Precedent (Australian Lawyers Alliance)
SUING AN ‘IMPECUNIOUS’ AND UNINSURED DEFENDANT
By Bree Knoester
Your client has been intentionally injured by another and suffered serious injuries but the defendant seems to have no assets to pay compensation. What do you do?
Consider this situation – your client’s partner is a violent, impulsive man and she has been a victim of domestic violence for many years. Your client lives with her partner in a home that she owns. Her partner is employed on a transient basis and does not contribute to household expenses. One day, the violence escalates and she is attacked so viciously that she loses sight in one eye. Her partner is criminally charged, convicted and gaoled. Your client is left with a significant injury which causes ongoing physical disability and disfigurement and affects her ability to continue in her job.
At the prompting of family, she seeks advice about bringing civil proceedings against her partner. Your client knows that her partner owns a small unit in outer Melbourne and that he may inherit some money when his elderly mother passes away. A title search reveals that the house is subject to a mortgage. You are instructed that your client’s partner owns no other assets of real worth. There is talk among your client’s family that perhaps the inheritance will be provided to the partner earlier than expected. There is talk that the partner has given money to a family member or has money locked up in a bank account or shares or a term deposit. You advise your client that a civil claim is likely to be successful particularly where a criminal conviction has been recorded and you issue proceedings. The claim is not defended in any real way and you obtain a judgment for an award of damages.
For a short time, your client feels vindicated by the award and while the litigation was entered into with everyone cognisant of the risk that the judgment sum would not be paid by the defendant, eventually your client will want to know how and what can be done to get the judgment sum paid.
A scenario such as this – where a client has been intentionally injured by another and suffered serious injuries and where you suspect the defendant has little or no assets – is encountered by most plaintiff personal injury lawyers at some time. If we considered all cases like these on a strictly commercial basis, it would be difficult to justify taking on such a case. And yet we do. We do so because of the terrible injustice that has occurred and the hope that an asset may be located to satisfy a successful claim in damages. But the harsh reality of personal injury litigation is that our role is to get people financial compensation, so are we doing our clients a disservice by engaging in any litigation against impecunious and uninsured defendants? Or, if we aren’t, what preliminary steps should be undertaken before we embark on such litigation?
Look before you leap
Prior to serving proceedings on an impecunious and uninsured defendant, the following should be undertaken:
1. Obtain instructions regarding what property is known to be in the defendant’s name or what property may be passed to him or her upon the death of another;
2. Obtain instructions regarding whether any assets are held in joint names;
3. Conduct a title search of any property or potential property;
4. Obtain instructions on the defendant’s past income and current employment;
5. Obtain instructions as to whether the defendant is aware of the proposed litigation and whether he or she is known to be undertaking any steps to move or liquidate assets;
6. Obtain instructions as to the defendant’s bank accounts, term deposits, share portfolios and other cash assets;
7. Obtain instructions as to the value of the defendant’s car, caravan, boat and other assets other than property;
8. Perform a full social media analysis to assess the defendant’s activities and whether this gives the impression that the defendant has funds.
JUDGMENT DELIVERED, DAMAGES AWARDED AND THE CHASE IS ON
In Victoria, if there is a suggestion that an asset may be owned by a defendant, under Rule 61 of the Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’), the plaintiff can make an application for the oral examination of a judgment debtor. This allows the plaintiff to summons the defendant to attend before the court to be orally examined as to any matter related to the defendant’s financial circumstances generally and his or her means and ability to satisfy the judgment sum in favour of your client. If current or future property assets are identified as part of this process, an application for a Warrant for Seizure and Sale under s69 of the Rules can be made. (Section 68 of the Rules is essential reading for any practitioner trying to liquidate assets to satisfy a judgment debt.)
Upon a warrant being issued in relation to a property, a copy must be given to the Titles Office for lodging on the register so that any attempts to deal with the property are subject to the warrant. The warrant is then referred to the Sheriff’s Office for execution. This seemingly simple process is made inherently more complicated if the property is owned in joint names or is subject to a mortgage, or if there is another creditor in the background – such as a litigation funder or an entity that has provided the defendant with the finances to defend the litigation subject to an interest in the property.
In some cases, the plaintiff can take steps to appoint a trustee in bankruptcy to try to become a creditor to be paid out upon sale of the defendant’s assets. The difficulty with this option for some plaintiffs is that it requires specialised skills outside of ‘usual’ personal injury litigation and the engagement of a commercial lawyer who is unlikely to charge on a no-win, no-fee basis.
If an uninsured defendant has not been incarcerated for the intentional tort or is no longer incarcerated and is in paid employment, the plaintiff can apply to the court, by way of summons, for an attachment of earnings order under Rule 72 of the Rules.
