Kawakawa Finance Limited v Sheffield
[2017] NZHC 1559
•7 July 2017
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2017-443-16 [2017] NZHC 1559
BETWEEN KAWAKAWA FINANCE LIMITED
Plaintiff
AND
MICHAEL JASON SHEFFIELD Defendant
Hearing: 28 June 2017 Appearances:
S Hughes QC for the plaintiff
M J Sheffield in personJudgment:
7 July 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Kawakawa) applies for summary judgment against Mr Sheffield for the balance owing under a loan made to him in late 2013. Mr Sheffield opposes the summary judgment application, on the basis that he has a defence to the claim, and also has a substantial counterclaim against Kawakawa.
Background
[2] Between October and December 2013 Mr Sheffield borrowed $176,428.66 for the purchase of a property situated in South Road, Hawera (the Hawera property). In addition to his own contribution, Mr Sheffield borrowed $5,000 to pay the deposit, and a further $171,428.66 to pay the balance of the purchase price.
[3] In its statement of claim, Kawakawa says that it lent the full $176,428.66 to Mr Sheffield, but there is a question as to whether the $5,000 used to pay the deposit may have been advanced to Mr Sheffield personally by his grandfather, Mr J G Russell, who is a former director of Kawakawa. While Kawakawa says that
the two advances were rolled together, and it is entitled to the full $176,428.76,
KAWAKAWA FINANCE LIMITED v SHEFFIELD [2017] NZHC 1559 [7 July 2017]
Ms Hughes conceded at the hearing that the evidence at this stage does not sufficiently show that the $5,000 for the deposit was advanced by Kawakawa. For the limited purposes of the summary judgment application, she acknowledges that summary judgment cannot be entered on that part of the claim.
[4] As for the claim for the balance of $171,428.66, the terms of the advance were set out in an email from Mr Russell to Mr Sheffield dated 13 December 2013 (the December 2013 agreement). That email was printed and signed by Mr Sheffield. The agreed terms were:
AGREEMENT TO MORTGAGE
I, Michael Jason Sheffield do hereby agree to sign the mortgage document, when prepared, giving a first charge over [the Hawera property] I am purchasing today …
The mortgage is to be an all obligations type mortgage bearing interest at
5.29% pa, repayable on demand, and the lender is to be [Kawakawa].
[5] In its statement of claim, Kawakawa says that Mr Sheffield agreed to pay monthly payments of $777.76, by the thirteenth day of each month, and that Mr Sheffield failed to make the monthly payments on numerous occasions. Kawakawa also says that Mr Sheffield failed to sign and return to it the mortgage documents contemplated by the December 2013 agreement.
[6] Kawakawa also says that it paid the total sum of $4,810.82 (excluding interest) for legal fees, insurance and water supply in respect of the Hawera property. It says that it was Mr Sheffield’s responsibility to make the payments, but he did not do so. In those circumstances Kawakawa says it was entitled to pay the bills and treat them as further advances made to Mr Sheffield (which it is entitled to recover from him, with interest at the agreed rate of 5.29 per cent per annum).
[7] It is common ground that Mr Sheffield received the $171,428.66 from Kawakawa on 13 December 2013, that he agreed to pay interest on that sum at the rate of 5.29 per cent per annum, and that he has made payments to Kawakawa totalling $17,945 since the advance of $171,428.66 was made.
[8] It is also common ground that Kawakawa made demand for repayment of the amount advanced and interest, by notice dated 15 November 2016. By then, a total of $196,078.91 was said to be owing. Kawakawa gave Mr Sheffield seven days to pay that sum after service of the notice, failing which it would commence summary judgment proceedings against him.
[9] Mr Sheffield acknowledges that no further payments were made to
Kawakawa after the demand was served on him in November 2016.
Kawakawa’s case
[10] In an affidavit filed in support of the summary judgment application, Ms Glenda Rogers, a director of Kawakawa, stated that it was only at the last minute, shortly before the scheduled settlement of the purchase of the Hawera property on 13 December 2013, that Mr Russell and Kawakawa agreed to advance the necessary funds to allow Mr Sheffield to complete the purchase. The lawyer acting for Mr Sheffield was instructed that settlement was not to take place until Mr Sheffield had signed the agreement to mortgage and then returned it to Kawakawa. She confirms that the $171,428.66 was paid to Mr Sheffield’s lawyer on
13 December 2013, and that payments subsequently made by Mr Sheffield were erratic and bore no relationship to the payment requirements in the mortgage documents (which she says were sent to Mr Sheffield for execution).
