Chadda v Singh
[2024] NZHC 2318
•19 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-833
[2024] NZHC 2318
BETWEEN NAVJOT CHADDA
Plaintiff
AND
GUPREET SINGH
Defendant
Hearing: 5 August 2024 Counsel:
T Newman for the Plaintiff A Nair for the Defendant
Judgment:
19 August 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 19 August 2024 at 12 midday Pursuant to r 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Steindle Williams Legal, Auckland Nair & Associates, Auckland
CHADDA v SINGH [2024] NZHC 2318 [19 August 2024]
Introduction
[1] In July 2022, the defendant, Mr Singh, required funds to settle a purchase of a property at 55 Clarks Beach Road, Clarks Beach, Auckland (the property). Mr Singh had been unable to raise finance to complete the purchase, and he had negotiated an extension of the settlement date. Mr Singh was introduced to the plaintiff, Mr Chadda, who was prepared to provide bridging finance of $380,000 for a term of two months.
[2] On 18 July 2022, Mr Singh executed a loan agreement with Mr Chadda, recording a loan of $380,000 repayable on 18 September 2022 (the loan agreement). The ordinary interest rate was 4 per cent per month. The default interest rate was
16 per cent per month, compounding monthly. Mr Singh’s obligations were guaranteed by two companies associated with Mr Singh, Bhumi Holding Ltd (Bhumi) and Yasmine Holdings Ltd (Yasmine).
[3] On 18 July 2022, Mr Chadda’s solicitor transferred $364,019 to Mr Singh’s bank account. The balance of the advance of $380,000 was applied towards the first month’s interest of $15,200 and Mr Chadda’s legal costs.
[4] Mr Singh made further payments of interest of $15,200 to Mr Chadda on 2 August and 17 August 2022. Mr Singh failed to repay the advance of $380,000 on the due date of 18 September 2022.
[5] Mr Singh made further payments to Mr Chadda after his default, ostensibly of interest. The total amount paid by Mr Singh to Mr Chadda, excluding the amount deducted when the advance was made on 18 July 2022, is $111,200.
[6] In this proceeding, Mr Chadda seeks summary judgment against Mr Singh for the outstanding principal of $380,000 and default interest at the rate of 16 per cent per month, compounding monthly. Mr Chadda has commenced separate liquidation proceedings against Bhumi and Yasmine, on the grounds that those companies have failed to comply with statutory demands seeking the amount due under their guarantees.
[7] Mr Singh claims that Mr Chadda failed to comply with his statutory obligations as a creditor under a consumer credit contract, including the disclosure requirements prescribed in the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and registration as a provider of financial services under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA). Mr Singh argues that these failures by Mr Chadda render the loan agreement unenforceable, either under the CCCFA or as an illegal contract under s 73 of the Contract and Commercial Law Act 2017 (CCLA).
[8] Alternatively, Mr Singh claims that the Court should re-open the loan agreement under pt 5 of the CCCFA on grounds of oppression. Finally, Mr Singh claims that he entered into the loan agreement as a result of misleading or deceptive conduct by Mr Chadda’s agent, Ms Neha Arora, the person who introduced Mr Singh to Mr Chadda.
[9] The application for summary judgment can be resolved by considering the following issues:
(a)Is it arguable that the loan agreement is a consumer credit contract?
(b)Is it arguable that the loan agreement is an illegal contract?
(c)Is it arguable that there has been oppression under the CCCFA?
(d)Is part of the plaintiff’s claim indisputable?
Summary judgment principles
[10] The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.
[11] The leading authority on applications for summary judgment is Krukziener v Hanover Finance Ltd.1 The Court of Appeal set out the following principles:2
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried. The Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.
(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
[12] The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.3
[13] The Court can give judgment for an amount that is indisputably due and owing but which is only part of a claim and not the whole relief sought in a cause of action.4
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
2 At [26].
3 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.
4 Australian Guarantee Corp (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 61.
Is it arguable that the loan agreement is a consumer credit contract?
[14] Mr Singh argues that the loan agreement is a consumer credit contract under the CCCFA, with the following consequences for Mr Chadda:
(a)Mr Chadda is prohibited from enforcing the loan agreement by s 99 of the CCCFA, because he failed to provide the initial disclosure required by s 17 of the CCCFA; and
(b)Mr Chadda is prohibited from enforcing the loan agreement by s 99B of the CCCFA, because he was not, and is not, registered under the FSPA as required.
