Kaui v CB Mortgages Limited HC Hamilton CP35/00 - [2001] NZHC 564

IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY CP35/00

BETWEEN MARIA KAUI
Plaintiff

AND C B MORTGAGES LIMITED
Defendant

Hearing: 13, 14 & 15 June 2001
Counsel: Warren Pike and Sharon Green for plaintiff
Alan Hassall QC for defendant

Judgment: 27 June 2001

JUDGMENT OF TOMPKINS J

Introduction

[1] The plaintiff is the registered proprietor of a house property in Hamilton. It is subject to a first mortgage to the defendant. The plaintiff is seeking a declaration that the mortgage and the loan agreement that accompanies it are unenforceable, or for orders reopening the transaction or setting it aside. The grounds relied on are breach of the Securities Act 1978, undue influence, and non-disclosure and oppression under the Credit Contract Act 1981.

[2] Mr Leslie Bennett is the sole shareholder and director of the defendant. Mr Miles McKelvey was at the material time a mortgage broker.

[3] From about August 1997, Mr Bennett personally commenced making short term mortgage loans to borrowers introduced by Mr McKelvey. Mr Anthony J Nolan, a solicitor of Hamilton, was acting as his solicitor. As a result of his not being satisfied with Mr Nolan’s services, in September 1998 Mr Bennett terminated those instructions and engaged Mr Prem Kumar to act as his solicitor. Shortly afterwards the defendant was formed to carry on the lending business that Mr Bennett had previously carried on personally.

The sequence of events

[4] The plaintiff has owned her house property at 11 Cotton Street Hamilton since 1990. It was previously owned by her parents. At the relevant time it was subject to a mortgage to the Home Mortgage Company Limited under which there was then owing some $21,000.

[5] Mr Bennett said that it was in or about February 1999 that Mr McKelvey and Mr Kumar told him that Mr Kumar was acting for Focus Finance (Auckland) Limited (“Focus”), and that Focus had a number of houses it was able to purchase from the Housing New Zealand at a discounted price. He was told that Mr Watene was a director of Focus and an elder of the Mormon Church. It was the intention of Focus, having purchased the house at a discount price, to sell them to provide housing for parishioners of the Mormon Church in various places throughout New Zealand. It was necessary for Focus to pay a deposit on these bulk purchases. Focus had arranged with the investors who already owned their own homes and were willing to enter into agreements with Focus to borrow moneys on the security of the homes and make those moneys available to Focus to enable the deposit to be paid.

[6] Mr Bennett agreed that the defendant would participate. Accordingly it made four short term three month loans to lenders involved in the Focus proposal, including the plaintiff.

[7] Mr Bennett said that in the middle of July 1999 he was approached by Mr McKelvey who advised him that the plaintiff was proposing to invest in Focus and borrow moneys for this purpose over her house. He was shown a valuation of the house at $110,000. Initially he declined but later agreed to provide $70,000 on first mortgage.

[8] The plaintiff said that in mid 1999 she was visited at her home by her uncle, John Takiari, and Tuhoea Watene, who at that time was not known to her. The visit was because Mr Takiari believed that the plaintiff needed some assistance in connection with debts she had incurred. Mr Watene explained to her that he had a scheme whereby she could have her present mortgage discharged by a new loan and possibly get $10,000 as a cash option. Mr Watene told her that he was involved with Focus, which was concerned in certain transactions relating to state houses. His proposition to the plaintiff was that a new loan would be arranged, the existing mortgage repaid, Focus would receive the balance of the new loan, Focus would hold the title to the property for a year, and at the end of the year Focus would repay the new loan in full, and she would receive back the unencumbered title to her property.

[9] On 4 August 1999 Mr Watene returned. There was an alteration to the earlier proposal in that Mr Watene said that the cash option would be easier to get at the end of the deal once Focus had discharged the mortgage. She agreed to consider the proposal further. Mr Watene recommended that she see a Hamilton solicitor, Mr Nolan. He told her that Mr Nolan was an independent solicitor on whom she could rely for advice and that Focus would appoint him as her lawyer for the transaction.

[10] Mr Kumar had told Mr Bennett that he was proposing to act for the plaintiff on the transaction. However Mr Bennett said he told Mr Kumar that he insisted on the plaintiff being separately advised by some other lawyer. Mr McKelvey told Mr Bennett that he would be able to make arrangements for the plaintiff to refinance on a long term basis so that she would be able to repay the three month loan to be made by the defendant. Mr Bennett said that at that stage he was unaware the Mr Nolan was going to act for the plaintiff.

[11] On 6 August Mr Watene took the plaintiff to Mr Nolan’s office. Mr Watene told her that Mr Nolan had acted for other clients similar to her. She said that Mr Nolan explained to her that under the Focus agreement, Focus would borrow money using her title as security. With the proceeds the existing mortgage and any necessary fees would be paid and Focus would invest the balance of the money. That investment, he told her, would enable Focus to pay off her new loan in full - she would owe nothing but would receive back her title free of debt. Focus in the meantime would have the use of the loan money to invest in its state house investments.

[12] The plaintiff said that when she asked him about the risks involved, Mr Nolan told her that the risk was “fairly non existent”, that there was a safety margin and that he had dealt with other clients like her who had done similar deals with Focus. He told her that Focus had arranged the finance with the defendant.

[13] The plaintiff agreed to proceed and executed the necessary documentation. An undated memorandum of agreement between Focus and the plaintiff, with Mr Watene as guarantor, recorded the arrangement in accordance with the assurances she had been given. It provided for the plaintiff to enter into a loan contract with a lender of Focus’s choice on terms agreed between the lender and Focus. The loan was to be secured by a first mortgage against the plaintiff’s property. The proceeds were to be applied in payment of the mortgage against the property with the balance paid to Focus. Focus was responsible for all interest payments and to pay the outstanding principal at the expiry of the term of the loan. The period of the loan was to be for 12 months. On 31 July 2000 Focus was to provide the plaintiff the certificate of title to her property with the mortgage discharged.

[14] She signed a term loan contract dated 6 August 1999 showing the plaintiff as borrower, the defendant as lender and Focus as covenantor. The principal sum was $70,000 to be repaid on 6 November 1999, that is 3 months later. Ordinary interest rate was 28%, the penalty rate 30%. Under the terms of the contract, the plaintiff and Focus as covenantor were jointly and severally liable as principal debtors.

