Lay v Bank of New Zealand
[2024] NZHC 2282
•14 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2876 [2024] NZHC 2282
BETWEEN KIMTEAV LAY
First plaintiff/Applicant
BAU HOANG
Second plaintiff/ApplicantAND
BANK OF NEW ZEALAND
Defendant/Respondent
Hearing: 20 June 2024 Appearances:
AME Parlane for plaintiffs
S A Armstrong and N J Robertson for defendant
Date of judgment:
14 August 2024
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 14 August 2024 at 1.00pm.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
S A Armstrong, Barrister, Auckland Parlane Law, Auckland
Sanderson Weir, Auckland
LAY v BANK OF NEW ZEALAND [2024] NZHC 2282 [14 August 2024]
[1] The plaintiffs, Kimteav Lay and Bau Hoang, seek interim injunctive relief to prevent the defendant (the bank) from exercising its power to sell their home in Auckland’s Flat Bush, pending trial of their claims the bank is in breach of its contract with them and has engaged in unconscionable, or misleading and deceptive, conduct. Interlocutory relief is sought alternatively under each head.
Background
[2] The plaintiffs — Cambodian nationals with limited or non-existent English-language skills, operating their own bakery business for over 20 years, now in Auckland’s East Tāmaki — live at the Flat Bush property with their two children, aged eight and nine years. Their commitment to and self-denial in improving their family’s position in New Zealand is marked by their extraordinary hours devoted to family and work under very trying personal circumstances.
[3] With the assistance of an accountant and a mortgage broker, the plaintiffs agreed terms for a loan from the bank, which they applied to purchase of the Flat Bush property in April 2023, secured by a mortgage over the property in favour of the bank. Deposit also was obtained from the sale of their smaller Clover Park property. The loan conditions included the plaintiffs clear other debts, as they did.
[4] Soon after, on receipt of an allegation from an as-yet unidentified third party the loan improperly was obtained, the bank became concerned if its loan to the plaintiffs was obtained on the basis of false information as to the plaintiffs’ capacity to service the loans (based on past income derived from their bakery business). On the bank’s investigation, it considered there was a marked disparity between the plaintiffs’ reported and represented income, the latter overstating the former by degrees of magnitude.
[5] The bank took the view such constituted a “default” for the purposes of the mortgage, entitling it to exercise a power to sell the Flat Bush property if complying with Property Law Act 2007 requirements. Otherwise, the plaintiffs have met (and continue to meet) their payment obligations to the bank under the mortgage (including in reimbursement of enforcement costs).
Relevant law
—Property Law Act
[6] In circumstances of a mortgagor’s default under a mortgage, a mortgagee may sell mortgaged land if (and only) in compliance with s 119 of the Property Law Act.1 Section 119 — and, materially, s 120 — provide:
119 Notice must be given to current mortgagor of mortgaged land of exercise of powers, etc
(1) No amounts secured by a mortgage over land are payable by any person under an acceleration clause, and no mortgagee or receiver may exercise a power specified in subsection (2), by reason of a default, unless—
(a)a notice complying with section 120 has been served (whether by the mortgagee or receiver) on the person who, at the date of the service of the notice, is the current mortgagor; and
(b)on the expiry of the period specified in the notice, the default has not been remedied.
(2) The powers are—
(a)the mortgagee’s power to enter into possession of mortgaged land:
(b)the receiver’s power to manage mortgaged land or demand and recover income from mortgaged land:
(c)the mortgagee’s or receiver’s power to sell mortgaged land.
(3) Subsection (1) is subject to sections 125 and 126.
(4) A notice required by this section may be given in the same document as a notice under section 118.
