MANNING V MANNING CA680/2012 [2013] NZCA 671

MANNING V MANNING CA680/2012 [2013] NZCA 671 [19 December 2013]NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS)ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITHSS 11B TO 11D OF THE FAMILY COURTS ACT 1980.FOR FURTHER INFORMATION, PLEASE SEEHTTP://WWW.JUSTICE.GOVT.NZ/COURTS/FAMILY-COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.IN THE COURT OF APPEAL OF NEW ZEALANDCA680/2012[2013] NZCA 671BETWEEN TIMOTHY TERENCE MANNINGAppellantAND JOANNE MARY MANNINGRespondentHearing: 13 November 2013Court: Ellen France, White and Heath JJCounsel: W A McCartney for AppellantM C Black for RespondentJudgment: 19 December 2013 at 2 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Ellen France J)Table of ContentsPara NoIntroduction [1]The background [7]The terms of the variation agreement [16]Judgment in the High Court [21]The approach to interpretation [29]The meaning of the variation agreement [30]The parties' prior negotiations [45]Was the obligation satisfied? [61]Treatment of interest [64]Result [78]Introduction[1] In 2003, some time after their marriage breakup, Mr Manning, the appellant, and Mrs Manning, the respondent, entered into a relationship property agreement. One of the terms of the agreement was that Mr Manning would pay Mrs Manning $200,000 by late October 2008. The agreement provided that interest accrued at the rate of 15 per cent per annum on that sum if it was not paid on time.[2] Some years later, in early 2008, the parties entered into a further agreement which varied their original agreement. The variation agreement arose in the context of a home Mrs Manning bought for herself and their two children. Mr Manning helped with the purchase. The variation agreement provided for what was to happen when the property was sold and how the $200,000 was to be treated. In particular, the agreement provided that the $200,000 was to be paid out of the proceeds of sale of the property.[3] Unfortunately, the sale of the property did not realise the sum the parties envisaged, leaving a shortfall once the mortgage and Mrs Manning's contributionhad been repaid. Mrs Manning says the obligation that Mr Manning pay her $200,000 was preserved by the variation agreement in this situation. Mr Manning says his obligation was extinguished by the variation agreement.[4] Mrs Manning's claim to payment of $200,000 plus interest was heard in theHigh Court by Venning J. The Judge found in favour of Mrs Manning and awardedjudgment against Mr Manning for $192,864.47 together with interest at 15 per cent per annum from 30 June 2011.1[5] Mr Manning appeals. His appeal raises three issues:(a) Was the Judge right in his interpretation of the variation agreement?(b) If the Judge was correct, has Mr Manning's obligation to pay the$200,000 been partly or wholly satisfied?(c) How is interest to be treated?[6] Before dealing with each of these issues, we set out the background and the terms of the variation agreement. We also summarise the Judge's decision.The background[7] Adopting the description of the background set out by Venning J,2 the factual narrative begins in December 1988. That was when the parties married. Mr and Mrs Manning had two children. The couple separated in July 2001.[8] Mr Manning is a property developer. Until early 2002 he had enjoyed significant financial success trading as Taradale Properties. (We understand that there was a group of companies of various names under that principal trading name.) However, a number of the developments with which he and the company were associated became high profile leaky building cases. Both Mr Manning and the Taradale group faced legal action for millions of dollars. Mr Manning says that by the time he and Mrs Manning concluded their original agreement on 22 October 2003, Taradale Properties was insolvent. Mrs Manning does not accept that this is the position. While she entered the original agreement on the basis that the Taradale group and its related companies and trusts were insolvent, she expressly reserved her position if that was found not to be the case.1 Manning v Manning [2012] NZHC 2522.2 At [3]–[11].[9] Under the original agreement Mr Manning transferred a number of assets to Mrs Manning. He also agreed to make a number of regular payments to her, or for the benefit of their children. These are summarised as follows by Venning J:3(a) child support at the rate of $30,000 net per annum for each of their sons until they turned 19, left school and became self-supporting, left the day-to-day care of Mrs Manning or died;(b) maintenance to Mrs Manning of $32,000 net per annum for a period of five years from 1 February 2003;(c) $500 net per month (in addition to the child support) for thechildren's related expenses; [and](d) private school fees for both sons.[10] Under the original agreement, Mr Manning also agreed to pay Mrs Manning $200,000. Clause 15.1 stated:15.1 The husband agrees to pay to the wife within five years of the date of this agreement the sum of $200,000. If that payment has not been made on the fifth anniversary of the date of this agreement then interest shall accrue at the rate of 15% per annum calculated on a daily basis until payment is made.