MBG Limited v Joyce
[2020] NZHC 750
•16 April 2020
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2019-470-000094
[2020] NZHC 750
UNDER the Land Transfer Act 2017, s 143(6) BETWEEN
MBG LIMITED
Applicant/Respondent
AND
JAN JOYCE, LENAIRE ANNE JOYCE and
GRAEME KENNETH BEAVER as trustees and guarantors of the RE JOYCE TRUST Respondents/Applicants
Hearing: 31 March 2020 Appearances:
N J M Devery for Applicant/Respondent Respondent/Applicant in Person (J Joyce)
Judgment:
16 April 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 16 April 2020 at 2.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date…………………………
MBG LTD v JOYCE [2020] NZHC 750 [16 April 2020]
Introduction
[1] These are caveat proceedings relating to two properties in Tauranga, namely 356D Papamoa Beach Road (the Papamoa property) and 1/57 Tawa Street, Mount Maunganui (the Tawa Street property). The Papamoa property is the family home of the Joyce family. Both properties are encumbered with significant mortgage debt.
[2] The respondent, MBG Limited, is a fund facilitator. In October 2018 it entered into an agreement with the Re Joyce Trust (the Trust),1 whereby the Trust would borrow money from MBG Ltd and those facilities would then be secured against the two properties (the facilities agreement). The facilities were never uplifted as the Trust obtained funds from an alternative lender. However, under the facilities agreement, the Trust remained liable to MBG Ltd for costs and fees.
[3] On 14 November 2019, I made final orders that the caveats lodged against the two properties by MBG Ltd not lapse. The Trust had taken no steps to defend the proceedings which, according to an affidavit before the Court, had been served on the Trust on 14 October 2019. The basis of the caveats was an equitable mortgage held by MBG Ltd which it says arose following the Trust’s failure to pay its invoice of
$33,954.75 (the amount for costs and fees).
[4] The trustees now apply to set aside the final orders on the basis that they were never served with the proceedings and had no notice of them. They contend that the caveats prevent registering an alternative mortgage instrument and that there is a real risk that the family home at Papamoa will thereby be subject to a mortgagee sale. The trustees also say they are not liable for MBG Ltd’s fees. They claim the facilities agreement was an unconscionable bargain and/or entered into by the trustees on the basis of misleading and deceptive representations by MBG Ltd.
[5] For the reasons that follow in the first part of this judgment, I grant the trustees’ application and set aside the final orders that the caveats not lapse. In the second part
1 Jan Joyce, Lenaire Anne Joyce and Graeme Kenneth Beaver, the respondents, are the trustees of the Re Joyce Trust.
of this judgment, I consider afresh MBG Ltd’s application that the caveats not lapse pursuant to s 143 of the Land Transfer Act 2017 (the 2017 Act).
[6] The hearing before me on 31 March 2020 was not confined solely to the issue of whether my earlier judgment of 14 November 2019 should be set aside. I heard argument, as addressed in the written submissions of MBG Ltd, about the merits of the application that the caveats not lapse. In discussions with the parties at pre-hearing telephone conferences it became obvious that if I should decide to set aside the judgment, then it would be necessary to have an immediate answer on whether, upon reconsidering MBG Ltd’s application, orders should be made that the caveats not lapse, and if so, on what terms.
[7] The amount at issue between the parties is not significant, though I recognise that for the Trust it cannot be considered inconsequential. However, given that sum and the clear need for the trustees to have an answer as soon as practicable, it would be plainly wrong to delay matters further.
[8]I also note that New Zealand is currently at alert level 4 in response to COVID-
19. It is highly undesirable for the Joyce family to face further uncertainty about the fate of their family home.
Factual background
[9] In addition to the Papamoa property, the Trust also holds a property at 30/19 Brodie Place, Bethlehem, Tauranga (the Bethlehem property). The Tawa Street property is a commercial property, Mr Jan Joyce being the sole registered proprietor.
[10] According to a recent registered valuation, the Papamoa property has a market value as is of $865,000. It is subject to a first mortgage in favour of Basecorp Finance Ltd (Basecorp) in the sum of $312,907.50 and a second mortgage of $382,577.93. The default rate listed at the end of the term for that second mortgage is 15.95 per cent. Both mortgages have expired but are currently being rolled over on a monthly basis.
[11] In accordance with a registered valuation of July 2019, the Tawa Street property has a market value of $720,000. It is subject to a mortgage of $690,350.87.
[12] In accordance with a registered valuation of January 2020, the Bethlehem property has a market value of $655,000. It is subject to a mortgage of approximately
$300,000.
[13] The trustees purchased the Papamoa property in 2010 and embarked upon a major rebuild of the house after it had earlier been damaged by an extensive fire. In 2011, the rebuild was abandoned when the builder defaulted on a fixed-price contract. The house was uninhabitable from about 2011 until recently when the Joyce family moved back in, following the completion of the rebuild.
[14] The Papamoa property was the subject of a mortgage to Kiwibank, registered on 20 December 2010. That mortgage was discharged on 2 August 2018, and on that same day a mortgage was registered in favour of Jarcel Investments Ltd (the Jarcel mortgage).
[15] The Joyce family lived at the Bethlehem property from 2011 until January 2019.
[16] In September 2018, MBG Ltd received an application for finance from a broker on behalf of the Trust. The trustees wished to raise finance to complete the rebuild of the Papamoa property. They also wanted to replace the Jarcel mortgage, claiming the broker who arranged it (said now to be serving a sentence of imprisonment for dishonesty offences) failed to secure for them the finance that they needed.
[17] In October 2018, the parties entered into the facilities agreement. The proposed principal sum was $304,000 with an interest rate of 14.95 per cent per annum. The “security” clause in the agreement included:
(a)A registered second mortgage over the Papamoa property;
(b)A registered caveat over the Papamoa property; and
(c)A registered caveat over the Tawa Street property.
