Kwok v HND Holding Limited

[2024] NZHC 1153

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-001504

[2024] NZHC 1153

BETWEEN

DANIEL SHING CHUNG KWOK

First Plaintiff

DANIEL KWOK PROPERTIES LIMITED
Second Plaintiff

DASP PROPERTIES LIMITED
Third Plaintiff

DKBY PROPERTY LIMITED

Fourth Plaintiff

AND

HND HOLDING LIMITED

Defendant

Hearing:	11 April 2024
Appearances:	R E Harrison KC for Plaintiffs R O Parmenter for Defendant
Judgment:	14 May 2024

JUDGMENT OF ANDERSON J

This judgment was delivered by me on 14 May 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules 2016.

.………………………….. Registrar/Deputy Registrar

Solicitors:    Chen Sandhu Lawyers, Auckland

KWOK v HND HOLDING LIMITED [2024] NZHC 1153 [14 May 2024]

Table of Contents

Para No

Interim injunction principles[7]

Factual background[10]

Serious question to be tried[25]

First claim - Illegal contract  [27]

Plaintiffs’ case[27]

Discussion[30]

Second claim - Unfair, harsh or oppressive conduct by HND’s exercise

of power of sale[35]

Plaintiffs’ case[35]

Discussion[41]

Breach of loan agreement[45]

Harsh and oppressive conduct in light of the above breach[58]

Breach of s 176 of the Property Law Act 2007[69]

Summary[80]

Third claim — Relief under ss 93 and 94 of the CCCFA  [82]

Fourth claim – Fair Trading Act 1986[84]

Summary on whether there is a serious question to be tried[90]

Balance of convenience[91]

Adequacy of damages[92]

Plaintiffs’ undertaking as to damages[100]

Joe Holdings[106]

Strength of case[111]

Delay[112]

Assessment of above factors and overall justice  [120]

Result[130]

Costs[131]

[1]                 The plaintiffs are Mr Daniel Kwok and companies associated with him.1 The plaintiffs are in default under the terms of a loan agreement with the defendant (HND). The outstanding loan principal is around $11 million. Penalty interest has been accruing at 26 per cent which HND calculates as interest at about $7,835 a day. As at mid-November 2023, the sum outstanding was in excess of $19.5 million.

[2]                 HND has been seeking to exercise its powers of sale over the plaintiffs’ properties that are subject to mortgages securing the sums owed. Property Law Notices expired on 31 March 2023. HND started the sale process in around June 2023.

[3]                 The plaintiffs seek interim relief restraining the defendant (HND) from completing the mortgagee sale of three of the plaintiffs’ properties at 205 Sutton Road, 419 Bremner Road (previously known as 420 Bremner Road) and 111 Waitakere Road, which are already under contract to Joe Holdings Ltd (Joe Holdings). The outstanding loan principal is approximately the same amount as the aggregate sale prices of the three properties subject to the contracts to Joe Holdings.

[4]                 The plaintiffs also seek to restrain HND from exercising its power of sale over a fourth property at 58 Greenpark Road, Lincoln. HND has already completed a mortgagee sale of a fifth property.

[5]                 The plaintiffs’ amended statement of claim seeks a permanent injunction restraining the sales on several alternative bases. In submissions, two arguments were given the most attention. The first is that the loan agreement under which HND is exercising its rights is an illegal contract and hence unenforceable.

[6]                 The second is that HND’s actions under the loan agreement are unfair, harsh and oppressive. Specifically, the plaintiffs assert that HND was in breach of an obligation that funds be available to draw down. This would have enabled the plaintiffs to complete a transaction which was cancelled as a result of the funds being unavailable. HND is said to have then exercised powers under the mortgage oppressively by taking advantage of the plaintiffs in that vulnerable position.

1      For the purposes of this judgment I make no distinction between the respective plaintiffs.

Relatedly, HND is alleged to be in breach of its obligation to obtain the best price reasonably obtainable under the mortgagee sales and to act in good faith.

Interim injunction principles

[7]                 The general principles governing the grant of relief by way of interim injunction apply equally in the case of threatened mortgagee sales. The Court follows a three-step approach, assessing:2

(a)whether there is a serious question to be tried;

(b)the balance of convenience; and

(c)where the overall justice lies.

[8]In considering the last two considerations:3

the question is whether refusing the injunction would be harder on a plaintiff who was successful at trial, than would granting it be to an ultimately successful defendant. This assessment is undertaken by reference to the adequacy of damages, preservation of the status quo, the uncompensable disadvantages to either party, and the relative strengths of their cases.

[9]                 If a sufficient case for interim relief is made out, an interim injunction may be granted prior to registration of a transfer of land sold under mortgagee sale, even if the mortgagee sale and purchase transaction has been concluded and indeed settled.4

Factual background

[10]              In July 2021, the plaintiffs obtained a loan offer from the defendant, HND for a total loan facility of $28 million. Its principal is Yaxun Zhang.5 HND is not registered under the Financial Services Providers (Registration and Dispute

2      These three stages were summarised by the Court of Appeal in NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12] and affirmed in Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344, [2020] NZCCLR 29 at [23].

3      Roman Catholic Bishop of the Diocese of Auckland v Boynton [2018] NZHC 2636 at [14] (footnotes omitted).

4      See for example Pasquarella v National Australia Finance Ltd [1987] 1 NZLR 312 (CA), at 315/1-7, 317/1-12 and 319.

5      Mr Zhang’s wife, Xiaomiao Fan, is also a director.

Resolution) Act 2008 (FSP) and is required to be. The loan was brokered through Plaxo Ltd, whose principal is Yong Zhang. He is unrelated to Yaxun Zhang.

[11]              At the time of the loan offer, the plaintiffs had already entered into conditional agreements with interests of Charles Ma to acquire the two properties at 417 and 4196 Bremner Road, Drury. The intention was to participate in a large-scale staged development of 500 residential sites with other properties being retained by Mr Ma’s interests. HND accepts that it knew of the plaintiffs’ plans to acquire and develop the properties.

[12]              The plaintiffs’ obligations as purchasers included signing a development management agreement, builders participation deed and marketing deed. There are covenants on the titles to ensure cohesive development.

[13]              HND’s loan offer was for an interest-only term loan for a fixed period of one year from 9 July 2021 (rollover subject to review by lender). The loan was to be secured by nine properties already owned by the plaintiffs and the two Bremner Road properties to be acquired. It was also contemplated that the plaintiffs would use loan funds for refinancing their existing properties.

[14]              An initial advance of $2.5 million less fees and costs described as “Stage One” was made available immediately, primarily to finance the deposits. At Stage Two, the loan offer was in two components. The first was an advance of $11.5 million less fees and costs. The second component was a further $14 million described as, “Remaining Facility … to be drawn upon HND sole discretion”.