[11] As Venning J explained, Mrs Manning believed that the original agreement was unfair to her particularly with respect to the division of assets. She says that the assets transferred to her were severely reduced in value because they had business debts secured against them. As we have foreshadowed, she also considered that Mr Manning's businesses were not insolvent. Mrs Manning raised the matter with Mr Manning in 2007. She particularly sought his assistance in relation to the provision of a new home for her and their two sons. Mrs Manning took the view that she would have difficulty providing an adequate home because the $32,000 per annum Mr Manning paid her under the original agreement was to come to an end in 2008, as were the other maintenance payments she had used to fund outgoings on her then home. Mr Manning did not accept the agreement was unfair and he maintained the companies had been insolvent. Nonetheless, he agreed in principle to assist Mrs Manning into a home for the next few years.3 At [5].[12] By late 2007, Mrs Manning had realised the assets she had obtained under the original agreement. She had $350,000 available to put towards a home. After some discussions with Mr Manning, on 22 December 2007, Mrs Manning signed an agreement to purchase a property in Browns Bay for $1,275,000. The purchase price was some $100,000 below valuation. On these figures the parties considered the property was a good buy. They did not anticipate any significant shortfall on resale.[13] Mr and Mrs Manning's arrangement for the funding of the purchase was summarised by Venning J as follows:4Mrs Manning was to contribute $350,000, and Mr Manning was to contribute approximately $45,000 to the purchase price, and to cover legal expenses. The balance of approximately $890,000 was to be borrowed from the bank. Mr Manning agreed to fund the interest cost until the property was sold, which was to be no earlier than January 2011 and no later than April 2011. By that time the parties' oldest son would have been 18 and theyoungest 15. The purchase was to be in the name of a trust, with both Mr and Mrs Manning as trustees. That was necessary because the Bank required Mr Manning to be registered on the title.[14] The parties entered the variation agreement in order to record their arrangements about the Browns Bay property and its effect on Mr Manning'sobligation to pay the $200,000. As we have noted, that sum was otherwise due to be paid in October 2008.[15] A variation agreement was negotiated over a period of days prior to settlement of the purchase of the Browns Bay property on 24 January 2008. Mrs Manning signed the agreement on the date of settlement. Mr Manning signed it some days later, the Judge said, probably on 7 February 2008, the date recorded in the variation agreement.The terms of the variation agreement[16] The agreement was in four parts and commenced with a preamble. The preamble stated:A. The Husband and Wife are parties to a Matrimonial Property Agreement signed on 22 October 2003 ('the Agreement').4 At [9].B. The Husband and Wife have entered into an agreement for the purchase of a residential property at ... Browns Bay Road, Browns Bay, North Shore City ('the Property') for the sum of $1,275,000.00.C. The Husband and Wife have formed a trust, The Browns Bay Trust ('the Trust') and have nominated the Trust as purchaser of the Property.D. In consideration of each parties contribution to the purchase and ongoing obligations relating to the property the Husband and Wife have agreed to enter into this variation to record the arrangement and to record an amendment to clause 15 of the Agreement.[17] Under the first part, the agreement set out what each would pay towards the purchase of the property and on an ongoing basis. This part of the agreement provided as follows:1. Acquisition of Property1.1 The Wife will advance by way of a loan to the Trust the sum of $350,000.00 to enable the purchase of the Property;1.2 The Trust has secured a loan from the Bank of New Zealand in the sum of $890,000.00 ('the Loan') to enable it to complete settlement;1.3 The Husband will advance by way of a loan to the Trust the sum required to cover any shortfall in the purchase price and costs (approximately $45,000.00);1.4 The Husband will meet all payments of principal and interest relating to the Loan for a period expiring 24 January 2011 at the earliest or 24 April 2011 at the latest. The Husband indemnifies the Wife for any costs or losses incurred by the Wife as a result of theHusband's failure to make the payments referred to in this clause 1.4;1.5 The Husband will gift to the Trust the amounts he pays by way of interest each year;1.6 The Wife agrees to meet all payments relating to local authority rates; fire and contents insurance; utility charges and any other customary charges relating to household outgoings.