[18]The “acceptance” term in the agreement provided that:
The Applicant(s) Borrower(s), and Guarantor(s) agree and undertake to pay on demand the fees set out in the Offer, being MBG/Underwriters fees, origination fees, legal fees and expenses, and any other costs and disbursements in connection with the Offer, incurred by or payable to MBG (“the costs”). If for any reason whatsoever other that the default of MBG, the loan advance is not settled and does not proceed, the Applicant(s) Borrower(s) and Guarantor(s) shall remain jointly and severally liable to MBG for the costs and shall pay the costs to MBG upon demand.
The “Authority, Privacy Act Declaration, and Engagement” term in the agreement provided that:
18. I/We and any Guarantor(s), jointly and severally agree to grant a registered charge (and/or a security interest as the case may be) in favour of MBG or any nominee, over any existing property, or future held property to which the parties are registered proprietors to secure payment of fees and costs at any time.
[19] MBG Ltd says that pursuant to the facilities agreement they incurred costs in assessing the application for funding and taking steps to progress the provision of the facilities to the Trust.
[20] On 15 November 2018, MBG Ltd sent loan documentation to Lawbox Solutions, thought to be solicitors for the Trust. MBG Ltd was then advised that Right Move Legal (RML) acted for the Trust. On 29 November 2018, RML advised that it could not act for the Trust and MBG Ltd was instructed to forward the loan documentation to Jacobsen & Co, solicitors.
[21] On 3 December 2018, the Trust drew down loan facilities from Basecorp in relation to the Papamoa property.
[22] On 11 December 2018, Jacobsen & Co advised MBG Ltd that they had never acted for the Trust and had no such instruction to do so.
[23] On 14 January 2019, the Joyce family vacated the Bethlehem property. Between then and October 2019, when the family moved into the Papamoa property, they lived at various locations in the Tauranga region.
[24]On 18 January 2019, MBG Ltd issued an invoice to the Trust in the sum of
$33,954.75 and lodged caveats against both the Papamoa and Tawa Street properties. These were subsequently registered as caveats 11332664.1 and 11332664.2
respectively. MBG Ltd says that to date neither the Trust or the individual trustees as guarantors have paid that invoice. On 24 January 2019, Mr Joyce emailed MBG Ltd challenging the invoice and refusing to make payment.
[25] On 26 July 2019, RML (then solicitors for the Trust) wrote to the solicitors for MBG Ltd challenging the caveats.
[26] On 26 September 2019, the trustees applied to Land Information New Zealand (LINZ) to lapse the caveats, thus triggering the process under s 143 of the 2017 Act.
[27] On 10 September 2019, MBG Ltd issued a further invoice to the trustees in the total sum of $41,653.96. The invoice included additional interest for the period from 18 January 2019 to 10 September 2019, in the sum of $6,003.71.2
[28] On 8 October 2019, MBG Ltd filed applications in this Court that the caveats not lapse, pursuant to s 143 of the 2017 Act.
[29] On 11 October 2019, MBG Ltd contacted Mr Taylor of RML to see if he would accept service of the proceedings for the Trust. Mr Taylor advised that he was not authorised to do so.
[30] On 14 October 2019, a process server served a copy of the proceedings at the Bethlehem property address by affixing the documents to the “door of the registered office during normal business hours”.
[31] On 21 October 2019, I ordered on an interim basis that the caveats not lapse and that leave was reserved to MBG Ltd to make an application for final orders on the papers following the expiry of the relevant 10-day period within which the trustees were able to file a notice of opposition.
2 The acceptance clause of the facilities agreement provides that fees and costs that remain outstanding will incur a rate of interest of plus 10 per cent of the interest rate as contained in the offer, calculated daily, until such time as they are paid (the interest rate in the offer was 14.95 per cent).
[32] On 14 November 2019, I made final orders that the caveats not lapse. I noted that the trustees had not filed or served a notice of opposition within the requisite 10- day period. I was satisfied that the grounds for the final orders had been made out, namely, that there was an arguable beneficial interest in the properties, arising from an equitable mortgage.
[33] On 3 December 2019, the trustees applied to set aside that judgment. Mr and Mrs Joyce claimed that the first time they became aware of the caveat proceedings by MBG Ltd was when they made enquiries with the High Court at Tauranga, having learned that the caveats had not lapsed, as they had expected.
Relevant legal principles and the issues
[34]Rule 10.9 of the High Court Rules provides:
10.9 Judgment following non-appearance may be set aside
Any verdict or judgment obtained when one party does not appear at the trial may be set aside or varied by the court on any terms that are just if there has, or may have been, a miscarriage of justice.
[35] The test against which an application to set aside a judgment should be considered is whether it is just in all the circumstances to set aside the judgment, and the several factors mentioned in the cases are not to be taken as rules of law, but as no more than tests by which the justice of the case is to be measured, in the context of procedural rules which have an overall purpose of securing the just disposal of litigation.3
[36] McGechan on Procedure notes the considerations which the cases on r 10.9 (and its predecessors) mention, include:
(a)Whether the defendant’s failure to appear was excusable;
(b)Whether the defence had substance;
3 The test laid down by the Court of Appeal in Russell v Cox [1983] NZLR 654 at 659 as confirmed in Matheson v Jones CA198/92, 11 December 1992.
(c)Whether the plaintiff would/might suffer irreparable injury if the judgment it has obtained is set aside;
(d)Whether any solicitor/counsel have withdrawn;
(e)Whether such withdrawal was with or without advice to the relevant party and the court;
(f)The applicant’s overall attitude to the proceeding, particularly if it has been casual or cavalier;
(g)A greater reluctance to grant a defendant’s application, because it deprives the plaintiff of the benefits of its judgment; and
(h)Whether there has been any delay in applying to set aside the judgment.
[37]From those factors, the three critical issues that arise in this case are as follows:
(a)Whether the trustees of the Trust’s failure to appear and defend the proceedings was excusable.
(b)Whether there is any substantial defence available to the trustees.
