Westpac New Zealand Limited v Whitley

[2013] NZHC 1051

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-007335 [2013] NZHC 1051

BETWEEN  WESTPAC NEW ZEALAND LIMITED Plaintiff

ANDKEVIN JOHN WHITLEY First Defendant

ANDROBERT MURRAY NOBLE Second Defendant

ANDGARETH RUSSELL HOOLE AND KEVIN DAVID PITFIELD

Third Parties

Hearing:         10 May 2013

Counsel:         N Frith for plaintiff

R B Hucker and D Lang Siu for first and second defendants

Judgment:      10 May 2013

JUDGMENT OF LANG J

[on application for new parties order]

This judgment was delivered by me on 10 May 2013 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

WESTPAC NEW ZEALAND LIMITED V KEVIN JOHN WHITLEY HC AK CIV-2011-404-007335 [10 May

2013]

[1]      In this proceeding the plaintiff, Westpac New Zealand Limited (“Westpac”), sought to enforce guarantees given by the three defendants in respect of a performance bond that Westpac had agreed to provide on behalf of a company called First Light Construction Limited (“First Light”).  Westpac was called upon to honour its obligations under the bond, and made a payment in the sum of $300,000 to the entity in whose favour it had given the bond.  It then called upon First Light and the defendants to repay that sum.  First Light is now in receivership and liquidation.  As a result, Westpac proceeded against the three guarantors for repayment of the monies it had been required to pay out.

[2]      The first and second defendants, Mr Whitley and Mr Noble, seek to be substituted as plaintiffs in place of Westpac.  They say that they have purchased the debt that gave rise to the proceeding, and also the securities that Westpac held in respect of that debt.   For that reason they seek an order under r 4.52 of the High Court Rules substituting them as plaintiffs.  They do so in order to be able to enforce Westpac’s claim against the third defendant, Mr Sonkin.

Background

[3]      Westpac initiated this proceeding with an application for summary judgment against all three defendants based on their obligations under their respective guarantees.    Mr  Sonkin  took  no  steps  to  oppose  the  application,  and  Westpac obtained  summary  judgment  against  him  on  8  March  2012  for  the  sum  of

$342,147.08 inclusive of costs and interest.

[4]      Mr Whitley and Mr Noble opposed the application for summary judgment, and also filed a counterclaim against Westpac.  The parties reached a settlement in or about April 2012, however, and this meant the Court did not need to determine the application for summary judgment.

[5]      The terms of the settlement were ultimately recorded in a deed of settlement dated 13 December 2012.  This provided for Mr Whitley and Mr Noble to pay the sum of $150,000 to Westpac in three instalments.  The deed also recorded that, upon receipt of that sum, Westpac would assign to Mr Whitley and Mr Noble the debt

owing to it by First Light.  The debt had by that stage been reduced by the sum of

$150,000 as a result of a payment that Westpac had received from First Light’s

receivers.

[6]      The deed of settlement also required Westpac to assign to Mr Whitley and Mr Noble all of the rights that it held under the securities given by First Light and the three defendants in relation to the debt.  These included the guarantee given by Mr Sonkin that had formed the basis of Westpac’s successful application for summary judgment against him in March 2012.

[7]      The terms of the assignment were contained in a deed of assignment that was annexed to the deed of settlement.  Although the parties executed the deed of assignment at the same time as they signed the deed of settlement, the deed of settlement recorded that the deed of assignment was to be held in escrow and would not become operative until the final instalment had been paid.

[8]      Mr Whitley and Mr Noble paid the final instalment on 11 February 2013. There is no dispute that the deed of assignment became operative at that point.  First Light has also been notified that Westpac has assigned the debt to Mr Whitley and Mr Noble.

[9]      Relying on the deed of assignment, Mr Whitley and Mr Noble now wish to enforce the guarantee that Mr Sonkin gave to Westpac.  They wish to do so by executing the judgment that Westpac obtained against him on 8 March 2012.  For that reason they have applied for an order under r 4.52 of the High Court Rules substituting them as plaintiffs in this proceeding in place of Westpac.  Westpac opposes the application on the basis that the Court has no jurisdiction to make the order that Mr Whitley and Mr Noble seek.  Westpac also contends that the judgment was not included within the securities that it assigned to Mr Whitley and Mr Noble following the settlement.

Jurisdiction

[10]     Rule 4.52 relevantly provides as follows:

4.52   New parties order

(1)     Subclause (2) applies if, after a proceeding has commenced, there is an event causing a change or transmission of interest or liability (including death or bankruptcy) or an interested person comes into existence, making it necessary or desirable—

(a)     that a person be made a party; or

(b)     an existing party be made a party in another capacity.

