Watherston v PGW Rural Capital Limited
[2019] NZHC 22
•23 January 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000095
[2019] NZHC 22
BETWEEN RICHARD JOHN SCOTT WATHERSTON
Plaintiff
AND
PGW RURAL CAPITAL LIMITED
First Defendant
AND
HEARTLAND BANK LIMITED
Second Defendant
AND
MALCOLM GRANT HOLLIS
Third Defendant
Hearing: 19-20 November 2018 Appearances:
J Moss and S T Cottrell for Plaintiff
J V Ormsby and S D Campbell for First Defendant
Judgment:
23 January 2019
JUDGMENT OF DUNNINGHAM J
The claim
[1] In 2005, the plaintiff, Mr Watherston, purchased a farm known as The Doone. He obtained funding for the purchase and development of the farm from PGG Wrightson Finance Limited (PGG Finance). Eventually, he defaulted on the loan agreements and a receiver was appointed to sell The Doone and other assets securing the loan agreements.
[2] Mr Watherston is now suing two finance companies, along with the receiver appointed by one of them. The relief he seeks is to have the credit contracts he entered
WATHERSTON v PGW RURAL CAPITAL LIMITED [2019] NZHC 22 [23 January 2019]
reopened under s 120 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) in order to vary the interest rate payable.
The current application
[3] PGW Rural Capital Limited (PGW Capital) has filed an interlocutory application seeking the following orders:
(a)an order striking out Mr Watherston’s statement of claim dated 19 February 2018;
(b)an order for security for costs;
(c)an order requiring Mr Watherston to file a more explicit statement of claim and further and better particulars; and
(d)an order seeking Mr Watherston’s compliance with initial disclosure obligations.
[4] The last two limbs of the application have been resolved, although PGW Capital seeks costs in respect of that part of the application. The application for security for costs has not been resolved, although some progress has been made on agreeing a mechanism by which appropriate security could be provided. However, as I indicated to counsel at the hearing, it is appropriate to defer consideration of that part of the application until after the strike out application has been determined.
[5] As a consequence, the hearing focused on the application to strike out Mr Watherston’s statement of claim against PGW Capital on the grounds of it being statute-barred and being an abuse of process. PGW Capital says:
(a)the claim cannot succeed because it was filed outside the one-year limitation period in s 125 of the CCCFA. The date on which the last obligation due to be performed under all credit contracts was 6 May 2013 at the latest, and the plaintiff’s claim to reopen the contracts was therefore time-barred on 6 May 2014; or
(b)the filing of the proceeding, in the terms pleaded, three days before the expiry of the plaintiff’s claimed limitation period was an abuse of process warranting an order striking it out.
[6]Mr Watherston opposes the application. He submits that:
(a)section 125(1)(c) of the CCCFA does not run from the last payment obligation, but rather from the due date for the performance of any obligation under the contract and so was not time-barred on 6 May 2014; but in any event
(b)time runs from 21 February 2017, when the credit contracts in question were finally terminated by performance of a deed of settlement absolving Mr Watherston from paying the shortfall still then owing, and releasing the securities.
The issues
[7]The issues for determination are:
(a)Which subsection of s 125 governs the commencement of the limitation period in this case?
(b)When did the relevant subsection trigger the commencement of the limitation period in this case?
(c)If the limitation period has not expired at the time of filing these proceedings, should it be struck out as an abuse of process?
Background
[8] In September 2005, Mr Watherston purchased a large north Canterbury farm, The Doone, with finance from PGG Finance. At the time, The Doone was leased to a third party. However, in anticipation of the lease expiring on 31 March 2009, Mr Watherston approached PGG Finance for further funding to develop the farm and
to purchase stock and plant for that farming operation. In February 2009, further finance was provided by PGG Finance for that purpose.
[9] The credit contracts Mr Watherston entered into with PGG Finance comprised a successor of term loans as well as a current account facility, the terms of which were varied over time.