120 Form of notice under section 119
(1) The notice required by section 119 must be in the prescribed form and must adequately inform the current mortgagor of—
(a)the nature and extent of the default; and
(b)the action required to remedy the default (if it can be remedied); and
(c)the period within which the current mortgagor must remedy the default or cause it to be remedied, being not shorter than 20 working days after the date of service of the notice, or any longer period for the remedying of the default specified by any term that is expressed or implied in any instrument; and
(d)the consequence that if, at the expiry of the period specified under paragraph (c), the default has not been, or cannot be, remedied,—
1 Burgess v TSB Bank Ltd [2015] NZCA 361, (2015) 16 NZCPR 728 at [55].
(i) the amounts secured by the mortgage and specified in the notice will become payable; or
(ii) the amounts secured by the mortgage and specified in the notice may be called up as becoming payable; or
(iii) the powers of the mortgagee or receiver specified in the notice will become exercisable; or
(iv) more than 1 of those things will occur.
(2) A notice required by section 119 may specify that the action required to remedy the default includes the payment (whether to the mortgagee or receiver) of a specified amount, being the reasonable costs and disbursements (whether of the mortgagee or receiver) in preparing and serving the notice.
And s 4 defines “default” as meaning:
(a) a failure—
(i)to pay on the due date any amounts secured by an instrument; or
(ii)to perform or observe any other express or implied covenant in an instrument; or
(b) any other event (other than the arrival of the due date) on the occurrence of which any amounts secured by an instrument become payable, or may be called up as becoming payable, under any express or implied term in the instrument.
—Fair Trading Act 1986
[7]Section 41 of the Fair Trading Act relevantly provides:
41 Injunctions may be granted by court for contravention of Part 1, Part 2, Part 3, and Part 4
(1) The court may, on the application of the Commission or any other person, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute any of the following—
(a)a contravention of any of the provisions of Parts 1 to 4:
(b)any attempt to contravene such a provision:
(c)aiding, abetting, counselling, or procuring any other person to contravene such a provision:
(d)inducing, or attempting to induce, any other person, whether by threats, promises or otherwise, to contravene such a provision:
(e)being in any way directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of such a provision:
(f)conspiring with any other person to contravene such a provision.
(2) The court may at any time rescind or vary an injunction granted under this section.
(3) Where an application is made to the court under this section for the grant of an injunction restraining a person from engaging in conduct of a particular kind the court may,—
(a)if it is satisfied that the person has engaged in conduct of that kind, grant an injunction restraining the person from engaging in conduct of that kind; or
(b)if in the opinion of the court it is desirable to do so, grant an interim injunction restraining the person from engaging in conduct of that kind,—
whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of that kind.
(4) Where an application is made to the court under this section for the grant of an injunction restraining a person from engaging in conduct of a particular kind, the court may,—
(a)if it appears to the court that, in the event that an injunction is not granted, it is likely that the person will engage in conduct of that kind, grant an injunction restraining the person from engaging in conduct of that kind; or
(b)if in the opinion of the court it is desirable to do so, grant an interim injunction restraining the person from engaging in conduct of that kind,—
whether or not the person has previously engaged in conduct of that kind and whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.
—interim injunctions
[8] Interim injunction applications are determined on the basis if the plaintiff has a serious question for trial, and the balance of convenience favours granting the injunction.2 ‘Overall justice’ then is the ultimate criterion, being “whichever course seems likely to cause the least irremediable prejudice to one party or the other”.3
[9] By ‘serious question for trial’ is meant one not vexatious or frivolous, on which the plaintiff has at least “a tenable basis upon which it might be able to succeed at trial”.4 If possible to reach a concluded view on the question, that may support a
2 Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344, [2020] NZCCLR 29 at [23], citing Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142; Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [30]–[31], citing American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL). See also NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12], referring to Roseneath Holdings Ltd v Grieve [2004] 2 NZLR 168 (CA) at [35]–[37].
3 Commerce Commission v Viagogo AG, above n 2, at [30]–[31], citing Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2, at 142, and National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [2009] 1 WLR 1405 at [16]–[17].
