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F M Custodians Limited v Patullo HC Christchurch CIV 2010 409 684 [2010] NZHC 872 (4 June 2010)

Last Updated: 15 June 2010

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

_{CIV 2010 409 000684}

BETWEEN F M CUSTODIANS LIMITED Plaintiff

AND ANDREW JOHN PATULLO First Defendant

AND BARBARA ANN KNOPP Second Defendant

Hearing: 13 May 2010

Appearances: S E Waggott for Plaintiff

No appearance for Defendant

Judgment: 4 June 2010 at 2.15pm

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to post-judgment interest on a contract

_{and as to summary judgment}

Background

[1] The defendant on 30 May 2007 entered a term loan contract with the plaintiff. The term has expired. The plaintiff seeks judgment for the principal. The plaintiff also seeks interest on the debt at the contractual default interest rate both in the period up to the judgment and also in the post-judgment period to date of payment.

[2] The plaintiff’s entitlement to judgment on the debt is established by the evidence of Graeme Charles Main. The defendant has no arguable defence to

F M CUSTODIANS LIMITED V PATULLO AND ANOR HC CHCH CIV 2010 409 000684 4 June 2010

judgment for the principal or to an award of costs on a solicitor/client basis, which has been expressly provided for in the contract.

Interest-contractual provisions

[3] For interest the plaintiff relied on provisions in the contract which read:

2 PAYMENT OF PRINCIPAL SUM AND INTEREST

...

(c) If the Borrower fails to comply with any specified term on or before the fourteenth day after the date compliance was due:

(i) The Borrower will pay to the Lender interest on the principal sum, calculated at the penalty interest rate on a daily basis, for the period beginning on:

(A) where the Borrower has paid no instalment under this contract, the interest commencement date; or

(B) in any other case, the due date of the last instalment that, at the time the rate is increased to the penalty interest rate, had been paid by the Borrower,

and ending on (but excluding) the later of:

(C) the date on which full payment is made of the interest on the principal sum calculated at the penalty interest rate on a daily basis from the date the period begins and ending on (but excluding) the date on which such payment is made; and

(D) the date on which the failure to comply with the specified term is remedied;

...

8 MISCELLANEOUS

...

(b) If the Lender obtains judgment against the Borrower for any sum payable under this contract, the Borrower shall pay to the Lender interest on that sum from the date of judgment until the date such sum is paid. Such interest shall be calculated at the

penalty interest rate or, if this contract specifies no penalty interest rate, at the ordinary interest rate.

[4] Where a contract makes provision for interest the effect of s 87(1)(b) Judicature Act 1908 is that “Parliament clearly intended the parties’ will as expressed in the contract to prevail”: Alington Group Architects Ltd v Attorney- General [1998] 2 NZLR 183 at 189 (CA).

[5] HG Beale (ed) Chitty on Contracts (30th ed, Sweet & Maxwell, London

2008) vol 1 at [26-167] has this as the very first sentence in the introduction to its discussion of interest:

26-167 Introduction. It has always been open to the parties to make express provision in their contract for the payment of interest, which the Courts will enforce (except in situations covered by specific statutory provisions).

Post-judgment interest

[6] This leaves a possible issue as to the plaintiff’s entitlement to judgment for the contractual rate of interest in the post-judgment period. The issue may emerge from the judgment of the Court of Appeal in Nottingham v Registered Securities Limited (in liquidation) (1998) 12 PRNZ 625 at 632 - 633 where Fisher J (for the Court) said:

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 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 is 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 per cent. 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 per cent 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.

[7] The current statutory provision for interest (previously r 538 but now r 11.27

High Court Rules) reads:

(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 Judicature Act or at a lower rate fixed by the court.

[8] Section 87 Judicature Act provides:

87 Power of Courts to award interest on debts and damages

(1) In any proceedings in the High Court, the Court of Appeal, or the Supreme Court for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate, not exceeding the prescribed rate, as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment:

Provided that nothing in this subsection shall—

(a) Authorise the giving of interest upon interest; or

(b) Apply in relation to any debt upon which interest is payable as of right, whether by virtue of any agreement, enactment, or rule of law, or otherwise; or

(c) Affect the damages recoverable for the dishonour of a bill of exchange.

