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Debt Recovery Procedures in the local courts of New South Wales

There are lot of unscrupulous businesses and people out there who are more than ready to take your money without providing the services that they are advertising themselves as offering. Or it may be that you've provided a service for someone and they are not paying you what was agreed or what you are entitled to. If so, this article may be of some assistance. It outlines the procedures involved in recovering a debt in a local court of New South Wales. Many people find the thought of going to court somewhat daunting, even when they know they are in the right.

Before Going to Court

It is prudent practice to attempt to recover amounts owed prior to going to court, is if all other avenues of redress have failed this usually done by sending a letter of demand to the person or company that owes you money (the debtor). If you have not already done so you might want to try sending your own letter of demand before engaging our services. It could save you quite a lot of time and money.

The letter should set out:

  • the nature of the debt why the money is owed;
  • the amount owed together with any interest;
  • and the time given to settle the debt before any further action is taken.

An example is available here for you you to copy and paste if you like: Example Letter of Demand

Or, if you would prefer, you can download a Word version here: Letter of Demand - Word Version

Some debtors will respond positively to your demand, others who do not do so may well comply with our demand, as letters from a law firm may have a more sobering effect on certain debtors.

Some debtors may try to negotiate and offer a sum less than the amount owed. Depending on the circumstances it might, or might not, be worth be giving such an offer serious consideration.

If agreement is reached it should be made into a legally binding settlement. This is pretty straightforward provided a Deed of Settlement is entered into.

If the debt remains outstanding court action will have to be commenced to recover the amount owed.

Going to Court - Which Court?

This is not always as simple as it may at first appear. Which court or division within a court to file a statement of claim depends on the size of the debt owed and what the debt is for.

In New South Wales, debts of up to $10,000 can be lodged in the small claims division of the nearest local court.

Debts above $10,000 and up to $100,000 are lodged in the local court. Above that amount and up to $750,000 the claim will have to be lodged in the District Court. Anything over $750,000 falls within the jurisdiction of the Supreme Court.

Special Note Relating to Employment Debts

If the debt owed relates to the breach of an industrial (Fair Work) instrument, such as an enterprise agreement or an award the debt may be recovered from the Federal Magistrates Court or Federal Court. If the amount of the debt is $20,000 or under an application can be lodged in the small claims division of the Federal Magistrates Court.






Procedure in the Local Court Small Claims Division

1. File. File a Statement of Claim in the registry of the local court.

2. Serve. Serve the Statement of Claim on the debtor who from now on is referred to as the "Defendant." There are four possible outcomes:

    1. If the Defendant denies the debt and files a defence the matter will proceed to a hearing. This must be done within 28 days of being served with the Statement of Claim.
    2. If the Defendant does not file a defence and does not attempt to settle the matter an application for a Default Judgment can be made. Once this is done the next steps involve the various enforcement options (these are outlined below).
    3. The Defendant negotiates to pay you - and the case settles.
    4. The Defendant acknowledges the debt and files an Acknowledgement of Liquidated Claim in the Court registry. This will lead to the Court ordering the Defendant to pay you, which the Defendant must do, or else apply to the Court for permission to pay by instalments.

3. Pre-trial Review. If a defence is filed the matter will be listed for a "Pre-trial Review." This is a relatively informal procedure. It allows the registrar of the court to assess what point the matter has reached, its complexity and how much time it will take to determine, for example the number of witnesses who may be called and examined and the nature of any documents that may be tendered in evidence. It is also an opportunity for some discussion to be had to "settle" the matter. If a lawyer has been employed to attend the pre-trial review they must have authority to settle the matter. If you attend you should give some prior thought to what would satisfy you to take the matter no further. If it does settle, the registrar can make orders, known as "consent orders," based upon an understanding that the parties have made. If the matter does not settle a date for the Hearing will be set and witness statements will need to be prepared.

4. Preparing for the Hearing. At least 14 days before the hearing all the material (such as statements and contracts, receipts, invoices etc - this is the evidence) which each party intends to rely upon at the hearing has to be exchanged with the other party or parties. It also has to be filed with the court registry. If this is not done there is the risk that the evidence will not be admitted at the hearing. The claim could also be dismissed or a defence could be struck out.

