Chen v General Finance Limited
[2023] NZHC 1758
•6 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-548
[2023] NZHC 1758
BETWEEN LIYUN CHEN
First Applicant
AND
ROYALL FAMILY TRUST
Second Applicant
GENERAL FINANCE LIMITED
Respondent
Hearing: 4 July 2023 Appearances:
J Chen and D Tan for Applicants M G P Martin for Respondent
Judgment:
6 July 2023
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 6 July 2023 at 4pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
ACS Law, Auckland
Martelli McKegg, Auckland
CHEN v ROYALL FAMILY TRUST [2023] NZHC 1758 [6 July 2023]
Introduction
[1] By her judgment delivered on 31 May 2023 Gordon J declined an application by Liyun Chen and the Royall Family Trust (collectively “the applicants”) for leave to commence a proceeding by originating application.1 In their proposed originating application proceeding, the applicants were seeking an order setting aside three Property Law Act 2007 (PLA) notices (the PLA Notices) issued by General Finance Ltd (the respondent) to the applicants, until their claim in a separate proceeding against the respondent is determined (the “581” proceeding).2
[2] The respondent’s three PLA Notices dated 27 February 2023 relate to failure by the applicants to remedy defaults under a registered mortgage on the title of a property at 9 Sunderlands Road, Half Moon Bay, which the respondent proposes to sell by mortgagee sale scheduled to take place on 12 July 2023.
[3] The applicants have filed an application seeking leave to appeal from Gordon J’s judgment which is scheduled for a first call hearing on 10 July 2023. The grounds being that the Judge determined the matter on the basis of misleading information provided by the respondent regarding one of its shareholders.
[4]The applicants now apply:
(a)by interlocutory application for injunction orders:
(i)To stay or set aside the PLA notices issued by the respondent.
(ii)To stay the mortgagee sale process in respect of the property at 9 Sunderlands Road, Half Moon Bay pending determination of the applicants’ claim in the “581” proceeding.
(b)And for an order for stay of execution and or enforcement of the judgment of Gordon J dated 31 May 2023, on the grounds that an application for leave to appeal the judgment has been filed.
1 Chen v General Finance Ltd [2023] NZHC 1329.
2 CIV-2023-404-581
[5]The respondent opposes the applications.
Background
[6] The background to the applicants’ present applications is summarised in the judgment of Gordon J, but is set out again here for convenience.
[7] On 2 February 2022 the respondent sent the applicants a loan offer for a loan of $2,600,000.00. The loan offer named Liyun Chen as the borrower and mortgagee, as trustee for the Royall Family Trust, and also as guarantor. The term of the loan was 12 months. The loan offer provided that the loan would be at an interest rate of 9.25 per cent per annum, with monthly interest payments of $20,041.67, and a default interest rate being five per cent per annum above the standard interest rate.
[8] Security for the loan was to be a registered first mortgage on the title of the property at 9 Sunderlands Road, Half Moon Bay, and the personal guarantee of Ms Liyun Chen. The loan offer further provided:
We acknowledge that acceptance constitutes an agreement to mortgage the security property(ies) and any other real property(ies) owned by the Borrower and/or Guarantor and charge the personal property of the Borrower and/or Guarantor, and that the lender may, at its discretion, lodge and maintain a caveat against the certificate(s) of title to the said property(ies) and any other real property(ies) owned by the Borrower and/or Guarantor and we agree that upon request by the lender to grant to the lender a registerable mortgage over the security property(ies) and any other real property(ies) owned by the Borrower and/or Guarantor (such mortgage to be in the form of the then current Auckland District Law Society all obligations mortgage) or register a financing statement at the PPSR.
[9] Ms Chen accepted and signed the loan offer in all three capacities on 3 February 2022. The Term Loan Agreement dated 4 February 2022 signed by Ms Chen contained additional clauses which were inserted as terms of the mortgage and included:
COLLATERAL SECURITIES
(a)Further Securities
The Borrower and the Guarantor acknowledge and agree that the property to be mortgaged to the Lender shall include all of the Borrower’s and Guarantor’s interest in any land or other property whether real or personal and whether or not described in the Agreement and the Borrower and Guarantor charge all such property and grant a security interest in all such property to the Lender accordingly but excluding consumer goods or documents for which taking a security interest is prohibited under the Credit Contracts and Consumer Finance Act 2003. The Lender is authorised to lodge and maintain a caveat against any title to any real property referred to in this clause.
…
[10] The loan funds were advanced by the respondent on or about 4 February 2022, and on the same day the respondent registered its mortgage on the title of 9 Sunderlands Road, Half Moon Bay. On 22 June 2022 the respondent lodged a caveat on the title of the property at 92 Jeffs Road, Flat Bush of which Ms Chen is the registered owner. That caveat was subsequently withdrawn and replaced with another caveat on 3 February 2023. The replacement caveat amended the interest claimed to refer to the agreement to mortgage dated 3 February 2022 made between Ms Chen and the respondent.
