Gao v Starlight Capital Limited (6418392)
[2021] NZHC 1846
•21 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-002345
[2021] NZHC 1846
BETWEEN FENG GAO as trustee of GAO and LI FAMILY TRUST
First PlaintiffAND
HANGHONG LI as trustee of GAO and LI FAMILY TRUST
Second Plaintiff
AND
STARLIGHT CAPITAL LIMITED (6418392)
First Defendant
AND
JASON LI
Second Defendant
Hearing: 03 June 2021 Appearances:
Mr Feng Gao in Person with Interpreter,George Chang & Mckenzie Friend, Augustine Lau for the First and Second Plaintiff R M Dillon for the First Defendant
T M Kelly for the Second Defendant (excused from appearing)
Judgment:
21 July 2021
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 21 July 2021 at 3.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Queen City Lawyers, Auckland Martelli McKegg, Auckland
GAO v STARLIGHT CAPITAL LIMITED (6418392) [2021] NZHC 1846 [21 July 2021]
Introduction
[1] The plaintiffs, Feng Gao and Huanhong Li, as trustees of the Gao and Li Family Trust, apply for an injunction restraining the first defendant, Starlight Capital Ltd, from exercising its right of sale as mortgagee of a property at 52A Middleton Road, Remuera (the Middleton Road property) pending determination of the substantive claim brought by the plaintiffs against Starlight Capital and the third defendant, Jason Li, regarding alleged misrepresentations by the defendants over the alleged refinancing of a loan made by Starlight Capital to the plaintiffs.
[2] Starlight Capital applies for summary judgment against the plaintiffs for orders striking out the plaintiffs’ substantive claim and seeks judgment in favour of Starlight Capital for payment of $2,514,516.26, interest at the rate of 32.95 per cent per annum from 9 November 2020 to the date of payment and costs as provided for in an agreement between the plaintiffs and Starlight Capital.
[3] Both applications were heard before me on 3 June 2021. Jason Li was not represented at the hearing. However, his counsel filed written submissions in advance of the hearing as had been agreed by the Court.
Relevant background
[4]The following summary is drawn principally from documents not in dispute.
Term loan agreement
[5] Under a term loan agreement dated 19 December 2017 (Term Loan Agreement), Starlight Capital agreed to lend the Trust the principal sum of
$1,550,000.00 (Principal Sum). Mr Gao and Ms Li and Starpack International (NZ) Ltd were guarantors of the loan.
[6]Under the Term Loan Agreement:
(a)The Principal Sum was to be applied towards the refinance and completion of build of the Middleton Road property;
(b)The term expiry date was 19 July 2019;
(c)The interest commencement date was 19 December 2017;
(d)The lower interest rate was 12.95 per cent per annum;
(e)The higher interest rate was 32.95 per cent per annum;
(f)Interest accrued and was payable at the lower interest rate on the Principal Sum;
(g)If a payment was not made on its due date, interest at the higher interest rate was payable for the amount in default for the period in default;
(h)The security for the loan was a “First and Only All Obligation Mortgage over the Middleton Road property for $2,100,000 plus interest and costs.
[7]On 19 December 2017:
(a)Starlight Capital advanced the Principal Sum to the plaintiffs; and
(b)Mr Gao and Ms Li granted a mortgage in favour of Starlight Capital over the Middleton Road property for the priority amount of
$2,100,000 plus interest and costs.
[8] The plaintiffs did not repay the Principal Sum plus outstanding interest to Starlight Capital on the term expiry date of 19 July 2018.
First Property Law Act notice
[9] On 5 June 2019, Starlight Capital issued a notice under s 119 of the Property Law Act 2007 (First PLA Notice) to the plaintiffs. The First PLA Notice stated that the plaintiffs were in default under the Term Loan Agreement, required payment of
$1,761,650.00 plus costs and expenses and gave notice of the consequences if the default was not remedied.
Deed of Settlement
[10] On 26 February 2020, the plaintiffs, the guarantors of the loan agreement and Starlight Capital entered into a Deed of Settlement (Settlement Deed). Under the Settlement Deed, the plaintiffs acknowledged the loan and their default in not repaying the loan and the parties agreed to discharge Starlight Capital’s mortgage on the Middleton Road property on the basis set out in the Deed.
