Glen Eden Holdings Limited v Galuvao HC Auckland CIV 2004-404-6948

[2005] NZHC 1716

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV.2004-404-6948

BETWEEN

GLEN EDEN HOLDINGS LIMITED

Appellant

AND

TALI TOOMAGA ENOKA GALUVAO AND TALI TOOMAGA GALUVAO

First Respondents

AND

IREMIA DENIS TOOMAGA GALUVAO

Second Respondent

Hearing:

11 May 2005

Appearances: Gary Judd QC for appellant

Tony Banbrook for respondents Judgment:     11 May 2005

[ORAL] JUDGMENT OF WILLIAMS J

Solicitors:

David Rooke, P O Box 51 230 Pakuranga, Auckland, for appellant C K Lyon, P O Box 99872 Auckland, for respondents

Copy for:

Gary Judd QC, P O Box 137 273 Parnell, Auckland, for appellant Tony Bankbrook, P O Box 3600 Auckland, for respondents Judge L H Moore, c/- District Court, Auckland

Susan Boswell, Case Registry Officer, Auckland High Court

GLEN EDEN HOLDINGS LIMITED V GALUVAO And Ors HC AK CIV.2004-404-6948 [11 May 2005]

[1]    In an oral judgment delivered in the Manukau District Court on 5 November 2004, Judge Moore granted an application by the present respondents (to whom it is convenient to refer as the “Galuvao family”) to set aside a judgment entered against them and in favour of the present appellant, Glen Eden Holdings, on 9 September 2002.

[2]    Glen Eden Holdings appeals against the setting aside of the judgment on a number of grounds. They include an assertion that the Galuvao family will suffer no miscarriage of justice if the appeal is allowed and undue weight was  given to an error in the judgment entered in respect of a third cause of action against the second respondent. It is asserted there is no evidential foundation to support the suggestion the Galuvao family have a ground of defence to Glen Eden Holdings’ claim. The notice of appeal claims the District Court Judge gave undue weight to the delay that Glen Eden Holdings had undertaken before suing the respondents. There was no reasonable explanation for the respondents’ delay. There were other matters, including execution of the loan documents and a passage which suggested that a remark made by the learned District Court Judge about the director of Glen Eden Holdings, a Mr Russell, was inappropriate.

[3]    This application – as indeed the application to the District Court – relies on the conventional requirements for setting aside judgments appearing in such authorities as Paterson v Wellington Free Kindergarten Association Inc. [1966] NZLR 975 at 983 and Russell v Cox [1983] NZLR 654 at 659. In essence, the criteria conventionally applied to applications and appeals such as this are that the defendants in the Court below have a substantial ground of defence, whether their delay is reasonably explained and whether the plaintiff will suffer irreparable injury if the judgment is set aside. But, as the authorities make clear, the overall interests of justice are paramount in any consideration of these matters.

[4]    The judgment on appeal begins with a broad recitation of the claims before the District Court and its history. It notes that the judgment given in Glen Eden Holdings’ favour was admittedly in error as far as the second respondent was

concerned. As will be seen, the amount for which judgment was entered was substantially in excess of the amount claimed on the third cause of action although it may be the case, for reasons later explained, that the second respondent is liable for the overall debt in any case.

[5]    The Judge then observed that the plaintiff was claiming on a “series of transactions involving the lending of relatively modest sums of money at high interest rates which are said to reflect the level of interest of the lender inherent in transactions of that sort” (para [6]) but went on to note that the debt was secured by a mortgage.

[6]    He next raised the question as to whether the claims might have been statute- barred and noted the error concerning the third cause of action and the fact that the second respondent in this Court was not a party to the transactions on which the first two causes of action were brought. The learned Judge then continued :

[13]Although the mortgage has not been registered, a caveat to protect the plaintiff’s rights under the mortgage has been. Though the mortgage has not been registered the plaintiff has purported to exercise a power of sale said to be contained within it.  The Court has no way of knowing from the evidence before it whether the alleged purchaser is an independent party acting bona fide and for adequate consideration. There are obvious issues as to the difference between the alleged purchase price and the alleged present value of the mortgaged land.

