Kivits v Draper

• Jurisdiction: New Zealand
• Judge: R M Bell
• Judgment Date: 23 August 2016
• Neutral Citation: [2016] NZHC 1961
• Docket Number: CIV-2015-488-68
• Court: High Court
• Date: 23 August 2016

Between

Cornelius Kivits and Hubertine Kivits

Plaintiffs

and

Robertedwardsdraperand Cynthia Gladys Draper

First Defendants

Burton & Co

Second Defendants

[2016] NZHC 1961

court:

Associate Judge R M Bell

CIV-2015-488-68

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

Application to set aside a default judgment-the key issues related to the running of limitation periods in respect of a fixed sum mortgage — the advance was made in 2001 and secured against various properties-the principal was to be repaid in 2002 and thereafter, default interest applied — under a written agreement in 2010, the properties were released from to facilitate a sale-at this time a payment of $150,000 was made-the defendants argued that the applicable limitation period was under s4(1)(a) Limitation Act 1950 (LA) (actions founded on simple contact-six years)—they denied that there had been a part-payment or acknowledgement of debt which would cause the time to run afresh-whether s4(1)(a) LA or s20(1) LA (12 years from the date when the right to receive the money accrued) applied-whether the September 2010 agreement was an acknowledgement of the debt under the 2001 mortgage-whether there had been a part payment from which a cause of action accrued afresh-if the claim for the principal or part thereof was statute barred, whether interest continued to accrue in respect of that sum.

Appearances:

J Strauss, Auckland, for Plaintiffs

D G Collecutt, Auckland, for the First Defendants

Appearance excused for the Second Defendant

JUDGMENT OF ASSOCIATE JUDGE R M Bell

1 On 5 November 2015 the plaintiffs, the Kivits, obtained judgment by default against the Drapers, the first defendants, for $1,447,142.94 plus interest on $450,000.00 at 20.5 per cent per annum from 18 September 2010 until judgment, plus costs of $10,431.86. On 23 May 2016 the Drapers applied to set aside the default judgment.

Judgment regularly obtained

2 The Drapers accept that the Kivits obtained judgment by default against them regularly, but it is necessary to explain that further. The Kivits began this proceeding on 17 June 2015. The second defendants, a law firm, applied for summary judgment. On 24 July 2015 Mrs Draper swore an affidavit in support of the summary judgment application. She must therefore have been aware of the proceeding then. She swore a further affidavit in support of the application on 29 September 2015. On 17 August 2015 the Kivits' process servers served Mr Draper, but not Mrs Draper. The Kivits applied for substituted service on Mrs Draper. They sought an order under r 6.8 of the High Court Rules that she be treated as having been served on the basis that she was already aware of the proceeding. I directed that time for Mrs Draper to file a statement of defence should not run from 17 August 2015 (when her husband was served) but from when the Kivits informed her afresh of the proceeding. I directed the Kivits' lawyers to write to Mrs Draper at her home in Glenbervie, sending a copy of the proceeding and a copy of my minute. The time for filing a statement of defence would run from the time when, in the ordinary course of post, the documents would reach that address. Mrs Draper sent a statement of defence to the court by 12 October 2015. That was within time but she did not pay the filing fee and did not serve the Kivits. On 27 October 2015 the Kivits presented for sealing a judgment by default against the Drapers. It was sealed on 5 November 2015. Mrs Draper wrote to the court complaining about the entry of judgment. I ruled that she had not complied with the High Court Rules, because she had not paid the filing fee and had not served the Kivits. Accordingly the Kivits were entitled to enter judgment by default. 1 The Drapers have not taken issue with that ruling.

Setting aside regularly obtained default judgments

3 The Drapers apply under r 15.10:

Any judgment obtained by default under rule 15.7, 15. 8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.

The approach on applications to set aside judgments obtained regularly by default is well established. In Paterson v Wellington Free Kindergarten Association Inc, McCarthy J said: 2

In approaching an application to set aside a judgment which complies with the rule, the Court is not limited in the considerations to which it may have regard, but three have long been considered of dominant importance. This was accepted by the Chief Justice in the Court below and by all counsel in this Court. They are, 1. That the defendant has a substantial ground of defence; 2. That the delay is reasonably explained; 3. That the plaintiff will not suffer irreparable injury if the judgment is set aside: Atwood v Chichester (1878) 3 QBD 722; Hovell v Ngakapa (1895) 13 NZLR 298; Trengrove v Inangahua Hospital Board [1956] NZLR 587. But, whilst it appears from these cases that delay, if reasonably explained and if it does not create irreparable injury, is not of itself a good reason for refusing to set aside, we do not doubt that where the delay is substantial, as it is here, the Court can more readily conclude that injury would be caused.

