Chen v Tawa Trade Finance Ltd

[2023] NZHC 1333

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-000492

[2023] NZHC 1333

BETWEEN

LIYUN CHEN

First Applicant

LC1521319 DEVELOPMENT CO LIMITED
Second Applicant

AND

TAWA TRADE FINANCE LIMITED

Respondent

Hearing:	25 May 2023
Appearances:	Self-represented Applicants I Ko for the Respondent
Judgment:	31 May 2023

JUDGMENT OF GORDON J

This judgment was delivered by me on 31 May 2023 at 11 am, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors/Counsel:

Turner Hopkins, Auckland Copy to: the Applicants

CHEN v TAWA TRADE FINANCE LTD [2023] NZHC 1333 [31 May 2023]

Introduction

[1]                 The first applicant, Liyun Chen, and the second applicant, LC1521319 Development Co Ltd (the company), (together, the applicants) have sought permission to apply by originating application to set aside a letter of demand and a Property Law Act 2007 (PLA) notice issued by the respondent Tawa Trade Finance Ltd (Tawa) until the applicants’ claim in a separate proceeding (CIV-2023-404-427) is determined.

[2]Tawa opposes the application.

Background

[3]                 The company, a property development company, took out two commercial loans from Tawa, a finance company providing second tier lending services. Ms Chen is the sole director of the company and guaranteed the loans in her individual capacity and in her capacity as sole trustee for the Royall Family Trust.

[4]                 The first loan was in the sum of $1,766,000 with an expiry date of 17 December 2022. The loan was secured by a mortgage over a property owned by the company, and a mortgage over a property owned by Ms Chen. The second loan was in the sum of $442,000 with an expiry date of 5 February 2023.1 That loan was secured by the existing securities under the first loan agreement and an additional mortgage over another property owned by Ms Chen.

[5]                 The dispute arises from the point at which Ms Chen sought to renew or extend the loan in light of the upcoming expiry date of the first loan. Ms Chen says first that Tawa agreed to extend the loan for an additional six months before the drawdown in August 2022, and then agreed to extend the loan for an additional two months with high lender fees and other fees of approximately $200,000.

[6]                 In her affidavit in support of the opposition, Siyu (Winnie) Deng, a financial adviser assistant at Tawa, says that this is incorrect. The first and second loan

1      The Term Loan Agreement for the second loan stipulates the term expiry date as 5 February 2022. However, as the term start date is only 5 August 2022, this must be incorrect and  the date of    5 February 2023, as written in the affidavit, is to be taken as the correct date.

agreements contain no clauses indicating that the loans would be automatically extended after their respective expiry dates and the default position is that the loan must be repaid upon that automatic expiry. The loans are not extended unless there is a prior agreement.

[7]                 Despite this, Ms Deng says Tawa did provide an offer to extend the first loan from an expiry date of 17 December 2022 to a date of 17 February 2023 (two months). This was offered on the condition that the company agree to lender fees, interest, other various fees, a lump sum partial repayment of $200,000 by 16 January 2023, and full repayment of the remaining loan balance by 17 February 2023.

[8]                 Ms Deng says Tawa did not receive any  response from the  applicants  so  Ms Deng contacted Ms Chen via the WeChat message platform on 8 December 2022. Ms Deng advised Ms Chen that the first loan had expired after the loan extension offer was not accepted. Ms Deng says at this point her communication with Ms Chen ended and future communications occurred between the lawyers.

[9]                 The next part of this dispute relates to the applicants’ attempt to refinance by securing a loan from a potential third-party. Ms Chen says in her affidavit that a solicitor for the applicants contacted the solicitors for Tawa, requesting anti-money laundering (AML) information because the potential third-party lender was inquiring as to whether money laundering was occurring in light of a six-month loan. The solicitors for Tawa replied by email stating Tawa was under no obligation to respond to such queries and the new lender was responsible for their own AML due diligence. They also requested from the applicants’ solicitor a confirmed date on which the applicants would repay the loan.

[10]              In a second affidavit in support of the opposition, Yizhong (Allen) Xu, the sole director of Tawa, notes that Tawa’s solicitors notified the applicants’ solicitors that they were in default of the first loan and that default interest was payable on the loan from the loan expiry date. The applicants’ solicitors advised that they were finalising a refinancing of the loan but that the new finance company was seeking AML information. Tawa’s solicitors responded to the requests saying they were under no obligation to provide such information as noted above.

[11]              Mr Xu then says that after the applicants defaulted on both loans by 5 February 2023, he instructed Tawa’s solicitors to send a letter of demand, demanding the payment of the amounts outstanding. However, he says this was not a statutory demand.

[12]              Mr Xu also says that after the demand expired on 2 March 2023, he instructed his solicitors to prepare a s 119 PLA notice (the PLA Notice), which was served on the company, Ms Chen as the guarantor, and General Finance Ltd as an interested party. The PLA Notice gave 40 working days for the default to be remedied, meaning it effectively expired on 9 May 2023 for the company and 10 May 2023 for Ms Chen as the guarantor.

