Korea Deposit Insurance Corporation v Huh

[2023] NZHC 2197

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV2014-404-003372

[2023] NZHC 2197

BETWEEN

KOREA DEPOSIT INSURANCE CORPORATION, TRUSTEE IN BANKRUPTCY FOR JEIL SAVINGS BANK, JINHEUNG SAVINGS BANK, GYEONGGI SAVINGS BANK AND YOUNGNAM SAVINGS BANK
Plaintiff / Respondent

AND

JAE HO HUH

Defendant / Applicant

Hearing:

7 August 2023

Appearances:

G J Thwaite for Plaintiff / Defendant

S Khan and M Orange for Defendant /Applicant

Judgment:

17 August 2023

JUDGMENT OF WHATA J

This judgment was delivered by me on 17 August 2023 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors:

Kenton Chambers Lawyers, Auckland Fortune Manning, Auckland

KOREA DEPOSIT INSURANCE CORPORATION v HUH [2023] NZHC 2197 [17 August 2023]

[1]    Mr Jae Huh seeks to set aside a default judgement obtained by Korea Deposit Insurance Corporation (“KDIC”) in the sum of about $9m handed down on 19 July 2017. This judgment relates to unpaid bank debts in the Republic of Korea for which Mr Huh has already been bankrupted in that country. He has also known about the default judgment since August 2017 and took no steps to set it aside until bankruptcy proceedings were filed last year. Mr Huh now claims that the default judgment process went wrong, and the default judgment should be struck down. He raises two main grounds:

(a)An amended statement of claim, upon which the default judgment was based, was not served on him.

(b)The claims were of a nature that judgment could only be entered by formal proof. This did not occur.

[2]    I do not accept Mr Huh’s claims. First, except insofar as the total quantum of claim increased by $65,000, the amended statement of claim clarified rather than materially changed the nature of the claims against Mr Huh. Second, the claim was a simple proceeding about guarantor liability for a liquidated sum. Formal proof was not required. Third, the proper response in the circumstances to ensure there has been no miscarriage is to reduce the default judgment sum by $65,000.

[3]    I therefore dismiss the application except as necessary to reduce the judgment sum by $65,000. My detailed reasons now follow.

Background

[4]    Helpfully, Mr Khan and Mr Orange provided a detailed chronology of key events which is not disputed by Mr Thwaite. The following is largely based on that chronology.

The first statement of claim

[5]    These proceedings commenced on 23 December 2014 when KDIC filed its statement of claim and notice of proceeding in the High Court. The statement of claim asserted that:

(a)KDIC had “statutory authority to function as the liquidator or trustee in bankruptcy of a bank or financial institution in the Republic of Korea.”

(b)KDIC had been “appointed trustee in bankruptcy” of four banks in Korea and that it had “acquired all the rights and obligations of [the] Banks”.

(c)Mr Huh owed the banks money as guarantor under four loan agreements. Those four loan agreements were further particularised in the following ways:

Loan 1

(a)On 16 June 2008, Jinheung Savings Bank advanced the sum of Korean Won (“₩”)1 7,000,000,000 to Daehan Construction Co. Ltd with a maturity date of 6 October 2009.

(b)Daehan Construction Co. Ltd was to pay interest until the maturity date at a rate of 12% per annum, with an overdue interest rate of 24% per annum.

(c)Mr Huh guaranteed the loan “as to both principal and interest”.

Loan 2

(d)On 30 December 2008, Jeil Savings Bank Co. advanced the sum of ₩6,000,000,000 to Daehan Papertech Co. Ltd with a maturity date of 30 June 2009.

1         In its statements of claim, KDIC refers to Korean Won as “KRW”. The symbol ₩ is instead used in this judgment.

(e)Daehan Papertech Co. Ltd was to pay interest on the principal until the maturity date at a rate of 15% per annum, with an overdue interest rate of 25% per annum.

(f)Mr Huh guaranteed the loan “as to both principal and interest”.

Loan 3

(g)On 16 June 2008, Youngnam Savings Bank advanced the sum of ₩2,000,000,000 to Daehan Construction Co. Ltd with a maturity date of 6 October 2009.

(h)Daehan Construction Co. Ltd was to pay interest until the maturity date at a rate of 12% per annum, with an overdue interest rate of 25% per annum.

(i)Mr Huh guaranteed the loan “as to both principal and interest”.

Loan 4

(j)On 16 June 2008, Geyonggi Savings Bank advanced the sum of ₩6,000,000,000 to Daehan Construction Co. Ltd with a maturity date of 16 June 2009.

