Harvey v DBR Limited HC Auckland CIV 2010-404-7052
[2010] NZHC 2125
•2 December 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-7052
BETWEEN JOY MARGUERITE HARVEY Plaintiff
ANDDBR LIMITED Defendant
Hearing: 23 November 2010
Appearances: N N Kearney for plaintiff
D J Neutze for defendant
Judgment: 2 December 2010
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 11 am on Thursday 2 December 2010
Solicitors:
Schnauer & Co, Milford, Auckland [email protected]
Brookfields, Auckland [email protected]
JOY MARGUERITE HARVEY V DBR LIMITED HC AK CIV 2010-404-7052 2 December 2010
Introduction
[1] On 3 June 2010, the plaintiff, Mrs Harvey, executed a guarantee in favour of the defendant lender, for the purpose of securing a loan made by the defendant to a Mr Donaldson. Mrs Harvey did not know Mr Donaldson, who was a business associate of her son Paul. She signed the guarantee at her son’s request. She also executed a first mortgage over her home in favour of the defendant.
[2] Mr Donaldson made no payments at all pursuant to his obligations as borrower. The defendant, having made demand upon Mrs Harvey, then took steps to recover the outstanding amount by selling her home pursuant to the terms of the mortgage. An auction was set for 27 October 2010. On the preceding day Woodhouse J granted a without notice injunction restraining the sale.
[3] The defendant now applies for an order setting aside the injunction. It is common ground that the onus lies upon Mrs Harvey to persuade the Court that the injunction ought to be sustained pending the hearing of the proceeding.
Factual background
[4] Mrs Harvey is a single pensioner living alone. She is 73 years old. Of her four adult sons only Paul maintains a close relationship with her, but even that relationship has become a little strained over recent years. Mrs Harvey says it is because he has not been open with her about his living arrangements, his employment, and his financial affairs.
[5] In 2002 Mrs Harvey, along with Paul, purchased a residence at 4B Trafalgar Road, Milford, Auckland for $280,000. She provided $200,000, being all of the funds from the sale of her previous home. Paul contributed the other $80,000. The title was placed in their joint names, Mrs Harvey taking a 72% share and Paul a 28% share, reflecting the proportions in which the owners had contributed to the purchase price.
[6] Mrs Harvey says that in recent years Paul has engaged in a number of unsuccessful property deals. In particular, an investment in an Orewa apartment proved troublesome, in that it was part of a complex suffering from leaky building syndrome.
[7] Over the last two years or so, Mrs Harvey has been subjected to regular pressure from Paul for financial assistance. Initially she had approximately $5,000 in a savings account and $10,000 on term investments, as well as the house. But over time, and in response to what she describes as constant pleading from her son, all of the cash was ultimately given to him.
[8] More recently there have been successful attempts on his part to obtain further small sums from his mother, particularly at a time when he was aware that a pension payment might have been available to her. Two particular loans are worth noting. On the first occasion Paul persuaded Mrs Harvey to borrow $10,000 from her bank. She acceded to his request, giving him the $10,000 and becoming responsible for repaying the loan out of her pension. More recently, she borrowed a further $7,000 which she gave to Paul.
[9] All in all she says:
… it got to the point that whenever Paul turned up to my house I would simply say to him ‘How much do you want this time?’ He used to get a bit annoyed at that, but that is the reality of it.
[10] In about May 2010, Paul approached Mrs Harvey for further financial assistance. This time he indicated he needed money to repay some of his debts, and asked his mother to guarantee a loan, to be supported by a mortgage over her home. He said that there would be no difficulty about repayment of the debt because a friend and business associate, Mr Samuel Donaldson, would give a guarantee. Paul represented to Mrs Harvey that Mr Donaldson was a wealthy man with substantial assets. Mr Donaldson was unknown to Mrs Harvey. She was given to understand that much of Paul’s financial difficulty stemmed from his involvement in the leaky home case.
[11] She says she was reasonably comfortable with the idea of providing a mortgage over her home to support a guarantee, because Paul was her son and despite the somewhat evasive answers she got from him on questions relating to financial matters, she continued to trust him.
[12] Mrs Harvey’s account to this point stands unchallenged. Paul has declined to assist his mother in the litigation and has not sworn an affidavit. But her recollection of events in relation to the execution of the relevant documents is disputed in certain material particulars. She herself acknowledges that she does not now have a clear recollection of precisely what occurred.
[13] In her first affidavit she says she was taken by Paul to a law firm in Epsom, practising under the name of the Conveyancing Shop. She says Paul told her this was Mr Donaldson’s firm. She also says in that first affidavit that she did not think to get her own legal advice, and that those involved simply sat around the table in the same room at the Conveyancing Shop, in order to attend to the signature on the documents. She thought that those present in the room at the time were Thada-Anne Inglin, a principal in the Conveyancing Shop, Paul, Mr Donaldson, and another man who was unknown to her but who she now believes to have been the finance broker who organised the loan through the defendant. She says that she did not believe that she received an explanation from anyone present as to the nature of the documents she was signing, but was not concerned about the risk of losing her home, given the assurance she had earlier received from Paul. She says explicitly in her first affidavit that she did not receive independent legal advice and that no-one took her aside and pointed out the nature of the documents she was signing and their implications. But she proceeded because Paul told her there was no risk, that Mr Donaldson had money coming from Australia in a few months, and the loan would be repaid from those funds.
[14] Mrs Harvey’s first affidavit was necessarily prepared in circumstances of considerable urgency. Later, her solicitors filed an affidavit by Mr Roko Urlich, an Auckland solicitor practising on his own account in premises adjacent to those of the Conveyancing Shop. His evidence discloses that Mrs Harvey did receive legal
advice (from Mr Urlich) that was separate from the advice given to the borrower, Mr Donaldson, by the Conveyancing Shop.
[15] Before discussing the detail of Mr Urlich’s evidence, it is convenient at this point to note that the understanding Mrs Harvey had gained from Paul’s advice to her was largely inaccurate. The loan was made by the defendant, not to Paul, but to Mr Donaldson. It was for $250,000. There were to be guarantees by both Paul and Mrs Harvey supported by a mortgage over the house. Apart from that mortgage the loan was effectively unsecured.