(2) In any proceedings in the High Court, the Court of Appeal, or the Supreme Court for the recovery of any debt upon which interest is payable as of right, and in respect of which the rate of interest is not agreed upon, prescribed, or ascertained under any agreement, enactment, or rule of law or otherwise, there shall be included in the sum for which judgment is given interest at such rate, not exceeding the prescribed rate, as the Court thinks fit for the period between the date as from which the interest became payable and the date of the judgment.

(3) In this section the term the prescribed rate means the rate of 7½ percent per annum, or such other rate as may from time to time be prescribed for the purposes of this section by the Governor-General by Order in Council.

By a 2008 Order, the prescribed rate is at present 8.4% per annum (having stood at

11% per annum from 1980 to 2002).

[9] The editor of the Procedure Reports of New Zealand has summarised the

Court’s conclusion in Nottingham v RSL in the headnote (at 626) in this way:

(7) However, the Court had no jurisdiction to set the prospective interest in the default judgment at 17 percent. The highest interest rate that could be charged was 11 percent and accordingly interest at that rate would apply. (p 633, line 7)

[10] I do not read the judgment of the Court of Appeal in Nottingham v RSL as determining the issue in the manner suggested in the headnote for two reasons:

(a) The judgment of the Court of Appeal expressly proceeds on the basis that the Court was not prepared in the absence of argument to assume the existence of a jurisdiction to award post-judgment interest. That is not a conclusion that no jurisdiction existed.

(b) The Court began its discussion of the entitlement to post-judgment interest with the observation “[c]ontractual rights are one thing...”.

The interest provision in the RSL documentation was not expressed so as not to merge in the judgment, a point which makes the Court’s reference to “contractual rights” important.

[11] In the case before me the plaintiff is entitled to have this Court give judgment on its proceeding by examining the issue on first principles, by reference to the contract itself and to any statutory or other limitations.

Express contractual rights to post-judgment interest

[12] The right of contracting parties to determine the rate of interest payable both to and after judgment has long been recognised by the Courts: see Re Sneyd Ex parte Fewings (1883) 25 Ch D 338 at 355, (Fry LJ) and Economic Life Assurance Society v Usborne [1902] AC 147 (HL). In Economic Life Assurance the Lord Chancellor explained why it was incorrect to suggest that the doctrine of merger precluded the application of the contractual rate of interest for the post-judgment period. His Lordship (at 149-150) said:

My Lords, it seems to me that Fry L.J. in the case of Ex parte Fewings

...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 a 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 the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance, if it 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.

[13] Economic Life Assurance has been applied in New Zealand (for example Marac Finance Services Limited v Hill HC Auckland CP467/87, 13 August 1987, Wylie J and IFC Securities Ltd (in receivership) v Sewell [1990] 1 NZLR 177) as well as in the United Kingdom (for example London Borough of Ealing v El Isaac [1980] 2 All ER 548).

[14] When the plaintiff has the right to a contractual rate of interest, the plaintiff need not resort to r 11.27 High Court Rules for the application of the prescribed rate of interest for the post-judgment period or to s 87 Judicature Act in relation to the pre-judgment period.

[15] The Court of Appeal made this observation in Nottingham v RSL (at 633) in relation to post-judgment interest:

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

[16] What the plaintiff in this proceeding seeks for the period between judgment and payment is the interest rate which the parties agreed upon – the agreement as to the payment of interest is as much a part of the substantive contractual rights as the payment of the principal. The Court in this situation is not resorting to a statute or to rules to fill a gap left by the parties. The jurisdiction lies in the Court’s inherent power to enforce the contract of the parties.

[17] As I have noted, 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 to not merge in a judgment. The High Court Rules should not be taken to have abolished contractual rights which have been recognised at common law unless such abolition was clearly intended. (Of course the High Court Rules, although identified as “rules”, are in fact of a statutory status as Schedule 2 to the Judicature Act. They can therefore operate to alter substantive rights.)

[18] I am conscious that in Nottingham v RSL the Court of Appeal reviewed r 538 (now r 11.27) and stated that, while the Court had power thereunder to award pre- judgment interest either at or below the prescribed rate, there was no “obvious jurisdiction” for allowing a creditor (prospectively) a rate greater than that prescribed in the post-judgment period. But in a case such as the present, the right to interest is derived not from a supplementing statutory authority but from the contract between the parties. As I have noted (above at [10](b)), the Court of Appeal introduced its comments as to the Court’s powers under r 538 (now r 11.27) with the statement that

“[c]ontractual rights are one thing”. In Nottingham v RSL, RSL’s documentation did not specifically express an obligation to pay interest at a particular rate after judgment. The relevant clause in the RSL contract had said simply:

Interest is to continue to run ... at the rate of 17 per cent until the date of payment.

