Ford v Strangwick
[2019] NZHC 2245
•6 September 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-557
[2019] NZHC 2245
BETWEEN PETER LESLIE FORD
Plaintiff
AND
ALYSSA AILENE STRANGWICK and TRAVIS BRADLEY STRANGWICK
Defendants
Hearing: 5 September 2019 Counsel:
Plaintiff in person
C J Nicholls for Defendants
Judgment:
6 September 2019
JUDGMENT OF CHURCHMAN J
Introduction
[1] On 28 March 2019, Mr Ford (the plaintiff) obtained judgment by default against Alyssa and Travis Strangwick (the defendants) following a formal proof hearing before Johnston AJ.1 This had the effect of transferring title to a property in Lower Hutt (the property) to the plaintiff subject to a mortgage which had been placed on it by the defendants to obtain a loan. Since receiving title, the plaintiff has discharged that mortgage to prevent the mortgagee from exercising its power of sale. He has claimed the liquidated debt from the defendants in the District Court.
[2] The defendants now make an interlocutory application for an order under r 15.10 of the High Court Rules 2016 (HCR) setting aside the default judgment. They say there has been a miscarriage of justice because the default judgment was
1 Ford v Strangwick [2019] NZHC 614.
FORD v STRANGWICK & ANOR [2019] NZHC 2245 [6 September 2019]
irregularly obtained. They argue the Associate Judge lacked the jurisdiction to give a default judgment under r 15.9 and that they were not in fact served with the proceeding which prevented from defending the proceeding.
[3] The plaintiff opposes this application. A process server he contracted has deposed that he served Mrs Strangwick and the Court deemed both defendants as having been served.2 The plaintiff submits that it is unlikely that a different conclusion would be the result from a re-trial and that there would be irreparable injury caused to him from having the judgment set aside as he has already discharged the mortgage which the defendants had placed on it.
The history of the dispute to date
Background
[4] The plaintiff is the step-father and step-father-in-law of Alyssa and Travis Strangwick (respectively). Mrs Strangwick was born after her mother and the plaintiff separated and she came to live with him in Wellington for a year when she was 18 years old. She then moved to Melbourne, met Mr Strangwick, got married, and the couple have lived around Melbourne, Australia ever since.
[5] Prior to 15 April 2014, the plaintiff was the registered proprietor of the property in Lower Hutt that is the subject of this ownership dispute. It was previously the Ford family home but around a decade ago it was turned into a tenanted investment property from which the plaintiff obtains rental income. The mortgage over the property had been discharged by August 2013. The plaintiff is now retired. He has three sons. He lives in a property next to the one in dispute and two of his sons live in the one next to that. He owns both of those properties as well. There is no street access to the property and the only way to physically reach it is by going over a path registered to one of the other properties the plaintiff owns.
[6] In early 2014, the defendants approached the plaintiff to ask for funds to advance their business interests. They had a multimedia business which they ran
2 Ford v Strangwick HC Wellington CIV 2018-485-557, 10 December 2018, Minute of Mallon J.
through an Australian registered company called Angry Chicken Creative Media Ltd. At that time, Mrs Strangwick was in the late stages of pregnancy and Mr Strangwick was out of employment due to health issues. They had been unable to obtain finance from Australian or New Zealand banks and neither had the plaintiff due to his retiree status.
[7] The plaintiff’s evidence at the formal proof hearing was that he and the defendants entered into an oral agreement where he would transfer them title to the property for zero consideration to enable them to use it as security for a personal loan not exceeding $100,000. He would remain the beneficial owner and continue to manage and draw rental income from it. The property would then be transferred back to him once the loan was repaid. The parties apparently did not turn their minds to what would happen if the defendants failed to service their borrowing and a mortgagee took steps to exercise their power of sale.
[8] The parties engaged the same solicitor to carry out this transaction. Neither side was advised to and nor did they obtain independent legal advice. The defendants remained in Melbourne at all relevant times and the dealing occurred at a distance. The lawyer did not record the conditions which the plaintiff said were a part of the arrangement. The client authority and instruction form which is required to carry out an electronic transaction was never witnessed nor signed. Neither was the Deed of Gift of Land. Despite this, the title to the property passed and the defendants were duly registered on 15 April 2014. The plaintiff continued to pay rates, maintain the property, manage the tenants and receive rental income from the property.
[9] Following this transaction, the defendants mortgaged the property to borrow around $75,000 from Southern Cross Finance Ltd on 6 June 2014.3 The proceeds of the loan were received by the plaintiff into his bank account as the defendants did not have a New Zealand bank account. He then paid AU$50,000 to the defendants’ Australian bank account and retained the balance. Payments of the loan were scheduled to be deducted from the plaintiff’s bank account while the defendants
3 There are inconsistencies in the documents presented to the Court about the quantum of this loan. Mr Ford has said $69,000, $70,000 and $75,000 at various times. I have stated it as approximately
$75,000 in line with the defendants’ joint affidavit dated 4 July 2019.
established a New Zealand bank account. The amount of the $75,000 loan which was retained by the plaintiff was depleted by these repayments. Around May 2015, the defendants took over responsibility for the loan. However, subsequently, they fell behind on their repayment obligations and on 21 March 2017 Southern Cross Finance issued a formal notice of intent to exercise their mortgagee power of sale. This was avoided by a refinancing arrangement with two other lenders in shares, Wroxton Finance Ltd and Curzon Capital Ltd, to a total value of $117,000. The mortgage to these companies was registered on 19 May 2017.