[15] Counsel for Mr Singh, Mr Nair, accepted that the express prohibitions on enforcement under ss 99 and 99B only apply if the loan agreement is a consumer credit contract.
[16]Section 11 of the CCCFA relevantly provides:
11 Meaning of consumer credit contract
(1)A credit contract is a consumer credit contract if—
(a)the debtor is a natural person; and
(b)the credit is to be used, or is intended to be used, wholly or predominantly for personal, domestic, or household purposes; and
(c)1 or more of the following applies:
(i)interest charges are or may be payable under the contract:
(ii)credit fees are or may be payable under the contract:
(iii)a security interest is or may be taken under the contract; and
(d)when the contract is entered into, 1 or more of the following applies:
(i)the creditor, or one of the creditors, carries on a business of providing credit (whether or not the business is the creditor’s only business or the creditor’s principal business):
(ii)the creditor, or one of the creditors, makes a practice of providing credit in the course of a business carried on by the creditor:
(iii)the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor’s own name as creditor on behalf of, or as trustee or nominee for, any other person:
(iv)the contract results from an introduction of one party to another party by a paid adviser or broker.
(1A) For the purposes of subsection (1)(b), the predominant purpose for which the credit is to be used is—
(i)the purpose for which more than 50% of the credit is intended to be used; or
(ii)if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.
(1B)The reference to intention in subsections (1)(b) and (1A) is a reference to the debtor’s intention.
…
[17] Section 12 of the CCCFA provides that investment by the debtor is not a personal, domestic or household purpose.
[18] Section 13 of the CCCFA provides that Mr Singh’s claim that the loan agreement is a consumer credit contract gives rise to a presumption that it is one unless the contrary is established.
[19]The issue in this case is whether the credit was to be used predominantly for:
(a)a personal, domestic or household purpose; or
(b)an investment.
[20] Mr Singh argues that he obtained the loan from Mr Chadda with the intention that it be used for the predominant purpose of providing accommodation for his family.
[21] The net amount of $364,019 advanced by Mr Chadda on 18 July 2022 was paid into an ANZ Bank account in Mr Singh’s name. On the same day, funds were transferred from Mr Singh’s account to the trust account of Western Legal, who appear to be the solicitors that acted on the purchase of the property.
[22] On settlement of the purchase, the property was transferred into the name of Bhumi. There is no evidence to explain the substance of the transaction that must have occurred between Mr Singh and Bhumi on 18 July 2022. Most likely, Mr Singh advanced the loan funds to Bhumi, either as a shareholder advance or as capital. Mr Nair speculated that Bhumi may have taken title to the property on trust for Mr Singh, but there is no evidence of that.
[23] The ANZ bank statement produced by Mr Singh records receipt of rent into his account in respect of properties at 23 Ingram Street, Papakura, 192 Wordsworth Road, Manurewa, and 24 President Avenue, Papakura. Those properties were owned by Bhumi at the time. In addition, Bhumi owned properties at 9 Hillcrest Grove, Manurewa, and was receiving rent in respect of a property at 1/37 John Walker Drive, Manurewa. The ANZ bank statement records payments by Mr Singh to mortgagees.
[24] In his affidavit evidence, Mr Singh acknowledges that Bhumi owned investment properties. However, he says that the property was purchased to provide accommodation for his family, and in particular his brother Hardeep Singh (Hardeep). Mr Singh did not give affidavit evidence of the extent of Hardeep’s asserted occupation of the property. Mr Singh produced some photographs of Hardeep in the property which are of no assistance. Bhumi sold the property to Hardeep by an agreement for sale and purchase dated 13 April 2023.
[25] In addition, Mr Singh says that either he or his wife would stay at the property if they were having difficulties in their relationship. Mr Singh did not provide any specifics regarding the extent of that asserted use of the property.
[26] On 8 November 2023, Mr Singh sent an email to Mr Chadda, attaching spreadsheets recording the use of the property as a “Book a Bach” rental property. Bhumi owned the property for 294 days. The parties agree that the spreadsheets relate to a period of 151 days commencing on 1 November 2022. During that period, the property was rented out as a short-term rental for 106 days, which is an occupancy rate of 68 per cent, producing income of approximately $29,000.
