MARBLE ARCH TRUSTEE LIMITED AND YING LIU

[2024] NZHC 2705

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-000651

[2024] NZHC 2705

BETWEEN

MARBLE ARCH TRUSTEE LIMITED

Plaintiff

AND

YING LIU

Defendant

Hearing:	29 August 2024
Appearances:	P J K Spring for the Plaintiff R J Connell for the Defendant
Judgment:	19 September 2024

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 19 September 2024 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Connell & Connell, Auckland Keegan Alexander, Auckland

MARBLE ARCH TRUSTEE LTD v LIU [2024] NZHC 2705 [19 September 2024]

Introduction

[1]    The defendant (Ms Liu) defaulted on an agreement to purchase three commercial units the plaintiff, Marble Arch  Trustee  Ltd  (MATL)  developed  in Mt Wellington. MATL cancelled the agreement and resold the units. MATL now seeks to recover its loss on the resale, expenses, legal fees, and default interest for late settlement at the agreed rate of 22 per cent per annum. MATL applies for summary judgment on its claim.

[2]    Ms Liu opposes summary judgment being entered on the grounds that the clause of the agreement imposing the 22 per cent per annum interest rate for late settlement is an unenforceable penalty.

[3]    The issue to decide is whether it is reasonably arguable that the late settlement interest rate clause imposes a detriment on Ms Liu out of all proportion to any legitimate interest of MATL in enforcing the obligation to settle the purchase.

Background facts

[4]    MATL is a property developer. In February 2023, MATL completed a commercial property development known as “The Workshops”, consisting of several commercial units on Harrison Road in Mt Wellington.

[5]    Ms Liu entered into a written agreement dated 21 September 2020 to purchase units A9, C9 and C11  of the development.   The purchase price was $1,980,000.   Ms Liu paid the initial deposit of $3,000. By 13 June 2022, Ms Liu had paid deposits of $198,000 according to the terms of the agreement.

[6]    By 5 February 2023, all the conditions to which the agreement was subject were satisfied. The settlement date was fixed for 1 March 2023.

[7]    Ms Liu did not complete settlement on 1 March 2023. MATL sent a settlement notice the next day, pursuant to cl 12.1 of the agreement.

[8]The settlement notice expired unremedied later that month.

[9]    On 5 April 2023, MATL commenced proceedings seeking an order that Ms Liu perform the agreement. MATL applied for summary judgment on this claim.

[10]   Ms Liu filed a notice of opposition on 23 June 2023. She opposed summary judgment on the basis that the interest rate sought was “grossly unfair” and she did not have the financial means to comply with an order for specific performance of the agreement.

[11]   Consequently, counsel for MATL filed a memorandum on 28 June 2023 informing the Court that MATL intended to cancel the agreement and instead file an amended application for summary judgment to recover the loss it anticipated incurring upon resale of the units. The memorandum accordingly sought an adjournment of the matter. MATL gave notice cancelling the agreement on 30 June 2023.

[12]The adjournment sought by MATL was granted on 3 July 2023.

[13]   Throughout the second half of 2023 and early 2024 MATL was granted repeated adjournments until all three units were resold and an amended application could be filed quantifying its loss.

[14]MATL resold the units on the following dates:

(a)Unit A9 was sold on 31 August 2023 for $440,000, pursuant to an agreement dated 11 August 2023.

(b)Unit C9 was resold on 20 October 2023 for $465,000, pursuant to an agreement dated 20 September 2023.

(c)Unit C11 was resold on 18 April 2024 for $700,0000, pursuant to an agreement dated 2 February 2024.

[15]   MATL filed an amended statement of claim and second interlocutory application for summary judgment on 24 April 2024.

[16]   Ms Liu filed a statement of defence to the amended statement of claim and a notice of opposition to the second interlocutory application for summary judgment on 31 May 2024. Ms Liu claims that the 22 per cent per annum interest rate for late settlement is “unfair, oppressive, harsh, burdensome, unconscionable or in breach of reasonable standards of commercial practice”, and an unenforceable penalty.