[15]              The Loan Agreement was entered into subsequently, backdated to 8 July 2021. Its terms prevail over the loan offer where there is inconsistency. The Loan Agreement referred to a contractual entitlement to draw down the Loan on a “Drawdown Date,” a defined term that I discuss later.

[16]              By 1 September 2021, all but $6.8 million of the full $28 million facility had been drawn down by the plaintiffs. This had been used to complete the purchase of

6      As noted earlier, it was known as 420 Bremner Road at the time of the agreement.

419 Bremner Road on 3 August 2021, to refinance other of the plaintiffs’ properties and to pay interest. The settlement of 419 Bremner Road had included $1 million in short term vendor finance.

[17]              Settlement of 417 Bremner Road was to take place on 1 September 2021. Including costs, settlement was going to require the remaining $6.8 million draw down under the loan agreement plus around $2 million more. On about 1 September 2021, the plaintiffs negotiated with the vendor for deferred settlement until 23 September 2021 on terms that included that the vendor could specify for a reduction in time for compliance with a settlement notice.

[18]                On 23 September, the plaintiffs were not able to settle. In a later letter of advice recording events, the plaintiffs’ solicitors recorded that Mr Kwok asked the vendor for further time because “[Mr Kwok’s] buyers could not get money during the lockdown”. I infer that this is a reference to properties Mr Kwok was selling or refinancing to finance the equity gap. The vendor offered to assist by providing a short term $2 million vendor loan but on the basis that the plaintiffs enter into a restated development management agreement.

[19]              On 24 September, the vendor issued a settlement notice to expire on Monday, 27 September 2021 at 5 pm.7 The $6.8 million draw down from HND was not transferred to the plaintiffs’ solicitors until after 4.30 pm on 27 September 2021 which was too late for settlement that day. The vendor was not prepared to settle without time for cleared funds. HND says the funds were transferred this late because the plaintiffs had not met pre-conditions to the advance being made. I discuss this below.

[20]              After 5 pm on 27 September, the plaintiffs’ solicitors sought confirmation from the vendor that the plaintiffs could proceed to settlement the next business day. The vendor’s solicitors responded that the plaintiffs had not satisfied a requirement that had been made clear to them, that is, that a builders participation deed, marketing deed and development management agreement be signed and provided as an essential prerequisite for settlement. The vendor’s offer of vendor finance lapsed.

7      It has reserved to itself the ability to give a settlement notice expiring the next business day when it has agreed to deferral of settlement until 23 September 2021.

[21]              The signed documents just referred to were provided by the plaintiffs the next day on 28 September 2021. The vendor said it was prepared to settle that day but did not reinstate its offer of $2 million in vendor finance. Mr Kwok was unable to find this amount in time, with the vendor ultimately cancelling the agreement. The plaintiffs lost their deposit.

[22]              The plaintiffs contend that HND was in breach of the loan agreement because it did not have the $6.8 million funds available to advance for the plaintiffs to settle on 417 Bremner Road on 1 September and 23/24 September and then did not transfer them for settlement on 27 September until 4.46 pm. The plaintiffs say that this default led to the vendor ultimately cancelling the transaction. The plaintiffs also say that the vendor finance required for the Bremner transactions was at HND’s insistence.

[23]              The plaintiffs assert that as a result of not acquiring the 417 Bremner Road property, they were unable to undertake their proposed development of the two Bremner Road properties together suffering a substantial loss of profits. In addition, they forfeited their $950,000 deposit and could not use the property as security for further loan advances. HND is alleged to have taken advantage of the situation the plaintiffs found themselves in by either pressuring or forcing sales of the plaintiffs’ property, requiring a variation, and otherwise acting oppressively in relation to the loan agreement. Ultimately, that has culminated in HND exercising powers of sale of some of the properties that were securing the loan.

[24]              The substantive claim, inter alia, seeks $66 million in unparticularised damages due to the plaintiffs being unable to participate in the development of the Bremner Road properties, and consequently unable to proceed with development of other properties they own at Sutton Road, Hudsons Road and Waitakere Road.

Serious question to be tried

[25]              The question is whether there is a serious question to be tried for a claim for relief by way of permanent injunction. The plaintiffs’ second amended statement of claim isolates the following claims for injunctive relief:

(a)that the Loan Agreement is an illegal contract for which relief is sought under pt 2, subpt 5 of the Contract and Commercial Law Act 2017 (CCLA);

(b)unfair, harsh or oppressive conduct in HND’s exercise or proposed exercise of its power of sale;8

(c)breach of the lender responsibilities stated in s 9C of the Credit Contracts and Consumer Finance Act 2003 (CCCFA);

(d)unconscionable conduct in trade contrary to s 7 or misleading or deceptive conduct under s 9 of the Fair Trading Act 1986 (FTA).

[26]              Mr Harrison KC’s submissions tended to reorganise some of the above claims, but I have linked them to the plaintiffs’ pleading which is the appropriate framework within which to consider them.

First claim - Illegal contract

Plaintiffs’ case

[27]              HND was required to be registered under the FSP and as a result, it was required to be a member of an approved dispute resolution scheme.9 It was not. The plaintiffs claim that because HND was unregistered, the loan agreement is an illegal contract.10 Accordingly, that agreement and the associated securities are invalid and of no effect.

[28]              There is no express provision in the FSP or CCCFA providing that contracts are illegal or invalid. Mr Harrison submits that this is so by implication from the statutory scheme. He contends that provisions creating “knowing breach” offences do not sufficiently protect the consumer interests which the Act aims to protect. Hence,

8      Coltart v Lepionka & Co Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 (CA) at [54].

9      Financial Service Providers (Registration and Dispute Resolution) Act 2008, ss 11(1) and 48. These requirements apply to persons who are in the business of providing financial service within the meaning of s 6 of the FSP.

10 Financial Service Providers (Registration and Dispute Resolution) Act, s 11(1) and/or s 48.

the illegality of a contract made with an unregistered financial services provider should be implied. Alternatively, the contract is impliedly unenforceable because it was for an unlawful purpose of carrying on business as a financial services provider in breach of the Act. Mr Harrison also cited Knyvett v Christchurch Casino Ltd11  and  Edwards v O’Connor12 in support of his argument.

[29]              A permanent injunction restraining enforcement of the loan agreement and securities is sought. The plaintiffs acknowledge that under the CCLA any relief would require it to repay the principal of the loan.

Discussion

[30]              The loan agreement is a “credit contract” within the FSP and the associated provisions of the CCCFA. The parties agree that the loan agreement is not a “consumer credit contract” for the purposes of the legislation. The legislature has explicitly addressed the scope of the consequences of non-registration on enforceability of a credit contract under the FSP by s 99B of the CCCFA.