(2)    An application without notice may be made for an order that the proceeding be carried on between the continuing parties and the new party (a new parties order).

…

[11]     Although nothing turns on it, Mr Whitley and Mr Noble obviously rely upon r 4.52(1)(b). As existing parties (defendants) they seek to be made parties in another capacity, namely as plaintiffs.

[12]     As already noted, Westpac contends the Court has no jurisdiction to make the order Mr Whitley and Mr Noble seek.   It points out that the Court effectively determined the claim against Mr Sonkin when it entered summary judgment against him on 8 March 2012.   Westpac therefore says that no proceeding remains in existence that could be “carried on” between Mr Whitley and Mr Noble against Mr Sonkin in terms of r 4.52(2).

[13]     This submission ignores the fact that there is an established line of New Zealand and English authority confirming that an order can be made under r 4.52 (or its earlier New Zealand or United Kingdom equivalent) notwithstanding the fact that judgment may already have been entered for one party or the other.1   Such an order may be necessary, for example, where the plaintiff dies after obtaining judgment and the representatives of his or her estate wish to enforce the judgment for the benefit of the estate.2   Alternatively, an order may be necessary to enable the representatives of the estate of a deceased defendant to apply to set aside a judgement obtained against

the deceased prior to his or her death or a judgment wrongly obtained after death.3

1 See eg Salt v Cooper (1880) 16 ChD 544; Collings v Wade [1903] 1 I.R. 89; Smytheman v Clark

[1935] NZLR 604; Cathie v Simes (2004) 17 PRNZ 155 (CA).

2 As was the case with Smytheman v Clark.

3 As was the case in Cathie v Simes.

[14]     Although r 4.52(1) expressly includes the death and bankruptcy of a party as being events that will give rise to jurisdiction to make an order under the rule, it does not restrict jurisdiction to those two circumstances.  Nor does it purport to restrict the operation of the rule to proceedings in which judgment has not yet been entered. There is good reason for that, as the examples given above demonstrate.

[15]     I therefore reject Westpac’s submission that the Court has no jurisdiction to make the order that Mr Whitley and Mr Noble seek.

Is it necessary or desirable for an order to be made?

[16]     Mr Whitley and Mr Noble contend that it is both necessary and desirable for them to replace Westpac as plaintiff in respect of its claim against Mr Sonkin.  They point out that the Court has already finally determined that Mr Sonkin is liable under his guarantee, and that they are now the assignees of all rights formerly held by Westpac in relation to that security.  They therefore say they should be entitled to enforce the security in the only way that is now practicable, which is through the judgment that Westpac obtained on 8 March 2012.

[17]     Westpac argues that it would be wrong to permit Mr Whitley and Mr Noble to become judgment creditors in circumstances where the deed of settlement did not expressly require Westpac to assign its rights under the judgment.  It also points out that the deed of assignment did not include the judgment as one of the securities that Westpac was required to assign to Mr Whitley and Mr Noble.  Counsel for Westpac advised me from the bar that Westpac wishes to retain the ability to enforce the judgment against Mr Sonkin, although this is apparently presently hampered in a practical sense by the fact that Mr Sonkin is now residing overseas.

[18]     Counsel for Westpac also points out that, by virtue of the doctrine of merger, its rights against Mr Sonkin under the judgment replaced its rights against him under the guarantee.4  As a result, once Westpac obtained judgment against Mr Sonkin it no

longer had any rights against him under the guarantee.  Similarly, Mr Whitley and

4 Director-General of Fair Trading v First National Bank Plc [2002] All ER 97 at 101 (HC); Economic Life Assurance Society v Usborne [1902] A.C. 147 at 149 (HC); Westpac New Zealand Ltd v Wright (2010) 20 PRNZ 786 at [8].

Mr Noble are also precluded from enforcing the rights that Westpac originally had under the guarantee.

[19]     The evidence does not disclose why the parties did not expressly include the judgment within the bundle of assets that Westpac agreed to assign to Mr Whitley and Mr Noble in the deed of settlement.  It is clear, however, that Westpac intended to assign to them all of the rights that it held against Mr Sonkin under the guarantee. Had Westpac not already obtained judgment against Mr Sonkin, these would have included the right to sue Mr Sonkin under the guarantee.