[17]   On 15 August 2024 MATL filed a second amended statement of claim and further interlocutory application for summary judgment in which it reduced the damages sought from $794,819.75 to $590,092.76. The reason for this change is explained below.

Legal principles

[18]Rule 12.2(1) of the High Court Rules 2016 provides:

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[19]   The relevant principles governing a summary judgment application are well- established:1

(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty.

(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.

(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

or other statements by the same deponent or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.

[20]   A defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.2

[21]   The court can give judgment for an amount that is indisputably due and owing, but which is only part of a claim and not the whole relief sought in a cause of action.3

The contract

[22]   Under cl 12.3(a)(ii) of the agreement for sale and purchase, MATL was entitled to cancel the agreement when Ms Liu did not comply with the settlement notice, and to forfeit and retain the deposit and sue Ms Liu for damages.

[23]Clause 12.3 reads:

Vendor’s Remedies

12.3If the Purchaser does not comply with the terms of the Settlement Notice served by the Vendor then:

(a)without prejudice to any other rights or remedies available to the Vendor at law or in equity the Vendor may:

(i)sue the Purchaser for specific performance; or

(ii)cancel this Agreement and pursue either or both of the following remedies:

(aa) forfeit and retain for the Vendor’s own benefit the entire Deposit paid by the Purchaser and all Net Interest or, where the Second Deposit has been satisfied by the Purchaser procuring a Deposit Guarantee, then the Vendor may make demand for payment under the Deposit Guarantee and forfeit and retain the entire amount received from the Issuer;

(bb)     sue the Purchaser for damages;

2      Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.

3      Australian Guarantee Corp (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 61.

(b)where the Vendor is entitled to cancel the Agreement the entry by the Vendor into an unconditional contract for the resale of the Unit or any part thereof by the Vendor shall take effect as a cancellation of the Agreement by the Vendor if the Agreement has not previously been cancelled and such sale shall be deemed to have occurred after cancellation;

(c)the damages claimable by the Vendor under clause 12.3(a)(ii)(bb) shall include all damages claimable at common law and equity and shall also include (but shall not be limited to) any loss incurred by the Vendor on any bona fide resale contracted within one year from the date by which the Purchaser must settle in compliance with the Settlement Notice. The amount of that loss may include:

(i)   interest on the unpaid portion of the Total Purchase Price at the Interest Rate for Late Settlement from the Settlement Date to the settlement of such resale;

(ii)all costs and expenses reasonably incurred on any resale

or attempted resale;

(iii)   all outgoings (other than interest) on or maintenance expenses in respect of the Unit from the Settlement Date to the settlement of such resale;

(d)any surplus money arising from a resale as aforesaid shall be retained by the Vendor.

(emphasis added)

[24]Clause 12.8 provides:

12.8 If the Vendor avails itself of any of the rights and remedies available pursuant to clause 12.3 then the Purchaser must pay all of the Vendor's legal costs (as between solicitor and own client) of and incidental to the enforcement or attempted enforcement of the Vendor's rights, remedies and powers under this Agreement ("Vendor's Costs”). The Vendor’s Costs shall be deemed to be added to and form part of the Total Purchase Price.

(emphasis added)

Undisputed amounts

[25]   Ms Liu does not dispute that she is in default of the agreement by failing to settle the purchase on the settlement date, the date in the settlement notice, or at all.

[26]   Furthermore, she does not dispute that she is liable to MATL for the loss incurred on the resale and for MATL’s expenses and costs. She takes no issue with the amounts claimed by MATL under these heads of loss.

[27]   I briefly address these undisputed heads of loss before turning to the disputed claim for late settlement interest.

