Korving v Korving
[2015] NZHC 152
•12 February 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2960 [2015] NZHC 152
BETWEEN GILLIAN IRENE KORVING
Plaintiff
AND
ANTHONY ROBERT KORVING and
GRAHAM JOHN GUNN Defendants
Hearing: 28 January 2015 Appearances:
JM Skinner for Plaintiff
Respondent in person, with Ms Boswell, lay person assistingJudgment:
12 February 2015
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 12 February 2015 at 4:45 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
KORVING v KORVING [2015] NZHC 152 [12 February 2015]
Introduction and result
[1] Mrs Gillian Korving seeks by summary judgment to assert her rights as mortgagee of a property at 46 Flanagan Road, Drury (“the Drury property”), formerly the matrimonial home she shared with the first-named defendant, Mr Robert Korving. As a result of the settlement of Mr and Mrs Korving's respective rights under the Property (Relationships) Act 1976 (“the PRA”), the mortgaged property is now registered in the names of Mr Korving and the other trustee of his family trust.
[2] Mr Korving has defaulted in the payment of interest and the repayment of the principal sum of $75,000 secured by the mortgage. Mrs Korving wants the Court to order the sale of the Drury property and to direct that she be paid all outstanding interest, the principal sum and costs out of the proceeds of sale.
[3] Mr Korving does not dispute that interest and the principal sum are overdue in terms of the mortgage, but opposes the orders sought by Mrs Korving on the ground that he has applied to the Family Court to set aside the relationship property agreements, made under s 21 of the PRA, which give rise to the indebtedness. To succeed in that application he must satisfy the Court that giving effect to the agreements would cause serious injustice.
Result
[4] For the reasons given below, I have decided that:
(a) Mr Korving has no reasonable prospect of persuading the Family Court that giving effect to those provisions of the agreement which remain to be complied with would cause serious injustice and that the agreements should be set aside.
(b)It follows that Mr Korving has no defence to the plaintiff's claim for summary judgment.
(c) Mrs Korving is entitled to exercise her remedies under the mortgage, including the power of sale, and to recover the principal sum of
$75,000 and all interest, including penalty interest, due to the date of payment.
(d)However, implementation of the order for sale and recovery of the sums due shall be deferred for a short period to enable Mr Korving to satisfy his indebtedness and avoid the forced sale of the property.
The background
[5] Mr and Mrs Korving were married in 2008. The Drury property, worth
$1,180,000, was the primary item of relationship property. It was owned in equal shares by the parties' respective family trusts: the Robert Korving Family Trust and the GIPAME Family Trust. Mr and Mrs Korving were trustees of both trusts.
[6] Mr and Mrs Korving separated on 1 June 2013 and, on 19 July 2013, they entered into an agreement under s 21 of the PRA (“the s 21 agreement”). The s 21 agreement provided for the distribution of both relationship and separate property in conventional terms, taking account of relationship debts. The Drury property was to become Mr Korving's separate property. This proceeding concerns only the arrangements for the making by Mr Korving of what was effectively an equalisation payment of $625,000, payable on 1 August 2013, on which date title in the Drury property was to be transferred to Mr Korving or his nominee.
[7] The s 21 agreement required Mr Korving to complete the equalisation payment on 1 August 2013 by paying a cash sum of $600,000, the balance of
$25,000 having been paid as a deposit on a new property purchased by Mrs Korving. When the cash payment fell due, Mr Korving was able to pay only $525,000. In a subsequent agreement dated 2 August 2013 (“the amended agreement”), the parties agreed that the balance of $75,000 would be paid a year later on 2 August 2014. It was agreed the debt would be secured by a second mortgage over the Drury property, title to which would be transferred to Mr Korving's family trust upon payment of the
$525,000 cash component. The amended agreement provided for the payment of
monthly interest at a rate of 7.5 per cent per annum, with penalty interest to be paid at a rate of 15 per cent per annum in the event of any default.
[8] A mortgage securing the arrangements was duly registered against the title to the Drury property, of which the registered proprietors are Mr Korving and the second-named defendant, Mr Graham Gunn, in their capacities as trustees of the Robert Korving Family Trust. The mortgage in favour of Mrs Korving ranks second, behind an existing mortgage in favour of Mr Korving's bank.