This proceeding
[10] The plaintiff said that during 2017, the defendants attempted a number of times to sell the property. This led to him registering a caveat on the property on 8 December 2017. He then engaged a lawyer and filed this proceeding in the High Court on 27 July 2018. The statement of claim provides some background into the plaintiff’s family affairs and his mental health issues which ultimately led to his retirement. He discusses how he acquired the adjacent properties to the property in order to provide care and assistance to one of his sons who suffers from longstanding health issues. The statement of claim identified three alternative causes of action:
(a)Unconscionable bargain: the plaintiff said that he was clinically depressed at all times and that diminished his ability to assess his best interests. He was not independently advised in the transaction. He claimed that the defendants were aware of this disability and accepted the transfer of the property in unconscionable circumstances. He sought the remedy of recession of any gift deemed to have occurred in the transfer of the property to the defendants. Alternatively, he sought the imposition of a constructive trust in his favour.
(b)Institutional constructive trust: the plaintiff said that he never intended to relinquish his beneficial ownership of the property when he transferred title. The intent was to allow the defendants to use it as security to obtain finance and that title would revert upon that loan being repaid. The plaintiff sought a declaration of an institutional
constructive trust in his favour and an order disbursing the asset to him as its sole beneficiary.
(c)Resulting trust: the plaintiff said no consideration was paid for the property by the defendants and that it was never intended that beneficial ownership would pass. He sought the same remedies as above but in terms of a resulting trust.
[11] The plaintiff’s initial disclosure bundle, submitted the same day as the statement of claim was filed, provided evidence of his son’s health issues, his health issues, Southern Cross Finance’s formal notice of intent to exercise mortgagee power of sale, and correspondence between the plaintiff and Travis Strangwick about how to resolve that issue.
Serving the defendants
[12] The plaintiff had issues with serving the defendants with the proceeding. The Australian process server he engaged was unable to find them. The plaintiff attempted to make the defendants aware of the proceeding by individually mailing copies to both of them and to Travis Strangwick’s mother; delivering copies by signature required courier to the defendants’ irrevocable agent in New Zealand; and emailing their business email addresses.
[13] The plaintiff applied to this Court on 5 October 2018 seeking an order for substituted service by email under r 11.5 of the HCR. In that application he said that a private investigator, who had been contracted by his lawyer, approached an address in Torquay, Victoria which was given as both the residential and corporate address of the defendants and their company (Angry Chicken Media). However, the investigator confirmed the residents of this address were not the defendants. They did not seek further information from the residents about a forwarding address for the defendants or their agents’ details. Nor did the investigator seek information from the neighbours. The private investigator was advised 10 days later that the plaintiff had received information that the defendants may now be located at an address in Geelong, Victoria. The plaintiff’s lawyer and investigator instructed the process server agent to attempt service at that Geelong address. However, there was no evidence of that attempt.
[14] The High Court issued a judgment on 9 October 2018 on the plaintiff’s application for substituted service.4 Clark J was not satisfied that the plaintiff had made reasonable efforts to serve the defendants because it was necessary for the plaintiff to provide evidence of the attempts to serve at the Geelong address provided to the private investigator. Moreover, the application to make substituted service by email had to fail because there was no evidence of contact with Alyssa Strangwick via the email address that the plaintiff proposed would be the manner by which substituted service would be effected. While such evidence had been provided for Travis Strangwick’s email address, r 6.4(2) of the HCR operated to prevent the Court from deeming a spouse as served if their husband had been served. Therefore, the plaintiff needed to either provide evidence of previous contact with Alyssa Strangwick via the email address nominated for her or find some proper basis on which the Court could find service of Travis Strangwick amounted to service on Alyssa.
[15] On 24 October 2018, the Australian investigator and process server, Mr Carl Drought, was able to locate the defendants’ residence. According to the report from Mr Drought, at 8:30 am that morning, Alyssa Strangwick answered the door and confirmed that she was Alyssa Ailene Strangwick and said that Travis Strangwick also resided there but that he was asleep and would be awake in about an hour. She accepted the documents. Several subsequent attempts at serving Travis Strangwick failed.
[16] Following these developments, on 10 December 2018, Mallon J issued a minute on the plaintiff’s re-application (made on 6 December 2018) for substituted service.5 She was satisfied that reasonable efforts to serve the proceedings by a method permitted or required by the rules had been made and that the proceedings had been brought to their knowledge. Therefore, the Judge directed that the proceedings be treated as served on Travis Strangwick as of 24 October 2018.