[19] That is to be contrasted with clause 8(b) in FM Custodians’ contract (above at [3]) which expressly preserves the right to the contractual interest rate when judgment is obtained. The power of the Court to include that contractual post- judgment interest in the initial judgment has been acted upon by this Court on numerous occasions: see General Bills Limited v Barnao HC Auckland CP387/86,

17 February 1987, Sinclair J; Marac Finance Services Limited v Hill (above at [13]): Picot v Hunter HC Auckland CP2209/88, 9 March 1989, Tompkins J; IFC Securities Limited (in rec) v Sewell (above at [13]). Indeed, the legal position as identified in these cases appears to have been recognised as settled law at least until Nottingham v RSL. See for instance McGechan on Procedure at HR11.27.04; Sim’s Court Practice at HCR11.27.3; and Laws of New Zealand Civil Procedure High Court Reissue 1 Lexis Nexis 2009 para 429 fn 16.

[20] It is appropriate to consider whether s 87 Judicature Act 1908 (set out above at [8]) provides authority for the removal of jurisdiction to award post-judgment interest.

[21] Section 87(1) Judicature Act (as set out above at [8]) permits the Court in any proceeding for the recovery of any debt or damages to order that there be included in the judgment sum interest at a rate not exceeding the prescribed rate. However by the proviso (b) to s 87(1), nothing in s 87(1) applies in relation to any debt upon which interest is payable as of right, whether by virtue of an agreement, enactment, rule of law or otherwise. In other words, although s 87(1) provides for the award of interest at up to the prescribed rate as far as but apparently not beyond the date of judgment, the position with regard to interest payable as of right under a contract remains at large. It therefore remains at large both as to rate and as to duration.

[22] Section 87(1) Judicature Act is an enabling provision. It enables interest to be awarded at a rate and for a period where the contract otherwise is silent. The proviso (b) to s 87(1) means that the Court retains its power to give effect to the bargain of the parties in relation to interest that is payable as of right.

[23] In Williams v Reeves (2002) 16 PRNZ 446 at [8] Fisher J discussed the Court’s power to award interest. His Honour found that a Master’s inclusion in the judgment of interest at 18.5 per cent until payment of the debt was misconceived. He referred to the decision of the Court of Appeal in Nottingham (delivered by himself) as indicating that the inclusion of 18.5% post-judgment interest was misconceived. His Honour then appears to explain the misconception thus:

[a] judgment is not a record of the parties’ private obligations. It is a formally promulgated decree of the Courts. As such any interest on the judgment must be authorised by legislation, in this case r 538. Rule 538 did not permit the Court to exceed the prescribed rate.

I do not read the judgment as intended to restrict the plaintiff’s right to interest when the contract expressly preserves the right to post-judgment interest as discussed in the Economic Life Assurance case and in the authorities which have consistently applied it. In Williams v Reeves there was no contractual stipulation as to 18.5% interest after judgment. Rather, the Master had received evidence that the plaintiff was having to pay 18.5% interest on a bank loan while trying to recover the debt owed by the defendant. Absent a contractual entitlement to a higher rate, r 538 (now r 11.27) provides a statutory entitlement to interest at the prescribed (Judicature Act) rate. The plaintiff in Williams v Reeves could not establish an entitlement to a higher rate by contract or statute.

[24] The Law Commission’s report, Aspects of Damages: The Award of Interest on Money Claims (NZLC R28, 1992) contained a discussion of the current law on post-judgment interest at paragraphs 25 – 36. It commented briefly (at paragraph 30) on the merging of contractual rights in judgment before suggesting that the New Zealand position was unclear. The Commission did not discuss the application of the Economic Life Assurance decision in New Zealand in Marac Financial Services v Hill and IFC Services v Sewell. However, consistently with the outcome of those cases, the Commission commented (paragraph 30):

...there seems no good policy reason to reduce the contractually agreed rate of interest merely because judgment has been entered.