[11] Ms Rogers stated in her affidavit that Kawakawa did not have a copy of the mortgage documents sent to Mr Sheffield or his lawyer. Duplicates of those documents were not kept, as it was expected that Mr Sheffield would honour the commitment made to his grandfather. However Ms Rogers did produce a copy of an email dated 24 January 2014 sent by Mr Sheffield to Mr Russell, in which Mr Sheffield said:
I have just received the loan documents for [the Hawera property] from my lawyer and will take them to a lawyer here for signing.
Mr Sheffield’s opposition and counterclaim
[12] The principal matter raised by Mr Sheffield in his notice of opposition was that Kawakawa never forwarded to him the mortgage documents for him to complete in accordance with the December 2013 agreement. He contends that Kawakawa’s failure to send the mortgage documents to him constituted a breach of contract, which has justified him refusing to make any further payments to Kawakawa until the mortgage documents are provided. (Mr Sheffield says in his submissions that he has been attempting to refinance the loan from Kawakawa, and has run into difficulty with the bank or banks he has approached because he has been unable to provide them with a copy of the mortgage document. He says that Kawakawa has refused repeated requests from him to let him have a mortgage document for execution).
[13] In his affirmation in opposition to the summary judgment application, Mr Sheffield stated that in early 2014 he left his new job in Hawera and made his way to Auckland to focus on achieving satisfactory sales for all of his ex-partner’s remaining Auckland assets. He says that, due to his “sudden and unexpected departure from Hawera” he was unable to confirm if, in fact, the documents his lawyer had sent him really had included “any of [Kawakawa’s] alleged mortgage documents”. He went on to say that, “unfortunately, the matter of the mortgage documents was not discussed further until many months later, by which time no one seemed able to produce a copy of the alleged mortgage documents”.
[14] In respect of the claim for “further advances”, Mr Sheffield denies that he
ever agreed to repay more than the $171,428.66 advanced to him on 13 December
2013. He denies liability for the additional $4,810.82 claimed by Kawakawa for the legal fees, insurance, and water rates it says it has paid.
[15] Mr Sheffield denies that he ever agreed to make monthly repayments of
$777.76 as alleged by Kawakawa (although he acknowledges that he made payments on account from time to time). However he conceded at the hearing that there is probably nothing in this point, at least for the purpose of the summary judgment
application, as the lending was “on demand”, the unpaid balance has been demanded, and Kawakawa is not seeking summary judgment for compound interest.
[16] In his counterclaim, Mr Sheffield alleges that Kawakawa has engaged in “continuing and related unlawful actions” against him. Specifically, he says Kawakawa has used threats and intimidation, and acted regularly and maliciously in breach of his right to privacy. The latter allegations arise out of communications made by Mr Trevor Rogers of Kawakawa to Mr Sheffield’s ex-partner, which Mr Sheffield says were designed to prejudice his case in certain Family Court proceedings between Mr Sheffield and his ex-partner relating to their two small children. Mr Sheffield refers to a protection order which is currently in place against the ex-partner, and he alleges that Kawakawa’s communications with his ex-partner have incited her to continuously breach the protection order. In essence, Mr Sheffield alleges that Kawakawa has been feeding incorrect and damaging information to the Family Court, through Mr Sheffield’s ex-partner, in a calculated and malicious attempt to influence the outcome of the Family Court proceeding against Mr Sheffield.
[17] Mr Sheffield has filed a detailed statement of defence and counterclaim setting out his opposition to Kawakawa’s claim, and the facts relied upon in support of his counterclaim. On the counterclaim, Mr Sheffield seeks an award of damages in the sum of $200,000. He also asks that Kawakawa be directed to provide a written apology and formal acknowledgement of the harm caused to Mr Sheffield’s two children resulting from Kawakawa’s actions, and that Kawakawa be ordered to formally correct the record of its previous (false) evidence provided to the Family Court, so that Mr Sheffield can be allowed to resume the day-to-day care of his two children.
Further documents produced at the hearing
[18] At the hearing of the summary judgment application, Ms Hughes advised that Kawakawa has made further inquiries of the solicitors who were involved at the time with the mortgage documentation. She advised that she had obtained copies of
certain emails, and an unsigned term loan agreement, which were said to support
Kawakawa’s case that the mortgage documents were sent to Mr Sheffield.
[19] I stood the matter down for a period to enable Mr Sheffield to consider these documents. When the case was called again he advised me that he had no objection to the documents being produced. I then admitted them into evidence.
[20] The emails produced by Ms Hughes at the hearing show that on
5 February 2014 Mr David Muller, the solicitor who had prepared the mortgage documents for the loan to Mr Sheffield, advised Mr Russell that the documents were drafted and were sent to Mr Sheffield’s lawyer. Mr Muller advised Mr Russell that the mortgage documents were not received back, and that he presumed the documents had never been signed.