4 Ford v Strangwick [2018] NZHC 2630.
5 Ford v Strangwick, above n 2.
Subsequent events and judgment by default
[17] The plaintiff says the defendants engaged a property management company to take over rental management of the property in October 2018 and that company issued an eviction notice to the tenants. He took the matter to the Tenancy Tribunal on 18 December 2018 and obtained a determination that he was the landlord and that his tenants could stay.
[18] The plaintiff also learned that the defendants had fallen behind on their repayment obligations on the refinanced loan to Wroxton Finance and Curzon Capital. Wroxton Finance issued a formal notice of pending mortgagee sale on 14 August 2018. In January 2019, Wroxton Finance advised the tenants of the property that the property would soon be sold but with their tenancy intact. When the plaintiff discovered this, he applied for an interlocutory injunction without notice to prevent Wroxton Finance from doing this. Having been advised by Wroxton Finance that it had no immediate plans to sell the property, Dobson J refused to grant the order on a without notice basis on 11 February 2019.6
[19] After this, a mortgagee auction of the property was scheduled by Wroxton Finance’s real estate agents to take place on 4 April 2019. The plaintiff instructed counsel and sought judgment by default under r 15.9 of the HCR. A formal proof hearing took place before Johnston AJ on 26 March 2019. The Associate Judge issued judgment by default for the plaintiff on 28 March 2019. Johnston AJ began by noting that he was entitled to do this as the defendants had not entered a defence nor taken any other steps. He said there was no issue about service because of the Court’s order on 10 December 2018 directing that there had been adequate service. The Judge was satisfied that the plaintiff had remained the beneficial owner of the property since the transfer of title to the defendants. He made an order under s 52(1)(h) of the Trustee Act 1956 vesting legal ownership of the property in the plaintiff subject to the security held over it by Wroxton Finance and Curzon Capital.
6 Ford v Strangwick HC Wellington CIV-2018-485-557, 11 February 2019, Minute of Dobson J.
[20] Upon receiving judgment by default, the plaintiff obtained bank finance to pay off the loan to Wroxton Finance and Curzon Capital. He claimed the liquidated debt from the defendants in the District Court.
This application
[21] On 26 April 2019, the defendants, through their counsel, made this application to set aside Johnston AJ’s judgment by default of 28 March 2019 on the basis they had not actually been served and that a miscarriage of justice would result if they were prevented from defending the plaintiff’s claim.
[22] The Associate Judge issued a minute following a teleconference on 29 May 2019.7 He acknowledged the defendants’ counsel’s submission that it will be necessary for the Court to hear viva voce evidence so that the question of whether the defendant had been served could be resolved. However, the Associate Judge considered it appropriate to raise the issue of whether he had jurisdiction to deal with the matter. The Associate Judge said:
[11] I explained to the plaintiff and Mr Nicholls that the issue of jurisdiction had not arisen at the hearing and that I had proceeded on the basis that an Associate Judge has jurisdiction by reason of ss 22(1) of the Senior Courts Act 2016 and r 2.1(1) of the High Court Rules 2016 because, the defendants having not entered defences, there was no dispute and the matter could be disposed of in chambers. The defendants having now applied to set the judgment aside I have considered the question of jurisdiction and reached the view that there is at least an issue relating to this.
[12] No doubt the plaintiff and Mr Nicholls will wish to give consideration to the point.
[23] Having regard to that issue, the Associate Judge decided to refer the matter to a High Court Judge pursuant to s 26(1) of the Senior Courts Act (SCA).
Relevant principles
[24]This application is made under r 15.10 of the HCR. That rule states:
7 Ford v Strangwick HC Wellington CIV-2018-485-557, 29 May 2019, Minute of Associate Judge Johnston.
15.10 Judgment may be set aside or varied
Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
[25] An application under r 15.10 is an interlocutory application because it relates to a matter of procedure. It is within an Associate Judge’s jurisdiction unless a specific direction has been given that it be heard in open court.8 It is not a review of the Judge’s decision but involves different issues. Therefore, it has been held to be within an Associate Judge’s jurisdiction notwithstanding the judgment by default under rr 15.7-
15.9 was given by a Judge.
[26] The test is whether it is just in all the circumstances to set aside the judgment.9 The Court’s discretion is broad. A key issue is whether the judgment was irregularly or regularly obtained.10 The following guidance from the Court of Appeal’s recent judgment in EA v Rennie Cox Lawyers is instructive on this issue:11
[20] In summary, where a judgment has been irregularly obtained, there will almost always be a miscarriage of justice such that the judgment should be set aside without considering the merits. However, that is not an inflexible rule that must be applied in every case, regardless of the circumstances. There may be cases where the irregularity in obtaining the judgment was so minor and inconsequential that it could not have caused prejudice and there is no arguable defence. If the Court can safely conclude that there is no risk of a miscarriage of justice, it might properly decline to set aside the judgment.