(c)Whether MBG Ltd would suffer irreparable injury if the judgment it obtained is set aside.
Analysis and decision
Was the trustees of the Trust’s failure to appear excusable?
[38] The trustees’ principal ground for setting aside the judgment is that they were not served with the application that caveats not lapse in accordance with the High Court Rules, specifically, r 6.1. They say they had no notice of the proceedings and therefore had no opportunity to challenge what they claim are untenable grounds advanced to sustain the caveats.
[39] MBG Ltd says that the proceedings were correctly served in accordance with r 19.12A (which it claims has particular application to caveats) and r 6.5. MBG says that the address provided by the trustees in the Trust’s application for finance, namely
30/19 Brodie Place, Bethlehem, was an address for service for the purpose of those rules.
[40] The critical issue that arises therefore is whether there was valid service in accordance with the High Court Rules.
[41] In my view, MBG Ltd’s reliance on rr 19.12A(1) and 6.5 is misguided. It cannot rely upon either.
[42]Rule 19.12A(1) provides:
Special provisions for service of applications to remove caveats or set aside statutory demands
(1) An originating application under section 143 of the Land Transfer Act 1952 for the removal of a caveat may be served, in accordance with rule 6.5, at the address for service stated in the caveat.
[43]Rule 6.5 reads:
A document may be served at an address for service by leaving the document at that address at any time between 9 am and 5 pm.
[44] The first point to note is that r 19.12A applies to the now repealed Land Transfer Act 1952. This is due to the fact the cross-references in the rules have not been updated. I also accept it has become common practice in such situations to read in new provisions if available. However, even if, as a matter of interpretation, that rule does apply to the 2017 Act, I would still find that MBG Ltd cannot rely upon it.
[45] What is contemplated by r 19.12A is that a party seeking an order for the removal of a caveat (normally the registered proprietor, bringing the application for removal), could rely upon and use the caveator’s address for service as provided in his/her caveat lodged with the Registrar General of Land4 (i.e. where the caveator is the respondent party).
4 ‘Form 34’ is the required form to lodge a caveat against dealings, provided by LINZ under Schedule 3 of its 2018 Guideline LINZG20773, which specifically requires an “Address for service of Caveator” as well as an “Address for service of Registered Owner”. In contrast, the ‘RGL Recommended Form’ under Schedule 4 of that guideline for applying to lapse a caveat (there is no prescribed form) refers to “Name and Address of Applicant” and “Name and Address of Registered Owner”, and does not use the terminology that Form 34 does of “address for service of Caveator”. Also see Regulation 5(2)(k) of the Land Transfer Regulations 2018 and s 136(2)(e) of the Land Transfer Act 1952.
[46] I find that in this case the “address for service” to which r 19.12A(1) refers would be the address that MBG Ltd gave to the Registrar General of Lands when it lodged the caveat in the requisite prescribed form. The address of the Bethlehem property provided by Mr Steve McGowan (the mortgage broker at Advoco Mortgages) in the application for finance form which MBG Ltd relied upon is not an address for service for the purposes of rr 19.12A, 6.5 or any other High Court Rule.
[47] I acknowledge the wide definition of “address for service” in r 1.3 of the High Court Rules. However, that definition is qualified by the requirement that the address is to be an address for service “under these rules”. There is no basis in the Rules, in my view, to find that 30/19 Brodie Place was an address for service.
[48] I also find that on the facts of this case, the trustees did not have notice of the proceedings. At the time the proceedings were served on the Bethlehem property on 14 October 2019 the Joyce family was no longer living there. Therefore, there is no reason to doubt Mr Joyce’s claim that he did not become aware of the proceedings until he made enquiries with the Tauranga High Court.
[49] In the ordinary course, there may have been some merit to Ms Devery’s submission that the Joyce family, having taken steps to remove the caveats, should have anticipated the High Court proceedings. However, in this case, Mr Joyce received legal advice that MBG Ltd was unlikely to challenge his application and thereby trigger the s 143 process because the amount at issue in the invoice was relatively modest, and MBG Ltd would therefore opt not to incur the costs associated with any High Court proceedings. It is also understandable in the circumstances that the Joyce family had no expectation that they would be served with the proceedings at the Bethlehem property. In any event, even if the Joyce family should have anticipated caveat proceedings, service of the proceedings was defective.
[50] I accept that the solicitors for MBG Ltd acted responsibly in asking the solicitor at RML whether he was authorised to accept service of the proceedings. However, the evidence does tend to suggest that MBG Ltd should have doubted whether service of the proceedings at the Bethlehem property would properly bring notice of the proceedings to the attention of Mr Joyce and the trustees of the Trust. In a number of
emails, Mr Joyce made it clear to Mr Urquhart of MBG Ltd that they were no longer living at that address. This includes the email from Mr Joyce dated 24 January 2019, advising the Joyce family was “homeless” and the earlier email from Mr Joyce dated 6 November 2018 where he expressly advised that the Joyce family would be without a home in late January as they needed to move out of the Bethlehem property due to a “leaky building rebuild”. Upon RML’s statement that it would not accept service, MBG Ltd should have served the trustees personally.
[51] I also accept the evidence of Mr Joyce that for most of 2019 and until they moved into the Papamoa property, they were living at various addresses either with friends or in short-term rentals.
[52] In all the circumstances, what was required here was personal service of the proceedings on each of the trustees. In the case of Mr and Mrs Joyce, that could have been achieved by personal service on both of them either at the Papamoa property or possibly the Tawa Street property where it was also likely the proceedings would have come to their attention.
[53] I acknowledge that MBG Ltd used a professional service agent to effect service and that the service agent’s report did not indicate any issues with access or that the site appeared vacant. However, that does not address the question of whether there was valid service and whether the proceedings were properly brought to the attention of the trustees.
