Watherston v PGW Rural Capital Limited
[2020] NZCA 329
•5 August 2020 at 9 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA61/2019 [2020] NZCA 329 |
| BETWEEN | RICHARD JOHN SCOTT WATHERSTON |
| AND | PGW RURAL CAPITAL LIMITED |
| Hearing: | 10 June 2020 |
Court: | French, Clifford and Collins JJ |
Counsel: | A R B Barker QC and S T Cottrell for Appellant |
Judgment: | 5 August 2020 at 9 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay the first respondent costs for a standard appeal on a band A basis with usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Introduction
Section 125(1)(c) of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) states that proceedings seeking the re-opening of a credit contract may be commenced at any time earlier than “1 year after the due date for the performance of the last obligation required to be performed under the contract”.
In the High Court decision under appeal, Dunningham J held that for the purposes of s 125(1)(c) “the last obligation” meant the last day for repayment of the loan.[1] As a result, Mr Watherston’s proceeding was time-barred, he having commenced his proceedings more than four years after the final date for repayment.
[1]Watherston v PGW Rural Capital Ltd [2019] NZHC 22 at [47].
Mr Watherston now appeals.
Background
In 2005 Mr Watherston purchased a farm property called the Doone. Over a period of several years, he entered into a number of credit contracts with PGG Wrightson Finance Ltd (PGG Finance) in order to obtain funding for the purchase and subsequent development of the Doone.
The credit contracts at issue in the proceeding were three term loan agreements, a current account facility and various securities.
Two of the term loan agreements were dated 6 March 2009. The term of both loans was three years, with the date for repayment being 6 March 2012. The third term loan agreement was dated 12 September 2011, with a due date for repayment being 1 September 2012.
On 29 June 2010, Mr Watherston and PGG Finance entered into a current account facility agreement. The agreement did not contain a specified repayment date but did provide that monies were repayable on demand.
Mr Watherston’s indebtedness to PGG Finance was secured by a general security agreement over his personal property, a first mortgage over the Doone and another farm property as well as general and specific securities over chattels, stock and plant.
In 2011 PGG Finance was sold along with all its loans and securities including the Watherston debts to the second respondent Heartland Bank Ltd (then Heartland Building Society). By that time, there had been a series of defaults on the part of Mr Watherston. Under the assignment contract, Heartland had the right to re-assign “impaired” loans. Following further defaults by Mr Watherston, Heartland considered the Watherston loans to be in the impaired category and accordingly re‑assigned them back to PGG Finance on 11 July 2012.
On 30 April 2013, PGG Finance assigned its loans and securities including the Watherston loans to another associated entity, the first respondent PGW Rural Capital Ltd (PGW Capital).
On 2 May 2013, PGW Capital notified Mr Watherston of the assignment and made demand for immediate payment of all monies owing including interest. The notice concluded by saying:
Until payment is made in full, all interest, charges, costs and expenses will be calculated and compounded in accordance with the Finance Contracts and added to the amount demanded and all provisions in those documents remain in full force.
For reasons which will become apparent, on appeal Mr Watherston’s counsel placed significant weight on the statement that all provisions were said to remain in full force.
Returning to the narrative, Mr Watherston was not able to make immediate payment of the outstanding balance and on 6 May 2013 PGW Capital issued a notice of enforcement. The notice advised that the whole of the secured indebtedness was now due and payable and that the third respondent Mr Hollis, and a Mr Noone had been appointed as receivers.[2]
[2]Proceedings have not been issued against Mr Noone.
In the months that followed, the receivers sold the two farm properties together with all the stock and plant.
The receivership ended on 6 July 2016 when the loans and securities were assigned to The New Zealand Redwood Co Ltd. Mr Watherston then entered into a deed of settlement with Redwood, under which he settled his indebtedness with that company. His counsel on appeal Mr Barker QC described this in submissions as the final step in the enforcement process by the last holder of the loans and securities.
The following year on 21 February 2017 Mr Watherston performed the last of his obligations under the settlement agreement with Redwood and the remaining securities were released.