[10] As at May 2013, when Mr Watherston went into default, his indebtedness arose under the following agreements:
(a)a current account facility agreement dated 29 June 2010 under which he owed $4,331,474.11;
(b)a term loan agreement dated 6 March 2009 under which he owed
$1,206,378.08;
(c)a term loan agreement dated 6 March 2009 under which he owed
$1,005,315.06; and
(d)a term loan agreement dated 12 September 2011 under which he owed
$2,713,633.15.
[11]The loan agreements were secured by:
(a)first mortgages over The Doone and another farm owned by Mr Watherston called Rocky Peaks; and
(b) general and specific securities over chattels, stock and plant (referred to collectively as “the securities”).
[12] In 2011, PGG Wrightson Limited (PGW), the owner of PGG Finance, decided to divest itself of PGG Finance and it was sold to Heartland Bank Limited (the second defendant), along with its “non-impaired” loans. However, Heartland Bank and PGW also agreed that Heartland Bank could assign back certain loans, if they became
impaired. PGW established PGW Capital, (the first defendant, and the applicant in this application) to deal with the impaired loans.
[13] In 2013, Heartland Bank elected to assign back the Watherston loans as impaired loans, and PGW Capital purchased them at full value, including all penalty interest.
[14] PGW Capital then promptly took enforcement action. On 2 May 2013, it notified Mr Watherston that the contractual and security agreements between him and PGG Finance had been assigned to it. It also made demand for immediate payment of all monies owing under the finance contracts, including all interest payable in accordance with the finance contracts.
[15] This was followed with the issue of a notice of enforcement by PGW and PGW Capital on 6 May 2013, which advised Mr Watherston that he was in default under both the specific and general security deeds securing the indebtedness. The notice formally notified him that “the whole of the secured indebtedness … is now due and payable”, and stated that Malcolm Grant Hollis and Maurice George Noone had been appointed as receivers under the provisions of the security agreements.
[16] On 6 July 2016, the New Zealand Redwood Company (New Zealand Redwood) acquired the loans and the securities by way of assignment from PGW Capital.
[17] The receivership concluded on 20 July 2016, with the receivers’ final report on that date showing that PGW Capital suffered a loss of approximately $1,820,000.
[18] In the latter half of 2016, Mr Watherston reached a settlement with New Zealand Redwood of the outstanding obligations under the loans and the security agreements. Mr Watherston then performed his obligations under the settlement agreement on or about 21 February 2017, and the remaining securities were released.
[19] Mr Watherston filed these proceedings on 19 February 2018 suing Heartland Bank and PGW Capital, along with Mr Hollis, one of the receivers appointed by PGW Capital on 6 May 2013. The key elements of the claim are that:
(a)the terms of the credit contracts were oppressive because, contrary to representations made, the interest rates were above market rates; and
(b)the receiver appointed by PGW Capital acted oppressively in conducting the sale of the secured assets.
[20] The relief sought includes reopening the credit contracts to reduce the interest rates, and a claim for damages calculated on the basis that the development of The Doone would have proceeded successfully had the interest rates not been oppressive, allowing the plaintiff to sell one farm and retain either The Doone or Rocky Peaks. There are also claims for general and exemplary damages.
[21] On receipt of the proceedings, PGW Capital filed a statement of defence raising limitation defences. It also wrote to Mr Watherston claiming:
(a)further and better particulars were required;
(b)initial disclosure was inadequate;
(c)security for costs was required; and
(d)there were limitation issues.
[22] These issues were not promptly resolved to the defendants’ satisfaction and lead to the present application.1
Jurisdiction to strike out
[23]The Court may strike out a proceeding if it:
1 The second and third defendants also filed interlocutory applications seeking further and better particulars and security for costs, and the second defendant has filed its own application to strike out the claim.
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the Court.2
[24] The Court will strike out a cause of action that is time-barred.3 It does so on the basis that the proceeding is frivolous or vexatious or is otherwise an abuse of process of the Court. The onus is on the defendant to satisfy the Court that the plaintiff’s cause of action is clearly statute-barred.4 In approaching that issue the Court will assume that the pleaded facts are true, whether or not they are admitted. It will also not shy away from determining the point even if it involves deciding difficult questions of law involving extensive argument.5
[25] In this case, there is no material dispute about the factual matrix in which the limitation issue is raised. The question turns on the interpretation of s 125 of the CCCFA, and how it triggers the limitation period in the circumstances of this case.