[21] Mr Muller also provided a copy of an email from Ms Helen Norton, a legal
executive employed by Mr Muller’s firm, sent to Mr Sheffield’s solicitors on
19 December 2013. The email is said to have attached a Term Loan Agreement, a Mortgage Instrument, and Mortgage Memorandum 2011/4300. Ms Norton asked Mr Sheffield’s solicitors to set up the appropriate mortgagee-dealing.
[22] The next relevant email produced by Ms Hughes was an email from Mr Russell to Mr Sheffield’s lawyers dated 7 February 2014, in which Mr Russell enquired about progress with the execution of the loan agreement and mortgage in respect of the Hawera property. Mr Sheffield’s solicitors replied the same day, advising that they had no instructions in relation to the documents. The legal executive working for Mr Sheffield’s solicitors advised that the documents had been forwarded to Mr Sheffield with instructions to see a local solicitor about them.
[23] The copy of the term loan agreement showed the lender as Kawakawa and the borrower as Mr Sheffield. Table A in the Annexure Schedule showed the principal sum as “$171,428.66 and further advances”, with a “lower interest rate” of
5.29 per cent per annum and a higher interest rate of 7 per cent per annum. Consistent with the December 2013 agreement, the loan expiry date was stated to be
“On demand”, and repayment of the principal sum was required to be made on demand.
[24] The term loan document provided for interest to commence on 13 December
2013, with interest dates falling on the thirteenth day of every month in each year. According to Table C in the Annexure Schedule, the security was to be a first mortgage over the Hawera property. The extent of security was described as “all obligations”.
Kawakawa’s response to Mr Sheffield’s notice of opposition and counterclaim
[25] In response to Mr Sheffield’s counterclaim, Kawakawa has filed a statement of defence to counterclaim in which all of the allegations are denied.
[26] At the hearing, Ms Hughes submitted that the counterclaim matters raised by Mr Sheffield, and in particular his allegations of malicious interference by Kawakawa in Mr Sheffield’s Family Court proceeding (including the alleged breaches of privacy and allegedly defamatory statements made by Kawakawa to Mr Sheffield’s ex-partner, are unrelated to Kawakawa’s claim for recovery of the amounts advanced to Mr Sheffield, and even if proved could not provide him with a set-off defence. Ms Hughes also submitted that there is no sufficient connection between Kawakawa’s claim and the matters raised in Mr Sheffield’s counterclaim to justify a stay of execution on any summary judgment Kawakawa may obtain pending the determination of Mr Sheffield’s counterclaim.
[27] In response to Mr Sheffield’s contention that he did not agree to repay the legal fees, insurance payments, or water rates which Kawakawa has claimed, Ms Hughes submitted that the December 2013 agreement was for an “all obligations” type mortgage, and that Kawakawa is entitled to recover under such a mortgage any amounts it has been required to pay for which the borrower was liable.
[28] Ms Hughes acknowledged at the hearing that the evidence produced in support of the summary judgment application is insufficient to show that there was an agreement for payment of compound interest on the amounts advanced. For the
purposes of the summary judgment application only, she conceded that Kawakawa can only claim simple interest.
Principles applicable to plaintiffs’ summary judgment applications
[29] Rule 12.2(1) of the High Court Rules provides:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[30] The proper approach to be taken to such applications was considered by the
Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:1
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR; (1986) 1 PRNZ 183 (CA), at p 3; p
185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no
defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not
normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently
lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980]
AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court’s
assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp
Ltd v Patel (1987) 1 PRNZ 84 (CA).
Discussion and conclusions
Mr Sheffield’s allegation that Kawakawa breached its obligations under the
December 2013 agreement by failing to send the mortgage documents to him
[31] There is nothing in this. Mr Sheffield acknowledged in the email to Mr Russell of 24 January 2014 that he had “received the loan documents for the Hawera property from his lawyer”. He fairly acknowledged in his own evidence that
he was unable to confirm if in fact the documents his lawyer had sent him included
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
Kawakawa’s mortgage documents, but any doubt about that was removed by the documents produced by Ms Hughes at the hearing. They show quite clearly that the documents sent to Mr Sheffield’s lawyers on 19 December 2013 were indeed the mortgage documents Mr Sheffield was required to sign under the December 2013 agreement.
