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Collecting Debts and the Statute of Limitations

Wednesday, June 04, 2014 - Posted by Michael McCulloch

In a recent Victorian Supreme Court matter, Financial Ombudsman Services Limited v Pioneer Credit Acquisition Services Pty Ltd [2014] VSC 172, an interesting outcome occurred in relation to collection action being undertaken on debts approaching the statute of limitations.

Background

Pioneer are a debt collection agency who purchase debts and collect debts for clients. They purchased a debt ledger where the debts originated in the UK. The majority of the debts were from Barclays Bank. The case concerned debtors who moved to Australia. The debts acquired were subject to the Consumer Credit Act 1974 (UK).

In July 2009 a complaint was made to The Financial Ombudsman Service (FOS) disputing the amount of a debt, and that a default listing had been made in these circumstances. In September 2009 Pioneer advised FOS the matter would be statute barred in November 2009 and sough consent to initiate legal action. FOS consented to the commencement of proceedings in Western Australia on the provision that the proceedings not be served on the defendant until the matter had been determined, and if the determination was unfavourable the proceedings be discontinued.

On another debt, a debtor made a complaint to FOS on 4 December 2009. Pioneer contact FOS to seek consent to commence legal proceedings because the debt would otherwise become statute barred on 12 January 2010. FOS consented to the commencement of proceedings in Western Australia on the provision that the proceedings not be served on the defendant until the matter had been determined. FOS subsequently found that once proceedings were commenced in Western Australia, unless a debtor lodged a defence, an automatic listing would be recorded against the debtor. Upon learning this, FOS withdrew its consent to commence legal proceedings. Despite this Pioneer commenced proceedings on 7 January 2010.

 

FOS made a determination that the debts were unenforceable in Australia.
 

The dispute between Pioneer and FOS

The dispute between Pioneer and FOS was a contractual dispute. Pioneer argued amongst other things;

  • FOS must correctly decide on questions of law (arguing that the debts were collectable and enforceable in Australia).
  • Whether there is an implied term that FOS must not act as a court (arguing FOS acted as a court and is not allowed to act as a court).
  • There is an implied term that FOS must not act unreasonably (by allowing the debts to become statute barred).

The Judge in the Victorian Supreme court found;

  • FOS "is only required to have regard to applicable legal principles. It is also clear that that is only one of the matters to be taken into account. Therefore, it cannot be that FOS is required to apply legal principles to the exclusion of all else, nor that it will be in breach of the Membership Contract should it fail to apply the law strictly".
  • FOS did not act as a court, and there is no implied term in the contract for FOS to act as a court.
  • FOS acted reasonably. a "legal standard of reasonableness does not involve substituting a court’s view as to how a discretion should be exercised for that of a decision-maker"
The outcome for Pioneer

Amongst other things, Pioneer was ordered to pay approximately $110,000 in costs to FOS. The membership contract between FOS and Pioneer was held to be valid and binding on Pioneer.

Effectively the decision by FOS meant that one of the debts became statute barred and were not collectable and that this was a reasonable outcome, that is it was more reasonable for a debt to become statute barred for the debtor than for the creditor to completely lose its right to enforce a debt.


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