(k)Daehan Construction Co. Ltd was to pay interest until the maturity date at a rate of 12% per annum, with an overdue interest rate of 25% per annum.

(l)Mr Huh guaranteed the loan “as to both principal and interest”.

[6]    KDIC then allege that the borrowing companies, as well as Mr Huh as guarantor, have defaulted under each of the loan agreements with respect to the following sums:

(a)Loan 1: Interest of ₩974,739,592.

(b)Loan 2: The Principal of ₩1,142,556,430 plus default interest

of ₩3,196,569,595.

(c)Loan 3: Interest of ₩287,923,409.

(d)Loan 4: Interest of ₩839,878,336 plus a penalty of

₩96,889, being a total of ₩839,975,225

Total: ₩6,441,764,251

[7]    It is then alleged that, in October and November 2014, KDIC obtained four judgments in Korea against Mr Huh in relation to the above debts said to be owing under the loan agreements.

[8]    The statement of claim concludes by pleading two causes of action. The first, headed ‘Enforcement of Foreign Judgment’, was for the enforcement of the four Korean judgments in New Zealand. The prayer for relief sought payment of:

(a)       The sum of ₩6,441,764,251; and

(b)Interest on the sum of ₩1,142,556,430, being the principal still said to be owing under Loan 2, at the rate of 25% per annum, from 24 March 2014,

[9]    The second cause of action, headed ‘Debt’, sought to directly enforce the debt said to be owed to the banks under the loan agreements, in New Zealand. The prayer for relief sought the same sums as under the first cause of action.

Substituted service

[10]   On 17 July 2015, KDIC filed an application for substituted service of the statement of claim and notice of proceeding — being those documents filed on 23 December 2014.

[11]   An order for substituted service was made on 29 July 2015. It required the statement of claim and notice of proceeding to be served through various means,

namely sending them by post and courier to certain people and addresses thought to be associated with Mr Huh in New Zealand.

Judgment by default declined

[12]   On 20 November 2015, counsel for KDIC filed a memorandum with the Court seeking judgment by default under r 15.7.                The matter came before Katz J, who issued a minute dated 10 December 2015 declining to enter judgment.  Katz J made several observations:

(a)On the first cause of action — being the enforcement of a foreign judgment — the Court could not enter judgment unless it was satisfied that the common law requirements for enforcement of a foreign judgment in New Zealand are satisfied (i.e., that the jurisdiction of the foreign court to make the judgment is recognised by New Zealand law, that the judgment is final and conclusive, etc).

(b)Given the above requirements:2

[T]he “fast track” procedure for entry of judgment by default under r 15.7 of the High Court Rules will not generally be an appropriate mechanism for enforcement of a foreign judgment in New Zealand. That is because the sole focus of that rule is simply on whether the sum sought is a liquidated demand. Other factors have to be considered, however, before a foreign judgment can be enforced at common law. The appropriate course, therefore, in relation to the first cause of action, is for the matter to be set down for formal proof.

(c)The Court raised issues about lack of clarity, noting:3

It is not entirely clear from the pleading, evidence, and supporting memorandum whether this is a totally standalone cause of action. Alternatively, it may seek to rely, to some extent, on the Korean judgments. If the Korean judgments are relied on to establish quantum, then the appropriate procedure is, again, formal proof.

(d)It was “insufficiently clear” from the documents before the Court how the sums claimed were calculated.

2      Korea Deposits Insurance Corporation v Huh HC Auckland CIV-2014-404-3372 (Minute of Katz

J) at [6].

3 At [8].

Amended Statement of Claim

[13]   On 7 December 2016, counsel for KDIC filed an amended statement of claim together with a memorandum which stated that KDIC now sought judgment “on the second cause of action, pursuant to High Court Rule 15.7”. This amended statement of claim differed from the first, both as to quantum and as to pleaded facts.

[14]   Below is a table noting differences counsel for the applicant have highlighted between the first statement of claim, and second (amended) statement of claim.