[32] Mr Sheffield was critical of Kawakawa for not providing further mortgage documents when, many months later, he asked for them. I do not accept that submission. Once Kawakawa had discharged any obligation it had to send the mortgage documents to Mr Sheffield for execution (and I am satisfied that Kawakawa did discharge any such obligation), Kawakawa was under no ongoing legal duty to provide further mortgage documentation to Mr Sheffield. The fault was his in failing to attend to the execution of the documents which were sent to him (or to challenge them if he wished to contend that they did not conform to the December 2013 agreement). The fact that some years after the advance or advances were made Mr Sheffield may have wanted a signed mortgage document to prove the fact and amount of the Kawakawa loan (to assist in his attempts to refinance the advance) is not a problem that can be laid at Kawakawa’s door.
[33] Furthermore, Mr Sheffield has provided no evidence supporting his contention that his indebtedness to Kawakawa could only be proved to a prospective new lender by the production of a mortgage document signed by him. If some genuine financing possibility was ever on the table, it is highly improbable that Mr Sheffield and Kawakawa could not between them have satisfied the new financing party as to the fact and the balance of the Kawakawa debt.
[34] Quite apart from all of those considerations, the provision for Mr Sheffield to execute a mortgage securing the advance or advances was in my view a provision inserted in the December 2013 agreement solely for Kawakawa’s benefit. As such it was entitled to waive the provision if it saw fit to do so.
Can Kawakawa claim the legal fees, insurance payments, and water rates?
[35] Ms Hughes submits that these amounts are recoverable from Mr Sheffield as
payments made by Kawakawa on his behalf under an “all obligations” mortgage. I
accept in general terms that a mortgagee is entitled under s 87 of the Property Law Act 2007 and cl 20, pt 1 of sch 2 to that Act to charge the mortgagor for costs the mortgagee may incur if the mortgagor fails to pay costs in respect of the mortgaged property such as insurance, rates or other outgoings. The issue is whether Kawakawa has produced sufficient evidence as to the nature of the legal fees, insurance payments, and water bills, to show that they are directly related to the Hawera property and that Kawakawa paid these monies and is entitled to recover them from Mr Sheffield.
[36] While the amounts claimed were included in the account summary produced by Ms Rogers, I think copies of the relevant invoices should have been produced. In the absence of that evidence I do not think summary judgment can be entered for this part of the claim.
The matters in Mr Sheffield’s counterclaim
[37] A counterclaim does not itself amount to a defence to a plaintiff’s claim. For matters pleaded in a counterclaim to be treated as a defence to a plaintiff’s claim, they must qualify as a set-off.
[38] The requirements of a valid set-off were considered by the Court of Appeal in
Grant v New Zealand Motor Corp Ltd, where the Court said:2
The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent, judgment on one cannot fairly be given without regard to the other, the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
[39] In this case there is no such “inter-dependence” between the plaintiff’s claim and the matters raised by Mr Sheffield in his counterclaim that it would be unfair or inequitable to allow Kawakawa to proceed to judgment on its claim without bringing Mr Sheffield’s counterclaims to account. Kawakawa sues on a simple debt, and
(apart from Mr Sheffield’s counterclaim) there is no arguable defence to the greater
2 Grant v New Zealand Motor Corp Ltd [1989] 1 NZLR 8 (CA) at 12–13.
part of Kawakawa’s claim. The matters raised in the counterclaim are alleged breaches of privacy and alleged defamatory statements (both relating to a Family Court proceeding which is completely unrelated to Kawakawa’s debt claim), and alleged threats or intimation occurring nearly three years after the December 2013 agreement was made. These allegations are completely independent of (and completely distinct from) Kawakawa’s debt claim. Nothing in Mr Sheffield’s evidence or counterclaim suggests that any action by Kawakawa or its employees has prevented him from paying the money owing to Kawakawa. On his own admission, Mr Sheffield has been unable to sell the Hawera property, and he has so far been unable to secure new finance from which the Kawakawa debt could be discharged.
[40] Mr Sheffield will remain free to pursue his counterclaim if he wishes, but I see nothing in it which would make it unfair, or unconscionable, to allow Kawakawa to proceed to judgment in the meantime on its claim for the balance of the debt.
[41] For those reasons, I am satisfied that the matters raised by Mr Sheffield in his counterclaim do not provide a defence to Kawakawa’s claims.