[25] The importance of the contractual provision and the plaintiff’s entitlement to enforce it was recognised by Master Venning in Countrywide Banking Corporation Ltd v Jackson HC Invercargill CP 44/98, 7 December 1998, decided shortly after the Court of Appeal judgment in Nottingham v RSL. The Master distinguished Nottingham v RSL by reason of RSL’s particular contractual provision for interest (which I have discussed above at [18]). His Honour noted that in Nottingham v RSL “there was no specific agreement that interest would accrue at the penalty rate after judgment”. In the case before the Master there was a provision as to interest accruing after judgment. Post-judgment interest was accordingly awarded

[26] My conclusion is that the plaintiff is entitled to enforce its contractual right to post-judgment interest at the default rate. That right is not removed by the doctrine of merger, because the parties by their contract agreed otherwise. Equally no provision in legislation alters that right.

The timing of judgment for post-judgment interest – may the Court prospectively award interest?

[27] Assuming the plaintiff is entitled to the contractual rate of interest post- judgment (as established in Economic Life), does the Court have power when giving judgment to include judgment for interest over a period yet to come? The answer is not established in Economic Life, where the Court at first instance had not been called on to award interest at the time of judgment.

[28] In Nottingham v RSL the Court of Appeal said this (at 633):

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.

[29] A concern of the Court of Appeal appeared to be that if it were to deal with post-judgment interest at the date of judgment for the principal, it would be depriving the judgment debtor of any ability to have the Court later modify the rate

of interest to take into account subsequent events or circumstances. But that was in a setting where the plaintiff was relying on a statutory discretion as to the rate of interest. The conclusion of the Court in Nottingham v RSL was expressed tentatively. Similar concerns have either not been raised or not weighed with this Court in instances where this Court, in giving effect to express contractual interest provisions, has awarded prospectively post-judgment interest (as in the cases referred to at [19] above).

Jurisdiction at common law

[30] In determining whether the Court has jurisdiction at common law to prospectively award judgment interest in a case where the contract provides for post- judgment interest, in my view the analysis ought to begin with the contractual expectations of the parties as expressed in the contract. It is then necessary to consider whether, in the light of circumstances as they exist at the date of judgment, there is legal justification to refuse to fulfil those expectations. This involves commencing an analysis at the starting point, with the parties’ clear agreement as to post-judgment interest which has the effect of excluding the doctrine of merger. In my judgment the following are relevant considerations:

(i) The contract in this case is a loan contract in which the defendants agreed to the specific terms upon which they would have the use of the plaintiff’s money.

(ii) The contract expressly provides a contractual rate of interest to apply both before and after judgment.

(iii) The agreement as to a higher rate of interest in the event of default is a form of liquidated damages. While it is open to the defaulting party to contend that the sum involved constitutes a penalty rather than a genuine assessment of liquidated damages, that is a question of construction “to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of making the contract, not as

at the time of the breach”. Dunlop Pneumatic Tyre Co Limited v New Garage and Motor Co Limited [1914] UKHL 1; [1915] AC 79 at 86-87 and see also Lorjona Pty Ltd v Lyttelton Engineering Ltd HC Christchurch CIV 2004 409 683, 28 November 2005, Fogarty J at [137] – [139].

(iv) The mode and extent of liquidating damages (in this case being the plaintiff’s current floating interest rate applying from time to time plus a margin of 5% per annum) is not shown to be penal or otherwise unenforceable as at the date judgment is sought. That being so, the requirement to evaluate the interest provision at the time of the making of the contract means that this same conclusion should apply to post-judgment interest as it applies to pre-judgment interest. In Oceania Furniture Limited v Debonaire Products Limited HC Wellington CIV 2008 485 1701, 27 August 2009, in which Nottingham v RSL was applied (at [207]), the decision to award post- judgment interest at the Judicature Act rate rather than at the contractual rate was on the basis that the contractual rate (30% per annum) was penal (see [204]).

(v) The parties in setting a floating mechanism for the default rate have allowed for the possibilities of fluctuating costs of finance and market conditions generally.

(vi) If the default interest rate had been set at a rate now below the market, the defendants might well argue that the plaintiff is to be treated as contractually bound by that rate. The plaintiff asks in this case that the defendants be similarly bound. “Sauce for the goose/sauce for the gander” is the culinary proverbial equivalent of what contract lawyers express as mutuality of remedy.

(vii) The Court should be reluctant to leave the judgment creditor with a need to apply subsequently for quantification of the post-judgment interest entitlement (through, as Fisher J put it in Williams v Reeves at [7], “subsequent proceedings from time to time”). The authors of Sim’s Court Practice observe (at HCR 11.27.3) that in relation to a non-merged right to contractual interest the creditor may recover the deficiency in another proceeding as a matter of contract.