4 Intellihub Ltd v Genesis Energy Ltd, above n 2, at [24] and [27].
conclusion there is no tenable cause of action and effectively dispose of the substantive proceeding.5 The merits of the case (insofar as they can be ascertained at the interim injunction stage) otherwise can be relevant to the balance of convenience, and to the overall justice of the case.6
[10] As to ‘balance of convenience’, the question is if refusing the injunction would be harder on a plaintiff who was successful at trial, than granting it would be on a successful defendant.7 This assessment usually 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.8
[11] But more than inconvenience is required:9 interlocutory injunctions lie to protect plaintiffs against “irreparable damage” for which they cannot adequately be compensated.10 The point of interim injunctions generally is to restore the status quo
— “the last peaceable state between the parties”11 — if required to enable determination and any remedy of the parties’ contested rights at trial: “to enable substantial justice to be done between the parties”.12 (Hence, where damages provide adequate compensation, “no interim injunction should normally be granted”.13)
[12] Thus interim injunctions are to prevent specified actions alleged irremediably to change the status quo in reliance on one party’s contention as to those rights. They
5 Bank of New Zealand v Christian Church Community Trust [2024] NZCA 246 at [10], referring by example to National Commercial Bank Jamaica Ltd v Olint Corpn Ltd , above n 3, at [21] and noting, while the grant of an interim injunction involves a discretion, “the issue of whether there is a serious question to be tried … calls for judicial evaluation rather than the exercise of a discretion: see NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [13]”.
6 See, for example, Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2, at 142, and Roseneath Holdings Ltd v Grieve, above n 2, at [41]–[42], noted in Brooks Homes Ltd v NZ Tax Refunds Ltd [2013] NZSC 60 at [6].
7 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756, 30 July 2008 at [4], citing Cayne v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.
8 Intellihub Ltd v Genesis Energy Ltd, above n 2, at [6]–[14].
9 Pollen-Plus Ltd v Znel Ltd HC Tauranga CIV-2010-470-0848, 20 October 2010 at [40].
10 Finnigan v New Zealand Rugby Football Union Inc (No 2) [1985] 2 NZLR 181 (HC) at 183; andAmerican Cyanamid Co v Ethicon Ltd, above n 2, at 406.
11 Wellington International Airport Ltd v Air New Zealand Ltd, above n 7, at [10], citing R & M Wright Ltd v Ellerslie Gateway Motels Ltd HC Auckland CP188/90, 11 July 1990 at 8.
12 Commerce Commission v Viagogo AG, above n 2, at [81].
13 Wellington International Airport Ltd v Air New Zealand Ltd, above n 7, at [6].
are not intended in themselves to require compliance with the other party’s contention as to those rights. Neither are they to issue absent tenable dispute of those rights.
[13] No different principle applies when substantive relief is sought under the Fair Trading Act. Section 41(3)(b) and (4)(b)’s references to “an interim injunction” do not establish any right to interim relief other than on orthodox principle.14
Discussion
—do the plaintiffs have a serious question to be tried on the bank’s alleged conduct?
[14] The plaintiffs raise four causes of action against the bank. First, they allege the bank has breached its contract with them by not dealing with them “reasonably and fairly” and asserting them to be in default and taking enforcement action accordingly. Next, they allege the bank is in breach of s 7(1) of the Fair Trading Act by engaging in unconscionable conduct in the investigation and enforcement of the plaintiffs’ contended default. Then they allege the same conduct grounds the bank’s liability for unconscionable conduct “in equity and in law”. And last, they allege the bank’s issue of its Property Law Act notice and deduction of enforcements expenses from the plaintiffs’ account are, absent any default, misleading and deceptive conduct in breach of s 9 of the Fair Trading Act.
[15] The bank argues there can be no genuine dispute it was provided with false financial information in support of the plaintiffs’ loan application. It adds “[t]he loan application presented a materially inaccurate picture. [The plaintiffs’] income situation is opaque. As a result the credit risk for this loan remains unknown”.
[16] Even if so, the question is if falsity of the financial information is attributable to the plaintiffs. They say they are the victims of a fraudulent accountant, who in late 2023 (with access only to three months of the bakery’s bank statements) prepared the financial statements and other documents tendered in support of their loan application, on the success of which he was paid a substantial fee.
