Brkic v White
[2025] NZHC 127
•12 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-001504
[2025] NZHC 127
BETWEEN GORDON BRKIC, EMILIJA BRKIC and
NAGI FALTUS as trustees of the MADEG TRUST
Judgment CreditorsAND
CAROLINE RUTH WHITE
Judgment Debtor
Hearing: 3 February 2025 Appearances:
P Rice for the Judgment Creditors W Pyke for the Judgment Debtor
Judgment:
12 February 2025
JUDGMENT OF ASSOCIATE JUDGE COGSWELL
This judgment was delivered by me on 12 February 2025 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
C Taylor, Auckland
St Mark Law, Auckland
P Rice, Auckland
W C Pyke, Auckland
BRKIC v WHITE [2025] NZHC 127 [12 February 2025]
Introduction
[1]This is an application to set aside a bankruptcy notice.
[2] The judgment debtor seeks to set the bankruptcy notice aside on the grounds that it is invalid and a nullity because it substantially overstates the amount of the alleged judgment debt by including interest calculated at the rate of 22 per cent per annum from 10 May 2012 to the date of issue of the bankruptcy notice.
[3] On 18 June 2018 the Court granted judgment in the judgment creditors’ favour against the judgment debtor.
[4]The relief in the judgment is expressed as
Judgment is entered for the plaintiffs in the sum of $109,820 with interest calculated at the rate of 22 per cent per annum from 10 May 2012.
[5] The loan agreement between the parties required payment of $109,820 by 10 May 2012. Payment was not made. The judgment creditors made demand for repayment and that demand was not met. The loan agreement provided that in the event of default, interest was payable at 22 per cent per annum from 10 May 2012.
Issues
[6]There are two issues to be determined in this application. They are:
(a)whether the judgment creditors are entitled to recover interest at 22 per cent per annum from the date of breach (10 May 2012) to the date of payment by the judgment debtor?
(b)if the answer to that question is ‘No’, then is the bankruptcy notice invalid or a nullity because interest is overstated or can it be corrected?
Issue 1—what interest is claimable and is it payable before and after judgment
[7] The judgment debtor argues that the right to claim interest under the loan at 22 per cent crystallised at the date the lender first made demand on the borrower for repayment of the loan. The date of the demand is not known.
[8] The judgment debtor says that, whilst the loan records a default rate of 22 per cent per annum, the making of demand under cl 7.1 of the loan has the effect that the amount claimable by the lender including interest at 22 per cent to the date of demand has crystallised, and that the lender is not entitled to 22 per cent default interest from the date of the demand.
[9] Clause 7.1 of the loan says that following an event of default, the judgment creditors may:
Demand immediate repayment of the Moneys Owed. If so demanded the [judgment debtor] shall immediately repay the Moneys Owed to the [judgment creditors] …
[10] “Moneys Owed” is a defined expression under the loan and means “all moneys of whatever nature owed or payable by the Borrower to the Lender under this Deed and the Security Documents”.
[11] I do not accept that the making of demand by the lender crystallises the lender’s ability to recover default interest at 22 per cent.
[12] First, the loan agreement defines “Moneys Owed” as any amount “owed”, or “payable”, which implies that further amounts may become payable to the lender by the borrower, such that the quantum of monies owed may change.
[13] Secondly, the agreement has a no-waiver provision which protects the lender against any failure or delay in exercising a single or partial exercise of any right, power, discretion, remedy or privilege in connection with the lenders’ rights.
[14] Thirdly, a common sense reading of the loan does not support the judgment debtor’s argument. Were there to be a provision under which the amount of “Moneys
Owed” crystallised and the interest rate changed on the making of a demand, the loan agreement needed to say that. It does not.
[15] Accordingly, the argument that the making of demand crystallises the right to claim interest at 22 per cent is not accepted.
[16] The next issue to be determined is the impact, if any, of the Interest on Money Claims Act 2016 (IOMCA) to the judgment creditors’ ability to recover interest at 22 per cent following the entry of judgment.
[17] The judgment creditors submit that the provisions of the IOMCA apply to their claim for interest post-judgment. They point to ss 22 and 23 of the IOMCA which change the law relating to interest post-judgment as it applied before the enactment of the IOMCA.
[18] Sections 22 and 23 of the IOMCA collectively provide for contract interest to be claimable despite any rule of law to the effect that judgment rights and obligations merge in the judgment and that interest payable under a contract continues to apply after judgment unless the contract expressly provides otherwise. They act to avoid merger if the contract expressly provides for that.