Separate proceeding

[13]              In a separate proceeding (CIV-2023-404-427) (the substantive proceeding) the applicants have filed a statement of claim seeking $5,150,000 in damages, $200,000 in general damages, exemplary damages of $30,000, and interest (amount unstated).

[14]              The applicants say that the company borrowed from Tawa in June 2022 and that Tawa repudiated its promise to renew the loan. As a result, the applicants sought out another potential lender, who in turn requested information from the applicants about their loan with Tawa. The applicants say Tawa refused to provide a statement that they were not in breach of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML and CFT Act).

[15]              The applicants say as a result of this non-cooperation, the potential lender refused to agree to multiple loans that the applicants would have used to develop several properties, which would therefore have increased their value. The applicants also assert that this non-cooperation on the part of Tawa is in breach of ss 118 and 120 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), in breach of the AML and CFT Act, in breach of the Fair Trading Act 1986, and was duress against the applicants.

[16]Tawa has not yet filed a statement of defence in the substantive proceeding.

Applicants’ submissions

[17]              The applicants submit that the PLA Notice issued by Tawa should be set aside because they have filed a statement of claim seeking a greater sum than the amount Tawa may receive under the PLA Notice, and because the loan agreement expired in February 2023 with no loan repayments outstanding.

[18]              The applicants say Tawa did not renew the loan and that they have paid the loan up until the date Tawa refused to renew it. They further submit that the offers by Tawa to renew the loan with different fees and interest rates are oppressive and breach ss 118 and 120 of the CCCFA. The applicants then say that because they did not renew the loan on the substantially higher fees and interest, Tawa charged a high default interest that could bankrupt the applicants and is oppressive under the Consumer Guarantees Act 1993.

[19]              In relation to the PLA Notice, the applicants say some parts should be reversed because of the misconduct of Tawa and all interest paid to Tawa should be refunded.

[20]              The applicants say the loan expired in February 2023 and therefore Tawa cannot collect any interest payments from the applicants, citing Li v Green Land Investment Ltd.2

Respondent’s submissions

[21]              Tawa opposes the applicants’ application and denies the allegations made by the applicants in both the statement of claim and in the application. Tawa seeks orders from the Court that the application be set aside on the basis the applicants do not have any grounds to make an originating application, and because the Court does not have jurisdiction to determine the application.

Service

[22]              Ms Ko, counsel for Tawa, also submits Tawa has not been served correctly in accordance with the Companies Act 1993 and the High Court Rules 2016. Referring

2      Li v Green Land Investment Ltd [2019] NZHC 2991, (2019) 20 NZCPR 661.

to s 387 of the Companies Act which sets out the methods of service of documents on companies in legal proceedings, Ms Ko submits the email used by the applicants to ‘serve’ Tawa’s solicitor is not an address for service for Tawa. Ms Ko says the solicitor notified the applicants numerous times that she was not authorised to accept service of the application. Relevant correspondence is provided.

Jurisdiction

[23]            Ms Ko also submits that r 19.5 of the High Court Rules does not apply here because it is not in the interests of justice to permit the proceeding to be commenced by way of originating application. Ms Ko says it does not secure the just, speedy, and inexpensive determination of the proceeding, citing Solar Bright Ltd v Martin.3

[24]              Ms Ko also submits that the High Court does not have jurisdiction to set aside a letter of demand, only a statutory demand. The letter of demand the applicants seek to set aside does not satisfy the definition of a statutory demand under s 289 of the Companies Act 1993. Similarly, Ms Ko says there are no provisions which allow for a PLA notice under s 119 to be set aside by way of originating application.

[25]              Ms Ko submits that in any event, the applicants are subject to a s 119 PLA notice due to their failure to repay the loan provided by Tawa. More specifically, the applicants have failed to remedy the default in the sum of $2,208,000 plus contractual default interest accrued to the date of repayment, together with $1,222.25 being the reasonable costs and disbursements of Tawa in preparing and serving the PLA Notice.

[26]              Ms Ko says that due to the expiry of the PLA Notice and the applicants’ failure to remedy the default, Tawa is entitled to exercise its statutory rights and obligations as a mortgagee under the PLA, namely, to enter into possession of the mortgaged land and to sell the mortgaged land.

[27]              Ms Ko also submits that the statement of claim should be struck out because the pleading discloses no reasonably arguable cause of action. There is, however, no application by Tawa for strike-out. In any event, such an application would need to

3      Solar Bright Ltd v Martin [2019] NZHC 300 at [18] and [26].

be made in the substantive proceeding. Ms Ko sought in the alternative an extension of time to file and serve a statement of defence. Such an application would similarly need to be made in the substantive proceeding.