Section 125 CCCFA
[26] The plaintiff seeks to have the relevant credit contracts reopened under pt 5 of the CCCFA on the grounds that the contracts are oppressive, and the conduct of the first defendant in exercising its rights under the contract was also oppressive.6
[27] Section 125(1) of the CCCFA provides a range of timeframes in which a potential plaintiff may seek to reopen contracts covered by the CCCFA, including credit contracts. That subsection provides:
2 High Court Rules 2016 r 15.1.
3 See, for example, Waterhouse v Contractors Bonding Ltd [2012] NZHC 566.
4 Trustees Executors Ltd v Murray [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
5 Applying the relevant principles from Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
6 Credit Contracts and Consumer Finance Act 2003, s 120.
(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.
Those time limits constitute a clear limitation regime, as s 125(4) provides:
(4)Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may not be commenced at any other time.
[28] Section 125(2) and (3) provide a mechanism by which related credit contracts may be reopened. This occurs where, for example, a credit contract is issued to pay amounts owing under an existing credit contract, with the knowledge of the creditor or where the creditors are the same person or related companies. In such cases, all the related credit contracts may be sought to be reopened if proceedings are commenced at any time earlier than one year after the due date for performance of the last obligation required to be performed under any of those contracts. The plaintiff seeks to reopen all the credit contracts he entered into to purchase and develop The Doone, in reliance on this provision.
How does s 125 apply in this case?
The applicant’s submissions
[29] PGW Capital’s case is that these proceedings are time barred under s 125(1)(c) because the date by which the last obligation had to be performed under the credit contracts sought to be reopened was 6 May 2013 at the very latest. The last obligation with a due date for performance in all the contracts was a repayment obligation. In this case on the date the receivers were appointed, Mr Watherston owed money under
four credit contracts, being three term loan agreements and a current account facility. Two of the term loan agreements, both dated 6 March 2009, were required to be paid 36 months after the date of advance, that is, by 6 March 2012. The 12 September 2011 term loan agreement was required to be paid by 1 September 2012. The current account facility did not have a date for repayment, as is usual with current accounts, but, in the event of a default, the lender could “declare all or any part of the Loan and any other indebtedness of the Borrower under the Relevant Documents to be, and that indebtedness will be, due and payable either immediately or on demand or at a later date as the Lender may specify”. In this case, demand was made to repay all advances, including the current account, by 6 May 2013 and this is the date from which limitation began to run. Mr Watherston did not file his proceeding until 19 February 2018, almost five years after that date, and so his proceedings are time-barred.
[30] The applicant emphasises that when the CCCFA was enacted, there was a deliberate change from the way the limitation period had operated under the pre-existing legislation, the Credit Contracts Act 1981. Instead of having time run from the date of performance of the last obligation under a credit contract, the CCCFA provides that time runs from the due date for performance, being the date on which the last obligation ought to have been performed.
[31] The authors of Gault on Commercial Law identified the purpose of this change saying:7
The old Act [the Credit Contracts Act 1981] had allowed the time to run whenever the last obligation under a credit contract was performed, which as a number of Judges recognised, meant a debtor could avoid problems with time limits by the simple expedient of not fully performing an obligation. So, while the limitation period under the new Act is apparently longer than under the old, the trade-off is that it has a definite start date unrelated to the date of actual performance of the obligations arising: the date on which the last obligation ought to have been performed.
[32]The applicant notes that the limitation period in s 125 was discussed in
Robson v Shortt, where Associate Judge Sargisson made the following observations:8
[48] Section 125(1)(a) provides that re-opening proceedings must be commenced within three years after the due date for the performance of the
7 Gault on Commerical Law (online looseleaf ed, Thomson Reuters) at FC7.01(2).
8 Robson v Shortt HC Auckland CIV-2007-404-223, 21 December 2007.
last obligation required to be performed under the transaction. The agreement had a 25-year term so the last payment was to be due in 2026, meaning that an action cannot be brought after 2029.