[18] The second part of the agreement dealing with the realisation of net sale proceeds dealt with what would happen some three years later when the property was to be sold. This part of the agreement set out how the proceeds of the realisation of the property were to be applied. Clause 2 provided as follows:2. Realisation of net sale proceeds2.1 On expiration of 3 years being the date 23 January 2011 the Property is to be sold and the Trustees of the Trust, being the Husband and Wife, will cause the proceeds of such realisation (after commission and legals) to be applied as follows:(a) Firstly: in repayment of the Bank of New Zealand Loan indebtedness of approximately $840,000.00;(b) Secondly: a payment to the Wife of $550,000.00; beingrepayment of the Wife's loan to the Trust of $350,000.00 and$200,000.00 in payment of the amount the Wife was otherwise entitled to receive pursuant to clause 15.1 of the Agreement;(c) Thirdly: in repayment of the Husband's loan to the Trustreferred to in clause 1.3 hereof;(d) Fourthly: a payment to the Husband of all principal reductions made during the term of the Loan and which the Husband has paid;(e) Fifthly: any remaining proceeds are to be distributed equally between the Husband and Wife.2.2 The Husband acknowledges that should the Property sell for no more than an amount sufficient to cover the payments under clauses 2.1(a) and 2.1(b) the Husband shall have no right of recovery against the Wife or the Trust for any monies owning under clauses 2.1(c) and 2.1(d).[19] Thirdly, the agreement dealt with the effect on the original agreement. This part of the agreement stated as follows:53. Amendment to Matrimonial Property Agreement3.1 In consideration of the provisions of this agreement, and the payment of the $200,000.00 to the Wife as referred to under clause 2.1(b) the Husband and Wife agree clause 15.1 of the Agreement is hereby amended so that the Husbands obligation relating to the payment of $200,000.00 in October 2008 is hereby extinguished.3.2 In all other respects the terms and conditions of the said Agreement remain the same.5 The phrase "and the payment of the $200,000.00 to the Wife as referred to under clause 2.1(b)"is handwritten whilst the remainder of the clause is typed. The placement of the handwritten insert suggests the insert may come before the comma. The Judge has treated the phrase as coming after the comma. Neither party advanced any argument on this point and we do not consider it affects the result.[20] The final part was headed "Acknowledgement" and recorded as follows:4.1 By varying the Agreement as referred to in clause 3 hereof, in no way undermines the integrity or enforceability of the Agreement as afull and final settlement of the Husband and Wife's matrimonialproperty division.Judgment in the High Court[21] Venning J commenced by determining the natural and ordinary meaning of the words of the variation agreement. He then looked at the matter in context.Finally, the Judge considered the parties' negotiations leading to the agreement to theextent they assisted in determining the parties' objective intention.[22] The Judge concluded that the ordinary and natural meaning of cl 3.1, dealing with the amendment to the relationship property agreement, was that Mr Manning'sobligation to pay the $200,000 was to be extinguished in exchange for his entering the variation agreement and Mrs Manning being paid $200,000 in accordance with cl 2.1(b), dealing with the realisation of net sale proceeds. The Judge considered there were two preconditions to the extinguishment of the obligation to pay $200,000. He described these as follows:6The first, the entry into the variation agreement. But there is a second –payment of the $200,000. The fact the trustees agreed Mrs Manning could be paid the $200,000 from the proceeds of sale is not enough. She has to receive that payment before the $200,000 debt was extinguished in accordance with cl 3.1.[23] In addition, Venning J considered that some meaning and purpose had to be given to the further provision in cl 3.1, namely, "and the payment of the $200,000 to the Wife as referred to under clause 2.1(b)".[24] Venning J accepted that the parties anticipated that, if there were sufficient funds available from the proceeds of sale after various costs had been repaid, the trustees would pay $550,000 to Mrs Manning in repayment of her contribution of $350,000 and in satisfaction of the obligation to pay the $200,000. However, the Judge said, that did not extinguish Mr Manning's obligation to pay $200,000 "in the6 At [25].event the sale proceeds were insufficient so that the Trust was not in a position to pay the $200,000 to Mrs Manning".7[25] The Judge also rejected Mr Manning's argument that the obligation to pay the $200,000 became an obligation of the Trust and not that of Mr Manning. Further, his Honour concluded that the main purpose of cl 2.1 was to "prescribe the order of distribution of the proceeds of sale".8 In other words, that provision did not deal with the extinguishment of Mr Manning's liability with respect to the $200,000 in the situation where there were insufficient funds to pay her $550,000 from the proceeds of sale.[26] Venning J then considered the background to the surrounding circumstances and the relationship of the parties. The Judge's conclusion was that his interpretationof the agreement was consistent with the parties' intention at the time the variationagreement was made. Venning J continued:9Both could reasonably have expected the Browns Bay property would increase in value and go some way at least to reducing Mr Manning'sobligation to pay the full amount of the $200,000 to Mrs Manning. Mr Manning also obtained the advantage of deferring payment of the $200,000 (or the balance) for three years. While, after three years, the property did not sell for an amount sufficient to enable Mr Manning'sobligation in relation to the $200,000 to be extinguished, that does not mean the clause should, with the benefit of hindsight, be rewritten. In fact, after payment of agreed costs of sale, and repayment of