[54] In the circumstances of this case, the whole purpose of service, namely, to bring proceedings to the attention of the parties served, has clearly not been met. Therefore, I find the failure of the trustees to attend the hearing or otherwise respond to the application that the caveats not lapse was entirely excusable.
Is any substantial defence available to the trustees?
[55] The trustees of the Trust, obviously in a desperate financial position, have made a wide-ranging attack on the credibility and reputation of MBG Ltd as well as the legitimacy of the facilities agreement, with a view to challenging the legal basis for the caveats.
[56] The trustees have clearly been disadvantaged, not even being able to afford legal representation.5 That disadvantage is particularly acute in this case where MBG Ltd has structured its business with the apparent intention of trying to minimise the application of consumer protection legislation, denying that it is either a financial adviser or broker, describing its role to simply connect lenders with borrowers. This is what the contract documentation and other evidence tends to establish. The agreement of 11 October 2018 even expressly describes the facility as a “Non- Regulated loan”.
[57] The trustees’ claims against Mr Urquhart and MBG Ltd are serious. I acknowledge the evidence has not yet been tested and that Mr Urquhart and MBG Ltd have not had the opportunity to fully respond. The assessment I must make is not whether the claims are proven as such but, rather, whether there is sufficient merit or substance to them to conclude that there is a proper basis for the judgment to be set aside. In other words, whether there is any point in doing so or reasonable prospect that a different result might be achieved on the hearing of the trustees’ claims.
[58] The substance of the trustees’ complaints and challenges is that Mr Urquhart and MBG Ltd unconscionably exploited the vulnerability of the Joyce family and ultimately provided them with nothing of value which could possibly justify a fee of over $33,000 secured by a caveat. They also say that they entered into the loan facility on the basis of misrepresentations made by MBG Ltd. They claim further that the caveats now prevent them from re-financing their mortgage arrangements in a way that might prevent their family home being sold by the current mortgagees. In essence, it is claimed that on the basis of a disputed fee of merely $33,954.75, MBG Ltd has complete control over the Trust and the Joyce family’s financial position in future. Mr Joyce expressed his plight as “the last window of opportunity” to prevent the loss of the family home.
5 Mr Joyce acknowledged during his submissions that he had been assisted by his daughter who has completed a commercial law paper at university. My observations are in no way a criticism of Mr Joyce or his family who, I acknowledge, have had to avail themselves of whatever resources at hand. It is regrettable that the Joyce family were unable to engage the services of a pro bono lawyer.
[59] I agree with MBG Ltd’s submission that it did not have an obligation to advise the trustees of its intention to register the caveats (that is the responsibility of the Registrar under s 139 of the 2017 Act). In any event, Mr Joyce, in his email of 24 January 2019, was alive to the possibility that such action might be taken by MBG Ltd. What he did not know, however, was that the caveats had already been lodged.
[60] I also accept MBG Ltd’s submission that it is unlikely that the Credit Contracts and Consumer Finance Act 2003 applies to the contract at issue here. That legislation provides in s 11(a) that a consumer creditor contract requires the debtor to be a “natural person”. Section 15 provides that a credit contract under which the debtor is a trustee acting in his capacity as a trustee of a family trust is not a consumer credit contract. In this case the debtor was of course the Re Joyce Trust, a non-natural person. I accept that the Tawa Street property is registered in the name of Mr Joyce, a natural person, but the contract at issue and the relevant document, was clearly signed by all three trustees in their capacity as trustees of a trust (and thus not natural persons).
[61] Mr Joyce has also put at issue the calculation of the fees the subject of the disputed invoice.6 That invoice includes:
(a)MBG fees “(including GST, if any)” of $11,000;
(b)Legal fees “(including to date)” of $4,245;
(c)An underwriter fee of $15,709.75;
(d)An introducer fee of $3,000.
[62] The facilities agreement signed by the parties provides that upon acceptance of the offer the following fees will be payable and deducted upon draw-down from the principal sum:
(a)MBG funding underwriter fee of $8,000; and
6 The updated invoice of 10 September 2019 in the total sum of $41,653.96 includes interest of
$6,003.71 for the period 18 January 2019 to 10 September 2019.
(b)“Estimated legal fees” of $2,000.
[63] As Mr Joyce submitted, the actual fees charged for both those items are substantially different and, in both cases, virtually double. There also appears to be some merit to Mr Joyce’s contention that the introducer fee of $3,000, a fee to which Ms Carolyn Calder (the broker who approached MBG Ltd) might be entitled to, should not have been included in MBG Ltd’s invoice. Ms Calder, who has provided evidence in support of the Trust, has made it clear that she will not be requiring payment of that fee.
[64] Mr Joyce raised the calculation of the fees in the invoice for the first time in his submissions in reply. Mr Urquhart, of MBG Ltd, subsequently filed a further affidavit in early April 2020 addressing that issue. I find that I should accept and take into account the further evidence from Mr Urquhart.7
[65] Mr Urquhart has given a comprehensive account of the calculation of the underwriter’s and legal fees.8 The legal fees are said to relate to the preparation of the loan documentation for three different solicitors that MBG Ltd understood were acting for the Trust. The calculation of the underwriter’s fee was based in part upon a need to have the Trust provide a potential source of repayment because it could not afford to service the loan facility upon completion of the building works at Papamoa.
[66] In proceedings of this kind it is not possible nor appropriate to test the relevant evidence, including evidence as to any industry standards or practices for calculating underwriters’ fees in a second-tier lending market. Thus, I make no finding on whether the fees invoice has been calculated on an arguably improper or incorrect basis.
7 However, I am not prepared to accept or consider the further supplementary submissions and third and fourth affidavits by Mr Joyce (sent to the Court on 14 April 2020). There is a clear need for finality and the trustees have been given a full and fair opportunity to present their case.
8 MBG Ltd also submitted (with reference to [25] of the April 2020 affidavit of Mr Urquhart) that the underwriter’s fee was comprised of $14,250 (excluding GST as it is a GST exempt supply) plus legal fees of $1,459.75 (including GST). A condition also of the facility was that the Papamoa property had to be re-financed on completion of the build or it had to be sold.
