Haines v Memelink
[2019] NZHC 401
•11 March 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-962
[2019] NZHC 401
In the matter of Mortgage 10757448.4 BETWEEN
QUENTIN STOBART HAINES
First Applicant
AND
BPE TRUSTEES (NO 1) LIMITED
Second Applicant
AND
HARRY MEMELINK
Respondent
AND
LYNX TRUSTEES LIMITED
Second Respondent
Hearing: 11 February 2019 Appearances:
J K Mahuta-Coyle for First and Second Applicants G Manktelow for First and Second Respondents
P Chisnall for the Official Assignee
Judgment:
11 March 2019
JUDGMENT OF GRICE J
[1] This is an application for an interim injunction restraining the sale of Mr Haines’ home at 3/97 Honi Taipua Street, Manakau, Levin. It is owned by Mr Haines’ family trust. The trustees are the first and second applicants. This application follows the granting of a without notice injunction on 21 December 2018.1 An earlier without notice application had been declined.2
1 Haines v Memelink [2018] NZHC 3460. This application was dealt with on a “Pickwick” basis.
2 Haines v Memelink [2018] NZHC 3373.
HAINES v BPE TRUSTEES (NO 1) LIMITED [2019] NZHC 401 [11 March 2019]
[2] The respondents have indicated they intend to sell the Manukau property as mortgagees. They are trustees of the Link Trust (No 1). They have taken over the mortgage from Fico Finance Ltd (Fico Finance). They wish to exercise the power of sale to sell the secured property.
[3] The background to the application is summarised in my earlier judgment as follows:3
[1] Mr Haines and BPE Trustees (No 1) Ltd own a property registered on the Record of Title Identifier 435936 (Wellington Land Registration District).
[2] Mr Haines says he and BPE Trustees (No 1) Ltd own the property as trustees of a family trust. He says the property is a life style property located at 3\97 Honi Taipua Street, Manakau, Levin which he lives in.
[3] The property has two mortgages registered against it, the first to Basecorp Finance Ltd and the second to Fico Finance Ltd. Both were registered on 1 May 2017, the same date as the transfer to Mr Haines and BPE Trustees (No 1) Ltd. The title also shows a caveat by Johang Ltd registered on 1 August 2018. Mr Haines does not refer to that caveat in his affidavit in support.
[4] Mr Haines first borrowed money from Fico Finance Ltd in late 2016 when he borrowed $75,000. He said his former client, Mr Memelink, and his trust, Link No 1 Trust, acted as guarantors of that loan. The second loan with Fico Finance Ltd was for $250,000. This was when the mortgage was registered. Other properties also secure this mortgage. Mr Haines says a further loan was obtained in February 2017 from Bright Enterprises Ltd for approximately $250,000 and this was guaranteed by Mr Memelink and his trust.
[5] Mr Memelink subsequently used the second Fico loan to purchase a boat known as the Katherine Johnston. Mr Haines also says that he lent Mr Memelink $93,425.59 so Mr Memelink could pay his body corporate levies and make his mortgage payments to first mortgage trust, the mortgagee on another property.
[6] Subsequently Mr Haines, who had been acting as Mr Memelink’s lawyer in various pieces of litigation, pleaded guilty to a number of charges under the Prostitution Reform Act 2003. Mr Haines says he ceased practicing as a lawyer on 23 August 2018.
[7] Before he ceased practicing, Mr Haines had undertaken substantial amounts of litigation and legal work for Mr Memelink. He says Mr Memelink was a very active litigant. He says Mr Memelink owes substantial legal fees (the first claim for unpaid legal fees for $1.15 million and the second is for
$93,425.59). Mr Memelink presently denies those fees are owing and has made complaints to the Law Society relating to Mr Haines’ failing to ensure
3 Haines v Memelink, above n 2.
Mr Memelink had independent advice on various loans. That matter is yet to be resolved.