[15] She received a disclosure notice for the purpose of s 21 of the Credit Contracts Act 1981 which recorded the credit at $70,000 and the total cost of credit being interest $4900 and procuration fee and disbursements at $2100. The finance rate was shown at 31%. It is agreed that this is wrong - the correct finance rate was 40%. Finally, she signed a memorandum of mortgage that accorded with the earlier term loan contract. The plaintiff was the mortgagee, the defendant the mortgagor, and Focus the covenantor.

[16] The transaction was then put into effect. The Home Mortgage Company mortgage was discharged, although there was some delay. Mr Kumar acting for the defendant and for Focus, supplied a settlement statement showing the advance from the defendant, the repayment to the Home Mortgage Company of $21,521.92, $460 for Mr Nolan’s fees, $2,510.50 for the Kumar Law fees and a balance of $45,507.58 paid to Focus. There was no security given by Focus for what was in effect an advance by the plaintiff to Focus for that amount, nor were any other steps taken to ensure that Focus would comply with its obligations under its agreement with the plaintiff.

[17] A letter has been produced from Buddle Findlay solicitors acting for Housing New Zealand Limited addressed to Mr Kumar dated 27 July 1999. The letter was sent to Mr Kumar on Buddle Findlay’s understanding that he acted for Focus. The letter states that having given the matter considerable thought Housing New Zealand had decided not to proceed with and to cancel the agreement. The principal reason for the decision was its concern with the manner in which it believed Focus intended to deal with the properties. No further evidence was given concerning this decision or the reasons for it. However the significant fact is that the letter (which was sent by facsimile) would have been received by Mr Kumar before the transaction involving the plaintiff. Despite the information in the letter, which meant that the whole basis of the Focus proposal was gone, Mr Kumar continued. There is no evidence to show whether Mr Nolan as the plaintiff’s solicitor was aware of this development. Certainly the plaintiff seems to have been unaware of it. Mr Bennett said he was not told by Mr Kumar what had occurred, and that when the defendant made the loan to the plaintiff, he was unaware of the letter.

[18] On 10 September 1999 Mr Nolan wrote to the plaintiff saying that he had “recently been acting for [Focus] particularly to enable it to finalise loan agreements . . .”. He said that a conflict of interest has arisen which means that he can no longer act for either Focus or for the plaintiff. He suggested that she appoint her own solicitor. Neither that letter nor any other evidence established what was the nature of the conflict of interest.

[19] By late November Mr Bennett had learned that Focus was in difficulties. The time for the repayment of the loan had passed. He was told by Mr McKelvey that he had approached the plaintiff about refinancing the loan, but she had declined.

[20] On 30 November 1999, Mr Bennett visited the plaintiff at her house. This was the first time they had met. Mr Bennett said that this meeting occurred about the end of September 1999, but I think that the plaintiff is more likely to be correct. The plaintiff said Mr Bennett told her that he wanted to negotiate a way to recover his money as he could see that Focus was collapsing, that he wanted to settle out of court, and he would accept $70,000 without any interest. Mr Bennett’s account of this meeting is similar - he said he told her that he was prepared to forego some charges so long as the defendant’s principal was protected and a contribution was made towards lawyer’s fees. He said that the defendant did not want to exercise its power of sale. The meeting was unproductive. The plaintiff told Mr Bennett that he should go to Focus to get his money.

[21] The mortgage to the defendant was not repaid by Focus. Focus was placed into liquidation by order of the High Court on 6 December 1999.

[22] By a notice dated 21 December 1999 under the Property Law Act 1952, the defendant gave notice of its intention to call up the mortgage. Following the service of the notice, the plaintiff commenced proceedings claiming an interim injunction to prevent the defendant from exercising its power of sale. The defendant thereupon gave an undertaking that it would not do so, pending the hearing of these proceedings.

[23] On 23 August 2000, the solicitors then acting for the defendant wrote to the solicitors then acting for the plaintiff advising that, in accordance with s 31(c) of the Credit Contracts Act 1981, the defendant had decided to reduce the finance rate to 31% p.a. To achieve that result, the letter said that the defendant will forego and not require payment of the procuration fee and disbursements of $2100, save as to the sum of $525.

[24] On 5 June 2001, an agent for the defendant sent to the plaintiff a copy of the mortgage she had signed and an unsigned notice of disclosure requirement pursuant to s 21 of the Credit Contracts Act 1981. This disclosure was the same as the disclosure the plaintiff signed on 6 August 1999 except that the finance rate was correctly shown at 40% per annum. It made no reference to the reduction of the finance rate in the manner proposed in the letter of 23 August 2000.

[25] Two valuations were produced. The first, by Ashworth Lockwood Limited, dated 17 December 1998, addressed to Myko Finance, valued the plaintiff’s property, including certain chattels, at $110,500. It expressed the view that the property provided suitable security for a registered first mortgage advance of up to $77,000. That recommendation was subject to certain conditions, including the lender being fully satisfied with the borrower’s ability to meet mortgage commitments and a full relining and redecoration of the interior.

[26] The second valuation is by Findlay & Co., dated 2 August 1999, addressed to Focus. It assessed the current market value of the property, excluding chattels, at $87,500. It did not contain any express recommendation.

[27] Four of the main players in the events that occurred, namely, Mr Nolan, Mr Kumar, Mr Watane and Mr McKelvey, were not called to give evidence by either party. To the extent that this judgment may contain express or implied criticisms of the conduct of any of them, I should make it clear that any such criticism is based solely on the evidence put before me in this case, and without my having the benefit of any explanation from any or all of these four persons.

The claim and counterclaim

[28] The amended statement of claim pleads four causes of action. The first is that the transaction was illegal under the Securities Act 1978 in that the scheme provided by Focus involved an allotment of securities to the public, that no registered prospectus was prepared or presented to the plaintiff as required by the Act, that a debt security was issued to the plaintiff by Focus, that the allotment of securities was void, as was the Focus agreement, that the defendant knew the nature, purpose and particulars of the Focus investment scheme, and that the purpose of the loan advance was to allow the plaintiff to participate in the scheme as a consequence of which the loan agreement and the mortgage are void and unenforceable.

[29] The second cause of action is undue influence. The plaintiff alleges that there was undue influence on her by Mr Watene and Mr Nolan and that the defendant knew that Mr Watene was introducing lenders to it to enable them to participate in the Focus scheme, those lenders not being able to repay the loans. The plaintiff seeks orders setting aside the loan agreement and restraining the defendant from exercising the power of sale.

[30] The third cause of action is based on an allegation of failure to make proper disclosure under the Credit Contracts Act 1981 in that the disclosed finance rate of 31% per annum should have been disclosed at 40% per annum.