[16] I turn to Mr Urlich’s evidence. He is an experienced practitioner, now practising on his own account, but previously as a partner of Urlich, McNab and Kilpatrick, a Whangarei firm. His practice is located immediately behind the Conveyancing Shop in Epsom. As a result he regularly assisted that firm by giving independent advice in respect of persons who are to sign guarantees and other securities relevant to transactions in which the Conveyancing Shop was acting.
[17] On this occasion he was asked to advise both Mrs Harvey and Paul. He saw them on two successive days. On the first day he saw them together, and advised with respect to the proposed guarantees and mortgage. He says they told him that Mr Donaldson was Paul’s employer and that the making of a loan to Mr Donaldson would secure Paul’s job with him. Notably, he says that Paul displayed throughout a very high level of anxiety: “ …as if this was a matter of ‘life and death’ for him”. Paul was insistent that the matter was of great urgency. Mrs Harvey appeared to confirm that.
[18] Having become familiar with the transaction and its background Mr Urlich says that he told Mrs Harvey “plainly and emphatically that I must advise her not to sign the documents because there was no benefit at all to her for giving this guarantee and mortgage …” At that point, Mr Urlich says, Paul became agitated and insisted that the transaction proceed.
[19] Mr Urlich’s advice was not accepted by Mrs Harvey; nor did it go down well with Paul. Mr Urlich explains:
10.Joy did not in any way appear to be relieved by my advice, and I could see that Paul Harvey’s anxiety and insistence was placing her under a huge amount of pressure. My impression of the dealings between Paul and Joy Harvey was that she believed everything Paul would tell her. That was quite clear. It didn’t matter what I told her, she seemed to have utmost belief in her son. It was obvious that her son was in charge and would take care of everything, and Mrs Harvey would just have to accede to the requests that were being made of her, despite my advice to the contrary.
11.It wasn’t physical pressure as such, more emotional. He was pleading with her etc and appeared to be relying on the loving relationship that a mother and son would ordinarily have. He was not overbearing, because he is not a big man. It was just that his anxiousness and agitation and consistent pleading and apparent distress was (sic) all being relayed to his mother.
12.I explained to him in front of his mother that my role was to provide both him and her with independent advice, and that the giving of this independent advice was a critical step with the draw down of the loan. I explained to him that I was required to disregard the interests of himself, of Mr Donaldson, of the mortgage broker and the lender and other lawyers, and to advise his mother and him as if they were not related, and repeated my advice to her not to sign the documents until there was a benefit going to Joy. Paul Harvey became very impatient at this and it was very clear to me that he expected the independent advice to be a rubber stamp. He talked about Sam Donaldson’s expectations, and the mortgage broker’s assurances, that everything would be plain sailing. I have to stress again, that the influence and pressure he was placing on his mother was palpable and very real and present.
[20] Given Paul’s stance, and Mrs Harvey’s apparently settled intention to carry out Paul’s wishes, Mr Urlich then turned to a discussion with them about the possibility of a benefit to Mrs Harvey in consideration for the giving by her of a guarantee. Mr Urlich appears not to have contemplated the desirability of seeing Mrs Harvey alone, or alternatively of suggesting that Paul and Mrs Harvey each take separate advice.
[21] In the course of his discussions with the pair, Mr Urlich says that Paul suggested that he give up his interest in the house to his mother in order to facilitate the completion of the loan transaction. Mr Urlich says he sent them both away to consider ways and means of securing a benefit for Mrs Harvey.
[22] He saw them together again next day, when they advised they had come to an agreement about transferring Paul’s interest in the house to Mrs Harvey. Mr Urlich
dictated a note of his instructions from Mrs Harvey and Paul, which seems to have been transcribed subsequently by staff of the Conveyancing Shop, or perhaps sent to that firm by e-mail. The note reads:
Thada/Joseph
The conditions for the mother Joy giving a mortgage over the house and the guarantee are:
1.Paul’s interest in the house of 7/25 is to be transferred to her based on a valuation he says they have of $500,000 – this will mean that the consideration is $140,000.
2. When she bought the house Paul lent her $80,000 so Joy will owe
Paul $220,000.
3.There will be a deed of acknowledgement of debt drawn so that it cannot be called up by Paul’s creditors ie for a fixed term.
4.there is another benefit to Joy and that has been agreed to, and that is the repayment of a loan of $10,000 that she has been having trouble with. The loan amount will have to be adjusted by that figure.
It will be essential that the whole story be set out in an agreement for sale and purchase, so that no creditor of Paul can attack it.
[23] It is common ground that paragraph 2 of this file note is wrong. The figure of
$80,000 represented Paul’s contribution to the purchase price, and was not a further advance. The error was corrected in the subsequent deed of acknowledgement.
[24] It is a fair inference from the file note that Paul was driven just as much by a desire to place his assets beyond the reach of his creditors, as by an intention to ensure that his mother received a benefit appropriate to the obligations she was undertaking.
[25] Mrs Harvey received a further benefit, in that a sum of $10,000, part of Mr Donaldson’s loan from the defendant, was applied in discharging the $10,000 loan which she had earlier obtained from the bank in order to provide financial assistance to Paul.
[26] On the occasion of the second attendance on Mrs Harvey and Paul, Mr Urlich went through the security documents in detail with both of them. He says he explained their essential nature, including the risks, and in particular, the entitlement
of the lender to treat each of them as a principal borrower if there was a default by Mr Donaldson. He says that he explained that the defendant could sell up Mrs Harvey’s house at its discretion, rather than call upon Mr Donaldson or Paul. Mr Urlich got the impression that Paul was much more relaxed on this second visit. He infers this was because Paul believed that the transaction was back on track.
[27] Mr Urlich is unable to say whether he saw Mrs Harvey separately from Paul. He did not give her any written advice; neither did he issue a certificate to the Conveyancing Shop or any other party. He knew neither Paul nor Mr Donaldson before giving advice to Mrs Harvey. He made no inquiries about them as to their ability to service the loan, and did not attempt to take Mrs Harvey through the precise financial implications of the transaction. But, he says, he did carefully take Mrs Harvey through the terms of the loan and pointed out to her what her obligations might be.
