
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