[31]              Section 99B precludes enforcement of liability for the costs of borrowing if the creditor was not registered under the FSP as required. On becoming registered, the creditor can enforce the cost of borrowing for costs in periods after a compliant notice is given to the debtor confirming the registration.13 Section 99B was introduced in 2014.14 As enacted, the section applied to all credit contracts, so would have applied here. However, it was amended in January 2020 to limit its application to “consumer credit contracts” as defined in the legislation.15

[32]              The proposition that illegality of the credit contract is implied and hence that the consequences are left to the illegal contract provisions of the CCLA is difficult to square with the legislative scheme of the CCCFA and FSP having made express

11     Knyvett v Christchurch Casinos Ltd [1999] 2 NZLR 559.

12     Edwards v O’Connor [1989] 3 NZLR 448.

13     Section 99B(3).

14     Credit Contracts and Consumer Finance Amendment Act 2014, s 65.

15     Credit Contracts and Consumer Finance Act 2003, s 11. This is where a creditor is a natural person and credit is used or intended to be used for non-commercial purposes.

provision for sanctions for non-compliance.16 The legislature has specifically drawn back from the position when s 99B was introduced that credit contracts should be unenforceable due to non-registration. It now limits that consequence only to consumer credit contracts.17 Even then, the scheme is to preclude enforcement and recovery of the cost of borrowing only while the creditor is not registered.

[33]              It is illogical for there to be an express provision that limits enforceability of consumer credit contracts to recovery of the cost of borrowing for so long as a creditor is not registered, while (on the plaintiffs’ argument) at the same time impliedly providing for credit contracts to be illegal and so invalid and of no effect. It is also unlikely that the legislature would have intended to impliedly provide that all credit contracts entered into by an unregistered lender are invalid and of no effect, subject only to an application for relief under the CCLA. That would involve significant litigation costs and uncertainty associated with commercial contracts.

[34]The first claim is not seriously arguable.

Second claim - Unfair, harsh or oppressive conduct by HND’s exercise of power of sale

Plaintiffs’ case

[35]              The claim to enjoin the mortgagee sales under this claim is based on three categories of particulars:

(a)breach of the loan agreement by HND failing to have funds available for draw down as required for the settlement of the 417 Bremner Road purchase;

16 My view is consistent with the view expressed in Roger Thornton (ed), Gault on Commercial Law, (online ed, Thomson Reuters) at [FC6.01(2)] discussing the position prior to the latest amendment: “Before the 2014 Amendment, a failure to register did not have any consequences on the ability of a creditor to enforce its rights under a credit contract. For a credit contract entered on or after 6 June 2015, if a creditor is not registered when it needs to be, s 99B effectively takes away any entitlement to any costs of borrowing.”

17 Mr Parmenter, for HND, referred me to Dunajtschik v Garnham [2022] NZHC 2467 where Associate Judge Paulsen concluded that contracts entered into by the unregistered creditor were not consumer credit contracts so s 99B had no application. He granted summary judgment for principal and interest. It was not argued that the contract was illegal so the issue I am considering did not arise.

(b)oppressive conduct by HND in taking advantage of the vulnerable position of the plaintiffs in the context of the above breach; and

(c)breach of the mortgagee’s duty of care to obtain the best price reasonably obtainable under s 176 of the Property Law Act 2007.

[36]              The claim under this head is advanced at common law and not as an application to reopen the contract under the CCCFA.

[37]              Mr Harrison contends that there is a general principle that a mortgagee owes a duty of good faith to the mortgagor. He relies on this in advancing the plaintiffs’ case that HND acted oppressively towards the plaintiffs in respect to its conduct relating to the loan agreement. The plaintiffs say the principle is expressed by the Court of Appeal in Coltart v Lepionka:18

… [Counsel] is correct that the duty to act in good faith and for the purpose of obtaining repayment of the debt is a composite one. However, the duty to take reasonable precautions to obtain a proper price is a component of the overall duty to act in good faith, extending to all those interested in the equity of redemption such as a purchaser. A mortgagee must use its powers for that predominant purpose, and not act in a manner which unfairly prejudices or wilfully and recklessly sacrifices the interests of the mortgagor or a party claiming through it.

[38]              The gist of the plaintiffs’ case relying upon the conduct in (a) and (b) is that HND was not entitled to exercise its power of sale at all because HND’s own breach of the loan agreement has caused the plaintiffs’ inability to repay the loan19 and this and its other oppressive conduct mean that it is a breach of HND’s duty of good faith as mortgagee to exercise its power of sale.

[39]              In (c), the focus is not on whether HND was entitled to exercise the power of sale, but rather with the mode of its exercise. The issue is whether there has been a breach or (for the Lincoln property not yet sold) a likely breach of the mortgagee’s

18 Coltart, above n 8, at [54] (footnotes omitted).

19 In principle, a breach of contract by a creditor in making funds available that result in the debtor suffering consequential loss in excess of the amount owed might justify an injunction restraining a mortgagee sale of property secured. See BNZ v Bryan Jackson (NZ) Ltd, HC Auckland, CL69/90, 14 April 1992 (although this involved quite a different scenario).

statutory duty of reasonable care under s 176 of the Property Law Act to obtain the best price reasonably obtainable at the time of sale.

[40]              The plaintiffs’ approach was to consider whether there is a serious question to be tried on each of these aspects. I adopt the same approach. I first address (a) and (b).

Discussion

[41]              Mr Parmenter, counsel for HND, submits that the good faith duty in Coltart  is limited to where the mortgagee is exercising its power of sale. HND says it was not in breach of the loan agreement, nor did it act oppressively. It was not responsible for how the plaintiffs chose to organise their affairs and did not force the plaintiffs to do anything. It was entitled to take the steps it took in the course of the relationship, including moving to sell the available securities after the Property Law Act notice had expired.

[42]            The Court in Coltart was not expressing a new principle. The leading case on the obligations of a mortgagee or receiver is Downsview Nominees Ltd v First City Corporation Ltd:20

Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower. These principles and rules apply also to a receiver and manager appointed by the mortgagee.

[43]              The obligation relates to constraints on the powers of a receiver or mortgagee associated with acting in good faith and for the proper purpose of obtaining repayment. Exercise of those powers affects interests in or over the property secured. In the abstract, I reject there is a general duty of good faith. Other powers or discretions of the creditor, such as whether to advance further funds where there is a discretion to do so, or to rollover a loan, may well also have constraints on their exercise to act for a

20     Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513 (PC) at 522.

proper purpose (or at least, not to act for an improper one). But the relevant purposes of such clauses are of a different character to powers executable over or in respect to the plaintiffs’ property to obtain repayment of the debt.21

[44]              The plaintiffs tended to test all the actions by HND generally in relation to the loan agreement22 against the Coltart principle. For the reasons just given, that may not withstand scrutiny if examined separate from constraints on exercise of the power of sale or steps taken to enforce repayment. I turn to the particulars.