[8] Subsequently, Mr Memelink was adjudicated bankrupt. He has filed an application for annulment of the bankruptcy. Mr Memelink has apparently provided, together with the trustees of his trust the Link No 1 Trust,4 undertakings to the Court not to deal with the assets of the Link No 1 Trust without the express written permission of the Official Assignee. Mr Haines has made claims against Mr Memelink’s bankrupt estate and lodged them with the Official Assignee.
[4] An interim injunction was granted on an urgent basis on 21 December 2018 to preserve the status quo over the Christmas vacation period. Mr Haines was, and is still, serving a sentence of home detention at the property.5 He would have found it difficult to find another property approved for home detention on such short notice. In addition, the Official Assignee administering Mr Memelink’s bankruptcy indicated that she supported the interim injunction as she had not consented to Mr Memelink selling any property in terms of the undertaking to the Court referred to above at [3].6
[5] Since the matter was dealt with on 21 December 2018 matters have not progressed greatly. Mr Memelink remains bankrupt although he has applied for an annulment of this bankruptcy.7 That is unlikely to be heard before, at the earliest, the end of April 2019. A stay on advertising the bankruptcy has been lifted.8
[6] The Official Assignee is reluctant to incur costs in administering Mr Memelink’s bankruptcy. She has not yet embarked on an investigation into Mr Memelink’s financial affairs, nor the relationship between his affairs and those of his various trusts, including the Link Trust (No 1). She does not want to embark on this pending the hearing of the annulment. Her present position is that she neither supports nor opposes this application. Mr Chisnall, on her behalf, indicated that while an undertaking was given in the insolvency proceedings, the Official Assignee would not raise that as a barrier to this Court refusing to grant the interim injunction. I note
4 Lynx Trustees Ltd (the second respondent) is said to be a trustee with the first respondent of the Link No 1 Trust.
5 Mr Haines’ sentence of home detention expires at the end of March 2019.
6 Haines v Memelink, above n 2, at [8].
7 Mr Memelink was adjudicated bankrupt on 28 August 2018.
8 Collins & May Law v Memelink [2019] NZHC 36. A call-over of the matter is scheduled for 21 March 2019.
that course would still require Mr Memelink to obtain the Official Assignee’s consent to sale pursuant to the undertaking.
[7] Mr Haines claims an offset to monies owing by him to Mr Memelink based on legal fees of in excess of $1.15 million.9 Those fees were listed as liabilities and affirmed by Mr Memelink in an affidavit attaching a Statement of Assets and Liabilities dated 23 August 2018. Mr Haines was acting as Mr Memelink’s lawyer and prepared the affidavit for the purposes of a proposal to fend off a bankruptcy petition.
[8] Mr Manktelow, for Mr Haines, handed up a first amended statement of claim at the hearing. I have based my analysis on that document. The respondents have not yet pleaded to the substantive claim.
The amended statement of claim
[9] The amended statement of claim sets out the complicated business arrangements between the applicants and respondents. Relevant to the causes of action are the following allegations:
(a)The Link Trust (No 1) has not been operated properly in accordance with trust administration requirements and Mr Memelink operates the Link Trust (No 1) for his personal benefit without regard for the beneficiaries’ rights.
(b)Fico Finance has likely discharged the mortgage over the property. The monies owing under the mortgage have likely been repaid from funds obtained in refinancing by the respondents or Mr Memelink and now secured under other mortgages to the relevant finance company.
(c)Efforts have been made by Mr Haines to meet the respondents to discuss the financial position and loans owing between the applicants
9 The fees allegedly owed in the statement of affairs and affidavit dated 23 August 2018 are: first, to Quentin Stobart Haines the amount of $93,425 from Harry Memelink and Link No 1 Trust and, secondly, to Q H Law the amount of $1,150,000 by Harry Memelink and Link No 1 Trust.
and respondents, including the legal fees of $1.15 million that Mr Haines says are owing to him for legal work done for Mr Memelink and his related entities.