[31] The fourth cause of action is also based on the Credit Contracts Act 1981. It alleges that the loan agreement and mortgage were entered into in contravention of reasonable standards of commercial practice and were thereby oppressive, induced by oppressive means and intended to be enforced by the defendant in an oppressive manner. The plaintiff seeks a reopening of the loan agreement and mortgage and an order setting them aside.

[32] The defendant denies the allegations made in the amended statement of claim. By way of counterclaim seeks to recover the principal sum of $70,000, procuration fees and disbursements limited to $525 (in order that the finance rate is then properly disclosed at 31%) and interest on these amounts at the penalty rate of 30%. Alternatively it seeks an order that s 24 of the Credit Contracts Act 1981 should not apply in respect of the failure to make initial or other disclosure. A third cause of action in the counterclaim is that, as the non disclosure was inadvertent, the relevant provisions of the Act should not apply. Finally, the defendant seeks in the alternative an order under s 7 of the Illegal Contracts Act 1970 validating the loan agreement and the mortgage.

The Securities Act cause of action

[33] This cause of action is founded on s 37(1) and (4) of the Securities Act 1978. Those subsections provide:

‘(1) No allotment of a security offered to the public for subscription shall be made unless at the time of the subscription for the security there was a registered prospectus relating to the security.

(4) Any allotment made in contravention of the provisions of this section shall be invalid and of no effect.’

[34] Although there is no direct evidence, it is a reasonable inference from the evidence as a whole that there was no registered prospectus relating to the Focus proposal.

Allotment of a security

[35] ‘Security’ is defined in the Securities Act as meaning ‘any interest or right to participate in any capital, assets, earnings, royalties, or other property of any person; and includes . . . (b) a debt security . . .’ The agreement between the plaintiff and Focus creating the debt was a debt security within the meaning of the Securities Act.

[36] Mr Pike submitted that the action of Focus in accepting the offer of the plaintiff to participate in the Focus scheme and the resulting loan by Focus to the plaintiff amounted to an allotment of a security within the meaning of s 37(1). In support, he referred to the observation of Richardson J in Re AIC Merchant Finance Ltd [1990] 2 NZLR 385, 389:

‘However, in contract terms, allotment by the company was the acceptance of the offer by the particular investor to place the funds on deposit with the company pursuant to the prospectus and on that security. As with any other contract, acceptance had legal effect on communication of that acceptance (i.e. the allotment) to the investor . . .’

[37] I accept Mr Pike’s submission. There was a debt security that, in terms of Richardson J’s observation in AIC, was in effect allotted to the plaintiff when the plaintiff and Focus entered into the security agreement.

Offered to the public

[38] The real issue under this cause of action was whether the security, including the involvement in the Focus proposal, was ‘offered to the public for subscription’ within s 37(1) of the Securities Act.

[39] The plaintiff called evidence from three other persons, Mr Puke, Mr Huirama, and Mr Nepia. Each of them said that, following an approach from Mr Watene, they decided to participate in the State house investment scheme operated by Focus which Mr Watene was promoting. In each case the method of participation was the same, namely the raising of a mortgage on the house property owned by the witness that was used to repay an existing mortgage with the balance being paid to Focus. In two of these three cases, the mortgage raised was in favour of the defendant, but in one of those two cases that was clearly in error as the mortgage was immediately transferred to another. In each of these three cases, Mr Nolan acted for the participants, apparently on the introduction of Mr Watene.

[40] Mr Bennett, in his evidence, said that the defendant advanced money to four participants in the Focus proposal out of a total of 17 persons from whom Focus borrowed. He did not state the source of this information.

[41] Section 3(1) and (2) of the Securities Act 1978 provide:

“3 Construction of references to offering securities to the public - (1) Any reference in this Act to an offer of securities to the public shall be construed as including -

(a) A reference to offering the securities to any section of the public, however selected; and

(b) A reference to offering the securities to individual members of the public selected at random; and

(c) A reference to offering the securities to a person if the person became known to the offeror as a result of any advertisement made by or on behalf of the offeror and that was intended or likely to result in the public seeking further information or advice about any investment opportunity or services,-

whether or not any such offer is calculated to result in the securities becoming available for subscription by persons other than those receiving the offer.

(2) None of the following offers shall constitute an offer of securities to the public:

(a) An offer of securities made to any or all of the following persons only:

(i) Relatives or close business associates of the issuer:

(ii) Persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money:

(iii) Any other person who in all the circumstances can properly be regarded as having been selected otherwise than as a member of the public:

(b). . .”

[42] As to the meaning of the public in the context of this section, Mr Hassall referred to the decision of the High Court of Australia in Lee v Evans [1964] 112 CLR 276. At 285-286, Barwick CJ said:

“But whether the question is whether the invitation is ex facie an invitation to the public or whether an invitation has become an invitation to the public by reason of the nature or extent of its issue, the basic concept is that the invitation, though maybe not universal, is general; that it is an invitation to all and sundry of some segment of the community at large. This does not mean that it must be an invitation to all the public either everywhere, or in any particular community. How large a section of the public must be addressed in a general invitation for it to be an invitation to the public in the relevant connection must depend on the context of each particular enactment and the circumstances of each case.”

In the same case Kitto J stated, at p 286:

“I am of the opinion that the Magistrate was right in holding that the expression “invitation to the public” means an invitation made to the public generally and capable therefore of being acted upon by any member of the public. This appears to me to be the natural meaning of the words, and I see nothing in the context to require or justify the adoption of any other meaning.”

[43] In Hurst v Vestcort (1988) 12 NSWLR 394, 404, Kirby P observed:

‘Similarly, the fact that by its very nature an offer is effectively only capable of being accepted by a particular group of persons does not render its character any the less an offer to the public. It is the generality of the offer which gives it the character which attracts the operation of the statute’.

[44] To come within paragraph (a) of subs (1), the offer must be ‘to any section of the public, however selected’. So it does not have to be an offer to the whole world. In Darvell and Clarke, Securities Law in New Zealand (1983) the learned authors observed at paragraph 5.09:

‘This does not mean that every offer made to a limited number of persons is an offer to the public - the offer must be made to persons who constitute a “section of the public”. If the offer is not made to persons as members of the public (however many offerees there are) the offer is not made to the public. On the other hand, if the offer is made to persons as members of the public the offer is made to the public, however few offerees there are.’