[27] Mr Singh has not provided any evidence of the extent of any further rental of the property during the remainder of the time that the property was owned by Bhumi.
[28] Mr Singh’s argument focused on the mixed use of the property after it was purchased by Bhumi. However, ss 11 and 12 of the CCCFA are concerned with the debtor’s use or intended use of the credit.
[29] The entire advance from Mr Chadda to Mr Singh was applied by Mr Singh towards Bhumi’s purchase of the property. That amounts to an investment by Mr Singh in Bhumi, which was a company engaged in the business of owning and renting out real estate. Bhumi’s subsequent use of the property is immaterial, including whether Bhumi allowed members of Mr Singh’s family to occupy the property, and if so, whether that occupation was for a market return or gratuitous.5 The credit was not used predominantly for personal, domestic or household purposes.
[30] I reach the same conclusion even if ss 11 and 12 of the CCCFA permit a consideration of the use or intended use of the real estate purchased with the credit, in circumstances where the purchase was indirect by Mr Singh via a company as intermediary, for the reasons that follow.
[31] The definition of “predominant purpose” in s 11(1A) for cases of mixed use does not apply in the present case:
(a)section 11(1A)(i) does not apply because the entire advance was applied by Mr Singh to Bhumi’s purchase of the property, so it is not a situation where some of the credit was intended to be used for one purpose and some of the credit for another purpose; and
(b)section 11(1A)(ii) does not apply because the credit was used by Mr Singh to acquire, indirectly, real property and not goods or services.
5 Although the latter scenario might have consequences for the directors of Bhumi permitting such use of the company’s property.
[32] Counsel for Mr Chadda, Mr Newman, referred me to the decision of the Supreme Court of Queensland in Shakespeare Haney Securities Ltd v Crawford,6 where the Court was concerned with Queensland legislation similar to the CCCFA. The debtor had used the loan advance to develop a residential property that she owned in her own name. The debtor occupied the property during the development, and the Court held that this personal or domestic purpose was incidental to the debtor’s plan of undertaking a particular investment to increase her capital. The Court held that the credit was applied predominantly for investment purposes.7
[33] The case is distinguishable because the debtor purchased the real property in her own name. Nonetheless, the case is authority for two propositions:
(a)mixed use remains relevant where credit is used to acquire real estate, rather than goods or services;
(b)a personal or domestic purpose for obtaining credit may be incidental to a predominant investment purpose.
[34] I am satisfied that there is sufficient evidence to conclude that Mr Singh’s predominant intended use of the advance from Mr Chadda was to acquire a residential property as an investment. By analogy with s 11(1A)(b) of the CCCFA, the property was intended to be most used for that purpose. Any use for family accommodation was incidental to the predominant investment purpose.
[35]I find that the loan agreement is not a consumer credit contract.
Is it arguable that the loan agreement is an illegal contract?
[36] Mr Chadda was not registered as a financial service provider under the FSPA at the time of the loan agreement.
6 Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85, [2009] 2 Qd R 156.
7 At [41] to [52].
[37] Mr Nair submitted that it is arguable that Mr Chadda was required to be registered and that his failure to register was an offence under s 11(2) of the FSPA. Further, the breach rendered the loan agreement illegal and of no effect, under ss 71 and 73 of the CCLA.
[38] Section 5(1)(e) of the FSPA provides that being a creditor under a credit contract is a financial service governed by the FSPA. Section 11 of the FSPA relevantly provides:
11 Person in business of providing financial service must be registered and member of approved dispute resolution scheme
(1)A person to whom this Act applies who is in the business of providing a financial service must—
(a)be registered for that service under this Part; and
(b)if required by section 48, be a member of an approved dispute resolution scheme.
(2)Every person who knowingly breaches subsection (1) commits an offence and is liable on conviction,—
(a)in the case of an individual, to imprisonment for a term not exceeding 12 months or to a fine not exceeding $100,000, or to both; or
(b)in the case of a person who is not an individual, to a fine not exceeding $300,000.