the Bank, $357,135.53 was available to Mrs Manning.It was accepted that a stronger point for Mr Manning on the issue of interpretation was a business common sense argument. In this respect, the Judge addressed why it was Mr Manning would agree to pay $300,000 in exchange for postponing his liability to pay $200,000 from October 2008 until mid-2011. Venning J considered the context provided the answer to this question. The parties were not negotiating a commercial contract to regulate their business dealings. Rather, it was a contract negotiated between parties who had been married for a number of years and had children for whom both had taken financial responsibility. The Judge also noted thatthe variation agreement coincided with a reduction in Mr Manning's obligations7 At [27].8 At [29].9 At [39].under the original agreement. Venning J then reviewed the parties' prior negotiations and concluded that they, too, supported his interpretation.[27] Judgment was accordingly entered in favour of Mrs Manning.[28] The balance of the $200,000 outstanding was $192,864.47. The Judge awarded judgment in that sum together with interest of 15 per cent on that figure from 30 June 2011 to 1 October 2012 (the date of judgment). The 15 per cent figure was the figure provided for in cl 15.1 of the original agreement. In addition, costs were awarded in favour of Mrs Manning.The approach to interpretation[29] There is no real dispute about the approach in principle that the Judge adopted. His Honour followed Vector Gas Ltd v Bay of Plenty Energy Ltd.10 As this Court noted in Trustees Executors Ltd v QBE Insurance (International) Ltd, the majority of the Judges in Vector took the approach that "the language the partieshave used must be read in the context of the document as a whole and thesurrounding circumstances".11 As this Court said, this means that the "widerbackground and circumstances should always be considered ... . Evidence of background circumstances is not, however, relevant if it does no more than tend toprove what individual parties subjectively intended".12 It was not suggested the fact that this was a relationship property agreement required a different approach to interpretation.13The meaning of the variation agreement[30] We consider that the natural and ordinary meaning of the variation agreement was that Mr Manning's obligation to pay $200,000 plus interest at 15 per cent per annum was not extinguished unless the sale of the Browns Bay property realised10 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.11 Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608, (2011) 16 ANZ Insurance Cases ¶61-874 at [32] applying the principles set out in Investors Compensation Scheme v West Bromich Building Society [1998] 1 WLR 896 (HL) at 912–913.12 At [32].13 See the discussion in Nicola Peart (ed) Brookers Family Law – Family Property (online looseleaf ed, Brookers) at [PR21.11]; and Family Law Service (online looseleaf ed, Lexis Nexis) at [7.420].enough money to repay Mrs Manning the $350,000 she had advanced towards the purchase plus $200,000. We reach that view essentially for the reasons advanced by Venning J.[31] Reflecting the parties' belief in 2007 when the property was purchased thatthere should be no significant shortfall, the agreement envisages that Mrs Manning will be paid $550,000 by the Trust from the sale of the Browns Bay property. The real interpretation issue is what the agreement provides for in the situation, as eventuated, that the proceeds of the sale of the property did not return sufficient funds to enable the Trust to pay her $550,000. In other words, the issue is who was to bear the risk of this eventuality.[32] The parties contemplated there might possibly be a limited shortfall in that they provided in cl 2.2 that Mr Manning would not be able to recover from Mrs Manning or the Trust the monies advanced as a loan to the Trust or as principal reductions if the sale did not provide "an amount sufficient to cover" thosepayments. But they did not contemplate a shortfall in respect of the payments due under cl 2.2(a) and (b). Importantly, there was no equivalent agreement by Mrs Manning not to recover the $200,000 in the same situation. Moreover, cl 3.1 provided that the consideration for extinguishment of Mr Manning's obligation was "payment" of the $200,000 to Mrs Manning.[33] Mr Manning argues that the obligation under cl 2.1 replaces the earlier obligation to pay $200,000. Hence, cl 2.1(b) states that the payment was one to which Mrs Manning was "otherwise entitled". Mr McCartney for Mr Manning says that cl 3.1 supports this by recording that the payment is "as referred to" undercl 2.1(b). Mr Manning also emphasises that the payment comes from the Trust and not from him. The argument is that the obligation to pay $200,000 becomes the obligation of the Trust, if funds are available, and that replaces Mr Manning'sprevious obligations.[34] However, the reference to the amount Mrs Manning was "otherwise" entitled to receive is, as the Judge found, a means of identifying "that $200,000 of the$550,000 to be paid as a priority to Mrs Manning represents the payment that shewas 'otherwise' entitled to under the original agreement".14 Clause 2.1 is, as its heading suggests, dealing with the priority of realisation of the net sale proceeds.