Chapter 5:Using a lawyer

Using a lawyer

As a shock tactic

YOU CAN TRY asking your lawyer to send the debtor a letter. The idea is to startle the debtor into paying. This sometimes works.

Sometimes a lawyer is willing to write a letter that begins like this: "We act on behalf of Minimax Circuits Pty Ltd. We are instructed that you are indebted to our client to the amount of $1200."

And it ends something like this:

"We advise that if the sum of $1200 is not received by our office within fourteen days of the date hereof, our client will issue proceedings against you for that sum without further notice to you."

Your lawyer hasn't insisted on knowing what the matter is about. He (or she) just sends out a letter. Even so, a letter like this isn't free. Make sure you know how much it's going to cost. And weigh that against the size of the debt. And think about the psychology of the debtor: is he used to getting letters like this? Will he just shrug?

If you want to use this technique regularly, you may be able to work out a deal with a lawyer. A bulk rate. But usually you'll get the same kind of reaction you'd get from a doctor if you phoned up and asked for a prescription for double-strength penicillin, without saying what your symptoms were. He'd want you to come in and be examined first. Similarly, lawyers didn't spend all those years in law school to be asked to write letters without getting any background.

From the evidence I have, the success rate for a straight lawyer's letter isn't too high. (But as one lawyer told me: "It depends on the nature of the debt and to whom it is owed. Obviously, if the debtor thinks he has a good defence the letter will draw no instructive response...")

But if you continue to the next step, and get your lawyer to send a summons, that often does the trick -- especially for a debt that's only a couple of thousand dollars. Your expenses have gone up, though: there are some court costs, more lawyer's time, and the cost of getting the summons served. Worse yet, if your lawyer insists on getting stuck into the case and finding out what it's about, you could be up for hundreds of dollars just to get a summons served.

Remember, we're talking about trying to startle the debtor into paying. You realise it's not economic to carry the legal process any further: the sum you're chasing is too small, or you suspect the debtor hasn't got much money anyway. You're hoping to jolt the debtor into issuing you a cheque (and probably put off paying someone else). Shock tactics.

If the debtor doesn't pay when he gets a summons, then -- if you wish to -- you can normally just let the matter die. You don't have to list the action for trial.

If the debtor wants to be difficult -- or stand on some high principles -- he can list the matter for trial himself. (But as you might imagine, this doesn't often happen.) A slight danger is that the debtor will later apply to the court to have your action formally dismissed (for 'want of prosecution'). This makes it extremely hard, or expensive, to sue him for the debt later, if you discover he actually has some money. Also, the court may 'award costs' in the debtor's favour -- so you'll get a bill for some part of the debtor's costs in getting the action dismissed. And you have to pay it.

In short, matters are not always 100% under control, even when you only threaten legal action. But as you'll see in the next section, if you decide to drive the legal process all the way to the court, your steering wheel can snap off completely.

When you expect to go to court

TWO important points, right away:

1. Ask your lawyer to request a pre-hearing conference at the court. Ask him to do it as soon as he can. If the pre-hearing conference is granted, it usually speeds things up. And it can save you a lot of money in legal fees and court costs. More on this later.

2. Check that the debtor will be able to pay you when you win your case. (Don't expect the lawyer to check on this.) If necessary, hire a private investigator. Find out somehow! There is no point spending money -- and your time -- to get a court judgment, only to find out the debtor can't pay you.

How to save some money on lawyers' fees

IF YOU LEARN to behave like a lawyer's ideal client, your bills will be lower.

Don't present your lawyer with a half-crazed story, full of sound and fury but with no legal value in it. First write out what happened, in full detail. Get it typed. Make sure it's very clear.

When you get to a point in the story that you can substantiate with a document, refer to the document in the text. ("See the Contract, document A.") Put all these documents in order, with the story on top, send them to your lawyer and ask him to read them.

After he's done that, then make an appointment to see him. You'll be amazed at the difference this makes. The meeting will go fast and smoothly. The lawyer will ask you about any points that aren't quite clear from the papers you gave him.

From then on, keep in mind that your object is to get the debtor to pay you. Don't get so wrapped up in the proceedings that it becomes a mission to punish the debtor.

Anywhere in the proceedings, the debtor's lawyer may suggest a compromise. Think very carefully before you turn it down. Your legal costs will never be any less.

The more you can bury your pride and anger, and see the whole business as a procedure, the more likely you'll come out ahead. It also means less time spent talking to your lawyer about what amounts to your emotional reactions to the whole business. He'll listen to your problems, and guide you away from irrational decisions -- but it will cost you.