Breach of loan agreement

[45]              HND is alleged to be in breach of the loan agreement by not transferring funds in time for the 417 Bremner Road contract to settle on 27 September.

[46]              The $6.8 million draw down was within the last $14 million of draw down that by the loan offer were expressly “to be drawn upon HND’s sole discretion”. Accordingly, HND says that there could be no breach in these funds not being transferred when requested. It says that, in any event, the funds were always available, and were available on 27 September. However, HND says that it was entitled to impose certain pre-conditions before transferring the funds and these were not met.

[47]              First, HND contends that it was reasonably requiring repayment of $1 million of the loan from the sale of the plaintiffs’ property at 11 Michael Richard Place (which also involved discharge of HND’s mortgage over that property) as a pre-condition to being prepared to advance the $6.8 million on 27 September. HND says the plaintiffs spent much of the day negotiating with ANZ Bank about whether it would release

$1 million from 11 Michael Richard Place. In the event, it was prepared to release only $900,000 and confirmation of this and ability to provide these funds to HND did not occur until around 3.30 pm. HND says that the plaintiffs did not convey that there was urgency for the draw down during the day on 27 September, no doubt because they were tied up negotiating with ANZ Bank.

21 The approach to limits on contractual discretions is up for debate, see Woolley v Fonterra Co-Operative Group Ltd [2023] NZCA 266, [2023] 3 NZLR 405. A recent UK case in a credit context is Sibner Capital Ltd v Jarvis [2022] EWHC 3273 (Ch).

22 Such as whether to rollover the loan, whether to allow further drawdowns, whether partial repayment should be made, actions associated with agreeing a variation of the loan agreement.

[48]              Second, HND says that the plaintiffs were required to remove an IRD charging order over a property at Hudsons Road, and this also held up the funds being transferred.

[49]              HND also says that what led to the vendor refusing to reinstate its offer of vendor finance and hence loss of the contract was not a delay in transfer of the funds from HND but the plaintiffs’ failure to provide the settlement documentation to the vendor, including, inter alia, the development management agreement.

[50]              Although the loan offer refers to the last $14 million of the $28 million loan “to be drawn upon HND’s sole discretion”, the loan agreement itself referred to contractual entitlement to “draw down the Loan (excluding the further advance) on a Drawdown Date” which was defined as:

The drawdown date or dates required by the Borrower and agreed to by the Lender for a drawing of the Loan.

[51]              This entitlement expressly excludes “the further advance”. However “the further advance” is not defined in the agreement and appears nowhere else in it. Furthermore, neither side made any submission to me on how this should be interpreted. Therefore, while it may be suggested that the further advance refers to the last $14 million, I have put this possibility to one side.

[52]              Because the definition refers to dates as “agreed”, I accept Mr Harrison’s submission that if HND had previously agreed to the balance of the full remaining draw down being available to settle 417 Bremner Road, then its insistence on repayment of some of its loan on 27 September from 11 Michael Richard Place as a condition of transfer of $6.8 million for settlement that day was arguably a breach of the loan agreement. That repayment would leave the amount drawn down on receipt of $6.8 million short of the full $28 million that was available under the facility. Whether there had been a prior agreement that HND reneged on by insisting on pre-conditions is something that would need to be considered at trial.

[53]              The other “pre-condition” was removal  of  an  IRD  charging  order  over  Mr Kwok’s home at Hudsons Road securing $50,000 relating to benefits provided to

Mr Kwok’s wife on separation. Removal of this was needed for HND to register a mortgage against that property, which it was seeking to do on 27 September 2021.    I do not see much in HND’s reliance on this pre-condition as a basis for not providing the $6.8 million for settlement. That is because HND appears to have indicated earlier in the day that a caveat would be acceptable as an alternative, and this is what it did accept. 23

[54]              Accordingly, I conclude that there is a serious question to be tried on whether HND was in breach of the loan agreement for failing to transfer funds in time for settlement on 27 September.

[55]              As to whether this breach had consequence, it is not sufficiently clear whether the vendor ran out of patience because of failure to provide the settlement documents or loss of confidence in the plaintiffs’ ability to finance the transaction. It may well be both. For present purposes, there is a serious question to be tried that the loss of the contract was caused by a breach of contract by HND in failing to transfer funds in time for settlement to occur on 27 September 2021.

[56]              At a remedies level, this may potentially give rise to a damages claim. It is less evident that the alleged breach has consequences that itself could give rise to a claim for a permanent injunction restraining a sale in 2023 of properties secured by the loan agreement where the plaintiff remains in default. The plaintiffs relied upon it in combination with the other particulars.

[57]              Before leaving the “breach of loan agreement” argument I address two further issues.

(a)The plaintiffs contend that HND was in breach in the lead up to       27 September 2021 by insisting on the plaintiffs obtaining vendor finance. While not explicit, I take this to be asserting that HND was required to provide these funds instead. Mr Zhang, of Plaxo, says it had no visibility on what additional equity was required or that this was

23     HND agreed for the funds to be drawn down that day without the charging order being discharged. This was not discharged until about December. As well, HND had a caveat registered against the property.

being met by vendor loans. However, in any event, there was no further head room in the facility from HND beyond the $6.8 million that was already going to be needed to settle. This reality is implicit in the fact that the plaintiffs were in parallel in the process of selling or refinancing other properties at Michael Richard Place and Armstrong Farm Drive to bridge the equity gap. It was their inability to complete enough of these sales in time that appears to have led to the need for vendor finance.

(b)The plaintiffs’ allegation that HND did not have the draw down available is  not  limited to  27  September 2021.  It  extends  back  to 1 September 2021. I consider it arguable that HND did not have the funds available then, but on the evidence before me I do not see how this has any consequence. The contract was only finally lost because of what occurred arising out of events on 27 September 2021.

Harsh and oppressive conduct in light of the above breach

[58]              The plaintiffs say that HND’s failure to advance the settlement funds in a timely manner set in train or is associated with a series of events which left the plaintiffs at a disadvantage and vulnerable to pressure to repay debt and pay interest, which HND is alleged to have then proceeded to apply in a harsh and oppressive way.