On 18 February 2018, Mr Watherston commenced proceedings in the High Court against PGW Capital, Heartland Bank and the receiver. The statement of claim pleads three causes of action. Two are relevant to this appeal because they allege oppression under s 120 of the CCCFA and the remedy sought is an order re‑opening all the credit contracts entered into by Mr Watherston.
The allegations of oppression include oppressive terms under the credit contracts and oppressive conduct in the exercise of powers under the credit contracts. In particular, it is alleged that the interest rates payable under the credit contracts were oppressive, that the power to vary those interest rates was exercised in an oppressive manner and that the appointment of a receiver was oppressive. The third cause of action which is not relevant to the appeal is against the receiver for alleged breaches of his duties.
PGW Capital applied for an order to strike out the claims against it on the grounds they were either time-barred under s 125 of the CCCFA or amounted to an abuse of process.
In contending that the claims were time-barred, PGW Capital argued that for the purposes of s 125(1)(c) the date by which the last obligation was due to be performed under the credit contracts was at the very latest 6 May 2013. That date, it will be recalled, was the date the notice of enforcement was issued. According to PGW Capital, the one year time period started to run on that date and therefore in order not to be time-barred, Mr Watherston needed to have commenced his re-opening proceedings by 6 May 2014. As it was, the proceeding was hopelessly out of time by almost four years.
Mr Watherston opposed the strike out application. He contended that time did not start to run until the date he completed the last of his obligations under the settlement deed with Redwood. That was 21 February 2017 and therefore a claim filed on 18 February 2018 was (just) within the one year limitation period.
In the High Court, Dunningham J accepted the interpretation of s 125(1)(c) advanced by PGW Capital and accordingly made an order striking out the claims against it. The Judge accepted that the word “obligation” need not be read as restricted solely to repayment obligations.[3] However, she considered that in the context of a credit contract it was difficult to envisage what other obligation could arise that has a due date in the contract, and that accordingly the last date for repayment will “almost inevitably” be the obligation from which time runs.[4]
[3]At [46].
[4]At [46].
Having reached that conclusion, it was not strictly speaking necessary for the Judge to go on to address the question of whether, had the claims been in time, they nevertheless constituted an abuse of process. However, the Judge did address that issue. She held there had not been an abuse of process which would have warranted strike out, were the claims not already statute-barred.[5]
[5]At [76].
There has been no cross-appeal against the ruling regarding abuse of process. The sole focus of the appeal was on the interpretation of s 125 and its application to undisputed facts. It was common ground that this was not one of those cases where a strike out application was incapable of being determined before trial.
Before turning to the arguments on appeal and our analysis, it is convenient to first set out the text of s 125 in full.
125 When reopening proceedings may be commenced
(1) Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may be commenced in the court by the Commission, any party to the contract, lease, or transaction, or any guarantor under a guarantee relating to the credit contract, at any time earlier than,—
(a) in the case of a buy-back transaction, 3 years after the due date for the performance of the last obligation required to be performed under the transaction; or
(b) in the case of a contract or lease that is terminated by either party, 1 year after the date on which the contract or lease is terminated; or
(c) in any other case, 1 year after the due date for the performance of the last obligation required to be performed under the contract or lease.
(2) However, subsection (3) applies if,—
(a) with the knowledge of the creditor under a credit contract,—
(i) the credit provided under the contract is used (in whole or in part) to pay amounts owing under another credit contract or other credit contracts; or
(ii) amounts owing under the contract were paid from credit provided under another credit contract or other credit contracts; and
(b) the creditors under the credit contracts are either the same person or related companies.
(3) Proceedings seeking the reopening of all or any of the credit contracts referred to in subsection (2) may be commenced at any time earlier than 1 year after the due date for the performance of the last obligation required to be performed under any of those contracts.
(4) Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may not be commenced at any other time.
(5) The Commission may commence proceedings on behalf of a person or a class of persons.
(6) This section applies despite any other enactment or rule of law.
Arguments on appeal
The central thesis advanced by Mr Barker was that, correctly interpreted, both s 125(1)(b) and (c) applied to this case.