Keep your cool. Treat it like a game of chess.

The statistics are good: less than 10% of the Magistrates' Court summonses for debts ever go to trial or to arbitration at the court. The rest are settled before they get that far.

What the lawyer is thinking

YOUR LAWYER doesn't want you to hit the roof when you get his bill. So if you're just chasing a few thousand dollars, he probably hopes that the debtor will make some acceptable offer before the trial. He knows this would be to your advantage. Your legal costs would probably then be reasonable, measured against the amount you'll collect.

The debtor's lawyer is thinking the same thing. Sure, the debtor has some kind of defence, but his lawyer doesn't know if it will stand up until he looks at all the details. These things are always more complicated than the client can imagine. In law, practically everything is arguable. There's no way the debtor's lawyer wants to spend huge amounts of time on this either, and run up a colossal bill, if there's some hope it won't be needed.

Upshot: the lawyers on both sides tend to do the minimum, just shadow-box for a while. To both of them, it's a fight about a small sum (a few thousand dollars). They can't afford to sink a lot of their client's money into the sort of pre-trial preparations you see in Rumpole dramas.

Usually, very little happens until about a week before the trial is due to begin. Even if the trial looks like going ahead, the lawyers still won't do as much technical preparation as they could. For a debt of say $6000, their clients just couldn't afford it. So your lawyer isn't going to look into every possible 'cause of action' and the debtor's lawyer isn't going to spend his evenings pondering subtle and sophisticated defences.

Getting to the bottom of it: why Magistrates' Court actions need to be 'cheap'

IT ALL goes back to the scale of fees in the Magistrates' Court. The court puts limits on how much the winning side can stick the losing side for, in legal costs. There are good reasons for this. There'd be little point in having a hierarchy of courts (Magistrates', County, and Supreme) if all the courts handled cases of any size, and allowed similar costs.

The Magistrates' Court handles cases less than $25,000 and has a correspondingly modest scale of allowable fees. This means that if your lawyer's bill runs over the Court scale by say $250, you can't claim the $250 from the debtor if you win the case. You're $250 out of pocket, no matter what.

And there's something else: if you're suing for a debt of $500 or less, you aren't allowed to claim any of your legal fees from the loser. (Except in rare circumstances, not worth hoping for.) The only good news is that if you lose the case, the debtor can't hit you with a bill for part of his lawyer's fees.

To repeat: if you sue someone for $500 or less, you pay all your own lawyer's fees.

If you aren't aware of all this, your lawyer certainly is. And this is what curbs him.

Mind you, there are complicated trials in the Magistrates' Court. Sometimes it can't be helped. There might be 10 witnesses, the trial might go on for a week -- all over a debt of just $3500. Such a thing might happen, for example, if the debtor was getting legal aid. "Why worry?" he might think. "My costs are all covered. What can I lose?" (Actually, if he did lose, he'd have to pay the Court's scale costs to you. Legal aid wouldn't cover that.)

In the higher courts, the costs themselves can become a driving force. For example, a 'small' dispute for $9000 could eventually get appealed to the Supreme Court, with costs that might soar to twenty times that on each side. Both sides are now in so deep, it's mostly the legal costs they're worried about. They want to win and collect the costs back from the loser. Stuff the $9000! Just save me from my lawyer's bills!

If you win, how much do you pocket?

MOST OF the people who buy this book will be chasing sums that would put their cases in Magistrates' Court. County Court cases normally begin at $25,000, and Supreme Court cases at $100,000. (But complex cases for smaller amounts can sometimes be started in the higher courts.)

So-o-o, let's say you win your Magistrates' Court case. You know the debtor has the money, because you checked before you started all this. Say he owes you $6000. And you have a bill from your lawyer for $3000. Question: how much of your $3000 lawyer's bill can you recover from the debtor? The hedged answer is: it depends how complex the proceedings were. If they were a lot more complex than the court scale allows for, then you'll have to pay a big whack of your lawyer's bill yourself.

Averaging over a lot of cases, the winner will recover about two-thirds of his lawyer's bill. So if you are facing a lawyer's bill of $3000, the loser will have to pay perhaps $2000 of this.

Result: of the original $6000 owed to you by the debtor, you actually pocket $5000 ( $6000 he pays you because he lost, plus $2000 of your lawyer's costs he pays you, less $3000 you have to pay your lawyer).

In a more complex case, you might only be able to recover $1500 towards your lawyer's bill from the debtor, or even only $1000. Down go your final takings.