[35] We accept that cl 2.1(b) does not expressly prioritise the payments as between the $350,000 and the $200,000.15 Clause 2.1(b) in that respect is identifying that the $550,000 includes the $200,000 referred to in the original agreement and cl 3.1 then makes it plain that that entitlement is not lost unless there is payment under cl 2.1.[36] The use of the words "as referred to" in cl 3.1 in our view establishes the link between the two clauses. Mr McCartney points out that the Judge was incorrect toplace some emphasis on the words "in particular" in cl 3.1 because those words did not appear in the final version of the variation agreement. Some confusion may have arisen because an earlier version of cl 3.1 provided for the insertion of the words"and in particular the payment of $200,000 to the Wife under clause 2.1(b)"16 afterthe words "In consideration of the provisions of this agreement". However, in thefinal version, that part of the clause read: "In consideration of the provisions of this agreement, and the payment of the $200,000 to the Wife as referred to under cl 2.1(b)."17 However, we do not consider that this inaccuracy is critical. The point is that the two clauses are linked and until there is payment as envisaged by cl 2.1(b), the obligation is not extinguished.[37] Mr Manning's argument gives a strained meaning to the word "payment" incl 3.1. On his approach, the concept of "payment" would not encompass actual receipt of monies to be paid.[38] There is a further aspect to cl 3.1 which also supports the Judge's approach. The reference to the payment of $200,000 "in October 2008" supports the view thevariation is the extinguishment of the requirement to pay on that date replacing itwith an obligation to pay later. In other words, the reference to the payment "in October 2008" emphasises that the obligation is now incorporated in the new14 At [29].15 Clause 2.1 is set out in full in [18], above.16 Emphasis added.17 Emphasis added.agreement. The quid pro quo is that the existing obligation, that is, to pay on that date, has been extinguished.[39] We reject the argument that the obligation becomes that of the Trust and not that of Mr Manning. As Venning J said, the Trust was not assuming liability to pay the $200,000 if the proceeds of sale were insufficient to cover that amount.18[40] As the Judge accepted, the strongest point, perhaps, in favour of Mr Manning's view is to ask just why he would agree to keeping the obligation on foot. In this context, Mr McCartney argues the Judge was wrong to say that Mr Manning obtained the advantage of deferral of payment because in fact there was no net advantage to him in economic terms. Similarly, Mr McCartney submits that the Judge was wrong to say that this was explicable in part because Mr Manning was relieved of the burden of other payments such as maintenance to Mrs Manning and the payment of private fees for the schooling of one of the boys.[41] We agree with the Judge, however, that the context is different. The two parties had differing views about the justice of the initial agreement. But there was a need, which both appear to have accepted, to provide appropriate accommodation for the children. This is what triggered the direction of capital towards a property in the first place.[42] As a result, on the Judge's approach, Mr Manning did then achieve a deferral of payment of the $200,000 for a period in the context where, in the best case scenario, the profit from the sale would take care of the need to make that payment. He also avoided any accrual of interest from the date the payment was originally due.[43] Finally, by the time Mr Manning signed the variation agreement on 7 February 2008, the October 2008 date for payment of the $200,000 was only some nine months away. There would not be a great deal of common sense in Mrs Manning giving up the prospect of payment of that sum altogether when its18 At [28].receipt was otherwise close to fruition. This is especially so where sale of the property was contemplated to occur only three years later.[44] For these reasons, we consider the natural and ordinary meaning of the variation agreement, as informed by its context and business common sense, was as the Judge determined. We turn now to consider some further context, namely the pre-contractual negotiations of the parties.The parties' prior negotiations[45] For these purposes, the first relevant email is from Mr Manning to Mrs Manning at 8.57 am on 22 January 2008. In that email Mr Manning describes what he thinks will happen as follows:- you get $350k – your loan to the trust at outset- bank gets $890k less the principal paid (by me over the 3 years guessing $90k) say $800k to BNZ- I get $45k (paid this week)- I get $90k approx (principal reduction I have paid) matches item 2- You get $200k – from Mat prop deal- I get $52k which is the difference between the interest I have paid and the $200k which I am due to pay- You get everything else, i.e. capital gain.[46] Mrs Manning commented on this proposal in an email to her solicitor at 12.23 pm the same day noting, amongst other things:He has proposed also that he does not pay me the $200,000 on top of this.[47] Mr McCartney emphasises Mrs Manning's next observation which was as follows:I need to be lucky enough for the property market to continue to rise to be able to repay the interest and principal back to [Mr Manning]. I would need to sell the property for approx $1,450,000 to do this with agents costs and marketing combined. [Mr Manning] then gets all his money back and stilldoesn't have to pay me $200,000.