Loss and expenses associated with resale

[28]   The resale contracts were entered into within one year of the date by which Ms Liu  was  required  to  settle  in  compliance  with  the  settlement  notice,  being 9 March 2023 (albeit the agreement for Unit C11 settled in April 2024). Benjamin Dearlove, a director of MATL, has sworn an affidavit in which he explains the process by which each unit was resold. He deposes that the resales were bona fide to unrelated third-party purchasers. That fact is undisputed.

[29]   The total resale price for the three units was $1,605,000. The difference between the purchase price Ms Liu agreed to pay for the three units and the total resale price was therefore $375,000. Deducting the deposit paid by Ms Liu gives $177,000. There is then a further allowance for the interest earned on the deposit between when it was paid and the settlement date in the amount of $1,375.96. This gives the figure MATL claims for the loss on resale of $175,624.04.

[30]   Each resale also incurred a commission payable. The invoices for the commissions incurred in relation to units C9 and C11 are in evidence. Mr Dearlove has also provided a breakdown of the commission invoices incurred for unit A9.  The total commission payable on the resale was $66,395. These commissions are reasonable expenses to  incur  in  reselling  the  property  and  are  claimable  under cl 12.3(c)(ii) of the agreement.

[31]   Ms Liu does not dispute MATL’s entitlement to recover these heads of loss or these calculations.

Outgoings and maintenance

[32]   While Ms Liu was in default, and before MATL re-sold the properties, MATL was responsible for maintenance and outgoings in respect of the properties.

[33]   Clause 12.3(c)(iii) of the agreement provides that the loss and damages the vendor may claim after cancelling the agreement due to the purchaser’s failure to comply with a settlement notice include all outgoings (other than interest) on, or maintenance expenses in respect of, the units from the settlement date to the settlement of a resale.

[34]Mr Dearlove deposes that the expenses were, for the relevant period:

(a)rates to Auckland Council in the amount of $5,142.69; and

(b)body corporate levies in the amount of $10,574.60.

[35]Ms Liu does not dispute that MATL is entitled to recover these expenses.

Legal costs

[36]   Mr Dearlove deposes that the legal costs incurred by MATL associated with the proceedings in which MATL sought orders for specific performance, the resale, and the summary judgment application to recover losses on the resale were

$18,621.50.

[37]Mr Spring advises that MATL does not seek costs associated with the hearing.

[38]Ms Liu does not dispute MATL’s entitlement to these legal costs.

Disputed claim for late settlement interest

[39]   The only disputed part of MATL’s claim is its claim for late settlement interest at the agreed rate of 22 per cent per annum.

[40]   Clause 12.3(c)(i) of the agreement provides that the loss claimable may include “interest on the unpaid portion of the Total Purchase Price at the Interest Rate for Late Settlement from the Settlement Date to the settlement of such resale.”

[41]   The agreement defines "Interest Rate for Late Settlement" as “22% per annum”. "Total Purchase Price" is defined as “$1,980,000 plus GST (if any)”. The settlement date, as established, was 1 March 2023.

[42]   Originally, MATL calculated the late settlement interest on the total purchase price, less the deposit and the interest earned thereon, through to the last of the three resales in April 2024. MATL has since amended its claim to the interpretation advanced by Ms Liu, that interest is payable with respect to each unit up to the date of each unit’s resale. On 15 August 2024 MATL filed, without leave, a second amended statement of claim and amended interlocutory application for summary judgment to reflect this change. I give MATL leave to file these documents, the effect of which is to reduce the amount claimed from Ms Liu.

[43]The total interest now claimed is therefore $332,338.43, calculated as follows:

(a)22 per cent on $1,780,642.04 for 183 days, being the total amount outstanding until the resale of unit A9 ($196,406.58);

(b)22 per cent on $1,340,642.04 (being the total amount outstanding less the proceeds of unit A9 ($440,000)) for 50 days, being the period between the resales of units A9 and C9 ($40,402.90); and

(c)22 per cent on $875,642.04 (being the total amount outstanding less the proceeds of units A9 ($440,000) and C9 ($465,000)) for 181 days, being the period between the resales of units C9 and C11 ($95,528.15).