[19] The IOMCA was enacted on 17 October 2016. It came into force on 1 January 2018. The IOMCA applies to civil proceedings commenced after its commencement, by virtue of s 5 of that Act. This proceeding commenced in 2015, before the IOMCA came into effect.
[20] Therefore, the IOMCA does not apply to the judgment that this bankruptcy notice relates to.
[21] Rather, the law as it existed before the enactment of the IOMCA continues to apply.
[22] Section 87 of the Judicature Act 1908 continues to apply to this judgment.1 Interest other that the statutory rate is payable only if there is a specific agreement between the parties that provides for contractual interest as an alternative to the statutory rate of interest. Otherwise, the Judicature (Prescribed Rate of Interest) Order 2011 applies.
[23] Neither the Judicature Act nor r 11.27 of the High Court Rules 2016 (HCR) apply when the payment of interest is governed by a contract between the parties.2
[24] Further, the contractual right to interest merges in the judgment and is payable in accordance with the statutory rate, unless there is a contractual agreement that specifically preserves the right to interest post-judgment. The right to interest post-judgment is governed by r 11.27, as it applied before it was amended by the enactment of the IOMCA.
[25] If the agreement provides that the contract term for payment of interest survives judgment, then the contract term remains enforceable after judgment.3
[26] It is a matter of interpretation as to whether the contract gives rise to the claim for interest post-judgment.
[27] It also involves interpreting the judgment itself. In this case, the judgment leaves the issue open.
[28] A very clear term is required to permit interest to accrue at the contractual rate after judgment. Such terms are often found in banking facilities.
[29] In ASB Bank Ltd v Sgargetta4 the Court granted interest post-judgment at the bank’s default rate as the banking documents provided for interest to accrue “both before and after judgment.” The entitlement to post-judgment interest was clearly stated.
1 Interest on Money Claims Act 2016, Schedule 1.
2 Alington Group Architects Ltd v Attorney-General [1998] 2 NZLR 183 (CA).
3 Westpac New Zealand Ltd v Wright (2010) 20 PRNZ 786.
4 ASB Bank Ltd v Sgargetta [2018] NZHC 2066 at [9].
[30] In Westpac New Zealand Ltd v Wright the Court granted interest post-judgment at the bank’s default rate as the banking document provided for interest to be paid:5
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 [the default interest provision].
Again, the entitlement to post-judgment interest was clearly stated.
[31] Conversely, in Nottingham v Registered Securities Limited (in liq)6the Court interpreted a judgment granting interest to “continue to run on the sum [outstanding] at the rate of 17 per cent per annum until the date of payment” as only permitting interest at the contractual rate until judgment. The contract involved was an agreement for sale and purchase of land. The higher interest rate then merged in the judgment.
[32] In Nottingham, the judgment even stated that the contractual interest would run “until payment” but the Court of Appeal reversed that, having considered the contractual underpinning of the right to interest.
[33] Finally, in ASB Bank Limited v Teng7the Court reviewed the authorities on when interest would accrue at the contractual rate post-judgment. The held that, normally, contractual rights merge in judgment and the statutory rate applies post- judgment.8
[34] However, where there is a contractual provision providing that the debt not merge in judgment or that interest will continue after judgment, then the obligation to pay interest will not merge in the judgment and the contractual provision regarding interest will be enforced by the Court. Whether or not merger applies turns on the construction of the specific contractual provision.
[35] The Court gave guidance on the kinds of provisions that displace the ordinary rule of merger:9
5 Above n 3, at [22].
6 Nottingham v Registered Securities Limited (in liq) (1998) 12 PRNZ 625 (CA).
7 ASB Bank Ltd v Teng HC Auckland CIV 2006-404-5849, 15 March 2007.
8 At [28].
9 At [30].
(a)Where the provision specifically provides for interest to be paid from the date of judgment until the judgment sum is paid.
(b)Where the provision can be construed as an independent covenant to pay interest so long as there is money owing on the principal sum.
(c)Where there is a continuing security.
[36] The Court in Teng made it clear that the focus is on the construction of the specific contract, “with an eye to giving effect to the bargain struck by the parties”.10
[37] In Teng, the Court held that even though the various documents referred to the interest payable whilst any amount remained outstanding to the bank, no provision explicitly authorised the charging of interest after the entry of judgment. The Court held that there was no express contractual agreement by which the parties agreed that the normal result of merger was not to apply. It held that no such agreement could be inferred with reasonable certainty from the overall contractual arrangements agreed to.
