Eversons International Ltd (in liq) v Stewart
[2022] NZHC 3616
•22 December 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000192
[2022] NZHC 3616
BETWEEN EVERSONS INTERNATIONAL LIMITED (IN LIQUIDATION)
First PlaintiffAND
ELIZABETH HELEN KEENE and LUKE NORMAN
Second Plaintiffs
AND
EVAN KERRY STEWART
Defendant
Hearing: 12 December 2022 Appearances:
M J Tingey for the Plaintiffs
K W Clay and D K Quirk for the Defendant
Judgment:
22 December 2022
JUDGMENT OF NATION J
[1] On 13 May 2020, the first plaintiff, a company in liquidation, and second plaintiffs, the liquidators, filed proceedings against the defendant (Mr Stewart). The plaintiffs sought judgment against Mr Stewart for the amount his shareholders current account with the first plaintiff was overdrawn as at the date of liquidation, and
$2,096,000 for unpaid company income tax liabilities incurred when the company was alleged to have been insolvent.
[2] Mr Stewart filed a statement of defence to those initial pleadings and to an amended statement of claim dated 1 October 2021.
EVERSONS INTERNATIONAL LTD (IN LIQ) v STEWART [2022] NZHC 3616 [22 December 2022]
[3] In a minute of 3 August 2022, Mander J noted that, shortly before a telephone conference was to be convened, a memorandum was filed advising the parties had agreed terms of settlement, and the trial scheduled to begin on 29 August 2022 could be vacated.
[4] With the agreement of counsel, the proceedings were adjourned to a nominal date of 14 November 2022 for the terms of settlement to be implemented.
[5] In a further minute of 10 November 2022, Mander J recorded that the terms of settlement had been amended such that payments due in early November 2022 were now due on 25 November 2022.
[6] In accordance with the parties’ request, the proceedings were adjourned by consent to 12 December 2022. By that date, it was anticipated a notice of discontinuance would have been filed.
[7] On 9 December 2022, counsel for the plaintiffs filed a memorandum advising that the plaintiffs considered Mr Stewart had not complied with the settlement deed. Pursuant to a clause in that deed, the plaintiffs sought judgment under a signed admission for $1,720,000, being $2 million, less $280,000 paid to date, plus costs on a solicitor-client basis. Attached to the memorandum was the settlement deed dated 2 August 2022, Mr Stewart’s admission of the plaintiffs’ claim dated 2 August 2022 in the sum of $2 million and a notice of default emailed from one of the liquidators to Mr Stewart’s solicitor showing it as having been sent on 28 November at 11:11 hrs. This showed the notice of default had been sent in the manner and to the address required by the settlement deed. That memorandum and admission was thus before the High Court on the scheduled call in the Duty Judge List on 12 December 2022.
[8] On the call of the proceedings, Mr Tingey, counsel for the plaintiffs, asked for judgment to be entered in terms of the filed admission, as he submitted was permitted by r 15.16 of the High Court Rules 2016, consistent with the judgment in P v Bridgecorp Ltd.1
1 P v Bridgecorp Ltd (in rec and in liq) [2012] NZCA 530.
[9] Mr Clay, who had represented Mr Stewart earlier in the proceedings, appeared for Mr Stewart. He opposed the entry of judgment. He said Mr Stewart did not accept he was in default under the settlement deed. Mr Clay said he was not in a position to make submissions as to what r 15.16 permitted. He asked for the proceedings to be adjourned and sought an opportunity for Mr Stewart to provide evidence that he was not in default. Relevantly, Mr Clay did not suggest Mr Stewart had not been served with the notice of default.
[10] In response to that submission, Mr Tingey submitted r 15.16 permitted and required the Court to accept the admission of claim and to enter judgment on it accordingly.
[11]I reserved my judgment.
Determination
[12] The settlement deed set out the background to the settlement, including the commencement of the proceedings and the scheduled date for trial. It also referred to the fact Mr Stewart was residing in a property, the legal owners of which were members of his family. The property was at that point being marketed for sale.