[45] To come within paragraph (b) of subs (1), the offer must be ‘to individual members of the public selected at random’. Neither counsel referred to any authority on the meaning of the phrase ‘at random’. The New Shorter Oxford English dictionary includes in its definition of the phrase: ‘Haphazardly, without aim, purpose, or principle’. In my view, the phrase is used in that sense, so it is a reference to persons selected in a haphazard manner, by chance, not according to any particular pattern or principle.

[46] Paragraph (c) of subs (1) does not apply since there is no evidence of any advertisement relating to the Focus proposal.

[47] This element of the cause of action suffers from the lack of evidence from Mr Watene, Mr McKelvey, or some other person fully familiar with the Focus proposal and the method adopted to raise finance, and in particular to select the persons invited to participate. The only direct evidence is that of the four witnesses to whom I have referred. In the case of the plaintiff, her involvement was apparently at the instigation of her uncle. The other three witnesses did not state how they came to be involved, save that they were approached by Mr Watene.

[48] At least from the evidence of these four, there does seem to be some common characteristics, namely that they were persons who were unsophisticated in financial matters, who owned houses of modest value that had a relatively substantial equity, and who, because of debt, were attracted to the possibility of obtaining money and having their property returned free of mortgage. Apart from these characteristics, there is no evidence about how they were selected, how others were selected, how many offers were accepted by Focus, whether the proposal was open for acceptance by other members of the public if the offer were not open for general acceptance, how the section of the public to which it was open was defined, or other evidence to show that the offer was to the public, not to individually selected persons, that it was, to use Kitto J’s expression in Lee, an invitation made to the public generally.

[49] In the absence of evidence of this kind, I am unable to find that there was an offer of securities to the public within s 3 of the Securities Act. The evidence simply fails to establish that there was such an offer to the general public in the manner required by the section.

The defendant’s involvement

[50] In case I am wrong in the conclusion I have expressed and that there had been an allotment of security offered to the public in contravention of s 37 as a consequence of which that allotment was invalid and of no effect, I should consider the final requirement that the plaintiff would need to establish to have the loan to her from the defendant struck down, namely that the defendant was a knowing party to the illegality.

[51] It was Mr Pike’s submission that the defendant knew that repayment of its loan was dependent on the performance of the Focus investment scheme. Focus’s liability as covenanter under the loan and mortgage reflected the interdependence of the loan arrangements between the plaintiff, Focus, and the defendant.

[52] It was Mr Hassall’s submission that before the loan from the defendant to the plaintiff can be found to be invalid and of no effect, the plaintiff had to establish that the defendant was a knowing party to the illegality resulting from the allotment of the debt security to the plaintiff. It was not sufficient for the plaintiff to show that the Focus scheme was known to the defendant. The plaintiff had to show that the defendant was a knowing party to the illegality, namely the allotment to the plaintiff of the debt security offered to the public without a registered prospectus.

[53] This issue was considered by Fisher J in DFC Financial Services Ltd v Abel [1991] 2 NZLR 619. Commencing at 630, he considered the position of loans made as part of an unlawful scheme. After reviewing the relevant provisions of the Securities Act and relevant authorities, he concluded at 631:

‘Fundamentally then it is a question of statutory intention. Obviously the legislative intended that where there was a breach of s 37(1), any contract forming part of the allotment itself would be void. Section 37(4) says so in so many words. But I do not think that the legislative intended to go beyond that to strike down the loans of lenders to the subscribers where the lenders had not been knowing parties to the illegality.’

[54] The nature of Mr Bennett’s knowledge of the Focus proposal is set out above in [5]. On that evidence, I accept that Mr Bennett knew the general nature of the Focus proposal as it had been described to him by Mr McKelvey. Mr Bennett said in cross-examination that he did not know that there was a liability on Focus to repay the whole of the amount the plaintiff was borrowing from the defendant. He also said that he had not seen the agreement between Focus and the plaintiff until the commencement of these proceedings.

[55] But I accept Mr Hassall’s submission that it is not enough for the plaintiff to prove that the defendant knew the nature of the Focus proposal. For the loan from the plaintiff to the defendant to be held invalid, it would be necessary for the plaintiff to prove that the defendant was aware of the illegality, that is of the facts that resulted in a breach of s 37(1) rendering the allotment invalid and of no effect.

[56] Mr Pike submitted that the defendant should be held to have knowledge of the illegality through its agent, Mr Kumar. Mr Kumar was acting for Focus. Assuming that in his capacity as Focus’s solicitor he was aware of the facts constituting a breach of s 37, since Mr Kumar was also the agent of the defendant, the defendant should be held to have knowledge of those facts also. Mr Pike referred to the decision of the Court of Appeal in Jessett Properties v UDC Finance [1992] 1 NZLR 138, 143 where Hardie Boys J, delivering the judgment of the court, stated the general principle to be that notice given to or knowledge acquired by an agent is imputed to his principal only if the agent was at the time employed on the principal’s behalf. However, later he observed that knowledge acquired before the agency began or probably even during its agency but outside the scope of the engagement should not in general be imputed to the principal. Hardie Boys J referred to the judgment of Lord Halsbury LC in Blackburn Low & Co v Thomas Vigors (1887) 12 App Cas 531, 537-538, where his Lordship pointed out that the somewhat vague use of the word ‘agent’ leads to confusion and added:

‘Some agents so far represent the principle that in all respects their acts and intentions and their knowledge may truly be said to be the acts, intentions and knowledge of the principal. Other agents may have so limited and narrow an authority both in fact and in the common understanding of their form of employment that it would be quite inaccurate to say that such an agent’s knowledge or intentions are the knowledge or intentions of his principal . . . . ‘

[57] Mr Kumar was instructed to act for the defendant only in connection with the mortgage advance to the plaintiff. Those instructions did not include advising the defendant on whether to make the advance. It was Mr Bennett who made that decision. Mr Kumar was not in any respect acting for the defendant in connection with the Focus proposal. Any knowledge Mr Kumar may have acquired concerning the facts that may result in a breach of s 37 were completely outside the scope of his engagement by the defendant. As to Mr Kumar’s knowledge of the cancellation of the agreement by Housing New Zealand which he acquired in his capacity as the solicitor for Focus, that too was outside the scope of Mr Kumar’s engagement by the defendant.

[58] There are two other aspects. First, the evidence does not establish whether Mr Kumar was aware of all the facts that could amount to a breach of s 37, namely the allotment to the plaintiff of a debt security offered to the public without a registered prospectus. It is not a necessary inference that he knew the basis upon which the proposal was being offered to members of the public. The evidence is silent on that aspect.