[27] An “irregularly obtained judgment” was defined as “those which ought not to have been entered on the court register” or, with reference of Anlaby v Prætorius where “obtain[ing] that judgment was a wrongful act, not an act done within any of the rules”.12 The Court explained the rationale for the rule as follows:
[16] There are sound reasons for this approach and we see no justification to depart from it. A judgment obtained by default will often be entered by an administrative act and without judicial scrutiny. In any event, it does not represent a determination of the claim on its merits. A default judgment that
8 Dominion Finance Ltd (in liq) v Young (1993) 7 PRNZ 168 (HC) at 11 per Master Kennedy-Grant.
9 McGechan on Procedure (online looseleaf ed, Thompson Reuters) at [HCR15.10.03(2)].
10 At [HCR 15.10.03(1)].
11 EA v Rennie Cox Lawyers [2018] NZCA 33, [2018] 3 NZLR 202 per Gilbert J for the Court. This case was concerned with r 12.34 of the District Court Rules 2009 (now revoked) which provided that “[a]ny judgment obtained by default may be set aside or varied by the court on any terms it thinks fit, if it appears to the court that there has been, or may have been, a miscarriage of justice”.
12 At [12] citing Anlaby v Prætorius (1888) 20 QBD 764 (CA) at 769 and 771.
has been irregularly obtained without compliance with the procedural requirements is a judgment to which the plaintiff was not entitled and which ought not to have been entered on the court record. Justice can almost inevitably be said to have miscarried in these circumstances.
[17] A defendant deprived of their fundamental procedural rights should not thereby be disadvantaged. Justice would normally require such a defendant to be restored to the position they ought to have been in by setting aside the wrongly-entered judgment. Given that in the normal course the merits would not have been considered by this stage, it seems wrong in principle that a defendant should have to demonstrate arguable defences before being restored to their rightful position. Otherwise, the defendant would be disadvantaged by the wrongful entry of judgment.
[18] … While a default judgment wrongfully obtained in breach of the rules will almost always result in a miscarriage of justice requiring the judgment to be set aside, the rule is not inflexible. As Mr Bryers observes, the rule does not differentiate between regularly and irregularly obtained judgments although the distinction remains an important one in practice. We agree with Mr Bryers that it is not possible to reconcile a discretion with an inflexible rule dictating how it must be exercised. We endorse the observations made by McGechan J in Baker v The State Insurance Office General Manager:
Without doubt, when a judgment is shown to have been entered by default irregularly, the general approach is that upon application it will be set aside ex debito justitiae. However, that is less a cast iron rule than merely a reflection of the over-riding requirement in this field that the Court guard against miscarriage of justice.
[28] A judgment may be set aside even if was not irregularly obtained. In Russell v Cox, the Court of Appeal said that the Court’s discretion to set aside a judgment obtained by default is unrestricted.13 The test is whether it appears to the Court that there has been, or may have been, a miscarriage of justice. The expression in r 15.10 permits the Court to consider all matters which might properly be said to impeach the judgment obtained.14 The power to set aside or vary the judgment under the rule can be exercised to meet the requirements of justice in the circumstances of the case.
[29] The Court of Appeal in Russell v Cox15 said that three matters of justification are likely to be of central importance in considering whether the discretion to set aside should be exercised. They are: whether the defendant has a substantial ground of defence; whether the defendant’s failure to take any steps is reasonably explained; and
13 Russell v Cox [1983] NZLR 654 (CA).
14 Smith v Penney [2013] NZHC 2988 at [36] per Wylie J.
15 Above n 13.
whether the plaintiff will suffer irreparable harm if the judgment is set aside.16 After considering these matters, the Judge has to stand back and ask in a broad way whether there has been or may have been a miscarriage of justice.17
Analysis
The jurisdiction of an Associate Judge under r 15.9
[30] The judgment by default may be said to have been irregularly obtained if it has been granted by the Associate Judge without jurisdiction.
[31]An Associate Judge’s jurisdiction is defined by ss 20-29 of the SCA and rr 2.1-
2.2 of the HCR. It is true that none of the specific categories set out in s 20(1) or (2) of the SCA gives an Associate Judge the jurisdiction to grant a judgment by default under r 15.9 of the HCR. The only category which seems to come close is s 20(1)(f), but it cannot apply because the relief sought by the plaintiff in this case did not involve an assessment of damages in circumstances where liability had been determined, nor did it involve the trial of a proceeding in which only the quantum of debt or damages was in issue. The plaintiff sought orders giving him the legal and beneficial title to the property.
[32] The Associate Judge considered that he had jurisdiction under s 22(1). This says:
22 Rules conferring on Associate Judges specified jurisdiction and powers of High Court Judge in chambers
(1)Rules made under section 148 and rules made under any other Act in the manner provided in that section may confer on an Associate Judge the jurisdiction and powers of a High Court Judge in chambers specified in the rules.
...
16 For the reasons outlined above, I do not consider the reasons the defendants failed to take steps earlier is of relevance to considering the test under r 15.10.