(viii) There are sound policy reasons for not leaving a judgment creditor to come back to the Court in one or more later proceedings for quantification of the creditor’s post-judgment contractual interest entitlement. The Court has an obligation to deliver finality in litigation where possible. Such an objective has traditionally been recognised by the Courts in the maxim “interest republicae ut sit finis litium”. Where it is appropriate, a one-off, comprehensive judgment which settles all aspects of debt liability is in the public interest. In Director General of Fair Trading v First National Bank plc [2002] AC

481 (HL) their Lordships considered the right to post- judgment interest in inferior courts. They compared the practice in the County Court in England to that of the Sheriff’s Court in Scotland. In Scotland the practice is to award post- judgment interest at the contractual rate. Lord Hope of Craighead observed at [52] that:

...the Scottish practice of awarding post-judgment interest at the contractual rate in the sheriff court avoids the uncertainty, confusion and hardship which would otherwise arise if the borrower were to be exposed to further proceedings to satisfy the bank’s claim for interest at the contractual rate.

That observation expresses succinctly the consequences which would attach to any approach which requires a multiplication of proceedings.

(ix) Statutory provisions may cut across a contractual entitlement (see Chitty, above at [5]. There is no evidence in this case to suggest at the date the plaintiff seeks judgment pursuant to the contract that the terms of the contract were either oppressive (within the extended meaning under s 118 Credit Contracts and Consumer Finance Act 2003) or in breach of reasonable standards of commercial practice pursuant to the same provision. The Court is dealing with a standard default interest provision. The plaintiff seeks judgment now and would undoubtedly be content to have full payment of the judgment debt immediately, without the default interest rate running on as part of a judgment debt. If the debtors will not or cannot pay immediately pursuant to the requested judgment (which honours the contract), then the plaintiff does not when insisting on full payment (whether or not market or financial circumstances change in the future) breach requirements of the Credit Contracts and Consumer Finance Act. The plaintiff will simply be enforcing payment on contractual terms which have been found to be valid. The defendants knew from the statement of claim that post-judgment interest would be sought at the default rate and have raised no ground of defence.

(x) At the very least, the plaintiff must be entitled to a declaration that the interest provision in the contract would not merge in the judgment. A declaration under the Declaratory Judgments Act 1908 may be granted where any person claims to have acquired a right by agreement (s 3); and may be granted by way of anticipation with respect to any act not yet done (s 9); and may be granted even if the High Court has no power to give relief in the matter to which the judgment relates (s 11). If any judgment relating to a contract which expressly provides for interest is to speak clearly to the parties, it needs to express the rights of the judgment creditor which are preserved. Therefore if there were no jurisdiction to an award of post-

judgment interest there might appropriately be a declaration of entitlement to such interest in terms of the contract.

Specific performance as an alternative to a common law remedy

[31] If (contrary to my conclusion) it were correct that a court of common law cannot at the time of the initial judgment award post-judgment interest at the contractual rate, the judgment creditor will (as Lord Hope observed in Director General of Fair Trading v First National Bank plc - above at [30](viii)) be exposed to further proceedings to enforce the contractual rate of post-judgment interest.

[32] The House of Lords in Beswick v Beswick [1967] UKHL 2; [1968] AC 58 dealt with a case concerning an agreement to pay a man’s widow an annuity for life. The House of Lords upheld an order of specific performance in favour of the widow. Lord Upjohn noted at 97:

In the Courts below, though not before your Lordships, it was argued that the remedy of specific performance was not available when all that remained was the obligation to make a money payment. Danckwerts L.J. rightly demolished this contention as untenable for the reasons he gives.

Observing that the case before the House of Lords involved the payment of an annuity, Lord Upjohn observed at 97:

Equity is to do true justice to enforce the true contract that the parties have made and to prevent the trouble and expense of a multiplicity of actions.

His Lordship referred to case law before concluding, at 98:

It is in such common sense and practical ways that equity comes to the aid of the common law and it is sufficiently flexible to meet and satisfy the justice of the case in the many different circumstances that arise from time to time.

[33] The Court of Appeal judgments are reported at [1966] 1 Ch 538. The judgment of Danckwerts L.J. contains this at 560:

It was suggested that equity would not give the remedy of specific performance of a contract to make a money payment. This contention is quite untenable.