[33] Mr Ormsby submits that the Court in Robson recognised that the limitation period ran from the due date for performance of the last repayment obligation, and that approach was recently confirmed by the Court of Appeal in Patrick v Bank of New Zealand.9
[34] In Patrick, the plaintiff had guaranteed lending from the bank to family owned companies for the development of land, acquisition of machinery and working capital requirements. The companies went into default and demand was made for repayment. Mr Patrick subsequently initiated proceedings seeking to reopen the relevant contracts on the ground of oppression under the CCCFA. However, the Court of Appeal made the following observations on the application of the limitation provision.
[28] The last obligations under the final set of credit contracts with the Bank were required of the debtors on 30 November 2015 – the due date for repayment of the loan. Accordingly, the time limit in s 125(3) would have required any application for re-opening on the ground of oppression to have been commenced before 30 November 2016. No such step was taken.
[29] Mr Woodhouse sought to avoid the s 125(3) time limit applying in this way by arguing that the Bank still contends that obligations continue to be owed because it continued to charge interest for non-payment of the amounts originally demanded. It would follow that the “due date for performance” of obligations under those contracts continued to run. With respect, that argument is untenable. Unless extended, the last obligation in terms of the contracts on which the material default occurred was the date for performance of the debtors’ obligation to make repayment.
[30] It follows that Mr Patrick could not now initiate any proceedings for a re-opening of the relevant contracts on the ground of oppression under the provisions of the CCCFA.
[35] Mr Ormsby argues that Mr Watherston is in precisely the same position as Mr Patrick. The last obligation required to be performed under the relevant credit contracts was the final date for repayment. The term loans had expired and demand was made for payment of all indebtedness, including the current account facility, on 6 May 2013. At that date Mr Watherston had one year to commence proceedings seeking to reopen those credit contracts. The fact the secured party maintained
9 Patrick v Bank of New Zealand [2018] NZCA 122.
enforceable rights against Mr Watherston for failure to make repayment, including in respect of costs, indemnities and the like, did not alter or extend that date.
[36] Mr Ormsby also submits there is no unfairness in the limitation period running from the last due date for payment. In enacting the CCCFA, Parliament deliberately chose to bring a greater degree of certainty to how the limitation period operated. The provision strikes a balance between the need for parties to be able to challenge oppression on the one hand, and the need for commercial certainty on the other. In any event, the one year statutory time limit only applies to proceedings to reopen under the CCCFA. It does not apply to stop a debtor from raising oppression in recovery proceedings initiated by a creditor against a debtor.
[37] Mr Ormsby rejects Mr Watherston’s argument that his circumstances fall within s 125(1)(b), and that the contract was not terminated until the date he performed the settlement with New Zealand Redwood. He says the settlement was not a termination of the credit contracts, as a release is not a termination. Rather, a release occurs on satisfaction. In any event, s 125(1)(b) refers to “either” party terminating and it is clearly not intended to cover a settlement agreement in satisfaction.
[38] Furthermore, if that were the case, then Mr Watherston could not rely on s 125(3) to open up all previous credit contracts. Section 125(3) provides that s 125(2) can only be invoked up to one year from the due date of performance of the last obligation required to be performed which was, in the applicant’s submission, 6 May 2013.
The respondent’s submissions
[39] Mr Moss’s initial position was that the applicant’s interpretation of the word “obligation” in s 125(1)(c) as being a repayment obligation was too limited. In his view, such an interpretation was neither logical nor consistent with the purpose of the CCCFA. The word “obligation” used in s 125(1)(c) is not limited to a payment obligation, and Mr Watherston still owed obligations to PGW Capital, and then to New Zealand Redwood, right up to the point he reached a settlement with New Zealand Redwood. For example, under the terms of the current account facility agreement, this included:
(a)the obligation to indemnify the lender against costs and losses resulting from default, under cl 11.1;
(b)the obligation to pay costs and expenses incurred by the lender, under cl 14; and
(c)the obligation to provide financial statements to the lender for each financial year under cl 8.2.1, and to insure the secured property under cl 8.3.
