Millbrook Country Club Limited v S.F.M. Investments Limited [2014] NZHC 380 (6 March 2014)

Last Updated: 12 April 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003265 [2014] NZHC 380

BETWEEN MILLBROOK COUNTRY CLUB LIMITED

Plaintiff

AND S.F.M. INVESTMENTS LIMITED First Defendant

AND GARRY ALBERT MUIR Second Defendant

Hearing: 15 November 2013

[Final Submissions Received on 3 December 2013]

Counsel: L D Tidey for the Plaintiff

M S Hinde for the Defendants

Judgment: 6 March 2014

_{JUDGMENT OF DUFFY J}

This judgment was delivered by Justice Duffy on 6 March 2014 at 1.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

_Date:

Counsel: M S Hinde, Auckland

_{Solicitors: Morrison Kent, Wellington}

MILLBROOK COUNTRY CLUB LTD v S.F.M. INVESTMENTS LTD and ANOR [2014] NZHC 380 [6 March

2014]

[1] The plaintiff and the defendants were engaged in civil proceedings which went to mediation and settled. The settlement agreement provided for the defendants to pay the plaintiff the sum of $150,000 in two instalments. The first instalment was paid but the second instalment was not.

[2] The settlement agreement provided for payment of 15 per cent interest on any unpaid instalment.

[3] The plaintiff has applied for summary judgment against the defendants seeking an order for specific performance of the settlement agreement.

[4] The defendants have filed an admission of cause of action in which they admit that they owe the plaintiff a debt in the sum of $75,000, together with interest at the rate specified in the settlement agreement for the period from 26 January 2013 until 15 November 2013. However, they oppose this Court making an order for specific performance of the settlement agreement. They contend that a monetary remedy is all that is appropriate.

[5] The issue for the Court to determine is whether, in these circumstances, the plaintiff is entitled to the remedy of specific performance.

The settlement agreement

[6] The settlement agreement is short and simple. It provides as follows:

Recital

(a) [The plaintiff] is pursuing a claim in the High Court against [the defendants] seeking damages for failure to settle the purchase of a property at Millbrook.

(b) [The defendants] are pursuing a counterclaim for the deposit of

$140,000.

(c) All parties have denied the claim of the other parties.

(d) All parties have agreed to settle all claims between them.

It is agreed

1. A payment of $150,000 will be made by [the defendants] as the settlement sum to [the plaintiff], the payment to be inclusive of GST, if any.

2. The settlement sum shall be paid as follows: (a) $75,000 by 1 June 2012;

(b) $75,000 by 15 January 2013.

3. The settlement sum is paid by [the defendants], and accepted by [the plaintiff] in full and final settlement of all claims by [the plaintiff] against them of any nature whatsoever including damages, interest and costs in relation in Lot 305 at Millbrook and proceedings concerning Lot 305 at Millbrook.

4. The terms of this agreement are also agreed in full settlement of the counterclaim by [the defendant], who acknowledge that the deposit plus interest on it may be paid forthwith to [the plaintiff].

5. The terms of this settlement agreement are confidential.

6. A notice of discontinuance of claim and counterclaim will be filed and served by all parties within 7 days of payment of the final tranche of the settlement sum.

7. In relation to the payments in [clause 2], interest at 15% will be paid from due date if any payment is not made on due date.

[7] Under the settlement agreement, the opposing parties have given up their legal claims against each other, with the additional requirement in the case of the plaintiff that it would receive a monetary payment as well.

Discussion

[8] The defendants’ failure to pay the final instalment of $75,000 has not led the plaintiff to cancel the settlement agreement. As it remains on foot, it would entitle the plaintiff to claim for payment of a liquidated demand. In Paterson v Wellington Free Kindergarten Assoc Inc [1966] NZLR 975 (CA) at 981-982, the Court of Appeal gave as the definition of the term “liquidated demand” the statement in the then 8 Encyclopaedia of the Laws of England (2nd ed, 1908) at 338:

A claim for a specific sum of money payable under a contract expressed or implied not being in the nature of a penalty, or of unliquidated damages; or a claim for a specific sum recoverable by action for an amount due under a judgment or order of the Court, brought by the person entitled against the

person liable to pay; or a claim for a sum of money whether or not in the nature of damages or penalty, recoverable under a statute which contains an express provision that the sum sued for may be recovered as a liquidated demand, or as liquidated damages.