[13]The settlement deed recorded, amongst other matters:
The Parties Agree as Follows:
1. Mr Stewart will pay the sum of $1,000,000.00 (one million dollars) (Settlement Sum) to the Liquidators. Mr Stewart will pay the Settlement Sum as follows:
a)Mr Stewart will pay the sum of $100,000.00 on or before 25 August 2022 as part payment of the Settlement Sum, such payment not to be included in the payments described in 1(b)-(f) below;
b)Mr Stewart will procure the payment by the Owners to the Liquidators of an amount not exceeding $300,000.00 from net proceeds of sale of the Property, after deduction of any amounts payable to any mortgagee, and the reasonable costs and settlement of the sale;
c)If a sale of the Property has not settled by 1 November 2022, then, on that day, Mr Stewart shall pay to the Liquidators $100,000.00 as part payment of the Settlement Sum;
d)If a sale of the Property has settled prior to 1 November 2022, but the amount paid by the Owners to the Liquidators is less than
$100,000, Mr Stewart shall pay any required balance so that the Liquidators receive $100,000 in respect of part payment of the Settlement Sum on 1 November 2022;
e)Mr Stewart will pay 10 equal quarterly payments in respect of any then outstanding balance of the Settlement Sum, the first of such payments being payable on 8 November 2022, in a minimum amount of $80,000.00 per quarter, with each quarterly payment being made on the first Working Day of the months of February, May, August and November (as “Working Day” is defined in the Legislation Act 2019);
f)Following payment to the Liquidators of the net proceeds of sale of the Property or the $100,000 on 1 November 2022, the remaining quarterly payments shall reduce so the balance of the Settlement Sum due over the remaining period of the payments will be paid in ten equal quarterly instalments by 1 February 2025.
[14] Clause 3(b) of the deed said “Mr Stewart will complete and deliver to the Liquidators an admission and acknowledgement of debt in the attached form in the sum of $2,000,000 (two million dollars)”. The liquidators undertook not to file or use the admission and acknowledgement of debt unless there had been a default under the settlement deed and a default notice had been served and not complied with.
[15]Relevantly, cl 11 stated:
In the event that Mr Stewart does not perform any of his obligations set out in this Settlement Deed, or if the Liquidators reasonably determine that the sworn statement is materially inaccurate, including (but not limited to) misstating any asset or liability by more than $15,000, the Liquidators may file the admission of claim, and thereafter obtain judgment in favour of the Company and the Liquidators in the sum of $2,000,000. (two million dollars) less the amount of any payments received by that date, without prejudice to exercising any other rights that the Liquidators have.
[16]Clause 13 stated:
If Mr Stewart defaults in performance of his obligations under this Settlement Deed, then the Company and the Liquidators may give notice to Mr Stewart by sending it by email to […] stating the event of default and the action required to remedy the default (if it is capable of remedy) (the Default Notice). The Default Notice must permit the defaulting party the period of 5 Working Days (as defined in the Legislation Act 2019) from the date of service to remedy the default. If the default is remedied within the Default Notice period then no default will be deemed to have occurred under this Settlement Deed.
[17]Clause 2 of Mr Stewart’s admission of the plaintiffs’ claim stated:
The defendant hereby consents to the first and second plaintiffs sealing judgment against the defendant in the sum of $2,000,000 (two million dollars), payable jointly and severally to the first and second plaintiffs, on the basis of the admission contained hereon.
[18] Clause 3 said the amount of any judgment sealed is to be reduced by the amount of any payments made by Mr Stewart to the plaintiffs in the period from 1 August 2022 to the date of sealing.
The emailed notice of default
[19]The notice of default said Mr Stewart was in default of the settlement deed in:
(a) not paying $80,000 to the liquidators, an amount originally due on 8 November 2022; and
(b) not paying $100,000 to the liquidator, an amount originally due on 1 November 2022 under the settlement deed.
[20]The notice required Mr Stewart to pay those two sums.
[21] It also required Mr Stewart to provide a statement of the sale proceeds of the property to enable the liquidators to determine the amount payable in terms of cl 1(b) of the settlement deed.
[22] The notice advised Mr Stewart that, unless these matters were strictly complied with within five working days, the liquidators would be entitled to the remedies under the settlement deed, including filing the admission and acknowledgement of debt and obtaining judgment against Mr Stewart for $1,900,000 plus interest and costs.
Applicable law
[23]Rule 15.16 of the High Court Rules states:
15.16 Admission of cause of action
(1) At any time after a party has been served with a notice of proceeding, that party may file and serve (separately from the party’s pleadings) an
admission of all, some, or part of the alleged causes of action on all other parties to the proceeding.
(2) An admission can be withdrawn only with the leave of the court.
(3) When an admission is filed and served under subclause (1), a party on whom the admission is served may seal judgment on the cause of action admitted, without prejudice to that party’s right (if any) to proceed on any other cause of action.
(4) An admission under subclause (1) relating to any cause of action in which a sum of money is claimed must state the exact amount admitted.