[38] The question is, therefore, whether the loan agreement in this case falls into the first category of agreement discussed above, or whether it falls into the second category, where any higher, agreed, contractual interest merges in the judgment.
[39] The loan agreement in this case does not specifically provide that interest is to continue to accrue after judgment at the contractual rate. Nor does it state that the normal result of merger in the judgment does not apply. Very clear words are needed, the authorities refer to cases where the terms of the contract specify that interest will accrue “before and after” judgment. This loan agreement does not specify that. It is silent.
[40] Rather, the loan agreement and the judgment on which this bankruptcy notice is based is more akin to the position in Nottingham and Teng, that is, contractual interest accrues until judgment, but then merges in the judgment following which
10 At [31]
Judicature Act interest applies. It merges because in this case ss 22 and 23 of the IOMCA does not apply and the loan agreement does not expressly provide for non-merger of the claim to interest in the judgment.
[41] In this case, it was not stated explicitly nor could it be inferred with reasonable certainty that any provision in the loan agreement preserved the right to claim interest at the contractual rate post-judgment nor does it provide that the normal result of merger was not to apply.
[42] I find, therefore, that the loan agreement did not permit the accrual of interest at the contractual rate post-judgment. Following the entry of judgment, the contractual interest rate merged with the judgment and interest under the Judicature Act 1908 is claimable. Interest under the Judicature Act is claimable, because the proceeding was commenced before 1 January 2018 so neither the IOMCA nor the amended version of r 11.27 apply.11
Is the bankruptcy notice a nullity or invalid because interest is overstated?
[43] The judgment creditors say that an overstatement of the amount owing does not invalidate the bankruptcy notice unless the judgment debtor notifies the judgment creditors of the overstatement within the time prescribed for complying with the bankruptcy notice.12
[44] I find that the judgment debtor did notify the judgment creditors of the overstatement within time, when she filed her own application to set aside bankruptcy notice. She specifically stated that there was a dispute as to the “level of indebtedness”. That notice mentioned the interest being accrued. I consider that this was sufficient notice of a claim to overstatement.
[45] Given my finding that the interest claimed in the bankruptcy notice was not recoverable, the issue is now whether the Court should order the defect to be corrected under s 418 of the Insolvency Act 2006.
11 Rule 11.27 was amended as at 1 January 2018.
12 Insolvency Act 2006, s 30(1).
[46] I consider that the bankruptcy notice is a nullity or invalid as it significantly overstates the amount owing to the judgment creditors. The principal debt is
$109,820. The interest claimed totals $292,506.12, almost three times the principal debt.
[47] In terms of Best v Watson the bankruptcy notice may be treated as a nullity such that there is nothing capable of rectification.13
[48] I also note Wooding v Vision Aluminium Ltd14 where interest at 30 per cent per annum claimed post-judgment rendered the bankruptcy notice invalid as it was incapable of correction. In that case interest was claimed post-judgment despite interest only being awarded to the date of judgment. No particulars were provided that enabled the judgment debtor to calculate the interest sum.
[49] I do not consider that the judgment debtor in this case was fairly able to recalculate the proper amount due even if the bankruptcy notice is not a nullity. That would have required the judgment debtor to, first, understand that the contractual interest rate merged in the judgment as a matter of law and, second, to understand that she could have calculated interest at 22 per cent from 10 May 2012 to the date of the judgment and then add interest at the applicable Judicature Act 1908 rate (taking into account the transitional provisions in the IOMCA) from then until the date of the bankruptcy notice.
[50] I do not consider that that undertaking was a mere correction of an error. It was a substantial error. It invalidated the bankruptcy notice.
[51]As the Court said in Manning:15
…I do not think it is possible to reasonably amend the bankruptcy notice so as to make it a valid and effective notice. In my view it requires so much surgery and re-drafting that after the completion of the operation it would be an entirely different document from that which has been served. There is no possible way that the notice at present can inform the debtor, in such a way that he is able to check the situation, of the actual balance due under the judgment.
13 Best v Watson [1979] 2 NZLR 492 at 494.
14 Wooding v Vision Aluminium Ltd HC Christchurch B No 167/88, 3 October 1988.
15 Manning v Commercial Advances Nominees Ltd HC Auckland B381/82, 4 November 1982 at 11.
[52]The bankruptcy notice is set aside.
[53]The judgment debtor is entitled to costs on the scale 2B.
[54] Should the parties be unable to agree costs, then the parties may sequentially file memoranda as to costs of no more than five pages, with the judgment creditors to file their memorandum five working days following service of the judgment debtor’s memorandum. Costs will be determined on the papers.
Associate Judge Cogswell