[20]     It is difficult to see why the bank would have agreed to assign those rights to Mr Whitley and Mr Noble if they did not in fact exist when the deed was signed.  It is also difficult to see why Mr Whitley and Mr Noble would have agreed to purchase assets that were no longer in existence.  The answer may be that none of the parties turned their minds to the issue at the time they entered into the deed of settlement and the deed of assignment.

[21]     If Westpac’s argument is correct, however, Mr Whitley and Mr Noble now have no ability to pursue Mr Sonkin under his guarantee.   During the hearing, counsel for Westpac initially submitted that Mr Whitley and Mr Noble may not have lost the entire benefit of rights accruing under Mr Sonkin’s guarantee.  He pointed out that they may still be able to pursue Mr Sonkin in respect of any other liability he may have to the bank under his guarantee.  After taking instructions, however, counsel advised me that Mr Sonkin has no liability to Westpac other than the debt arising out of the payment of the performance bond.

[22]     Westpac’s stance that it remains entitled to enforce the judgment needs to be considered in light of the following clauses in the deed of settlement:

1.8      Assignment

…

(d)     For the avoidance of doubt, until the Completion Date, nothing in this clause 1.8 restricts Westpac from exercising its rights pursuant to the terms of the Indemnity and Guarantee, including any rights to make, enforce, settle or compromise any claim relating to its position under

those documents against any party to the security documents other than the Debtors.

…

2.1     Reservation of Rights

For  the  avoidance  of  doubt  until  the  assignment  of  the Assigned Assets in paragraph 1.8 pursuant to this Deed is effected, Westpac and the Debtors acknowledge and agree that Westpac shall be entitled to pursue its rights to any costs, damages, losses or claims that it might have against Mr Sonkin, and each acknowledges that nothing in this Deed shall:

(a)     be considered a waiver of any rights (including the right to make, enforce, settle or compromise any claim) of Westpac under   any   agreement   between   Westpac   and   Mr   Sonkin, including the Guarantee; or

(b)     be conclusive as to amounts owing by Mr Sonkin.

[23]     These clauses demonstrate, in my view, that the parties intended that Westpac would be entitled to continue with enforcement action against Mr Sonkin up until the point at which the final instalment was paid and the deed of assignment became operative.  Thereafter, however, all rights of enforcement were to be assigned to Mr Whitley and Mr Noble.  This means that Westpac would be acting contrary to the terms of the deed of settlement if it was to continue with enforcement action against Mr Sonkin.

[24]     Moreover, on Westpac’s argument, Mr Whitley and Mr Noble now have no practical means of obtaining any benefit from one of the principal assets that they purchased from the Bank for the sum of $150,000.   They cannot sue Mr Sonkin under his guarantee, because the debt owing under the guarantee has now merged with the Court’s judgment.  The only practical means of enforcing that liability at this stage is through that judgment.

[25]     I  consider  that  the  present  application  is  effectively  determined  by  the following provision in the deed of assignment:

1.1In consideration of the sum of $150,000 (“the Purchase Price”) paid to the Assignor by the Assignee (the receipt of which sum is acknowledged) the Assignor [Westpac] hereby sells transfers, and assigns to the Assignee all its rights, title and interest in and under the Securities and the moneys thereby secured and the full

benefit thereof subject to the conditions on which the Assignor holds the Securities and is owed the same.

…

[26]     The only practical means by which Mr Whitley and Mr Noble can now obtain the full benefit of Westpac’s rights under Mr Sonkin’s guarantee is by enforcing the judgment that Westpac obtained against him in March 2012.  This persuades me that it is both necessary and desirable for the Court to make the order that Mr Whitley and Mr Noble seek.  They should now be able to enforce the rights under the judgment that the bank obtained in respect of Mr Sonkin’s guarantee.

[27]     During the hearing, counsel for Mr Whitley and Mr Noble also made an oral application for an order under r17.9(2)(c) granting his clients leave to enforce the judgment that the bank obtained against Mr Sonkin.   The order that I propose to make under r 4.52 should be sufficient to enable Mr Whitley and Mr Noble to enforce the judgment against Mr Sonkin.  Should that prove not to be the case, they may renew their application for an order under r 17.9(2)(c).

Order

[28]     I make an order under r 4.52 substituting Mr Whitley and Mr Noble as plaintiffs in this proceeding.  I also reserve leave for them to renew their application for an order under r 17.9(2)(c) should that be necessary.

Costs

[29]     Mr Whitley and Mr Noble have succeeded in the present application, and are entitled to an award of costs on a category 2B basis together with disbursements as

fixed by the Registrar.

Lang J

Solicitors:

Minter Ellison Rudd Watts, Auckland

Hucker & Associates, Auckland