[40] Furthermore, fixing the limitation date for all contracts as one year from the date on which the last repayment is due would unduly limit the remedies the CCCFA provides for oppressive conduct and would allow creditors to avoid any risk of being challenged for oppression by simply delaying enforcement for 12 months from the date of default. That, in his submission, would seriously limit the efficacy of the enforcement regime in the CCCFA in relation to consumer credit contracts. It would mean creditors would be “free to engage in oppressive conduct 366 days after a repayment date” and the debtor would have no remedy for that.
[41]In response to the applicant’s submissions relying on the decision in Patrick,
he submits it is either:10
(a)irrelevant because the limitation date for Mr Watherston’s purposes is determined under s 125(1)(b) and Mr Patrick’s concerned s 125(3); or
(b)otherwise distinguishable and/or wrongly decided.
[42] In arguing that Patrick is wrongly decided, Mr Moss says it effectively reads the word “repayment” into s 125(3), so that, in effect, it says “the last repayment obligation required to be performed” and therefore the decision incorrectly restricts the ordinary meaning of the words.
10 Patrick v Bank of New Zealand, above n 9.
[43] However, in oral submissions, Mr Moss focused on distinguishing Patrick because, in his view, Mr Watherston’s case should be categorised as a termination case under s 125(1)(b). Under that provision the contract was only terminated at the point when Mr Watherston was released from all obligations under it, which was when he satisfied the terms of the settlement concluded with New Zealand Redwood. Mr Moss points out that by virtue of s 119 of the CCCFA, any security interest taken in connection with a credit contract is “treated as forming part of the credit contract” for the purposes of the Act.11 This means that all of the credit contracts Mr Watherston was a party to included the general and specific security agreements, and these all remained in effect until released by the settlement with New Zealand Redwood in February 2017.
Discussion
[44] It is clear that when Parliament enacted s 125 in its current form, it intended to amend the limitation regime under the Credit Contracts Act. This avoided the anomaly recognised by Vautier J in Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd, whereby a recalcitrant debtor, who defaults on performing the obligations under the credit contract, obtain a considerable benefit by preventing time from running.12
[45] An extreme example of this anomaly arose in Savril Contractors Ltd v Bank of New Zealand, where an application for reopening a credit contract filed in 2000 was not statute-barred, even though the events giving rise to the cause of action occurred between 1984 and 1987.13 When the proceedings came before the Court of Appeal, the Court noted that there is “effectively no limitation period for proceedings seeking the reopening of a credit contract on the grounds of oppressiveness under the Credit Contracts Act where a debtor is in default”, but also said that the “time limits have been changed in s 125 of the [CCCFA]”.14
11 Section 119(1).
12 Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd [1984] 2 NZLR 1 (HC) at 9.
13 Savril Contractors Ltd v Bank of New Zealand [2002] NZAR 699 (HC).
14 Savril Contractors Ltd v Bank of New Zealand [2005] 2 NZLR 475 (CA) at [106].
[46] PGW Capital says s 125(1)(c) applies and the reference to “the last obligation required to be performed under the contract” must, in line with Patrick, be a repayment obligation. I accept, as Mr Moss submits, that an obligation need not be read as restricted solely to repayment obligations. However, in the context of a credit contract it is difficult to envisage what other obligation could arise which has a “due date” in the contract, and so the last date for repayment will almost inevitably be the obligation from which time runs.
[47] I am satisfied that, in relation to the term loan agreements, the due date for the performance of the last obligation required to be performed under the contract was the last date for repayment of the term loan. All other obligations arising on default are not obligations where the due date can be identified by reference to the terms of the credit contract. The repayment dates all occurred well before 6 May 2013 and, unless reopening is possible under s 125(3), it is too late to seek to reopen them.
[48] The current account facility did not have due dates for payment (as is the case under a term loan agreement or a consumer lease). Rather, credit was offered on an ongoing basis until terminated by the finance company, in accordance with the terms of that credit contract, or by the debtor, Mr Watherston, repaying the facility. While the current account facility was also treated by the applicant as having time run under s 125(1)(c) from 6 May 2013, as a consequence of the notice of enforcement being issued requiring repayment, I consider that equally could have been considered as the date of termination under s 125(1)(b).
