Chen v General Finance Ltd
[2023] NZHC 1329
•31 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-000548
[2023] NZHC 1329
BETWEEN LIYUN CHEN
First Applicant
ROYALL FAMILY TRUST
Second ApplicantAND
GENERAL FINANCE LIMITED
Respondent
Hearing: 25 May 2023 Appearances:
Self-represented Applicants
A Johnson for the Respondent
Judgment:
31 May 2023
JUDGMENT OF GORDON J
This judgment was delivered by me on 31 May 2023 at 9 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Martelli McKegg, Auckland Copy to: the Applicants
CHEN v GENERAL FINANCE LTD [2023] NZHC 1329 [31 May 2023]
Introduction
[1] The first applicant, Liyun Chen, and the second applicant, the Royall Family Trust (the Trust),1 (together, the applicants) are seeking to set aside the notices issued under ss 119 and 122 of the Property Law Act 2007 (PLA) by the respondent, General Finance Ltd until the applicants’ claim in a separate proceeding (CIV-2023-404-581) is determined.
[2] The applicants apply under r 19.5 of the High Court Rules 2016 for leave to commence the proceeding by way of originating application. While there was no written application, given that Ms Chen is self-represented, the Court accepted that an oral application could be made. Mr Johnson, counsel for General Finance, had no issue with that.
Background
[3] By letter dated 2 February 2022 General Finance advised the Trust that it had approved its application for a loan of $2,600,000 for a term of 12 months with Ms Chen in her personal capacity as the guarantor of the loan.
[4] The Term Loan Agreement signed by Ms Chen as borrower and guarantor dated 4 February 2022 confirmed the loan of $2,600,000 for a term of 12 months and that Ms Chen was the guarantor. The Term Loan Agreement contained provisions as to the amount of monthly interest payments. Ms Chen also signed a deed of guarantee and indemnity.
[5] Pursuant to the Term Loan Agreement, a first mortgage was registered over 9 Sunderlands Road, Half Moon Bay.
[6] On 22 June 2022 General Finance placed a caveat on the title of a property owned by Ms Chen: 92 Jeffs Road, Flat Bush, Auckland. General Finance says its right to lodge the caveat was provided for first, in the acceptance of the loan offer which contained not only an agreement to mortgage the security property
1 More correctly, the second applicant should be the trustee of the Royall Family Trust (Ms Chen as sole trustee).
(9 Sunderlands Road, Half Moon Bay) owned by Ms Chen but also any other real property owned by the borrower and/or guarantor. That document further gave General Finance discretion to lodge and maintain a caveat against such certificate of title.
[7] General Finance also refers to the Mortgage Additional Clauses which repeats that General Finance is authorised to lodge and maintain a caveat against any of the Trust’s or Ms Chen’s interest in any land.
[8]The loan was not repaid on 4 February 2023.
[9] Accordingly, on 27 February 2023, General Finance issued a default notice under s 119 of the PLA advising Ms Chen that as at 7 February 2023, she was in default under the mortgage and repayment was required to remedy the default on or before 2 May 2023, otherwise consequences would arise. On 27 February 2023, General Finance also issued a notice under s 122 of the PLA to Ms Chen as the guarantor (together, the PLA Notices).
[10] Gregory Pearce, a director of General Finance, has sworn an affidavit in which he says that General Finance was under no obligation to extend the term of the loan. Nevertheless, General Finance did offer to extend the loan subject to a loan reduction of $900,000 being made upon the term being extended. That was later revised to a reduction of $400,000 (followed by reductions of $50,000 per month).
[11] Mr Pearce says that General Finance’s assessment was that a loan reduction was required because of the reduction in value of the security property and the expectation that the value would reduce even more in the future with the expected further decline in the property market.
[12] Mr Pearce says that it appeared to General Finance that the applicants owned a number of other properties (which the applicants acknowledged) and could conceivably have raised funds on those properties to fund the loan reductions.