[9] Mrs Korving alleges that Mr Korving did not pay the first monthly interest payment of $468.75 due on 2 September 2013; that he has not paid any interest since then; and that he failed to repay the principal sum of $75,000 on 2 August 2014. Apart from asserting that he made an interest payment of $200 to Mrs Korving on
20 September 2013, Mr Korving does not dispute these allegations.
[10] Default notices under the Property Law Act 2007 were served on Mr Korving and Mr Gunn; the defaults in making the interest and principal payments have not been remedied.
[11] On 16 September 2014, however, Mr Korving applied to the Family Court for an order under s 21J of the PRA setting aside the amended agreement on the grounds that giving effect to it would cause him serious injustice. Mrs Korving opposes that application. Following a conference before Judge Maureen Southwick QC in the Family Court on 19 December 2014, the application has been amended to include an order setting aside the s 21 agreement also, and orders for the disclosure of documents have been complied with. Mr Korving says this Court should not direct a mortgagee sale of the Drury property pending the Family Court's determination of his application to set aside the agreements.
Mrs Korving’s claim
[12] Mrs Korving's action in contract seeks relief under the mortgage against the mortgagors, the trustees of the Robert Korving Family Trust. She claims that she is entitled to exercise her rights and powers as second mortgagee because Mr Korving
has breached the obligations to make the payments due under clause 2.2 of the amended agreement, and because the mortgagors did not comply with the default notice within 20 working days of the date of service.
[13] Mrs Korving seeks summary judgment against the defendants for orders that: (a) grant vacant possession of the family home to Mrs Korving;
(b) entitle Mrs Korving, as the second mortgagee, to sell the property; and
(c) direct that the interest, penalty interest, and costs of and incidental to this claim be paid to Mrs Korving from the proceeds of the sale of the property, after satisfying any indebtedness to the first mortgagee.
Summary judgment principles
[14] Rule 12.2 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.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[15] The principles that apply to summary judgment are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, whether there is a real question to be tried. The Court's assessment of the evidence is a matter of judgment and the Court may take a robust and realistic approach where the facts warrant it.1
[16] Accordingly, in order to succeed in her application for summary judgment, Mrs Korving must satisfy this Court that she has followed all the necessary steps as
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
mortgagee and is entitled to the sum claimed, and that Mr Korving has no defence to the claim so that there is no real question to be tried.
Does the mortgage entitle Mrs Korving to remedy the alleged breaches?
[17] Having regard to the terms of the amended agreement and the memorandum of mortgage which was entered into as a consequence, and the acknowledged failure of the trustees to remedy the defaults asserted in the notice given under the Property Law Act, there cannot be any doubt that Mrs Korving is entitled to exercise her
power to take physical possession of the land2 and that the Court may assist
Mrs Korving in exercising the power of sale.3
Does Mr Korving have any arguable defence to the claim?
Mr Korving's argument
[18] Nevertheless, Mr Korving opposes the application for summary judgment on the grounds that, if the Family Court sets aside the relationship property agreements, the effect will be that the debt secured by the mortgage is not properly payable.4
Accordingly, Mr Korving submits that it would be premature for this Court to enter judgment and that the plaintiff's application for judgment should be deferred until the Family Court decides whether the agreements should remain in force.
Mrs Korving's responses
[19] For Mrs Korving, Mr Skinner says there are two reasons why Mr Korving’s opposition to summary judgment should not succeed. First, counsel argues that the opposition was made by Mr Korving in his personal capacity rather than by the defendants who are the trustees of the Robert Korving Family Trust. He submits that Mr Korving cannot rely on the Family Court dispute as justification for delaying the proceedings because the matter before the Family Court is not between the parties to
the mortgage; it is between Mr Korving and Mrs Korving personally.
2 Property Law Act 2007, s 137.
3 Section 200.
4 Property (Relationships) Act 1976, s 21M.
[20] I am not persuaded by this argument. Mr Korving explained that he alone filed the opposition to the claim because Mr Gunn "had litigated himself out of personal liability". I understand him to mean that Mr Gunn was exempted from personal liability for the debt by the express terms of the amended agreement. Mr Gunn remains a trustee and but his personal liability is limited to the assets of the trust; I infer that, if necessary, he would formally approve Mr Korving's opposition,
retrospectively, as an appropriate stance to be taken by the trustees.5
[21] Addressing the more substantive part of the argument, I find that the amended agreement between Mr and Mrs Korving, and the mortgage between the trustees and Mrs Korving, are inextricably interwoven. The obligations to pay the debt and interest on the debt, and the agreement that the debt would be secured by the mortgage, are contained in paragraph 2.2 of the amended agreement, not in the memorandum of mortgage. It follows that this Court cannot ignore the application to set aside the s 21 agreement merely because the trustees are not party to the proceeding. An order setting the aside the agreements which have given rise to the debt would necessarily remove the basis upon which the mortgage was granted and registered.