No matter what, you'll end up a bit out of pocket. (Not to mention the time it's taken you.) You may win by default, before trial. But even if it doesn't go to trial, you still have to pay your lawyer. At different stages, the court may award you costs for this or that. But add them all up, and it won't cover what you owe your lawyer.

With arithmetic like this, you can see why your lawyer always has an eye on costs, and will usually try to keep them under control.

Notice that the percentage payback gets better the bigger the amount you're chasing. If you'd been owed $20,000 instead of $6000, the costs could have been the same (if the proceedings were no more complex). But you would have recovered $19,000 of your $20,000, instead of $5000 of your $6000.

NOTE: if you're chasing a big debt -- $50,000, for example -- then you're in a different realm. You'll be running in a higher court, one with a more generous scale of costs. Things are different there. But these big claims aren't the subject of this book. If you have proceedings for a large sum under way, then shut this book and pay close attention to what your lawyer tells you. You're already in good hands.

A few more facts of life

A LOT OF lawyers detest debt-collection cases. Just imagine it from their point of view:

The client chasing the debt is all worked up. Often he hasn't chased a debt in court before, so he doesn't have a clue about the procedure, the economics of doing it, or anything else. He expects legal miracles, not realising that the case will be tried by an impartial magistrate who will listen carefully to both sides. And because the scale of costs is fixed by the rules of the Magistrates' Court, the lawyer has to go easy on costs and preparation, otherwise the client might collapse when he sees the bill.

Is it worth it for the busy lawyer? Many say no. A lot of big law firms won't touch Magistrates' Court Cases. Some of them won't even handle County Court Cases. For them, it's the Supreme Court or nothing.

Some medium-sized law firms will take Magistrates' Court cases, but the job will probably be given to an articled clerk or restricted practitioner. For experience. (And, boy, does he ever get it.) Older lawyers look over his shoulder now and then, to make sure things are going all right.

Lawyers who are sole practitioners will often accept Magistrates' Court cases. Often they are like the GPs of Law. They'll help you whether you have a gumboil, flu, snow blindness, a broken tibia, or something worse. These lawyers are street-smart and have developed ways of coping with overwrought, debt-chasing clients. But they still don't 'like' these cases. Who would?

So if you go into their offices with an orderly pile of paper, and a cool head, and a smile, and a clear understanding of what to expect, they'll put you in a different class. They might not mind doing it for you. And that's pretty good.

HINT: if you think you'll keep needing legal help in Magistrates' Court, year after year, a good way to pick a lawyer is to go down to the court and watch. Some lawyers are in Magistrates' Court every day -- it's their bread and butter. (Unlike the articled clerks, who are there now and then, for experience.) See which lawyers seem to be winning the cases. Then pick one who matches your style of doing things.

Another little fact of life is this: if the debtor you're chasing hasn't been to court before, the closer you get to the trial, the more likely he is to settle. He begins to think about what is coming. Maybe his lawyer starts to tell him how he'll be cross-examined, how he's going to be on oath in the witness box, how the other side is going to imply that he's lying, and that it's going to be tough. And he thinks, ooooh, I didn't realise it was going to be like this. Or the crunch might not come until he actually appears at the court in the morning. (Many cases get settled on the morning of the trial.)

This is probably the reason so much stuff gets settled in the pre-hearing conferences in the County Court. It's the first time the client actually goes down to court. Not a bad system, really -- considering that the function of the court is to resolve disputes. If the aura of the court alone will bring people to their senses, well that's one way.

The same thing is now happening in the Magistrates' Court. Pre-hearing conferences were introduced in 1988 and the score sheet is encouraging. For those who like data, here's what happened in 1989, the first full year for pre-hearing conferences:*

* From computer data supplied by the Attorney General's Department, Victoria (Information Section, Courts Management Division).

• 3780 cases were put down for pre-hearing conferences.
• 464 of these cases were settled before the pre-hearing conference (a phone call maybe, "Look, why bother with a hearing? Can we settle this?..").
• 678 were settled at a pre-hearing conference with the Clerk of the Court.
• 43 were settled at a pre-hearing conference with a magistrate.
• 162 were settled after the pre-hearing conference. The two sides thought again, reached agreement, and asked the court to record it.
• 1763 were adjourned (which probably means that negotiation was inconclusive, but we aren't given details, because the pre-hearing conferences are private).
• 670 later went on to trial or court arbitration.

  Moral: if your lawyer suggests a pre-hearing conference, then do it. Or the debtor's lawyer might suggest it. Yes again! There's better than a 30% chance of getting it settled, with no further expenses.

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