[44]Ms Liu does not dispute these calculations.

[45]   Her position is that clause 12.3(c)(i), which entitles MATL to claim late settlement interest at 22 per cent per annum, is an unenforceable penalty. In support

of her position, she has filed an affidavit from an experienced commercial lawyer, John Radley, to which I shall return.

[46]   Conversely, MATL says that Ms Liu's purported defence is not arguable. It says that the clause protects the broader commercial objectives of the agreement and is proportionate to that protective purpose. MATL has filed an affidavit from one of its directors, Jamie Hutchens, who explains these objectives. They include protecting MATL against the high levels of default interest it faces under its arrangements with its mezzanine lender.

The law

[47]   The Supreme Court set out the principles to be applied in determining whether a clause in a contract is  properly  characterised  as  an  unenforceable  penalty  in 127 Hobson Street Ltd v Honey Bees PreSchool Ltd.4 The Court said:

[91]We summarise the test as follows:

(a)      A clause stipulating a consequence for breach of a term of the contract will be an unenforceable penalty if the consequence is out of all proportion to the legitimate interests of the innocent party in performance of the primary obligation. A consequence will be out of all proportion if the consequence can fairly be described as exorbitant when compared with the legitimate interests protected.

(b)      Determining whether or not the impugned clause is an unenforceable penalty requires an objective exercise of construction, notionally undertaken at the time of contract formation, and by reference to the terms and circumstances of the contract. Those circumstances can include the broader commercial context within which the contract sits.

(c)      A contractual clause which provides for consequences on breach may provide for consequences designed to protect the interests of the party in performance of the primary contractual term which has been breached. Those are the legitimate interests to be weighed when assessing the proportionality of the agreed consequence.

(d)      A party’s legitimate interests may extend beyond the loss caused by the breach as measured by a conventional assessment of contractual damages. They may extend to the impact of non- performance on the broader commercial interests the parties seek to achieve or protect through the contract. Those interests may

4      127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53, [2020] 1 NZLR 179.

extend beyond the four corners of the contract, for example if they relate to a system of business of which the contract forms a part.

(e)      While legitimate interests will not include objectives unrelated to the performance interest, such as punishment, what is also plain is that deterring breach can be a legitimate objective of a clause.

(f)      The bargaining power of the parties will be relevant to the courts’ inquiry as to the nature and extent of the innocent party’s interest in performance of the primary obligation. A court will presume that commercial parties dealing with each other on equal terms are able to assess the appropriate proportion between the legitimate interest in performance of the primary obligation and the consequence contracted for on breach. The fact that a party was legally advised as to the nature and effect of the transaction will also weigh in favour of upholding the bargain. But where there is evidence of unequal bargaining power, or where one party is not legally advised, a court will scrutinise more closely the innocent party’s claims as to the interests protected, and also the issue of proportionality. However, whatever the relative bargaining positions of the parties, the issue for the court remains whether the consequences for breach are out of all proportion to the innocent party’s legitimate interests in performance.

(g)      It is not necessary in all cases for the court to assess the damages that would have been awarded at common law for breach, but there may be cases where such calculation is the measure of the performance interest. That is likely to be the case where the impugned clause purports to provide a pre-estimate of damage, or where the impugned clause appears in a contract where the only legitimate interest in performance is properly analysed as the monetary value of the losses which flow directly from that breach, and which are readily calculated.

Ms Liu’s defence

[48]   Ms Liu advances the following arguments. First, that the late settlement interest rate is difficult to find in a complicated agreement for sale and purchase.

[49]   Second, that the fact that the interest rate for late payment of a deposit is also 22 per cent per annum indicates that the 22 per cent rate is arbitrary and not a fair estimate of MATL’s potential losses if a purchaser fails to settle. The interests of MATL in relation to payment of the deposit are entirely different to its interests in incentivising settlement of the sale and purchase on time.