The causes of action pleaded
[10]The first amended statement of claim pleads the following causes of action:
(a)Injunction
The respondents have failed to produce information to show what is owing under the Fico Finance loan.
This has been unfairly discriminatory or prejudicial to Mr Haines and the second applicant “in breaching their obligations under the Property Law Act and under the Fico loan agreement”.
An order restraining sale and for the provision of the relevant information is sought.
(b)Failure to account
Fico Finance and the Link Trust (No 1) have not accounted to the applicants for the repayment of the monies owing to Fico Finance.
No money is owing under the mortgage as the Fico Finance loan has been repaid by the respondents.
A declaration is sought that the mortgage is discharged.
(c)Link Trust (No 1) is an alter ego of Mr Memelink
Declarations are sought including that the mortgage is an asset of the bankrupt estate of Mr Memelink.
(d)Set off
The respondents owe the applicant Mr Haines, $1.15 million in outstanding legal fees.
An order of offset between the obligations owed between the parties is sought.
The issues
[11] In the course of submissions, the following questions emerged as being at the heart of the application for interim injunction:
(a)The lawyer/client relations and fees outstanding:
(i)Are the legal fees claimed by Mr Haines against the respondents effective as an equitable set off (or otherwise) against the monies owed to Fico Finance and/or to the respondents by the applicants such as to estop the respondents from exercising their power of sale?
(ii)What is the effect of the oral arrangements said by Mr Haines to exist between the applicants and Mr Memelink/related entities as to repayment of the Fico Finance loan (secured over the house) and to Bright Enterprises Limited (not secured over the house) that in lieu of paying legal fees Mr Memelink would service the debts if Mr Haines could not?
(b)The Fico Finance mortgage:
(i)What is the effect of the assignment/transfer of the Fico Finance mortgage to the respondents?
(ii)What is the effect of the discharge of the Fico Finance mortgage over other properties?
(c)Failure to provide information:
(i)Are the respondents required to provide the applicants with information concerning the loan secured by the mortgage?
Background
[12] The business and personal financial affairs of Mr Haines and Mr Memelink and their respective trusts are enmeshed. Mr Haines acted as lawyer for Mr Memelink and his related entities since 2016.10 He represented Mr Memelink in various disputes and in litigation. Much of this appears to have related to staving off bankruptcy petitions. Mr Haines says that Mr Memelink received independent advice in relation to the mortgage and loan arrangements which involved them both.
[13] Mr Haines, Mr Memelink and their respective interests lent money to each other, used each other as guarantors and used various properties owned by one or other of them to secure the loans. The Official Assignee is understandably reluctant to attempt to unravel the Memelink affairs until Mr Memelink’s application for annulment of bankruptcy has been dealt with.
[14]Some unusual aspects of the Haines/Memelink relationship are present. I note:
(a)Mr Haines was acting for the Memelink interests in a number of disputes. Mr Haines says there was an oral arrangement between them that while there were fees outstanding to Mr Haines, if Mr Haines could not pay the outgoings on the loan to Fico Finance (secured) and the loan to Bright (unsecured) Mr Memelink would do so. No independent advice on that arrangement appears to have been provided to Mr Memelink.
10 This appears to be from October 2016 when Mr Memelink retained Simpson & Co as his lawyers and Mr Haines was the employee taking instructions. Mr Haines went out on his own account on 1 April 2017. He ceased practice on 23 August 2018.
(b)Mr Haines acted for Mr Memelink in preparing a statement of affairs and affidavit, which was affirmed by Mr Memelink as part of a proposal intended to stave off his bankruptcy. This document is filed by Mr Haines to support the liability for the legal fees that Mr Haines now says are owing to him.
(c)The documentation and information surrounding the invoice for legal fees is sparse. The fee note is brief. It reads:
TO:our fee for professional services rendered and disbursements incurred, including but not limited to:
*All legal fees bought over from Simpson & Co and Simco Lawyers pursuant to agreement with James Clifford Simpson
*All legal fees from 1 April 2017 for ALL cases and ALL matters and attendances.