Statement of claim	First	Amended
Breakdown of sum sought	Judgment       sought       for ₩6,441,764,251 and interest on        the        sum        of ₩1,142,556,430, at the rate of 25% per annum,  from 24 March 2014	Judgment sought for separate sums under each individual loan agreement
Loan 1	“the           interest           of ₩974,739,592”	“₩1,000,173,239            for accrued delayed damages”
Loan 3	“the interest of 287,923,409”	“287,858,817   for   accrued delayed damages”
Loan 4	“the           interest           of ₩839,975,225 plus penalty of   96,889   for  a  total   of 839,975,225”	“₩865,620,804 for accrued delay damages”
Sum      sought     in totality	₩6,441,764,251            plus interest    on    the    sum    of ₩1,142,556,430	₩6,492,778,885           plus interest    on    the    sum    of ₩1,142,556,430

Pleaded    facts     for Loan 1	Only an “overdue interest rate” of only 24% per annum was said to apply to Loan 1. No reference to Article 3(5).	A “delay damages rate” of 25% per annum was said to apply under all loan agreements, “subject to change in accordance with Article 3(5) of the Standard Terms of Conditions”
Pleaded     facts     in relation to all loans	Mr Huh is said to have guaranteed payment of principal and interest.	Mr Huh is said to have guaranteed payment of “principal, interest, and delay damages”.
Pleaded     facts     in relation to all loans	No discussion of payments made	Certain payments are said to have been made on certain dates by an unnamed party in part satisfaction of the sums owed under the four loan agreements
Pleaded     facts     in relation to all loans	No    breakdown    of    sums owing	Delay damages are said to have been applied by KDIC for certain periods of time with respect to certain sums owing under each of the four loan agreements.
First cause of action	The enforcement of foreign judgment	Re-pleaded with its content now running to nearly twice the length under the first statement of claim

Judgment by default entered

[15]   After the filing of KDIC’s memorandum and amended statement of claim on 7 December 2016, judgment by default was sealed. It was signed by a Deputy Registrar, J. Mala, on or around 19 July 2017.

Subsequent engagement with Mr Huh

[16]   In August 2017, KDIC entered into negotiations with Mr Huh. This included provision of the pleadings, supporting affidavits, the minute of Katz J, the loan documentation, and the default judgment to counsel for Mr Huh, including senior counsel in September 2017. It appears nothing came of this engagement.

[17]   In July 2018, Mr Huh was examined before Associate Judge Bell. He was represented by counsel. It appears this proved fruitless for KDIC. Bankruptcy proceedings were then initiated by KDIC in October 2022 and again in May 2023. The present application was then made on 27 July 2023.

Bankruptcy in South Korea

[18]   I was advised by counsel that Mr Huh has been bankrupted in South Korea in respect of the bank debt in issue in these proceeding.

Default judgment framework

[19]   Before turning to the issues raised in this case it is helpful to lay out the default judgment framework and the threshold for setting aside a default judgment.

[20]   A plaintiff may proceed under r 15.7 or 15.8 of the High Court Rules in respect of each cause of action to which no pleading by way of defence in a statement of defence has been filed.4

[21]   Rule 15.7(1) provides for claims in respect of liquidated demands. It states that a plaintiff may seal judgment in accordance with this rule “for a sum not exceeding the sum claimed in the statement of claim”, together with “interest…calculated up to

4      High Court Rules 2016, r 15.5

the date of judgment (if interest has been specifically pleaded in the statement of claim); and costs”. A Judge or Registrar may authorise the sealing of a judgment under subclause (1) if satisfied that the relief claimed by the plaintiff falls within this rule.5

[22]   Rule 15.8(1) provides for claims in relation to land and chattels if “the defendant does not file a statement of defence as required, the plaintiff may seal judgment that the person whose title is asserted in the statement of claim recover possession of the land or chattels together with costs and disbursements fixed by the Registrar.

[23]   For other claims, a plaintiff must proceed by way of formal proof pursuant to r 15.9. More specifically the rule states:

(1)   This rule applies if, or to the extent that, the defendant does not file a statement of defence within the number of working days required by the notice of proceeding, and the plaintiff seeks judgment by default for other than a liquidated demand.

(2)   The proceeding must be listed for formal proof and no notice is required to be given to the defendant.

(3)   After a proceeding is listed for a formal proof hearing, no statement of defence may be filed without the leave of a Judge granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered, and on such terms as to time or otherwise as the Judge thinks just.

(4)   The plaintiff must, before or at the formal proof hearing, file affidavit evidence establishing, to a Judge’s satisfaction, each cause of action relied on and, if damages are sought, providing sufficient information to enable the Judge to calculate and fix the damages.

(5)    If the Judge before or at the formal proof hearing considers that any deponent of an affidavit filed under subclause (4) should attend to give additional evidence, the Judge may direct accordingly and adjourn the hearing for that purpose.

[24]   As stated, the requirement for a formal proof hearing in such cases is mandatory — the proceeding must be listed for a formal proof hearing and the plaintiff must file evidence establishing to the Judge’s satisfaction each cause of action relied on.