In Russell v Cox the Court of Appeal quoted the above and said: 3

We think that in the light of Evans v Bartlam the passage to which reference has just been made should be read as doing no more than emphasising three matters which, as a matter of common sense and practice, the Court will generally regard as of importance in deciding whether it is just to set aside a judgment. But it should not be regarded as laying down a general rule that an application to set aside a judgment must satisfy these conditions as a necessary prerequisite to the exercise of the discretion; it should be taken as doing no more than highlight factors which on any application to set aside a judgment may generally be regarded as relevant to an inquiry which will determine where the justice of the case will lie. 4

Do the Drapers have a substantial ground of defence?

4 The Drapers say that the Kivits have over claimed and that they have a limitation defence. For that, it is necessary to understand the Kivits' claim. The Kivits sue on a fixed sum mortgage the Drapers gave them on 26 April 2001. The mortgage is security for a principal sum of $600,000. $150,000 was to be paid on or before 30 May 2001; $450,000 was to be paid on 5 February 2002. The ordinary interest rate is 15.5 per cent and the penalty interest rate is 20.5 per cent. The mortgage was registered against the titles to two properties at Parakai as a second mortgage.

5 An annexure schedule has additional terms, including these:

• 16. Where all or part of the principal sum has already been advanced this mortgage is given in consideration of the mortgagee's forbearance to sue for immediate repayment of such advance.

• 17. The mortgage secures the principal sum of $100,000 advanced on the 20th day of November 2001 and is in substitution for Memorandum of Mortgage D.379629.3 and all monies intended to be secured under Mortgage D.379629.3 are secured hereunder.

• 18. The Mortgagor shall pay the sum of $18,423.05 as interest on the principal sum of $100,000 advanced on the 28th day of November 2001, on the 5th day of February 2002 or such earlier date as the principal sum shall be repaid.

• 19. Notwithstanding anything contained herein, the Mortgagor shall not be required to pay any ordinary interest rate on the sum of $150,000 to be paid on the 31st day of May 2001 and the sum of $350,000 to be paid on the 5th day of February 2002, the latter sum being interest due under Mortgage D.379629.3 of which the former sum is part of the principal sum under that mortgage.

• 20. Nothing herein contained shall prevent penalty interest being charged on the aforementioned sums if repayment is not made on the due dates.

6 The mortgage incorporated the provisions of registered Memorandum Number 1996/4003, but that was not put in evidence. Neither side submitted that its provisions could be relevant.

7 A letter by the Kivits' lawyer dated 30 April 2001 provides context. It records that the Drapers had earlier held a mortgage on a property at 315 Whangaparaoa Road, but that had been discharged. The Drapers received $500,000 in part reduction of money owing under the Whangaparaoa Road mortgage (D.379629.3) and accepted substituted security by way of a second mortgage over two properties at Parakai. The lawyer warned that there was no real equity in the Parakai properties, given the sum secured to the first mortgagee, a bank. The lawyer's letter also records that Mrs Draper had given a personal cheque for $150,000 to meet the amount due on 31 May 2001.

8 The $100,000 in clause 17 of the mortgage was the unpaid balance of principal that had been earlier secured under the Whangaparaoa Road mortgage. Interest on the $100,000 was due on 5 February 2002 under clause 18. The $350,000 in clause 19 was unpaid interest under the same loan. Mr Collecutt submitted that that remained an interest obligation under this mortgage, but I reject that. The mortgage clearly makes the $350,000 part of the total principal of $600,000. This was a refinancing under which unpaid interest under an earlier advance became principal under the new advance. Interest on the $350,000 ran from 5 February 2002.

9 In December 2006 the mortgage was discharged from one of the Parakai properties, while leaving the mortgage over the other property (at Pengelly Place) still in effect.

10 Under a written agreement of 7 September 2010 the Kivits released the mortgage over the Pengelly Place property and the Drapers paid them $150,000. Mrs Draper drafted...