The proceedings were filed on 19 February 2018. To be within time, the one year limitation period needed to have started after 19 February 2017. According to the appellant, it did under s 125(1)(c) because the trigger to start time running — the due date for performance of all obligations under the credit contracts — only happened on 21 February 2017.
Section 125(1)(b) also applied because when the terms of the settlement agreement were performed or satisfied on the due date 21 February 2017, that had the effect of a release terminating the credit contracts.
Mr Barker acknowledged that Dunningham J’s interpretation of s 125 was the same as that adopted by this Court in the relatively recent decision of Patrickv Bank of New Zealand.[6] In Patrick it was held for the purposes of s 125(3) that the phrase “the due date for the performance of the last obligation” meant the due date for repayment of the loan.[7] The unsuccessful party in Patrick sought leave to challenge that interpretation in the Supreme Court but the Supreme Court declined to grant leave.[8]
[6]Patrick v Bank of New Zealand [2018] NZCA 122.
[7]At [28].
[8]Patrick v Bank of New Zealand [2018] NZSC 73.
However, undaunted by this, Mr Barker contended that Patrick was also wrongly decided. In his submission, both the Court in Patrick and Dunningham J in this case had adopted an unduly restrictive interpretation of s 125. They had wrongly reasoned that the section required the Court to identify an obligation that has a due date for performance and because the only obligation with a due date is normally the obligation to repay that in turn led them to conclude the trigger for time to start running must be the last date for performance of the obligation to repay.
Developing his argument, Mr Barker submitted that the word “obligation” as it appears in s 125 is not expressly limited in any way. In particular, the section does not say “only obligations with a due date”. To interpret it that way was, he argued, to re-order the syntax of the provision and add a gloss that was not there. If Parliament had intended that it was limited to obligations to repay, it could easily have said so. It did not.
Mr Barker further argued that the interpretation adopted in Patrick was unjust and undermined the consumer protection purpose of the CCCFA.[9] He pointed out there are many other obligations in credit contracts in addition to the obligation to repay including obligations that survive a demand for payment. That was especially so in cases like this one where securities are involved. Securities fall within the definition of credit contract under the CCCFA and contain obligations that by their nature only arise following default and during the enforcement process. The period following default especially in cases involving complex transactions can often be protracted. Delay and lengthy negotiations are commonplace. At the same time, it is the very period when oppression commonly occurs. Yet, under the Patrick interpretation, the oppressed will be denied a remedy because the ability to commence re-opening proceedings will already be statute-barred before the oppression even happens. That was an obviously unjust outcome which Parliament could never have intended. The proper focus, adopting a purposive interpretation, should be on obligations that can give rise to oppression.
[9]Citing the Credit Contracts and Consumer Finance Act 2003, s 3.
Mr Barker also took issue with Dunningham J’s interpretation of s 125(1)(b). The Judge rejected as untenable a submission that “termination” could be characterised as the point when all the obligations under the relevant credit contract have been satisfied. She considered that in context the word “termination” clearly meant cancellation of the credit contract by one or other party before the agreed term is completed, whether for default or any other reason.[10]
[10]Watherston v PGW Rural Capital Ltd, above n 1, at [49]–[50].
In challenging that interpretation, Mr Barker contended that “termination” was a broad word meaning “to bring or put to an end”. There was no justification in adding the word “early” as the Judge had effectively done. He contrasted the wording of s 125(1)(b) with the wording of s 121 of the CCCFA which does use the phrase “early termination”, thereby demonstrating that if early termination was the only sort of termination Parliament had in mind for s 125(1)(b), it would have expressly said so. The correct interpretation of s 125(1)(b) was that it applies to termination at any time.
According to Mr Barker, the Judge’s incorrect interpretation of s 125(1)(b) was a consequence of her incorrect interpretation of s 125(1)(c). Her interpretation of s 125(1)(c) created a tension between the two sub-sections which could only be resolved by adding words that were not there. However, if his interpretation of s 125(1)(c) were adopted, there was no tension. The two sub-sections were in fact complementary. If the credit contract is formally terminated, then s 125(1)(b) applies and time runs from the date of termination. If there has been something less than a formal termination, then time runs from the time it was clear that the obligations under the credit contract did not need to be performed.