17 Caltex Oil (NZ) Ltd v McIntosh HC Napier CP123/87, 10 November 1988 at 7 per Eichelbaum CJ. See, also Russell v Cox, above n 13 at 659 where the Court of Appeal said: “it should not be regarded as laying down a general rule that an application to set aside a judgment must satisfy these conditions as a necessary prerequisite to the exercise of the discretion”.
[33] The effect of this is to give Associate Judges the jurisdiction and powers of a High Court Judge sitting in Chambers (except as excluded by s 22(4) which is not relevant here). This position is consolidated by r 2.1 of the HCR which states that an Associate Judge has the jurisdiction of a Judge in Chambers conferred by the SCA, the HCR or any other Act.
[34] The issue of jurisdiction then is about whether a judgment obtained by default following a formal proof hearing can be determined by a Judge sitting in Chambers. If it is, then the Associate Judge had jurisdiction over it. A hearing in Chambers is defined as a hearing that takes place in circumstances in which the general public is not admitted, except with the leave of the Judge.18 An interlocutory application for which a hearing is required must be heard in Chambers unless a Judge otherwise directs.19 This seems to be the only basis on which it could be said that a r 15.9 judgment might be a Chambers matter.
[35] An Associate Judge does not have jurisdiction simply because an application has been styled as an interlocutory application to be heard in Chambers.20 While it is true that the defendants did not file a statement of defence nor take any steps in the proceeding despite being held to have been adequately served, the Associate Judge’s judgment by default under r 15.9 was not an interlocutory order made in Chambers.
An interlocutory order is defined in the HCR as:21
interlocutory order—
(a)means an order or a direction of the court that—
(i)is made or given for the purposes of a proceeding or an intended proceeding; and
(ii)concerns a matter of procedure or grants some relief ancillary to that claimed in a pleading; and
(b)includes—
(i)an order for a new trial; and
18 High Court Rules 2016, r 1.3(1).
19 Rule 7.34.
20 See, for example: Re Profcom Systems Ltd [1989] 2 NZLR 63 at 65-66; and Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 36-37.
21 Rule 1.3(1).
(ii)an order striking out the whole or part of a pleading; and
(iii)an order varying or rescinding an interlocutory order
[36] The true effect of the Associate Judges r 15.9 judgment by default was that it determined the plaintiff’s proceeding by transferring to him the legal title to the property. I consider this means it cannot be viewed as an interlocutory application because it is not a step in the proceeding but a determination of the overall proceeding. I consider this is supported by the discussion of Master Kennedy-Grant in Dominion Finance Ltd (in liq) v Young where it was held that an application under the predecessor to r 15.10 could be regarded as an interlocutory proceeding because it relates to a matter of procedure. An application under r 15.10, like here, is made because the defendant failed to take procedural steps. The Master said:22
The question in the case of each application under r 469 [the predecessor to r 15.10] is whether or not the plaintiff is to be obliged to give up the benefit of the default judgment obtained in terms of rr 460-465, not because the claim was necessarily unsustainable in law or on the facts, but because the justice of the case requires that the defendant's failure to file the statement of defence within the proper time should be excused. The order sought in an application under r 469 thus relates to a matter of procedure, viz whether the plaintiff may proceed to execution or must revert to the position which existed before it obtained judgment in default.
[37] In contrast, the orders sought in an application under r 15.9 do not relate to matters of procedure. They relate to matters of formal proof and simply because no notice is required to be given to the defendant does not mean that it is a matter being disposed of in Chambers.
[38] I conclude that the Associate Judge’s decision on the application under r 15.9 is not a decision on an interlocutory application and, as such, not within the jurisdiction of an Associate Judge unless it falls within one of the specified categories or areas over which an Associate Judge may exercise jurisdiction and power.
Service issue
[39] The defendants say that they were not actually served with the proceeding and therefore they did not have sufficient notice of it to defend the plaintiff’s action against
22 Dominion Finance Ltd (in liq) v Young, above n 8, at 9.
them for legal title to the property. By affidavits dated 18 April 2019 in support of their applications, the defendants both said:
(a)They became aware of the judgment and the proceedings for the first time on 28 March 2019 when the judgment by default was granted.
(b)They deny Alyssa was served with any documents of this proceeding or that the proceeding was otherwise brought to their attention at any point since they were commenced. They both deny being aware of any attempts to effect service.
(c)They both resided at the address where service was made throughout 2018. However, they say the property was on the market for sale at the time meaning often they would not be home and a real estate would be there conducting regular open homes. They have followed up with the real estate company and asked whether they had any knowledge of documents being left for them, but they did not. There is no supporting evidence provided for this.
(d)On 24 October 2018, Alyssa’s bank records indicate that she was in Melbourne that day. The property they were residing in is approximately 90 km from Melbourne central. The only supporting evidence provided of this is what seems to be a print-off of bank transactions from 24 October 2018 that does not identify an account number or who the account belongs to. There is one debit card transaction to “TPDN Tradings Pl Melbourne AUS” on 24 October 2018 totalling $17.95.
