King v Norfolk Nominees Ltd
[2012] NZCA 190
•14 May 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA546/2011 [2012] NZCA 190 |
| BETWEEN PAUL ANTHONY KING |
| AND NORFOLK NOMINEES LIMITED |
| Hearing: 22 March 2012 |
| Court: Hammond, Arnold and Heath JJ |
| Counsel: Appellant in Person A McClintock and F Hall for Intervenor (Commerce Commission) |
| Judgment: 14 May 2012 at 11 am |
JUDGMENT OF THE COURT
A The respondent’s application to strike out the appeal is dismissed.
B The appeal is allowed.
C The judgment of the High Court is quashed.
D There is no order for costs.
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REASONS OF THE COURT
(Given by Hammond J)
Introduction
This is an appeal against a summary judgment for possession, in proceedings between a mortgagor and mortgagee.
Background
The appellant, Mr King, owns and occupies a property at 4 Kidson Place, Christchurch. In November 2009 he entered into a loan agreement with the respondent, secured by a mortgage over this property.
The loan was for a principal sum of $340,000 for a period of 12 months, with interest of 12 per cent to be paid in monthly instalments.
Mr King made one part payment of interest but has otherwise failed to pay any of the interest or incidental expenses (such as rates as they fell due) or repay the principal at the end of the term of the loan.
Mr King has at no time to date sought to cancel the loan agreement.
Mr Vautier advised us from the Bar, at our request, that there is still equity in the property.
The respondent holds the relevant securities as nominee for Norfolk Management Trust. The Trust’s affairs are managed by Norfolk Financial Management Ltd. The Judge found it convenient to refer to the respondent as Norfolk Nominees, and for ease of reference we will continue to refer to the respondent as such. Nothing turns on that.
When Mr King fell into default under the mortgage, on 23 December 2009 a notice was issued to him under the Property Law Act 2007 (PLA).
Mr King responded on 11 January 2010 by applying to the Disputes Tribunal to challenge the finance fees which the loan had attracted. He claimed that the loan and mortgage were in breach of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) and the Fair Trading Act 1986.
Up until that point it seems to have been thought, or at least assumed, that the loan transaction was not within the CCCF Act.
On 9 February 2010 the Disputes Tribunal found that the loan did constitute a consumer credit contract under the CCCF Act and that a “financial fee” of $9,400 that had been charged was unreasonable. However, Mr King’s allegation that the loan was “oppressive” within the meaning of s 118 of the CCCF Act was rejected, as was his claim for statutory damages under s 88 of that Act.
Norfolk Nominees thereafter made an application for the Tribunal’s decision to be recalled and clarified. In a supplementary decision issued on 16 March 2010 the Tribunal reduced the “financial fee” by $8,200 pursuant to s 42 of the CCCF Act. It directed that the contract documentation was to be amended so that the total capital borrowed is $331,800 and the amount of interest payments were to be recalculated as at the date of commencement of the loan.
In the meantime, Norfolk Nominees had issued a second PLA notice to Mr King. This reflected the fact that Norfolk Nominees had not received any further payments since the payment of $2,300 on 21 December 2009. Norfolk Nominees then took steps to sell the property by way of mortgagee sale and an auction date was arranged. That auction was cancelled close to the event because Norfolk Nominees correctly accepted that the Dispute Tribunal decision necessarily required it to make another initial disclosure under the CCCF Act.
On 14 May 2010 a fresh disclosure statement based on the newer loan amount (as amended by order of the Disputes Tribunal), and purportedly showing new interest payments recalculated in accordance with that order, was sent by registered post to Mr King. This disclosure statement was described as one being made under s 17 of the CCCF Act.
When no further payments were received, a third PLA notice was issued on 26 May 2010 by Norfolk Nominees. Steps were then taken to advertise the sale of the property.
By a letter of 1 July 2010, Mr King’s then solicitors asserted to Norfolk Nominee’s solicitors that the PLA notice issued on 26 May was invalid. It was said that Norfolk Nominees were not entitled to enforce any rights under the loan contract or mortgage, because Norfolk Nominees had failed to make valid disclosure under the CCCF Act. It was further said that the disclosure document issued on 14 May 2010 contained errors, including the interest commencement date of 30 October 2009, which was prior to the date of the loan contract and before the drawdown of the loan. It was asserted that Norfolk Nominees were precluded by s 99 of the CCCF Act from enforcing the loan contract because it had not completed initial disclosure as required by the Act. A claim for damages under s 88 of the CCCF Act was presaged.