[28] In response to Mr Urlich’s evidence, Mrs Harvey swore a second affidavit in which she re-affirmed that she had no recollection of having made two visits to Mr Urlich. But Ms Inglin confirms that Mrs Harvey came into her office on two separate occasions on two consecutive days, and that she met with Mr Urlich on each occasion. I accept her evidence and that of Mr Urlich. Mrs Harvey concedes that she has an incomplete recollection of the precise course of events in respect of the execution of the security documents. In her first affidavit she denied having received any independent legal advice at all. In her second affidavit she explains that:
In terms of independent legal advice, I did not realise that I was being independently advised as to the risks of the transaction. To me it was just a matter of visiting the lawyers with Paul to sign the documents. I am not a commercial person at all. I did not understand or appreciate at all that I was being independently advised. Mr Urlich did go through the transaction with me but I just saw myself helping out Paul and Paul kept reassuring me. I thought Mr Urlich was just part of the Conveyancing Shop staff doing the transaction. I didn’t understand or appreciate at all the fact he was being retained to give me separate legal advice on the transaction. Paul was so adamant this was helping him that I felt I had to do it.
[29] Mr Kearney acknowledges that Mr Urlich is the plaintiff’s witness, and that the plaintiff adopts his affidavit evidence as part of her case. Combined with the evidence of Ms Inglin, that satisfies me that Mrs Harvey was independently advised
by Mr Urlich, that she saw him on two occasions, and that her decision to sign the guarantee and the mortgage was taken in the context of pressure from Paul, but against firm advice from Mr Urlich.
[30] Ms Inglin explains what occurred on 3 June 2010, being the second of the two consecutive days upon which Mrs Harvey attended at the Conveyancing Shop. Ms Inglin says that Mr Donaldson and Paul had hoped that the documents would be signed the previous day, but that did not occur by reason of Mr Urlich’s advice to Mrs Harvey and Paul.
[31] When they returned the following day, there was agreement between the pair that Mrs Harvey would receive consideration for giving a mortgage over the house. That consideration was recorded in the file note sent by e-mail by Mr Urlich to Ms Inglin and set out above. Ms Inglin documented the transactions between Mrs Harvey and Paul, and also the documents associated with the loan from the defendant to Mr Donaldson.
[32] The arrangements between Mrs Harvey and her son required the preparation of an agreement for sale and purchase, a deed of acknowledgement of debt, and a deed of gift. In order to avoid gift duty, the parties agreed that the $140,000 owing by Mrs Harvey in respect of the transfer of Paul’s interest in the home to her would be the subject of a gifting programme. A deed of gift reflected the first forgiveness in the sum of $27,000, being the maximum payment allowed each year without incurring gift duty. The intention of the parties was that similar gifts would be made over succeeding years.
[33] Ms Inglin confirms that a number of documents were executed in her presence and witnessed by her, including the loan agreement, the deed of guarantee and indemnity, the agreement for sale and purchase between Mrs Harvey and Paul, the deed of acknowledgement of debt, the deed of reduction of debt (recording the gift of $27,000) and an instruction signed by Mrs Harvey directing the Conveyancing Shop to pay out of the proceeds of the loan the sum of $10,500 in settlement of her outstanding loan from the bank. This last payment was the subject of a brief agreement entered into between Mr Donaldson and Mrs Harvey. In it the
parties agree that Mrs Harvey had agreed to guarantee Mr Donaldson’s loan and to provide a mortgage over her property as security, in consideration for which Mr Donaldson had agreed to pay a fee of $10,500 out of the net proceeds of the loan.
[34] Ms Inglin also says that she gave separate advice to Mrs Harvey about the implications of her guarantee and the proposed mortgage. She again explained to Mrs Harvey that she could lose her house if the guarantee was called upon, and says that Mrs Harvey confirmed that Mr Urlich had explained that to her. Ms Inglin also says that Mrs Harvey saw the transaction as a means of raising the funds necessary to enable her to pay off her bank loan of a little more than $10,000.
[35] Ms Inglin made a handwritten file note of her discussion with Mrs Harvey and Paul. The file note reads:
3 June 2010
Spoke to Joy + Paul.
Joy has met with Roko and is happy to proceed, as is Paul. She is aware that if Sam defaults she could lose her house. Joy has a debt of 10K that needs to be repaid urgently & sees this as a means of raising funds.
Paul is confident that his mother is not at risk. Only a short term loan.
[36] Ms Inglin says that in respect of all of the documents signed by Mrs Harvey, she explained the nature and effect of each of them to the plaintiff and indeed to the other signatories before they were signed.
[37] The loan funds were disbursed by the defendant’s solicitors, Brookfields, to the Conveyancing Shop later that same day and were then paid out in accordance with Mr Donaldson’s instructions.
[38] Subsequently, Mrs Harvey became the sole registered proprietor of her house property and her loan from the bank was repaid from the proceeds of the defendant’s loan to Mr Donaldson.
[39] Mr Donaldson made no payments at all. Within a matter of weeks the defendant commenced default action, culminating in the issue of a notice given
under s 122 of the Property Law Act 2007. Following that the defendant took steps to sell Mrs Harvey’s property and this proceeding followed.
Interim injunction principles
[40] It is common ground that the principles discussed in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd[1] apply. The orthodox inquiry is as to whether there is a serious question to be tried, and if there is, as to the balance of convenience. Ultimately the Court must stand back and consider the overall justice of the case.
Serious question
[1] Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
[41] Mrs Harvey pleads four causes of action, namely misrepresentation, oppression under s 118 of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act), undue influence, and unconscionability. For the purposes of the present application Mr Kearney accepts that a misrepresentation will be actionable only if it is made by, or on behalf of, the defendant. Here, the only relevant representations were made by Paul. Mr Kearney concedes that he is unable to argue on the available evidence that Paul was the agent of the defendant.
[42] Accordingly, this cause of action, which may be withdrawn at trial, is not relied upon for the purposes of the present application.