[22] Second, Mr Skinner argues that the s 21 agreement and the amended agreement are agreed by their terms to be in “full and final” settlement of the parties’ claims to relationship property. But, as Mr Skinner conceded in oral argument, these clauses are standard in such documents and they cannot by themselves oust the Family Court’s jurisdiction to set an agreement aside if there are grounds to do so under the PRA.
[23] I am required, therefore, to assess Mr Korving's prospects of success in the
Family Court.6
Does Mr Korving have a reasonably arguable case for setting aside the agreements under s 21J of the PRA?
[24] It is not suggested in this case that the procedural requirements for a valid s 21 agreement, set out in s 21F of the PRA, were not followed. Both parties were advised independently by lawyers who witnessed the signatures on the written agreement and certified that the effect and implications of the agreement had been explained to the parties beforehand.
[25] The Family Court may set aside a s 21 agreement which satisfies the requirements of s 21F, however, "if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice."7 The test
of “serious injustice” sets a high threshold for Mr Korving.8 Section 21J provides, in
subsection (4):
In deciding, under this section, whether giving effect to an agreement made under section 21 ... would cause serious injustice, the court must have regard to—
(a) the provisions of the agreement:
(b) the length of time since the agreement was made:
(c) whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made:
(d) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):
(e) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:
(f) any other matters that the court considers relevant.
[26] I evaluate the justice of maintaining the relationship property agreements against the factors the Court is required by s 21J(4) to take into account:
(a) The provisions of the agreements
If an agreement under the PRA is ambiguous, a party might reasonably have misunderstood its contents and effect. Imposing on a party a consequence not plainly expressed may cause an injustice. Naturally the Court must consider the provisions of the agreements. Sometimes substantial discussion
may be required as to the true nature of the agreement.9 That is not the case
here. There is nothing ambiguous about the provisions of either the s 21 agreement or the amended agreement. They appear to reflect a conventional equal sharing of relationship property in terms which are easy to follow. Mr Korving cannot have been in any doubt about what he was required to do to compensate his wife for the transfer of the former matrimonial home to his family trust.
(b) The length of time since the agreement was made
In comparison to many applications to set aside relationship property agreements, the delay of some 13 months in this case is not significant in itself.10 But Mr Korving was knowingly in default of unequivocal obligations for over a year before commencing the Family Court proceedings. I infer that, as Mr Skinner suggested, the application to set the agreements aside is retaliatory and designed to delay even further Mr Korving's
compliance with his obligation to pay the balance of the equalising payment to the plaintiff. Since the amended agreement was signed, Mr Korving has remained living in the former family home; his family trust has received title to the property; and the trust will have benefited from any increase in the home’s value. Moreover, Mr Korving has had the benefit, without cost to him, of the $75,000 shortfall in the cash payment Mrs Korving was initially entitled to receive no later than 1 August 2013. The length of time that has elapsed since the agreements were signed does not create any injustice for
Mr Korving.
9 For example, Boyd v Van Houten HC Christchurch CIV-2008-409-2478, 24 March 2009; leave to appeal declined in Boyd v Van Houten [2009] NZCA 375.
10 See, for example, Clark v Sims [2004] 2 NZLR 501 (HC) (nine years), and Thurston v Thurston
[2014] NZHC 2267 (12 years).
(c) Whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made
Mr Korving’s primary allegations of unfairness relate to his perception of deceit or impropriety by Mrs Korving in relation to financial matters. They include a claim that she caused the bank to dishonour a cheque in his favour for $350, and an allegation that she withdrew excess payments totalling at least $1400 from his family trust's bank account. Mr Korving also asserts that a $200 payment shown in a bank statement to have been made to Mrs Korving on 20 September 2013 was the first instalment of interest due under the agreement; if that payment was made for that purpose, it was less than half the monthly interest payment that was due. Even if the insubstantial evidence provided by Mr Korving in support of these claims is held to prove the allegations, they could not support a claim that the agreements, reached with the benefit of independent legal advice, were unfair or unjust.
