Debt Buyers Limited v Schutt
[2017] NZHC 2876
•22 November 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2833 [2017] NZHC 2876
BETWEEN DEBT BUYERS LIMITED
Plaintiff
AND
KARL WILLIAM SCHUTT Defendant
Hearing: 20 November 2017 Appearances:
S Chambers and A Botterill for Plaintiff
Defendant in person (with McKenzie Friend D Ward)Judgment:
22 November 2017
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 22 November 2017 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
DEBT BUYERS LTD v SCHUTT [2017] NZHC 2876 [22 November 2017]
[1] The plaintiff, Debt Buyers Ltd, seeks judgment against the defendant, Mr Schutt, for a sum of $373,225.63 claimed to be owing under an agreement made between Mr Schutt and The New Zealand Guardian Trust Company Limited (NZGT). The settlement agreement was in settlement of a claim against Mr Schutt for a shortfall, following a mortgagee sale of land, in respect of loans originally made to Mr Schutt by Propertyfinance Securities Limited (PSL).
[2] Mr Schutt denies liability on the following grounds:
(a) NZGT’s rights under the settlement agreement were not assigned to
Debt Buyers.
(b)NZGT waived its rights to enforce the settlement agreement and that waiver binds Debt Buyers if there was an effective assignment.
(c) NZGT, as a result of representations it made to Mr Schutt, was estopped from enforcing its “strict legal rights” under the settlement agreement, and such estoppel is binding on Debt Buyers.
(d) All claims for interest on the alleged debt are barred by s 20 of the
Limitation Act 1950.
Background
[3] In December 2007, Mr Schutt, pursuant to two loan agreements, borrowed a total of $527,220 from PSL, with the loans secured by a mortgage over land.
[4] Also in December 2007, PSL assigned all its interests in the loan agreements and security to NZGT (the first assignment). There is no issue relating to the first assignment.
[5] There were defaults by Mr Schutt under the loan agreement which led, following appropriate notice, to a mortgagee sale in January 2009. There was a shortfall following the mortgagee sale of $269,704.01 (the shortfall). In the hearing before me, Mr Schutt did not seek to argue that a shortfall of that amount had not
arisen following the mortgagee sale, and I am satisfied that it is established on the evidence. Mr Schutt asserted, in very general terms, that the sale was at an undervalue. There is no evidence at all to substantiate the contention. In any event, any issue in that regard is not available as a defence to breach of the settlement agreement, and there was no challenge to the validity of the settlement agreement.
[6] The settlement agreement between Mr Schutt and NZGT, which is the foundation of the present claim, was entered into in December 2009. NZGT agreed to accept, in full and final settlement of the remaining debt, $51,000 paid over five years at $100 per week, commencing on 15 January 2010, and a $25,000 “balloon payment” due on 15 January 2015. Mr Schutt was required to remit payments to a specified bank account. This was subject to the following:
… if at any time the total sum repaid is less than the total equivalent to
$5,200 per annum, for the number of months since January 2010, it will be considered a breach of this arrangement. At that point the total shortfall outstanding, plus accrued penalty interest would again become repayable in full immediately.
[7] In this proceeding there was an earlier judgment on a summary judgment claim by Debt Buyers. Associate Judge Sargisson held that Mr Schutt’s waiver and estoppel arguments should proceed to a substantive hearing. There was a further argument by Mr Schutt that the settlement agreement prevented recovery of the shortfall. The Judge held that any breach would result in the shortfall becoming payable. The Judge was plainly correct in that conclusion, and Mr Schutt did not seek to reargue the point. There was an express finding that the shortfall was a sum
of $269,704.1
[8] The minimum annual payment of $5,200 was not paid by Mr Schutt in any of the years from 15 January 2010, when the first instalment was due, to 25 January
2015, when the balloon payment of $25,000 was due, and the balloon payment was not made. Schedules of the payments made were put in evidence and were not disputed by Mr Schutt. The last payment of $100 was on 17 January 2014. At that
date the shortfall plus interest totalled $373,225.63, the sum now claimed by Debt
1 Debt Buyers Ltd v Schutt [2016] NZHC 3166 at [10]. There is a typographical error in the judgment at that point referring to a shortfall sum of $269,707.01, rather than $269,704.01.