Oppression
[43] In her second cause of action the plaintiff relies upon s 118 of the CCCF Act, and alleges that in all the circumstances of the case the guarantee and the mortgage security were oppressive. She seeks in her prayer for relief:
(i) An order permanently restraining the defendant from selling the property under its power of sale contained in the mortgage;
(ii) An order cancelling the secured guarantee;
(iii) An order discharging the mortgage from the title to the property;
(iv) An order that the secured guarantee is oppressive under the Credit
Contracts and Consumer Finance Act 2003;
(v) An order that the plaintiff is not liable under the loan agreement, the guarantee, and the mortgage as the terms are oppressive (as defined in s 118 of the Credit Contracts and Consumer Finance Act 2003);
(vi) Damages; (vii) Costs; (viii) Interest;
(ix) Other relief.
[44] It is common ground that the loan by the defendant to Mr Donaldson was a credit contract (although not a consumer credit contract) for the purposes of Part 5 of the CCCF Act. The loan itself could therefore be reopened by Mr Donaldson and by any guarantor (including the plaintiff) pursuant to s 125. If the Court did reopen the contract then it might make the orders set out in s 127(2).
[45] However, as is noted in Gault on Commercial Law,[2] there is nothing in s 127 that applies directly to contracts of guarantee; nor is there anything else in the Act that suggests that a guarantor might apply for the reopening of a guarantee as distinct from the credit contract which it is intended to support.
[2] Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Brookers) at [4C.7.01(5)].
[46] Mr Neutze submits that there is no case in which the provisions of the Act have been extended to the reopening of a contract of guarantee as such. Mr Kearney suggests that the law relating to the reopening of oppressive credit contracts, as explained in Bartle v GE Custodians Ltd,[3] is wide enough to encompass guarantees as well as credit contracts properly so called. He relies on s 7(2) of the CCCF Act.
[3] Bartle v GE Custodians Ltd [2010] 3 NZLR 601.
[47] I am not persuaded that this is so. In particular I do not consider that s 7 of the Act gives rise to that conclusion. Section 7 provides:
7 Meaning of credit contract
(1) In this Act, unless the context otherwise requires, credit contract means a contract under which credit is or may be provided.
(2) If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.
[48] Mr Kearney submits that by virtue of s 7(2) the guarantee and mortgage constitute part of a credit contract, which may be reopened under Part 5.
[49] I am unable to accept that submission. In my view s 7(2) is intended to cover the case of separate contracts or arrangements, not by themselves constituting credit contracts but which, considered together, amount in substance to a credit contract. That is not the case here. The loan agreement made between the defendant and Mr Donaldson was plainly a credit contract. There is nothing in s 7(2) which requires that the guarantee and mortgage be deemed to form part of the loan agreement.
[50] It is accordingly difficult to see how the plaintiff could obtain the relief sought in her second cause of action. But in case I am wrong I deal briefly with Mr Kearney’s submission that this was a case akin to Bartle, and equally deserving of the Court’s intervention.
[51] Oppressive conduct for the purposes of the CCCF Act is defined in s 118:
118. Meaning of oppressive
In this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.
[52] In Bartle at [51] Hammond J explained that:
[51] Oppression in the CCCF Act is a generic remedy. The statutory definition in s 118 is deliberately broad. It extends that term to something that is oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice. There is a tendency – apparent in this case, as in the decided cases – to “extract” one of those
statutory terms and fasten upon it, often by reference to the way that term has been developed by common law or other legislation. However, it cannot be stressed too strongly that oppression is a standalone, generic and statutory remedy. In my view, it should not be given a pinched or unduly restrictive meaning, because s 118 of the CCCF Act clearly indicates that Parliament intended the provision to have a wide ambit of application.
[53] At [56] of Bartle Hammond J identified three principal strands of oppression: abuse of power, unequal bargaining positions coupled with hard terms, and departure from standards acceptable to the community. But he emphasised that the s 118 definition is not closed, and that all the circumstances of a particular transaction will be relevant.
[54] In his written synopsis Mr Kearney submits:
…that the guarantee and mortgage over Mrs Harvey’s house here was oppressive because it was completely beyond her capability to pay either the interest or the principal under the debt and save her house, and DBR was indifferent as to whether she could pay it as it held a first mortgage with plenty of equity (it was in effect an asset grab); and the lending and credit contract when considered overall, as the legislation requires the Court to do, was almost certainly in breach of reasonable standards of commercial practice for Mrs Harvey.
[55] It is implicit in this submission that it will be a breach of reasonable standards of commercial practice for the purposes of s 118, unless a lender satisfies itself that individual guarantors (not the principal borrower) are each in a position to meet the lender’s servicing requirements without resort to the secured asset. In other words, the contention appears to be that the lender is under an obligation to a guarantor to see to it that the security proffered by the guarantor is unlikely to be called upon. Such a proposition marks a significant advance beyond the law as discussed at length in Bartle. There, the Court of Appeal was considering the position of the principal borrowers.
[56] A helpful summary of the orthodox approach to the concept of “oppression”
for present purposes, appears from [172] of the judgment of Arnold J in Bartle:
[172] In seeking to interpret and apply these provisions, the courts have generally not attempted to identify a single unifying principle underlying the various elements of the definition of “oppression”. Rather, they have adopted what Webb and Birkinshaw describe as a “case by case” approach, without any unifying theme. The “case-by-case” approach involves
searching for close analogies in the authorities and, if none exists, considering whether the conduct falls below the standard of acceptable conduct.
[173] In Prudential Building and Investment Society of Canterbury v Hankins Hammond J identified the following (non-exclusive) factors from the numerous authorities in which oppression has been discussed:
… [S]ome useful sub-principles have evolved. First, the mere fact that the contract is disadvantageous is insufficient to make it oppressive (Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd [1984] 2 NZLR 1). Second, the oppression must be that of the lender (Burbery Mortgage Finance & Savings Ltd (In Receivership) v Haira (High Court, Rotorua, CP 93/89, 21 April
1994, Barker J). Third, the exercise of rights (without more) does not amount to oppression; such may however become unreasonable in light of collateral undertakings (see Manion (above); Shotter v Westpac Banking Corporation [1988] 2 NZLR 316). But, an action can be oppressive, notwithstanding that it is contractually permitted (Robinson v United Building Society (High Court, Dunedin, CP
35/87, 7 May 1987, Tompkins J) and see the note thereon in [1988] NZLJ 416). Fourth, in alleged cases of unreasonable standards of
commercial practice there should be led evidence of the reasonable
market practice sought to be relied on. See, for instance, Cambridge Clothing Co Ltd v Simpson [1988] 2 NZLR 340; Didsbury v Zion Farms Ltd (High Court, Auckland, CP2501/88, 22 February 1989, Wallace J) at pp 19, 20; Robinson v United Building Society (above).