[14]There is no suggestion of any process of public auction or  advertising the nature and extent which would convey to the Court a sense of a likely genuine transaction with what might be called an unsuspecting third party. One cannot ignore the number of reported decisions of the higher courts in and beyond this land which illustrate, to an extent that I think it has become almost a matter of judicial knowledge, that nothing involving this John George Russell is ever likely to be simple or straightforward. He is, according to his affidavit, director of the plaintiff company.

[7]    The District Court Judge then turned to the question of a possible defence by the Galuvao family arising out of the terms of the Credit Contracts Act 1981 in the following passage :

[15]The question of security opens up other ground as well. If it does encompass the three transactions pleaded here, and if it was – at the time each of those was entered into – an adequate security for the

advances made – and I use that word “adequate” in the sense of adequate in terms of normal commercial practice – then the assertions of the defendants that these transactions ought to be re- opened under the provisions of the Credit Contracts Act may have a considerable chance of success. There is a huge difference between terms and conditions tolerable in respect of a loan where there is little or no security and the borrower is forced to deal with lenders of last resort or close to that category, and terms and conditions tolerable – and again I use that word to try to gather up the various tests in the Credit Contracts Act, in respect of a loan adequately secured by a mortgage of real estate albeit a second mortgage.

[16]One cannot ignore the commercial realities underlying this sort of claim. At an interest rate of 38½%, using the rule of 78, the lender every two years get a doubling of the amount outstanding if nothing is paid in the meantime. In many circumstances, allowing a lengthy delay without taking effective debt collection steps diminishes the likelihood of obtaining payment, or payment in full. But, where  there is adequate security over real estate, the advantages to a lender of doing nothing whilst their secured capital doubles and re-doubles are all too obvious.

[8]    The Judge then noted (para [17]) that the “delays since judgment was entered were both considerable and inexcusable” by the Galuvao family, suggested that Glen Eden Holdings might face “insurmountable … difficulties” in relation to limitation and then opined (para [21]) :

[21] Given the history of this matter, the plaintiff can scarcely be heard to assert that irreparable damage will be suffered when, on all the material before the Court, it is very adequately secured even for the amount of the judgment which is the subject of this application. If that security is not available to the plaintiff in respect of these claims then very heavy damages would obviously flow as a result of any purported forced sale of the defendants’ home.

[9]He then set the judgment aside.

[10]   It is certainly incontestable that the financial relationship between Glen Eden Holdings and the Galuvao family has a lengthy and unfortunate history. The statement of claim  on  which  the  judgment  in  issue  was  based  was  issued  on 19 March 2002. Of the three causes of action the first two relate to two loan agreements said to be dated 12 April 1995 under which Glen Eden Holdings lent the first respondents $6432 and 24 April 1996 when the same parties were said to have signed a further loan agreement, this time for $3750. It is of some note that despite

the length of the litigation between these parties, neither loan contract has as yet ever been put in evidence.

[11]   The first of the two loan contracts were pleaded to have an ordinary interest rate of 32.5% pa, a penalty interest rate of 38.5% pa and to have been repayable by monthly payments over 14 and 8 months respectively. According to the claim, under the 12 April 1995 contract there were five payments up to that due on 12 October that year but nothing was paid between that time and the commencement of the proceeding and it would seem nothing has been paid since. The default on the 24 April 1996 contract is pleaded to be complete in the sense that the first respondents failed to pay any of the instalments at all up to the commencement of the proceeding, and since. The third contract was the only one pleaded to have been signed by the second respondent. It was said to be dated 9 January 1996 for the principal sum of

$2450 again with the same interest rates, and it is again said that there was a failure to pay from 9 November 1996 onwards.

[12]   The proceeding was served on the present respondents on 17 April 2002 and there was then, it now seems, a course of correspondence between a solicitor acting for the Galuvao family and the solicitor for Glen Eden. On 17 May 2002 the Galuvaos’ solicitor wrote saying that his  clients denied any knowledge of the contracts themselves and raised disclosure questions. The parties collaborated in adjourning the proceeding to enable the documents to be examined by a Police document examiner. That adjournment occurred in May 2002. There was then a delay before the documents were submitted to the Police.