[13] Mr Pearce further says that at the time the release of the caveat was requested, the loan was in default because the instalment due on 15 January 2023 had not been paid. He says, however, that General Finance did offer to consider releasing the caveat subject to details being provided as to: the new lender and the total amount to be advanced; the properties being refinanced, their valuations and the current debt being refinanced on each property; and how the new loan was to be applied. Mr Pearce says that General Finance requested the above information because the loan was in default and if funds were to become available, General Finance was of the view that those funds should be applied to the loan to clear the arrears and satisfy the default.
[14] Ms Chen did not provide all of the information requested and the caveat accordingly remained in place.
Procedural matters
[15] In the applicants’ originating application the applicants seek an order that the PLA Notices be set aside until a full determination of the applicants’ statement of claim in a separate proceeding (CIV-2023-404-581) (the substantive proceeding).
[16] This is primarily because of the applicants’ position that they are seeking a greater monetary sum against General Finance in the statement of claim than the sum General Finance could effectively claim under the PLA Notices and their rights as a mortgagee under the PLA.
[17] The statement of claim was filed on 19 March 2023. It appears that Ms Chen has drafted the statement of claim herself. It is not clear from her pleading whether she says that there was an agreement with General Finance that the loan would be renewed after the due date. In any event, General Finance denies that in its statement of defence. Ms Chen characterises the offers for renewal referred to in [10] above as General Finance “requiring” the applicants to pay the amount in an oppressive manner and in breach of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the Fair Trading Act 1986.
[18] In the substantive proceeding the applicants plead that the placing of the caveat on their property, and the refusal to remove the caveat when requested, deprived the
applicants of securing a loan by another lender. They say that if they had received the loan from this other lender, they could have developed several properties that would have resulted in a total value exceeding what is owed to General Finance. They claim a sum of around $10 million.
[19] General Finance has filed a statement of defence dated 15 May 2023. It denies any of the breaches pleaded by the applicants. General Finance says it was entitled to caveat the property and for the caveat to remain because at the time of the request for its removal, the loan was in default and Ms Chen did not provide them with the requisite information for them to consider releasing the caveat.
Applicants’ submissions
[20] Ms Chen submits that the loan agreement expired at the start of February 2023 with no loan repayment outstanding. This is plainly not correct on the documents annexed to Mr Pearce’s affidavit. It may be that Ms Chen means that by that stage the interest payments were no longer in arrears.
[21] Ms Chen also says General Finance did not renew the loan and therefore its placing of a caveat on her personal property at 92 Jeffs Road was illegitimate because the loan agreement had expired. That is not a submission that can be sustained. The availability of remedies continues past the end of the term of the loan. Ms Chen further submits that because General Finance refused to release the caveat, the applicants were not able to refinance the property with third party lenders, and therefore General Finance is liable for all the damages suffered as a result.
[22] Ms Chen also submits in respect of the requested partial repayments of the loan prior to any loan renewal, that the $900,000 repayment sought is oppressive and in breach of ss 118 and 120 of the CCCFA.
[23] Ms Chen further submits that some of the default interest sought under the PLA Notices should be reversed due to incorrect and oppressive default interest incurred,
and that General Finance cannot be allowed to collect any interest payments from the applicants, citing Li v Green Land Investment Ltd.2
Respondent’s submissions
[24] Mr Johnson submits that the procedure being used by the applicants does not appear to be the correct procedure in that what the applicants are effectively seeking is an injunction until the substantive proceeding is determined. In those circumstances, an interlocutory application within the substantive proceeding is the appropriate procedural step to take.
[25] However, acknowledging Ms Chen’s lay litigant status, Mr Johnson says the Court may treat the originating application as an interim injunction application brought under rr 7.53 and 7.54 of the High Court Rules. Mr Johnson says that the submissions on behalf of General Finance can also be considered as relevant to the consideration of whether it is in the interests of justice that leave be granted to utilise the originating application procedure.
[26] Mr Johnson notes that an application to temporarily set aside PLA notices issued under ss 119 and 122 does not fall under the scope of originating applications provided for in r 19.2 of the High Court Rules.