[11] Under the Settlement Deed, the plaintiffs agreed to make specified payments by specified dates. The Settlement Deed provided that if the payments were not made by the specified dates, Starlight Capital could give notice of cancellation of the Settlement Deed. The Settlement Deed also provided that if the Settlement Deed was cancelled as a result of any default by the plaintiffs, the parties agreed that Starlight Capital was entitled to proceed with a mortgagee sale of the Middleton Road property and that the plaintiffs would not be entitled to impede or obstruct the mortgagee sale in any way.
[12] By letter dated 27 May 2020, the solicitors for Starlight Capital gave notice to the plaintiffs that two specified payments had not been paid by the specified dates and advised that if the payments were not made by 5 June 2020, Starlight Capital was entitled to cancel the Settlement Deed.
[13] By email to Starlight Capital’s solicitors dated 5 June 2020, Mr Gao requested a two-month extension of the terms of the Settlement Deed. Further emails were exchanged between Starlight Capital’s solicitors, Mr Gao’s solicitors and Mr Gao but no agreement on an extension was reached.
Starlight Capital removed from and restored to register of companies
[14] On 21 September 2020, Starlight Capital was removed from the register of companies kept under s 360 of the Companies Act 1993 (Companies Register).
[15] On 9 November 2020, Starlight Capital was restored to the Companies Register.
Starlight Capital issues letter of demand
[16] On 9 November 2021, the solicitors for Starlight Capital issued a letter of demand to the plaintiffs stating that the plaintiffs were in default under the Term Loan Agreement and that the guarantors were also liable for the default. The letter advised that the amount outstanding as at the date of the letter was $2,514,561.26. The letter required immediate payment of that amount and reserved the right to take further action against the plaintiffs and the guarantors if payment was not made immediately.
[17] A schedule to the letter showed that interest at the rate of 12.95 per cent per annum had been charged and had been paid for on a monthly basis from 18 January 2018 to 26 November 2018, that interest at 12.95 per cent per annum had been charged but not paid for in December 2018 and January 2019, and that interest at 32.95 per cent per annum had been charged but not paid for on a monthly basis since 19 February 2019.
Starlight Capital issues second Property Law Act notice
[18] On 16 November 2020, the solicitors for Starlight Capital sent a letter to the plaintiffs enclosing by way of service a notice under s 119 of the PLA (Second PLA Notice) which required the plaintiffs to pay Starlight Capital $2,525,626.74 in cleared funds within forty days of the notice, failing which Starlight Capital’s powers as mortgagee of the Middleton Road would become exercisable.
Plaintiffs file present proceeding
[19] On 1 December 2020, the plaintiffs filed their statement of claim in the present proceeding.
[20] On 8 December 2020, the plaintiffs filed their application for an interim injunction.
Starlight Capital issues notice of termination of Settlement Deed
[21] By email dated 16 December 2020, the solicitors for Starlight Capital gave notice to the plaintiffs under cl 7 of the Settlement Deed that Settlement Deed was cancelled.
Starlight Capital counterclaims and applies for summary judgment
[22] On 23 December 2020, Starlight Capital filed its counterclaim and application to strike out the plaintiffs’ claim and for judgment for the amount of the counterclaim.
Preliminary issues
[23] Despite the significant sums at stake, the plaintiffs, who are not fluent in English, prepared their own pleadings and submissions and in representing themselves with the assistance of an interpreter, despite advice from a number of judges that they should obtain professional legal advice. In the hearing before me, Mr Gao had the assistance of a McKenzie friend, Mr Augustine Lau, who is not legally qualified and is himself not fluent in English. In taking this course, the plaintiffs have done themselves a considerable disservice. Their pleadings and submissions are difficult to follow and show little understanding of legal concepts.
[24] It is relevant to recall that there have already been two decisions that relate to the dispute between the plaintiffs and Starlight Capital.
