Korea Deposit Insurance Corporation v Park [2016] NZHC 602 (7 April 2016)

Last Updated: 3 May 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-0003208 [2016] NZHC 602

BETWEEN	KOREA DEPOSIT INSURANCE CORPORATION, TRUSTEE IN BANKRUPTCY FOR TOMATO SAVINGS BANK CO LIMITED Plaintiff
AND	CHONG HAN PARK First Defendant YOON SEO CHANG Second Defendant

Hearing:	3 and 10 March 2016
Counsel:	G J Thwaite for Plaintiff No appearance for First and Second Defendants
Judgment:	7 April 2016

_{JUDGMENT OF FOGARTY J}

This judgment was delivered by Justice Fogarty on

7 April 2016 at 4.30 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

_{Solicitors: Kenton Chambers Lawyers}

KOREA DEPOSIT INSURANCE CORPORATION, TRUSTEE IN BANKRUPTCY FOR TOMATO SAVINGS BANK CO LIMITED v PARK [2016] NZHC 602 [7 April 2016]

Introduction

[1] The plaintiff functions as the liquidator (or trustee in bankruptcy) of Tomato Savings Bank Co Limited, a financial institution in the Republic of Korea. As such, under Korean law, it has acquired all the rights and obligations of the Bank.

[2] The first defendant is a citizen of the Republic of Korea, although for a certain period of time he lived in New Zealand. The second defendant is his wife. She filed a statement of defence but she and the plaintiff have agreed upon a discontinuance of the claims against her.

[3] The claim against the first defendant is for a liquidated sum based on the judgment awarded on 20 June 2014 by a Korean Court. It proceeds by way of formal proof.

[4] On 20 June 2014, the District Court in Suwon entered judgment against him in the sum of KRW 735,210,674 plus interest accrued on KRW 400 million from

23 October 2013 to the date of full payment, based on the interest rate of 25 per cent per annum (the judgment).

[5] The first defendant was served with the judgment on 25 June 2014. He has made no payments toward the judgment sum.

[6] The plaintiff had entered into three loan arrangements with the first defendant in the Republic of Korea.

[7] In the first agreement, the plaintiff advanced the sum of KRW 150 million for a term of one year, maturing on 27 October 2007, which was then extended to 19

April 2010. The terms of the loan were that the first defendant was to pay interest on the principal until the maturity date at the rate of 9.9 per cent per annum, with an overdue interest rate of 25 per cent per annum.

[8] The second loan agreement was an advance on 18 December 2006 in the sum of KRW 90 million. The maturity date was extended to 18 March 2011. The interest

rate was 12 per cent per annum with an overdue interest rate of 25 per cent per annum.

[9] The third agreement was an advance in May 2007 of KRW 200 million. The maturity date was extended to 31 May 2011. The interest rate was 11 per cent per annum, with an overdue interest rate of 25 per cent per annum.

The claim

[10] The claim before this Court is for:

(a) Judgment in the sum of KRW 735,210,674 at the exchange rate prevailing at the date of judgment of this Court.

(b) Interest accrued on KRW 400,000 from 23 October 2013 to the date of judgment of this Court, based on the interest rate of 25 per cent per annum.

(c) Costs.

[11] Procedurally, this application takes advantage of High Court Rule 6.27(2)(m), which provides that an originating document may be served out of New Zealand without leave when it is sought to enforce any judgment or substantial award. Service of these proceedings was made by service at a prison in South Korea where the first defendant was incarcerated. Notice of the proceedings was handed to a prison officer and I am satisfied on the balance of probabilities that this document was passed on internally within the prison to the first defendant. It was not possible for the server to enter the prison to serve it personally. Such service does not appear to be contrary to the law of Korea as to the method of serving documents in domestic actions on persons. It follows that he was served with the proceedings on 21 April

2014.

[12] The application is silent on the interest rate that pertains after entry of judgment in New Zealand, converted to New Zealand dollars.

[13] The Court enquired of counsel for the plaintiff whether there was any intention to seek interest on the judgment sum under s 87 of the Judicature Act 1908. Mr Thwaite filed a memorandum seeking interest under that section and submitting that as it was an order subject to the discretion of the Court (“the Court may, if it thinks fit”), it did not require to be on notice. I do not agree. Leave is reserved to seek interest at a later date under the Judicature Act or its successor, as the case may be, provided the application is on notice.

Other causes of action not pursued

[14] In lieu of the enforcement of foreign judgment, the second cause of action maintains the same claim in New Zealand as was brought before the Korean Court. It has not been pursued, as this judgment enforces the foreign judgment.

[15] The third cause of action pursues the property in Kaitaia. The property was owned by the first and second defendants as joint tenants until 7 October 2010. The defendants then transferred the fee simple in the estate to the second defendant and it is now owned by the second defendant solely. As noted, the action against her has been discontinued.

The Korean judgment

[16] I am satisfied that the District Court in Suwon, Republic of Korea, had jurisdiction over the first defendant, he being present in the Republic of Korea when the proceedings were commenced and having previously agreed that the subject matter was subject to the jurisdiction of the Courts of the Republic of Korea.

[17] The Court has had the advantage of reading translations of the credit transaction agreement and the benefit of an affidavit of Anna Cho, a law clerk about to be admitted to the bar. She explains that, in respect of the first loan agreement, the judgment of KRW 735,210,674 comprises the principal advance of KRW 400 million, plus interest of KRW 335,026,676, as well as a provisional payment of KRW 183,998. The penalty interest rate under the loans is 25 per cent, and interest is due on the sum of KRW 400 million from 22 October 2013 onwards. This is a

translation of the order made by the Seongnam branch of the Suwon District Court on 26 June 2014.