Those propositions were denied by Norfolk Nominees; it maintained that delays in the drawdown of the mortgage and the downstream effects of that had come about because Mr King was negotiating with the outgoing mortgagee of Kidson Place.
On 6 August 2010 Norfolk Nominees advised Mr King that he had until 5 September 2010 to vacate the premises and that if he did not do so, an application would be made for summary judgment for an order for possession. It was also pointed out to Mr King that the decision of the Disputes Tribunal was final and binding in relation to any claim for statutory damages, and that in any event there was a cap of $3,000 on such damages.
It was in this context that the proceedings which came before Chisholm J and have subsequently resulted in the appeal to this Court were filed. Norfolk Nominees applied to the Registrar of the High Court to conduct a sale of the Kidson Place property; Mr King sought an interim injunction to prevent that sale proceeding; then the Christchurch February earthquake intervened. Norfolk Nominees applied for summary judgment for possession on 13 April 2011. Amongst other things it claimed it was important to inspect the earthquake property damage. That application was opposed by Mr King on similar grounds to his opposition to the mortgagee sale.
By his judgment of 8 August 2011, Chisholm J granted Norfolk Nominees application for an order for possession to be given within 10 days of the service of such order upon Mr King.[1] This appeal then followed. A stay of the possession order was granted pending the determination of this appeal.
The appeal proceedings are non-compliant
[1]Norfolk Nominees Ltd v King HC Christchurch CIV-2010-409-2966 and CIV-2011-409-562, 8 August 2011.
There are a number of serious deficiencies in the appeal proceeding.
First, the sealed copy of the High Court Order (which the Bench had to request at the oral hearing in this court) is defective insofar as it does not correspond with paragraphs 52–54 of Chisholm J’s judgment.
Second, the filing fee on the appeal has still not been paid. Mr King had applied for a waiver. This was declined by the Registrar. Mr King then applied for a review of that decision by a judge of this Court. That review has not been determined as at the time of hearing.
Third, security for costs was not paid by Mr King, but in the event they were dispensed with on 22 February 2012.
Fourth, Mr King had not paid the hearing fee for this appeal of $2,648.40. In despair, the respondent paid that sum to allow this matter to proceed to a hearing.
Fifth, Mr King had not filed a Case on Appeal and in the end, in a manner which is becoming distressingly only too familiar, emptied the contents of his file into court in a thoroughly dishevelled manner. He did not consult with the respondent on a Case, as he should have. On 13 March 2012 the respondent filed a Case in proper order and restricted (as it should have been) to what had been entered in evidence in the High Court. Mr King’s “Case”, as Mr Vautier properly objected, contained much material that should not have been before this Court.
The respondent applied to strike the appeal out on the basis of Mr King’s non-compliance with the Rules, and his (alleged) misleading of the Registry in relation to legal aid. Mr Vautier confirmed at the hearing that his client wished to pursue that strike-out application.
The Court undoubtedly has jurisdiction, and would have been justified, in striking this proceeding out in its entirety. These were serious breaches, and it is arguable that some of them are of a jurisdictional character. However, through the endeavours of the respondent (for which the Court is grateful) the appeal is in a fit state for hearing and the issues need to be resolved, for the benefit of all concerned. Mr King must however appreciate, if further litigation steps are taken, that he has reached the outermost limit of the Court’s tolerance. He must comply, and strictly, with the statutory provisions and the relevant Rules of Court.
The Commerce Commission intervenes
Section 112 of the CCCF Act enables the Commerce Commission to appear and be heard in person or by a barrister or solicitor in any proceedings brought in whole or in part under the CCCF Act, in any court.
Although no steps were taken in the High Court, the Commission has intervened under this statutory provision in this court because it takes the view that there are a number of issues in the appeal relating to the High Court’s interpretation of the disclosure provisions of the CCCF Act which merit clarification, in particular, ss 17, 32 and 99.
We have no knowledge as to what, if anything, passed between Mr King and the Commission to bring the intervention about. In any event, it matters not. The functional effect is that Mr King has, fortuitously for him, had the benefit of what amounts to a white knight in this proceeding.