*This fee has been agreed because the actual time spent on these files is more than 4000 hours. To settle all fees this fee has been agreed.
Our fee: 1,000,000.00
TO: GST 150,000.00
TO: Disbursements
Tolls, Copies, Forms, Postage, Faxes
$1,150,000.00
[15] No detail has been provided as to how the fees are made up. No management records have been provided by Mr Haines. Nor is there any written agreement, trust account records or supporting documentation for the earlier oral arrangement claimed by Mr Haines to result in an obligation that Mr Memelink take over the applicants’ liability for servicing the Fico Finance and Bright loans.
[16] A lawyer is required to provide to a client, before the legal services are delivered and before any invoice is delivered, certain documentation. Chapter 3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 provides:
Chapter 3 Competence and client service
3 In providing regulated services to a client, a lawyer must always act competently and in a timely manner consistent with the terms of the retainer and the duty to take reasonable care.
…
3.4 A lawyer other than a barrister sole must, in advance, provide in writing to a client information on the principal aspects of client service including the following:
(a)the basis on which the fees will be charged, when payment of fees is to be made, and whether the fee may be deducted from funds held in trust on behalf of the client (subject to any requirement of regulation 9 or 10 of the Lawyers Conveyancers Act (Trust Account) Regulations 2008);
…
3.5 A lawyer other than a barrister sole must, prior to undertaking significant work under a retainer, provide in writing to the client the following:
(a)a copy of the client care and service information set out in the preface to these rules; and
(b)the name and status of the person or persons who will have the general carriage of, or overall responsibility for, the work; and
(c)any provision in the retainer that limits the extent of the lawyer’s or the practice’s obligation to the client or limits or excludes liability. The terms of any limitation must be fair and reasonable having regard to the nature of the legal services to be provided and the surrounding circumstances.
[17] None of this documentation has been produced. As Mr Haines is seeking an interim injunction relying on non-payment of legal fees if this material existed it should have been produced. No written agreement has been produced relating to any retainer that Mr Haines may have had with Mr Memelink and his associated entities.11
[18] The requirement that a client pay a lawyer’s debt in return for legal services yet to be billed is tantamount to requiring fees and disbursements to be paid in advance. Such an arrangement requires funds paid by the client to be paid into a trust account as follows:12
11 Records of the provision of this information must be kept by the lawyer providing the services.
12 Lawyers and Conveyancers Act (Trust Account) Regulations 2008, reg 10.
10 Fees and disbursements paid in advance of invoice
All money paid to a practice in respect of professional services for which an invoice has not been issued, whether described as a retainer or otherwise, must be retained in a trust account until it is –
(a)disbursed on the client’s behalf; or
(b)applied in payment of fees in accordance with regulation 9.
[19]For completeness, regs 8 and 9 provide:13
8Restriction on use of trust accounts for personal transactions
(1)The trust accounts of a practice must not be used for the private or household transactions of –
(a)the sole practitioner, partners, or voting shareholders; or
(b)any employee of the practice; or
(c)any spouse or civil union partner of the sole practitioner, partners, voting shareholders, or employees.
(2)Despite subclause (1), the trust accounts of a practice may be used for the property or investment transactions of any person referred to in that subclause if they are –
(a)kept in a separate ledger account in the name of the person concerned; and
(b)dealt with in all respects as if the person was a client.
9Restriction on debiting trust accounts with fees
(1)No trust account may be debited with any fees of a practice (except commission properly chargeable on the collection of money and disbursements) unless –
(a)a dated invoice has been issued in respect of those fees, and a copy of the invoice is available for inspection by the inspectorate; or
(b)an authority in writing in that behalf, signed and dated by the client, specifying the sum to be applied and the particular purpose to which it is to be applied has been obtained and is available for inspection by the inspectorate.
(2)If fees are debited under subclause (1)(a), an invoice must be delivered or posted to the person who has a legal or beneficial interest in the trust account to be debited before or immediately after the fees are debited.