Our view
We acknowledge that the submissions made by Mr Barker have some merit in the sense that when considered in isolation, the words in s 125(1)(b) and (c) are arguably capable of bearing the meanings he suggests. We also consider there is force in the argument about the potential for injustice in cases where oppression arises during a protracted period of default and enforcement.
However, on closer analysis we have come to the clear conclusion that the interpretation he advocates is highly problematic and ultimately not sustainable. We have concluded that the approach taken by Dunningham J was correct and that the appeal should be dismissed.
We now explain why, beginning with the legislative history of s 125.
Legislative history of s 125
The ability to seek re-opening of credit contracts on the grounds of oppression was first introduced by the Credit Contracts Act 1981.
Under that Act, the time limitation provision applying to re-opening proceedings was s 12. It relevantly read as follows:
… proceedings seeking the re-opening of a credit contract may be instituted in the Court by any party to the contract at any time earlier than 6 months after the date the last obligation to be performed under the contract is performed: but may not be so instituted at any other time
As noted in three Court decisions, Savril Contractors Ltd v Bank of New Zealand, Autohelp & Towage Ltd v Central Acceptance Ltd and Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd the wording of this provision was problematic.[11] Because it tied the commencement of the then six month limitation period to the date of actual performance of the last obligation to be performed, it allowed an opportunistic debtor to delay the limitation period indefinitely by the simple expedient of withholding the final payment or even a token amount of that final payment.
[11]Savril Contractors Ltd v Bank of New Zealand [2002] NZAR 699 (HC) at [21]–[23] (upheld in Bank of New Zealand v Savril ContractorsLtd [2005] 2 NZLR 475 (CA)); Autohelp & Towage Ltd v Central Acceptance Ltd CA144/91, 11 June 1992 at 3; and Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd [1984] 2 NZLR 1 (HC) at 9.
The Credit Contracts Act was replaced by the CCCFA in 2003.
When first introduced into the House, what was to become the CCCFA began life as the Consumer Credit Bill.[12] The Bill contained a wholesale transposition of the re-opening provisions from the Credit Contracts Act including s 12, the limitation provision. Under the Bill, the only relevant change from s 12 was that the limitation period was increased from six months to 12 months.[13]
[12]Consumer Credit Bill 2002 (2-1). See also Nick McBride and Robert D Bowie “The Goals of Consumer Credit Law: The Approach of the Ministry of Consumer Affairs to its Consumer Credit Law Review” (2001) 7 NZBLQ 329 at 340.
[13]Clause 98(1). This provided:
Proceedings seeking the reopening of a credit contract or consumer lease may be commenced in the Court by any party to the contract or lease, or any guarantor under a guarantee relating to the contract, at any time earlier than 1 year after the date that the last obligation to be performed under the contract or lease.
The failure to address the problem identified in Savril Contractors was the subject of some criticism by commentators and submitters to the Select Committee.[14] The Select Committee recommended changes to the wording of the limitation provision. The recommended amendment was subsequently enacted unchanged as s 125.
[14]New Zealand Bankers’ Association “Submission to the Commerce Select Committee of the Consumer Credit Bill” at [119]–[123]; Duncan Webb “Commercial Law” [2003] NZ Law Review 243 at 256–257;; and Ministry of Consumer Affairs “Consumer Credit Bill: Departmental Report for the Commerce Committee: Clause by Clause Analysis of the Consumer Credit Bill (9 June 2003) at 70.
In the High Court, Dunningham J relied on this change from actual performance to when the obligation was required to be performed as supporting the interpretation she favoured.[15] Mr Barker submits the Judge was wrong to do so because the change is neutral as between the competing interpretations. The change is equally consistent with his interpretation because it does not bear on the primary issue of what is meant by “obligation” in the first place.
[15]Watherston v PGW Rural Capital Ltd, above n 1, at [44]–[46].