[50]   Third, the fact that MATL originally sought to charge interest on the whole net sale price from the settlement date of 1 March 2023 until the date of settlement of the

third resale, without allowing for the timing of the three resales, shows that MATL is enforcing a penalty.

[51]   Fourth, Mr Hutchens does not state that MATL was charged 26 per cent default interest by its mezzanine lender. Again, Ms Liu submits that the fact that MATL was originally going to charge interest at a rate of 22 per cent on the total outstanding from 1 March 2023 until the date MATL settled the third of the resales, but subsequently acknowledged that interest credits should be given for the reduction in the outstanding amount caused by the first two resales, implies that the original proposal was not the result of MATL being charged default interest by its own financier.

[52]   Fifth, Mr Radley states that he would not have expected to see a default interest rate above 12 per cent per annum in 2020, when interest rates were historically low. He states that he has  not  experienced  a  purchaser/client  default  interest  rate  of 22 per cent per annum. Mr Radley also notes that the three resale agreements for the units, agreed at a time of high interest rates, had interest rates of only 14 per cent or 16 per cent.

[53]   Sixth, that the quantum of interest claimed of $332,338.43 is disproportionate to the “core debt” (loss on resale) of $175,642.04.

[54]   Additionally, Mr Connell submits that summary judgment should be refused because he should have the opportunity to cross-examine Mr Hutchens at trial.

[55]   Finally, that Ms Liu is impecunious and there is no prospect of her being able to pay an order in the amount sought.

MATL’s position

[56]   Mr Hutchens explains that MATL is Auckland’s largest development of inner-city   apartments.   MATL    purchased   the   property   at   Harrison   Road,  Mt Wellington, and sold industrial units off the plans prior to commencing the development. He explains that there are three key stages in any development project: pre-construction, construction, and post-construction. He explains that during the

pre-construction phase a developer must begin selling the units off the plan at their own expense. He says:

10. The plaintiff must carefully draft these agreements as they will determine the profitability of the plaintiff’s project, its ability to secure lending and the interest rate at which that lending is obtained (during the construction phase). The plaintiff is aware that it is typical for lenders to include a right of assignment by way of security within the facility agreements, enabling the lender to step into the shoes of the plaintiff in each material contract. Therefore, the plaintiff must ensure the terms of each sale and purchase agreement satisfy the lenders by minimising their exposure to unnecessary risk. Specifically, the lenders will want assurance that the interest for late settlements aligns with their default interest rate.

[57]   Mr Hutchens states that during the construction phase MATL finalises contracts with third parties involved in the development (such as builders, suppliers, subcontractors, and so on), and secures its lending.

[58]   Mr Hutchens explains that in the case of this development, due to MATL’s prominence in the market and track record of successful developments, MATL obtained 100 per cent funding for the purchase of the property and costs of constructing the development through BNZ, the primary lender, and Lambton Quay Properties Nominee Ltd, the secondary/mezzanine lender (mezzanine lender).

[59]   Mr Hutchens deposes that pursuant to the facility agreements with BNZ, MATL is charged interest from the initial drawdown under the facilities, and on each drawing, at the standard rate of 3.75 per cent (as at the date of the facility agreement), which is generally capitalised to the facilities at the election of MATL. BNZ may charge MATL default interest on any outstanding amount at a rate of 11.75 per cent per annum (as at the date of the facility agreement).

[60]   Under MATL’s term loan agreement with the mezzanine lender, MATL is charged interest on each drawing at the standard rate of 16 per cent per annum, generally capitalised to the facility at the election of MATL. On an event of default, MATL  may be charged  default  interest  on any outstanding amount  at a rate of    26 per cent per annum.

[61]   In both facility agreements, the lenders, as is customary, have a right to enforce their security against MATL, which would result in the lender enforcing its mortgage

and selling the land upon which the development is being constructed; exercising its right under the assignment by a security and stepping into the shoes of MATL in each material contract and proceeding to complete the development; and enforcing personal guarantees.