13 Regulations 8 and 9.
(3)For the purposes of subclause (2), a practitioner or partner in the practice is not to be treated as having a legal or beneficial interest in the trust account to be debited, solely because the practitioner or partner issues the invoice in respect of that trust account.
[20] Mr Memelink and Mr Haines have fallen out. Mr Memelink has made complaints to the New Zealand Law Society about both the fees and the conduct of Mr Haines in relation to their business dealings. Those complaints are presently under investigation by a Standards Committee of the Society. Neither party could say when those investigations would be complete. However, given the size of the fee note and lack of narration or supporting documentation it is likely the review of the fees by the Law Society Standards Committee will take some time. In addition, the findings of the Standards Committee may be reviewed by the Legal Complaints Review Officer (LCRO) on the application of either party.14 In view of the level of mistrust between the parties it seems likely a review would be sought whatever the findings of the Standards Committee. The whole of the process is unlikely to be completed within 12 months and more likely will take significantly longer than that.
[21] The respondents were paying the interest on the Fico Finance and Bright loans. It is common ground that Mr Haines received the direct benefit of at least $511,574.41 from the monies loaned by Fico Finance and Bright. Of that, Mr Haines says $325,000 was secured by the mortgage from Fico Finance and $186,574.41 relates to advances from Bright. The latter also involved Mr Memelink’s interests.
[22] Material attached to Mr Manktelow’s submissions on behalf of the respondents indicate the Fico Finance loan amounted to, at the time of refinancing, $517,245.42 and the interest rate now being charged on the refinanced loan is 12.95 per cent per annum.15 The annual interest charge without more is, $66,983 per annum or $5,582 per month. The amount outstanding on the Bright loan was $319,110. It was also refinanced at 12.95 per cent. That amounts to interest of $41,324.75 per annum or
$3,443.72 per month.
[23] Mr Haines did not pay the interest due on the Fico Finance loan causing it to go into default and resulting in Fico Finance exercising its power as mortgagee and
14 Layers and Conveyancers Act 2006, s 193.
15 These figures are consistent with the amounts referred to by Mr Haines.
issuing Property Law Act 2007 notices as a prequel to selling the houses at a mortgagee sale. The sale was averted by the respondents who refinanced the loan and took a transfer of the second mortgage to Fico Finance.
[24] Mr Haines says it was Mr Memelink who failed to make payments and so caused the defaults. Mr Haines says his oral agreement with Mr Memelink was that Mr Memelink would pay the interest on the amounts of money owing to Fico Finance and Bright if Mr Haines was unable to do so. This was in return for Mr Memelink not paying for legal services to be charged by Mr Haines.
[25] The oral agreement to contra the unbilled legal fees must have been in place for some time. The Bright loan was drawn down in March 2017 and the Fico Finance loan was signed in April 2017 and registered over the applicant’s property at the time of settlement of the purchase of that house on 1 May 2017.
[26] Fico Finance issued the Property Law Act notice on 20 March 2018. A demand was made by Bright under its loan on 6 September 2018. The Property Law Act notices remain extant.16 The Bright loan was secured over properties owned by Memelink interests. On 7 December 2018 the Fico Finance and Bright loans were refinanced by the respondents. They say they are paying finance company rates. Mr Manktelow said in submissions it was costing the respondents about $16,000 per month in finance charges.17
[27] Mr Memelink listed the property for sale by private treaty in December 2018 and refused to tell Mr Haines the amount that had been refinanced and how much was owing under the mortgage.
[28] Mr Memelink was in breach of his undertaking to the Official Assignee in attempting to sell the property.
16 Mr Haines argues the monies owing under the second mortgage has been repaid by the respondents and so the mortgage serves nothing.
17 The breakdown of that sum was not provided.
The legal fees
[29] The fee note issued by Mr Haines, which is now subject to a complaint to the Law Society, was issued just before Mr Haines surrendered his practicing certificate and immediately after he had drafted the statement of affairs and affidavit affirmed by Mr Memelink. Mr Haines points to the affirmation by Mr Memelink as proof the legal fees are owing.