[174] This Court did go some way towards identifying an underlying concept in respect of oppression in Greenbank New Zealand Ltd v Haas:
[24] … [I]t is necessary to return to the key concept of oppression as defined in s 9. The various words which together form the definition of the term “oppressive” all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice. In a sense that phrase gives the underlying commercial rationale for the earlier words or phrases. Something which is, for example, unjustly burdensome must necessarily be regarded as being in contravention of reasonable standards of commercial practice; similarly with something harsh. To determine whether a contract or term is oppressive within any of the words or phrases in the definition, it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with (that is, in contravention of) such standards is, by definition, oppressive. It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standards of commercial practice. [Emphasis added.]
[175] The Court went on to say that “almost always” evidence would have to be called on the question of reasonable standards of commercial practice,
noting the difficulty of judges deciding such issues intuitively or impressionistically and the need for commercial stability to be maintained. The Court returned to this point in Raptorial Holdings Ltd (in rec) v Elders Pastoral Holdings Ltd. There Panckhurst J, delivering the judgment of the Court, said:
[56] Nor do we consider that the Court’s decision in Haas was intended to make comparative evidence mandatory in all circumstances or to displace, as distinct from assist, the judgment which the Court must exercise under s 11 [of the 1981 Act]. Obviously, standards of commercial practice are likely to be relevant but they must, as Tipping J states, be “reasonable” and if, irrespective of the evidence, those standards are not regarded as reasonable by the Judge, they may be rejected as a valid basis for determining whether the transaction at issue is oppressive.
[176] Five points of particular importance to the present case emerge from the foregoing discussion:
(a) first, the CCCF Act is intended to protect the interests of borrowers under credit contracts, in the present context by preventing oppression, whether that oppression precedes the making of a credit contract, is embodied in it or flows from its application;
(b)second, it is not possible to contract out of the operation of the CCCF Act;
(c)third, when assessing oppression, reasonable standards of commercial practice provide the touchstone;
(d) fourth, while evidence of commercial practice is relevant to the court’s determination, the ultimate decision as to what constitutes reasonable commercial practice is for the court, not the relevant industry; and
(e)fifth, the oppression must emanate from, or be attributable to, the other party to the contract, in this case GE.
[57] Of importance is the need for the Courts to have some yardstick by which to measure the reasonable standard of commercial practice which it is contended has not been reached in the instant case. Here, there is no such evidence. Mr Kearney simply submits that the defendant, which took care to ensure that Mrs Harvey received independent legal advice, ought to have gone further.
[58] Mr Kearney’s submission, as I understand it, is that the defendant ought not to have accepted the guarantee from Mrs Harvey in circumstances where it knew, or ought to have known, that she was 73 years old, was retired, was offering as security her only asset, was unable to service the mortgage from her own resources; where
the quality of Mr Urlich’s independent advice was questionable, and where the giving and taking of the guarantee amounted to “asset lending” to use Bartle terminology. The lender did, in fact, know of Mrs Harvey’s age, that she was retired and that 4B Trafalgar Road was substantially her only asset. That information appeared on the application form she had signed.
[59] Of itself, however, such information could not possibly have put the defendant on notice. Neither could the adequacy of Mr Urlich’s advice. The defendant strongly advised borrowers and guarantors to obtain independent legal advice. Mrs Harvey got such advice from a solicitor who was independent of the borrower. He advised her not to enter into the transaction. She declined to accept that advice. In those circumstances Mr Urlich set about securing such benefits for her as he could, as the price for her guarantee. But the detail of Mr Urlich’s advice to Mrs Harvey was unknown to the lender, which was advised by the borrower’s solicitors, correctly, that independent legal advice had been given. That was sufficient from the lender’s point of view.
[60] Mr Kearney’s other criticism is that the lender ought to have ensured that Mrs Harvey was in a position to service the loan from her own resources if called upon to do so. The defendant had no information as to Mrs Harvey’s income. The joint statement of position document signed by Paul and Mrs Harvey together made no provision for the disclosure of income. Rather, it was concerned with the net asset position of the applicants.
[61] Mr Kearney says that at least in the circumstances of this case, it was incumbent upon the lender to satisfy itself that Mrs Harvey had the resources to service the loan on an on-going basis if Mr Donaldson defaulted. There is no authority for the imposition of such a duty upon a lender unless it is on notice of some feature of the case which may give rise to unconscionability concerns (dealt with below).
[62] While the relevant security documents imposed upon Mrs Harvey the obligations of a principal borrower, she was, so far as the lender was concerned, not
the party of first resort. The loan was to Mr Donaldson, and it was to Mr Donaldson that the lender would first look for payment.
[63] Mr Kearney’s argument is, in effect, that the Court ought not to permit a lender to enforce a guarantee unless the lender can show that the guarantor was at the time of execution of the guarantee, in a position to service the loan without realising assets. Such an argument is untenable.
[64] It will be sufficient in a simple case such as this that the lender ensures that a guarantor is in receipt of independent legal advice, and that the certificate that such advice has been given can be relied upon.
[65] Here, Mrs Harvey did get independent legal advice from Mr Urlich. She also got advice (although not independent) from Ms Inglin, the borrower’s solicitor. Mr Urlich’s advice was that she should not proceed with the proposed guarantee. She chose not to take that advice. Mr Urlich (who is the plaintiff’s own witness), says that he spelt out to Mrs Harvey the risk that she could lose her home. On her own evidence, it seems that she preferred to rely upon Paul’s assurance that, given the financial position of the borrower, the risk was minimal.
[66] Ms Inglin says that she also emphasised to Mrs Harvey the elements of the transaction and the risks Mrs Harvey was assuming. Her advice is the subject of her file note of 3 June 2010.