[48] Mrs Manning concluded:And why now does the $200,000 all of a sudden get written off on the assumption that so much money will be made from the home.Is this clear? Perhaps [Mr Manning] is not aware of how this deal is.[49] It is accepted that the parties' correspondence did not otherwise discuss whatmight happen if the sale did not realise the amount expected.[50] Mrs Manning sent an email to Mr Manning early the following morning. That email recorded the "Deal" for the Browns Bay property as follows:Order of Re-Payments once sold after 3 year period1 Bank Repaid mortgage (Est) 8000002 [Mrs Manning's] Initial Principal 3500003 [Mr Manning's] Initial Principal 450004 [Mr Manning's] Loan Principal payments (Est) 800005 All Sales and Marketing Cost (Est) 600006 [Mr Manning] repaid for Curtains (Est) 300007 All remaining amounts to [Mr Manning] to cover interest payments and any profit over and above this is [Mr Manning's] also8 [Mrs Manning] pays for insurance and rates for the propertyNote: Marital Contract stays in place and is separate to this arrangement[51] The parties then had a discussion and, on 23 January 2008 at 4.58 pm, Mr Manning sent an email from himself and Mrs Manning to their respective lawyers recording how the relationship property agreement would be amended. He typed the email in Mrs Manning's presence and it read:The Mat prop will be amended as follows – the net proceeds after marketing costs, agents commission and conveyancing costs of ... Browns bay rd after 3 years from date of purchase will be distributed in the following order.- 1st payment is to the bank at $840k (approx actual debt at the end of 3 years)- 2nd $550k to [Mrs Manning]- 3rd $45k to [Mr Mannning]- 4th $50k (debt reduction amount) to [Mr Manning]- Thereafter 50/50 split- This is full and final of the $200,000 due Oct 2008, all other financial payments remain as agreed and this mat prop agreement is full and final.- To be done in conjunction with this settlementRegards [Mr Manning] and [Mrs Manning][52] Mr McCartney emphasises the Judge did not refer to the note made on a copy of this email by Mrs Manning's solicitor's office recording:[Telephone Mrs Manning] – 5.00 pm Above is confirmed[53] The position taken in the joint email was subsequently confirmed by each ofthe parties' solicitors. Mr McCartney points out that none of these confirmatory emails were referred to by the Judge.[54] A number of drafts of the variation agreement were exchanged. An email was sent at 4.38 pm on 24 January 2008 from Mrs Manning's solicitor's officeattaching an amended version of the agreement. The email said that David Compton, Mrs Manning's solicitor, had been advising Mrs Manning on the variation agreement and had "recommended some changes – see marked upversion". The marked up version included the words "and in particular the paymentof $200,000 to the Wife under clause 2.1(b)" in cl 3.1.[55] An email at 4.43 pm from Mrs Manning's solicitor's office to Mr Manning'ssolicitor recorded the following:[O]ne further thought – the deed needs to record that until the realisation of the sale of the property, the $200k payable to [Mrs Manning] shall remain as a debt payable by [Mr Manning].[56] The Judge did not refer to this email.[57] Mr Manning's case is that the parties' joint email of 23 January 2008 was their confirmed position and that this email reflected their agreed position of compromise. The compromise saw Mrs Manning's entitlement to the $200,000elevated up the priority list but this did not preserve that obligation. Indeed, the submission is that the reference in the email later in the afternoon of 24 January thatthe debt remains "until" realisation of sale of the property is consistent with that.[58] We see no reason to take a different view from that of the Judge. That is, to the extent these negotiations can assist, they support the interpretation taken by the Judge of cl 2.1. As Venning J said:[59] The email Mr Manning sent following the meeting on 23 January is a summary of the points agreed. It does not deal with whether the entry into the variation agreement itself was to extinguish the liability or whether the $550,000 payment to Mrs Manning was a pre-condition to the extinguishment of that liability. That matter was clarified by the inclusion of the additional phrase in the draft cl 3.1.[59] We agree. Accordingly, we conclude that the obligation that Mr Manning pay Mrs Manning $200,000 has not been extinguished by the variation agreement.[60] We add that the issue of rectification was briefly dealt with in the High Court. The appellant maintained the rectification claim but signalled that if, having considered the contractual negotiations, we reached the same view as the Judge then rectification was not relevant. We agree. There is no question of any different mutual intention being established on the evidence.19Was the obligation satisfied?[61] Under this heading we deal with the argument for Mr Manning that if the variation agreement required him to pay the $200,000, or the balance of that sum, then cl 2.1 did not prioritise the $350,000 over the $200,000. As in the High Court, the submission is that the net proceeds of sale following payment of costs of sale andthe bank's mortgage could be applied in one of three ways:20(a) first to the $200,000 and second to the $350,000;(b) first to the $350,000 and second to the $200,000; and/or(c) the pro rata between the two sums.19 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand(4th ed, LexisNexis, Wellington, 2012) at [10.6.1].20 At [61].