[62]   Post-construction, the facilities fall due for payment and MATL relies on the purchasers settling their property purchases to repay the lenders according to their priorities. Accordingly, BNZ is repaid first, and the mezzanine lender is repaid second.

[63]Mr Hutchens goes on to say:

21.Agreements for sale and purchase were scheduled to settle on or around 1 March 2023. Typically, sufficient agreements settle to repay the primary lender in full with the risk of a [shortfall] being borne by the Mezzanine Lender who accordingly charges higher interest rates to compensate for shouldering that risk. Accordingly, purchasers who fail to settle their sale and purchase agreement jeopardise the plaintiff’s ability to repay the Mezzanine Lender.

22.Therefore, post completion of construction, the plaintiff is at maximum exposure to the Mezzanine Lender as all costs have been drawn down and interest is accruing on the entire loan at a rate of 16% per annum, which compounds monthly, increasing the total amount it owes.

23.Moreover, if a sufficient number of purchasers do not settle, the plaintiff will not have sufficient funds to satisfy their obligations to its Mezzanine Lender, the plaintiff would then fall into default under the [term loan agreement with the mezzanine lender] subjecting the plaintiff to a default interest rate of 26% per annum on all outstanding moneys under the [term loan agreement with the mezzanine lender] for non-payment or non-performance. Alternatively, the Mezzanine Lender may exercise its right to enforce its security.

21. In this instance, the plaintiff’s reputation among lenders would be damaged and would significantly inhibit the plaintiff’s ability to obtain lending for future projects.

[64]    Mr Hutchens concludes that the 22 per cent late settlement interest rate is a tool to incentivise purchasers to settle their purchases on the due date, thereby protecting:

(a)MATL from the high levels of default interest it faces under its own funding arrangements;

(b)the mezzanine lender in the event they elect to exercise their right to step into the shoes of MATL in each material contract; and

(c)MATL from local/national economic cycles of interest rates, migration, local demand, and supply dynamics.

Analysis

[65]   Mr Hutchens’ explanation of the context for the 22 per cent interest rate is compelling. The context of a large-scale development where units are sold off the plans for settlement at a much later date once the development is complete, requiring complicated financing arrangements to be made before construction commences, is very different to a standard residential house sale. Evidently, the ability of the developer to obtain finance for the development depends on lenders being satisfied that agreements with purchasers protect their interests. Developers are themselves exposed to high rates of default interest. Here, MATL was exposed to a default interest rate of 26 per cent from the mezzanine lender, higher than the 22 per cent charged to Ms Liu. Furthermore, if enough purchasers fail to settle on settlement date, the entire development project is jeopardised, so there must be a convincing incentive on purchasers to settle on time.

[66]   Additionally, MATL has a broader interest in protecting its reputation from the damage that would result if it defaulted on its financing arrangements, potentially affecting its ability to obtain finance for future developments. According to Honey Bees, this broader interest is relevant to assessing the proportionality of the late settlement interest rate.5

[67]   Seen in this full context, I do not consider a 22 per cent late settlement rate to be “exorbitant” when compared to the legitimate interest MATL has in enforcing the obligation on purchasers such as Ms Liu to settle their purchases on time.

[68]I turn next to the specific matters raised by Ms Liu in her defence.

5      127 Hobson Street Ltd v Honey Bees Preschool Ltd, above n 4, at [91(d)].

[69]   As to her first point, I do not accept the late settlement interest rate is especially difficult to find in the agreement for sale and purchase. Furthermore, the agreement was conditional on Ms Liu’s solicitor approving the agreement.6 That condition was deemed met on 29 September 2020.