Buyers. The claim is established by the evidence, subject to consideration of
Mr Schutt’s affirmative defences.
Assignment to Debt Buyers
[9] Debt Buyers relies on an assignment from NZGT to PSL on 30 August 2013 (the second assignment) and an assignment by PSL to Debt Buyers on 29 August
2014 (the final assignment). The second assignment is clearly established by a written agreement dated 30 August 2013. The assets assigned are expressed in very wide terms and plainly include NZGT’s rights and interests under the settlement agreement, as well as any subsisting rights and interests under the original loan agreements. It also includes what is described as a “liquidated loss” in respect of the loan to Mr Schutt. Mr Schutt did not appear to argue that this assignment was in some way ineffective, and I am satisfied that it was.
[10] The final assignment to Debt Buyers is recorded in a deed executed by directors of PSL and Debt Buyers. It has not been formally dated, but it was plainly executed between 20 August 2014 and 29 August 2014. The asset assigned was PSL’s “Loan Book”. This was in respect of a number of loans. The loan in respect of Mr Schutt is expressly recorded as a balance at 20 August 2014 of $373,225.63, and this can be traced back to the value of the debt transferred from NZGT to PSL in the second assignment.
[11] I am satisfied, from the documentary evidence produced, that that figure was the total owing under the settlement agreement, in the event of default, being the shortfall plus interest as provided for in the settlement agreement.
[12] The only argument advanced by Mr Schutt, in support of his contention that there had been no effective assignment to Debt Buyers, was that there had been no notice to him of the assignment. Under the Property Law Act 2007 notice of an assignment, to the other party to the contract, is not a prerequisite of a valid
assignment.2 In the circumstances of this case, a failure to give notice to Mr Schutt
2 Property Law Act 2007, ss 50-51, and see John Burroughs, Jeremy Finn and Stephen Todd, Law of Contract in New Zealand (5th ed) Lexis Nexis 2016 at [17.1.7].
would only be relevant if Mr Schutt had continued to make payments to PSL
following the final assignment, but no payments were made.
[13] Both PSL and Debt Buyers purported to give notice of the final assignment to Mr Schutt in August and September 2014, but there are issues as to whether Mr Schutt received those notices. However, and in any event as a matter of fact, rather than a question of legal requirement, it is clear beyond argument that Mr Schutt did have notice through letters of demand from Debt Buyers dated 7 July and
18 September, and 2 and 19 October 2015. Those letters are referred to in letters of
25 September and 18 November 2015 to Debt Buyers from Mr Schutt’s solicitors, at the time, Hesketh Henry.
[14] I am satisfied that there was an effective assignment to Debt Buyers on or about 29 August 2014 of a debt owed by Mr Schutt which at that date totalled
$373,225.63.
Waiver and estoppel
[15] Waiver and estoppel are considered together because Mr Schutt’s evidence and arguments on both defences were the same. Also, as noted in Law of Contract in New Zealand, promissory estoppel, which is the estoppel advanced by Mr Schutt, has to a large extent overtaken the doctrine of waiver in recent years.3
[16] Mr Schutt said that in 2012 his youngest sister died and then he lost his father and, in early 2013, he spoke to a representative of NZGT (an employee of NZGT’s agent, Standby Servicers Ltd) “to have a break from the payments to recover”. In his brief of evidence Mr Schutt said that the direct credit payments were stopped “as the record showed”. He then said:
The direct payments were never resumed by them nor was any final demand issued or any payment demanded EVER by any party. I was never at any time given [an] option to resume or rectify the account.
3 John Burroughs, Jeremy Finn and Stephen Todd, Law of Contract in New Zealand (5th ed), above n 2, at [19.3.2].
[17] Mr Schutt, in his affidavit in opposition to the summary judgment application, referred to the arrangement in different terms. He said:
I asked this woman for debt relief after the death of my father and they agreed to this and stopped their direct debit. She said that she would stop it for about six months and said we would talk again around then about whether it would be appropriate to re-establish the direct debt. However, I never heard from her again and she never sent anything to me in writing as far as I recall.