[39] A person can be in the business of providing a financial service whether or not the business is the providers only business or the provider’s principal business.8
[40] The requirement for a financial service provider to register is prescribed by the Financial Service Providers (Registration) Regulations 2020 (the Regulations), which set thresholds for registration.9 The thresholds relate to the number of New Zealand residents that financial services are provided to in given periods, and the amounts of finance involved.
[41] The thresholds prescribed in regs 15 to 17 of the Regulations vary depending on the length of time that a financial service provider has been in business. For example, if a financial service provider has been in business for more than six months
8 Financial Service Providers (Registration and Dispute Resolution) Act 2008 [FSPA], s 6.
9 See, s 7A(2)(c).
but less than 12 months, then registration is not required if services are provided to fewer than five New Zealand Residents, or the amount is less than $5,000.
[42] In his first affidavit, Mr Chadda produced a ledger report of transactions through his solicitor’s trust account for the period from 5 November 2021 to 16 November 2022, for “Client.Project: SSA44432.1”.10 Mr Chadda produced this document to prove his advance to Mr Singh, which is recorded on the ledger report. In addition, the ledger report appears to record other advances from Mr Chadda to other parties, and in some cases, repayment of those advances.
[43] Mr Nair submitted that the ledger report is evidence that Mr Chadda was in the business of providing finance to numerous parties. I accept that the ledger report does invite the inference that Mr Chadda made loans to other parties between 5 November 2021 and 16 November 2022.
[44] The affidavit evidence before the Court is insufficient to determine whether Mr Chadda met the thresholds for registration, in particular:
(a)whether Mr Chadda was making other loan advances as a creditor under a credit contract; and
(b)if so, to how many people and over what period of time.
However, the ledger report is sufficient to establish that it is arguable that Mr Chadda should have been registered.
[45] The next premise in Mr Nair’s argument is that it follows that it is arguable that the loan agreement is an unenforceable illegal contract. Section 71 of the CCLA relevantly provides:
71Illegal contract defined
(1)In this subpart, illegal contract—
10 The “Ledger Date” was “From 05/11/2021 To 03/11/2023” but it did not record the occurrence of any transactions after 16 November 2022.
(a)means a contract governed by New Zealand law that is illegal at law or in equity, whether the illegality arises from the creation or the performance of the contract; and
(b)includes a contract that contains an illegal provision, whether that provision is severable or not.
[46]Section 72 of the CCLA relevantly provides:
72Breach of enactment
A contract lawfully entered into does not become illegal or unenforceable by any party because its performance is in breach of an enactment, unless the enactment expressly so provides or its object clearly so requires.
[47] The purpose of the FSPA is to promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and to promote and facilitate the development of fair, efficient and transparent financial markets.11 The purpose of pt 2 of the FSPA, which deals with registration of financial service providers, is stated in s 9:
9 Purpose of this Part
The purpose of this Part is to—
(a)establish a compulsory public register of financial service providers to enable—
(i)the public to access information about financial service providers; and
(ii)the Registrar and other regulators to regulate financial service providers:
(b)prohibit certain people from being involved in the management or direction of registered financial service providers:
(c)conform with New Zealand’s obligations under the FATF Recommendations.
[48] The purpose of pt 3 of the FSPA, which deals with dispute resolution involving financial service providers, is stated in s 47:
47 Purpose of this Part
The purpose of this Part is to promote confidence in financial service providers by improving consumers’ access to redress from providers through schemes to resolve disputes. The schemes are intended to be accessible, independent, fair, accountable, efficient, and effective.
11 Section 2A of the FSPA.
[49] There is nothing in the objects of the FSPA that requires that a credit contract is an unenforceable illegal contract if the registration requirements are not met. If Parliament had intended such a drastic consequence, it would have been expressly stated in the legislation. It is not.
[50] On the contrary, the CCCFA provides only a limited prohibition on the enforceability of a credit contract where a creditor is required to be registered under the FSPA but is unregistered: s 99B provides that a consumer credit contract cannot be enforced in respect of any rights in relation to the costs of borrowing. There is no corresponding prohibition on enforcement of a non-consumer credit contract.
[51] Section 136 of the CCCFA provides that a credit contract entered into in breach of the CCCFA is not an illegal contract.