[59]The pleaded acts of oppression are:

(a)forcing sales of properties at 9 and 11  Michael Richard Place and    51 Armstrong Farm Drive as a pre-condition of drawing down from the loan facility;

(b)forcing sales of two of the plaintiffs’ properties at 28A and 28B Allens Road to reduce the amount owing under the loan agreement;

(c)forcing  the  plaintiffs  to  enter  into  a   variation  agreement  dated   1 November 2021;

(d)refusing to discharge a mortgage over 419 Bremner Road, in June 2022, unless HND was repaid $8.3 million, which precluded the plaintiffs from refinancing that property given the level of refinancing required; and

(e)refusing to answer questions of a potential replacement lender as to its compliance with AML requirements and registration under the FSP which led to inability to refinance.

[60]              HND submits that the plaintiffs’ predicament and steps they took were due to being over-leveraged and were their own commercial decisions, rather than due to any pressure or oppression by HND. It rejects that it “forced” the plaintiffs to do anything. Mr Parmenter was also critical that the conduct alleged is supported simply by bald assertions. He emphasised the lack of any correspondence suggesting pressure on  Mr Kwok.

[61]              Mr Parmenter also went through each of the pleadings of oppressive conduct and rebutted them individually.

[62]              The Michael Richard Place and Armstrong Farm Drive sales were undertaken at the time of the attempted settlement of 417 Bremner Road. Mr Parmenter demonstrated, by taking me through the plaintiffs’ loan statement, that the Michael Richard Place and Armstrong Farm Drive sales were necessary not because of coercion by HND but because the plaintiffs had gone to the limit of their borrowing with HND by the last $6.8 million it was borrowing to settle the transaction and were going to need these funds for interest payments and to repay a $1 million vendor mortgage on 419 Bremner Road. That is compelling on the evidence before the Court.

[63]              For  the  sales  of  the  properties  the  plaintiffs  owned  at  Allens  Road,   Mr Parmenter observes that there is no correspondence suggesting any pressure from HND. He again took me to the loan statement which demonstrates that the sales were necessary to meet interest payments. He says that the evidence demonstrates that these properties were sold at $2.2 million above registered valuation.

[64]              With respect to the variation agreement, HND says that this was a response to the plaintiff’s desire to re-draw some money to repay the 419 Bremner Road vendor mortgage. Again, I agree that the plaintiffs do not have a strong case on that issue.

[65]              As to a partial release of the security of $8.3 million, HND submits that this occurred in the context of the term of the loan expiring and when the plaintiffs were in arrears. Accordingly, HND’s actions are better viewed as “munificent” in not requiring full repayment instead.

[66]              Mr Harrison’ response to this was that the conduct was to be viewed in the context of the breach of the loan agreement. He stressed that this case is different than many, in that the loan was secured by several properties. Additionally, he emphasised that whether there was oppressive conduct is a factual issue for trial, which will need to be addressed on the evidence at trial. He ties oppression to an obligation to act in good faith.

[67]              The case for oppressive conduct is not strong. This was a term loan for a 12-month period which HND was under no obligation to extend. The plaintiffs do appear to have been under-capitalised which appears to have been a key source of their problems from the start in settling 417 Bremner Road and, following that, in needing to sell properties to repay vendor finance. The plaintiffs’ reference to “forcing” sales and a variation are not powers being exercised under the loan agreement but relate to steps being taken by Mr Kwok. Accordingly, while I am prepared to accept that there is a seriously arguable case, I do not regard the case as a strong one.

[68]              More significantly, even looked at together with the arguable breach of the loan agreement, the plaintiffs have a difficult case to establish that this conduct is such that it gives rise to a right to a permanent injunction to restrain the mortgagee sale of the properties.

Breach of s 176 of the Property Law Act 2007

[69]              A claim for breach of s 176 of the Property Law Act 2007 (PLA) assumes the power of sale is exercisable, but disputes that it was exercised with reasonable care.

[70]            Section 176(1) of the PLA states that a mortgagee who exercises a power to sell mortgaged property owes a duty of reasonable care to the mortgagor to obtain the best price reasonably obtainable at the time of sale. The statutory obligation is not to obtain the best price reasonably obtainable, but to take reasonable care to do so. The time for assessing this issue is the time of sale. The duty of care does not qualify the mortgagee’s right to decide, in its own interest, if and when to sell, although once a mortgagee decides to sell it becomes subject to the duty. Moreover, in assessing compliance with the duty the matter must be looked at broadly and in a realistic way. The specific aspects of the duty are summarised in Crown Money Corp Ltd v Pink-

Martin.24

[71]              The plaintiffs point to registered valuations they obtained as at March 2023. They say the sale prices to Joe Holdings are at 30 per cent, 33 per cent and 48 per cent of those valuations, demonstrating that they were undertaken at a gross under-value.

[72]              HND filed a comprehensive affidavit from the agent in charge of the sales, Mr Philip Davis. Mr Davis is an experienced licensed real estate salesperson for Barfoot & Thompson Ltd. He specialises in mortgagee sales. As he believed the properties would attract only Chinese developers as buyers, he shared the listings for the Sutton and Bremner properties with a local agent fluent in Mandarin.

[73]              Mr Davis makes clear that he introduced Joe Holdings as purchaser. This helps to rebut the concerns at the legitimacy of this purchaser that were present when this matter  was   earlier  before  me  in  December  2023  for   interim   interim  relief.   A combination of Mr Davis’ evidence and Mr Yaxun Zhang’s evidence confirms that there is no relationship between Joe Holdings and HND.

[74]              Mr Davis sets out the process taken to sell the properties and reasons for the choice of sale by tender. He raises some significant impediments to the sale of the Sutton Road property. The land is nearly wholly on a flood plain. As well, in or about June 2023, the Council released an updated strategy paper which indicated there was

24 Crown Money Corp Ltd v Pink-Martin HC, Auckland, CIV-2008-404-297, 5 September 2008 at [32]; and see generally, Struan Scott and others Adams’ Land Transfer (online ed, LexisNexis) at LTA 2017, pt 3, sub-pt 3, [7.4.2].

a high possibility of the land being rezoned “Rural” rather than its present status as “Future Urban”. Mr Davis outlined the significant impact that had on buyer interest.

[75]              As to the Bremner Road property, I referred earlier to this land being subject to obligations under a development agreement as part of a wider development being implemented by interests associated with Mr Charles Ma. Mr Davis deposes that prospective purchasers were only able to obtain limited information on the development agreement and there are a number of covenants affecting the sale impacting its marketability.

[76]              The Waitakere property also had significant limitations given its unusual shape and position.

[77]              Mr Davis says that he took into consideration the market feedback received over what he outlines as an extended promotional programme, the lack of crucial information available to prospective purchasers, and the results of a tender that had taken place. He also points to what he describes as current difficult market conditions for development sites. He deposes that the unconditional offers received were a strong result in the circumstances.