[25] On 20 November 2019, Palmer J struck out a proceeding filed by the plaintiffs in September 2019, which purported to be an application to set aside the Second PLA Notice and any following mortgagee sale process. 1 Palmer J recorded that the plaintiffs had not taken a number of opportunities offered by the Court to remedy a defective application and an unsubstantiated claim, and had not appeared at various calls of the proceeding.2
1 Gao v Starlight Capital Ltd [2019] NZHC 3031.
2 At [6].
[26] On 1 April 2021, Fitzgerald J dismissed an application by the plaintiffs to join a solicitor from Queen City Law, Starlight Capital’s solicitors, as a defendant and to restrain Queen City Law from continuing as Starlight Capital’s solicitors in this proceeding on the basis that the solicitor had failed to comply with a request from Mr Gao to provide information about Starlight Capital under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AMLCFT Act).3 Fitzgerald J held that there no obligation on the solicitor or any other solicitor at Queen City Law to provide AMLCFT Act information about Starlight Capital to the plaintiffs,4 that there was no possible cause of action by the plaintiffs against the solicitor,5 and thus no reason to restrain Queen City Law from continuing to act as Starlight Capital’s solicitors.6
[27] Following those decisions and further defaults by the plaintiffs in complying with timetable directions, I ordered that the plaintiffs were not to file any amendments to the pleadings without the leave of the Court.7 Despite that order, on 21 May 2021, the plaintiffs purported to file an amended statement of claim and on 31 May 2021 purported to file an application to join Queen City Law as a defendant on the grounds that Queen City Law had failed to notify the plaintiffs of the removal of Starlight Capital from the Companies Register.
[28] I refused to grant leave to file an amended statement of claim and the application to join Queen City Law. I was satisfied that it was far too late to file an amended pleading. I also did not see how the alleged failure of Starlight Capital’s solicitors, if proved, gave rise to any duty relevant to the plaintiffs’ obligations to Starlight Capital.
The essence of the plaintiffs’ case
[29] Before considering the applications that must be decided, I consider it appropriate to set out the plaintiffs’ case as explained to the Court by Mr Gao and to explain to the plaintiffs the difficulties with that case.
3 Gao v Starlight Capital Ltd [2021] NZHC 730.
4 At [23].
5 At [28].
6 At [30].
7 Gao v Starlight Capital Ltd HC Auckland CIV-2020-404-002345, 12 April 2021 at [11].
[30] In his affidavits and in his oral submissions, Mr Gao said that, even though he had signed the Term Loan Agreement and then the Settlement Deed, Starlight Capital, through Mr Li, told him in October 2020 not to worry about repaying the interest that was continuing to accrue on the loan and to focus on completing construction at the Middleton Road property. He also said that Mr Li worked with him on behalf of a “hidden shareholder” in Starlight Capital to find a third party funder to raise funds to enable the plaintiffs to repay Starlight. He said that WeChat messages exhibited to his affidavits showed that it had been agreed that he would repay only $1,620,000 plus
$30,000 in cash as a fee, but that payment was held up when Starlight Capital was removed from the Companies Register.
[31] Mr Gao said he agreed to delay repayment until Starlight Capital was re- registered but then lost the third party funder after Starlight Capital was removed from the Companies Register. Mr Gao alleged that the lender had concerns that money- laundering may be involved. Mr Gao said that, as a consequence, he had to pay
$90,000 for a lending facility that he did not use. He said that when Starlight Capital then demanded $2,500,000 when it was re-registered, he considered he was being cheated and refused to pay.
[32] The difficulty for Mr Gao is that, not only is his account disputed by Starlight Capital and Mr Li, but it is not supported by any documentary evidence. Even accepting Mr Gao’s translations of the WeChat messages, the messages establish only that Mr Gao put a proposition to Mr Li who said “OK”. Even if Mr Li was acting as Starlight Capital’s agent, which I consider unlikely, that informal exchange cannot negate or amend the formal commitments that the plaintiffs made in the Term Loan Agreement and the Settlement Deed. Moreover, despite the importance of the agreements that Mr Gao says were made with the third party lender and then with Starlight Capital, he has produced no documents to show that there were binding agreements of the kind he alleges.
[33] In the absence of any such evidence, the Court must base its decisions on the undisputed material before it, in particular, the Term Loan Agreement, the Settlement Deed and the Second PLA Notice. For the reasons that follow, it is on the basis of that
undisputed material that the plaintiff’s injunction application fails and Starlight Capital’s application for summary judgment succeeds.
The injunction application
[34] The plaintiffs’ submissions, which were filed the day before the hearing and not in accordance with the Court’s timetable directions, were presented as a response to and commentary on the submissions filed by Mr Dillon. Perhaps as a consequence of this and the plaintiffs’ lack of legal advice, the plaintiffs’ submissions did not address the questions that are usually considered on an application for an injunction. Nor were these questions addressed directly in Mr Dillon’s submissions.