[11]The loan was not repaid when it fell due on 4 February 2023.
[12] On 27 February 2023 the respondent issued a Default Notice under the Sunderlands Road mortgage which recorded the default in repayment as at 7 February 2023 and required the default to be remedied on or before 2 May 2023, failing which the principal sum of $2,600,000 together with interest of $112,909.36 and costs of
$1,150.00 would be owing and payable. The notice further stated that the respondent’s powers as mortgagee would become exercisable, including its power to sell the mortgaged land. Also on 27 February 2023, the respondent issued a Notice to Guarantor to Ms Chen pursuant to s 122 of the PLA, and a Default Notice to Ms Chen in her capacity as mortgagor of the Sunderlands Road property. Those notices also advised that if the loan default was not remedied on or before 2 May 2023, the respondent’s power as mortgagee to sell the property would become exercisable.
[13] As noted by Gordon J in her judgment at [10]–[14], following the respondent’s issuing of the PLA notices there were communications between Ms Chen and the
respondent regarding the possibility of the respondent extending the term of the loan, leading to the respondent offering to extend the term of the loan on the basis that Ms Chen and the Trust reduced the loan principal. Initially the respondent required a
$900,000 reduction but reduced it to a $400,000 reduction with subsequent monthly repayments of $50,000. However the respondent says that Ms Chen’s request that the respondent withdraw its caveats lodged on her property at 92 Jeffs Road so as to enable her to raise finance to repay the Sunderlands Road loan did not proceed when Ms Chen refused to provide the respondent with information it sought regarding the proposed borrowing and its security.
[14] The caveat on the title of the Sunderlands Road property remained and the respondent has proceeded with arrangements for a mortgagee sale of the property by auction scheduled to take place on 12 July 2023.
Justice Gordon’s Judgment
[15] As I have noted, Gordon J declined the applicant’s application for leave to commence a proceeding by way of an originating application. Her Honour noted that the applicants’ claim did not come within the scope of the originating applications provided for in r 19.2 of the High Court Rules. Her Honour noted that the Court nevertheless had power to permit a proceeding to be commenced by originating application if it considered it was in the interests of justice to do so. Justice Gordon considered whether it was in the interests of justice to permit the applicants to commence the proceeding by way of an originating application, by determining whether the applicants were able to seek an interim injunction or some other form of interim relief that would effectively temporarily prevent the respondent from exercising its powers under ss 119 or 122 of the PLA in accordance with its notices.3 And she noted that the principles and approach applicable to the granting of an interim injunction were relevant to her assessment of that issue.4
[16] In order to determine whether it was in the interests of justice to grant the applicant’s leave to commence the proceeding by originating application Gordon J
3 At [34].
4 At [33]
considered whether the applicants could obtain an interim injunction on the basis that they qualified for equitable relief.
[17] She found that the applicants do not have a legal or equitable right at issue which may be prejudiced by the respondent exercising its powers in terms of the PLA notices. Her Honour noted that as the applicant’s claim in the separate proceeding was limited to seeking damages and their ability to be awarded the damages sought is not affected by the respondent’s exercise of their contractual rights, there was no legal or equitable right that requires protection in the interim by an injunction. Her Honour said:5
[42] In the present case, the applicants do not have a legal or equitable right at issue which may be prejudiced by General Finance exercising any one of the powers it is entitled under the PLA Notices. The applicants’ claim in the substantive proceeding seeks damages. Therefore, the success of the applicants in that proceeding and their ability to be awarded the damages sought is not affected by the exercise of General Finance’s contractual rights. While, if the applicants are successful in the substantive proceeding, an award of damages may effectively set off what the applicants owe to General Finance, this is not a legal or equitable right that requires protection in the interim by an injunction.
[43] In other words, there is no right at risk that the applicants will lose if General Finance exercises its rights under the PLA Notices prior to the substantive proceeding being determined.
[18] Justice Gordon also considered whether there was a serious question to be tried and concluded that there was not as it could not be seriously argued that the respondent’s actions in proposing an extension of the term of the loan subject to a reduction of the principal sum was oppressive having regard to its entitlement to full repayment at the conclusion of the term of the loan as provided for by the loan agreement.6 Moreover the respondent was under no contractual obligation to extend the term of the loan.7
[19] Justice Gordon also considered the balance of convenience and found that it favoured the respondent. She concluded:
5 At [43]
6 At [47].
7 At [38].
[56] It is not in the interests of justice for the applicants to commence their proceeding as an originating application. The application to do so is therefore refused.