[59] Even if he did, and accepting that he knew of the cancellation of the agreement by Housing New Zealand, it is clear that he acquired such facts when he was acting as Focus’s solicitor. As Mr Hassall submitted, for Mr Kumar to have disclosed those facts to another client, the defendant, without the authority of Focus, would be in breach of his duty of confidentiality. For these reasons, I do not consider that any knowledge of the illegality that Mr Kumar may have had assists the plaintiff.

[60] There is no evidence on which I could make a finding that the defendant, through Mr Bennett, was aware of the facts necessary to show that Focus was making an allotment of the security that had been offered to the public for subscription without the issue of a registered prospectus. The defendant has therefore not been shown to be a knowing party to the illegality.

Conclusion

[61] For the reasons I have set out above, the plaintiff cannot succeed on the Securities Act cause of action.

The undue influence cause of action

[62] The nature of the equitable doctrine of undue influence was explained by Richardson J in Contractors Bonding Ltd v Snee [1992] 1 NZLR 157, 165:

‘[U]ndue influence consists in the gaining of an unfair advantage by an unconscientious use of power by a stronger party against a weaker in the form of some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some personal advantage obtained by the stronger party. It is directed at conduct within a relationship which justifies the conclusion that the disposition or agreement was not the result of a free exercise of the disponer’s will. The doctrine is founded on the principle that equity will protect the party who is subject to the influence of another from victimisation.’

[63] The test was also expressed by Gault J, delivering the judgment of the Court of Appeal, in ASB Bank Ltd v Harlick [1996] 1 NZLR 665, 659:

‘This case can be decided without the need to settle any more precise test than that the relationship must involve such degree of reliance and trust as suggests a real risk that a disadvantageous transaction has not resulted from the kind of informed and independent decision to be expected from a person in the position of the party seeking relief but rather from the influence the other party to the relationship has in that position.’

[64] The first submission advanced on behalf of the plaintiff is that the plaintiff was induced to enter into the transactions, including the mortgage in favour of the defendant, by misrepresentations to her by Mr Watene and Mr Nolan about the risks associated with the Focus scheme. As I have stated, the plaintiff says that Mr Nolan told her, when she asked him about the risks involved, that the risk was ‘fairly nonexistent’ and that there was a safety margin. Whether or not she was given this assurance by Mr Nolan, what is remarkable - at least on the evidence before me in this case - is that Mr Nolan, who was engaged specifically to give independent advice to the plaintiff, allowed her to proceed with a proposal that involved her mortgaging her house for an amount far larger than the existing mortgage, and paying that balance over to Focus without any form of security whatever, or any other guarantee, save Mr Watene’s covenant, that the amount advanced to Focus would ever be repaid, much less the whole of the advance, as the contract with Focus required.

[65] The terms of the transaction were leaving her exposed to the liability to repay the whole of the loan after three months, or to refinance for a larger amount, including the unpaid interest and procurement fees. It is reasonable to assume that Mr Nolan would have enquired about her financial position, in which case he would have learned that she had no other assets, that her only source of income was the domestic purposes benefit, and that she lacked the means to pay the interest on the debt, still less to repay the principal sum after only three months. But I emphasise that I have expressed this view without hearing from Mr Nolan, who may have some explanation for what would otherwise appear to be a dereliction of his duty properly to advise his client. The plaintiff did not say that, either at this meeting or earlier meetings, Mr Watene did anything other than explain to her the nature of the proposal.

[66] Apart from the obvious risks involved, it is difficult to see on the evidence presently before me any unfair or improper conduct or advantage being obtained by Mr Watene on behalf of Focus, even accepting that he and it could be regarded as the stronger party. I certainly accept that the plaintiff’s appreciation of financial matters generally, and the risks involved in this transaction in particular, were very limited, but that in itself is not sufficient to amount to undue influence. The kernel of the problem in the present case appears to have been the failure by Mr Nolan to give the plaintiff the advice to which she was entitled. But that is something quite different from undue influence.

[67] Even if, in some manner that I have not appreciated, the conduct of Mr Watene and Mr Nolan amounted to undue influence, I do not accept the submission that the defendant should be liable for the consequences, with the result that it should not be allowed to enforce its security. In the absence of any evidence to the contrary, there is no reason not to accept Mr Bennett’s evidence that when Mr Kuma said he was proposing to act for the plaintiff, Mr Bennett said that he required the plaintiff to be independently advised. That was an entirely proper approach. Mr Bennett said, and again there is no evidence to the contrary, that he did not know that the plaintiff was consulting Mr Nolan. But even if he did, that would not affect the position. Mr Nolan was independent. Certainly he had acted for Mr Bennett about 10 months earlier, but that relationship had been terminated. There is no evidence to show that Mr Nolan was in some way influenced to give advice that was favourable to Focus and adverse to the interests of the plaintiff.

[68] With one possible exception, nor is there any evidence to show that Mr Nolan was not fully informed of all the material facts. Mr Watene was present at the interview between the plaintiff and Mr Nolan. Mr Nolan had all the documentation. He knew exactly what was involved in the transaction, at least as it affected the plaintiff. He was in a position where he was able to give her independent and informed advice. The possible exception relates to the termination of the agreement with Focus, as notified to Mr Kumar on behalf of Focus by Housing New Zealand in the letter of 27 July 1999. It is reasonable to assume that Mr Watane was aware of it. But there is no evidence to show whether Mr Nolan knew. If he did, his duty to advise the plaintiff not to proceed with the transaction would have been all the greater, as that termination removed the whole foundation of the proposal. But that he appears not to have so advised the plaintiff cannot, in my view, in any way be regarded as the responsibility of the defendant or of Mr Bennett.

Conclusion

[69] For these reasons, the undue influence cause of action cannot succeed.

The Credit Contracts Act - non-disclosure cause of action.

[70] The plaintiff submits, and the defendant accepts, that the defendant failed to make proper disclosure of the finance rate under the loan agreement in that it disclosed a finance rate of 31% p.a. when the finance rate under the terms of the loan agreement, properly calculated in accordance with the Credit Contracts Act 1981, should have been disclosed at 40% p.a. The defendant also accepts that the loan agreement and the mortgage comprise a controlled credit contract by virtue of the requirements of s 15(1), the defendant being a financier acting in the course of its business.

[71] Material to this cause of action are ss 24 and 25 of the Credit Contracts Act. The relevant parts of those sections are:

“24 Enforcement of contract before disclosure prohibited - Where initial disclosure, continuing disclosure . . . relating to, a controlled credit contract is required by this Act to be made, subject to sections 31 to 33 of this Act, no person (other than a debtor under the contract) may,-

(a) Enforce the contract; or

(b) Enforce any right to recover property to which the contract relates; or

before the disclosure is made:

Provided that. . .