(5) Any judgment entered on an admission filed and served under subclause
(1)may, upon application, be set aside by the court if—
(a)the plaintiff, being under a duty or obligation to the defendant not to enter judgment on the admission, acted contrary to that duty or obligation in entering judgment; or
(b)the plaintiff, in entering judgment, acted fraudulently, unconscionably, or in wilful or reckless disregard of the defendant’s rights.
(6) Upon an application under subclause (5), the court may direct that a proceeding be brought to determine whether judgment was wrongfully entered.
(7) This rule does not affect rule 8.48.
[24] In P v Bridgecorp, Bridgecorp sought to exercise its rights under a mortgage to sell a property securing a debt to which Bridgecorp was entitled. A party with an interest in the property filed proceedings seeking an injunction. Before a final judgment was issued in those proceedings, the parties negotiated a settlement. They completed a settlement deed. Attached to the settlement deed was an admission of claim and a draft statement of claim to which the admission related. The settlement deed included the following clauses:
Admission of claim
9. Upon execution of this deed, [Mr P] shall execute an admission of claim in the form annexed to this deed and deliver the original, executed admission of claim to Bridgecorp.
10. The admission of claim shall be held by Bridgecorp, and shall not be filed in Court unless [Mr P] fails to make a payment in accordance with clause 3 above. Bridgecorp undertakes it will not use the admission of claim other than in accordance with this clause and clause 11 below.
11. In the event that [Mr P] fails to make any payment strictly in accordance with clause 3 above, time being of the essence, Bridgecorp may (without any further notice) file the admission of claim together with a statement of claim in the form annexed to this deed, and immediately enter and enforce judgment, and may seal judgment under the High Court Rules, against [Mr P] for the amount of the Debt then outstanding, plus interest in accordance with clause 6.2 above, less all payments made by [Mr P] pursuant to clause 3 above.
12. [Mr P] irrevocably authorises Bridgecorp to file the admission of claim under Rule 15.16 of the High Court Rules, on behalf of [Mr P].
(footnote omitted)
[25] Mr P failed to keep to the repayment schedule specified under the deed. Bridgecorp filed a statement of claim against him in the High Court together with the admission. Bridgecorp also filed an affidavit from the receiver attaching the settlement deed. The statement of claim was in substantially the same form as had been attached to the settlement deed but showing the amount then outstanding.
[26] An Associate Judge declined to authorise the entry of judgment in terms of the admission as Mr P had not been served with the proceedings. Mr P was subsequently served with the proceedings. He filed a statement of defence and also applied under r 15.16(2) of the High Court Rules for leave to withdraw the admission. He advanced grounds relating to the conduct of Bridgecorp and his circumstances at the time the admission was signed as grounds for being given leave to withdraw the admission. There was a hearing as to that. The Associate Judge held Bridgecorp was entitled to judgment in terms of the admission and fixed costs on the application.2 The Associate Judge subsequently declined to deal with another application to set aside that judgment.
[27] In that case, the admission had been signed in relation to a statement of claim which was not then before the Court but which it was anticipated could be filed if there was a default in relation to the settlement. The Court of Appeal held r 15.16 did not prevent a party obtaining an admission of claim in advance of proceedings being filed.
2 Bridgecorp Ltd v P HC Auckland CIV-2011-404-1573, 14 October 2011.
[28] The Court of Appeal rejected the argument that the rule provided for only Mr P to file the admission. The Court said:
[23] However, we agree with the analysis of Heath J in Mather v O’Keefe where the Judge accepted the creditor could hold and file the admission in an agency capacity. There is no difference, in practical terms, between the admission completed by Mr P and an admission provided by a defendant to a plaintiff after proceedings have been commenced. Mr P knew the claim he was facing, and the nature of the proceedings in which the admission was to be filed if he defaulted. The draft statement of claim was attached to the settlement deed. We note that Mr P provided Bridgecorp with express authority to file the admission on his behalf.
(footnote omitted)
[29]The Court said:
[25] [Mr P’s counsel] next submitted that r 15.15 may have been more appropriate than r 15.16. He noted that an application would have been required for judgment under that rule. But r 15.15 provides for a quite different situation to the present. It contemplates that, following an admission of facts (in pleadings for example) a party may apply for judgment on the basis of those particular admitted facts. In contrast, r 15.16 provides for the admission of a cause (or causes) of action or the whole of the claim. It enables a party to seal judgment on the basis of the admission without application. The rationale behind the rule is that if a party has, with full knowledge of the claim, conceded liability, there is no need for the Court to determine liability. Judgment follows the admission. A party in Mr P’s position may then pursue an application to set the judgment aside under r 15.16(5).
