Memelink v Haines
[2024] NZHC 588
•19 March 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-497
[2024] NZHC 588
UNDER section 12 of the Senior Courts Act 2016 IN THE MATTER
of damages for breach of contract
BETWEEN
HARRY MEMELINK and
CISCA FORSTER as trustees of the
LINK TRUST (No.1) (in receivership) PlaintiffsAND
QUENTIN STOBART HAINES
First Defendant
BPE TRUSTEES (No. 1) LIMITED
Second Defendant
QUENTIN HAINES PROPERTIES LIMITED
Third Defendant
Hearing: 13 and 14 February 2024 Appearances:
J D Haig for the Plaintiffs/Receivers Q S Haines in person
J D Dallas for the Second and Third Defendants (for the first day)
Judgment:
19 March 2024
JUDGMENT GRICE J
(Quantum)
MEMELINK v HAINES [2024] NZHC 588 [19 March 2024]
TABLE OF CONTENTS
Introduction [1]
Adjournment and stay applications [6]
The pleadings [9]
Amended statement of counterclaim [12]
Application to amend pleadings [18]
Res judicata [23]
Henderson estoppel [26]
The evidence [31]
Accounting Evidence [31]
Mr Gillman’s affidavit [33]
Evidence at the hearing [34]
Mr Smith’s evidence [35]
Liability judgment [39]
Conclusion with respect to liability [41]
Assignment of finance company loans to Memelink interests [44]
Failure to serve the notice of assignments [49]
Clause prohibiting assignment of the Bright loan [51]
Assignment of a loan that had already been repaid (the zero-sum loan and
nemo dat arguments) [61]
Terms of the interparty loans and payment of legal fees [68]
Equitable intervention/offset [72]
Offset of the boat advance and legal fees [75]
The legal fees [75]
Advance by finance company to Mr Memelink to purchase boat [80]
Timing of deductions [84]
Further issues raised by the Haines’ interests in submissions [91]
Clog on the equity of redemption [91]
Failure to negotiate [100]
Duress on Mr Gillman [104]
Final resolution of the claims [106]
Conclusion [107]
Interest from the date of judgment [114]
Costs [121]
Introduction
[1] Judgment on liability has been entered against the defendants in relation to various finance company loans assigned to the plaintiff trust (the liability judgment).1 That judgment was entered on an application for summary judgment. This decision deals with the quantum.2
[2] The finance company loans were initially made to the Haines’ interests and were guaranteed by Mr Memelink and the plaintiff trust. The loan agreements were dated: 22 December 2016 (the first Fico Finance Ltd loan in which the first and third defendants are debtors), 21 February 2017 (the Bright Enterprise Holdings Ltd loan in which the first and second defendants are debtors) and 21 April 2017 (the second Fico loan in which the first, second (as trustee for the QSH Family Trust) and third defendants are debtors). These loans were assigned to the plaintiff trust on 7 December 2018.
[3] Until the plaintiff trust went into receivership, Mr Memelink was the representative of the Link Trust (No. 1) (the Trust) and the trustees in all relevant dealings. The Trust’s properties were security for the loans and were the subject of default notices when the finance company loans went into arrears. The Trust paid the finance companies an amount equal to the total amount outstanding under the loans to purchase the loans using money raised from a third party finance company. The Trust took assignment of the finance company loans and then took recovery action under the loans against the defendants. Mr Haines was lawyer for Mr Memelink and the Trust until Mr Memelink went bankrupt in August 2018. In the same month,
1 Memelink v Haines [2021] NZHC 1992 [the liability judgment]. I refer to the plaintiffs as the “Memelink interests” and the defendants collectively as the “Haines’ interests” in this judgment.
2 As directed in the liability judgment, above n 1, at [161] and [187].
Mr Haines ceased practising law and handed in his practicing certificate to Te Kāhui Ture o Aotearoa | the New Zealand Law Society (NZLS).
[4] Mr Haines admits that his interests took the benefit of the finance company loans apart from a relatively small amount advanced and used by Mr Memelink to buy a boat. Mr Haines raised defences relating to the validity of the assignments which have been already determined or should have been raised in the liability hearing. The further issues before the Court relate to upon demand loans by the Haines interests to the Memelink interests. These loans are referred to in this judgment as the interparty loans. The plaintiff is also seeking penalty rate interest on the assigned loans. The defendants say that interest should not be chargeable at penalty rates.
[5] Mr Dallas filed written submissions on behalf of all defendants and appeared on the first day for the second and third defendants. Mr Dallas was excused on the second day but indicated that the second and third defendants supported the position of the first defendant, Mr Haines, and adopted his submissions.
Adjournment and stay applications
[6] On 22 December 2023 the defendants filed an application to extend time (by almost two and a half years) to appeal the liability judgment on the basis of new evidence and various other errors.
[7] The main proposed ground of appeal to the Court of Appeal is that the assignments were not valid, based on evidence disclosed to the defendants in September 2023 from a Bright director that the loans were repaid prior to the assignments. Therefore, it is argued that there was nothing left to assign. The same Bright director had signed the deed of assignment which expressly assigned the finance debts. The Court at the summary judgment hearing relied on the terms of that deed. It is not contested that the Memelink interests paid the finance companies the total amounts then owing under the finance company loans at the time the assignments were executed. The relevant deeds recorded that the assignments were in consideration of those payments.