[35] Nonetheless, it is appropriate to use the three-step analysis that was articulated by the Court of Appeal in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd8 and which has been generally followed in New Zealand for the last 35 years:
(a)Is there was a serious issue to be tried?
(b)Where does the balance of convenience lie?
(c)Would damages be an adequate remedy?
Is there a serious question to be tried?
[36] I consider first whether there is a serious question to be tried as between the plaintiffs and Starlight Capital.
[37] There is no dispute that the plaintiffs and Starlight Capital entered into the Term Loan Agreement under which Starlight Capital advanced the Principal Sum of
$1,550,000.00 to the plaintiffs and the plaintiffs granted Starlight Capital a mortgage over the Middleton Road property. The plaintiffs do not dispute the terms of the Term Loan Agreement. Nor do they deny that they have not repaid the Principal Sum or paid any interest under the Term Loan Agreement since November 2018.
8 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142; see also Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [23] – [24].
[38] There is also no dispute that in February 2020, the plaintiffs and Starlight Capital entered into the Settlement Deed. The plaintiffs do not dispute the terms of the Settlement Deed. Nor do they deny that they failed to make the payments as specified under the Settlement Deed.
[39] It is clear, therefore, that in February 2020, the plaintiffs accepted that they still had an obligation to Starlight Capital to repay the Principal Sum and interest, either as required under the Term Loan Agreement or as agreed in the Settlement Deed. It follows that none of the allegations in the plaintiffs’ statement of claim about what happened in December 2018 and in 2019 has any relevance to the dispute.
[40] The plaintiffs’ allegations as pleaded in the statement of claim boil down to the following:
(a)In October 2020, the plaintiffs reached an agreement with Mr Li, as agent for Starlight Capital, on a full and final sum to be paid to settle their obligations under the Term Loan Agreement;
(b)The plaintiffs lost the opportunity to execute that agreement because Starlight Capital had been removed from the Companies Register; and
(c)Starlight Capital acted unreasonably in issuing the Second PLA Notice;
(d)Starlight Capital is in breach of obligations under the Consumer Guarantees Act 1993, the AMLCFT Act, and the PLA.
[41] In their application for an interim injunction, the plaintiffs also allege that Starlight Capital breached s 36 of the Contract and Commercial Law Act 2017.
[42]The plaintiffs allege three causes of action:
(a)Against Starlight Capital alone:
(i)Breach of fiduciary duty and misleading and deceptive conduct under the Consumer Guarantees Act 1993 in relation to the
plaintiffs’ efforts to refinance the term loan from a third party lender; and
(ii)Breach of the Consumer Guarantees Act by causing the plaintiffs to lose the best opportunity to complete the construction of the Middleton Road property.
(b)Against Starlight Capital and Mr Li: breach of s 176 of the PLA.
[43] For the reasons I have explained, the plaintiffs have not provided an adequate evidential basis to support their case that they had reached an agreement to settle the debt owed to Starlight Capital for a lesser amount than those due under the Term Loan Agreement and the Settlement Deed. However, even if they could establish that they and Starlight Capital had intended that there would be such an agreement, the causes of action they have alleged would still not relieve them of their principal obligation under the Term Loan Agreement and the Settlement Deed.
[44]For example:
(a)If the plaintiffs could establish that the Consumer Guarantees Act applied, their remedy under that Act would be to cancel the agreement or to seek damages.9 Neither course would relieve them of their obligation to repay the Principal Sum and such interest as they say was to be paid under the agreement allegedly reached with Starlight Capital.
(b)If the plaintiffs could establish that Starlight Capital had breached its duty under s 176 of the PLA, that might affect the sale of the Middleton Road property, but it would have no effect on the plaintiffs’ obligations under the Term Loan Agreement and the Settlement Deed.
(c)Similarly, if the plaintiffs could establish that Starlight Capital had breached s 36 of the Contract and Commercial Law Act on the basis that the Second PLA notice amounted to wrongful repudiation of the
9 Consumer Guarantees Act 1993, s 32.
agreement they say was reached in October 2020, that would not relieve the plaintiffs of their obligation to repay the Principal Sum and the amount of interest provided for in the alleged settlement.