[62] The submission is that there is no reason to prefer (b) over the other two possibilities.[63] We agree with the Judge that it was intended Mrs Manning's contribution of $350,000 would be paid first.21 We also agree with Venning J that this is clear from the background circumstances leading up to the execution of the agreement and from the wording of cl 2.1 itself. As the Judge said:22When the elements of the $550,000 were separated out and identified, the $350,000 was referred to first, before the $200,000. The sums were not lumped together to be applied pro rata. Clause 3.1 separately provided for what was to happen in the event the $200,000 was not repaid. Mrs Manning accepts that if the proceeds from the sale of the property were insufficient to repay the $350,000 she would have lost that shortfall of the $350,000, but she was always to have the full $200,000 from Mr Manning.Treatment of interest[64] Mrs Manning supports the decision appealed from on the basis that the Judge ordered Mr Manning to pay interest at 15 per cent until the sum was paid. She says the correct approach is that interest should be payable on the judgment sum from 30 June 2011 to the date of actual payment at the rate of 15 per cent per annum. The argument is that Mrs Manning is entitled to interest at the rate set out in the original relationship property agreement and should not be restricted to the five per cent per annum rate currently payable under the Judicature Act 1908.[65] Mr Manning says the contractual right merges in the judgment and so it is not possible to continue interest at the contractual rate after that date. Mr McCartney also points out that the Judge did not, in fact, order post-judgment interest.[66] In the absence of a cross-appeal, we consider the latter point means that we can take this matter no further. The sealed judgment (submitted for sealing by Mrs Manning) records that Venning J awarded interest at the rate of 15 per cent per annum on the balance of the $200,000 from the date it was due under the variation agreement (30 June 2011) to 1 October 2012, the date of judgment in the High Court.21 Mrs Manning obtained summary judgment in the sum of $357,135.53 representing the net sale proceeds: Manning v Manning HC Auckland CIV-2011-404-4660, 21 November 2011.22 At [62].[67] In any event, for the reasons we now discuss, we do not consider we shouldmake any alteration to the Judge's order.[68] Payment of interest post-judgment was dealt with by this Court inNottingham v Registered Securities Ltd (in liq).23 The Court was dealing with an appeal against a Master's refusal to set aside summary judgment. RegisteredSecurities Ltd had brought summary judgment proceedings against Mr Nottingham for a sum owed arising out of a default under a mortgage. The summary judgmentmade provision for interest to "continue to run on the sum [outstanding] at the rate of17 per cent per annum until the date of payment".24 The Court referred to the provision in the earlier High Court Rules dealing with interest on a judgment debt.25The Court said that the rule gave it jurisdiction to reduce the interest rate payable butthere was no "obvious" jurisdiction for increasing that rate prospectively.26[69] The Court's reasoning is summarised in the following excerpt:27Contractual rights are one thing. The sanction of a Court order for future interest is another. Once a prospective interest rate is enshrined in an order it will continue regardless of changes in economic conditions and regardless of developments which might render it unconscionable. In the absence of full argument on the point we are not prepared to assume that in giving summary judgment in 1994 the Court had the jurisdiction to make a prospective order for interest at 17 percent.[70] To that extent, the Court found that there had been a miscarriage of justice warranting a variation in the original judgment. The provision for prospective interest was deleted leaving interest at the rate prescribed in the High Court Rules to apply in the usual way.[71] Subsequent cases in the High Court have proceeded on the basis that there is jurisdiction to award interest at the contractual rate prospectively where the contract expressly provides for that. For example, in F M Custodians Ltd v Patullo, the23 Nottingham v Registered Securities Ltd (in liq) (1998) 12 PRNZ 615 (CA).24 At 632.25 The current equivalent is r 11.27.26 At 633.27 At 633.contract expressly preserved the right to the contractual interest rate from the date of until the date of payment.28[72] The approach taken in Nottingham reflects the doctrine of merger. The authors of McGechan on Procedure note as follows:29According to the doctrine of merger, a contractual obligation to pay becomes merged in the judgment. So a contractual right to interest ceases on judgment being given and any right to interest is given by provisions such as r 11.27 of the High Court Rules. Parties can contract out of the doctrine of merger ... . If a contractual provision expressly entitles a party to interest at a contract rate from the date of judgment until payment, then that provision will be enforced by the Court, in lieu of reliance on r 11.27, by virtue of a contractual entitlement to interest up to the date of judgment, and interest on the whole judgment sum (including interest to that time) thereafter, unless todo so would be unconscionable .