We do not intend thereby to imply any criticism of the Commission. It is for it to decide when to intervene.
Summary judgment principles
The principles relating to this area of the law are now well established. It is unnecessary to say much about them. In Pemberton v Chappell Somers J emphasised that the general object of the summary judgment rules is to enable a plaintiff to obtain judgment where there is really no defence to the claim made, and so put an end to the spectacle of a worthless defence being raised and pursued for the purposes of delay.[2] So the procedure is designed for the speedy resolution of meritorious claims.
[2] Pemberton v Chappell [1987] 1 NZLR 1 (CA).
At the same time, as Cooke P observed in Bilbie Dymock Corporation Ltd v Patel:[3]
“…the need for judicial caution has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. In the end it can only be a matter of judgment on the particular facts.”
[3] Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA) at 85–86.
In a case such as the present, the question to be asked directly is: is there an arguable defence in the particular case which ought properly to be sent to trial?
In this case – although he did not refer to the fact that this was a summary judgment application, or the principles applicable to it – the Judge thought not.
We think that was in error. The burden of the rest of this judgment is to explain why that is so.
The legislative framework
Mr King’s case – put into much sharper focus by the Commerce Commission – is that there has been inadequate and in some respects completely erroneous disclosure under the CCCF Act. Before turning to his specific factual complaints, it is therefore necessary to say something about the controlling legislation.
The CCCF Act came fully into force on 1 April 2005. It replaced the Credit Contracts Act 1981 and dealt more fully with the consequences of breaches of the statute in consumer credit contracts.
There are certain key premises underpinning the Act, which are reflected in s 3. These include, as a key purpose, proper disclosure, so as to enable consumers to understand the terms of their contract and their responsibilities under it. Informed credit choices are one of the principal purposes of the statute.
The disclosure requirements in the CCCF Act are not new, in the sense that the Credit Contracts Act also contained mandatory disclosure provisions. But the consequences for failure to comply differ between the two statutes.
Section 17 of the CCCF Act sets out the requirements for initial disclosure. It requires creditors to disclose to the debtor, in writing, as much of the key information as is set out in Schedule 1 of the Act as is applicable to the particular contract.
Schedule 1 itself is headed “Key information concerning consumer credit contracts”. It includes 20 items of information that must be disclosed if applicable to the particular contract. Those items include:
· the full name and address of the creditor;
· the initial unpaid balance; and
· the debtor’s right to cancel the contract.
Section 99 of the CCCF Act prohibits the enforcement of a consumer credit contract where disclosure has not been compliant. It provides that if there is not proper disclosure under s 17, no person (other than a debtor under the consumer credit contract) may, before that disclosure is made, enforce the contract; or enforce any right to recover property to which the contract relates; or enforce any security interest taken in connection with the contract.
The Commission’s central submissions are that Schedule 1 is mandatory; an omission to disclose any piece of key information brings s 99 into play; and the creditor may not “enforce the contract” until such time as it has provided the required disclosure.
To put this another way, the transaction is not avoided. As s 136 of the statute explicitly provides, an act in breach of the legislation does not render the contract illegal, neither does it render the contract unenforceable or to no effect. Corrective disclosure can be provided and a contract will then become enforceable.
In our view these submissions are correct. The question then becomes a factual one as to whether there is force in the alleged breaches; or whether there is at least room for argument about them and the application of the CCCF Act to them such that this matter should be remitted to the High Court for trial.
The alleged breaches
Remedied breaches
The relevant disclosure statement is that sent to Mr King on 14 May 2010, which in turn formed the basis of the particular PLA Notice. That statement remedied a number of defects in the earlier statements, viz:
·it gave the creditor’s full address and the disclosure statements effective date; and
·it contained statements of the rights to cancel and to prepay.
Accordingly, although there were submissions about the law on the above matters, we need not pursue them further here.
Unremedied breaches
The breaches that remained were that:
·the commitment fee was described as interest and was over-charged; and
·interest was made payable in advance, so that the interest payments were charged earlier than they should have been and payment dates were disclosed incorrectly.
It is necessary to add some explanatory background to these overlapping concerns.