[13]   By 21 June 2002 the Galuvaos’ solicitor was sending a draft statement of defence to the other side and asking for an appointment to view the originals of the documents, and on 24 June 2002 the solicitor wrote to Mrs Galuvao asking her to pay him $120.00 for the filing fee on the statements of defence. It seems, since the Galuvaos were later the recipients of Legal Aid, as though that payment was never made by the present respondents.

[14]   The originals of the documents were made available for inspection in July 2002. Copies were sent the same month. Copies of cheques said to be endorsed by

the Galuvaos were sent on 25 July 2002. But nothing further occurred either in relation to the filing of statements of defence or the submission of the documents to the Police document examiner and on 6 September 2002 Glen Eden’s solicitor wrote to the Court asking for judgment by default to be entered for the full amount of the claims, $26,747.03 and interest on the claim said to be calculated up to 31 August 2002, $3,259.45. The total of those sums plus costs and disbursements added up to the judgment entered on 9 September 2002 totalling $30,746.48.

[15]   Again there seems to have been a delay or inactivity on the part of the Galuvaos but by 16 October 2002 their solicitor was advising of the grant of Legal Aid and asking again if the documents could be submitted to the Police document examiner. He was informed on 14 November 2002 of the judgment by default and that action was being taken to enforce the judgment.

[16]   In the record before this Court there is then a slight gap in the record until, on 29 November 2002, the Galuvaos’ solicitor applied to set aside the judgment on the ground that there had been a miscarriage of justice. It is of significance that the only document filed in support of that application was one by the solicitor’s secretary which essentially did little more than exhibit the course of correspondence already reviewed.

[17]   There must, however, have been some discussion between the lawyers because, after some correspondence earlier in 2003, on 28 February Glen Eden’s solicitor formally submitted four loan contracts to the Police document examiner. They included one dated 10 December 1993 in addition to the three on which the proceedings had been brought. Expert opinion was sought as to whether the execution of those documents was by the persons whose specimen signatures were also forwarded.

[18]   The Police responded on 5 June 2003 essentially saying that the signatures were all by the persons named and accordingly there seemed to be no option for the Galuvaos but to accept that they had in fact both signed the loan contracts and endorsed the cheques.

[19]   Mr Russell filed an affidavit in opposition to the application to set aside the judgment recording the history of the matter.

[20]   Of some significance, however, on 2 December 2002 two statements of defence were filed on behalf of the first and second respondents in this Court. Amended statements of defence were filed by both on 7 November 2003. All those statements of defence claimed that Glen Eden’s action for interest was barred under the Limitation Act 1950 s 20. They also claimed the Galuvao family had never signed the loan contracts despite the terms of the Police document examiner’s report and, by way of what is said to be a further “defence”, sought orders that the contracts between the parties were cancelled or amended as being unconscionable under the Credit Contracts Act 1981. They claimed the penalty rate of 38.5% was oppressive under s 9 of that Act and sought orders that the contracts be re-opened, accounts be taken and the Court determine an appropriate sum for them to pay. They also raised questions as to whether complete statutory disclosure had been made.

[21]   It is noteworthy in this Court’s view that although those matters were pleaded as being defences to the various causes of action, they must of course be regarded as being counterclaims because the defendants in the District Court were seeking relief. So the position currently is that those counterclaims remain outstanding and as far as the evidence goes, no action has ever been taken to bring them on for hearing.

[22]   The application to set aside the judgment remained extant, however, until towards the end of 2003. On 19 December that year the matter was obviously called in the District Court, there was no appearance on behalf of the Galuvao family and their application to set aside the judgment was struck out.

[23]   Over the early part of 2004 it now seems as though there were efforts made by Glen Eden to realise on its security.  A notice under the Property Law  Act  1952  s 92 was served on the Galuvaos on 15 April 2004. Attempts were made to market the property although it seems the respondents were obstructive in that regard and on 14 September 2004 Glen Eden entered into a contract to sell the Galuvaos’ property,

15 MacLennan Road, Mt Wellington, for $170,000, a company called Chariot

Property Ltd being the purchaser. There is currently no search of Chariot Property Ltd on the file. Settlement was due under that contract on 15 November 2004.