Recovery of the 25 per cent interest rate

[18] Prior to this matter being called for formal proof on 3 March 2016, I issued a minute querying whether that rate of interest would be regarded as a penalty in New Zealand law and so not recoverable in New Zealand.

[19] I have had the benefit of two sets of submissions by Mr Thwaite on this matter.

Penalty under New Zealand law?

[20] Mr Thwaite submitted that private international law policy favours enforceability.¹ In particular, that foreign judgments of other civilised nations are recognised and admitted to judgment under private international law upon the principle that the substantive law of the jurisdiction in which the judgment was obtained is recognised by way of comity, and the substantive law controls the merit of the judgment. The proper law that governs the subject matter of the contract is the law that the contracting parties intended to apply.² But procedural law matters are governed by the procedural law of this Court. Mr Thwaite submits that the interest awarded by the Korean Court is the application of the substantive proper law.

[21] In support of this submission, Mr Thwaite relies upon a decision of the Court of Appeal of Texas, Minnesota Mining and Manufacturing Company v Nishika Ltd.³

_{This was an appeal against a judgment entered in the 60}^th _{District Court, Jefferson}

County, in which a jury awarded damages for sale of defective products by the company 3M. One of the points raised on appeal was that the trial Court erred in awarding pre-judgment interest. The claim at trial was governed by Minnesota law,

_{so that was the substantive law. The Texas Court of Appeal held:}⁴

¹ _{See Reeves v One World Challenge LLC [2005] NZCA 314; [2006] 2 NZLR 184 (CA).}

2. See R v International Trustee for the Protection of Bondholders [1937] 2 All ER 164 (HL) at 166 per Lord Atkin).

³ _{Minnesota Mining and Manufacturing Company v Nishika Ltd 885 S.W. 2d 603.}

⁴ At [45].

The totality of Minnesota law must be applied and this includes Minnesota law governing pre-judgment and post-judgment interest. Judgment interest rates are a matter of substantive law, therefore the law of the State of Minnesota controls. This is true for both types of interest.

[22] There is, however, one exception to the recognition of the substantive law of the jurisdiction under which judgment was obtained: a judgment will not be registered in New Zealand if the content of the judgment is contrary to policy.

[23] The limits of this qualification are uncertain. In dealing with this qualification, the specialist editors of the latest edition of The Conflict of Laws open with the following sentence:⁵

Until recently, there were very few reported cases in which foreign judgments impersonum had been denied enforcement or recognition for reasons of public policy at common law.

[24] The same learned authors also observe:⁶

See also decisions in New Zealand to the effect that public policy is not triggered by the fact that the foreign judgment is substantially different from that which would have been given by a local court, but may require non- recognition where recognition would offend a reasonable New Zealander’s sense of morality: Reeves v One World Challenge⁷

[25] Reeves is a decision of the Court of Appeal. The majority of the Court of Appeal took a narrow view of the public policy exception, citing with approval a decision of the Supreme Court of Canada:

[50] The test recently applied by the majority of the Supreme Court of Canada in Beals v Saldanha [2003] 3 SCR 416 was that enforcement would “shock the conscience of the reasonable Canadian” (at para [77]) or would be “contrary to our view of basic morality” (at para [71]). At para [75], Major J, on behalf of the majority, made the following observation:

“[75] The use of the defence of public policy to challenge the enforcement of a foreign judgment involves impeachment of that judgment by condemning the foreign law on which the judgment is based. It is not a remedy to be used lightly. The expansion of this defence to include perceived injustices that do not offend our sense of morality is unwarranted. The defence of public policy should continue to have a narrow application.”

⁵ Lord Collins (gen ed), Dicey, Morris & Collins The Conflict of Laws (15^th ed, vol 1, Sweet and

_{Maxwell, 2015) at [14-021].}

⁶ _Above.

⁷ Reeves v One World Challenge LLC, above n 1, at [50]-[67].

[51] We agree with that observation and respectfully adopt it. We do not think the judgment of this Court in Amaltal lowered the threshold in the manner contended by Mr Spring.

[26] Independently of relying on Reeves, which he did, Mr Thwaite submitted that the interest rate of 25 per cent agreed to in the contract between the plaintiff and the first defendant is not to be treated as contrary to New Zealand policy. He submitted that the subject matter of this debt are three commercial finance contracts and that under New Zealand law, there is no regulation of the interest rates of such contracts. This is because the Credit Contracts and Consumer Finance Act 2003 (Credit Act) was in effect in New Zealand from 1 April 2005. Section 137 excludes such contracts from Credit Act cover.

[27] I do not think that it follows automatically that if Parliament has regulated interest rates in consumer finance, but not in commercial finance, there is no possible common law policy as to punitive commercial finance contracts. But that is a question for another day. On the facts of this case, the primary interest rates which varied from 9.9 to 12 per cent are obviously reasonable and so also is the view that there could be an overdue interest rate of 25 per cent per annum. There is no public policy exception in this case.

Decision

[28] It follows that pre-judgment and post-judgment interest should be at the contract rates to the date of entry of judgment in the New Zealand Court.

[29] The South Korean currency appears to have limited convertibility. For example, it is not traded by the ANZ Bank. The BNZ website lists two exchange rates, as opposed to the standard five exchange rates. On 10 March, those rates are

964.93 for cash buy and 767.25 for cash sell.

[30] As the Bank would be selling South Korean currency, the cash sell rate appears to be the appropriate measure.

[31] Having succeeded in this formal proof, the plaintiff should now submit to the Court a formal judgment for approval, based on the cash sale rate as at the date of judgment of this Court, for sealing.

[32] The plaintiff is entitled to costs on a 2B basis.