[40] Counsel for the applicants, Mr Nicholls, sought leave to cross-examine the process server, Mr Drought, by way of audio-visual link to Melbourne. Given that request, Mr Ford wished to cross-examine Ms Strangwick and a hearing was held by way of AVL on 5 September 2019 where Mr Drought and Ms Strangwick both gave evidence and were cross-examined. Mr Nicholls and Mr Ford also made submissions in relation to the application to set aside the judgment.
[41] Ms Strangwick confirmed the context of her individual affidavit of 18 April 2019 and her joint affidavit of 4 July 2019. She confirmed that she and her husband and two children (a daughter aged seven and a son aged four) were residing at 15 Aviation Drive, Mt Duneed, Victoria 3217 on 24 October 2018. She denied that she had ever seen Mr Drought (who was seated at the table beside her during the course of the AVL), and she specifically denied ever having been served by him with any documents).
[42] Mr Nicholls, in the course of this opening submissions, sought to place before the Court an email sent from Mr Drought to Mr Ford on 23 August 2019 at 3:11 pm, a copy of the photograph of 15 Aviation Drive, Mt Duneed, and a document which purported to list school terms and public holidays in Australia and New Zealand in 2018. Mr Ford did not oppose the admission of the documents and they were admitted by consent.
[43]In the email to Mr Ford of 23 August 2019, Mr Drought had said:
I do specifically recall effecting personal service upon Alyssa as when I knocked on the front door two young children appeared and stated Alyssa and Travis were in bed. At my request one of them entered the premises, returned a few minutes later with Alyssa not far behind. She was dressed in a t-shirt and tracksuit pants. She appeared as though she had been woken. She admitted identity and accepted the documents. There were two vehicles side by side parked in the garage. There was no other adult person(s) in attendance.
[44] When Ms Strangwick was referred to this email, she acknowledged that she and her husband had two young children but said that they never answered the front door. She also said that they did not own two vehicles, so Mr Drought could not have seen two vehicles parked in the garage.
[45] When cross-examined by Mr Ford, she agreed that the business email addresses that Mr Ford had for her and her husband were correct. She also acknowledged having blocked Mr Ford’s access to her Facebook page. She confirmed that she had nominated a person in Nelson as her irrevocable agent in relation to the Wroxton Finance Mortgage but denied that agent had forwarded to her the documents that Mr Ford had served on the agent.
[46] She admitted requesting a Lower Hutt property manager to take over management of the property situated at 36 Akatea Road, Lower Hutt, but denied having received any documents from the Tenancy Tribunal following a hearing held on 18 December 2018.
[47] Carl Drought confirmed that he had some 50 years’ experience in serving processes and Court-related documents. He had been in business as a process server and private investigator for some 30 years serving documents on a daily basis during that time, and his prior experience had been in his role as police officer.
[48] He was shown the photograph of the house at 15 Aviation Drive that was included in the additional documents that Mr Nicholls had submitted to the Court and confirmed that was the property at which he had served Ms Strangwick.
[49] He expanded on the details set out in the email he had sent to Mr Ford on 23 August 2019 and explained that the two children he initially encountered at the property were a boy and a girl who he had put as being between the ages of five and seven.
[50] He said that the children had opened the garage door from the inside prior to him speaking to them and that is when he noticed two vehicles in the garage.
[51] He confirmed that Ms Strangwick, who was seated beside him throughout the AVL hearing, was the same person who had identified herself as Alyssa Aileen Strangwick, and accepted the documents from him.
[52] He was shown a copy of a photograph of Ms Strangwick that he had been provided with prior to serving Ms Strangwick and confirmed that it was a photograph of the person sitting beside him and the same person that he had served.
[53] He was not shaken in any aspect of his evidence by Mr Nicholls during cross- examination and confirmed to Mr Nicholls that in 50 years of serving processes, he had never once been challenged on the basis that his evidence of having served a process was untrue.
[54] Having observed Ms Strangwick and Mr Drought give evidence, I am satisfied that Mr Drought was telling the truth. Regrettably, I have not come to the same conclusion in respect of Ms Strangwick. She obfuscated in response to many of Mr Ford’s questions, and at times appeared reluctant to give a straightforward answer.
[55] After initially prevaricating in response to a question from the Court as to whether she had resided at 15 Aviation Drive until she moved into new accommodation on 24 December 2018, she ultimately agreed that she had done.
[56] A number of the aspects of the evidence relied upon by Ms Strangwick as to why she was not the person served are improbable. One example is the suggestion she had made that the person served by Mr Drought may have been a real estate agent in the property. Given that the property had been sold on 19 October 2018, and that the documents were served on 24 October 2018, there would have been no reason for a real estate agent to be at the property at 8:30 am (or any other time) on 24 October. Mr Drought’s evidence was that the person he served was dressed casually in a t-shirt and tracksuit pants, and not in the professional attire one would normally expect of a real estate agent.