[30] That document was prepared by Mr Haines, when Mr Memelink was under considerable pressure from his creditors. Mr Memelink apparently had no independent advice about acknowledging a debt to Mr Haines at the time.
[31] Mr Haines has not produced any evidence that he has complied with the Rules of Professional Conduct and Client Care in any respect. In addition, on the information available it appears the oral arrangement for Mr Memelink to pay the finance company loans on behalf of the applicants may have breached the Trust Account Rules. For present purposes I attach little weight to Mr Memelink’s acknowledgement of liability in the statement of affairs and affidavit due to Mr Haines’s conflict of interest and the circumstances surrounding the acknowledgement.
[32] Mr Haines did not produce any client care information. At a minimum, Mr Haines must set out the description of the legal work and the basis of charging.18 Counsel for Mr Haines submitted that the professional requirement and rules documentation were merely “professional requirements” and not relevant to the proceedings in this court. I disagree.
[33] The Lawyers and Conveyancers Act 2006 (the Act) and regulations and rules, including the Lawyers and Conveyances Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), impose important obligations on lawyers. The underlying obligation in s 4 of the Act is that a lawyer to act in the best interest of their client. The Rules provide the minimum requirements on lawyers to meet that obligation.
18 Lawyers and Conveyancers Act 2006, s 94(j); Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, rr 9.4 and 9.5.
Mr Haines was an officer of the court and in a position of trust. Breaches of those obligations will not be ignored by the court. A breach of the Act or the Rules is not just a matter for the professional body.
[34] A further difficulty that Mr Haines faces is that once the notice of the fees complaint was sent to Mr Haines, no proceedings for recovery of the legal fees could be commenced or continued until the complaint is finally disposed of.19
[35]I now turn to the application for interim injunction.
Interim injunction
[36] The principles upon which applications for interim injunctions are to be approached are well established. These are set out by Cull J in FM Custodians v Hannan:20
[16] The relevant principles upon which an interim injunction should be decided have been long established in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.21 The relevant principles have more recently been confirmed by the Court of Appeal in New Zealand Tax Refunds v Brooks Homes Ltd.22
[17] The first threshold an applicant must establish is the serious question to be tried. The second is whether the balance of convenience in granting injunctive relief favours the applicant or the judgment creditor and the receiver. Finally, an assessment of the overall justice of the position is required as a check.
[37] This approach does not impose a rigid and inflexible framework. The Court of Appeal in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd said:23
In this Court we have drawn attention from time to time to the importance of not seeking the answer to an interlocutory injunction application in the rigid application of a formula. …
… Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL speeches bring out, the balance of convenience can have a very wide ambit. In any event, the two heads are
19 Lawyers and Conveyancers Act 2006, s 161(1).
20 FM Custodians v Hannan [2017] NZHC 2578.
21 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
22 NZ Tax Refunds v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].
23 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 21, at 142.
not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim inunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way … it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word “usually” deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.
[38] Therefore, once I have considered whether is a serious question to be tried and the balance of convenience, I must ultimately stand back and ask where overall justice lies in substance.24 That involves a residual discretion to be exercised upon the basis of the whole facts of the case.
[39]I first deal with the two limbs of the threshold test.
Issue one: Is there a serious question to be tried?
[40] The first threshold that I must be satisfied of is whether there is a serious question to be tried. A serious question to be tried was defined by Cooke J in Klissers as a lower standard than a ‘prima facie’ case.25
[41] At this early stage of the proceedings it is difficult assess the strength of the case. No statement of defence has been filed by the respondents, although the respondents have filed a notice of opposition and affidavits. The notice of their nature of that defence.
[42] Nevertheless, there is sufficient information for me to conclude that the applicants claim of offset based on legal fees owing does not give rise to a serious question to be tried at present. The legal fees claimed are not yet enforceable. The circumstances do not give rise to an equitable estoppel.