[49] That leads on to what constitutes “termination” for the purpose of s 125(1)(b), because Mr Moss sought to characterise “termination” as the point when all obligations under the relevant credit contract had been satisfied, rather than when the applicant required full repayment.
[50] That approach, in my view, is untenable. In this context, the word “termination” clearly means cancellation of the credit contract by one or other party before the agreed term is completed, whether for default or any other reason. That is
consistent with the legislation, which in other contexts refers to termination as an event which brings the contract to an end in advance of the agreed timeframes.15
[51] By placing s 125(1)(b), which relates specifically to termination, before s 125(1)(c) and then providing that s 125(1)(c) applies in “any other case”, it is clear that a contract which has been “terminated” must be able to be identified independently, and in advance of, a contract where the limitation period runs from the due date for the last obligation required to be performed. A credit contract with a due date for performance of the last obligation (normally the last date for repayment) may be terminated earlier than that date, in which case the limitation period runs from that earlier termination date. If it is not so terminated, then s 125(1)(c) applies.
[52] To suggest, as Mr Moss does, that the date for the last repayment could have been more than a year ago, but that the limitation period has yet to run because not all obligations arising on default have been completed, would be to undermine the purpose of the limitation provisions of the CCCFA. In this case it would mean that repayment of all monies could have been required on or before 6 May 2013, but because Mr Watherston was not finally released from that obligation until 21 February 2017, the limitation period in s 125(c) was redundant. I do not accept that could have been intended as it effectively extends the limitation period indefinitely while the debtor is in default. Furthermore, the agreements themselves envisaged termination would be synonymous with cancellation and that certain obligations would endure after “termination”. For example, the loan agreement at 9.2 says “The above indemnity is … to survive termination”. Similarly, the current account facility at 11.2 records “The above indemnity is …. to survive termination of the Facility …”.
[53] Thus, termination cannot mean, as Mr Moss suggests, the satisfaction of all contractual obligations. It is a decision, by either party, to bring the credit contract to an end and, where the credit contract is for an agreed term, it must be prior to the conclusion of that term. The only credit contract to which s 125(1)(b) could apply in this case would be the current account facility and I am satisfied that termination
15 See, for example, ss 53, 68 and 121.
occurred no later than 6 May 2013, when the lender required repayment of all sums advanced to Mr Watherston under that and the three outstanding term loans.
[54] Consequently, I accept PGW Capital’s argument that time began to run from 6 May 2013 and the limitation period expired no later than 6 May 2014. The application to reopen the credit contracts is statute-barred and the cause of action brought under pt 5 of the CCCFA is struck-out.
Application to strike out claim as an abuse of process
[55] While, strictly speaking, there is no need to address the second ground relied on for the strike-out application given my decision on the first ground for the application, I deal with it briefly as I heard submissions on it.
[56] The Court has jurisdiction to strike out a claim because it constitutes an abuse of process under r 15.1(1)(d) as was explained in Commissioner of Inland Revenue v Chesterfields Preschools Ltd as follows:16
Rule 15.1(1)(d) – “otherwise an abuse of process of the court” – extends beyond the other grounds and captures all other instances of misuse of the court’s processes, such as a proceedings that has been brought with an improper motive or are an attempt to obtain a collateral benefit. An important qualification to the grounds of strike out listed in r 15.1(1) is that the jurisdiction to dismiss the proceeding is only used sparingly. The powers of the court must be used properly and for bona fide purposes. If the defect in the pleadings can be cured, then the court would normally order an amendment of the statement of claim.
The applicant’s submissions
[57] PGW Capital relies, in particular, on two cases where the Court has struck out a claim as an abuse of process because the claim was filed in inadequate form for the sole purpose of defeating a limitation defence.17
[58] In this case, PGW Capital’s position is that if Mr Watherston’s claim is not time barred it, nevertheless, is an abuse of process. Even on his view of events, the last
16 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [89].
17 Body Corporate 348047 v Auckland Council [2014] NZHC 2971 and Ballantyne Trustees Ltd v GBR Investment Ltd [2017] NZHC 435.
possible date for filing a claim was 21 February 2018 and he filed his claim on 19 February 2018, only two days before the limitation period expired. More importantly though, the claim was filed in a form which was substantively and procedurally flawed.
