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Westpac New Zealand Ltd v Wright HC Auckland CIV 2010-404-1023 [2010] NZHC 1581; (2010) 20 PRNZ 786 (11 August 2010)

Last Updated: 19 September 2010

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2010-404-001023}

BETWEEN WESTPAC NEW ZEALAND LTD Plaintiff

AND DAVID IAN WRIGHT Defendant

CIV-2010-404-002809

AND BETWEEN BANK OF NEW ZEALAND Plaintiff

AND ANDI LAZUARDI Defendant

Hearing: 27 July 2010

Appearances: A L Bowater for Westpac NZ Ltd

J D Hughes for Bank of New Zealand

No appearances for Defendants

Judgment: 11 August 2010 at 2:00 pm

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 11 August 2010 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar

Date: ......................

Solicitors:

Simpson Grierson, Private Bag 92518, Auckland

_{Buddle Findlay, PO Box 1433, Auckland}

WESTPAC NZ LTD V D I WRIGHT HC AK CIV-2010-404-001023 11 August 2010

[1] This decision is about the remedies available when an agreement provides that interest at a rate set in the contract remains payable after judgment.

[2] Both these cases were called before me in the summary judgment list on

27 July 2010. Both cases are claims by banks against customers for payments due under loan agreements secured by mortgages. The proceedings were not defended.

[3] In the Westpac case, I gave judgment for the Bank for the sum of

$255,413.94, plus interest of $15, 836.58, costs of $6,512.00, and disbursements of

$1,790.63, a total of $279,553.15.

[4] In the Bank of New Zealand case, I gave judgment for the Bank for

$215,172.11, plus costs and disbursements of $6,828.00, giving a total of

$222,000.11.

[5] In both cases, the plaintiffs also sought judgment for interest at the bank’s contractual interest rate running from the date of judgment until the date of actual payment.

[6] Following the decision of the Court of Appeal in Nottingham v Registered Securities Ltd (In Liquidation (1998) 12 PRNZ 625), it has not been the practice of the Court to give judgment for contractual interest falling due after judgment. However, counsel for Westpac provided a copy of the decision of FM Custodians Ltd v Patullo and Knopp HC Christchurch CIV-2010-409-000684, 4 June 2010. In that decision, Associate Judge Osborne awarded the plaintiff post-judgment interest at contractual rates from the date of judgment until the date on which payment is made in full. Counsel for Westpac invited me to follow this decision.

[7] Rule 11.27 of the High Court Rules provides:

11.27 Interest on judgment debt

(1) A judgment debt carries interest from the time judgment is given until it is satisfied.

(2) The interest is at the rate prescribed by or under section 87 of the

Act or at a lower rate fixed by the court.

(3) The interest may be levied on the judgment under an enforcement process (as defined in rule 17.3).

[8] Under the doctrine of merger, a contractual obligation to pay becomes merged in the judgment. So a contractual right to interest ceases on judgment being given and any right to interest is given by provisions such as r 11.27 of the High Court Rules. Contractual rates of interest that are higher than the rates prescribed by s 87 of the Judicature Act do not apply after judgment.

[9] It is open to the parties to contract out of this merger rule. If the agreement provides that the contract term for payment of interest survives judgment, then the contract term remains enforceable after judgment. The authority usually cited for this is Economic Life Assurance Society v Usborne [1902] AC 147 (HL). At 149-

150, Lord Halsbury said:

My Lords, it seems to me that Fry LJ in the case of Ex parte Fewings (1883)

25 ChD 338 which has been so often referred to, has with great precision and accuracy put the whole point:

“When there is a covenant for the payment of a principal sum, and that judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay a principal debt, that covenant also is merged in a judgment on the covenant to the principal debt. Of course a covenant to pay interest may be so expressed as not to merge a judgment for the principal; for instance, if there was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment.”

My Lords, if that is accurate, and I believe it to be absolutely accurate and precise, it seems to me that the question is a simple one: it is a question of the construction of this particular deed and the remedy that is now being enforced.