[45] It is clear, therefore, that there is no issue between the parties that the plaintiffs are liable to Starlight Capital at least for the Principal Sum. That conclusion is confirmed by the relief sought in the statement of claim which seeks compensation only for interest, fees and changes in value of the Middleton Road property. The plaintiffs do not dispute that they are liable for the Principal Sum, even if the amount they claim of $1,769,000 would substantially offset the sum of $2,514,516 claimed by Starlight Capital.
[46] I am satisfied, therefore, that, as between the plaintiffs and Starlight Capital, there is no issue to be tried with regard to the plaintiff’s liability for the Principal Sum. The issues in dispute are the amount of interest to be paid and whether the amount claimed by Starlight Capital is offset by the amounts claimed by the plaintiffs. As I discuss below, these are all questions of damages.
[47] As between the plaintiffs and Mr Li, it is plain there is no issue to be tried. The plaintiffs only claim against Mr Li is that he breached s 176 of the PLA. That section applies only to a mortgagee who exercises a power of sale. Whatever Mr Li’s role may have been in discussions between the plaintiffs and Starlight Capital, he is not a mortgagee and is not exercising a power of sale. It follows that the plaintiffs’ case against Mr Li must fail.
Where does the balance of convenience lie?
[48] I am satisfied that the balance of convenience clearly lies in favour of not granting an injunction.
[49] The plaintiffs took out a loan for $1,550,000.00 in December 2017 under the Term Loan Agreement. The loan plus interest was to have been repaid in July 2019. Despite defaulting on the loan, in February 2020 the plaintiffs were given a further opportunity under the Settlement Deed to repay the loan on terms more favourable than under the original term loan agreement. Despite the leniency afforded them, the
plaintiffs then defaulted under the Settlement Deed. Whatever happened in 2020, the plaintiffs have not only failed to repay their debt but have raised a variety of collateral issues in an attempt to avoid repaying a debt to Starlight, the Principal Sum of which they do not dispute.
[50] While Mr Gao raises issues about the impact of Starlight Capital’s actions on completing construction at and selling the Middleton Road property, he has given little consideration to the fact that he has been using someone else’s money, and paying no interest on it, for a considerable period.
Would damages be an adequate remedy?
[51] It is clear that damages would be an adequate remedy. The plaintiffs’ claim is only about damages. The plaintiffs do not deny they are liable to Starlight Capital for the Principal Sum. They do not dispute that they are liable for some interest. It is the amount of interest and whether the amount claimed by Starlight Capital is offset by the claims of the plaintiffs that are in dispute. Those are all questions of damages.
Conclusion on injunction
[52] For all these reasons, I am satisfied that an injunction is not appropriate, and I dismiss the plaintiffs’ application.
Application for summary judgment
[53]Rule 12.2 of the High Court Rules 2016 provides:
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to [a cause of action in the statement of claim or to a particular part of any such cause of action].
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
[54] Starlight Capital’s application for summary judgment and counterclaim engage both limbs of the rule. Under sub-rule 2, the Court may strike out the plaintiffs’ claim if satisfied that none of the plaintiffs’ causes of action can succeed. Under sub-rule 1,
the Court may give judgment for Starlight Capital for the amounts claimed in the counterclaim if satisfied the plaintiffs have no defence to Starlight Capital’s claim.
[55] As confirmed by the Court of Appeal in Pemberton v Chappell,10 the words “no defence” have reference to the absence of any real question to be tried.
First cause of action: breach of the Consumer Guarantees Act
[56] The plaintiffs allege that Starlight Capital failed to provide proper service to refinance the Middleton Road property from a third party lender, prepared false documents for the plaintiffs to obtain a loan from a third party which damaged the plaintiffs’ reputation and affected their ability to raise finance from normal lenders, and acted in breach of the AMLCFT Act.
[57] There is little in the statement of claim or in the affidavits sworn by Mr Gao that explains the factual bases of these allegations, why these allegations, if proven, amount to a breach of the Consumer Guarantees Act or how any breaches of that Act, if proven, give rise to the remedies sought by the plaintiffs.