Earlier in Wing v Leeder [1961] NZLR 30 (SC) at 32, after citing the same definition, Barrowclough CJ gave a short and helpful summary of the term:

Generally speaking an amount is liquidated when it is made clear or plain or when it is settled and determined – usually by agreement or litigation.

[9] The purpose of contractual damages is to put a plaintiff in the same position that he or she would have been in had the contract not been broken: see Bloxham v Robinson (1996) 7 TCLR 122 (CA) at 133. In New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 at 466, Tipping J said:

The result is that an appropriately calculated sum of money must take the place of the promised benefit which the contract breaker has failed to provide.

[10] The only measure of damages in contract is the “loss truly suffered by the promisee”: see Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL) at 360 per Lord Mustill.

[11] Here, there is no suggestion that the defendants have attempted to re-open the primary dispute, or that an order of the Court is required to hold them to this aspect of the settlement agreement. Indeed, as the defendants have argued, this aspect of the settlement agreement has already been performed; each of the parties has surrendered the rights that were relied upon in the original litigation between them. Since the plaintiff has not cancelled the settlement agreement, it remains in force and binds the parties from attempting to re-start the primary dispute. The sole problem lies in the defendants’ undisputed failure to pay the agreed second instalment of

$75,000, together with the payment of interest at the contract rate on the unpaid sum. Thus, there is no difficulty in assessing the loss that the plaintiff has suffered.

[12] Given the defendants’ failure to file a statement of defence, the plaintiff would have been entitled to sue for the unpaid monies as a liquidated demand, and to have applied for judgment under r 15.7 of the High Court Rules. In principle, it is difficult to envisage a claim more suitable for an award of damages than the present

claim. The plaintiff accepts that ordinarily when damages are an adequate remedy, specific performance will not be available. Further, specific performance is not generally available to enforce contractual obligations to pay money, because damages will be adequate: see the discussion in Rt Hon Sir Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at [8.7.2].

[13] The plaintiff’s sole purpose in seeking specific performance rather than a monetary sum is to avoid the result that a judgment for liquidated damages would have on its ability to claim interest at the contractual rate after entry of judgment. Contractual rights do not merge on decree of specific performance: see Hutton v Palmer [1990] 2 NZLR 260 (CA) at 270. Consequently, following a decree of specific performance, the plaintiff could continue to recover interest at the contractual rate of 15 per cent. However, it is well settled that under the common law, unless a contract expressly preserves a right to contractual interest after judgment, any such right will expire on entry of judgment in accordance with the doctrine of merger: see Economic Life Assurance Society v Usborne [1902] AC 147 (HL), recently affirmed in The Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [3]. Economic Life Assurance Society v Usborne was cited in IFC Securities Ltd v Sewell [1990] 1 NZLR 177 (HC) at 183-184; see also Nottingham v Registered Securities Ltd (in liq) (1998) 12 PRNZ

625 (CA) at 633.

[14] Once a contractual right to interest merges in a judgment, an unpaid plaintiff can only recover interest on the judgment debt under r 11.27, which provides that interest is recoverable on judgment debts at the rate prescribed by, or under s 87 of the Judicature Act 1908. The current prescribed rate is five per cent per annum, which is significantly lower than the contractual rate of 15 per cent: see the Judicature (Prescribed Rate of Interest) Order 2011, which came into force on 1 July

2011.

[15] A term, like the interest clause in the present settlement agreement, that provides for payment of interest from the due date will not be enough to save the contractual right to interest from the effect of merger on entry of judgment awarding damages. However, there are accepted examples of expression that achieve that

outcome. For example, in IFC Securities Ltd v Sewell at 184, the relevant term provided:

If the lender obtains judgment against the borrower for any sum payable pursuant to this agreement, the borrower shall pay to the lender interest on the sum for which judgment is obtained at the penalty interest rate from the date of judgment until the date of payment of such sums.