[52] The CCCFA and the FSPA do not contain any provision that renders a credit contract that is not a consumer credit contract unenforceable in whole or in part as a result of a breach of the FSPA. Parliament’s intention is that a breach of obligations under the FSPA and the Regulations is a discretionary factor to take into account before re-opening a credit contract. This intention is inconsistent with a finding of illegality on the same grounds.
[53] Therefore, the consequences of any failure by Mr Chadda to register under the FSPA are:
(a)it would be a factor that can be taken into account when a court is considering whether to re-open the credit contract for oppression;12 and
(b)it would be an offence under s 11(2) of the FSPA.
12 Credit Contracts and Consumer Finance Act 2003 [CCCFA], s 124(1)(b) and s 9C(3)(f).
Is it arguable that there has been oppression under the CCCFA?
Legal principles
[54] Part 5 of the CCCFA governs the re-opening of oppressive credit contracts and applies to every credit contract, whether or not it is a consumer credit contract.13
[55]Section 120 of the CCCFA relevantly provides:
120 Reopening of credit contracts, consumer leases, and buy-back transactions
The court may reopen a credit contract, a consumer lease, or a buy- back transaction if, in any proceedings (whether or not brought under this Act), it considers that—
(a)the contract, lease, or transaction is oppressive; or
(b)a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or
(c)a party has induced another party to enter into the contract, lease, or transaction by oppressive means.
[56]The term “oppressive’ is defined in s 118 of the CCCFA to mean:
… oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.
[57] The underlying idea is that the transaction or some term of it is in contravention of reasonable standards of commercial practice, an objective standard.14
[58] Whether there has been oppression calls for a wide-ranging enquiry. The fact that the debt burden is unsustainable will not usually be sufficient on its own to establish oppression.15
[59] There are relatively few cases under the CCCFA concerning oppression and penalty interest clauses.16 By analogy, where a mortgage is overdue, it is not oppressive for a mortgagee to claim interest at an increased rate under contractual
13 Section 117.
14 G E Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31, at [46].
15 Haddon v G E Custodians [2011] NZCA 355 at [82]–[83].
16 The issue has some consideration in: Wallace v Herron [2017] NZCA 346 and Merchant Finance Ltd v Xu [2021] NZHC 3589, [2022] NZCCLR 18.
powers reserved to the mortgagee.17 Similarly, under the CCCFA, higher penalty rates are not of themselves oppressive.18
[60] The Court of Appeal in Greenbank New Zealand Ltd v Haas considered s 9 in the Credit Contracts Act 1981, the predecessor to the CCCFA.19 Section 9 of the 1981 Act defined “oppressive” for the purposes of the Act in all but identical terms to s 120 of the CCCFA.20 Tipping J observed that in considering oppression, it was necessary to consider a comparator. The Court observed:
[24] That said, it is necessary to return to the key concept of oppression as defined in s 9. The various words which together form the definition of the term “oppressive” all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice. In a sense that phrase gives the underlying commercial rationale for the earlier words or phrases. Something which is, for example, unjustly burdensome must necessarily be regarded as being in contravention of reasonable standards of commercial practice; similarly with something harsh. To determine whether a contract or term is oppressive within any of the words or phrases in the definition, it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with such reasonable standards could hardly be held to be oppressive. Conversely something which is not in accordance with (ie in contravention of) such standards is, by definition, oppressive. It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standards of commercial practice.
[25] That will usually, indeed almost always, necessitate the calling of evidence on the point, as is contemplated by s 13. There would be difficulties and dangers in expecting Judges and Masters to take an intuitive or impressionistic approach to the question. What to one Judge might seem unjustly burdensome might not necessarily seem so to another. The commercial experience of judicial officers may differ markedly. Save in the plainest of cases, Judges cannot be expected to take some form of judicial notice of what is or is not in accordance with reasonable standards of commercial practice…
17 G Fuller Laws of New Zealand Mortgages (online ed) at [333].
18 See, for example, Anderson v Burbery Finance Ltd [1986] 2 NZLR 20 (HC), affirmed on appeal [1988] 2 NZLR 196 (CA); Greenbank of New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA); Bartle v GE Custodians [2010] 3 NZLR 601 (CA).
19 Greenbank of New Zealand Ltd v Haas, above.
20 Credit Contracts Act 1981, s 9: “In this Act, the term “oppressive” means oppressive, harsh, unjustly burdensome, unconscionable, or in contravention of reasonable standards of commercial practice.”