5. The Hearing. Those applicants who are legally represented will have their lawyers attend and represent them on the day of the Hearing. A magistrate or an assessor will hear the matter. There is no cross examination or formal testing of evidence as there is in the general division of the local court and the higher courts, unless a direction was made at the pre-trial review permitting this. The hearing is where you get to make submissions on the evidence you have filed and exchanged and where you can challenge the evidence of the Defendant. They of course also get to challenge your evidence. However, you should note that the magistrate or assessor decides how the hearing is conducted and there are no fixed rules as to how a matter is heard.






Procedure in the Local Court General Division

1. File. File a Statement of Claim in the registry of the local court.

2. Serve. Serve the Statement of Claim on the debtor who from now on is referred to as the "Defendant." There are four possible outcomes:

    1. If the Defendant denies the debt and files a defence the matter will proceed to a hearing. This must be done within 28 days of being served with the Statement of Claim.
    2. If the Defendant does not file a defence and does not attempt to settle the matter an application for a Default Judgment can be made. Once this is done the next steps involve the various enforcement options (these are outlined below).
    3. The Defendant negotiates to pay you - and the case settles.
    4. The Defendant acknowledges the debt and files an Acknowledgement of Liquidated Claim in the Court registry. This will lead to the Court ordering the Defendant to pay you, which the Defendant must do, or else apply to the Court for permission to pay by instalments.

3. Directions or Call Over. If a defence is filed the claim will be timetabled for a "call over." This is where the parties will be informed as to dates that Court has available for the matter to be further dealt with. It is also an opportunity for some discussion to be had to "settle" the matter. If the matter doesn''t settle a date for arbitration may be set.

4. Arbitration. An Arbitration is similar to a Hearing, but somewhat less formal. An Arbitrator has the same authority as a judge or magistrate in the more formal Court.

5. Review. Before the Hearing of the matter a Review date is set. The Review provides the Court with an opportunity to satisfy itself that everything that has to be done has been done for the matter to progress to the hearing stage. For example the preparation and exchange of all the evidence such as affidavits or statements.

6. The Hearing. Those applicants who are legally represented will have their lawyers attend and represent them on the day of the Arbitration or Hearing. Depending on the complexity of the case or the contestability of the evidence a Barrister may need to be engaged. Any witnesses or persons providing statements will need to attend Court to be available for cross examination.






Enforcement Options

There a number of ways to enforce a judgment debt. It will depend on the circumstances which one you choose as being the most appropriate. A judgment debt does not have to be immediately enforced; they remain enforceable in New South Wales for 12 years. The judgment debtor may not have any money at present, but 12 years is a long time and there is every chance that they will within that period.

Examination An examination is a hearing that allows the court to enquire into the judgment debtor''s income and assets. The examination can occur before, during or after enforcement proceedings have been commenced. An examination notice may be issued requiring the debtor to give details of their income and assets or an examination summons may be issued requiring the debtor to attend court in order to be examined. The debtor can be arrested and brought to court if they fail to attend and do not give a valid reason for their non-attendance.

Writ of execution A writ of execution authorises a sheriff or bailiff to seize goods from the debtor in repayment of the debt. The sheriff (it is generally a sheriff) can only take away property up to the value of the debt. However, the value of the goods taken is calculated at the amount they would be expected to obtain at sale by auction. This of course is generally quite a lot lower than the amount for which they would originally have been purchased.

Garnishee orders A Garnishee Order is a court order obliging the recipient of the order who owes money to the judgment debtor to pay the money owed to the judgment creditor instead. For example, this may be against an employer or bank in which the judgment debtor has an account. The order may be for a one off payment on an ongoing payment of up to four weeks duration.

Winding Up If a company is the judgment debtor and the debt owed is more than $2,000, proceedings can be commenced in the Supreme Court to wind up the Defendant company.

Forced bankruptcy If the judgment debtor is a natural person they can be forced into bankruptcy if the amount owed is more than $5,000. This can have serious practical consequences for an individual if they need a loan or line of credit.








A link to forms, fees and statutory interest rates that may be charged is available here. Link to New South Wales Local Courts' website

A list of Pre-judgment interest rates in line with the New South Wales Local Court Practice Note Number 3 of 2010 due to the harmonisation of interest rates is available here:

Pre-judgment Interest Rates

Pre-judgment interest rates are available here in PDF for download up to December 2011: Most Recent NSW Local Court Debt Interest Rates. From January 2012 In respect of the period from 1 January to 30 June in any year, the pre-interest rate is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and

In respect of the period from 1 July to 31 December in any year – the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced.



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