We accept that may be so. On the other hand, the change does strongly indicate a concern to prevent a debtor in default being able to enjoy an extended limitation period. It is also, in our view a strong indicator of a perceived need for certainty in the context of credit contracts.
Mr Barker sought to answer those points by submitting that the creditor still retains control and can avoid the spectre of an extended limitation period during default by simply cancelling the contract and so triggering the limitation period under s 125(1)(b). However, if that had been Parliament’s intention it would have been reasonable to expect some statement to that effect in the background legislative materials. There is none.
The submissions regarding the legislative history also overlook another fundamental point, namely that when applying s 12 of the Credit Contracts Act, the courts had consistently interpreted the phrase “the last obligation to be performed under the contract” as being the obligation to repay.[16]
[16]See Savril Contractors v Bank of New Zealand, above n 11, at [21]–[23]; Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd, above n 11, at 9.
Parliament must be taken to have been aware of that settled interpretation. It follows that the adoption of the same wording in the new legislation indicates Parliament accepted the correctness of the previous interpretation and was endorsing it. There is no suggestion in any of the background legislative materials of any intention to depart from what had become the commonly held understanding of the “last obligation”.
Text and purpose
The key phrase in s 125(1)(c) is “the due date for the performance of the last obligation required to be performed under the contract”.
It is obviously important that the start date of a limitation period be readily ascertainable and certain. The interpretation adopted by Dunningham J achieves that. Under her interpretation, the parties know from the outset when time will start to run under s 125(1)(c) because the precise answer can be found in the contract. The need for precision is underscored by the legislature’s use of the phrase “due date” which in general legal parlance usually signifies a date specified in a contract.
In contrast, one of the main difficulties with Mr Barker’s interpretation is that it does not ensure that the start date of the limitation period or trigger is readily ascertainable. His interpretation encompasses for example contingent obligations such as the obligation to pay default interest which may or may not arise and for which there may never be a due date. Not only does it strain the language of “due date”, the interpretation also fails to take account of the fact that some contractual obligations survive termination. Yet they too are obligations required to be performed.
In our view, it could not have been intended that “any” obligation that remains unperformed may qualify as an operative obligation for the purpose of the limitation period. Although the notice of appeal makes this assertion, at the hearing, Mr Barker appeared to retreat from such an absolute proposition. But that only creates a further problem. If it is not all obligations, how then are the parties and Court to determine which obligations count and which do not?
Mr Barker suggested “obligations that have some substance” as distinct from minor obligations, or obligations that can in themselves give rise to oppression. Not only do such touchstones lack precision, the latter suggestion sits uneasily with the legislative decision not to tie the limitation period to the underlying cause of action, that is oppression.
The lack of precision in the suggested distinction between “formal” and “informal” terminations as an explanation for the interplay between s 125(1)(b) and (c) is also in our view problematic.
A further difficulty with Mr Barker’s interpretation is that it does some violence to the structure of s 125(1).
Section 125(1) sets out three distinct categories of cases. The first is the case of a buy-back transaction. The second and third, it will be recalled, are expressed in the following terms:
(b) in the case of a contract or lease that is terminated by either party, 1 year after the date on which the contract or lease is terminated; or
(c) in any other case, 1 year after the due date for the performance of the last obligation required to be performed under the contract or lease.
If as the appellant claims “termination” can take place at any time and “the last obligation to be performed” includes the last obligation arising out of the default and enforcement process, then there is obvious potential for significant overlap between the two sub-sections as this case demonstrates.
That outcome sits uneasily with there being distinct categories separated by the word “or” and with the opening words of s 125(1)(c) “in any other case”. Section 125(1)(c) clearly contemplates the existence of a contract that has not been terminated. Mr Barker sought to overcome this difficulty and the first respondent’s claim that his interpretation results in the limitation period being “re-enlivened”, by suggesting the words “whichever occurs earlier” were implicit. However, that still leaves the problem of the potential under his interpretation for the triggers of each sub‑section to arise at exactly the same moment in time.