5      Rule 15.7(3).

[25]   The threshold for setting aside a default judgment is laid out at r 15.10 which states that:

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.

[26]As set out by the Court of Appeal in EA v Rennie Cox Lawyers:6

[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, it might properly decline to set aside judgment.

[27]   In cases where there is no irregularity, three matters are commonly highlighted as relevant:7

(a)Whether the defendant has a substantial ground of defence.

(b)Whether the delay in seeking to set aside default judgment is reasonably explained.

(c)Whether the plaintiff will suffer irreparable injury if the judgment is set aside.

Grounds for application

[28]Mr Huh has two primary grounds for setting aside the default judgment:

(a)An amended statement of claim, upon which the default judgment was based, was not served on him.

6      EA v Rennie Cox Lawyers [2018] NZCA 33, [2018] 3 NZLR 202 at [20].

7      Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 (CA) at 983, see also Atwood v Chichester (1878) 3 QBD 722; Hovell v Ngakapa (1895) 13 NZLR 298 (SC); and Trengrove v Inangahua Hospital Board [1956] NZLR 587 (SC).

(b)The claims were of a nature that judgment could only be entered by formal proof. This did not occur.

[29]I will address each ground in turn before returning to the overall merits.

Failure to serve amended claim

[30]   Mr Khan submits that KDIC was obliged by r 7.77 of the High Court Rules to serve the amended statement of claim on Mr Huh. That rule provides that:

(1) A party may before trial file an amended pleading and serve a copy of it on the other party or parties

[31]   Importantly, he says, as detailed above at [14], the amended statement of claim was materially different from the original and Mr Huh should have been afforded a proper opportunity to respond to the fresh pleading. He notes for example that Mr Huh may have taken issue with reference to accrued delay damages, which among other things are not defined.

[32]   Mr Thwaite submits that once Mr Huh failed to respond to the original proceedings there is no requirement to serve subsequent amended pleading, referring to r 6.20 of the High Court Rules. That rule provides:

A party to a contentious proceeding who has not given an address for service is not entitled to be served with notice of any step in the proceeding or with copies of any further documents or with copies of any further documents filed in the proceeding or to address the court.

[33]   Mr Thwaite also submits that the changes to the pleadings simply responded to the directions given by Katz J in terms of providing more information, particularly as to quantum. While he could not specifically recall why the phrase “accrued delay damages” is used in the amended statement of claim, he submits it may be a translation issue, as it is evident that the reference to these “damages” corresponds with the reference to interest in the original pleadings.

Analysis

[34]   In FAI, Counsel argued that Associate Judge Bell had indicated to the plaintiff that amended statement of claim ought to be served on the defendant because the amount claimed had increased.8 In response, the plaintiff rather than serving an amended statement of claim, limited the amount claimed to the amount sought in the original statement of claim. The Court nevertheless found that the plaintiff should have served the amended claim on the defendant and that the judgment obtained was irregular.9 I accept therefore that the failure to serve an amended statement of claim may mean a judgement is thereby irregularly obtained.

[35]   However, amendments to a statement of claim that do not materially change the nature or quantum of the claim do not demand further service of the pleadings on a defendant. Provided that the defendant has been properly put on notice of the nature of the claim and the quantum in issue, and they take no steps to defend the claim, they cannot readily complain if judgment is issued in respect of that claim, even if minor amendments were subsequently made to the pleadings. As Associate Judge Bell said in Williams v Van Loghem Investments Ltd:10

[19] A person who elects not to take any steps after  having been duly  served may be considered to be “courting risk”. He has taken the risk that if the case is heard the court’s decision may be different from that which would flow from his taking part in the proceeding and his giving evidence and submissions as to the court’s decision.

[36]   Furthermore, I do not accept that failure to serve amended pleadings automatically means the corresponding judgment must be set aside. As stated in EA minor or inconsequential irregularity will not give rise to miscarriage.11 In the present case, Katz J effectively sought clarification as to whether the debt claim was stand- alone and how the sums were precisely calculated. The amended pleadings were directed to providing this clarity. Importantly, the basic nature of the claim remained the same in both proceedings, namely a claim in relation to a guarantee of bank debt.