25 Penalty for failure to make initial disclosure - (1) If initial disclosure of a controlled credit contract is not made in accordance with section 16(1) of this Act (whether or not the disclosure is subsequently made), then, subject to sections 31 to 33 of this Act,

(a) The liability of every debtor and guarantor under the contract to pay an amount equal to the specified amount shall be extinguished and every provision of the contract to the contrary shall be of no effect; and

(b) Subject to paragraph (a) of this subsection, the contract shall have the same force and effect as if this subsection did not apply thereto.

(2) In this section, the term “specified amount” means the smaller of the following amounts:

(a) An amount equal to three times the part of the total cost of credit that relates to the period from the day the contract is made until the earlier of the following days:

(i) The day on which initial disclosure is made:

(ii) The day that is 8 months after the day the contract is made:

(b) The total cost of credit payable under the contract.

[72] The defendant submits that it did subsequently disclose the true finance rate of 40%. Mr Hassall referred to the statement of defence and counterclaim dated 25 August 2000 and the letter from the defendant’s solicitors to the plaintiff’s solicitors of 23 August 2000, which reduced the cost of credit to make the correct finance rate 31%. 1 do not consider that either of these events represented disclosure of the correct finance rate under the contract. Neither complied with the requirements of s 21 and the Second Schedule. Proper initial disclosure was not made until the full set of replacement documents, including a discloser document showing the correct finance rate at 40% pa, was served on the plaintiff on or about 6 June 2001.

[73] Under s 5 of the Credit Contracts Act, the ‘total cost of credit’ includes the total of all money that the debtor may become liable to pay by virtue of the contract. In the present case, the total cost of credit was interest of $4900, and procuration fees and disbursements of $2100, a total of $7000. As that is the smaller of the two amounts in subs 25(2), that amount is the specified amount that is extinguished under paragraph (a) of subs 25(1).

[74] Mr Hassall submitted that the defendant should be relieved from penalties for its failure to disclose under s 31 of the Credit Contracts Act 1981. That section provides that ss 22 to 24 of the Act shall not apply in respect of a failure to make initial disclosure if the creditor shows that -

“(a) The failure was due to inadvertence or to events outside the control of the creditor; and

(b) Disclosure was made as soon as reasonably practicable after the failure was discovered by the creditor or brought to his notice; and

(c) Where disclosure documents relating to the contract state as the finance rate of the contract a rate that is less than the correct finance rate, the creditor has reduced the finance rate of the contract to the rate disclosed in those documents; and

(d) The creditor has compensated or offered to compensate the debtor under the contract for any prejudice caused the debtor by the failure; and

(e) . . . (Not applicable)”

[75] It will be noted that each one of the five requirements, if applicable, must be shown before the relevant section does not apply. I consider that the defendant has failed to comply with the requirements of the section in two respects.

[76] First, no evidence was given concerning how the failure arose. Whoever was responsible for the preparation of the disclosure document did not give evidence. I do not know whether that person was Mr Kumar, Mr Watene, or somebody else. Nor do I know why the wrong interest rate was inserted. Mr Hassall submitted that the failure was due to inadvertence but he did not call evidence to establish that that was so.

[77] Secondly, the evidence does not establish that correct disclosure was made as soon as reasonably practicable after the failure was discovered by the defendant or brought to its notice. There is no evidence about when the failure was discovered or brought to the notice of the defendant. It had been discovered by the 23 August 2000, being the date of the letter offering to reduce the amount for procurement fee and disbursements, but proper disclosure in the manner required by the Act was not made until 6 June 2001.

[78] For these reasons, I am not prepared to hold that s 25 shall not apply.

[79] Mr Hassall submitted that in that event the court should reduce the penalty under s 32. That section provides:

“32. Power of Court to reduce penalty - (1) The Court may, on the application of a creditor under a credit contract, order-

(a) That any of sections 24 to 28 of this Act shall not apply in respect of a credit contract, or modification contract, or any class or classes of such contracts[, or a guarantee]; or

(b) That an amount for which liability has been extinguished pursuant to any of those sections be reduced to an amount specified by the Court.

(2) In deciding whether to make such an order, the Court shall have regard to the following matters:

(a) Whether the creditor is a financier:

(b) The extent of, and the reasons for, the non-disclosure:

(d) Such other matters as the Court thinks fit.

(3) Any order under this section may be made on such terms and conditions as the Court thinks fit.”

[80] In Anderson v Burbery Finance Ltd [ 1988] 2 NZLR 196, the Court of Appeal discussed the nature of the discretion given by s 32:

‘This is a wide discretion and should be exercised to do justice between the parties while at the same time setting standards which, particularly for financiers, ensure the objects of the legislation are promoted and achieved. The Act expects reasonable standards of commercial practice to be maintained and the Court should support that principle. It may be necessary in some cases where there has been a flagrant disregard for the provisions of the Act to give the Act “teeth” by upholding the penalties as a deterrent to that creditor and others. On the other hand the breach may be excusable and justify complete remission of the penalties under s 32(1)(a). Of course, there will be cases where some relief will be appropriate. It is entirely a matter for the Court’s discretion having regard to the matters set out in s 32(2) and to the facts of the particular case.’

[81] In considering whether to grant relief, and if so to what extent, I have had regard to the following factors.

[a] The extent of the non-disclosure was substantial. There is a significant and potentially misleading difference between disclosing a finance rate of 31% and a finance rate of 40%.

[b] There is no direct evidence of the reason for the error in the disclosure rate. Mr Hassall invited me to infer that whoever made the calculation overlooked the difference between a three months loan and a twelve months loan. That may be so, but it would have been preferable for the person who made the calculation to give that
evidence rather than leave it to the court to assume it.

[c] It is difficult to judge the extent to which the plaintiff may have been prejudiced by the failure to disclose the correct finance rate. The possibility cannot be excluded that had she seen a figure of 40%, she may have reacted, possibly to the extent of declining to go ahead with the proposal. However, it was apparent from my observation of her that she was a person almost totally lacking in any appreciation of financial matters. She was relying on her lawyer, Mr Nolan, to advise her on all aspects of the transaction. It is, I think, more likely that had the correct finance figure been disclosed, that would have passed her by, unless it had been drawn to her attention by Mr Nolan.