[43] Mr Haines has not produced any supporting evidence for what is a very unusual oral arrangement which has led to a claim that the respondents pay the
24 Pasquella v National Australian Finance Ltd [1987] 1 NZLR 312 (CA) at 314.
25 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 21, at 141.
applicants’ debts in advance of the legal fees being invoiced. There are grounds to suggest Mr Haines has breached his professional obligations and the trust account rules in failing to put in place the required client care and trust record arrangements. These requirements are important safe guards for clients who may be taken advantage of. A lawyer must at all time act in the client’s best interests.26 A lawyer in Mr Haines’s position must be particularly careful to observe the rules and general professional obligations in view of the close business and personal dealings with his client. The chances of those circumstances giving rise to a conflict of interest are high.
[44] The first two causes of action in the amended statement of claim refer to obligations by the respondents to provide information concerning the amounts owing under the mortgage. These relate to the previous Fico Finance loan, and the transfer of the mortgage agreement to the respondents. The applicants claim that the actions of the respondents have been “unfairly discriminatory or unfairly prejudicial to the defendants in breaching their obligations under the Property Law Act and under the Fico agreement”. It is difficult to ascertain with precision the basis for this cause of action. However, one aspect of the non-provision of information which may give rise to a serious question to be tried is that relating to the applicants’ ability to redeem the mortgage. It arises indirectly from the pleadings. A mortgagor is entitled to redeem a mortgaged property. Therefore, it follows there must be an obligation on the mortgagee to advise the amount required to redeem upon reasonable request.
[45] Fico Finance refused to provide the information that was owing under the second mortgage on the basis that it had been transferred to the respondents. The respondents have not provided the information to the applicants. It appears from references in Mr Memelink’s emails that he is seeking to consolidate a number of loans under the second mortgage. That is not able to be done.27
[46] Section 117 of the Property Law Act 2007 prohibits the mortgagee from foreclosing the equity of redemption. The mortgagor may redeem the property until an agreement of sale and purchase is entered into. Therefore, in view of
26 Lawyers and Conveyancing Act 2006.
27 A mortgagee has no general right to consolidate debts: Property Law Act 2007, s 105.
Mr Memelink’s failure to provide Mr Haines with the amount required to redeem the second mortgage, I am of the view a serious question to be tried arises.
[47] The third cause of action pleaded seeks a declaration that the Link Trust is an alter ego of Mr Memelink. This relates to the internal workings of the trust. This is not a cause of action which I consider amounts to a serious question to be tried in these proceedings.
[48] Therefore, while the pleadings require some refinement, a serious question arises as to whether the applicants are being prevented from redeeming the second mortgage.
[49]I now turn to the balance of convenience.
Balance of convenience
[50] The disentangling of the business affairs of Mr Memelink, Mr Haines and their respective interests will take some time. This is not only because of the complexity of the arrangements and lack of documentation, but also because of Mr Memelink’s bankruptcy, annulment application and complaints to the Law Society.
[51] Further factors that I take into account in considering the balance of convenience are:
(a)The Official Assignee has indicated that she would not raise the undertaking to prevent the grant of an injunction. Nevertheless, the undertaking by Mr Memelink in the annulment proceedings remains extant. He would need to obtain the consent of the Official Assignee to sell the house, even if an interim injunction is not granted in these proceedings.
(b)The respondents are funding Mr Haines/the applicants’ borrowings at finance company interest rates.
(c)The legal fees said to be owing to Mr Haines are the subject of a Law Society review.
(d)If the respondents take steps to exercise their power of sale of the property, they are required to meet their obligations under the Property Law Act. In particular they must provide the applicants with information as to the amounts secured under the mortgage and requiring to be repaid to enable the applicants to redeem the mortgages.28
(e)The settling of accounts between the Haines and the Memelink interests will take some time.