[67] I now turn to address what I consider to be the critical issues that arise in assessing whether the trustees have any substantial defence available. Those issues are as follows:
(a)Whether there is an arguable case of unconscionable bargain; and
(b)Whether there is an arguable case under s 9 of the Fair Trading Act 1986 (FTA 1986), specifically, for misleading and deceptive conduct.
[68] In Gustaf & Co v Macfield Ltd, the Court of Appeal set out the following principles, summarising the law on unconscionable bargain:9
(a)Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain;
(b)This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation;
(c)A qualifying disability or disadvantage does not arise simply from inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party’s ability to assess his or her best interests. Likely characteristics of this kind are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may qualify depending on the circumstances of the case;
(d)The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain;
(e)Before a finding of unconscionability will be made, the stronger party must know of the second party’s disability or disadvantage and must “take advantage of that disability or disadvantage”;
(f)“Taking advantage of” in this context encompasses both the act of extraction and the passive acceptance of a benefit.
[69] If all of the above conditions are met, the burden falls on the stronger party to show that the transaction was fair and reasonable and should therefore be upheld.
9 Gustaf & Co v Macfield Ltd [2007] NZCA 205 at [30].
[70] The Supreme Court in Red Eagle Corporation Ltd v Ellis, held that the question to be answered in relation to s 9 of the FTA 1986 is whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived.10 If so, a breach of s 9 has been established. It is not necessary to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else.
[71] The Supreme Court further held that when moving to s 43 after a breach is established, the Court must assess whether the claimant has suffered loss or damage by “the conduct of the defendant”.
[72] I find that there is clear evidence the Joyce family were in a very vulnerable financial position in October 2018 and remain so today. This was known to MBG Ltd.
[73] The vulnerability of the Trust is apparent from the following evidence given by Mr Urquhart in his affidavit of 24 January 2020:
28.At the time of the application for funding, the property was in an incomplete state and whilst the trust had attempted to market it for sale, no acceptable offers had been received. The trust sought funding to complete the property so to bring it up to a marketable standard.
29.The offer provided an “underwrite”, for the purpose of ensuring a defined exit under clause 4 of the offer. This meant that the offer was subject to the trust entering into an agreement for sale and purchase of the property for a sum of $570,000. The “underwrite” provided the trust with the opportunity to reject the agreement with MBG upon either obtaining a re-finance or sale of the property for a greater sum within a period of nine months of the date of the draw-down of the proposed facility.
30.The sole purpose of the underwrite was to ensure the property was either sold or re-financed as the trust had failed to demonstrate to MBG that it had ability to service the facility requested …
31.The offer also included $27,000 of capitalised interest that was to be held in a solicitor’s trust account and applied to service the debt at
$3,000 per month given the trust’s inability to demonstrate servicing.
10 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20 at [28].
[74] Mr Joyce contends that under severe financial pressure, he and his fellow trustees signed the agreement on the basis of representations by Mr Urquhart that loan finance would be provided immediately; that fees were only payable upon being provided with a financial solution; and that MBG Ltd, as a reputable broker, financial adviser and lender, was subject to the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the 2008 Act).11
[75] Based on previous experience with a broker who had failed to provide them with the secure finance they had sought (who was subsequently sentenced to a term of imprisonment for dishonesty), the trustees were particularly anxious to engage a reputable and reliable broker, lender and financial adviser.
[76] Mr Joyce produced in evidence extracts from the MBG Ltd website, which has changed over the period of July 2019 – February 2020. This evidence is said to demonstrate both the representations made (the basis for the s 9 claim) and breaches of those representations. It is also said to demonstrate MBG Ltd’s attempt to minimise any possible application of any consumer protection legislation to its business.
[77] Mr Joyce says the trustees entered into the facilities agreement in reliance upon those various representations. Mr Joyce placed particular emphasis on the website as at July 2019 which stated that MBG Ltd operated under mandate:
With fees payable by the client only upon presentation, and/or acceptance of a financial solution. This approach ensures any financial solution presented by MBG is not influenced, in any way, by any commissions that may be a component of a transaction.
[78] Mr Joyce further contended that contrary to the various representations made, MBG Ltd did not provide loan finance immediately, deferred, and ultimately failed to provide any loan finance at all. That failure in a way further prejudiced the Trust and significantly exploited its vulnerability. In doing so, MBG Ltd also acted contrary to the express representation on its website that fees were only payable upon the conclusion of a financial solution. It now claims to be neither a broker, nor a lender, nor a financial adviser, but simply an entity that “connects lenders with borrowers”.
11 I note that s 11 of that Act provides that a person in the business of providing a financial service must be registered under that Act.
The end result is that the invoice rendered by MBG Ltd, with excessive and unexplained fees, has provided nothing of value to the Trust and, if upheld, will simply exacerbate the trustees’ already dire financial situation.
[79] There were other various extracts from the MBG Ltd website Mr Joyce produced in evidence which suggest misleading conduct. Those extracts are as follows.
[80] As at 26 July 2019, MBG Ltd’s website noted that MBG (Securities) Ltd was a registered financial service provider that upheld moral, ethical and professional business practices at all times. It also contained the representation as to when fees were payable as recorded at [77] above.
[81] As at November 2019, the website made no reference to MBG (Securities) Ltd being a registered financial service provider but instead noted that “MBG staff are registered financial service providers” under the 2008 Act. It repeated its statement that it upheld moral, ethical and professional business practices at all times.
[82] As at February 2020, under the same heading “Business Practices”, the website now makes no reference at all to registered financial service providers and/or the 2008 Act. Instead of reference to a “financial solution”, it now states:
When acting for a client MBG operates under mandate with fees payable by a client only upon presentation and/or acceptance of a funding solution.