[67] In the end, Mrs Harvey did obtain significant benefits by reason of her execution of the guarantee. Her loan from the bank, exceeding $10,000, was paid off by Mr Donaldson out of the proceeds of the loan. Perhaps more importantly, Paul transferred his 28% share of the house to his mother and immediately gifted $27,000 of the resulting debt, so she is now the sole proprietor subject to an unsecured liability to her son of $113,000.
[68] So this is not a case like Bowkett v Action Finance Ltd[4] where the guarantors gained no benefit whatever from the impugned transaction.
[4] Bowkett v Action Finance Ltd [1992] 1 NZLR 449 (HC).
[69] Mr Kearney is critical of the quality of Mr Urlich’s advice to Mrs Harvey. He says that Mr Urlich:
a) Seems to have been primarily concerned with protecting Paul from his creditors;
b)Could not remember the Harveys two months later on when approached by the lender’s solicitors;
c) Gave no evidence that he saw Mrs Harvey on her own (without Paul);
d)Gave no certificate, and got no written confirmation from Mrs Harvey that she understood the dangers of the transaction;
e) Did not seek any information in respect of a borrower who was a stranger to Mrs Harvey, nor any further detail of the underlying commercial circumstances;
f) Charged a nominal fee only of $270.
[70] As to that, Mr Urlich’s performance may well not have been perfect, but he saw Mrs Harvey over two successive days, and although she says she cannot recall the precise detail of the advice she received, I am satisfied that Mr Urlich, having tried to dissuade her from signing the guarantee, then set about achieving the best available financial outcome for her.
[71] Drawing the foregoing threads together, I am not persuaded that the plaintiff has made out a serious question for argument in respect of the second cause of action.
Undue influence
[72] The third cause of action alleges undue influence. Here, the plaintiff simply pleads:
That in entering into the secured guarantee and mortgage, there was undue influence placed over the plaintiff; there was an inequality of bargaining power; and in all the circumstances of the case the transaction should be set aside as a result.
[73] Although not expressly pleaded, it is implicit in the statement of claim that the undue influence relied upon is that of Paul upon Mrs Harvey. It was at his determined insistence that she agreed to enter into a guarantee which seems to have been of significant importance to him, although precisely how is not spelt out.
[74] So, unusually, this is a case of alleged influence by one guarantor upon another. There is not the slightest suggestion that Mr Donaldson ever communicated directly with Mrs Harvey, nor is it claimed that he influenced her in any way.
[75] The leading recent New Zealand case in this area is Wilkinson v ASB Bank
Ltd.[5] There, at 689 Blanchard J said:
[5] Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 (CA).
When it is said that undue influence has been exercised by the principal debtor on a guarantor (either positively by application of pressure or by taking advantage of the guarantor's dependency) or that the principal debtor has persuaded the guarantor to enter into the transaction by a misrepresentation, the guarantor is not asking the Court to set the transaction aside because of any unconscionable behaviour by the creditor. The guarantor does so, rather, because the creditor has taken the benefit of the guarantee with actual or constructive knowledge of what has occurred, or is presumed to have occurred, between the principal debtor and the guarantor.
The Court must balance the desirability of protecting vulnerable persons from loss of their assets, particularly their homes, against the undesirability of economically sterilising those assets. Sympathy for a victim of undue influence or misrepresentation should not lead a Court into the error of imposing upon lenders an unrealistic standard. Transactions in which one relative assists another to borrow are commonplace. It would be unfortunate if a few hard cases were to discourage financiers from lending to borrowers in need of such assistance for fear of being found to have fallen short of perfection in their lending practices.
[76] In Wilkinson Blanchard J also set in more significant detail a set of principles which were not intended to be definitive, but were available by way of guidance in undue influence cases. These principles are:
1. A contract of guarantee is not a contract requiring full disclosure on the part of the lender. If questions are not put by the guarantor the lender is not bound to reveal material facts unless something has occurred between
the principal debtor and the lender which goes beyond that which the guarantor might naturally expect: Hamilton v Watson (1845) 12 Cl & Fin
109; Commercial Bank of Australia Ltd v Amadio (supra); and Shivas v Bank of New Zealand [1990] 2 NZLR 327 at p 363. The general principle is that
the lender is not obliged to disclose matters affecting the credit of the borrower: Wythes v Labouchere (1859) 3 De G & J 593. In Amadio at p 457
Gibbs CJ remarked:
"To require a bank to make disclosure to a surety of the details of all unusual transactions which, to the knowledge of the bank, had taken place between the customer and third parties might prove to be both vexatious and misleading, as well as a breach of confidence."
2. The questions initially to be asked about a situation which might appear to fall within class 2(B) in O'Brien (involving features such as those referred to in the next paragraph) are: (i) whether there was between the guarantor and the principal a relationship under which the guarantor generally reposed trust and confidence in the principal debtor; and thus (ii) whether there was at the time when the guarantee was in contemplation a presumption of undue influence or misrepresentation. If the financier was aware of facts giving rise to that presumption, it must show that it took adequate steps in the circumstances to allay any reasonable suspicion of undue influence or misrepresentation: would an observer, knowing only what the financier knew, have concluded that reasonable suspicion of undue influence or misrepresentation remained when the guarantee was signed?
3. Undue influence on a guarantor is likely to be presumed if the following features are present:
• limited commercial ability of the guarantor;
•absence of a more than minimal financial stake by the guarantor in the enterprise guaranteed; and
•a relationship involving an emotional tie or dependency on the part of the guarantor towards the principal debtor.
4. A wife is no longer automatically regarded as being under a special disability vis-à-vis her husband. She must plead that undue influence or misrepresentation was practised on her by her husband or partner and plead and prove knowledge by the financier of features which give rise to a presumption of wrongdoing. In the antipodean cases some guarantors have omitted to plead wrongdoing by the principal debtor or have failed to have securities set aside because they appeared to an observer to have had an understanding of the principal debtor's business affairs and so did not appear vulnerable. Consequently the financier was not fixed with knowledge of facts giving rise to the possibility of undue influence.