[58] I understand from Mr Gao’s affidavits and submissions that he alleges that Starlight Capital or, more particularly its director, Raymond (Hao) Zhang, undertook to arrange alternative financing for the plaintiffs in 2019 before and after the Settlement Deed was executed, that Mr Zhang produced false documents in support of the application and that this somehow affected the plaintiffs’ ability to raise funds.
[59] Mr Gao has produced no information to show there is any substance to these allegations, apart from screenshots of WeChat messages in Chinese with no official translations provided and copies of business records. In his affidavit sworn on 24 March 2021, Mr Zhang acknowledges that he personally agreed to help Mr Gao put together the information necessary to make an application for alternative funding and to that end, offered to help get the necessary documents into the correct form. However, there is no evidence to show that Mr Zhang ever falsified a document, or that any falsified document was ever presented to a possible third party lender or that,
10 Pemberton v Chappell [1987] 1 NZLR 1 (CA), at 3.
if presented, the document had any effect at all on the plaintiffs’ ability to raise finance. Even if the informal translations of the WeChat messages provided by Mr Gao are accepted as accurate, they do not alter these conclusions. The business records prove nothing.
[60] I am satisfied that there is no substance to these allegations, which relate to Mr Zhang and not to Starlight Capital. I consider that Mr Gao has put these allegations forward in the hope they will distract the Court from the real question that underlies this proceeding. That question is, do the plaintiffs owe an obligation to repay Starlight Capital the Principal Sum borrowed under the Term Loan Agreement plus interest at the rate set out in that agreement? I am reinforced in that conclusion by the fact that in one of his affidavits Mr Gao produced material in support of allegations that Mr Zhang has a conviction for importing controlled drugs and has been fined for negligent building work. These matters have no relevance to this proceeding, and I accept Mr Zhang’s statement that he is not the person referred to in the publications produced by Mr Gao. I consider that Mr Gao has acted quite inappropriately and irresponsibly in making these allegations, which he repeated in the plaintiffs’ written submissions.
[61] Mr Gao’s allegations regarding the AMLCFT Act have a similar character. It appears that Mr Gao began to raise this issue when he was unable to obtain an extension of the plaintiffs’ repayment obligations under the Settlement Deed. Mr Gao made allegations initially about Queen City Law, Starlight Capital’s solicitors, and even made complaints about Queen Street Law’s failure to comply with the AMLCFT Act to the Department of Internal Affairs (DIA) and the New Zealand Law Society (NZLS). There is no evidence to show that any action was taken by either body. I consider that probably reflects their assessment that there was nothing to the allegations – as Fitzgerald J confirmed in her decision of 1 April 2021.11
[62] While the complaints to DIA and NZLS concerned Queen City Law, the plaintiffs had adduced no information to support the allegation that Starlight Capital was engaged in money laundering or otherwise breached the AMLCFT Act.
11 Gao v Starlight Capital Ltd, above n 1.
[63] In short, I am satisfied there is no real question to be tried under the first cause of action.
Second cause of action: breach of the Consumer Guarantees Act
[64] The allegation under the second cause of action is that Starlight Capital breached the Consumer Guarantees Act by causing the plaintiffs to lose the best opportunity to complete the construction at the Middleton Road property.
[65] There is no evidence to support this allegation or any submission offered to explain how such an allegation, if true, amounts to a breach of the Consumer Guarantees Act. Even if the plaintiffs’ allegations that they had reached an agreement with Starlight Capital in October 2020 for repayment of the loan but were unable give effect to that agreement because of removal of Starlight Capital from the Companies Register are correct, that still does not explain how an inability to repay the loan prevented the completion of construction at the Middleton Road property or amounted to a breach of the Consumer Guarantees Act.
[66] The plaintiffs have been in default of their obligations under the Term Loan Agreement since July 2019. They could and should have repaid the loan well before Starlight Capital was temporarily removed from the Companies Register. The fact Starlight Capital was not on the Companies Register for seven weeks did not alter the plaintiffs’ obligations to repay Starlight Capital, as is confirmed by s 326 of the Companies Act,12 or prevent the plaintiffs from paying the sum they say had been agreed to the Crown in which the property of Starlight Capital was vested in accordance with s 324 of the Companies Act.
[67] I am satisfied there is no real question to be tried under the second cause of action.
12 Section 326 of the Companies Act provides:
The removal of a company from the New Zealand register does not affect the liability of any former director or shareholder of the company or any other person in respect of any act or omission that took place before the company was removed from the register and that liability continues and may be enforced as if the company had not been removed from the register.