[59] PGW Capital relies on Ballantyne Trustees Ltd v GBR Investments Ltd where Associate Judge Matthews reached the following conclusion:18
[146] I find, as Faire J did in Body Corporate 348047, that the SOC was filed to save the claims from the consequence of limitation defences. The proceeding as filed was frivolous, as it was a proceeding which lacked the seriousness required of matters for the Court’s determination. It was vexatious, as it involved procedural impropriety across a range of Rules, as discussed. It was also an abuse of process as it was brought to save the claim from limitation defences without it being evident that a requisite degree of analysis of the law or the facts had been undertaken.
[60] In this case, PGW Capital says Mr Watherston’s claim was procedurally, technically and substantively deficient when filed. For example, Mr Campbell says that for Mr Watherston to succeed in his claim under pt 5 of the CCCFA he must establish, among other things, that there is a relevant credit contract, or contracts, which are sought to be reopened. In this case, the statement of claim does not plead the specific credit contracts sought to be reopened. Rather, it simply lists a number of bank accounts which are not credit contracts as defined by s 7 CCCFA. While Mr Watherston disclosed the actual credit contracts in the notice of further particulars dated 14 September 2018, PGW Capital says these came too late, because Mr Watherston only disclosed this key element of his cause of action when the claim was time barred, even on his assessment of limitation.
[61] PGW Capital goes on to say there are further issues with the statement of claim. The plaintiff makes claims against it for losses which stem from the high interest rates imposed when the contracts were set up, and for prolonging the receivership. PGW Capital says it cannot be held liable for the interest rate because it was not responsible for this in Mr Watherston’s case, nor can it be held responsible for loss stemming from the conduct of the receivership because it did not conduct the receivership, Mr Hollis did. It also says that it cannot have any award made against it
18 Ballantyne Trustees Ltd v GBR Investment Ltd, above n 17.
under s 94 of the CCCFA because such relief is not jurisdictionally available under an action for oppression under pt 5 of the CCCFA.
[62] PGW Capital also points out there are a number of typographical errors in the statement of claim including:
(a)the prayer for relief against PGW Capital incorrectly refers to the second defendant in two locations;
(b)the second cause of action contains no repetition of the facts it relies on; and
(c)the prayer for relief against the second defendant contains incomplete cross-references to other paragraphs in the pleading.
These all demonstrate that the claim was hastily prepared.
[63] In short, PGW Capital says the entire claim is premised on oppression arising under credit contracts that are not themselves disclosed in the statement of claim and the pleading, in particular the loss pleading, is confused and incorrect. For these reasons, the claim should be struck out on the ground that discloses no cause of action against PGW Capital.
The respondent’s submissions
[64] Mr Moss strongly resists this ground for the strike-out application. He points out that the submissions for the applicant do not suggest that the claim has been filed for an improper purpose or to obtain a collateral benefit, which are the usual grounds for asserting that a proceeding constitutes an abuse of process. In this case, Mr Moss submits that the plaintiff has brought his claim for an entirely appropriate purpose, which is to seek to reopen credit contracts for oppressive conduct.
[65] Mr Moss also reminds the Court that the threshold that the applicant must meet before a claim will be struck out is deliberately set high. The onus is on the party alleging abuse of process to show that the proceeding was brought for an improper
purpose and this is a “heavy onus” which should only be exercised in exceptional circumstances.19
[66]In addressing the specific criticisms raised Mr Moss submits:
(a)the statement of claim clearly sets out Mr Watherston’s claims against each defendant, and paragraph 18 gave sufficient details about all agreements sought to be reopened, including the dates and amounts of each advance. It would therefore be “disingenuous” to suggest the applicant did not understand which contracts Mr Watherston sought to reopen, particularly when the applicant’s deponent, Mr Daly, had been heavily involved in enforcing the agreements;
(b)Mr Watherston’s cause of action clearly identifies his concerns, being interest rates which he asserts are well above market rates, as well as the applicant’s conduct before and during the receivership; and
(c)any deficiencies in the claim do not approach the threshold at which the claim would be an abuse of process. Mr Watherston disclosed all of the documents used to prepare the claim at the time of the claim being made, and has complied with the requests for further particulars.