[57] Even if permission had been given for the applicants to commence their proceeding by way of an originating application, and such application would fail on its merits.
Submissions
[20] The applicants’ applications were supported by Ms Chen’s memoranda dated 28 and 30 June 2023.
[21] After the applicants’ applications were filed and referred to me on 30 June 2023, I endeavoured to arrange a judicial telephone conference with the parties the same day. However, as the Registrar was unable to arrange the telephone conference on 30 June, at my direction it was scheduled for 4 July. At the telephone conference I heard submissions from Mr Tan for the applicants who advised that he had only been engaged shortly prior to the telephone conference, and from Mr Martin for the respondent. Mr Martin had also filed a memorandum in response to Ms Chen’s 28 June 2023 memorandum.
The applicants
[22] Mr Tan relies on the contents of the memoranda prepared and filed by Ms Chen. He said that the applicants contend that since the hearing before Gordon J fresh evidence that has come to light regarding a shareholder of the respondent, had it had been known to the applicants, would have caused them not to accept the loan offer from the respondent, and they would have sought loan finance from another source. Mr Tan was however unable to explain how any information regarding an individual shareholder of the respondent would affect the applicant’s contractual obligations and liability to repay the loan and to pay interest in accordance with the terms of the contract.
[23] Mr Tan further submits that the respondent does not have a caveatable interest, and says that the terms of the contract required the respondent to request the applicants to provide a mortgage security. He says that the respondent did not request the
applicants to provide a mortgage security for the loan. Mr Tan further submits that the issue of whether the respondent had a caveatable interest in the applicant’s Sunderlands Road property was not a matter which was argued before or determined by Gordon J, and submits that I am not bound by her finding on the matter.
[24] In addition to the two memoranda filed by the applicants prior to the telephone hearing on 4 July 2023, the applicants filed a further memorandum on 4 July 2023 signed by Ms Chen. In this third memorandum Ms Chen repeats much of her memorandum dated 30 June 2023, with additional submissions alleging that because the respondent is an “overseas political influence company” it has recalled the loan amount upon expiry of the term. Ms Chen says that by comparison, a New Zealand based finance company would not require repayment of the loan upon expiry of the term. She says that as a result of her experience and previous dealings with finance companies dependent on the Hong Kong share market and other overseas finance companies at the time of the global financial crisis in 2008, she would not have accepted the respondent’s loan offer because of the overseas influence it is subject to. Ms Chen says that it took the applicants some time to find out exactly who owned the respondent, and she says that the respondent did not disclose that information to her.
[25] Ms Chen further says that the mortgagee sale by the respondent was “triggered” by the respondent’s “own misconduct”, including its failure to remove the caveat it had lodged on the title of the properties at 92 Jeffs Road, Flat Bush and at 4 Tipu Road, which prevented the applicants obtaining funds from a new lender who required the caveat to be removed as a precondition of lending. She says that had the respondent removed the caveat on the Jeffs Road property in February 2023 when the applicants requested it to, the applicants could have refinanced with a third party lender and borrowed sufficient funds to enable them to reduce the principal sum of the respondent’s loan by $400,000 and thereby meet the respondent’s condition for agreeing to extend the term of the loan. Similarly, although the applicants had a buyer for the property, the respondent also declined to remove the caveat it lodged on the title of the applicants’ property at 4 Tipu Road on 3 May 2023. Ms Chen says that the respondent’s refusal to withdraw its caveat caused the buyer to withdraw their offer and resulted in a mortgagee sale of that property and 92 Jeffs Road by Tawa Trade Finance Ltd.
[26] The applicants submit that the application for an interim injunction should be granted as the balance of convenience is in their favour. Ms Chen says that the applicants had previously informed the respondent that they have approximately $14 million equity in the property at Flat Bush that could be used as security to refinance the borrowing from the respondent. She says that the amount claimed in the PLA notices is disputed and should only be the amount outstanding at the end of the term of the loan, as the interest charged and added since is the result of the respondent’s own actions in refusing to remove its caveats and thereby preventing the applicant from refinancing the term loan.
The respondent
[27] Mr Martin for the respondent submits that the applicants’ three applications are without merit, and he advises that the respondent will file notices of opposition to the three applications in due course.
[28] Mr Martin submits that Gordon J has already determined the question of whether the applicants should be granted their application for an interim injunction to prevent the mortgagee sale of the Sunderlands Road property from proceeding as scheduled on 12 July 2023.