5. In assessing a situation in which a family member (including someone in a de facto relationship) has executed a guarantee for the benefit of a business involving the family but in respect of which the guarantor has no (or limited) financial interest it should not be overlooked that the guarantor may have been motivated by an indirect personal advantage to be obtained as a member of the family from the success of that business.
6. In order to allay reasonable suspicion a prudent course for the financier is to insist that the guarantor be given advice by an independent solicitor and to obtain from the solicitor a certificate that the effect and implications of the documents have been explained and that the guarantor appeared to have understood the explanation.
7. If a guarantor declines to get independent advice (and the financier would be wise to have this recorded in writing signed by the guarantor), a prudent financier will endeavour to ensure that someone, preferably a solicitor, explains the documents and their consequences. The financier may be able by that means to obtain reasonable satisfaction that the guarantor has understood the transaction. Unless it can be shown that an explanation was given, it may be hard to argue plausibly that the guarantor did understand. In that circumstance, without proof that the guarantor knew what he or she was doing, the financier will be unable to remove the suspicion and so overcome the presumption. The existence of an acknowledgment by the guarantor of an understanding of the transaction may not suffice when unaccompanied by evidence of an explanation from someone competent to give it.
8. Generally speaking, it is not part of a solicitor's function to give investment or financial advice unless he or she undertakes to do so. In an Australian case involving unconscionable behaviour by a financier it has been said that the financier cannot shelter behind an assumption that a solicitor's engagement has been extended beyond the usual retainer: Teachers Health Investments Pty Ltd v Wynne (1996) NSW ConvR 56,021. But when the financier requires that an explanation and advice about the effect and implications of a guarantee be given by a solicitor, it is obvious that the solicitor cannot adequately fulfil the task without raising questions about the creditworthiness of the principal debtor and pointing out to the guarantor the need to consider the risk which may be involved. The solicitor should ensure that the guarantor has considered what he or she may be letting him or herself in for by way of financial exposure and loss of assets. If the guarantor appears not to have the ability to make an adequate assessment in the particular circumstances, either the solicitor should look into that question personally or, if an investigation is beyond his or her competence, should refer the guarantor for advice from someone appropriately qualified. Upon receiving an unqualified certificate the financier may usually assume this has occurred.
9. While it is prudent for the financier to insist that the guarantor is advised by a solicitor who is not acting for another party to the transaction, it is not for the financier to tell a solicitor how to perform his or her duties or, in other than exceptional cases, to inquire about the independence of the solicitor or the adequacy of the advice. But if an outside observer, knowing only what the financier knows, would conclude that the solicitor's independence has been compromised, the financier may not be able simply to rest on the certificate. And, if the financier had good reason to believe that the solicitor was unaware of crucial facts, known to the financier, about the transaction and the risk to which the guarantor was being exposed, consultation with the solicitor may well not have allayed the suspicion of undue influence or misrepresentation. Therefore, before accepting a certificate the financier may sometimes need to ensure that the advising solicitor had access to certain information. If the principal debtor is not prepared to permit disclosure, the financier may be unable to rely on the certificate.
10. There may be rare cases where the substance of the transaction or a term of the guarantee or security is so disadvantageous that no solicitor could properly advise signature. A financier will be unwise in these exceptional circumstances to rely upon the appearance of independent advice. At the very least, it should consider obtaining a certificate from the independent solicitor that the particular matter has been pointed out to the guarantor.
[77] In order to succeed, Mrs Harvey will have to prove that there is either actual or presumed undue influence, and that the defendant was aware of the facts giving rise to such undue influence. If it was aware of those facts, then the inquiry is as to whether it took adequate steps to allay any reasonable suspicion that undue influence had in fact been exerted.
[78] This is not a case of presumed undue influence. There is no connection whatever between Mr Donaldson and his business on the one hand and Mrs Harvey on the other. Moreover, even if the focus is upon Paul, there is no presumption of undue influence in the relationship between an elderly parent and an adult child.[6]
There is no evidence of any particular vulnerability on Mrs Harvey’s part that might
justify the argument that a presumption of undue influence arose as between her and
Paul.
[6] ASB Bank Ltd v Harlick [1996] 1 NZLR 655 (CA) at 661-662.
[79] So the inquiry must be as to whether there was any actual undue influence. There is no doubt that Paul was insistent in his pleas to his mother for assistance in facilitating this transaction, from which he himself obtained nothing concrete, but which obviously benefited him considerably in some unstated fashion. There was a suggestion that his employment was secured thereby.
[80] In a situation such as this it is not sufficient simply for the plaintiff to establish actual undue influence at the hands of Paul. She must also show that the defendant had actual or constructive knowledge of that undue influence.[7] Here, there is no evidence at all that the defendant had any knowledge, actual or constructive, of anything passing between Paul and Mrs Harvey. There is therefore no basis for a finding of undue influence.
[7] Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) at 167.
[81] For completeness it is to be noted that, as ultimately documented, the transactions involving Mrs Harvey could not be said to fall into the rare category of cases referred to at [10] of the Wilkinson analysis, namely where the substance of the transaction or a term of the guarantee is so disadvantageous that no solicitor could properly advise signature. Ultimately Mrs Harvey did derive significant benefits from the transaction and certainly gained a sufficient advantage to take the case out of the category of rare exceptional cases discussed in Wilkinson.
[82] Finally, with respect to undue influence I should mention two authorities heavily relied upon by Mr Kearney, namely Credit Lyonnais Bank Nederland November v Burch,[8] and Royal Bank of Scotland Plc v Ettridge (No.2).[9]
[8] Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 (ECA).
[9] Royal Bank of Scotland Plc v Ettridge (No.2) [2002] 2 AC 773 (HL).
[83] I consider that each of these cases is readily distinguishable on the facts. Burch was a case where there was obvious undue influence by a senior employer upon a young and trusting employee. Not only was no financial information supplied but there was no independent legal advice. The employee guarantor signed the mortgage documents in the presence of her employer at the offices of the bank’s solicitors. Although they advised her to obtain independent legal advice she chose not to do so. The transaction was manifestly disadvantageous to her; she derived no benefit whatever from it.
[84] Ettridge involved a number of cases where wives had guaranteed business obligations of their husbands. The House of Lords ruled that in such circumstances the lender was put on inquiry for the purposes of the law of undue influence, and so was bound to ensure that wives were independently advised by legal advisers with sufficient knowledge of the circumstances to give effective advice. This case does not fall into that category.