Result
[42] Kawakawa has sufficiently shown that Mr Sheffield has no defence to its claim for the balance of the $171,428.66, and (simple) interest thereon at the rate of
5.29 per cent per annum. There will accordingly be judgment for Kawakawa as follows:
(a) for the sum of $153,483.66, being the sum of $171,428.66 minus the payments totalling $17,945 made by Mr Sheffield; and
(b)for simple interest on the balance of the $171,428.66 from time to time outstanding, calculated at the rate of 5.29 per cent per annum from 13 December 2013 down to the date of this judgment. I note that there may be an issue (not addressed at the hearing) as to whether that interest should be calculated with monthly rests, or whether it should be calculated on a daily basis, with the balance carrying
interest reduced by the amounts of individual payments made on the loan, immediately on the dates of those payments. If the parties are unable to agree on the computation of the interest component of the judgment, Kawakawa may file a memorandum within 15 working days of the date of this judgment setting out its computation of the interest payable (that computation should include the daily rate which is said to be accruing from the date of counsel’s memorandum). Mr Sheffield may file any memorandum in response within
10 working days after service of Kawakawa’s memorandum. I will
then fix the interest amount on the papers.
(c) Kawakawa’s remaining claims (including the claims for the $5,000 advanced for payment of the deposit payable on the purchase of the Hawera Property, the amounts said to have been paid for legal fees, insurance, and water rates, and for interest on those sums) are to go forward for trial in the ordinary way.
(d)As Kawakawa has been substantially successful in its application for summary judgment, I award costs in favour of Kawakawa on a 2B basis, with disbursements to be fixed by the Registrar.
Should execution on the judgment be stayed pending determination of
Mr Sheffield’s counterclaim?
[43] In relation to summary judgment proceedings, r 12.12 of the High Court
Rules provides:
Disposal of application
(1) If the court dismisses an application for judgment under rule 12.2 or
12.3, the court must give directions as to the future conduct of the proceeding as may be appropriate.
(2) If it appears to the court on an application for judgment under rule
12.2 or 12.3 that the defendant has a counterclaim that ought to be tried, the court—
(a) may give judgment of the amount that appears just on any terms it thinks just; or
(b) may dismiss the application and give directions under subclause (1).
[44] In cases where the defendant has a counterclaim which cannot be classified as a set-off, the question arises as to whether the Court should stay execution of the summary judgment pending resolution of the counterclaim. The defendant should apply for a stay at the time of filing the counterclaim.3 An application for a stay is made under r 17.29 of the High Court Rules 2016.
[45] Rule 17.29 provides:
A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.
[46] I am not satisfied that this is a case for a stay of execution. Mr Sheffield has not filed an application for a stay of any judgment that might be entered against him. Even if he had I am not satisfied that allowing Kawakawa to execute its judgment would result in any substantial miscarriage of justice to Mr Sheffield. A miscarriage of justice is unlikely to result where a party is required to pay to another an amount that is owing to it and the paying party is free to pursue its claim against the other
party in the normal way.4 There is no evidence in this case that Mr Sheffield is likely
to be bankrupted (and on that account potentially unable to pursue his counterclaim) if Kawakawa is permitted to enforce its judgment (he has the Hawera property to sell).
[47] There is no real connection between the claim and the counterclaim in this case: as I have already observed, the two are quite distinct. And while Mr Sheffield has claimed $200,000 in his counterclaim, there is no evidence to suggest that any breaches of duty owed to him by Kawakawa, whether under the Privacy Act 1993 or otherwise, have caused him financial loss such as might extinguish or substantially reduce the amount he owes on the Kawakawa loan. I decline to order that the judgment I have entered in favour of Kawakawa be stayed pending the determination
of the counterclaim.
3 McGechan on Procedure (online looseleaf ed, Brookers) at HR12.12.02.
4 Econotek Construction Ltd v Kale HC Gisborne CP8/87, 7 January 1988 at 8.
Transfer to District Court
[48] There is an outstanding application by Mr Sheffield for transfer of the proceeding to the District Court. In a minute dated 16 May 2017 I directed that the proceeding should remain in this Court in the meantime, with leave reserved to Mr Sheffield to apply to have the proceeding removed to the District Court if he was successful in resisting Kawakawa’s summary judgment application. In the event, Mr Sheffield’s opposition to the summary judgment application has been largely unsuccessful. However the balance of Kawakawa’s claim is now sufficiently small that it should probably be continued in the District Court. Mr Sheffield’s counterclaim also appears to be within the jurisdiction of the District Court.
[49] Counsel and Mr Sheffield are asked to advise by memorandum, within twenty working days of the date of this judgment, if either party has any objection to the transfer of the balance of the proceeding to the District Court at Hawera. If no objection is received, I propose to make an order on the papers transferring the proceeding. If either party advises that they wish the proceeding to remain in this Court, I will give such further directions as may be appropriate on receipt of that advice.
Associate Judge Smith
Solicitors:
Quin Law, New Plymouth for the plaintiff
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