[30] In Mather v O’Keeffe, the defendants obtained a loan secured by a mortgage over Ms Mather’s property.3 Contemporaneously, the defendants entered into a written agreement with Ms Mather. They promised Ms Mather to make all payments secured by the mortgage over her property. That mortgage subsequently turned out to be worthless following a mortgagee sale. Ms Mather issued proceedings to recover from the defendants the loss she suffered when the loan fell into default. Ms Mather sought judgment on an admission signed by the defendants that was tendered to her on or about 13 October 2010 as part of an agreement to settle the proceeding. Heath J said, on the face of the document, if the application were granted, Ms Mather would be entitled to judgment in the sum of $422,833, but Ms Mather accepted the defendants had subsequently made payments that should be subtracted from that sum.
3 Mather v O’Keeffe [2012] NZHC 2240.
[31] Ms Mather sought judgment for the balance of just under $400,000. Heath J said the application had initially come before him on the papers. He declined to enter judgment because of doubts about the jurisdiction to do so and established a timetable for a formal proof hearing. He said, instead, the application for judgment on admission had been renewed. His Honour referred to the commentary then in McGechan on Procedure:4
It is common practice for an admission to be signed by the party served and held by the party serving for the party serving to file in the event that the party served defaults on the terms of a settlement. Even though that is not strictly in accordance with the words of HCR 15.16 such filing is nevertheless permitted by the rule.
[32]He said:
[14] One basis on which that might be sustained is that an admission made available to a plaintiff is effectively held in escrow, pending completion of settlement. It might be said that the plaintiff is then filing the document in an agency role. However, given the way in which the application is now pursued, I do not need to determine that point.
[33] Heath J however exercised jurisdiction to enter judgment in terms of r 15.15 of the High Court Rules.
[34] In United Building Society v Mills, Hillyer J in the High Court was concerned with a confession of claim for $280,000 which had been provided to the plaintiff as one of the terms of a mortgagee sale.5 The confession had been filed pursuant to r 471 of the then High Court Rules. Rule 471(1) and (2) was as follows:
Admission of claim or cause of action—
(1) A party who admits any claim or cause of action alleged in any proceeding served upon him may at any time thereafter file an admission thereof and serve a copy thereof on the other party.
(2) Where an admission is filed and served under subclause (1), the party on whom the admission is served may thereupon seal judgment on the claim or cause of action so admitted, without prejudice to his right (if any) to proceed on any other claim or cause of action.
4 At [15], citing McGechan on Procedure (LexisNexis, loose-leaf) HC 15.16.
5 United Building Society v Mills [1991] 2 NZLR 484 (HC).
[35] Hillyer J observed that r 471 appeared to have been drawn having regard to the comments made by the Court of Appeal in Rhodes v Redevelopment Co Ltd.6
[36] In Rhodes v Reid Development Co Ltd, the Court of Appeal was concerned with rr 309 to 312 of the Code of Civil Procedure. Rule 309 permitted judgment to be entered in any action upon a written confession. The Court of Appeal’s judgment was primarily concerned with what was required for the Court to set aside a judgment entered on a confession contrary to good faith. The Court of Appeal nevertheless said:7
The main object of the Rules which provide for judgment by confession is to avoid a plaintiff having to set an admitted claim down for trial in the type of case where formal proof will be required in default of appearance. It is to be observed in this respect that a written confession under R 309 must confess liability under the cause of action contained in the statement of claim, and that document must state the exact amount for which judgment is confessed. But apart from the practical utility of judgment by confession where formal proof would otherwise be required, the procedure is often resorted to in practice where judgment by default would be available without trial, but where the defendant agrees to admit liability for the amount claimed or part thereof on terms that he is given time to pay or is given the right to pay by instalments. That is a situation which R 312 clearly contemplates, in addition to possible breach of the special condition referred to in R 309. The transaction at present under review represents a common example of a confession of judgment being signed and delivered conditionally, with the plaintiffs in the proceedings holding the signed confession by way of security for the due performance by the defendant of his promise to pay. It is against this background that the true scope and intent of R 312 requires to be considered.