[78]              Mr Harrison emphasised that there has been no opportunity yet for the plaintiffs to respond to this evidence with expert evidence of their own, the affidavit having been filed late. There is only the evidence of Mr Kwok who denies Mr Davis’ evidence in relatively summary form. The plaintiffs contend that Mr Davis should have proceeded via auction not by tender and ought to have obtained up-to-date registered valuations.

[79]                While I acknowledge that there could be expert evidence in reply, Mr Davis’ evidence is compelling. Mr Davis formed the view that a sale by tender was appropriate. The mechanism of sale and sales process properly tested the market. That HND did not obtain an up-to-date registered valuation and the variation in the price received in the mortgagee sales from the registered variations the plaintiffs obtained in March 2023 both need to be seen in light of Mr Davis’ experience and evidence of

the steps he took.25 However, because this issue is intensely factual and these are complicated sales, I am prepared to say that there is a serious question to be tried in respect of a breach of s 176 of the PLA for the properties that were sold to Joe Holdings. I do not consider that there is a basis for considering that there will be a breach of s 176 in the sale of the remaining property.

Summary

[80]              In summary, I accept that there is a seriously arguable case for breach of the loan agreement and oppressive conduct in light of the breach associated with the loan agreement. However, the claim does not seem to me to be strong.

[81]              I also consider that there is seriously arguable case for breach of s 176 of the PLA, but again this does not appear strong.

Third claim — Relief under ss 93 and 94 of the CCCFA

[82]              The plaintiffs’ claim for injunctive relief under this head is founded on breach of the lender responsibilities stated in s 9C of the CCCFA. There is no serious question to be tried on this claim as pleaded because these responsibilities only apply where there is a “consumer credit contract”.26

[83]              In his submissions, Mr Harrison recorded that the pt 5 provisions of the CCCFA permitting the reopening of credit contracts under the CCCFA on grounds of exercise or intended exercise of contractual power in an oppressive manner apply to all credit contracts.27 That is the case, but it is not the claim pleaded. In substantive terms, the claim based on oppressive conduct was considered under the second claim.

25     Compare Gardiner v Westpac New Zealand Ltd [2014] NZCA 537 at [89]

26     Section 9C sets out lender responsibility principles. Section 9B defines lender for the purpose of the relevant part as “a creditor under a consumer credit contract”.

27      Section 118.

Fourth claim – Fair Trading Act 1986

[84]              The plaintiffs claim injunctive relief under s 41 of the FTA on the basis of unconscionable conduct in trade contrary to s 7, and of misleading or deceptive conduct under s 9 of the FTA.

[85]              As it relates to the claim for a permanent injunction, the plaintiffs seek to restrain the mortgagee sales based on misleading or unconscionable conduct. The claims were not developed much in argument. They covered similar factual allegations as the Second Claim discussed above.

[86]              The alleged misleading conduct is as to HND representing that it had funds available to be drawn down, when the plaintiffs contend that it did not. As discussed earlier, availability of funds on 27 September 2021 is the key date. The facts appear to be that funds were available that morning, but that HND was not prepared to transfer them unless pre-conditions were met. However, I accept that this is a trial issue giving rise to a seriously arguable case on the facts. Despite this, if there was misleading conduct, I do not see how that translates to an arguable claim to a permanent injunction as opposed to damages.

[87]              As to unconscionable conduct, the s 7 proscription of unconscionable conduct in trade was introduced by the Fair Trading Amendment Act 2021, which added and amended a number of further provisions of the Act. Many of these amendments came into force on 17 August 2021. The  remainder,  including  s 7, came into  force on  16 August 2022. Particularly, given this staged introduction, there is no serious question to be tried that it applied to conduct prior to 17 August 2022. The severe penalties applicable for breaches of s 7 ($600,000 for bodies corporate or $200,000 for individuals) affirm this conclusion.

[88]              Mr Harrison submitted that s 7 applies to past conduct which has the effect of bringing about a breach by the exercise of the power of sale now. I do not consider it seriously arguable that the Court could restrain mortgagee sales now because of allegedly unconscionable conduct that occurred prior to the section coming into force.

Arguments of a somewhat similar nature were rejected in a limitation context in

Red Stag Timber Ltd v Juken New Zealand Ltd. 28

[89]              I do not consider that there is a seriously arguable case under this head, or at least one that adds anything to the Second Claim.

Summary on whether there is a serious question to be tried

[90]              I have found that there is a serious question to be tried, on the plaintiffs’ second claim based on unfair, harsh or oppressive exercise of powers under the loan agreement and mortgages.

Balance of convenience

[91]              I now turn to the balance of convenience. The balance of convenience is aptly described as “the balance of risk of doing an injustice”.29

Adequacy of damages

[92]              The issue under this head is the ability of the defendant to make good losses that flow if interim injunctive relief is not granted. 30 The counterfactual is between the relative position if HND’s three contracted sales to Joe Holdings proceed and HND is now permitted to exercise its power of sale over the Lincoln property compared with the position if those sales are restrained until the plaintiffs’ claim for a permanent injunction is determined at trial.

[93]              Where damages are an adequate remedy, it will generally follow that the balance of convenience does not require any interim intervention by the Court. 31    Mr Parmenter correctly submits that damages is clearly an adequate remedy here.  Mr Harrison agrees but says that the alleged breaches must not only be compensable in damages — the defendant must also be in a position to meet them.32

28     Red Stag Timber Ltd v Juken New Zealand Ltd [2023] NZCA 242.

29     McLaughlin v McLaughlin [2019] NZHC 2597, [2019] NZFLR 299 at [37] citing Cayne v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.

30     American Cyanamid Co v Ethicon Ltd, above n 2, at 408B–C per Lord Diplock.

31     Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 at [30].

32     American Cyanamid Co v Ethicon Ltd, above n 2, at 408.

[94]              It is now common ground that HND itself cannot meet an undertaking as to damages. Its director, Mr Yaxun Zhang, deposes that HND borrows funds provided by him as and when HND makes loans to borrowers.

[95]              However, HND places strong emphasis on a “guarantee” by HND Upland Limited (HND Upland). HND and HND Upland have the same two directors, one of them being Mr Zhang. The other is his wife. Through a holding company they together own the shares in HND Upland.

[96]              Mr Zhang advises that HND Upland has acquired land in Upland Road on the former Caughey Preston Rest Home site which it intends to develop. He submits that it is a very substantial company. In his affidavit, as director of HND Upland, he provides a guarantee of any damages awarded to the plaintiffs in the event they are successful at trial.