[61] Section 124 of the CCCFA provides mandatory criteria for the Court to consider in deciding whether to re-open a credit contract. In the present case, the relevant factors include:
(a)all the circumstances relating to the making of the arrangement;21
(b)whether the creditor has complied with the lender responsibility principles in s 9C(2) of the CCCFA,22 which require a lender to:
(i)make reasonable enquiries before entering into the agreement so as to be satisfied that it is likely that the borrower will make the payments under the agreement without suffering substantial hardship;23
(ii)assist the borrower to reach an informed decision as to whether or not to enter into the agreement and to be reasonably aware of the full implications of entering into the agreement, including by ensuring that any information provided by the lender to the borrower is not presented in a manner that is, or is likely to be misleading, deceptive or confusing;24
(iii)meeting the lender’s obligations under the FSPA;25
(c)the relative bargaining power of the parties;26
(d)whether the debtor obtained independent legal advice or other professional advice before entering into the arrangement;27
(e)the terms of other arrangements under which the debtor could have obtained the same or substantially similar credit, including the costs of
21 CCCFA, s 124(a).
22 Section 124(1)(b).
23 Section 9C(3)(a)(ii).
24 Section 9C(3)(b).
25 Section 9C(3)(f).
26 Section 124 (c).
27 Section 124 (f).
borrowing, and whether the arrangement imposes more onerous terms on the debtor than would be imposed under those other arrangements;28
(f)whether the terms of the arrangement are reasonably necessary to protect the interests of the creditor;29 and
(g)the form of the arrangement, including whether it is expressed in plain language in a clear, concise and intelligible manner.30
The arguments of the parties
[62]Mr Singh relies on all three limbs of oppression in s 120. He argues that:
(a)the default interest rate of 16 per cent per month, compounding monthly, is oppressive;
(b)Mr Chadda’s exercise of his right to claim the default interest is oppressive; and
(c)he was induced to enter into the loan agreement by the oppressive conduct of Ms Arora, acting as Mr Chadda’s agent.
[63] Mr Chadda argues that there is no oppression because the default interest rate serves as an incentive to ensure compliance. Mr Singh is an experienced businessperson and he and his wife knew and understood the terms that they were committing to. Mr Singh only has himself to blame for incurring the default interest charges.
Formation of the loan agreement
[64] Ms Arora’s evidence is that she was a friend of Mr Singh’s wife, Bhethnee Kaur (Ms Kaur). Ms Kaur is a real estate salesperson. In October 2021, Ms Arora communicated with Ms Kaur regarding refinancing of four properties owned by
28 Section 124(h).
29 Section 124(l)(ii).
30 Section 124 (k).
Bhumi. At the time, Ms Arora was a business development manager engaged by CNZ Limited, a broker. Ms Arora had further contact with Ms Kaur in July 2022, when Ms Kaur obtained finance for a property in Pukekohe owned by Ms Kaur.
[65] There is a conflict in the evidence of Mr Singh and Ms Arora regarding their dealings that led to the loan agreement. It is common ground that Ms Arora was an intermediary between Mr Singh and Mr Chadda when the loan agreement was arranged.
[66] Ms Arora says that she assisted in finding someone who could offer a loan, and she was only involved because she was friends with both Mr Chadda and Ms Kaur. Ms Arora acknowledges that at the time she worked for Mutual Trust, another broker. She says that Mutual Trust were not involved in the transaction because of the time constraints. Ms Arora does not declare whether she earned a commission or any remuneration from arranging the loan agreement.
[67] Mr Singh and Ms Arora agree that they met in the carpark of The Warehouse in Mt Roskill on 18 July 2022, and at the meeting Ms Arora presented the loan agreement and guarantee to Mr Singh, which he signed.
[68] Mr Singh says that Ms Arora told him that he had to sign the documents immediately, and that the documents were just “paper formalities and that proper documents would be sent later”. He says that he was not given copies, and that he did not know who he was borrowing from or the terms of the loan, and that he trusted Ms Arora not to lead him astray.
[69] Ms Arora says that she had discussed the terms of the loan with Ms Kaur over the phone days before the meeting on 18 July 2022, and that Mr Singh was in the background and participating in the conversation through Ms Kaur.