[83] Overall, the circumstances of this case are troubling, albeit the evidence remains untested. Mrs Lenaire Joyce is a pensioner (68 years old) with significant health issues, and Mr Joyce is 62 years old. One of their daughters also has significant health issues. A medical report produced describes that daughter as having a long history of chronic ill-health. Another daughter had to incur significant debt on her credit card in the period of October through to December 2019 in order to keep the builder working on site at the Papamoa property. The Joyces claim that this was necessary because the promised loan finance from MBG Ltd never materialised. The Joyces cannot live at the Bethlehem property since the weathertight repairs have not been completed. Nor is the Tawa Street property available to them as a home because
it is a commercial property and significantly encumbered with mortgage debt. The Joyces recognise that it will be necessary to sell the Bethlehem property once the repairs are completed, with a view to reducing the significant mortgage burden on their family home at Papamoa.
[84] In all the circumstances, I find that the trustees of the Trust have substantial defences against MBG Ltd such that they might have no liability to pay the invoice, which is the basis of the caveat. This includes a defence under s 9 the FTA 1986 for misleading and deceptive conduct and a defence of unconscionable bargain for unlawful and improper exploitation of the Joyce family and trustees’ significant vulnerability. This is arguably not just a case of inequality and bargaining power but of qualifying disability or disadvantage from the dire combination of circumstances the Joyces have found themselves in. There is evidence to make a reasonably argue claim that MBG Ltd made misleading and deceptive representations about the nature of the services it provided, the timing of those services and that the trustees relied upon those representations to the Trust’s detriment in entering the facilities agreement.
[85] I acknowledge that, in assessing the merits of a claim of unconscionable bargain, the agreement did expressly recommend that the trustees obtain independent legal advice. I also acknowledge that over the period of October to December 2019 the trustees engaged a number of solicitors, it appears, in a desperate attempt to obtain legal advice as to their predicament. However, the evidence tends to suggest MBG Ltd knew that the Joyces were not in a financial position to pay for legal advice and also that the further matters were delayed, the more desperate the Joyces would become, meaning they would likely sign up without the benefit of legal advice. MBG Ltd clearly knew the Joyces were not in a position to service the facility they had requested and were desperate to do whatever it took to avoid the sale and loss of their family home. It is reasonably arguable MBG Ltd took advantage of the family’s vulnerability and that given the terms of the bargain struck (providing nothing to the Trust but simply more debt) it would have been unconscionable for MBG Ltd to take the benefit of that bargain.
[86] However, I note that in any event, these are all disputed factual and contextual matters that cannot be resolved in these proceedings.
Will MBG Ltd suffer irreparable injury if the judgment is set aside?
[87] It is clear from the jurisprudence that the focus of this test is the plaintiff, in this case, MBG Ltd. Ms Devery, for MBG Ltd, did not directly address the issue of prejudice to her clients but rather focused on the alleged lack of “irreparable injury” to the Trust if the judgment was not set aside.
[88] MBG Ltd challenges the trustees’ claim that if the judgment is not set aside that “could result in substantial damages to the value asset of the Trust and the trustees”.
[89] I accept that the competing positions of the parties may be relevant, but the jurisprudence makes it clear that one of the critical factors in assessing whether to set aside the judgment is whether to do so would cause irreparable injury to the plaintiff. In this case, that is MBG Ltd, not the trustees.
[90] On the facts of this case, the answer to the above question must clearly be no. All that is at stake for MBG Ltd is a relatively modest invoice initially of $33,954.75. This cannot be described as irreparable injury, and as I will also make clear in the second part of this judgment, it will remain open to MBG Ltd to pursue the unpaid fees and defend their validity.
[91] I therefore reject the submission for MBG Ltd that the overall justice of this case requires that the judgment be sustained. It is clear that the Trust is in dire financial circumstances and that there is a real risk of foreclosure by the current mortgagees in the event the trustees are not able to set aside the caveats and obtain re-financing. I acknowledge that despite some forceful questions from me, Mr Joyce was unable to point to any firm written offer from the BNZ or other alternative mortgage provider that funds would be available for a re-financing package. However, it is clear from his evidence and that of Ms Calder, their broker, that they are seeking a solution of that kind; that there is some equity in the Bethlehem property (which upon sale would provide some comfort to a lender); and that there have been some verbal assurances from the BNZ that funding might be forthcoming.
Conclusion on application to set aside judgment
[92] I find that this is a clear and compelling case of a miscarriage of justice. The grounds for setting aside the judgment have been made out. The failure by the trustees to defend the caveat proceedings was entirely excusable. The trustees were never properly served with the proceedings in accordance with the High Court Rules and I accept the evidence of Mr Joyce that the trustees had no notice of the proceedings until after my final orders had been made. There is also real merit to the trustees’ claims of a breach under s 9 of the FTA 1986 and unconscionable bargain. Furthermore, there will be no irreparable prejudice to MBG Ltd in the event that the judgment is set aside.
[93] I accordingly grant the trustees’ application to set aside the judgment. That means, of course, that my decision awarding costs against the trustees is also set aside.
Applications by MBG Ltd that caveats not lapse
Relevant legal principles
[94] A caveator, in response to the caveat lapsing procedure under the 2017 Act, may apply for an order that the caveat not lapse.12
[95] I adopt the following principles in relation to MBG Ltd’s application to sustain a caveat over the property at issue:13
(a)The burden of establishing that the applicant has a reasonably arguable case for the interest claimed is upon the caveator;14
(b)The caveator must show an entitlement to, or beneficial interest in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission, or of any trust expressed or implied;15
(c)The summary procedure involved in an application of this nature is wholly unsuitable for the determination of disputed questions of fact
12 Land Transfer Act 2017, s 143.
13 Cube Building Solutions Ltd v Kingloch Holdings Ltd HC Christchurch CIV 2009-409-935, 15 October 2010 at [13] (citations omitted) (footnotes added).