[24]   The imminent loss of their house prompted the Galuvao family to apply again to set aside the 9 September 2002 judgment. Their second  application  in  that respect was filed on 5 October 2004. There were efforts to settle the matter on terms of undertakings as to inaction relating to the sale of the property. No undertakings were given and the various matters already raised by the Galuvaos in their counterclaims were again adverted to in the correspondence between the solicitors.

[25]   No undertaking was able to be perfected, however, and the Galuvaos’ second application went to a hearing on 5 November 2004 with the result already mentioned and the judgment being set aside.

[26]   That, as mentioned earlier, is an unfortunate chronicle in relation to what initially started as relatively modest loans. The question now of course, however, is whether the interests of justice warrant the allowing to this appeal and the consequent reinstatement of the judgment or whether there are substantial defences available to the Galuvaos, whether their delay is reasonably explained and whether the plaintiff will suffer irreparable injury.

[27]   Without objection from Mr Banbrook, the mortgage was produced at the appeal hearing. It seems a copy had been made available to the District Court Judge. It is dated 10 December 1993 and was registered on 5 November 2004, coincidentally the same day the setting-aside application was dealt with by Judge Moore. All three of the present respondents are described as “mortgagors” and the priority amount in the mortgage is simply described as “advances”. The mortgage was, it seems from the District Court judgment, also  protected by way of caveat.  The caveat has never been put in evidence and its terms are unknown. Presumably it is based on an agreement to mortgage or on the unregistered mortgage itself. It also seems the Galuvaos have never taken any action for the caveat to be rescinded.

[28]   Turning to the terms of the mortgage, the “principal sum” is defined in Schedule A cl 1.6 in the following terms :

1.(6) “Principal sum” means all money from time to time owing to the Mortgagee by either the Mortgagor alone (and if more than one person is named as being the Mortgagor, then severally by each person named) or by the Mortgagor together with any other persons.

[29]Payment requirements appear in the same Schedule in cl 2.1 which reads :

2.(1) The Mortgagor shall punctually pay to the Mortgagee the principal  sum when and how agreed between the Mortgagor and the Mortgagee. If there is no such agreement, then the Mortgagor shall pay on demand served by the Mortgagee as provided by this mortgage or as otherwise lawfully permitted.

and it is to be noted that although none of the Galuvaos are defined as “covenantors” under the mortgage, the mortgage says in cl 4 that all those defined as  the “mortgagor “are “jointly and severally liable to the mortgagee as principal debtors”.

[30]   The position therefore seems to be that at least in terms of the pleading the Galuvaos in both their statements of defence have raised a number of defences.

[31]   The first of those is that the action against them is statute-barred. Given that the mortgage operates as a deed and the mortgage is dated 1993, there would seem little support for that. However, it is also clear that under s 20 of the Limitation Act 1950 an action for interest is statute-barred after the expiration of six years (See Young: Law of Mortgages of Land in New Zealand 1995 para 20.19 p329).

[32]   It is impossible on the statement of claim to be certain about the matter but on its face it would appear at least possible that some part of the amount for which judgment for interest was entered may have exceeded the six year term between the date of the loan contracts and the commencement of the proceeding on 19 March 2002. There is also the question as to whether the Galuvao family can be liable for the whole of the amount owing to Glen Eden having regard to the definition of the “principal sum” and the other terms of the mortgage earlier cited including its being executed in 1993, well before the loan contracts on which the claim is founded. It would not be right to attempt to reach any final decision in that regard.

[33]   The second claimed defence raised on behalf of the Galuvao family is that the loan contracts are in breach of the Credit Contracts Act 1981. Section 9 of that Act defines “oppressive” in the following terms :

In this Act, the term “oppressive” means oppressive, harsh, unjustly burdensome, unconscionable, or in contravention of reasonable standards of commercial practice.