14 E R Squibb & Sons (NZ) Ltd v ICI New Zealand Ltd (1988) 3 TCLR 296 (HC) at 310–311.
[17] The accountant prepared financial statements for the year ending 31 March 2022 ostensibly for the bakery and the plaintiffs’ derivative tax summaries, and provided them to the mortgage broker. The financial statements, signed by the plaintiffs as directors of the bakery and dated 1 December 2022, contend for revenues in each the 2021 and 2022 financial years respectively of about $465,000 and
$470,000, with net surpluses of approximately $318,000 and $337,000. For the 2022 year, the tax summaries nominate taxable income for each plaintiff of some $131,000, with respective terminal and provisional tax liabilities of $34,000 and $36,000. The accountant appears also to have submitted the documents to Inland Revenue as the bakery’s and the plaintiffs’ tax agent, because the documents he provided the mortgage broker included proofs from Inland Revenue of the plaintiffs’ respective incomes for the 2022 tax year in that $131,000 amount. The mortgage broker provided those documents to the bank in support of his loan proposal for the plaintiffs as his clients.
[18] However, the bakery and plaintiffs had their own accountant and tax agent. That person also filed the bakery’s financial statements and the plaintiffs’ tax summaries for the 2021 and 2022 financial years. The bakery’s 2022 financial statements, signed by the plaintiffs and dated 11 October 2023, recorded sales of some
$132,000 with a $66,000 gross surplus reducing to $15,000 after expenses for the 2021 year and reported sales of $119,000 with a $59,000 gross surplus reversing to a $19,000 loss after expenses in 2022. Notes to the financial statement recorded the plaintiffs had taken $28,000 in drawings and $6,000 in remuneration in the 2021 year, and reported the plaintiffs had taken $27,000 in drawings and no remuneration in the 2022 year. The plaintiffs’ individual tax summaries for each the 2021 and 2022 years recorded only their minimal residual tax to pay. On this accountant’s restoration of itself as the bakery’s and the plaintiffs’ tax agent, it made a voluntary disclosure also to restore its 2021 and 2022 financial statements and tax summaries, noting “it appears that the tax records at Inland Revenue were purposely amended to furnish higher income in the summary of earning to the bank, in both the 2021 and 2022 year”.
[19] Paramountcy of the bank’s interest may be affected by fraud.15 Fraud also may stand to obviate the plaintiffs’ confirmation to the bank:
… all the information, including financial information, given by you, or any other person on your behalf, to us in connection with the facility documents is true, complete and accurate in all material respects. You confirm that you are not aware of any material facts or circumstances which have not been disclosed to us and which could affect our decision to provide a facility to you
on which term the bank primarily relies in its terms for the plaintiffs’ default.16 (The bank also relies on a term “you or any other person has acted fraudulently in connection with a facility document or any other agreement you have with us”. The plaintiffs’ counsel, Angela Parlane, argues no one has acted fraudulently in connection with any agreement the plaintiffs have with the bank. Rather, the plaintiffs are claimed innocent victims of the accountant’s fraud.)
[20] As between the plaintiffs and the bank, there is only the information the plaintiffs have rejected as incorrect in dealings with Inland Revenue. In response to my query if the plaintiffs nonetheless argued that information may be ‘true, complete and accurate in all material respects’, Ms Parlane responded “it might be; [the plaintiffs] just don’t know” without information from the contended fraudulent accountant, on whose professional expertise they relied. Such contention cannot stand with the plaintiffs’ rejection. There is no evidence the loan documentation was prepared with reference to any financial record of the bakery or the plaintiffs, except for the three months of bank statements. There accordingly is no evidence the information given to the bank for and on behalf of the plaintiffs in support of their ability to repay has any foundation at all. That the information is not true, complete and accurate in all material respects is incontestable.
[21] The fact of such default does not undermine the plaintiffs’ claims the bank’s conduct nonetheless was unreasonable, unfair, unconscionable and misleading and deceptive. The plaintiffs complain they had no direct contact with the bank at all until it commenced its investigation. All dealings were through the mortgage broker. But
15 Pepper New Zealand (Custodians) Ltd v Schmidt HC Auckland CIV-2011-404-5497, 15 November 2011 at [17]–[19] and [42]–[43], relied on in Forster v Haines [2022] NZHC 549 at [42]–[43].