14 New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA) at 43; Coltart v Lepionka & Co Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 at [30], n 17, citing National Bank of New Zealand v Radisich HC Hamilton CIV 2003-419-928, 25 August 2003 at [6].
15 Land Transfer Act 2017, s 138.
–16 an order for removal of the caveat will not be made unless it is clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does so;17
(d)When an applicant has discharged the burden upon the applicant, there remains a discretion as to whether to remove the caveat, which will be exercised cautiously;18
(e)The Court has jurisdiction to impose conditions when making orders.
The issues
[96] In addressing the merits of MBG Ltd’s application under s 143 of the 2017 Act, the following two issues arise:
(a)Whether MBG Ltd has demonstrated that it has a reasonably arguable case for a beneficial interest in the two properties.
(b)If it has, how I should exercise my discretion to either sustain or remove the caveats.
Analysis and decision
[97] I find that MBG Ltd has demonstrated that it has an arguable case for a beneficial interest in both properties. In relation to the Papamoa property, there is an arguable case of an equitable mortgage under an agreement to mortgage. That is, an equitable interest in the land that supports MBG Ltd’s caveat and complies with the provisions of s 138 of the 2017 Act. In relation to the Tawa Street property, there is an arguable case for an equitable charge that is an equitable interest in the land to support MBG Ltd’s caveat, which also complies with s 138.
[98] The jurisprudence is clear that if the necessary requirements are met, an equitable mortgage of transfer land confers on the mortgagee an equitable interest in the land that will support a caveat.19 One of the common kinds of equitable mortgage
16 New Zealand Limousin Cattle Breeders Society Inc v Robertson, above n 14, at 43.
17 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659–660.
18 Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA); and Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).
19 Neil Campbell QC Campbell on Caveats (3rd ed, Lexis Nexis, Wellington, 2019) at 25, at [10.009(n)].
is an agreement to mortgage. An agreement to mortgage is essentially a contract to grant a mortgage whereby the mortgagee can obtain a registerable mortgage by enforcing the contract.
[99] Further, I find that under the relevant contract, namely the facilities agreement, MBG Ltd had a right to lodge a caveat over the two properties. It is also clear that the right to do so and the right to charge for fees arises whether or not the actual loan facility was provided.
[100] An agreement to mortgage on the basis of fees rendered, even when the loan facility is never provided or drawn down, is apparent from the following terms of the facilities agreement:
(a)The security clause as set out at [17] above;
(b)the “Acceptance” term, which provides that if for any reason other than the default of MBG Ltd, the loan advance is not settled, the trustees remain jointly and severally liable for costs (see [18] above); and
(c)the term under cl 18 of the “Authority, Privacy Act Declaration, and Engagement” part, under which the trustees agreed to grant the registered charge over any existing or future property to secure payment of fees and costs (see [18] above).
[101] Subsequent to the hearing, I issued a minute inviting further submissions from the parties on the question of whether, under the terms of the facilities agreement, MBG Ltd did in fact have a right to lodge the caveats, given that application was made to the Registrar General before demand was made of the trustees for payment of the disputed invoice (being the contractual basis for the security). The invoice of 18 January 2019 (incorrectly dated 2018) was first sent to Mr Joyce by email on 18 January 2019 at 12.44 pm. From the records before me, it appeared that MBG Ltd’s solicitors had lodged the caveats prior to that, namely at 10.11 am on 18 January 2019.
[102]Both parties have filed submissions addressing that issue.
[103] The MBG Ltd submission explained the steps it had taken to lodge and register the caveats, as follows:
(a)Instructions were given to MBG Ltd’s solicitors, Alexander Dorrington, by MBG Ltd on the morning of 18 January 2019 to “lodge and/or register the caveat. The lodging and/or registering of a caveat is not an instantaneous approach and so to avoid any delay, MBG Ltd took this approach”. MBG Ltd further noted that by 10.11 am on 18 January 2019, the solicitors had efficiently commenced the process of lodging and/or registering to request a lodge and to register the caveat.
(b)Contemporaneously, Mr Urquhart, on behalf of MBG Ltd, was preparing the invoice which was then sent, as noted, at 12.44 pm on the same day.
(c)The trustees then had seven days to make payment, namely, by 25 January 2019. Within that time, “MBG would have withdrawn its request to lodge and/or register the caveats if payments were made”;
(d)By 25 January 2019, the trustees had not paid the invoice and MBG Ltd was notified on 1 February 2019 by email letter from LINZ that the caveats had then been registered.
[104] The test I must apply is of course whether there is a reasonably arguable case of a beneficial interest in land. I accept the argument of MBG Ltd that it is reasonably arguable that the liability for payment of the invoice was not contingent upon the making of a demand and it may therefore not matter that MBG Ltd sought to register the caveats prior to rendering the invoice.20 Having said that, the ability of MBG Ltd
20 Clause 18 of the Authority, Privacy Act Declaration, and Engagement term in the agreement secures payment of fees and costs “at any time”. Having said that, it is also arguable that until such time an invoice is rendered and served on the payer, there are in fact no “fees or costs” to support a charge. Also, the Acceptance clause which refers to liability for fees (even if no loan facility is provided), which arises upon a failure to pay the fees “upon demand”, supports a different interpretation.
to do so might be said to be a further factor supporting a claim that these arrangements constituted an unconscionable bargain. It is a curious notion that a party said to be liable for fees can have a charge placed over its property in relation to those fees when it has never been advised as to the amount of fees or what services they are said to relate to.
[105] In relation to the application to set aside my earlier judgment of 14 November 2019, I have of course concluded that the trustees have truly substantial defences to the MBG Ltd’s claim, which is the basis for its caveats. While I have concluded that such defences have merit, I am not in a position to determine, in the context of these caveat proceedings, whether they would succeed. That would depend on a full testing of the evidence, a matter which cannot be determined in the context of caveat proceedings. The facts are in dispute and it is not possible to conclude that despite MBG Ltd’s apparent contractual entitlement, the trustees have no liability to pay it.