[18] The contemporaneous documents provide some support for Mr Schutt’s contention that NZGT agreed to suspend the requirement to make payments of $100 per week for approximately six months, but these same documents, and being documents which were not challenged by Mr Schutt in the course of his evidence, are otherwise inconsistent with what he says. Detailed statements, maintained by Standby Servicers Ltd on behalf of NZGT, record that from 21 June 2012 to
3 January 2013 there were only four payments by Mr Schutt, totalling $280. From
10 January 2013 to 8 August 2013, there were no payments at all other than a lump sum of $3,000 paid on 18 April 2013. Mr Schutt had not mentioned the lump sum payment in his brief of evidence or in his affidavit. When asked about it, and having confirmed that the discussion he relies on had occurred in about February or March, he said:
They wanted it to be brought up to a certain level and they direct debited that amount and from that point on there [were] no payments, no more demand letters, no more correspondence, apart from Debt Buyers two years later.
[19] The lump sum payment of $3,000 in April 2013 cannot be reconciled with Mr Schutt’s evidence and arguments either in support of waiver or estoppel. What is more, and directly contrary to Mr Schutt’s evidence just recorded of no further payments, the payments of $100 per week resumed, although erratically, from
15 August 2013. From 15 August 2013, to 17 January 2014, there were 14 payments each of $100. Those payments straddle the period of the second assignment. The final payment was $100 on 17 January 2014. This resulted in the total balance now claimed of just over $373,000.
[20] The fact that the periodic payments of $100 resumed on 15 August 2013
supports Mr Schutt’s evidence only to the extent that there was agreement to suspend
the requirement to make weekly payments of $100 for a period of approximately six months. However, the fact that the periodic payments resumed cannot be reconciled with Mr Schutt’s contention that, following the discussion with the Standard Servicers Ltd employee, he was never again required to resume the payments or, on the basis Mr Schutt put it, NZGT never reinstated direct debits.
[21] Although the onus in this regard was on Mr Schutt to establish his affirmative defence, and his evidence is flimsy to say the least, I am prepared to accept that NZGT agreed to suspend for six months, or thereabouts, the requirement that Mr Schutt pay $100 per week, provided he made a lump sum payment, which is the
$3,000 paid in April 2013. I am not satisfied that there was any representation by or on behalf of NZGT that went beyond that temporary suspension of the weekly payment obligation. I am also satisfied that there was no representation that could properly justify a belief on Mr Schutt’s part that his obligations under the settlement agreement continued to be suspended, and that he could have no liability for the shortfall and interest, unless and until he had been given an opportunity to resume and complete the weekly payments of $100 and the balloon payment of $25,000.
[22] Debt Buyers put in evidence a large number of emails between Standby Servicers Ltd and Mr Schutt, between January 2010 and August 2013, in which Standby Servicers Ltd were regularly chasing Mr Schutt for the agreed payments of
$100 per week and, in the later part of this period, reminding Mr Schutt of his default liability for the shortfall sum and interest.
[23] This concluded with a letter from Standby Servicers Ltd to Mr Schutt which is not dated, but which Mr Schutt accepted must have been sent just after 30 August
2013. Mr Schutt sought to rely on a single statement in this letter that “the Veda system … currently records a balance owing of zero”. The Veda system is the online reporting of the Veda credit agency. Shortly before this letter was sent, the Veda system recorded that Mr Schutt had a debt in excess of $300,000. The precise figure is not in evidence, but it was clearly a reference to the residual debt – the shortfall plus the interest. The statement relied on by Mr Schutt was simply a reference to an arrangement Standby Servicers Ltd had made with Veda to avoid public notice of the total of the underlying debt while the instalment payment arrangement continued.
The full content of the letter is contrary to Mr Schutt’s waiver and estoppel arguments. It concluded with advice to Mr Schutt that recovery of the shortfall had been passed back to PSL.