8      FAI Money Ltd v Johnston [2014] NZHC 193 at [46].

9 At [49].

10     Williams v Van Loghem Investments Ltd [2012] NZHC 829 at [19].

11     EA, above n 6 at [20].

[37]   In this regard, Mr Khan’s primary complaint is that the pleadings included reference to new matters, including an unexplained concept, “accrued delay damages”. He submits that these were substantive changes for which Mr Huh should have been given the opportunity to respond. However, as noted the substance of the claim remained the same, namely a claim based on bank debt and a guarantee, and the amended pleadings respond to the directive of Katz J to clarify aspects of the claim. Notably, it is tolerably clear from the face of the pleadings that “accrued delay damages” corresponds to “interest”. For example, the interest claimed in respect of Loans 2 and 3 is the same or very similar as the sum claimed in relation to “accrued delay damages” in the amended claim.12 There are “relatively” minor adjustments to the claims in respect of Loans 1 and 4, which together account for an additional

$65,000 claimed. I return to the signficance of this below. But the key point for present purposes is that the nature and substance of the claim did not change.

[38]   Returning to the additional sum claimed, I accept this raises the prospect of irregularity. While it represents less than a one per cent increase in the total sum claimed, $65,000 is not insignificant. But there is a simple, and proportionate response to this. As Mr Thwaite readily accepted, the remedy for the irregularity in this case is not to set aside the whole of the default judgment, but to reduce the judgment sum by

$65,000 and thus remove any material disadvantage to Mr Huh caused by the amendment.

[39]   In these circumstances, I am satisfied that the failure to serve the amended pleading on Mr Huh did not give rise to any miscarriage, provided that the default judgment sum is reduced by $65,000.

[40]   For completeness, I do not consider that r 6.20 conclusively assists Mr Thwaite. While r 6.20 appears to apply generally, (and I make no definitive ruling about this) a material change to a statement of claim may bring into question whether the claim is fresh so that r 6.20 is entirely inapposite. However, I leave the resolution of that issue for a case where it is required.

12 (First) Statement of claim at [6] and Second (amended) statement of claim at [16] and [23]. Further examples include; (First) Statement of claim at [8] and Second (amended) statement of claim at [37]; (First) Statement of claim at (2) of the prayer for relief of the first cause of action and Second (amended) statement of claim at (2) of the prayer for relief of the first cause of action.

The nature of the claim

[41]   Mr Khan submits that r 15.7 merely allows default judgment to be sealed in respect of a liquidated sum if no defence is filed. It does not mandate default judgment just because a liquidated sum is claimed. He further submits that there are a number of factors that were open to dispute and therefore the claim should have gone to formal proof, including:

(a)The loan agreements are governed by Korean law but no detail is given as to those laws, noting also that the loans date back to 2008 raising a possible issue of limitation.

(b)The pleadings refer to KDIC’s statutory authority to function as a liquidator or trustee in bankruptcy in Korea but no details are given about this authority.

(c)KDIC claims to have acquired all the rights in relation to the debt, but no detail is given about these rights.

(d)The amended claim refers to “delay damages” and damages require a formal proof hearing.

[42]   But the matters raised by Mr Khan raise at best theoretical grounds for requiring formal proof only. Mr Khan did not elaborate by reference to authority or evidence to substantiate these claims. Rather, he said Mr Huh had the right to put KDIC to proof on these matters. However, that defies the reality of the situation. Mr Huh does not dispute that judgments were obtained in Korea in respect of the bank debt, and he has subsequently been bankrupted in that country in respect of that debt. The requirement then to put KDIC to proof rings hollow in this context. Therefore, I am not satisfied that Mr Huh has shown that it is seriously arguable that a formal proof process was required in relation to claims by KDIC.

Overall

[43]   As I have found that there was no material process error, save in respect of the change in quantum claimed, it is unnecessary to elaborate further on the issue of miscarriage. However, had I found irregularity, I would have been minded to find that this is one of those rare cases where there was no miscarriage. Indeed, all factors point to the contrary — that to set aside the default judgment in its totality would be an abuse of process.

[44]   Mr Huh discovered that judgment had been entered against him within one month of issue, in August 2017. He was invited to negotiate settlement. His counsel was provided with all the relevant documentation. He did nothing. He was then called upon to participate in an examination process in 2018. Again, he did nothing. Only when facing bankruptcy proceedings, more than five years after default judgment was entered, did he take a step to challenge the default judgment. All of this against a backdrop where judgment has been entered against him in Korea in respect of the same bank debt and he has been bankrupted in respect of it. Therefore to set aside the default judgment in totality now would raise serious doubts about the efficacy of the default judgment process.

Outcome

[45]   I dismiss the application to set aside the default judgment. However, I vary the quantum of the default judgment by reducing it by $65,000, being the increased sum identified by Mr Khan not claimed in the original statement of claim.

[46]   KDIC is the successful party. It is entitled to 2B costs and disbursements, less 25 per cent to reflect that the default judgment sum needed to be varied.

Whata J