[97]              The plaintiffs contest that the undertaking has substance. I was provided with the March 2023 accounts of HND Upland. These show the 17 Upland Road land value with a book value of $48 million (and with buildings at $68 million). There is a

$19 million secured loan to the Bank of China. However, Mr Parmenter says I should disregard the book value which is at cost. He points to the 2021 Council valuation of value of $90 million.33 He submits that on any view there is adequate security in the event of an award in favour of the plaintiffs. Against that, the plaintiffs emphasise that the HND Upland balance sheet shows total liabilities of approximately $75 million, and a negative equity of $992,439.16. The liabilities include over $53 million advanced to it by its shareholders to carry out the development.

[98]              Mr Harrison submits that enforcement would have to be undertaken by means of separate court proceedings against HND Upland for breach of its undertaking. He says that the Court has no information on the stage of the alleged development, how much the overall development is likely to cost relative to the $53 million shareholder advance and the $19 million loan from the Bank of China. It is unclear whether the development is proceeding and if so when it will be completed, whether in stages or overall.

33     $85 million for the land and $5 million for the buildings.

[99]              I accept Mr Harrison’s submission that in the above circumstances efficacy of the undertaking is not straightforward.

Plaintiffs’ undertaking as to damages

[100]          Looked at from the defendant’s perspective, there is the converse analysis.34 If HND establishes its right to exercise its power of sale of the properties, will it be adequately compensated under the plaintiffs’ undertaking as to damages for the loss it will sustain by being prevented from exercising its power of sale between the time of the application and the time of the trial?

[101]      The plaintiffs acknowledge that other than the mortgaged properties they do not have substantial funds from which to make good any loss to HND if the sales are enjoined.

[102]          Around $11 million remains owing as principal. Moreover, penalty interest is accruing under the loan agreement. Assessing the position if an injunction is granted, Mr Parmenter estimates the total debt with penalty interest to close to $25 million by June 2025 which he used as a somewhat optimistic proxy for a trial date. HND will be out of its money in the meantime.

[103]          The plaintiffs’ only assets of consequence are the mortgaged properties. They have registered valuations from March 2023 for the four properties totalling over

$29.5 million. The plaintiffs say that this provides security if an injunction is granted. Of course, that is only as good as whatever sale price could ultimately be achieved in the market conditions that apply. There is also Mr Davis’ evidence on the impediments to achieving more than he did achieve for HND in the sale process he managed. His evidence was of a robust sale process, albeit in mortgagee conditions.

[104]          I have no evidence on whether Joe Holdings is likely to remain a willing buyer one or two years away, after the outcome of a trial, but that seems improbable. Obviously, if HND needs to sell the contracted properties again, HND would incur a further set of marketing and sale costs. The counterfactual is of further sales in

34     American Cyanamid Co v Ethicon Ltd, above n 2, at 408D-E.

exercise of the power of sale. There must be an appreciable risk that the sales would be at lower prices.

[105]With no injunction, HND would complete the current sales at approximately

$11.3 million covering the principal owing. HND also has the proceeds of a mortgaged property already sold, for $835,478, prior to the interim injunction application and the Canterbury property would then be sold covering some interest arrears. Mr Harrison acknowledged that any relief for illegal contracts or other causes of action would still require the principal to be repaid.

Joe Holdings

[106]          The plaintiffs accept that in principle the demonstrated existence of a concluded agreement for sale and purchase of the mortgaged land in favour of a bona fide purchase for value is a factor of obvious relevance in the exercise of the discretion whether or not to grant injunctive relief. 35 Mr Harrison is correct to say that it is also not a bar to relief.

[107]          Where a mortgagor applies for injunctive relief where a sale has occurred but before it has been settled, the normal principles apply in the court’s consideration of the application. However:36

… the reality is that the Court is required to look at the position in light of the fact that a sale has occurred although not yet settled. The factual position is vastly different from the case where only a mortgagee and mortgagor are the concerned parties and any postponement of the exercise of the mortgagee’s rights by way of interlocutory injunction would affect, if at all, only the rights of the two parties.

…

35 Cases where the detrimental effect on third parties has been considered important are: Dunedin Taxis 1965 Ltd v Dunedin Airport Ltd (1990) 3 PRNZ 391; CBA Finance Holdings Ltd v Hawkins (No 2) (1984) 1 BCR 609; NZ Forest Products Ltd v NZ Stock Exchange (1984) 2 NZCLC 99,051; Finnigan v NZ Rugby Football Union Inc (No 2) [1985] 2 NZLR 181; and Chatham Islands Fisherman's Co-operative Co Ltd v Chatham Islands Packing Co Ltd (1988) 2 TCLR 605.

36  Horne v Westpac Banking Corporation HC Wellington CP207/97, 26 August 1997 at 10 and 16. See also decisions such as Bevin v Public Service Investment Society Ltd (1994) 2 NZ ConvC 191,821 (CA); Ko v Tea Custodians (Equitable) Ltd (2006) 7 NZCPR 108 (HC) and Bhana v Westpac Banking Corporation (2003) 4 NZ ConvC 193,794 (HC) and see generally Alana Fisher (ed) Land Law (online ed, Thomson Reuters) at [MG4.01(4)].

The legal rights of the defendant and the bona fide purchasers must in the end sway the balance in this application for interim relief. … it must surely require an exceptional case for interlocutory relief to be granted to a defaulting mortgagor so as to override legal rights obtained by a bona fide purchaser.

[108]          At the time of my interim interim decision in December 2023, I was concerned whether Joe Holdings was connected to HND. As noted earlier, this is now refuted by the affidavits of both Mr Yaxun Zhang, the principal of HND, and Mr Davis. Mr Davis is a reputable and independent agent. Mr Harrison characterised this as remaining a trial issue, but I see no basis for doubting what Mr Davis says.

[109]          Mr Harrison was also dismissive of HND’s portrayal of Joe Holdings as an “innocent third party” which is “potentially affected” and absent from the proceedings. He says other cases involving injunctions restraining mortgagee sales do not involve the intended purchaser being served or joined, as HND postulated may be necessary.

[110]          The terms of Joe Holdings’ contracts acknowledge that there is a mortgagee sale, and entitle the vendor to cancel and require the purchaser to refund the deposit in the event of an injunction. In other words, Joe Holdings has transacted on the basis that this outcome may occur. However, it remains affected by the orders.

Strength of case

[111]          I refer to my earlier assessment of the strength of the various claims. I have assessed that on the material before me, the case is not a strong one.

Delay

[112]          Delay or acquiescence on the part of a plaintiff are relevant to any application for a discretionary remedy. Unexplained delay can be of particular significance to an interim injunction application given the purpose of such relief.37

[113]          Mr Parmenter relied upon the plaintiffs’ delay in pursuing the interim injunction application and asserted that the plaintiffs have stood by knowing HND was

37     Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at HR7.53.09.

pursuing its remedies. He also complained of delay in progressing the substantive proceeding, leading to a greater delay from now than there would otherwise have been.