[67] Thus, notwithstanding the minor errors and deficiencies in the claim, it adequately discloses the cause of action and there is no impediment to amending the factual pleadings after expiry of the limitation period to clarify any aspect of the pleadings.
Discussion
[68] The claim against the applicant is hastily drafted and suffers from some deficiencies. The issue is whether the deficiencies in the claim are so fundamental and so clearly fail to disclose what is alleged against the applicant, that it should be struck
19 Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 498.
out, rather than be allowed to be refined through the processes provided for in the High Court Rules.
[69] I note at the outset that filing close to the expiry of the limitation period can never, on its own, be sufficient to constitute an abuse of process. As was the case in Ballantyne Trustees Ltd, it is the fact there is a severely deficient pleading, which is filed for the sole purpose of avoiding a limitation defence, that constitutes an abuse of process.20
[70] The first criticism of the pleadings seems to be that the plaintiff failed to identify the credit contracts that he sought to reopen. I accept the pleadings did not identify the credit contracts in the way the creditor may have thought appropriate. Nevertheless, it is difficult to see how it could have been confused about which agreements were sought to be reopened. Paragraph 18 of the pleadings identified various loans by reference to the date or the date range within which the advance was made, along with the amount advanced, the interest rate, and the bank account number. By way of example, the loan referred to at paragraph 18(a)(iii) is described in the following terms “As at 6 March 2009 … a new term loan of $1,000,000 at an interest rate of 10.1 per cent, for the purpose of restructuring existing financing (TL7020103487) (TL87)”. The current accounts were also defined by reference to the limit on the facility, the interest rate, and the account number.
[71] In my view, sufficient information was provided in paragraph 18 for the creditor to identify the relevant credit contracts from the pleadings. The deficiency asserted by the applicant is technical in nature. It did not prejudice it in any practical way in understanding the claim it faced.
[72] Paragraph 19 simply makes an assertion that the “loan agreements are credit contracts as defined in the CCCFA”. That is sufficient, in my view, to signal why the CCCFA is engaged. This point was uncontentious in any event.
[73] The pleadings go on to outline the plaintiff’s concerns about the representations that were made to him about what interest rates would apply, compared
20 Ballantyne Trustees Ltd v GBR Investment Ltd, above n 17.
to the interest rates which in fact were imposed, and seeks, in his prayer for relief, “an order under s 120 of the CCCFA reopening the credit contracts set out in paragraph 18”.
[74] The applicant may well be right that the loss pleaded against PGW Capital is unrecoverable against it or may be jurisdictionally unavailable. However, simply because the loss pleading is, in PGW Capital’s submission “confused” and “incorrect”, that is to advance arguments on the merits of the claim against the first defendant. Clearly, the pleadings were adequate to allow these shortcomings to be identified.
[75] Finally, the minor typographical errors identified by the applicant do not materially affect the position. It was clear, even to the applicant, that they were simply mistakes, which could be amended after the limitation date without substantially affecting any party’s understanding of the claim.
[76] In conclusion, this is not a case where the deficiencies in the pleadings are so grave that the substance of the claim has not been identified nor are the defendants materially hampered in the defence of it. Had the claim for relief under pt 5 of the CCCFA not been statute-barred under s 125, I would not have struck it out as an abuse of process.
Outcome
[77] The causes of action seeking relief under the CCFA are struck out on the grounds they are statute-barred.
[78] As the applicant has been successful in its application, costs should follow the event. In my view, 2B costs are appropriate on the application as a whole (which covers the associated applications including the applications which have been resolved along with the application for security for costs).
[79] If costs cannot be agreed, memoranda may be filed, with the applicant’s memorandum being filed within 20 working days of the date of this decision and the respondent’s in a further 10 working days.
[80]Costs will be determined on the papers unless I request to hear from counsel.
Solicitors:
Shaun Cottrell Law, Christchurch Wynn Williams, Christchurch
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