[d] Mr Nolan, as her legal adviser, ought to have checked the finance rate to ensure that it was correct. From the fact that the error was not discovered, it is a reasonable inference that he did not do so. Had the correct finance rate of 40% been disclosed, it is possible that Mr Nolan may have drawn that to the attention of the plaintiff and advised her to think again about whether or not to proceed. But the quality of the advice that Mr Nolan did give her was, on the information before this court, so woefully inadequate that I think it more likely that if the correct finance rate had been inserted, he would have given no advice in respect of that either.

[e] On a consideration of all these factors, it has not been established that the plaintiff was prejudiced by the failure to disclose the correct finance rate.

[f] In United Fisheries v Patrikios Holdings Ltd [1989] 3 NZLR, the Court of Appeal agreed with an observation by the trial judge, Holland J, when considering factors relating to penalty that he ‘must counterbalance these findings with the provision that the defendant as a financier should be required to suffer financially because of its failure to comply with the Act’.

[g] There is merit in Mr Pike’s submission that where, as here, interest rates are high, there should be an even greater burden to ensure that borrowers are getting proper disclosure so that they know accurately what is the cost of the transaction to them expressed as an accurate finance rate.

[h] The defendant’s offer to reduce the procuration fee and disbursements to an amount that accords with the finance rate of 31% disclosed.

[82] Having considered all these factors, it is my conclusion that the total cost of credit should be reduced by $2,000 as a penalty for the failure to make the correct initial disclosure.

Credit Contracts Act - oppression

[83] The plaintiff seeks an order re-opening the loan agreement and the mortgage with consequential orders setting aside in whole the loan agreement and the mortgage and restraining the defendant from exercising its power of sale. This relief is sought on the grounds that the loan agreement and the mortgage were oppressive, were induced by oppressive means, and were intended to be enforced by the defendant in an oppressive manner by the unconscionable exercise of its power of sale under the mortgage.

[84] Section 9 of the Credit Contracts Act 1981 defines ‘oppressive’ as meaning ‘oppressive, harsh, unjustly burdensome, unconscionable, or in contravention of reasonable standards of commercial practice’.

[85] Section 11 of the Credit Contracts Act sets out guidelines for re-opening credit contracts. Relevant to the present case are all the circumstances relating to the making of the contract and whether the finance rate is oppressive.

[86] In considering the approach to this issue, I have had regard to the judgments of Vautier J in Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland) Ltd [1984] 2 NZLR 1, Wylie J in Shotter v Westpac Banking Corporation [1988] 2 NZLR 316, Smellie J in Cambridge Clothing Co Ltd v Simpson [1988] 2 NZLR 340, and Tipping J in Bowkett v Action Finance Ltd [1992] 1 NZLR 449. Bowkett was not a case under the Credit Contracts Act - rather, it was concerned with whether a bargain was unconscionable under equitable principles. Tipping J, when considering the passive acceptance of a benefit in unconscionable circumstances, said at 457:

‘I regard that latter concept as meaning that there must be 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”.’

[87] Although this comment was made in the context of an application for an equitable remedy, it is also applicable in considering whether a transaction was unconscionable and therefore oppressive within the meaning defined in s 9.

[88] Later in his judgment, Tipping J said:

‘An examination of the case law leads me to the view that the following circumstances will normally be present when the Court finds an unconscionable bargain:

(1) The weaker party is under a significant disability.

(2) The stronger party knows or ought to know of that disability.

(3) The stronger party has victimised the weaker in the sense of taking advantage of the weaker’s disability, either by active extortion of the bargain or passive acceptance of it in circumstances where it is contrary to conscience that the bargain should be accepted.

(4) There is a marked inadequacy of consideration and the stronger party either knows or ought to know that to be so.

(5) There is some procedural impropriety either demonstrated or presumed from the circumstances.

The foregoing does not purport to be a definitive or an exhaustive analysis.’

[89] He went on to observe that not all the elements need be shown but obviously elements (1), (2) and (3) are crucial, and one could hardly have an unconscionable bargain without a disability in the weaker party and knowledge in taking advantage thereof by the stronger party.

The circumstances relating to the making of the contract

[90] The Focus proposal, of which the raising of a loan against her property was an essential part, was put to the plaintiff by Mr Watene on behalf of Focus. There was no direct contact between the plaintiff and Mr Bennett, on behalf of the defendant, until they met in the circumstances I describe in [21]. The details of the transaction were first put to the plaintiff when she was taken by Mr Watene to Mr Nolan for him to give her independent advice relating to the proposed terms. It was there that she first had the opportunity to consider the detail, including the term in the agreement between the plaintiff and Focus in which she agreed to enter into a loan contract ‘with a lender of the company’s choice on the terms as agreed to between the lender and [Focus]’. She agreed to secure the advance from the lender by way of first registered mortgage against her property. It was at the same meeting that she signed the term loan contract under which she agreed to borrow $70,000 from the defendant, Focus being the covenantor.

[91] Mr Pike submitted that Mr Bennett must have been aware that Focus was in need of money for deposits towards its State house purchases and that that was the reason why it was approaching persons such as the plaintiff. He submitted that the defendant knew, or ought to have known, that Focus was integral to the plaintiff’s ability to repay the loan.

[92] The plaintiff can be said to be under a disability in the sense that she lacked the ability to understand the nature of a transaction such as the present and the significance of the commitment into which she was entering. However, Mr Bennett did not know any more than the general nature of the Focus transaction. He had never met the plaintiff. He knew nothing of her personal circumstances or her ability to understand the risks inherent in the Focus proposal, including the short term loan from the defendant. Nor is there any evidence to show that Mr Kumar, as the defendant’s solicitor, knew anything of the plaintiff’s personal circumstances. It was not the defendant that victimised the plaintiff by pressuring her into entering into a risky transaction. If it were anybody, it was Mr Watene on behalf of Focus.

[93] A further significant element is the fact that she was taken to Mr Nolan for independent advice. That was at Mr Bennett’s insistence, Mr Kumar initially indicating that he was proposing to act for her also. I accept that the fact that she had independent advice is not conclusive, but it is certainly relevant that it was the very party said to have been acting oppressively who insisted on this course being adopted. That she had independent legal advice should have reduced substantially the disability she would otherwise have been under.

The finance rate

[94] It was submitted on behalf of the plaintiff that in the circumstances of this case a finance rate of 40% was oppressive and in contravention of reasonable standards of commercial practice. It was the case for the defendant that the interest rate and the financial rate were within the normal range for what was referred to as ‘third tier lending’.