Third cause of action: breach of s 176 of the PLA
[68] Section 176 of the provides that a mortgagee who exercises a power of sale owes a duty of reasonable care to the current mortgagor and any covenantor, which includes any guarantor, to obtain the best price reasonably obtainable at the time of sale.
[69] The plaintiffs’ statement of claim alleges that Starlight Capital and Mr Li breached this duty by issuing an unreasonable PLA notice during the best period for construction and by requiring the sale of the Middleton Road property before construction was complete so it would not be possible to obtain the best market price for the property.
[70] I have already held, at [47], that the plaintiffs’ case against Mr Li must fail. I deal here only with the case against Starlight Capital.
[71] The obligation under s 176 is to obtain the best price reasonably obtainable at the time of sale. The obligation is not to delay the sale until the best price that might be obtained from any sale might be achieved. Once a mortgagor is in default such that the mortgagee’s powers of sale are exercisable, it is for the mortgagee to decide when to sell.
[72] The grounds for issuing a notice under s 119 of the PLA are that there has been a default by the mortgagor. The undisputed facts establish that the plaintiffs have been in default since February 2019. In these circumstances, it cannot have been unreasonable for Starlight Capital to have issued the Second PLA Notice when it did. To the contrary, the unreasonableness lies in the plaintiffs attempting to stop the mortgagee sale despite their undertakings, and despite the personal undertakings of Mr Gao and Ms Li as guarantors, not to do so.
[73] I am satisfied, therefore, that there is no real question to be tried under the third cause of action.
Conclusion on application to strike out plaintiffs’ statement of claim
[74] Because I am satisfied there is no real issue to be tried under any of the plaintiffs’ causes of action, it is clearly appropriate to give judgment for Starlight Capital and to strike out the plaintiffs’ statement of claim. This included the plaintiffs’ claim against Mr Li.
Application for judgment for repayment of the Principal Sum plus interest
[75] The plaintiffs do not dispute the Term Loan Agreement or that they have not repaid the Principal Sum due under that agreement. While Mr Gao, in answer to my question, tried to argue that the obligation to pay interest had expired at the end of the term of the loan, he knows that is not so. He acknowledged that explicitly in signing the Term Loan Agreement that provides that interest at the higher rate of 32.95 per cent per annum continues from the date of default until the date of repayment. He further acknowledged that reality in signing the Settlement Deed.
[76] The terms of the Term Loan Agreement are clear. The plaintiffs have not complied with their obligations under that agreement. None of the grounds raised by the plaintiffs as reasons for not performing their obligations under the Term Loan Agreement has any merit. I am satisfied, therefore, that the plaintiffs have no defence to Starlight Capital’s counterclaim and that judgment as sought should be entered against the plaintiffs.
Result and orders
[77] I dismiss the plaintiffs’ application for an interim injunction restraining Starlight Capital from exercising its right of sale as mortgagee of the Middleton Road property.
[78] I grant Starlight Capital’s application for summary judgment and make the following orders:
(a)The plaintiffs’ statement of claim dated 30 November 2020, including the claim against Mr Li, the second defendant, is struck out;
(b)In accordance with the Term Loan Agreement dated 19 December 2017 between Starlight Capital and the plaintiffs, the plaintiffs are to pay Starlight Capital the sum of $2,514,516.26 plus interest at the rate of
32.95 per cent per annum from 9 November 2020 to the date of payment.
Costs
[79]Starlight Capital and Mr Li are entitled to costs against the plaintiffs.
[80] Starlight Capital’s costs are provided for under cl 12(a)(ii) of the Term Loan Agreement and under cl 13 of the Settlement Deed. Mr Li is entitled to costs on a 2B basis.
[81] If the plaintiffs and Starlight Capital are not able to agree on costs, or otherwise wish to make submissions, they may submit memoranda of no more than six pages.
[82] If the plaintiffs and Mr Li are not able to agree on costs, or otherwise wish to make submissions, they may submit memoranda of no more than four pages.
[83] Any memorandum from Starlight Capital or Mr Li should be filed and served by 26 August 2021. Any memoranda from the plaintiffs should be filed and served by 16 September 2021.
G J van Bohemen J
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