[70] Ms Arora says that she visited the home of Mr Singh and Ms Kaur in the days before 18 July 2022, to again discuss the terms of the loan with Ms Kaur. Mr Singh was present. She says that after that meeting she contacted Mr Chadda’s lawyer to confirm that Mr Singh and Ms Kaur were happy to proceed with the loan, and that the
lawyer could prepare the documents. She assisted Mr Chadda in dealing with his lawyer because Mr Chadda was busy.
[71] Ms Arora says that when she met with Mr Singh at The Warehouse on 18 July 2022 she showed him the loan agreement and the guarantee, and Mr Singh read through the documents and had no questions. She denies saying that the documents were “just paper formalities”. She says that she understood Mr Singh to be an experienced businessperson, and that she left Mr Singh with copies of the documents.
The terms of the loan agreement
[72] The loan agreement was prepared on the Auckland District Law Society standard form “TERM LOAN AGREEMENT”.31 The “Financial details” section in Part 1 of the loan agreement was completed as follows:
[73] The stated term expiry date of 18 July 2022 is plainly an error. The advance was made on 18 July 2022 and it is common ground that it was due for repayment on 18 September 2022.
[74] The specification of the interest rates is ambiguous, as the stated rate is expressed to be “per annum. month”. The word “month” was added to the standard form.
31 Release date 12 November 2018.
[75] Clause 3(d)(i) of the loan agreement provides that Mr Singh was to pay interest on the last day of the relevant interest period on the amount of the principal sum outstanding on the first day of an interest period, at the lower interest rate.
[76] The statement in table A, “Interest dates: on the date of the advance,” requires payment of interest in advance and conflicts with clause 3(d)(i). The first month’s interest of $15,200 was paid by Mr Singh by deduction on the date of the advance, consistent with the statement in table A, but in contradiction to the requirement to pay interest in arrears as specified in clause 3(d)(i). The payments of interest on 2 and 17 August 2022 were also in advance.
[77] Clause 3(d)(ii) provides that if Mr Singh failed to make payment of interest or of principal on the due date for payment, then Mr Singh was required to pay interest on the amount in default at the higher interest rate for the period from the due date for payment until the date of actual payment. Clause 3(d)(iii) provides that default interest was to compound at monthly intervals.
Analysis
[78] It is not possible to resolve the conflict in the affidavit evidence of Mr Singh and Ms Arora at this summary stage of the proceeding. The role of Ms Arora in the transaction is presently unclear. It is arguable that she was acting as Mr Chadda’s agent.
[79] At the time of entry into the loan agreement, Mr Singh and Ms Kaur were experienced in purchasing real estate and procuring finance for that purpose. Mr Singh’s assertion that he did not know the interest rates is inconsistent with Mr Singh’s monthly interest payments of $15,200 to Mr Chadda, calculated at the rate of 4 per cent per month, on 2 August 2022, 17 August 2022, 19 September 2022 and 16 November 2022.32
[80]However, on 4 November 2022, Ms Kaur sent a text message to Ms Arora:
32 This was followed by payments of $30,400 on 27 January 2022, $15,000 in March 2023 and
$5,000 on 23 November 2023.
Hi Neha. We need to see you tomorrow about the loan that you made for Gupreet take from your source. I saw that document just now, you have put 16% a month. This is really too much and not. I am shocked Neha. I thought you said it’s 4%. You didn’t disclose this? If we knew that it is going to be 16% a month we would have never looked at it. You didn’t say even once to me. Gupreet and I trusted you. It seems like a destructive agenda. I am shocked. You have put us in a massive dump.
[81]Ms Arora responded:
What are you talking about Kamal. I am really shocked to see your message. Please read the document.
I am not a person to put someone in massive dump and I don’t keep any agenda to destruct anyone and specially [sic] whom I call my friends.
[82] The allegation that Ms Arora misled Mr Singh about the terms of the loan needs to be tested at trial. The circumstances in which the loan agreement was signed is a factor relevant when considering oppression.
[83]Other relevant factors include:
(a)whether Mr Chadda made reasonable enquiries before entering into the loan agreement so as to be satisfied that it was likely that Mr Singh would be able to meet his obligations under the loan agreement, including default interest if called upon;
(b)the terms of the loan agreement.