Shortly before that His Lordship had stated that specific performance was appropriate because:

[i]n order to recover damages in an action at law on a continuing obligation it may be necessary to bring a series of actions. So specific performance is a more effective and convenient remedy.

[34] That this approach fits classically within the equitable doctrine of specific performance is reflected by the parallel comment in the classic text Fry on Specific Performance (6th ed. Stevens & Sons Ltd. London 1924) at [#64]:

Even when money is alone in question, the Common Law remedy is in some instances less beneficial than that afforded by Courts of Equity, and where this is so, a ground is laid for specific performance, if otherwise a proper remedy.

[35] In more recent times there has been a growing recognition of the appropriateness of an order of specific performance. This is reflected in the Canadian text The Law of Equitable Remedies (Irwin Law, Toronto, 2000) at 267. The author observes under a heading “Agreements for the Payment of Money”:

Where the essence of a contract is the payment of money, and the breach lies in failure to pay, one naturally concludes that damages should be an adequate remedy and that specific performance is therefore not available. Indeed, this is the dominant principle in this area. However, increasingly frequent we see cases where the surrounding circumstances make damages inappropriate and where specific performance has been ordered.

[36] Whether there is a duplication or a multiplication of proceedings, nothing can turn on that distinction. It is the underlying grounds which I would need to look to, in the event that common law could not deal with post-judgment interest at the time of the initial judgment.

[37] There is a further aspect to the Court’s intervention in equity. Specific performance is well recognised as a means of preventing a breach in the future: see

Corbin on Contracts (Interim Edition, West Publishing, St. Paul, 1964) vol 12 at

[1141] At 193 it is stated:

In preventing the occurrence of a breach, the court is not subject to the same limitations as in an action for compensation in money. This is especially applicable in cases where an insurance company has refused to pay instalment benefits during continuance of disability of the insured.

[38] The decision in Beswick v Beswick, to which I have referred, exemplifies the flexibility of equity in relation to such a continuing obligation. A debtor’s commitment to pay interest at a contractual rate until full repayment of the debt is analogous.

[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.

[40] For these reasons, if it had been necessary, I would have found it appropriate in the circumstances of this case to order (by way of specific performance) that the plaintiff repay the principal of the loan and pay the contractual rate of interest upon the loan both up to judgment and on to the date of payment of the principal.

Contracts in which the interest provision does not refer to “judgment”

[41] The Court frequently encounters contracts which provide for interest “to date of payment” (or similar), but without reference to any intervening judgment. As I have observed, the Court of Appeal has expressed a tentative view in relation to such a provision that the Court then has no jurisdiction to award post-judgment interest at the contractual rate. That has been applied as the law in Williams v Reeves. Examples of the decision in Nottingham v RSL being applied without further discussion exist. See for example Magsons Hardware Limited v Cummins HC Auckland CIV 2009 404 1188 15 October 2009 at [48].

[42] It is unnecessary on the facts of the present case to determine whether an expression such as “to date of actual payment” is intended by parties contracting in

21st century New Zealand to preclude the operation of the doctrine of merger. The

judgments of their Lordships, especially Lord Millett and Lord Hope, in Director General of Fair Trading v First National Bank plc (above at [30](viii)), point to a possible jurisdiction to award post-judgment interest in such cases. For now, a wise commercial draftsman would in an interest covenant include specific reference to the “post-judgment” period (as the plaintiff’s contract in this case does) and might for abundant (but in my view unnecessary) caution also expressly exclude the doctrine of merger in the event of judgment being obtained. A provision for payment of interest at a contract rate simply “to date of payment” may invite argument as to merger.

Conclusion

[43] By the contract in this case the parties agreed that in the circumstances which now prevail (the defendants having failed to repay the debt on time), the plaintiff is

entitled to repayment of principal, the payment of default interest both pre-judgment and post-judgment, and the costs and disbursements on a solicitor and client basis arising from any default.

Orders

[44] I order that there be judgment for the plaintiff against the defendants jointly and severally for:

a. $559,136.48 comprising:

i. as to principal $484,975.15 ii. as to interest to the date of judgment $ 74,161.33

b. Interest on the balance of the principal sum of $484,975,15 at the contractual penalty interest rate from the date of judgment until the date on which payment is made in full.

c. Costs and disbursements in the sum of $6,137.25.

_Solicitors:

Wynn Williams & Co, Christchurch, for Plaintiff