[57] I also note that the evidence of the bank records referred to in the affidavit by Ms Strangwick did not in any way assist in establishing her account of events. It did not detail any time on 24 October 2018 for the transaction. Ms Strangwick could easily have been at 15 Aviation Drive at 8:30 am and later driven into Melbourne.
[58] I am therefore satisfied that the documents were properly served on Ms Strangwick. Although, for reasons that I will now detail, this conclusion is irrelevant to the outcome of the application, it is potentially relevant to any assessment of the credibility of Ms Strangwick that the Court may have to make when determining the substantive proceedings.
[59] Ms Strangwick was prepared to deny events that I am satisfied clearly occurred and to maintain that denial to the Court after having promised to tell the truth. That reflects very poorly on her.
Was the judgment irregularly obtained?
[60] There is no doubt that the defendants were served in accordance with the methods permitted and required by the Rules of this Court. However, the Associate Judge did not have the general jurisdiction to dispose of this matter under r 15.9 as the matter was not an interlocutory issue being dealt with in Chambers and because he lacked specific jurisdiction to deal with the issue. In those circumstances, the judgment by default was irregularly obtained.
[61] As the Court of Appeal observed in EA v Rennie Cox Lawyers,23 where a judgment has been irregularly obtained, there will almost always be a miscarriage of justice such that the judgment should be set aside. However, there may be cases where the irregularity may be so minor and inconsequential that such a setting aside is not warranted. The test is whether there is a risk of a miscarriage of justice in all the circumstances including, but not limited to: whether the defendants have a substantial ground of defence and whether there would be irreparable harm of the plaintiff if the judgment is set aside. I now turn to those broader issues.
Substantial ground of defence
[62] The defendants carry the onus of satisfying the Court that they have a substantial defence. This might be done through filing an affidavit or draft statement of defence.24 The test has been expressed as whether the defendants have a defence which ought to be heard, or whether setting aside the judgment would serve no good purpose. This can be difficult to assess when the strength of the defence depends on the court’s assessment of the evidence of the witnesses about the terms of an oral agreement they entered.
[63] The defendants filed a joint affidavit dated 4 July 2019 which outlines the basis on which they might defend against the plaintiff’s claim against them. They flatly dispute that there was any oral agreement that the property would be transferred back to the plaintiff after they had discharged the loan obtained by mortgaging the property. The defendants say the background of the gift was that the plaintiff had had a falling
23 Above n 11.
24 Pioneer Farms Ltd v Stoddart [2012] NZHC 3114 at [24].
out with one of his three sons and then decided to restructure his will so that each of his three neighbouring properties in Lower Hutt would be left for the other two sons and his step-daughter. They reject that they had anything to do with the drafting of the will or that they did anything else to coerce or induce the plaintiff into his decision. They say the lawyer who drove the entire process was the plaintiff’s lawyer. They provide supporting evidence of this in the form of emails, an explanation for the change in the Will and the gifting of the property, email exchanges between the lawyer, the plaintiff and the defendants, and a Deed of Gift. This supports their argument that there was no undue influence or an unconscionable bargain in the oral agreement giving them title to the property.
[64] After the transfer of the property the defendants say they allowed the plaintiff to continue deriving rental income from it. They say that due to Travis’ continuing health issues, they were unable to service the loan from Southern Cross Finance and they soon fell behind on repayment obligations. During this time, the plaintiff was the contact person for them and he began demanding that they find another lender. They allege the plaintiff was working with the lender to obtain the property and claim against the defendants. The defendants consider this an abuse of the authority they gave him to deal with the lender on their behalf. They say they came up with a conditional offer of finance which required more money from the plaintiff before it was finalised, but that the plaintiff consistently ignored their attempts to contact him. The defendants have not provided supporting evidence for these allegations of collusion with the lender.
[65] The defendants say that when Mr Ford learnt of their refinancing arrangement with Wroxton Finance and Curzon Capital, he embarked on a sustained and vindictive crusade of harassment and legal threats to declare them bankrupt, sell all their possessions and return title to the property back to him. They consider he frustrated their attempts to resolve the finance issues or recognise the plaintiff’s interest in the property.25 They say the fact that the plaintiff can prevent physical access to the property because the right of way is registered to one of the adjacent properties that he
25 It is unclear what interest the defendants recognise the plaintiff has in the property.
owns has prevented a resolution being reached. The defendants continue to think that the plaintiff’s primary purpose in this proceeding is to bankrupt them.
[66] The contemporaneous documents from the time of the alleged oral agreement generally refer to the transfer of the property as a “gift”. The defendants have annexed to their affidavit a document written by Mr Ford which was to be attached to his draft will in order to explain the reasons for his distributions. It is not alleged that this forms a part of the will. It says:
… When she [Alyssa] asked if the family could help her with raising money to expand her business … I looked at how I could help instead. Therefore it was my decision that Alyssa and Travis should immediately inherit the original family home … to raise an offset mortgage of $100,000 on the property … Additionally it was agreed that I could continue to act as property manager and keep the profit from tenancy. In effect Alyssa has already inherited a house less $100,000 cash plus offering to forgo the profit from rental activity in recognition of the help given.