[114]          The Property Law Act notices issued by HND expired on 31 March 2023. The proceedings were issued by Mr Kwok acting in person on or about 19 July 2023. Interim relief was sought on or about 15 August 2023.. However, the proceedings were deficient and incomplete. Venning J described the proceedings drafted by Mr Kwok as “vexatious and incomprehensible” in a September 2023 minute making an unless order requiring a compliant claim. The plaintiffs then filed an amended claim in compliance with this order.

[115]          There were some duty judge list calls in the last quarter of the year. The matter was allocated a fixture date of 8 February 2024. Because of how far out the first available fixture would be, the Court gave the plaintiffs an opportunity to file an improved application for an interim injunction. By this time the plaintiffs had also indicated they wished to join a third party, Mr Augustine Lau, who had been lodging caveats against the various properties, precluding their sale. These caveats were successively rejected in a series of caveat proceedings.

[116]          A timetable was directed which was amended by consent on 19 October 2023 after the plaintiffs advised that Mr Harrison was being instructed and was not presently available. When the plaintiffs had not filed any amended application by the revised date of 14 November 2023, Mr Parmenter filed a memorandum describing the proceeding as an “uncontrolled shambles” and asking for the Court’s assistance to progress it.

[117]          Ultimately, a further and more fulsome amended claim was then filed on      8 December 2023 alongside an amended interim injunction application. A further amended interim injunction application was the filed on 15 December 2023. By this time the plaintiffs had become aware of the sales to Joe Holdings.

[118]          In parallel with all the above, Mr Davis had been engaged in June 2023. The sales agreements for the Sutton Road and Bremner Road properties were entered into

on 10 November 2023. The agreement for the sale of the Waitakere property was entered into on 5 December 2023.

[119]          I made interim interim orders on a Pickwick basis but without the benefit of evidence from HND on 21 December 2023, preserving the position to a scheduled substantive interim injunction hearing on 8 February 2024. In advance of the February hearing, the parties by consent adjourned the hearing until 11 April 2024 to enable Mr Parmenter to brief witnesses who were overseas. The substantive proceeding has not been progressed.

Assessment of above factors and overall justice

[120]          I now stand back and consider whether an interim injunction should be granted. I see the case as finely balanced. The plaintiffs’ undertaking as to damages does not have worth. Mr Harrison’s submission that the properties provide sufficient security in the event that the plaintiffs ultimately do not succeed is dubious.

[121]          This assumes the market value of these properties are, or will be, at the levels of the valuations the plaintiffs obtained in March 2023. The efforts by Barfoot & Thompson to sell the three contracted properties in the second half of 2023 suggest otherwise, notwithstanding that those were in mortgagee sale conditions. Obviously, one cannot guess what market conditions will be like should HND ultimately be selling the properties at mortgagee sale at the conclusion of the substantive proceeding. If the properties do sell for less than the prices achievable now, then any loss will be unrecoverable.

[122]          On the other side, HND is not a sound financial institution. To the contrary, it concedes that all funds it receives are provided by way of shareholder loan, as and when needed. For the reasons already expressed, Mr Harrison raises some meritorious arguments for why HND Upland’s guarantee should be viewed with some circumspection. However, it seems improbable that HND Upland’s principals would allow it to default in meeting losses resulting from interim relief being granted. This would lead to winding up and would undermine HND Upland’s main purpose which is to pursue its substantial commercial development in Remuera.

[123]          Sitting alongside the positions of the respective parties, I have to consider  Joe Holdings. It is a third party who I accept is not associated with the defendant.  Joe Holdings has bought the three properties knowing that they are being sold at mortgagee sale and on terms that the contract could be cancelled without penalty if an injunction is granted. However, those are terms which appeared in other cases as well, where third party interests were taken into account in refusing an injunction.38 It remains a third party affected by the orders.

[124]          The issue of delay is mixed. Although the plaintiffs did issue proceedings for an injunction in August, they then delayed in progressing that application and the proceeding generally, in a context where those proceedings were wholly deficient. So, despite proceedings being on foot, there is a fair complaint by HND that in substance the plaintiffs have stood by until finally filing an amended injunction application and claim in December 2023. That left HND with little time for reply evidence in time for a February 2014 hearing and hence a need to delay that further until April 2024.

[125]          I have considered to what extent I should take account as relevant to overall justice, the fact that HND was unregistered under the FSP when it should have been. I have had some regard to this on the issue of whether or not to grant discretionary relief. However, having concluded that the loan agreement is not illegal, it seems to me that the sanction to HND is primarily via the offence provisions of the legislation.

[126]          Mr Kwok says the plaintiffs assumed HND was operating a lawful business and was compliant. Mr Kwok says that had HND been registered, and as a consequence been a member of an approved dispute resolution scheme, the plaintiff would have made use of that process in order to try and properly resolve difficulties and injustices that they say have then occurred. This assumes that injustices have occurred and that the approved dispute resolution scheme would have resolved difficulties in the plaintiffs’ favour. However, I have still taken this into account in a limited way.

38 The fact that a mortgagee is able to cancel a contract does not mean that third party interests are unable to be considered. By application of s 178 of the Property Law Act, all mortgagees have the ability to cancel a contract for the sale of mortgaged property. The power of a mortgagee to cancel a contract for the sale of the mortgaged property in the event of an injunction also appears to be a common clause in contracts for the sale of mortgaged property yet third party interests are nonetheless considered. See, for example, Bhana v Westpac Banking Corporation, above n 36.

[127]          Finally, there is my view that while this is at an early stage on disputed evidence, and without full argument on the law, the plaintiffs’ claim does not seem strong. A key issue advanced in submissions was the illegality of the loan agreement, which I have found not to be seriously arguable. I have concluded that there is a serious question to be tried based around oppressive exercise of powers of sale founded on conduct under the loan agreement and its consequences. Yet, having considered the several affidavits filed, HND does appear to have good arguments that the real issue in this case is the plaintiffs’ own difficulty in being undercapitalised. There is also a question as to whether the plaintiffs are seeking to expand the mortgagee’s obligation of good faith for the purpose of obtaining repayment into areas where the mortgagee should be entitled to act with greater self-interest.

[128]          Standing back, in my view, justice is best served by refusing the interim injunction for the properties that are already subject to contract.

[129]          I grant an injunction restraining the sale of the Lincoln property that is not yet sold. There is not the extra dimension of a third party affected for that property.

Result

[130]          The application for interim relief is granted insofar as I make an order restraining the sale of 58 Greenpark Road, Lincoln.

Costs

[131]          If costs cannot be agreed, I will receive memoranda within 10 working days for the plaintiffs and a further 10 working days for the defendants. I will then determine costs on the papers.

Anderson J