In our view, the ordering of the two categories of cases and the words “in any other case” tend to support a temporal sequence. That is to say, they tend to support the view that the termination contemplated in s 125(1)(b) is a termination that occurs before the end of the term of the contract. It can be a termination “by either party” and although the latter phrase most naturally suggests a valid cancellation following repudiation as held by Dunningham J, it must also include the valid exercise of an express power in the contract to terminate early. We would also not rule out an early termination by mutual agreement.
As Mr Ormsby for PGW Capital put it, the most natural interpretation of the interplay between the two sub-sections is that s 125(1)(b) is concerned with a positive act to bring the contract to a premature end, whereas s 125(1)(c) is a passive coming to the end of the term. It is founded on what the contract says about when it will end.
We turn now to address what we consider to be perhaps the strongest argument raised by Mr Barker and that is the potential for injustice under the High Court’s interpretation.
The potential for injustice under the High Court interpretation
Under the High Court’s interpretation, it will be possible for claims of oppression to be statute-barred before the oppressive conduct even happens.
This argument has certainly given us pause for thought. However, it loses much of its force having regard to two further considerations. The first is that under the CCCFA, the Court has the power to re-open a credit contract at any time and the second is that a defaulting debtor is entitled to raise oppression as a defence to any enforcement action brought by the creditor and to seek re-opening.[17] Our research identified a number of cases where this has been done including cases where a debtor who would have been time-barred from initiating a re-opening proceeding themselves was nevertheless able to seek it by way of a defence.[18]
[17]Credit Contracts and Consumer Finance Act, s 120; and Real Finance Ltd v Setefano [2016] NZHC 2293, (2016) 23 PRNZ 711 at [48]; and Diners Club (NZ) Ltd v District Court at Auckland [2017] NZHC 2616, [2017] NZAR 1738 at [36].
[18]For cases where re-opening was raised as a defence where the debtor would have been time‑barred from instituting re-opening proceedings under the High Court’s interpretation of s 125(1)(c) see for example Marac Finance Ltd v McKee (1988) 2 NZBLC 102,867 (HC); Landbase Nominee Co Ltd (in liq) v Bertelsen (1994) 2 NZ ConvC 191,907 (HC); and Crawford v Heaven (2000) 6 NZBLC 103,039 (HC). For other cases where re-opening was raised as a defence see AMP Perpetual Trustee Co New Zealand Ltd v Shannon HC Wellington CP741/92, 2 February 1993; and Westpac New Zealand Ltd v Colley [2012] NZHC 1854 affirmed on appeal in Colley v Westpac New Zealand Ltd [2013] NZCA 57, (2013) 13 TCLR 639.
In addition, as Mr Ormsby also pointed out, in cases involving securities over land and receiverships, a debtor claiming to be oppressed will have access to remedial provisions under respectively the Property Law Act 2007 and the Companies Act 1993.
In all those circumstances, we consider the claims of potential injustice are overstated. An oppressed debtor will not necessarily be bereft of any remedy as a result of the High Court’s interpretation.
Summary
We endorse the Judge’s interpretation of s 125 and her finding that on the facts of this case the one year limitation period started to run under s 125(1)(c) on 6 May 2013. The claims against PGW are undoubtedly statute-barred and accordingly she was correct to strike them out.
The Judge’s interpretation is supported by the language and structure of s 125 viewed in light of its purpose and legislative history. It is consistent with well‑established case law and ensures certainty. Concerns about its potential for injustice overlook the existence of other means of obtaining relief from oppression that will be available to a defaulting debtor.
Outcome
The appeal is dismissed.
As regards costs, the parties were agreed these should follow the event, meaning that the unsuccessful party should pay costs to the successful party. In written submissions, Mr Ormsby sought increased costs (a 50 per cent uplift) on the basis that the appeal was devoid of all merit. However, given that the panel at the hearing did not dismiss the appellant’s arguments out of hand as he may have anticipated, he appropriately resiled from that position and accepted that costs should be calculated in accordance with the scale.
We therefore order the appellant to pay the first respondent costs for a standard appeal on a band A basis with usual disbursements. We certify for second counsel.
Solicitors:
Shaun Cottrell Law, Christchurch for Appellant
Wynn Williams, Christchurch for First Respondent
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