Discussion

Interests of justice

[28]              Ms Chen, and the Royall Family Trust, a trust of which she is the sole trustee, made an application in similar circumstances to those in the present case. It was heard earlier on the same day as the present application. In a judgment on that application,

I said:4

[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 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.5 However, there are four principal grounds for such an injunction, none of which are present in this case.6

[29]              I focus on the PLA Notice and put to one side the letter of demand. It is not a statutory demand, nor is it otherwise a statutory instrument. It is simply a solicitor’s letter demanding payment.

[30]              The position is simply that the company took out two commercial loans from Tawa, a financial provider, with Ms Chen guaranteeing both loans. The loans were secured via mortgages on properties owned by the applicants. Tawa provided the applicants with a loan extension offer on 6 December 2022 that was subject to

4      Chen v General Finance Ltd [2023] NZHC 1329.

5      DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [15.131].

6      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.

repayment conditions by 16 December 2022, however, the applicants did not accept the loan extension offer.

[31]              Both loans expired  (the  first  on  17  December  2022  and  the  second  on  5 February 2023). A letter of demand was sent to the applicants on 23 February 2023 demanding the applicants to remedy the default, and upon the applicants’ failure to comply with the letter of demand, Tawa served a s 119 PLA notice on the company on 8 March 2023, and on Ms Chen on 9 March 2023. The PLA Notice had expired for both the company and Ms Chen by 9 May 2023. Tawa is simply seeking to enforce its contractual rights under the loan documentation.

[32]              As regard the applicants’ claim of oppression, I refer to the following paragraph in the judgment in Chen v General Finance Ltd:7

[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.

[33]              Regardless of what Ms Chen thinks of the rates proposed on any renewal of the loan, because there was no obligation to renew the loan, I do not find there was any oppression on the part of Tawa.

[34]              I further do not accept Ms Chen’s submission that because Tawa did not renew the loan, it is not able to collect any unpaid interest after the term of the loan had expired. That cannot be  right.  Default  interest  is  provided  for  in  the  contract. Ms Chen’s reliance on Li v Green Land Investment Ltd8 is misplaced. In that case the Court considered there were serious reasons to doubt the 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.

7      Chen v General Finance Ltd, above n 4.

8      Li v Green Land Investment Ltd, above n 2.

[35]I quote further from the judgment in Chen v General Finance Ltd:9

[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.10 Moreover, it is “in circumstances where that prejudice cannot be adequately compensated by an award of damages”.11 The commentary emphasises the need for a legal or equitable right to be at issue.12

[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.

[36]              The situation is the same here. There is no right at risk that the applicants will lose if Tawa exercises its rights under the PLA Notice prior to the substantive proceeding being determined.

[37]              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?

[38]              Even if I had granted leave, the application would fail on the merits. I utilise the principles adopted in an interim injunction application.13

[39]              It was the applicants who did not accept the loan offer extension, and Tawa was under no obligation to provide the information requested by the applicants in relation to the AML and CFT Act to either the applicants or their new lender. Further, it was not Tawa’s responsibility to resolve any client due diligence issues between the

9      Chen v General Finance Ltd, above n 4.

10     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.

11     At [51.6.1.1].

12     At [51.6.1.3].

13     Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

applicants and the new lender, and the CCCFA does not apply to the applicants because their loans were commercial loans.

Balance of convenience

[40]              Further adopting the approach in an interim injunction application, in my view the balance of convenience would favour Tawa even if there were a serious question to be tried. I say that because the applicants’ substantive claim is a claim for damages.

[41]              However, the Court is not in a position to take this issue any further. Because the application was not filed as an application for an interim injunction, there is no information, on either side, as to their financial standing.

[42]              This then brings me back to the interests of justice which is where the analysis started. Standing back and asking where the overall interests of justice lie, (the final step in considering an interim injunction) again, for all the above reasons, they lie with Tawa.

Result

[43]              I do not overlook the submission that Tawa was not properly served with the application. There is evidential support for that submission. There is also the fact that the company was not represented by counsel at the hearing. The general rule, which is only departed from in exceptional circumstances, is that a corporation is not an actual person and can only present a case in Court through counsel holding a current practising certificate (including by way of in-house counsel).14 The Court does, however, retain a residual discretion to allow non-lawyers to appear on behalf of companies in exceptional circumstances.15

[44]              One circumstance where the Court may, in its discretion, consider an exception to the rule is justified, is where the matter is particularly straightforward such that the assistance of counsel is not needed by the Court.

14     Re GJ Mannix Ltd [1984] 1 NZLR 309 (CA) at [311].

15     Keemati Ltd v Mr Civil Ltd [2021] NZHC 538 at [6] where the Court set out relevant considerations in the exercise of the Court’s discretion.

[45]              I do not take either of those procedural matters, namely lack of proper service and representation, any further. I have preferred to proceed by determining the application on the merits.

[46]              As set out above, 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.

[47]              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

[48]              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, Tawa 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 Tawa’s memorandum on her.

[49]              Costs memoranda are not to exceed three pages (excluding attachments). I will determine costs on the papers.

Gordon J