A similarly expressed term led to the contractual rate of interest remaining in force after entry of judgment in F M Custodians Ltd v Patullo (2010) 20 PRNZ 691 (HC).

[16] Recently, in Manning v Manning [2014] NZCA 671, the Court of Appeal reviewed the recent cases on this topic in New Zealand and in England and Wales. The Court of Appeal also considered at [74] a Law Commission discussion paper, Aspects of damages: The Award of Interest on Debts and Damages (NZLC pp17,

1991) at [172]-[175], which had recommended the abolition of the doctrine of merger as it affected post-judgment interest. The Commission proposed that logically, a contractual rate of interest should run through to actual payment, and that a contractual right to interest should not merge on the entry of a judgment. At [76], the Court of Appeal referred to pt 4 of the Judicature Modernisation Bill 2013 (178-

1), which proposes a single statutory system for the award of interest. The Court of Appeal concluded that the question of merger of contractual interest rights on judgment might soon be overtaken by legislative change. It also concluded that in any event, Manning was not the appropriate case to consider this topic.

[17] The discussion in Manning shows that change in the approach to payment of interest is in the wind. However, as was made clear in Manning, any such change should be achieved either through enactment of the Judicature Modernisation Bill, or in the context of a judgment where the question has been fully addressed and so is open to being fully considered by the Court of Appeal.

[18] In the present case, despite having made no express provision for contractual interest to run after entry of judgment, the plaintiff is attempting to obtain this outcome through an order for specific performance. The plaintiff relies upon comments in judgments of this Court that a decree of specific performance may be an available remedy for recovering payment under a contract, including contractual

interest after entry of judgment: see F M Custodians at [31] to [40]; Westpac New Zealand Ltd v Wright [2010] NZHC 1581; (2010) 20 PRNZ 786 (HC); Westpac New Zealand Ltd v Manetakis HC Auckland CIV-2009-404-4309, 9 December 2011. However, in those cases, the contractual provision permitting recovery of interest was expressed to continue after entry of judgment. So any continuation of the ability to recover contractual interest after judgment, whether by a decree of specific performance or order of the Court to pay interest at the contractual rate, would not entail a re-writing of the parties’ bargain. Therefore, those cases are distinguishable from the present case. Since the contract here does not expressly provide for recovery of interest at the contractual rate after entry of judgment, an order for specific performance would give the plaintiff a benefit that it would not enjoy from a damages award.

[19] The plaintiff maintains that being unable to recover contractual interest following entry of judgment awarding damages is inequitable. However, this argument ignores the plaintiff’s omission to ensure that the settlement agreement permitted it to recover contractual interest after judgment. The case law on the doctrine of merger and its impact on the recovery of contractual interest at common law after entry of judgment is well known. Anyone who enters into an agreement that provides for payment of interest until the principal sum is paid can ensure that the contractual rate of interest survives entry of judgment by making express provision for that occurrence. This is well settled. The parties could have expressed their settlement agreement in this way had they agreed on whether the contractual rate of interest was to be recoverable after entry of judgment. To order specific performance of the settlement agreement simply to enable the plaintiff to recover the contract rate of interest after judgment would be much the same as to imply that the agreement provided for contractual interest to survive entry of judgment. No one has suggested that course; in any event, the law regarding when implied terms will be read into a contract would not allow it.

[20] The plaintiff, citing Aquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299 at 301, contends that there is now “a full range of remedies” available to the Court in deciding what relief to order. The plaintiff has also referred to a number of well known cases in which the availability of specific

performance has been considered, as supporting its case for an order of specific performance.