[106] I thus turn to address what I consider to be the truly critical issue in this case, namely, how I should exercise the residual discretion.
[107] I accept that where the applicant, as here, has discharged its burden, the discretion is to be exercised cautiously. The authorities make it clear that it is not an open-ended discretion and that the Court must act judicially and in accordance with established principles.21 There is a presumption, once a caveator has established an arguable case, that the caveat is the appropriate means of protecting the caveator’s interest.22
[108] As I have already emphasised, the facts of this case are troubling, perhaps exceptional. In desperate financial circumstances, the trustees incurred a further debt of $33,954.75 for services provided by MBG Ltd that were of no value or benefit to the Trust at all. On its face, the sum of $33,954.75 (now said to be greater than $41,000 and to include liability for ongoing solicitor/client costs and penalty interest) was a very large sum for the services provided, especially when no loan finance was ever
21 Bank of New Zealand v Clark HC Hamilton M236/93, 13 December 1993, at 4.
22 In Pacific Homes Ltd v Consolidated Joineries Ltd [1996] 2 NZLR 652, the Court of Appeal held that the onus lies on the party challenging the caveat to show that it provides no practical advantage to the caveator or that the caveator’s interest can reasonably be accommodated in some other way.
provided by MBG Ltd. In these circumstances, MBG Ltd now possesses caveats over two of the Trust’s properties. What is more, the caveat over the Papamoa property is effectively preventing the trustees from obtaining alternative mortgage finance which they say the Trust desperately requires to prevent a sale of the family home. There is a very real risk that, as a result of the caveats remaining in place, the Trust will lose not only the family home, but further equity which the family desperately needs for Mr and Mrs Joyce’s retirement. There are also the added risks of an inferior sale price and costs associated with any mortgagee sale, together with, potentially, ongoing liability to MBG Ltd.
[109] I am of course determining this application during the alert level 4 COVID-19 response. That is a factor I cannot ignore. There is a compelling need for the Joyce family, particularly given their health issues, to remain in their home at Papamoa and that must weigh significantly in my exercise of discretion. While I accept that a mortgagee sale during the alert level 4 period is probably unlikely, it seems clear that in the uncertain period ahead, the family should as far as possible continue to live at the Papamoa property.
[110] A caveat should not be an instrument of oppression or substantial injustice, and I find that in the event that the caveat over the Papamoa property is sustained, there is a real risk of both oppression and substantial injustice.
[111] In the circumstances, I find that the caveat over the Papamoa property should lapse in order to give the Joyce family the opportunity to exercise what Mr Joyce describes as “the last window of opportunity” to re-finance, in order to protect their family home.
[112] In relation to the Tawa Street property, I find that adjournment of that part of these proceedings to a court date in July 2020 to allow for a review is most appropriate, with the caveat to remain in place in the interim. Mr Joyce advises that the mortgage over Tawa Street will come up for review in June 2020 and by July 2020 there may be a solution in relation to the re-financing of the Papamoa property.
[113] Ultimately, what is at stake for MBG Ltd is an unpaid fee for $33,914 (plus claimed interest and costs). By contrast, the trustees face the risk of losing their family home. My decision is to lapse only one of the two caveats. This decision will not deprive MBG Ltd of its right to enforce payment of fees (assuming it can prove its case) or have the dispute resolved, and each trustee remains potentially liable. I also acknowledge that Mr Joyce has limited equity in the Tawa Street property.
[114] At the hearing, I discussed with Mr Joyce whether the caveats could be lapsed on the basis that the Trust would deposit funds into a solicitor’s trust account pending resolution of the dispute. I record that MBG Ltd was amenable to a solution of that kind. However, the trustees are not in a financial position to do that, as is apparent from their inability to gain legal representation, as well as the evidence provided.
[115] I have also considered whether I should make an order that the caveat on the Papamoa property not lapse, but on condition that MBG Ltd agree to a registration of a new mortgage (i.e. a temporary removal of the caveat), with the caveat then being reinstated soon after. However, in my view, the trustees should be given the best chance possible to obtain re-financing and a free title seems to be the best way of achieving that.
[116] I am conscious that High Court caveat proceedings are a potentially expensive way to resolve a dispute over a sum just over $33,000 and that a further adjournment may well add to costs already incurred. I would, therefore, urge the parties to try and resolve the underlying issue of the disputed invoice as soon as reasonably practicable and in the most cost-effective manner.
[117] It is regrettable that the invoice sum exceeds the jurisdiction of the Disputes Tribunal and that it is no longer possible for parties to agree that claims in excess of
$30,000 can be brought in that jurisdiction.
[118] If the dispute could have been resolved in the Disputes Tribunal, I would have made it a condition of my orders that actions be commenced in that forum by MBG Ltd for recovery of its fees. I am not attracted to that proposition in relation to requiring proceedings in the District Court, given that is likely to simply add to the
cost of a dispute that has already become wholly disproportionate to what is ultimately at stake.
Result
[119] I set aside the final orders I made on 14 November 2019 that caveats 11332664.1 and 11332664.2 not lapse. I also set aside the decision I made on 14 November 2019 awarding costs to MBG Ltd in the sum of $8,060.86.
[120] I order that the application by MBG Ltd that caveat 11332664.1 (Papamoa property) not lapse, is dismissed. Caveat 11332664.1, therefore, lapses.
[121] I order that MBG Ltd’s application that caveat 11332664.2 (Tawa Street property) not lapse be adjourned until July 2020 for review, to a date to be advised by the Registrar. That means that the caveat in relation to Tawa Street remains in place in the interim.
[122] As to costs, I find that costs should lie where they fall. That means that each party is responsible for its own costs and there will be no order by this Court awarding costs to either party.23
Associate Judge P J Andrew
23 As recently confirmed by the Supreme Court in McGuire v Secretary for Justice [2018] NZSC 18, self represented parties (i.e. lay litigants) are not entitled to costs under the High Court Rules 2016.
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