[24] Mr Schutt submitted that, if NZGT had not completely waived its rights under the settlement agreement, or if it was not absolutely estopped from making claims under the settlement agreement, NZGT, and the subsequent assignees, were nevertheless obliged to give notice of default, and of an intention to claim the shortfall and interest, and then give Mr Schutt an opportunity of resuming the instalment payments, before any action for recovery of the shortfall could be made.
[25] I do not accept the argument of reasons already recorded and the following. The consequence of a failure to pay instalments on the terms recorded in the settlement agreement, and to pay the final sum of $25,000, is stated explicitly and with clarity in the settlement agreement. Any failure to pay less than $5,200 per annum would result in the total shortfall, plus accrued interest, becoming repayable immediately. Defaults occurred in every completed year from 2010 through to December 2015, when this proceeding was issued. There was no evidence to justify a conclusion that there was any form of representation from or on behalf of NZGT, either in communications with Mr Schutt, or as a consequence of action or inaction by or on behalf of NZGT, that if there was a period in which instalments were not paid, the default provision in the settlement agreement would not be triggered without notice. In any event, on this narrower point, for reasons already recorded, more than adequate notice had been given to Mr Schutt.
[26] For those reasons I am satisfied that the waiver and estoppel defences are not established.
The Limitation Act 1950
[27] Mr Schutt pleaded:
All claims for interest on the alleged debt, including the interest component on the alleged shortfall debt, are barred by s 20 of the Limitation Act 1950.
[28] There was no submission from Mr Schutt on the limitation defence.
[29] Section 20 of the Limitation Act 1950 (the 1950 Act) has no application. Section 20(4) provides that no action to recover arrears of interest payable in respect of a sum secured by a mortgage may be brought after the expiration of six years from the date on which the interest became due. Debt Buyers’ claim is not brought to recover interest secured by a mortgage.
[30] The claim is founded on the settlement agreement entered into on
7 December 2009. It is a claim for breach of that contract. The limitation period is six years, prescribed by s 4 of the Limitation Act 1950. That is six years from the date of breach. The earliest breach appears to have been on 4 February 2010 when an instalment of $100 was due but was not paid. This proceeding was issued on
1 December 2015, well within the limitation period. Debt Buyers can also rely on s
25(4) of the Limitation Act 1950, which provides that, where a right of action has accrued to recover a debt, and the person liable acknowledges the claim or makes any payment in respect of it, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment. There was an acknowledgement of the debt in the settlement agreement in December 2009 and payments through to January 2013.
[31] The claim now made is not statute barred.
Interest
[32] Debt Buyers seeks interest on its claim for $373,225.63, but accepts that it is not entitled to claim interest at the rate payable under the loan agreements. This is because Debt Buyers did not receive an assignment of the original lender’s rights to claim interest. What was assigned to Debt Buyers was the total of the debt – shortfall plus interest – which had been assigned in the second assignment, less the sum of $1,200 in the 12 payments of $100 each made by Mr Schutt to PSL following the second assignment (and all ofwhich were made before the final assignment).
[33] Debt Buyers seeks interest pursuant to s 87 of the Judicature Act 1908 on the sum of $373,225.63 calculated at five per cent per annum from the date of filing of the claim on 1 December 2015 down to the date of judgment.
[34] I am satisfied that Debt Buyers is entitled to Judicature Act interest on the principal sum of $269,704.01 from 1 December 2015 to the date of judgment. The balance of the total claim represents interest calculated at 13.5 per cent per annum. In exercise of the discretion available under s 87 of the Judicature Act I would not award interest on that interest.
Result
[35] There is judgment for the plaintiff as follows: (a) For a sum of $373,225.63;
(b)For interest at five per cent per annum on a sum of $269,704.01 calculated from 1 December 2015 to the date of this judgment;
(c) Costs to be fixed on a 2B basis including reasonable disbursements.
Any issue in relation to the quantum of those costs to be determined in the first instance by the Registrar.
Woodhouse J
Solicitors:
0