16 Matthews v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 360 (HC) at 364.
such allegations also do not provide a basis on which to challenge the bank’s exercise of its power of sale, the focus of the sought interim relief. Such exercise only is impugnable if not for the purpose of paying the debt or in good faith.17 Neither is alleged here. The bank’s counsel, Sarah Armstrong, argued the plaintiffs’ disputes of the bank’s conduct only are “collateral” to and not determinative of legitimacy of the bank’s exercise of its power of sale. I agree. That the bank’s conduct may be unfair, unreasonable, unconscionable or misleading and deceptive does not in itself impugn exercise of the bank’s power of sale.
[22] However, as to that ‘good faith’, I raised with counsel at the hearing if the bank’s dealings with the plaintiffs met its obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (including as specified by the Anti-Money Laundering and Countering Financing of Terrorism (Requirements and Compliance) Regulations 2011). The materiality of my query was if any arguable failing in the bank’s statutory due diligence obligations in terms of at least ss 15–17, as to the integrity of information to be obtained from or on behalf of the plaintiffs (particularly in terms of s 17 and reg 11), may undermine its necessary good faith reliance on their alleged default in provision of information that was “true, complete and accurate in all material respects”. Ms Armstrong responded the bank was entitled to rely on its dealings with the intermediate mortgage broker. I sought further submissions after hearing.
[23] The parties’ responses have ballooned beyond my request’s expectation.18 The bank disputes there is any logical connection between any such arguable failing and the bank’s reliance on the plaintiffs’ default. Given such reliance is to be in good faith, I disagree. But I am satisfied for present purposes the bank only was required to conduct standard customer due diligence of the plaintiffs, and such was met in the present circumstances by the bank’s verification of their identities. From that perspective, there is no basis on which to be concerned the bank’s reliance on the plaintiffs’ default may be other than in good faith. Although the plaintiffs now raise a wealth of concerns as to the adequacy of the bank’s wider compliance, none of that
17 Coumat Ltd v Whitford Properties Ltd [2018] NZCA 15 at [30], citing Downsview Nominees Ltd v First City Corp Ltd [1993] 1 NZLR 513 (PC) at 522.
18 Objections are taken to the scope of responsive memoranda and affidavits. Given my query is satisfied without needing to have regard for the subject of such objections, I disregard the disputes.
either establishes any concern the bank’s reliance on the plaintiffs’ default may be other than in good faith.
[24] Accordingly, there is no serious question for trial as to exercise of the bank’s power of sale.
—where does the balance of convenience lie?
[25] As I said at hearing, otherwise the balance of convenience plainly favours injunction’s interim grant. Damages plainly is a sufficient remedy for the bank, for which it has the security of its mortgage. And loss by sale of the plaintiffs’ hard-won family home(s), also providing accommodation for members of their extended family and tenants, is exactly the sort of damage for which they cannot adequately be compensated if successful at trial. But that is contingent on the plaintiffs having a tenable case for trial against the bank’s exercise of its power of sale, which I have found they do not.
—what is the overall justice?
[26] Accordingly, the question of overall justice does not arise. Such assessment also is contingent on the plaintiffs having a tenable case for trial against the bank’s exercise of its power of sale. As the Court of Appeal made clear in distinguishing interim injunctions’ evaluative and discretionary aspects,19 it is not a free-floating discretion on which to grant interim relief.
Result
[27]The plaintiffs’ interlocutory application for interim injunctive relief is declined.
Costs
[28] If, notwithstanding cl 11.5 of the bank’s home loan facility master agreement with the plaintiffs, there is any issue as to costs, they are reserved for determination on short memoranda each of no more than five pages — annexing a single-page table
19 Bank of New Zealand v Christian Church Community Trust, above n 5, at [10].
setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by the bank within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.
—Jagose J
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