There is no corroborating evidence to indicate that there is any substance to Mr Korving's further claim that Mrs Korving had a secret ASB bank account which she did not disclose to him. I am not persuaded that Mr Korving's assertion that, when the parties separated, Mrs Korving was responsible for improperly removing a box of items of his personal property will assist his cause in the Family Court.
The most significant allegation is that Mrs Korving transferred $25,000 from the parties' joint account to herself. The plaintiff's response is that it was Mr Korving who transferred the money out of the account and that the account to which the money was transferred was not an account held by Mrs Korving. It seems likely, as Mr Skinner suggested, that this money was transferred for the payment of the deposit on Mrs Korving’s new home, as agreed in the property settlement.
The alleged injustices about which Mr Korving complains, even if proved, are insignificant in the context of a relationship property settlement which included the transfer to his family trust of a property valued at $1,180,000 and a total payment of $625,000 by Mr Korving to his wife to equalise the
division. I am satisfied that the Family Court could not properly determine, on the basis of those matters, that adherence to the agreements will cause serious injustice to Mr Korving in circumstances where the purpose for the amended agreement was to accommodate Mr Korving’s inability to make, by the due date, the whole of the equalisation payment to which he had earlier agreed.
(d)Whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made
Mr Korving has not suggested that the agreements have become unfair or unreasonable.
(e) The fact that the parties wished to achieve certainty as to the status, ownership and division of property by entering into the agreement
This factor weighs against a finding of serious injustice in this case. (f) Any other matters that the Court considers relevant
As I have noted above, the purpose of the amended agreement was to accommodate Mr Korving's inability to meet the full amount of the equalisation payment he had previously undertaken to make. With the exception of the failure by Mr Korving to meet his obligations regarding the
$75,000 debt which are set out in clause 2.2 of the amended agreement, all of the arrangements agreed to by the parties in settlement of their respective rights under the PRA have been implemented. The substantial performance of the s 21 agreement by both parties is a major consideration weighing heavily against the principled exercise of the Family Court's discretion to set aside the agreements. As Mr Korving volunteered in oral argument, the
$75,000 debt represents only six per cent of the value of the former matrimonial home now vested in his family trust, and an even smaller proportion of the total assets divided by the s 21 agreement.
[27] I am satisfied for these reasons that Mr Korving has no reasonable prospect of persuading the Family Court that giving effect to those provisions of the
s 21 agreement and the amended agreement which remain to be complied with would cause serious injustice. It is highly improbable, in my view, that the agreements will be set aside. It follows that Mr Korving has no defence to the plaintiff's claim for summary judgment.
What remedies should be awarded to the plaintiff?
[28] Mrs Korving has satisfied the Court that she is entitled to exercise her remedies under the mortgage, including the power of sale. Mr Korving made it clear in argument, however, that his real objection to making the payments is that he does not feel he owes the $75,000 secured over the Drury property. He said that his bank is ready to support him in meeting his and the mortgagors' obligations to pay the sums due.
[29] Although I consider it proper to grant Mrs Korving the remedies she seeks, I will defer implementation for a short period to enable Mr Korving to satisfy his indebtedness and avoid the forced sale of the property.
Result
[30] Accordingly I grant summary judgment in Mrs Korving’s favour.
[31] I order that:
(a) on 26 February 2015, the plaintiff shall be granted vacant possession of the property at 46 Flanagan Road, Drury;
(b)the plaintiff shall sell the property as soon as is reasonably practicable thereafter; and
(c) after repayment of all sums due to the first mortgagee, the proceeds from the sale of the property be used to pay the plaintiff the following amounts:
(i) the sum of $75,000;
all interest, including penalty interest, due in terms of clause
2.2 of the amended agreement at the date of settlement of the sale; and
(iii)legal costs and disbursements incurred by the plaintiff in carrying out the terms of these orders.
[32] I further order, however, that the orders made at [31] shall have no force and effect if, on or before 25 February 2015, the first-named defendant pays to the plaintiff:
(a) the sum of $75,000; and
(b)all interest, including penalty interest, due in terms of clause 2.2 of the amended agreement at the date of payment.
[33] The defendants shall pay the plaintiff ’s costs in this proceeding calculated on a 2B basis, and disbursements as fixed by the Registrar.
…………………………..
Toogood J