[70]   Nor do I accept that it follows that the 22 per cent interest rate for late settlement is penal because the interest rate for late payment of a deposit is also     22 per cent per annum. Mr Hutchens does not address MATL’s commercial interests involved in setting the late deposit interest rate, as it is not at issue. However, it is self-evident that a developer has a commercial interest in incentivising purchasers to pay the deposit on time as well. Unless the deposit is paid, there is no sale. The developer cannot obtain finance, and the project will not get underway. MATL’s term loan agreement with the mezzanine lender provides that it is a condition precedent to the facility being made available that a certain value of unconditional sales have been completed and that prescribed minimum deposits have been paid by the purchasers.

[71]   In any event, the relevant question is whether the late settlement interest rate is a consequence that is out of all proportion to the legitimate interest MATL has in incentivising purchasers to settle their purchases on settlement date. I do not see the fact that the late deposit interest rate is the same as especially relevant to that assessment.

[72]   Third, I do not accept that the fact that MATL originally sought to claim interest on the whole net sale price without allowing for the timing of the three resales shows that MATL is enforcing a penalty. Determining whether the clause is an unenforceable penalty is an objective exercise of construction, notionally undertaken at the time of contract formation, and by reference to the terms and circumstances of the contract.7

[73]   For the same reason, it is irrelevant whether MATL was in fact charged      26 per cent interest by its mezzanine lender.

6      Sale and Purchase Agreement for the Workshops – Mt Wellington, dated 21 September 2020, cl 7.4.

7      127 Hobson Street Ltd v Honey Bees Preschool Ltd, above n 4, at [91(b)].

[74]   Fifth, in terms of the much lower resale interest rates and Mr Radley’s commentary, I accept MATL’s submission that the resale agreements were entered into with entirely different commercial objectives. The commercial objectives of a property developer when selling properties off the plans in the pre-construction phase of a large-scale development, with finely balanced financing arrangements and settlements well in the future, are quite different from its commercial objectives when it is disposing of surplus stock once the development is complete.

[75]    Sixth, the disparity between the “core debt”, i.e. the loss on the resale, and the amount of default interest claimed is irrelevant to the inquiry. Again, the inquiry is focused on whether the clause in question is out of all proportion to the legitimate interest that clause is designed to protect, assessed at the time of contract formation.

[76]   Similarly, the fact that Ms Liu is said to be impecunious and unable to meet an order is not relevant to the question of whether the clause in question is a penalty.

[77]   The submission that gives me pause is that summary judgment should be refused  because  Mr  Connell  should  have  the  opportunity  to   cross-examine   Mr Hutchens at trial. But there is no credible basis on which to doubt the evidence given by Mr Hutchens. His description of how large-scale property developments work and the commercial objectives of developers is uncontroversial and unlikely to be undermined through cross-examination. I have reviewed the funding agreements with BNZ and the mezzanine lender. As one would expect, the agreements provide the lenders with a range of rights, powers, and remedies on default. The BNZ agreement provides for default interest at a rate per annum which is the sum of the base rate, margin and eight per cent per annum. The funding agreement with the mezzanine lender does indeed provide for interest at a rate of 16 per cent per annum and default interest at a rate of 26 per cent per annum.

[78]   Moreover, the three specific matters  identified  by  Mr  Connell  on  which he would cross-examine Mr Hutchens are not relevant to the inquiry set down in Honey Bees. These are:

(a)whether MATL suffered any penalty imposed by its financier as a result of Ms Liu’s default, and if so, what penalty it suffered;

(b)whether MATL will profit from the default interest rate; and

(c)why there is no difference between the interest rate for late payment of a deposit and the late settlement interest rate.

[79]   As noted, whether MATL in fact suffered any penalty imposed by the mezzanine lender is irrelevant, as is whether MATL will profit from the late settlement interest rate. As to the third point, the focus is more properly on whether the interest rate for late settlement is proportionate to the primary obligation it is designed to enforce.

Result

[80]I find that Ms Liu does not have a reasonably arguable defence.

[81]I enter summary judgment for Marble Arch Trustee Ltd in the amount of

$590,092.76, according to its amended statement of claim dated 15 August 2024.

Associate Judge Gardiner