[73] A similar approach is adopted in the United Kingdom. The House of Lords in Director General of Fair Trading v First National Bank plc explains the position as follows:30[S]ince In re Sneyd; Ex p Fewings (1883) 25 Ch D 338, not challenged but accepted without demur by the House of Lords in Economic Life Assurance Society v Usborne [1902] AC 147, the understanding of lawyers in England has been as accurately summarised by the Court of Appeal in the judgment under appeal [2000] QB 672, 682:It is trite law in England that once a judgment is obtained under a loan agreement for a principal sum and judgment is entered, the contract merges in the judgment and the principal becomes owed under the judgment and not under the contract. If under the contract interest on any principal sum is due, absent special provisions the contract is considered ancillary to the covenant to pay the principal, with the result that if judgment is obtained for the principal, the covenant to pay interest merges in the judgment. Parties to a contract may agree that a covenant to pay interest will not merge in any judgment for the principal sum due, and in that event interest may be charged under the contract on the principal sum due even after judgment for that sum.Recent applications of this position can be seen in Standard Chartered Bank v28 F M Custodians Ltd v Patullo (2010) 20 PRNZ 691 (HC); and see Westpac New Zealand Ltd v Manetakis HC Auckland CIV-2009-404-4309, 9 December 2011; contrast Westpac New Zealand Ltd v Wright (2010) 20 PRNZ 786 (HC).29 McGechan on Procedure (online looseleaf ed, Brookers) at [HR11.27.04] (citations omitted).30 Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at [3].Ceylon Petroleum Corp and Slocom Trading Ltd v Tatik Inc.31[74] The argument can be made that the underlying concerns about interest running at unconscionable rates for lengthy periods of time may not now loom so large. That is because there are other means available, such as the Credit Contracts and Consumer Finance Act 2003, to police oppressive contracts. The Law Commission, when it considered the matter in its discussion paper Aspects of Damages: The Award of Interest on Debts and Damages, recommended the abolition of the doctrine of merger as it affected post-judgment interest.32 In support, the Commission cited the example of a contract providing for the payment of interest at a particular rate in the event of late payment, saying this scenario had led to an anomaly in the law. After explaining the orthodox application of the doctrine of merger, the Commission concluded:33Logically, the contractual rate should run through to payment in all cases. So we propose that interest should not merge into a judgment.[75] This view was reflected in the Commission's report on the subject.34 In particular, the Commission recommended that parties should be entitled to contractual interest rates higher than the statutory maximum even where those interest rates were default rates to apply in the event of late payment. TheCommission's recommendations have now been taken up in pt 4 of the Judicature Modernisation Bill which introduces a single statutory system for the award of interest.35[76] While there may be some merit in revisiting Nottingham, the point may well be overtaken on the enactment of the Judicature Modernisation Bill. In any event, this is not the case in which to undertake that exercise. The topic was not addressed in the High Court judgment so we do not have the benefit of any views of that Court on the point. Further, the argument on the point before us was limited in scope.31 Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 2094 (Comm) at [11]–[12];Slocom Trading Ltd v Tatik Inc [2013] EWHC 1201 (Ch) at [40].32 Law Commission Aspects of Damages: The Award of Interest on Debts and Damages (NZLC PP17, 1991) at [172]–[175].33 At [175].34 Law Commission Aspects of Damages: The Award of Interest on Money Claims (NZLC R28, 1994) at [28]–[31] and [195]–[196].35 Judicature Modernisation Bill 2013 (178–1).Finally, as we have noted, there has been no cross-appeal.36 The Judge has not awarded post-judgment interest and nor do we. We add for completeness that interest from 1 October 2012 at the Judicature Act rate runs in accordance with r 11.27 of the High Court Rules.[77] We add that we have considered whether the obligation to pay interest at the rate of 15 per cent per annum continued post the variation agreement. We concluded that the correct interpretation of the agreements is that the interest attached to the obligation whenever it arose, and thus that Venning J was right to order pre-judgment interest at the rate that he did.Result[78] For these reasons, the appeal is dismissed. It is accepted that costs should follow the event. We make an order that the appellant pay the respondent costs for a standard appeal on a band A basis and usual disbursements.Solicitors:Garry Pollak & Co, Auckland for AppellantWynyard Wood Lawyers & Notary, Auckland for Respondent36 In the absence of a cross-appeal we do not need to deal with the impact of an appeal on mergerof interest in the "judgment".