[10] That has been applied in New Zealand: Marac Finance Services Ltd v Hill HC Auckland CP467/87, 13 August 1987 per Wylie J and IFC Securities Ltd (In Receivership) v Sewell [1990] 1 NZLR 177. Similarly, at paragraph [17] of his judgment in FM Custodians, Associate Judge Osborne said:

... Economic Life Assurance is settled authority at common law for the imposition of the contractual rate post judgment when the covenant to pay interest is expressed so as not to merge in a judgment. The High Court Rules should not be taken to abolish contractual rates which have been recognised at common law unless such abolition was clearly intended.

[11] In Nottingham v Registered Securities Ltd the Court of Appeal said:

Interest

The 1994 summary judgment made provision for interest to “continue to run on the sum of $128,566.63 at the rate of 17 per cent per annum until the date of payment”. The same provision or interest was carried through into the bankruptcy notice of 11 June 1997 which included a claim to “interest on the judgment debt of $128,566.63 at 17 per cent per annum from 15 April 1994 until 5 June 1997” in the sum of $68,742.24. The bankruptcy notice went on to add “the creditor also claims interest pursuant to the final judgment on the sum of $128,566.63 at the rate of 18 per cent per annum being $59.88 per day from 6 June 1997 to the date of payment”. The genesis of the 17 percent was, of course, the provision for late settlement interest in the 1991 agreement for sale and purchase.

Although not raised by Mr Nottingham, we have thought it right to consider whether it was competent for the 1994 summary judgment to provide for interest to run at 17 percent after the date of judgment as distinct from the period leading up to judgment. Ms Meechan did not object to the Court’s consideration of that aspect without adjournment or further memoranda.

Rule 538 of the High Court Rules provides:

“538. Interest on judgment debt–(1) Every judgment debt shall carry interest from the time of judgment being given until the judgment is satisfied.

“(2) The interest shall be at the rate for the time being prescribed by or under section 87 of the Judicature Act 1908 or at such lower rate as shall be fixed by the Court.

“(3) The interest may be levied under any execution order upon the judgment.”

The interest rate prescribed under s 87 was and is 11 percent per annum. Rule 538(2) gives the Court jurisdiction to reduce the presumptive rate. There is no obvious jurisdiction for increasing it prospectively.

Contractual rights are one thing. The sanction of a Court order for future interest is another. Once a prospective interest rate is enshrined in an order it will continue regardless of changes in economic conditions and regardless of developments which might render it unconscionable. In the absence of full argument on the point we are not prepared to assume that in giving summary judgment in 1994 the Court had the jurisdiction to make a prospective order for interest at 17 percent. To that limited extent we find that in terms of r 143 there has been a miscarriage of justice which warrants a variation in the original judgment. The provision for prospective interest should be deleted leaving r 538 interest at 11 percent to apply automatically in the conventional way. That does not necessarily preclude RSL from making a fresh claim for the interest balance contractually indicated since the original judgment but any such claim would need to be independently considered.

[12] The Court of Appeal’s discussion of post-judgment interest is not obiter. It altered the judgment at first instance because of its finding that there is no power to give a prospective judgment for interest at the contractual rate. The Court of Appeal recognised that Registered Securities Ltd could bring a fresh claim for contractual interest. In saying this, it recognised that rights to contractual interest may survive judgment. Its decision is not about substantive rights, but about the remedies that the Court can give. It held that a prospective money judgment for interest falling due after judgment could not be given because a prospective money judgment would continue regardless of changes in economic conditions and regardless of developments which might render such a judgment unconscionable.

[13] The Court of Appeal did not consider the question of equitable relief.

[14] At paragraph [30] of his decision in FM Custodians Ltd v Patullo and Knopp, Associate Judge Osborne sets out a number of considerations. In his judgment, these considerations give the Court the power to award a plaintiff post-judgment interest at the time of giving a judgment. Those considerations include the need to uphold the parties’ bargain for the payment of interest post-judgment, the desirability of avoiding multiplicity of proceedings arising from fresh claims for interest accruing after judgment, that the interest rates in the case before him did not fall foul of the Credit Contracts and Consumer Finance Act 2003, and the availability of a declaration as to entitlement to interest at contract rates after judgment. I accept those considerations.