[85] I conclude that Mrs Harvey has not made out a serious question to be tried in respect of undue influence.
Unconscionability
[86] The fourth and last pleaded cause of action relies upon unconscionability. Unconscionability is to be determined as at the time of the bargain.[10] There is no such thing as supervening unconscionability, so the inquiry must be conducted as at the time of entry into the transaction. This cause of action is pleaded with considerable economy. There is a complete absence of relevant particulars. However, in summary, Mr Kearney submits that:
It is unconscionable for Mrs Harvey to be held to a guarantee and a mortgage where she was unduly influenced by her son to enter into the transaction; where she got little benefit from it; was poorly independently advised; and where she had no prospect of servicing the loan if anything went wrong; and where she was certain to lose her house if Mr Donaldson did not pay. It is submitted there is [a] serious question to be tried whether Mrs Harvey can establish her fourth cause of action and establish unconscionability.
[10] Gustav & Co Ltd v Macfield Ltd [2008] 2 NZLR 735 (SC) at [5].
[87] Relevant principles were usefully gathered together and summarised by the
Court of Appeal in Gustav & Co Ltd v Macfield Ltd:[11]
[11] Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30].
[30] We do not propose to analyse these authorities in detail. Rather, we derive the following principles from them. The principles stated are not exhaustive, but are sufficient for the purposes of this case.
1. Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.
2. This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.
3.A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party's ability to assess his or her best interests. It is an open-ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.
4.If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the
stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.
5.Before a finding of unconscionability will be made, the stronger party must know of the weaker party's disability or disadvantage and must “take advantage of” that disability or disadvantage.
6.The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.
7. “Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:
… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
8.If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.[12]
[12] This analysis was not questioned on appeal by the Supreme Court.
[88] Of particular importance for present purposes is the requirement that before a finding of unconscionability will be made, the stronger party (the defendant in this case) must know of the weaker party’s disability or disadvantage and must “take advantage of” that disability or disadvantage. The knowledge may be actual or constructive. In certain cases the stronger party may be put on inquiry.
[89] Here, there is nothing to suggest that the defendant had the requisite knowledge or that it was put on inquiry. So far as it was concerned the transaction was an orthodox lending transaction, supported by appropriate guarantees. Mr Kearney accepts that Paul was not the lender’s agent, and so the defendant cannot be fixed with constructive notice.
[90] Moreover, it is difficult to discern a qualifying disability or disadvantage on Mrs Harvey’s part. Although she was 73 years of age at the time of the transaction, it is not suggested (and could not be) that that circumstance alone would constitute a disability. As Mr Neutze submits, a disability finding on that ground would suggest that all persons of that age would be disqualified from taking part in ordinary commercial transactions.
[91] Neither is there any evidence of any other relevant disability. Mrs Harvey simply seems to have been prepared to give in to her son’s insistent demands and to accept his assurances that there was little risk. It was her choice to prefer to rely upon those assurances, rather than the advice she obtained from Mr Urlich and from Ms Inglin. It is worth noting also that the lender became aware, because so advised by its solicitors, that Paul had transferred his interest in the property to his mother. That would suggest to the defendant an element of bargaining equality as between Paul and Mrs Harvey.
[92] The defendant knew also that Mrs Harvey was in receipt of independent legal advice. In Bowkett v Action Finance Ltd,[13] Tipping J noted that it would be difficult to find a bargain unconscionable if the weaker party had received adequate independent advice. Here, Mrs Harvey did receive adequate (if not perfect) independent advice, which was to the effect that she ought not to enter into the guarantee transaction. In the face of that advice she nevertheless determined to
continue. In order to sweeten the transaction she obtained very significant benefits in the way of repayment by Mr Donaldson of her loan from the bank, and by taking a transfer of her son’s 28% interest in the house property.
[13] At 461.
[93] Ms Inglin (although not independent) says that she also pointed out to
Mrs Harvey that by executing the guarantee she was placing her property at risk.
[94] In those circumstances I do not consider that Mrs Harvey has made out a serious question in respect of the fourth cause of action.
Conclusion
[95] The plaintiff has been unable to establish that there is a serious question to be tried on any of the three causes of action presently relied upon. That being so the injunction granted by Woodhouse J on 26 October 2010 must be discharged. There will be an order accordingly.
[96] Had I been able to identify a serious question for trial, the balance of convenience clearly favoured the plaintiff who is at risk of having her home sold. Mr Neutze referred to evidence on behalf of the defendant to the effect that a prolonged delay would imperil its own funding arrangements, with consequential loss. But a situation such as the present constitutes a relatively routine risk for a lender like the defendant and I would not have been disposed to rule that the defendant’s problems outweigh the manifest prejudice that would be suffered by Mrs Harvey. Likewise the overall justice of the case would have favoured her, but for the reasons given above the injunction must be discharged.
[97] It is impossible not to have a great deal of sympathy for Mrs Harvey, who runs the risk of losing her home or at least of refinancing it at a time of her life when she needs security. But in the end she made a deliberate choice to trust her son, who seems to have led her astray. In doing so she ignored independent legal advice warning her against any involvement in the transaction.
[98] There is evidence from Mrs Harvey’s legal adviser to the effect that Paul now refuses to assist his mother either in the litigation or otherwise. If that is so, then his stance does him no credit whatsoever.
[99] For completeness I note Mr Neutze’s advice to the Court that if the injunction is discharged the defendant will take no step until at least the end of January 2011 to enforce its security. That will give Mrs Harvey a little time within which either to refinance or to effect an orderly sale of the property.
Costs
[100] The defendant is entitled to costs. In the course of his submissions Mr Neutze argued for the defendant that it was entitled to indemnity costs under r 14(6)(4)(a). I heard no argument from Mr Kearney as to costs. In those circumstances Mr Kearney is to file and serve a memorandum as to costs within 15 working days of the delivery of this judgment. The defendant’s submissions in reply are to be filed and served within a further 10 working days. Thereafter I will deal with the question of costs on the papers unless either counsel seeks an oral hearing on the point.
C J Allan J
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