(f)Both parties are under considerable financial pressure. Mr Memelink is bankrupt. The applicants are unable to pay the outgoings on their borrowings (at least in relation to the Fico Finance and Bright refinanced loans which have been refinanced by the respondents).
(g)The first mortgage to Basecorp Finance Ltd over the property is apparently being serviced by Mr Haines.
(h)Damages:
(i)Whether damages will be an adequate remedy for either party poses a problem here. In the case of Mr Memelink, he is adjudicated bankrupt and on the face of his statement of affairs and affidavit his assets exceed his liabilities by some
$5,549,714.26. This includes Mr Haines’ legal fees of $1.15 million and further legal fees owed to Mr Haines of $93,425.59. Mr Memelink’s interests including the respondent trust are likely to be financially stretched.
28 Property Law Act 2007, s 97.
(ii)On the other hand, the applicants are in tightened financial circumstances. They were unable to service the outgoings on the Fico Finance and Bright loans. Mr Haines is no longer practicing law and it is unclear what income the trust has.
(iii)Accordingly, from a practical point of view I do not consider either party is in a position to pay damages.
(i) Mr Memelink attempted to sell the house without the Official Assignee’s consent. Comments in emails indicate he intended to buy the house (at least at one stage). Mr Memelink is asserting that all monies owed to his interests are recoverable and secured under the mortgage.
[52] I conclude the balance of convenience supports the granting the interim injunction on conditions. The balance favours the grant only because of the failure by the respondents to provide information to the applicants to enable them to redeem the mortgaged property.
[53] The conditions will require the applicants to service the interest repayments on an amount attributable to the former Fico loan secured under the second mortgage. In the context of the interim injunction application I do not accept Mr Haines’ claim of equitable estoppel based on outstanding legal fees or an arrangement that the respondents service the Fico loan. The loan was refinanced by the respondents. They should not have to continue servicing it pending resolution of the disputes. The claim put forward by the applicants based on what actually remained secured under the Fico assigned mortgage is a technical argument which does not preclude the applicants from servicing the refinanced Fico loan in the interim.
Interim orders
[54] The respondents, as second mortgagees over the property at 3/97 Honi Taipua Street, Manukau, Levin presently occupied by the first applicant, are restrained from selling the property until further order of the court on the following conditions:
(a)The applicants jointly and severally will contribute toward the interest on the monies borrowed by the respondents in order to repay the Fico Finance loan and secured under the mortgage at the rate of 12.95 per cent per annum.
(b)The amount of the interest payments are $5,582 per month.
(c)The obligation under this order will accrue from 15 March 2019 and be payable monthly to the Official Assignee as administrator of Mr Memelink’s affairs. The first payment to be made on 15 April 2019.
[55] The respondents will on or before 15 March 2019 provide to the applicants details of the amount owing under the second mortgage with sufficient particulars to inform the respondents as to how the amount is made up at, together with details of the amounts they repaid to Fico Finance in return for the transfer of the above mortgage to them. This should provide the applicants with sufficient information to redeem the mortgaged property if they wish to do so.
[56] A review of this injunction will take place three months from the date of this judgment subject to any further order of this court.
[57] The proceedings are to be called for a case management conference on 21 March 2019 before Associate Judge Lester or such other date as is fixed by the Registrar. Other matters to be called at that time relate to Mr Memelink’s bankruptcy and proceedings involving the Haines and Memelink interests.
Leave reserved
[58] Leave is reserved to either party to apply for further directions or orders on 14 days’ notice. The Registrar will liaise with counsel to set a date for review of this interim injunction in terms of [56] on or before three months from the date of this judgment.
Costs
[59] I reserve costs on this matter, in accordance with the request of the parties. I note they have agreed the classification should be 2B. If the parties are unable to agree on costs on this application memoranda should be filed as follows:
(a)Respondent five days from the date of this judgment.
(b)Applicant to reply three days from the date of this judgment.
(c)Any reply by applicant within two further days.
Grice J
Solicitors:
Brittens Lawyers, Palmerston North
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