[27] Mr Johnson submits that despite r 19.5 allowing the Court to permit other matters to be brought by originating application when it is in the interests of justice to do so, this is not one of those cases. This is because there is a straight-forward injunction procedure set out in rr 7.53 and 7.54, and the applicants’ claim for damages in their statement of claim is unmeritorious, and not genuinely arguable, such that it would not meet the necessary threshold required to obtain an interim injunction.
[28] On the threshold question of whether there is a serious question to be tried, Mr Johnson submits that the substantive claim in the applicants’ statement of claim fails to meet this threshold.
2 Li v Green Land Investment Ltd [2019] NZHC 2991, (2019) 20 NZCPR 661.
[29] Mr Johnson submits that the statement of claim does not seek to challenge the PLA Notices, there is no denial of the breach of the loan agreement, and that General Finance is entitled to rely on its enforcement rights after it has served a s 119 PLA notice, and that notice has expired unremedied.
[30] In response to the claim of oppression, Mr Johnson says that under the Term Loan Agreement General Finance had a right to caveat, it was entitled to leave the caveat in place until the debt was repaid in full, and that General Finance attempted to negotiate varied terms despite not being obliged to. To remove the caveat General Finance needed information from the applicants so General Finance could be satisfied of the applicants’ future ability to repay, and when this was not provided, General Finance did not remove the caveat.
[31] On the balance of convenience, Mr Johnson submits this favours General Finance because the applicants’ substantive claim is one for damages, there is no evidence that General Finance could not meet the damages if required, and that in any event, the amounts claimed are speculative and unsubstantiated.
[32] Finally, Mr Johnson notes the applicants have failed to provide an undertaking to the Court which is generally required when applying for an interim injunction, and even if one were provided, there is no financial evidence that the applicants could support such an undertaking.
Discussion
[33] The principles relating to an interim injunction are relevant.3 But I commence the analysis in a slightly different way from the approach adopted by Mr Johnson.
Interests of justice
[34] Whether it is in the interests of justice to permit the applicants to commence the proceeding by way of an originating application depends on whether there is otherwise, in the law, an ability for the applicants to seek an interim injunction or some form of interim relief that would effectively temporarily prevent General Finance from
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
exercising any of the three powers it is entitled to exercise under notices issued in accordance with s 119 or s 122 of the PLA.
[35] Commentary on the jurisdiction to restrain the exercise of the power of sale by a mortgagee says that a mortgagor may apply for an injunction at any point in the sale process.4 However, there are four principal grounds for such an injunction, none of which are present in this case.5
[36] In this case, General Finance is simply seeking to enforce its contractual rights under the Term Loan Agreement.
[37] At the time of service of the s 119 PLA Notice, the expiry date was 2 May 2023. That date has now passed.
[38] As regards the applicants’ claim of oppression, despite Ms Chen’s assertion otherwise, it does not appear that General Finance had any obligation to extend the term of the loan. However, it offered to do so subject to the loan reduction being made, even though the Trust had frequently been overdue with monthly payments. There is no oppression in those circumstances.
[39] Additionally, under the loan documentation, General Finance had the right to caveat; was entitled to leave a registered caveat over the Jeffs Road property until the debt was repaid in full; and in relation to negotiations to renew the loan under varied terms, the applicants did not provide the information requested to enable General Finance to be satisfied as to future ability to repay any amended loan sum.
[40] Li v Green Land Investments Ltd6 relied on by Ms Chen in support of her submission that some of the default interest should be refunded, is not of assistance to the Court. In that case the Court considered there were serious reasons to doubt the
4 DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [15.131].
5 At [15.131(a)–(d)] the four grounds are (a) the mortgage is invalid at law or in equity, (b) the mortgagee has no right to exercise the power, (c) the mortgagee is exercising or intends to exercise the power in an improper manner, (d) the mortgagor has an equitable set-off against the mortgage debt.
6 Li v Green Land Investment Ltd, above n 2.
credibility and authenticity of the alleged term loan agreement. There was good reason to suspect that that agreement was a concoction rather than a single authentic document. That is not the case here.