[84] The lower interest rate of 4 per cent per month for the term of the loan equates to 48 per cent per annum. Mr Singh plainly agreed to pay that amount and initially did so without complaint. Although the rate is high, considering the short-term nature of the bridging finance and the absence of any other finance fee, I consider that this rate alone was not oppressive.
[85] Mr Singh’s strongest argument of oppression rests on Mr Chadda’s attempt to enforce the higher interest rate of 16 per cent per month compounding monthly since Mr Singh’s failure to repay the principal on 18 September 2022. That equates to an interest rate of 192 per cent per annum. If the compounding of monthly interest is taken into account, then the cost of credit when the loan is in default exceeds 192 per
cent per annum. It is arguable that the higher interest rate is itself oppressive, and higher than was reasonably necessary to protect the interests of Mr Chadda as creditor.
[86] A final determination of whether the loan agreement is oppressive will require factual findings on disputed evidence, and potentially expert evidence on reasonable standards of commercial practice. Those matters are not suitable for resolution on an application for summary judgment.
Remedies for oppression
[87] If Mr Singh succeeds with a claim of oppression and the Court is prepared to re-open the loan agreement, then s 127 of the CCCFA provides that the Court may make any orders that it thinks necessary to remedy the matters that caused the Court to re-open the contract. Section 127(2)(d) empowers the Court to order that any obligation outstanding under the credit contract be extinguished or altered.
[88] Mr Singh concedes that if the loan agreement is re-opened, the issue for the Court will be the interest component: the amount of interest that Mr Singh has already paid to Mr Chadda and Mr Singh’s outstanding obligations in respect of interest. Mr Nair confirmed that Mr Singh accepts that the principal sum must be repaid.
[89] The total of the cash advance received by Mr Singh was $364,019, after deduction of $15,981 to pay the first month’s interest of $15,200 and Mr Chadda’s legal costs of $781. No issue is taken with the legal costs.
[90] The total of the cash payments made by Mr Singh to Mr Chadda, ostensibly being payments of interest, is $111,200. If the loan agreement is re-opened and all interest is extinguished, then it is possible that Mr Singh’s payments might be applied to principal. That is the most favourable potential outcome for Mr Singh. That would result in a reduction of the principal outstanding to $252,819, calculated by subtracting the cash payments of $111,200 from the cash advance received of $364,019.
The Fair Trading Act 1986 (FTA)
[91] Mr Singh’s claim that Mr Chadda, by his agent Ms Arora, engaged in misleading or deceptive conduct overlaps significantly with his claim of oppression in respect of the circumstances that led to the loan agreement.
[92] There is no prospect of the Court extinguishing Mr Singh’s liability to repay any outstanding principal to Mr Chadda as part of discretionary relief under the FTA. Any relief would be confined to payments of interest. The result could be no better than if oppression is made out under the CCCFA.
Is part of the plaintiff’s claim indisputable?
[93] It is indisputable that Mr Singh is in default of the loan agreement by failing to repay the principal sum on the due date of 18 September 2022. Even if Mr Singh is ultimately successful with his claim of oppression, or breach of the FTA, it is not arguable that discretionary relief from the Court will extend to extinguishment of Mr Singh’s obligation to repay the principal.
[94] If the most favourable outcome that Mr Singh can achieve in this litigation is an order that he pay outstanding principal of $252,819, then it is appropriate that summary judgment be entered for that amount now. That will not prejudice Mr Chadda’s ability to seek judgment for the balance of the advance of $380,000 and interest.
Costs
[95] My preliminary view is that Mr Chadda is entitled to an award of legal costs on an indemnity basis under clause 7(f) of the Loan Agreement, because this litigation has arisen as a result of Mr Singh’s indisputable breach of his obligation to repay the principal sum on 18 September 2022.
Orders
[96] I enter judgment for the plaintiff against the defendant for outstanding principal of $252,819.
[97]If the parties are unable to agree on costs then:
(a)the plaintiff shall file and serve a memorandum as to costs, of no more that three pages, by 30 August 2024;
(b)the defendant shall file and serve a memorandum as to costs, of no more than three pages, by 6 September 2024;
(c)I will then determine costs on the papers.
Associate Judge Brittain
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