[29] Counsel accordingly submits that the issue of whether the Court should grant the application for an interim injunction pending determination of the applicants’ claim in the separate proceeding has already been determined and is therefore, res judicata. Mr Martin submits that notwithstanding that the applicants’ previous applications to set aside the PLA Notices and an injunction was dismissed, they have now brought a further application alleging the existence of fresh evidence. He submits that the fresh evidence relied on by the applicants was information that was before Gordon J when she determined the matter, and there is nothing new in what the applicant has submitted as fresh evidence that would justify a departure from the status quo as outlined by Gordon J in her judgment.
[30] Mr Martin says that the applicants’ allegations regarding a shareholder of the respondent and their influence on the manner in which the respondent exercises its
contractual rights under the term loan agreement and mortgage are also matters previously raised by the applicants before Gordon J and were dealt with in her judgment of 31 May 2023 and referred to in her ruling to prohibit publication of the applicants’ allegations, set out in a Minute issued by the Judge on 25 May 2023. In her Minute Gordon J said as regards the applicants’ allegations:
[23] I also take into account the nature of the information which is sought to be suppressed. The allegations as alleged questionable funding practices of a shareholder in Malaysia have nothing to do with the PLA application and the attempt by General to recover an unpaid debt in New Zealand. The claim by General Finance appears to be entirely orthodox. The Court needs to deal with it on its merits.
[31] Mr Martin says that the respondent would suffer severe prejudice if the mortgagee sale process scheduled for 12 July 2023 was halted by the granting of an injunction order, and he submits that the balance of convenience remains clearly in favour of the respondent.
Discussion
[32] The terms of the loan offer and the terms of the Term Loan Agreement are clear that the respondent was entitled to register a mortgage on the title of the Sunderlands Road property, and also entitled to lodge caveats on the titles of other real property owned by the applicants. The submission made by and on behalf of the applicants that the respondent does not have a caveatable interest in the applicants’ properties is untenable and I reject it.
[33] Under the terms of the Term Loan Agreement and mortgage the respondent was and is fully entitled to require repayment of the principal sum of the loan and to charge interest on the unpaid amount in accordance with the provisions of the Term Loan Agreement and mortgage. The respondent has and had no legal obligation to extend the term of the loan and no legal obligation to remove its caveats on the applicants’ Jeffs Road and Tipu Road properties while the loan and interest thereon remained unpaid.
[34] The fresh evidence relied on by the applicants is not in my view fresh as it is information that was substantially the same as was before Gordon J. The fresh
evidence relied on is referred to in the applicants’ interlocutory application for injunction orders and lists over 60 companies with which a Malaysian based shareholder in the respondent is associated with. However, in my view the applicants’ evidence regarding the Malaysian based shareholder is not even remotely relevant to any of the issues relating to whether or not the respondent is entitled to demand repayment of the loan and all accrued interest thereon, and to exercise its power to conduct a mortgagee sale of the Sunderlands Road property.
[35] The applicants’ submission that the respondent’s actions “triggered” the applicants’ default is similarly untenable. The respondent’s acts of lodging caveats on the titles of properties held by the applicants was in accordance with the terms of the contract between the parties and as noted above was specifically authorised. The respondent was clearly entitled to maintain its security and the caveats while the principal sum and the accrued arrears of interest remained unpaid. It is also clear from the email correspondence exhibited by the applicants that the respondent was willing to remove the caveats if satisfied by information to be provided by the applicants that appropriate refinancing arrangements were in place which would enable the applicants to repay the respondent’s loan or reduce the principal in accordance with the respondent’s proposal. While the applicants failed to provide the requested information, the respondent maintained its caveats as it was entitled to do. I accordingly find that the applicant’s proposition that the respondent is responsible for having brought about, or “triggered”, the mortgagee sale is not seriously arguable or tenable.
[36] For the same reasons outlined by Gordon J in her judgment delivered on 31 May 2023, I find that the applicants’ claim in the separate proceeding in which they seek relief by way of damages, does not engage with any legal or equitable right pertaining to the Sunderlands Road property and the respondent’s security, and enforcement of its security.
[37] The current issues raised by the application for an interim injunction seeking to prevent the mortgagee sale of the Sunderlands Road property from proceeding, are the same issues as were determined by Gordon J, and having considered the matter in light of the submissions and evidence presented by the applicants, I have reached the
same conclusion. There is no serious issue to be tried, and the balance of convenience is clearly in favour of the respondent and maintaining the status quo to enable the respondent’s mortgagee sale scheduled for 12 July 2023 to proceed.
Result
[38] I accordingly decline the applicants’ interlocutory application dated 22 June 2023 in which interim injunction orders are sought to stay or set aside the PLA Notices issued to the applicants by the respondent in relation to the mortgage over the 9 Sunderlands Road property, and also decline the interlocutory application for an interim injunction to stay the respondent’s mortgagee sale process in relation to the 9 Sunderlands Road property.
[39]Costs on the application are reserved.
Davison J
3