[95] In explanation of that term, Mr Bennett said that in the lending world, first tier lending was by banks, whose interest rates in 1998 were between 9% and 12% on first mortgage. The bank would require a valuation and statement of position and information about the borrower’s ability to meet the commitments. Second tier lending was mainly by finance companies who were at that time lending at between 15% and 22%, with the rate depending on the security provided. Again, such a lender would require a valuation, a statement of position, and confirmation of income. Third tier lenders were prepared to take a greater risk than first or second tier lenders. They made quick decisions without documentary information, relying on verbal assurance from the broker and on what was perceived to be the equity available in the security. The lending was frequently for bridging finance. Fourth tier lending he described as lending of last resort.

[96] In the present case, no information was provided to the defendant apart from the Ashworth Lockwood valuation of 17 December 1998, valuing the property at $11500. The second valuation by Findlay & Co. dated 2 August 1999, addressed to Focus, valuing the property at $87,500, was not made available to the defendant. Although Mr Bennett made a rapid decision to provide the finance (after he had inspected the property from the road), this was not a case of a borrower being under intense financial pressure and requiring the loan quickly. The plaintiff did have substantial debts resulting from a motor accident, but she said the insurance companies concerned were not pressing her for payment. Mr Bennett did know that the plaintiff wanted the loan to be able to participate in the Focus proposal, about which he had general, but not detailed, knowledge.

[97] To the extent that it is helpful to place the lending within the three categories described, it appears to me that this lending proposal fits more within the third category than either of the previous two.

[98] For the plaintiff, evidence on this issue was called from two witnesses. Mr van Oosten operates his own merchant banking and brokerage business in Hamilton. He expressed the opinion that no prudent commercial lender would advance this amount of money to a person such as the plaintiff only on the value of the mortgage security. A responsible lender would decline to make such a loan. In those circumstances, he considered that the loan was not in accordance with accepted standards of commercial lending practice. However, it transpired in cross-examination that Mr van Oosten had only limited experience in the area of what was referred to as ‘third tier lending’ where the risks, and hence the interest and finance rates, can be expected to be higher.

[99] Mr O’Shea is a lawyer with a long experience in commercial and conveyancing transactions. He regarded the transactions, evidenced by the documents, as extraordinary when compared to current rates of interest prevailing in 1999 from small lenders and banks. What was outstanding in his view was the unreality of the loan transactions when compared to the ability of the borrower to repay the loan. Mr O’Shea has had some experience of transactions in the category of the present, but it appeared not to be extensive or recent.

[100] For the defendant, evidence was called from Mr Pilson, a finance broker from Tauranga. He said that he had been involved recently in transactions where the interest rates varied from 20% to 30% and finance rates between 30% and 200%. The finance rate tends to be large primarily because of the procuration fees and reflecting the short-term nature of the advance. Where urgency is involved, the procuration fee tends to be higher. He said that where short-term loans occur, reliance is primarily on the equity, not upon the borrower’s cashflow for payment, on the assumption that if the equity is sufficient, it can be refinanced at the end of the term. He expressed the opinion that the interest and finance rates in the present case were usual and acceptable in the case of third tier lenders.

[101] I have reached the conclusion that, in the circumstances of the present case, the finance rate and the terms of the loan generally were not oppressive within the meaning of the Credit Contracts Act, for these principal reasons.

[102] First, the plaintiff entered into the transactions, including the borrowing from the defendant, for her own speculative reasons. Had the Focus transaction proceeded as intended, she stood to gain, in the end, a little over $21,000 through making the equity in her home available to Focus for 12 months. She elected to participate in what can fairly be described as a ‘get rich quick’ scheme for her own benefit. Borrowing $70,000 from the defendant was an inherent part of that scheme.

[103] Secondly, she was independently advised. In the course of that advice, she ought to have been made aware of the risks associated with the Focus proposal and, as part of that, the risks involved in the 3 month loan and the need for her to refinance at the end of that time to carry the loan through to the end of the 12 month period. If she were not properly advised of those elements by her solicitor, that is not the defendant’s responsibility. If she were properly advised, she elected to take the risk and accept the interest rates proposed, because of the benefits she thought she stood to gain.

[104] Thirdly, I do not consider it can be said that the defendant acted unreasonably in the exercise of the powers conferred on it by the security documents. No payment of interest was made. When the principal sum was not repaid on due date, the defendant, through Mr Bennett, offered to accept just the principal sum and to forego its right to interest. This gave the plaintiff the opportunity of refinancing for an amount little more than the initial loan. She elected not to do so.

[105] Fourthly, on the evidence available to me, I am unable to find that a finance rate of 40% for a short term loan under these circumstances is oppressive, harsh, or unconscionable. But even if it were, the defendant has now undertaken to reduce the cost of finance by an amount that produces a finance rate of 31%. That can certainly not be regarded as oppressive in the circumastances.

[106] In Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341,349, Tipping J, delivering the judgment of the Court of Appeal, observed that the protective purpose of the Act must be harmonised with the need to allow business people to be free to decide what contracts they should enter into and upon what terms, especially where they are in receipt of competent legal advice. Credit contracts should be re-opened only where there is clear evidence or the conclusion is otherwise irresistible that the contract or term is oppressive within the proper meaning of that term. I do not find clear evidence, nor do I consider the conclusion irresistible, that the loan contract in this case is oppressive.

Conclusion

[107] The cause of action founded on the submission that the loan contract between the plaintiff and the defendant is oppressive within the Credit Contracts Act 1981 cannot succeed.

Counterclaim

[108] In view of the conclusions I have reached in respect of the plaintiff’s claim, it follows that the defendant is entitled to judgment on its counterclaim for the principal sum of $70,000. Under the terms of its agreement with the plaintiff and the mortgage, it would be entitled to interest at the penalty rate of 30%. But when I asked Mr Hassall to give me details of the interest calculation, the defendant elected to make that calculation at the ordinary interest rate provided for in the agreement of 28%. Up to 16 June 2001, the interest so calculated totals $36,404.97. It is also entitled to further interest at $53.69 per day from 16 June 2001 until the date of judgment.

[109] It is also entitled to procuration fees and disbursements at the reduced figure of $525, and interest thereon at 28% from 6 November 1999, being the due date under the mortgage, to the date of judgment.

[110] These amounts are to be reduced by $2,000, being the penalty for the failure to make a correct initial disclosure as set out in [82].

The result

[111] The plaintiff’s claim against the defendant is dismissed, except to the extent that the amount due is reduced by $2,000. The defendant is entitled to judgment on its counterclaim in accordance with [108] to [110] . If the parties are unable to agree on the precise amount, leave is reserved to apply.

[112] I reserve all issues as to costs. If they cannot be resolved between the parties, leave is reserved to apply.