[67] Mr Ford points out that the Deed of Gift of Land relied on by the defendants was only ever signed by them. He also did not sign the client authority and instruction form required for an electronic transaction to be registered under the Land Transfer Act. He has provided evidence to the Court of a letter from the Registrar General of Land to the lawyer who carried out the transaction which states that the lawyer acted in a non-compliant way in registering the transfer of the property from the plaintiff to the defendants without these documents.
[68] On 30 January 2019, the plaintiff lodged with the New Zealand Law Society a complaint against the lawyer who acted for both the plaintiff and the defendants in the transfer of the property. The explanation which the lawyer provided was presented in evidence by the plaintiff. In the explanation, the lawyer states that he received clear instructions that the plaintiff wanted Alyssa Strangwick to have one of his properties as a gift to her with the intention that it would be her share in his estate. He then prepared all the relevant documents and deeds, got them executed by the defendants, but clearly neglected to get them signed by the plaintiff. It seems though the disputed details of the proposal (i.e. whether title would be transferred back, the size of the loan which could be secured on the property, and whether the plaintiff would remain the beneficial owner) were discussed between the plaintiff and defendant only and the
lawyer was not aware of what this was beyond the fact that the defendants would use the property as security for a loan and the plaintiff would continue to manage and receive rental income from the property.
[69] Given the competing narratives and supporting evidence before the Court in this proceeding so far, I am satisfied the defendants have an arguable case which ought to be tested through the examination and cross-examination of evidence. What seems to have happened is that, following a dispute with one of his sons, the plaintiff sought to adjust the distributions in his inheritance to exclude the son and include his step- daughter, Mrs Strangwick. However, around the same time, Mrs Strangwick approached her step-father for financial assistance and he determined to help. The plaintiff’s understanding of how this would work was that Mrs Strangwick was to be allowed to mortgage the property which would pass to her on his death in order to obtain limited finance. However, he would continue to be the property’s beneficial owner, receive rental income from it in the meantime to supplement his superannuation and the property would be transferred to him after the mortgage had been discharged. The defendants say that only the part about rental income was a part of the deal. For whatever reason, there was no independent advice and the will, nor the Deed of Gift or authorisation form to deal with the property was ever signed by the plaintiff but the property was transferred without consideration.
[70] It is at least arguable in this context that the defendants did not accept the transfer of the property in unconscionable circumstances or that there was no agreement about the plaintiff’s continued beneficial ownership of the property. On the one side, there is clear evidence that an elderly man’s title to a property was alienated without him receiving independent legal advice and without him giving any authority to gift, register or bequeath by inheritance the property to his estranged step-daughter who had been requesting his financial assistance. However, on the other, there is some evidence that the plaintiff made an improvident gift to his estranged step-daughter.
[71] In light of this, I consider that the defendants have at least some matters which ought to be addressed in a contested hearing on the issues which creates a risk that there will be a miscarriage of justice if the judgment is not set aside without considering the merits, as has been done by the granting of a judgment by default.
Irreparable harm to the plaintiff from setting aside the judgment by default
[72] Another important factor is that the financial position of the parties has changed since the granting of the judgment by default. Upon obtaining judgment and title to the property subject to the mortgage which was placed on it by the defendants, the plaintiff has discharged that mortgage and claimed the liquidated debt from the defendants. If the judgment by default were to be set aside, this would have the effect of transferring back to the defendants the title to the property free of the mortgage which they had placed on it and which they had consistently failed to meet their repayment obligations. This would give them a substantial windfall at the risk and cost of the plaintiff who had discharged the mortgage to prevent the property’s sale by the mortgagee.
[73] However, this concern can be managed by setting aside the judgment by default on the proviso that the defendants, upon regaining title to the property, not deal with it in any manner until final disposition of the dispute following a defended hearing. The Court may set aside or vary the judgment on such terms as it thinks just.26
Conclusion
[74] The judgment was irregularly obtained because the Associate Judge did not have the jurisdiction to dispose of the matter in Chambers as it was not an interlocutory application. He also lacked specific jurisdiction to give judgment by default on this matter. The defendants also have an arguable case and there are some legal issues which need to be determined such that there is a risk of justice miscarrying if the judgment is not set aside without giving the defendants a chance to be heard. The irreparable harm which might be caused to the plaintiff from his changed position since obtaining judgment by default may be adequately addressed through setting aside the judgment on terms that the defendants do not deal with the property in any way until final disposition of the proceeding.
26 McGechan on Procedure (online looseleaf ed, Thompson Reuters) at [HCR 15.10.08].
[75] The judgment by default is set aside under r 15.10. It is set aside subject to the direction that the defendants do not deal with the property in any manner, including encumbering it or using it as security in any form until further order of the Court.
[76] The defendants are to bear all costs associated with the AVL to Melbourne. All other costs in relation to the 5 September 2019 hearing lie where they fall.
Churchman J
Solicitor:
C J Nicholls, Barrister & Solicitor, Wellington for Defendants
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