[34]   Section 10 gives the Court power to re-open credit contracts where the Court reaches the  view  that  “a  credit  contract  or  any  term  thereof  is  oppressive”  or, s 10(1)(b), “a party under the credit contract has exercised or intends to exercise a right or power conferred by the contract in an oppressive manner”.

[35]   In this case it must at least be arguable that the interest rate charged under the loan contracts could conceivably amount to an oppressive term in the contract within the meaning of ss 9 and 10(1)(a). However, that would require evidence as to whether they were in “contravention of reasonable standards of commercial practice” at the time and as yet there is nothing before the Court in that regard.

[36]   The second possibility, although not one currently pleaded, is that  by delaying for a lengthy period of nearly six years between default and the commencement of the proceedings Glen Eden was exercising a “right or power conferred by the contract in an oppressive manner”. As to that, there is no evidence beyond the fact that Mr Russell makes clear in his affidavits that efforts were made over the years on Glen Eden’s behalf to have the Galuvao family comply with their contractual obligations and those efforts were unsuccessful.

[37]   The problem, however, is that the matter has been determined to date, it seems, solely on the terms of the statement of claim and without reference by any of the parties to the fact that there are outstanding what must be regarded as counterclaims, still undetermined in the District Court, which raise the very issues discussed by the Judge in his judgment and at least arguably open. So the question then is: what is to be done?

[38]   It might be possible to stay execution of the judgment rather than dismiss the appeal on the basis that the Galuvao family then proceeds to a hearing on the

counterclaims with due diligence. But the problem with that approach would be that if the Galuvao family were successful in any of the defences raised on their behalf, the amount of the judgment would necessarily need adjustment. It would be inconvenient for that then to be done in this Court or for the determination of this appeal to be delayed until such time as that process comes to an end.

[39]   The preferable course, and the one the Court proposes to adopt therefore, is to dismiss the appeal so that the setting aside of the judgment remains. That leaves all matters at large between the parties including adjudication on the counterclaims in the District Court with any consequential adjustments to any judgment given in Glen Eden’s favour at that juncture.

[40]   The appeal will accordingly be dismissed. But there are two postscripts  which warrant mentioning.

[41]   The first of those is that the history of this matter conveys no credit as far as the Galuvao family is concerned. It is a curious feature of this case that there is not one word on either court’s file from the Galuvaos themselves. Apart from the fact that they now seem to have executed the loan contracts and endorsed the cheques and presumably signed the application for Legal Aid, they do not appear to have participated in the whole of the process leading up to today’s hearing in any way whatsoever. Of most importance, there is no affidavit from them setting out their views of the circumstances in which the loan contracts were entered into, no explanation from them of their reasons, if any, for non-payment of the amounts due under the loan contracts and nothing explaining their delays for many years before proceedings were issued. It is in that regard pertinent to note that the law makes it clear that it is a debtor’s obligation to seek out his creditor and pay the creditor.  There is not even an affidavit from the Galuvaos supporting the allegations made on their behalf in the statements of defence and counterclaims filed for them. So the result to date reflects no credit on them.

[42]   The second postscript relates to para [14] of the District Court judgment earlier cited. In his written submissions Mr Banbrook suggested the observations made there by the District Court Judge about Mr Russell were matters of judicial

notice. He did not advance those submissions orally and with respect this Court agrees. Mr Russell, like any other litigant giving evidence on oath, is  entitled  to have his evidence accepted until such time as, on the evidence – and that is to be emphasised – the witness is found to be untruthful or unreliable. That is particularly the case where the evidence is not challenged and there is no material in evidence contrary to the assertions made by the witness. In this Court’s view, and  with  respect to the District  Court  Judge,  the  remarks  appearing  in  para  [14]  about  Mr Russell are an unfortunate irrelevance.

[43]   Putting those matters aside, however, the ultimate result is that the appeal is dismissed so that the matter remains in the Manukau District Court for determination of both claim and counterclaims.

[44]   As both counsel responsibly, particularly Mr Banbrook, agree this is not a case for any orders for costs.

………………………………..

WILLIAMS J

11 May 2005