[15] However, it does not follow from those considerations that the Court can give a prospective money judgment for obligations falling due after the date of judgment. A money judgment operates in the present. It enforces an obligation that has already accrued. A money judgment cannot be given for a future liability. A money judgment for a debt still to fall due is as mis-timed as an order to do something in the past. This aspect of a money judgment is made clear by Cotton LJ in Ex Parte Chinery (1884) 12 ChD 342 at 345:

Now, in legal language, and in Acts of Parliament, as well as with regard to the rights of the parties, there is a well-known distinction between a “judgment” and an “order”. No doubt the Orders under the Judicature Act provide that every order may be enforced in the same manner as a judgment,

but still judgments and orders are kept entirely distinct. ... I think we ought to give to the words “Final judgment” in this subsection their strict and proper meaning, i.e., a judgment obtained in an action by which a previously existing liability of the defendant to the plaintiff is ascertained or established

... .

[16] Nottingham v Registered Securities Ltd is binding authority that the Court cannot give a money judgment for contractual interest falling due after judgment.

[17] As noted above, the Court of Appeal did not address the question of equitable relief. In FM Custodians Associate Judge Osborne did. At paragraphs [31]–[40] of his decision, he considered the use of an equitable remedy, specific performance, as a way of enforcing provisions for the payment of contractual interest after judgment. I gratefully adopt his discussion of equitable relief. I note in particular his discussion of Beswick v Beswick [1967] UKHL 2; [1968] AC 58 (HL), especially the speech of Lord Upjohn at

97-98, on specific performance to compel future performance of agreements to pay money. At paragraph [39] he said:

[39] In my view, equitable intervention would be justified in a case such as the present for several reasons:

i. The common law position (if it were that post-judgment interest could not be awarded at the time of the initial judgment) could scarcely be described as adequate. The plaintiff having come to Court to claim back the principal lent to the defendant is left in the unsatisfactory position of facing a second round of litigation (if and when the defendant, now judgment debtor, pays back the principal and any pre-judgment interest which has become the subject of a judgment debt).

ii. The economics of repeated litigation over a modest amount of interest would be poor – there are strong grounds in terms of the administration of justice as it affects not only the Court and the plaintiff, but also the defendants, for avoiding a second round of litigation, the costs of which are likely to be disproportionate.

iii. The delay of repeated proceedings does not sit well with the principle that there ought to be an end to litigation.

iv. In these circumstances it is fair that the plaintiff not be confined to a remedy available only when a cause of action has already accrued.

[18] I concur. Equitable remedies such as specific performance are prospective and can accordingly enforce obligations which have still to accrue. They are flexible. In Nottingham v Registered Securities Ltd, the Court of Appeal was

concerned that future changes might make continued enforcement of contractual provisions inappropriate. Orders for equitable relief can be made subject to conditions allowing for the remedies to be varied and discharged to allow for future changes.

[19] Accordingly, contractual provisions for payment of interest falling due after judgment may be enforced by orders for specific performance, but any such orders should be subject to terms allowing the parties to apply for variation or discharge in case future changes mean that those provisions are no longer enforceable.

[20] I now consider the contractual provisions in the two present cases.

[21] Westpac New Zealand Ltd’s residential mortgage contains this term:

2.3 Interest

The following will apply except to the extent that you and the Secured

Parties agree otherwise:

• Interest will accrue on all parts of the Secured Money at the same rate as applies to the Secured Money and of the relevant Bank Document. If there is no such rate, interest will accrue at the rate certified by an Officer to be the relevant Secured Party’s Indicated Lending Rate (or the rate declared by the relevant Secured Party to be in substitution for it) plus the margin then applicable to similar accounts. If that rate changes, the change rate will apply form the day on which the changed rate becomes generally applicable;

• Interest will accrue on a daily basis based on a year of 365 days. It will be calculated on the outstanding balance of each sum included in the relevant Secured Party’s Secured Money, up to the date of actual payment from (and including) the date when that sum became owing by you. That date, in the case of an amount payable to cover a sum paid by a Secured Party to you or anyone else, or be taken to be the date when the Secured Party paid that amount;

• No offset is allowed, for the purpose of calculation of interest, the credit balance is in any account held by you with a Secured Party;

• Accrued interest is payable by you on demand;

• A Secured Party may, at the end of any period determined by the Secured Party, debit any of your accounts with unpaid interest. That interest shall bear interest as provided in this clause;

• The obligations in this clause apply after as well as before any judgment of a court.