Routinely in financial transactions a lender has lending funds on hand or available to it and commits them to a given loan, sometimes for a period of days or even weeks before the funds are actually drawn down or “advanced” to the borrower.
In this loan transaction the loan agreement used the terms “availability date” and “date of advance” to cover these two different kinds of dates.
The lender of course wants to cover its costs of “holding” the funds in readiness. In this case clause 3.7 of the agreement provided:
If the Loan is not advanced on the Availability Date, the Borrower shall pay to the Lender on the Date of Advance (or the date the Facility is cancelled, as the case may be) a commitment fee for the period from the Availability Date until that day. The fee will accrue daily and will be charged at a rate per annum certified by the Lender to be equal to the Interest Rate less the rate then paid by the Lender for call deposits of amounts similar to the Loan. The minimum rate to apply under this sub-clause shall be 5% per annum.
The functional purpose of the clause is obvious. The respondent, as the lender, was likely having to pay, or losing, interest on the monies from its own or its banker’s sources, but that would not necessarily be the same as the interest rate (12 per cent) under the Loan Agreement. Quite what the margin might be would depend on the rate being paid by the respondent, but the clause had a floor figure of 5 per cent.
Where all of this caused difficulty, and had downstream consequences, is that for some reason the respondent persisted in showing this figure of $1,206.45 as “interest”. Before us, Mr Vautier could not assist us with how the $1,206.45 treated as “interest” was actually calculated.
So the complaint not only was that the intrinsic nature of that sum was misdescribed as “interest” rather than a fee, but conceptually that gave rise to interest being charged 18 days before the loan was actually drawn down. Without reciting all the detail, that had a knock-on effect in relation to calculation of subsequent interest payments.
The Commission’s position is therefore that the commitment fee was incorrectly described as interest and it was overcharged. The amount should have been calculated in accordance with clause 3.7. The CCCF Act differentiates between interest and fees, and different provisions apply.
Moreover, interest was payable in advance. Yet section 38 of the CCCF Act prohibits the early requirement of payment or debiting of interest. Interest cannot accrue until after drawdown, and so should not properly have been charged. The concept of interest in play in this case, is that an “interest charge” is defined by clause 5 of the agreement as “a charge that accrues over time and is determined by applying a rate to an amount owing under the contract”. At the time of drawdown, there was no amount owing under the contract to which an interest rate could be applied. The only amount able to be charged was the commitment fee, and as a fee it was subject to s 41 (prohibition on charging an unreasonable fee) and s 44 (mandatory considerations governing credit fees).
What happened in relation to the drawdown and what surrounded it appears also to have been subject to some factual debate between the parties as to just what was occurring, and why.
The High Court Judge seems to have had the view that what was charged was definitely interest. For the reasons already noted, we have distinct reservations about that conclusion. On any view of the matter there was room for distinct contention both as to the classification of the $1,206.45, and the downstream consequences of it.
Not a case for summary judgment
It follows that in our view this was not a case for summary judgment.
The orders made by Chisholm J on 8 August 2011 are quashed. As a result, a case management conference will need to be convened to ensure prompt disposition (if necessary) of the issues raised between the parties. No doubt the Registrar will arrange a case management conference before an Associate Judge at the earliest possible date so that this may be done.
The Commission accepts that, on its own argument, it is open to the lender to complete a further, and correct disclosure statement. It would then be able to proceed with the enforcement of its loan.
We were urged to endeavour to resolve some of the complications relating to the correct interest calculations. Whilst the Court always endeavours to assist where it can, we think it better not to assay that task in this Court, not least because there are other arguments it seems Mr King wishes to advance.
We do however make these observations. This is not a case which should have to go to a merit trial. Mr King has picked away at this loan in an endeavour to deflect the consequences to him of a sale, for a respectable period of time.
It appears he also entertains the distinctly optimistic belief that he can mount very large claims which would offset the loan. In our view, it is almost inconceivable that the statute could be interpreted to yield up the construction that Mr King endeavours to place upon it to achieve that result.
As we have noted, there is apparently equity in this property. Ultimately, on a sale, it is the appellant’s equity which will be eaten into. Both parties would be well advised to come to a figure for interest and get this matter resolved without the considerable expense to themselves (and for that matter the public) in having the Court settle a figure.
There will be no order for costs.
Solicitors:
Glaister Ennor, Auckland for Respondent
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