Under Rule 72, where the court is satisfied that the judgment debtor is a person to whom earnings are payable or are likely to become payable and that the judgment debtor has persistently failed to comply with an order with respect to the judgment, the court may order a person who appears to the court to be the judgment debtor's employer in respect of those earnings or part of those earnings to take out of those earnings or part of those earnings payments in accordance with Rule 72.07. Such an order can be made in the absence of the defendant, provided proper efforts have been made to try to serve the summons and supporting documentation. An attachment of earnings order shall specify the normal deduction rate – that is, the amount of money that the court considers to be reasonable to be taken from the judgment debtor’s income each week or each pay period to satisfy the judgment to which the order relates.
An attachment of earnings order also specifies the protected earnings rate, which is the amount of income the defendant is permitted to reasonably retain. The order is served on the defendant’s employer who must make payments to your client in accordance with the order.
The reality of an attachment of earnings is that your client will be paid over a very long period of time. In circumstances where the uninsured defendant need not forfeit all of their income to satisfy the judgment sum (and, in many cases, a large proportion of his or her earnings will remain protected), an attachment of earnings order is not an expeditious form of debt recovery. It is also subject to the uninsured defendant remaining in receipt of income – a factor which can be exploited by an unscrupulous defendant.
An alternative may be an attachment of a debt under Rule 71. During an oral examination, you might identify that a third party owes the uninsured defendant a sum of money. An attachment of a debt is a process that enables the debt to be applied against the judgment. The plaintiff must make application to the court for leave to issue what is known as a ‘garnishee summons’, but this can be done in the absence of the defendant. The benefit of this application is that it can ‘cut out’ the defendant and enable the passing of funds from the garnishee to the judgment debtor.
For some plaintiffs, the process of attempting to enforce a judgment debt as set out above is almost immediately frustrated by the news that the uninsured defendant is going to dispose of assets. Known as a ‘freezing order’ (previously known as a ‘Mareva order’), Rule 37A permits an individual to make an application to prevent the defendant from dealing with assets which could potentially satisfy a judgment debt:
‘The whole point of the Mareva injunction is that the plaintiff proceeds by stealth, so as to pre-empt any action by the defendant to remove his assets from the jurisdiction. This entails that the defendant finds that his bank account has been blocked before he has any idea of what is going to happen.’
A freezing order does not give a plaintiff a right to the asset nor a security against their claim. Applications for freezing orders are complex, and rigorous consideration is required before embarking on such a course. Given the potentially draconian consequences, courts are not inclined to grant such applications lightly. Practitioners need to be entirely satisfied that there is a real danger that any judgment sum will remain unsatisfied if the assets are not frozen.
A BALANCING ACT
Enforcing a debt against an uninsured defendant almost inevitably involves further litigation. In considering whether to proceed against an uninsured defendant, practitioners must ensure that they are thinking ahead to the practical reality of enforcing a judgment debt. Clients should be informed that they may need to engage additional legal representation and incur additional enforcement costs in order to actually see some of the judgment sum come to them.
It seems doubly unjust that intentional acts like assaults can be committed, injuries suffered and cases won, and yet the uninsured defendant escapes payment. Alternatives to civil litigation should be considered by plaintiffs.
In Victoria, an application for compensation under the Sentencing Act 1991 is a quicker way of obtaining an order for compensation as it can usually be done at the conclusion of a criminal trial before the trial judge; however, the issues with enforcement remain. In some cases, the police or prosecuting entity may have seized assets as part of the criminal case and these can sometimes be used to satisfy a debt.
Victims of Crimes Assistance Tribunals (VOCAT in Victoria) are another potential avenue for obtaining compensation, although amounts are modest. Consideration should also be given to whether the conduct of the tortfeasor falls within the scope of his or her employment (for example, police officers or security guards), such that a claim can be brought against an insured corporate entity.
The battle of litigating against an uninsured defendant is an undeserved and additional burden for the injured plaintiff. Plaintiffs who choose to pursue such a course must be properly advised not only of the challenges of the primary litigation – their personal injury claim – but also of the subsequent litigation that will follow if a judgment sum is not paid. While Abraham Lincoln’s advice was directed at those who encourage disputes and discourage dispute resolution, his comment – ‘Never stir up litigation. A worse man can scarcely be found than one who does this’ – remains relevant. Sometimes, the only option we can offer our clients is litigation, but we, and they, must be aware that it may lead our clients down a path where the hope of justice is shadowed by the expensive, difficult chase to find an asset.
Bree Knoester is a Partner at Adviceline Injury Lawyers, a division of Holding Redlich, Melbourne. PHONE (03) 9321 9999 EMAIL email@example.com.
 Third Chandris Shipping Corp v Unimarine SA  QB 645 at 653.