[37] In Copland v Goodwin, Associate Judge Faire, as he then was, was concerned with the entry of judgment pursuant to r 15.16.8 He said:
[14] The entry of judgment by admission was analysed in United Building Society v Mills. When an admission is signed as part of a settlement a plaintiff may take judgment on the formal admission even though it is not a formal admission of one of the causes of action set out in the original statement of claim. This follows the common practice where a proceeding is settled for the admission to be held in escrow as security by a plaintiff. If a settlement is not completed, the plaintiff will file the admission and obtain judgment. In this way, the plaintiff in [sic] is not required to set the case down for trial in respect of the admitted claim. This position was recognised in Rhodes v Reid Development Co Ltd. The Court of Appeal was there considering the predecessor to the current rule.
(footnotes omitted)
6 Rhodes v Reid Development Co Ltd [1981] 2 NZLR 721 (CA).
7 At 725.
8 Copland v Goodwin HC Dunedin CIV-2004-412-346, 11 June 2010.
[38] I consider the judgments just referred to are the context and background against which the true scope and intent of r 15.16 is to be considered.
Analysis
[39] The plaintiffs’ application to enter judgment based on an admission was not made by way of the filing of a formal application. It was not supported by an affidavit. Nevertheless, the basis on which the plaintiffs were seeking judgment was clearly set out in the memorandum from counsel and the accompanying documents. It was not suggested that the notice of default had not been served as required by the settlement agreement. Rule 15.16(1) refers to a party being able to file an admission, and r 15.16(3) refers to a party who has received such an admission being entitled to obtain judgment in terms of that admission. There is no reference to the procedure requiring the filing of an interlocutory application with evidence as to how the admission came to be made or as to why the parties seeking to benefit from the admission consider there has been a default in terms of the relevant settlement.
[40] As in P v Bridgecorp, the present case is a situation to which r 1.2 applies. The objective of the High Court Rules is “to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application”.
[41] Judgment on an admission does not have to be the subject of an interlocutory application. Nor does it require evidence by way of formal proof.
[42] The plaintiffs seek judgment on an admission which did state the exact amount admitted.
[43] I will accordingly enter judgment for the plaintiffs, in accordance with the signed admission, for the balance due of $1,720,000.
[44]The plaintiffs also sought judgment for costs on a solicitor-client basis.
[45]Clause 6 of the settlement deed stated:
The Proceedings will be adjourned by consent until 14 November 2022 and, provided Mr Stewart has performed his obligations under this Settlement
Deed, the Proceedings will then be discontinued with no order as to costs. A notice of discontinuance recording the same will be filed. Thereafter, if default arises the Company and the Liquidators may seek summary judgment on this Settlement Deed and seek costs on a solicitor and client basis. Mr Stewart will not oppose the entry of judgment in accordance with the terms of this Settlement Deed or assert any defence or counterclaim in any bankruptcy or other enforcement proceedings.
[46] The clause does potentially provide for the plaintiffs to be awarded costs on a solicitor-client basis but only if there is a breach of the terms of settlement after initial compliance and the filing of a notice of discontinuance. That is not the current situation. Furthermore, pursuant to r 15.16, the admission on which judgment is to be entered has to be for a specific amount. The plaintiffs have not advised what amount they are seeking in solicitor-client costs.
[47]I note r 15.16 of the High Court Rules:
(5) Any judgment entered on an admission filed and served under subclause
(1)may, upon application, be set aside by the court if—
(a)the plaintiff, being under a duty or obligation to the defendant not to enter judgment on the admission, acted contrary to that duty or obligation in entering judgment; or
(b)the plaintiff, in entering judgment, acted fraudulently, unconscionably, or in wilful or reckless disregard of the defendant’s rights.
(6) Upon an application under subclause (5), the court may direct that a proceeding be brought to determine whether judgment was wrongfully entered.
[48] There is accordingly judgment for the plaintiffs jointly and severally against Mr Stewart in the sum of $1,720,000.
[49] Unless there is agreement over costs, the plaintiffs are to file a memorandum as to the costs they seek by 20 January 2023. Mr Stewart may file a memorandum in reply by 27 January 2023.
[50] If Mr Stewart wishes to protest the sealing of this judgment, he must file an application as referred to in r 15.16(5), together with a supporting affidavit, by 27 January 2023.
[51] The proceedings are to be called in the Duty Judge List at 11.45 am on 13 February 2023 for the Judge to note whether such an application has been filed and, if so, whether to direct there be a hearing to determine whether judgment was wrongfully entered and to make appropriate directions if such a hearing is required. The Judge may also make further directions to deal with any costs issue.
Solicitors:
Martelli McKegg, Auckland.
K W Clay, Clarendon Chambers, Christchurch Layburn Hodgins Ltd, Christchurch.
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