[22] The Bank of New Zealand relies on clauses 4, 9.4 and 12.1 of the loan facility master agreement for its claim for contractual interest after judgment. These provide:

4.1 Interest Rate: Interest will accrue daily on the outstanding balance (or, if applicable, each relevant portion of the outstanding balance) under each facility at the applicable interest rate specified in the relevant Letter of Advice. The interest rate (including any margin that forms part of that rate) will vary or be reset as set out in the relevant Letter of Advice. In addition if the amount of interest payable by you is not able to be determined because a rate which is used to fix that amount ceases to exist or is otherwise not able to be determined for whatever reason, we (or any attorney of us appointed for this purpose) may then determine an appropriate rate which will then be used for the purpose of calculating the amount of interest payable.

4.2 Time and Method for Payment: You will pay interest on the outstanding balance under each facility by direct debit from the account specified in the relevant Letter of Advice on the dates or with the frequency specified for payment of interest in the relevant Letter of Advice, with a final payment due on the end date.

...

9.4 Default Interest: If you do not pay any sum payable under any facility document when due, you will pay interest in respect of that overdue sum for the period beginning on its due date and ending on the date of its receipt by us (both before and after judgment) in accordance with this clause 9.4. Interest will be calculated and payable by reference to successive periods of such duration as we may from time to time select, each of which (other than the first, which will begin on the due date) will begin the day immediately following the end of the previous period. The overdue sum will incur default interest daily during each selected period at the default rate or, where a Letter of Advice does not specify such a rate, at the applicable interest rate specified in that Letter of Advice. Interest accruing under this clause 9.4 will be due and payable on the last day of each period by reference to which it is calculated and if not paid will itself bear interest accordingly.

...

12.1 If any of the following events occurs in respect of any facility, you will repay, on demand, to our address as noted in the Letter of Advice the total amount owing under that facility, including all principal and interest, any account, activity or other charges that we think are applicable, any costs that we incur in recovering the total amount owing and interest at the rate and accruing in the manner specified in the Letter of Advice or this agreement on all that total amount owing from when we make demand until you pay us, and we may immediately cancel that facility and other facilities.

[23] Clause 9.4 contains appropriate words to overcome the merger rule. The Bank of New Zealand is also entitled to interest after judgment at the contractual rate and to an order for specific performance.

[24] For future cases, when plaintiffs seek equitable remedies for the payment of contractual interest after judgment, they must plead the contractual terms relied on and seek separate relief for interest arising after judgment. In an application for summary judgment, the evidence supporting the application must refer to the term relied on and relevant contractual documentation must be exhibited. Defendants are entitled to be informed of the case against them.

[25] As for enforcement of orders requiring payment of contractual interest after judgment, r 17.2 says:

A Court order, except an order made on an interlocutory application, may be enforced in the same way as a judgment in the proceeding to the same effect.

[26] Clearly, this rule allows an order for payment of contractual interest after judgment to be enforced in the same way as a money judgment. This results in a position similar to r 11.27(3) of the High Court Rules, allowing for enforcement of interest after judgment. Orders for payment of contractual interest falling due after judgment can be enforced only for defaults in payment.

[27] Where a judgment creditor wishes to enforce an order for specific performance for payment of contractual interest after judgment, the judgment creditor should provide the Court with supporting calculations of interest falling due. Where the contract provides for the interest rate to fluctuate over time (for example, when interest is calculated with reference to a fluctuating base rate), the judgment creditor should file affidavit evidence as to the changes in interest rate following judgment to the time of enforcement.

[28] In the Westpac proceeding, in addition to the orders made on 27 July 2010, there is an order against the defendant for specific performance of clause 2.3 of the plaintiff’s residential mortgage that the defendant pay interest on the sum of

$254,536.67 at the rate of 11.29% per annum, compounding on the 24th day of every month from 28 July 2010 until the date of actual payment.

[29] Leave is reserved to the defendant to apply for a discharge or variation of this order.

[30] In the Bank of New Zealand proceeding, there is an order against the defendant for specific performance of clause 9.4 of the loan facility master agreement that the defendant pay interest on the sum of $207,725.13 at the rate of

11.09% per annum from 28 July 2010 until the date of actual payment.

[31] Leave is reserved to the defendant to apply for a discharge or variation of this order.

R M Bell

Associate Judge