[41] Turning to an interim injunction generally as a form of equitable relief, commentary characterises it as an interlocutory order that seeks to protect a plaintiff from prejudice to its legal or equitable rights that may arise because of the delay between the filing of its claim and the trial.7 Moreover, it is “in circumstances where that prejudice cannot be adequately compensated by an award of damages”.8 The commentary emphasises the need for a legal or equitable right to be at issue.9
[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 to 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.
[44] For all the above reasons, I conclude it is not in the interests of justice for the applicants to be permitted to commence their proceeding by an originating application.
Is there a serious question to be tried?
[45]Even if I had granted leave, the application would fail on the merits.
7 Andrew Barker A to Z of New Zealand Law (online ed, Thomson Reuters) at [51.6.1.1] citing Northern Drivers Union v Kawau Island Ferries Ltd [1974] 2 NZLR 617 (CA) at 620.
8 At [51.6.1.1].
9 At [51.6.1.3].
[46] Adopting the analysis for an interim injunction, there is no denial by the applicants in the substantive claim that there has been a breach of the loan contract. The PLA allows a contracting party to rely upon its enforcement rights as set out in a loan agreement only after it has served a s 119 PLA notice and that notice has expired unremedied. At the time of service of the s 119 PLA Notice, the expiry date was 2 May 2023. That date has now passed.
[47] The applicants’ claim alleges oppression as its cause of action. I do not consider it seriously arguable that General Finance’s actions are oppressive: the contractual documents provided General Finance with a right to caveat; it is entitled to leave its registered caveat over the Jeffs Road property until the debt is repaid in full; although General Finance had no contractual obligation to do so, it did attempt to negotiate varied terms with the applicants to renew the loan; and General Finance needed to be satisfied as to the applicants’ future ability to repay the amended sum loaned, but the applicants did not provide all of the information requested.
[48]I do not consider there is a serious question to be tried.
Balance of convenience
[49] In my view the balance of convenience would favour General Finance even if there were a serious question to be tried. I say that for the following reasons.
[50]First, the applicants’ substantive claim is a claim for damages.
[51] Second, in terms of the quantum of the applicants’ substantive claim which approaches $10 million, the alleged values of completion of subdivision of 92 Jeffs Road, 27 Living Stream Road and 9 Sunderlands Road are asserted without any evidence in support of those values on completion. As well, there is no mention of the costs of completion of the subdivisions on Jeffs Road and Living Stream Road. In relation to Sunderlands Road, there is an allowance made for subdivision costs but there is no evidence supporting those costs. In other words, the quantum is overstated.
[52] Next, there is no evidence or suggestion by the applicants that General Finance will not be able to meet a damages claim ordered by the Court. To the contrary, in a
further affidavit sworn 23 May 2023, Mr Pearce annexes General Finance’s quarterly report as at 31 March 2023. This indicates that General Finance would be able to meet a substantial claim.
[53] On the other hand, the applicants have not provided an undertaking to the Court. The absence of an undertaking is perhaps understandable as the application was not filed as an application for an interim injunction. But in any event, there are no financial details in the materials provided by the applicants so as to satisfy the Court there would be any substance to an undertaking. To the contrary, further information about the applicants’ financial position was contained in Mr Pearce’s second affidavit. There is an amount owed to Tawa Trade Finance Ltd of $2,208,000 and a further sum owed to Shortland Finance Ltd of $1,671,515.93.
[54]For all the above reasons, the balance of convenience favours General Finance.
[55] This then brings me back to the interests of justice which is where the analysis started. Standing back and asking where the overall interest of justice lies (the final step in considering an interim injunction) again, for all the above reasons, it lies with General Finance.
Result
[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 an originating application, any such application would fail on the merits.
Costs
[58] I did not hear from the parties on costs. Costs are therefore reserved. If costs can be agreed, counsel and Ms Chen are to file a joint memorandum within 20 working days of the date of this judgment. If costs cannot be agreed, General Finance is to file and serve its memorandum within five working days of the date for the joint
memorandum. Ms Chen is to file and serve the applicants’ memorandum within five working days of service of General Finance’s memorandum on her.
[59] Costs memoranda are not to exceed three pages (excluding attachments). I will determine costs on the papers.
Gordon J
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