[21] Beswick v Beswick [1967] UKHL 2; [1968] AC 58 (HL) concerned a contract where the appellant agreed to pay his uncle’s wife a weekly annuity for life. The husband died intestate and the widow, as administratrix of her husband’s estate, sued for arrears of the annuity, and for specific performance of the continuing obligation to pay the annuity. The widow was not a party to the contract, therefore, she could not enforce the agreement directly. As the husband’s estate suffered no loss, only nominal damages at common law would be awarded. Lord Hodson considered this remedy at law to be “plainly inadequate”, as the husband had performed his side of the bargain:

81. Therefore, an order of specific performance in favour of the widow was upheld.

[22] The plaintiff has relied upon F M Custodian’s endorsement of Beswick as to the applicability of specific performance where there is a continuing obligation. Associate Judge Osborne noted at [38] that a debtor’s commitment to pay interest at a contractual rate until full repayment of the debt is analogous to the continuing obligation to pay the annuity in Beswick. However, in the present case, there is no express commitment to pay contractual interest post-judgment and, therefore, no continuing obligation.

[23] In Sudbrook Trading Estate Ltd v Eggleton [1983] AC 444 (HL), the House of Lords considered a lease agreement that gave the lessees an option to purchase the property at a price agreed upon by two valuers, one appointed by each party. When the lessees sought to exercise the option, the lessors refused to appoint a valuer and claimed that the option clause was void for uncertainty.

[24] The House of Lords held that the option clause was intended to have legal effect and that there was a completed contract for a sale at a fair and reasonable price. The machinery provided by the option clause was not essential. Therefore, as it had broken down due to the lessors’ breach of contract, the Court could substitute its own machinery. Specific performance of the contract was ordered. If the lessors had not acquired the fee simple, the common law damages for loss of the bargain

would have been negligible, so damages were “wholly inadequate and unjust remedy for the breach”: see p478.

[25] In Hutton v Palmer [1990] 2 NZLR 260 (CA), the Court dealt with an agreement to exchange land, conditional upon the consent of the Land Settlement Board. The Huttons no longer wished to carry out the agreement, and an earlier court ordered the Huttons to specifically perform the exchange contract. The Court of Appeal upheld the order of specific performance, noting that damages would not have been an adequate remedy for Mr Palmer. One key consideration was that the Huttons’ ability to pay damages, if ordered, was questionable.

[26] A common factor in the cases relied on by the plaintiff is that the plaintiffs in those cases were seeking specific performance because they were unable to achieve the compensatory outcome that they sought by any other means. This is not the case here. There is no legal impediment to contracting for the provision of contractual interest after entry of judgment awarding damages. Provided the defendants agreed, the plaintiff could have achieved the outcome that it now wants by drafting the settlement agreement to that effect. For this reason, I see nothing that is just and equitable in giving the plaintiff an outcome that would allow it to enjoy the benefit of the contractual rate of interest after entry of judgment. Indeed, I consider that the converse outcome would result, as the plaintiff would then enjoy a better bargain than what the parties had themselves reached.

[27] The present well settled regime for awards of damages allows for recovery of contractual interest prior to judgment and recovery of interest under the Judicature Act after judgment, with an exception when the contractual rate is expressed as continuing after judgment. Whilst the Judicature Modernisation Bill may propose to change the present regime, I see no reason for bringing about the same outcome beforehand through use of an equitable remedy that has traditionally not been available to achieve the plaintiff’s purpose. Accordingly, the order for specific performance is refused.

[28] The prayer for relief in the statement of claim seeks nothing more than specific performance. However, in its submissions, the plaintiff sought, as an

alternative, damages in the sum of $75,000, together with interest under the contract. The admission of cause of action shows that the defendants accept $75,000 is due and payable under the settlement agreement and that contractual interest to the date of judgment is payable. In such circumstances, I see no purpose in refusing summary judgment only to have the plaintiff amend its statement of claim so as to seek damages as an alternative remedy together with interest. I accept the plaintiff’s argument that r 5.31 authorises the Court to grant “any other relief to which the plaintiff is entitled”. I also accept the argument from the plaintiff that s 16A of the Judicature Act authorises the Court to award damages in substitution for specific performance. Here, the exchange of submissions that occurred before the hearing and the supplementary submissions exchanged after the hearing have given the defendants an opportunity to comment on a potential award of damages as an alternative remedy.

Result

[29] Judgment is entered against the defendants. The plaintiff is awarded damages in the sum of $75,000, together with interest in terms of cl 7 of the settlement agreement from the time payment was first due until entry of judgment.

Duffy J