The Unexpected Consequences of Being Sued and Then Settling
If your client is sued you should have any settlement subject to the claim being dismissed (not discontinued) or your client’s credit history will be impacted, thanks to the decision of a Credit Reporting Body.
If your client has a demerit listed on their credit history it will impact on their ability to borrow funds. In this article we look at the effect being named as a defendant in litigation has on your credit history.
The credit reporting regime in Australia is largely centred around the Privacy Act, the National Consumer Credit Act and its National Credit Code, previously credit reporting was governed by the Uniform Consumer Credit Code.
As a general rule only negative matters are recorded in a person’s credit history. The fewer entries, the less negative information is recorded about a person.
There may be nuances to the information recorded but when a credit provider reviews a credit history each entry is viewed as a negative factor.
The entries can be made by creditors reporting to a credit reporting body or they can be made by the body itself as a result of its own research.
The Privacy Act 1988 Cth sets out the matters that can be recorded on a credit history in section 6N.:
Meaning of credit information
Credit information about an individual is personal information (other than sensitive information) that is:
(a)identification information about the individual; or
(b)consumer credit liability information about the individual; or
(c)repayment history information about the individual; or
(d)a statement that an information request has been made in relation to the individual by a credit provider, mortgage insurer or trade insurer; or
(e)the type of consumer credit or commercial credit, and the amount of credit sought in an application:
(i)that has been made by the individual to a credit provider; and
(ii)in connection with which the provider has made an information request in relation to the individual; or
(f)default information about the individual; or
(g)payment information about the individual; or
(h)new arrangement information about the individual; or
(i)court proceedings information about the individual; or
(j)personal insolvency information about the individual; or
(k)publicly available information about the individual:
(i)that relates to the individual’s activities in Australia or the external Territories and the individual’s creditworthiness; and
(ii)that is not court proceedings information about the individual or information about the individual that is entered or recorded on the National Personal Insolvency Index; or
(l)the opinion of a credit provider that the individual has committed, in circumstances specified by the provider, a serious credit infringement in relation to consumer credit provided by the provider to the individual.
Under the s 6 definitions of (i)court proceedings information about the individual, a credit reporting body is limited to reporting on judgments entered against a party.
“court proceedings information ” about an individual means information about a judgment of an Australian court:
(a) that is made, or given, against the individual in proceedings (other than criminal proceedings); and
(b) that relates to any credit that has been provided to, or applied for by, the individual.
Legislative Intent and Credit reporting Body action
It would appear, from the definition of “court proceeding information” that the legislature intended that only judgments would be recorded on one’s credit history. But in addition to the specific power to record court proceedings information in s 6(i), there is a general power to report matters of publicly available information– See s 6(k).
The credit reporting bodies consider that the filing of a claim is public information and so the credit reporting bodies also report when litigation commences.
The effect of this is that if your client is named as a defendant in litigation, it will affect their credit history and their ability to raise finance. The filing of the proceedings triggers the listing on the credit history.
This can impact on professional clients who are at risk of being included in any “scattergun approach” taken by a plaintiff to ensure they do not leave out a party who may bear some responsibility, however slight, in a matter.
The position since 11 May 2015
Previously the discontinuing of litigation was enough to allow the credit history entry to be removed but as at 11 May 2015 VEDA (now Equifax) changed its policy as follows (copy of letter available) –
In order to provide our customers with complete and accurate data Veda is enhancing its process of handling discontinued court actions (default judgments/ writ and summons).
Effective 11th May 2015 Veda will update court actions on the Veda database with the status of “Discontinued” when we are notified that the action has been discontinued. This enhancement allows Veda to retain more accurate court information, therefore able to produce more accurate credit scores.
Please note that Veda has an obligation to delete court actions In South Australia when we are advised the court actions have been discontinued, so no change to existing processes for discontinued SA court actions.
The effect of this policy is that if your client is named as a defendant and the matter is discontinued, the ‘black mark” against their credit history will remain.
What to do in current matters?
The author is unaware of any claim by a defendant for damages against a plaintiff for causing damage to their creditworthiness by bringing unwarranted litigation.
At the very least practitioners should consider having matters dismissed rather than discontinued as part of any settlement.
They may also seek to have a provision requiring the plaintiff to take all reasonable steps to assist in removing any credit demerit from the defendant as part of any settlement.
What can you do for a client who discontinued a matter and now has credit demerit?
Under Equifax’s policies, you can ask for the demerit to be removed if the matter has been set aside rather than discontinued. Presently Veda requires a court order that the matter has been set aside.
The District Court Registry advised in June 2017 that there is power to dismiss a matter but not set it aside. Presumably, dismissal would meet the requirement to remove the default listing.
There may be some confusion within the credit reporting body staff between judgements and litigation. A judgement can be set aside but not the litigation itself.
If there is a judgement one would have the judgement set aside and then the proceedings dismissed.
If your client finds themselves with a demerit as result of a discontinued proceedings they can ask the other party to agree to consent orders to have the matter dismissed so the demerit can be removed.
They can then seek to have the Court change its records to say “dismissed”. Some courts will process the request if a consent order is provided.
The application would need to be filed and supported by affidavit in the usual way. It is hoped that the Registry could deal with it on the papers if by consent.
Some creditors will “neither consent to nor oppose” an application. In the absence of that consent, an application to the Court will presumably be necessary, if the credit reporting body cannot otherwise be convinced to remove the demerit.
If, as has happened to the author’s firm, a particular Court refuses to change the court record, then a letter can still be written to the reporting body pointing out the consent of the parties to change the court record, the efforts undertaken and the costs incurred trying to comply with the reporting bodies’ requirements. The Credit reporting body may remove the default if satisfied all possible steps to meet its new policy have been taken. I acknowledge that is hard to comprehend, it was harder still to implement.
We note also the comment that ‘Please note that Veda has an obligation to delete, so no change to existing processes for discontinued SA court actions.”
Our investigations have revealed that the South Australian courts impose an obligation on the credit reporting bodies to remove any references in credit histories to court actions if they are discontinued as a condition of the credit reporting body having access to the court records.