[8] On 14 December 2023, the defendants applied to this Court to adjourn the quantum hearing. That application did not reach me until January 2024. I declined the application to adjourn for the reasons set out in a minute dated 24 January 2024.3 The defendants also filed an application to stay this hearing. That application was declined by the Court of Appeal.4
The pleadings
[9] The statement of claim dated 31 August 2020 pleads that the plaintiff took assignment of the loans, securing the sums owing at the date of settlement in return for payment made on 7 December 2018 for the first and second Fico loans of a total of $517,245.42, and for the Bright loan of $319,030.41. Judgment was sought for the outstanding amounts under the loans with penalty interest accruing at 22.95 per cent (for the first Fico loan), 23.95 per cent (for the second Fico loan) and 20.95 per cent (for the Bright loan).
[10] The amended statement of defence dated 10 July 2023 is a narrative, difficult to follow and repetitious. In essence the defences appear to be:
(a)The finance companies’ loans were repaid in full and the assignment was of a loan with a zero balance. Therefore, a bare security was assigned. The loans had been repaid so could not be assigned.
(b)A notice of purported assignment was never served, as is required under the Property Law Act 2007, to notify the Haines’ interests of the purported assignment. The assignment was “statutory barred” by s 102 of the Property Law Act “in violation of the undertakings to the High Court and the purported assignment documents do not name the trustees as parties to the purported assignment.” The mortgage was discharged, as evidenced by the certificate of title and the transfer of a loan with a zero balance.
3 Memelink v Haines HC Wellington CIV-2020-485-497, 24 January 2024 [minute refusing adjournment].
4 Haines v Memelink [2024] NZCA 7 [Court of Appeal judgment refusing a stay].
(c)The Memelink interests benefited from the loans in the sum of
$103,429.54, through additional loans made by the Haines interests to the Memelink interests out of the second Fico loan in order to pay body corporate levies, make mortgage payments, and fund the purchase of a boat.
(d)Outstanding legal fees are owed by the Memelink interests for work done by Mr Haines, determined by this Court to amount to $603,750, “subject to various appeals”.
(e)The Memelink interests are “net debtors” as a result of the loans from the Haines interests and legal fees owing to Mr Haines, and therefore the balance transferred under the assignment was zero.
(f)The Memelink interests caused the Haines’ interests to default on the finance company loans through the Memelink interests’ failure to make payments to the finance company as was agreed in return for the interparty loans and the legal fees.
(g)In relation to the second Fico loan, the equity of redemption was clogged as the first defendant sought to redeem the loan mortgage and the plaintiffs did not provide a figure for redemption.
[11] The defendants pleaded that if the assignment of the loans was effective and “the mortgages were not discharged pursuant to the certificate of title”, the maximum amount to be offset against the total debts owed by the defendants under all the finance company loans is $531,331.82. The sum is less than the legal fees owed to the defendants and “does not include damages for the clogging of the equity of redemption”.
Amended statement of counterclaim
[12] In the liability judgment I also dismissed an application to strike out the defendants’ counterclaim. The counterclaim as pleaded was inadequate. I directed the defendants to file an amended statement of claim.5
[13] The claims in the amended statement of counterclaim (referred in the band on that document as the statement of counterclaim dated 11 July 2023) were not pursued at this hearing. The first cause of action pleaded in the counterclaim relates to allegations concerning a mortgagee sale of a Haines property and the actions of Mr Memelink, which are pleaded as giving rise to a failure to account or clogging the equity of redemption. This was discontinued.
[14] The second cause of action was admitted by the plaintiffs. It relates to the loans from the defendants to Mr Memelink (referred to as interparty loans). The quantum owing is the subject of an agreement between the parties dated 9 February 2024, as follows:
(a)Unsecured interest-free loans to the plaintiffs made by the defendants between 7 March to 4 April 2017, and one further advance on 18 February 2018 in the total sum of $83,425.59.
(b)The plaintiffs repaid the sum of $22,600 between February 2018 and 3 August 2018.
[15] Therefore the plaintiffs owe the defendants a total of $60,825.59 under the interparty loans.
[16] As a result of the joint memorandum of counsel dated 9 February 2024, the following issues flowing from the counterclaim require determination:
(a)The costs as a result of the discontinuance.
5 The liability judgment, above n 1, at [172].
(b)Whether an amount of $20,000 claimed to have been borrowed by the Memelink interests from the Haines’ interests (for the Memelink boat purchase) is owing.
(c)Whether the plaintiffs were required by virtue of an agreement in relation to the interparty loans to make payments toward the finance company loans to ensure the loans did not enter default.
(d)Whether the interparty loans as admitted should be deducted from the starting balance of the assigned loans; or, as the Haines’ interests seek, the balances should be deducted at the time the interparty loans were made so that interest calculated on the outstanding loans does not accrue on the interparty loans from the date they were made.
[17] Mr Dallas for the second and third defendants largely followed Mr Haines’ lead at the hearing and supported his submissions.
Application to amend pleadings
[18] Mr Haig noted that new affirmative defences had been raised by Mr Haines in his closing submissions that could not be pursued without amendments to the pleadings. Mr Haig referred to Low Volume Vehicle Technical Association Inc v Brett where Kós J stated:6
[63] As this Court held in Price Waterhouse v Fortex Group Limited, properly drawn and particularised pleadings are an essential road map for the Court and for the parties. It is those documents that establish the parameters of the case, not the briefs of evidence. We went on to observe:
What is required is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common-sense and balanced judgment based on experience as to how cases are prepared and trials work is required. It is not an area for mechanical approaches or pedantry.
[64] In the case of a statement of defence, that requires (amongst other things) that an affirmative defence is properly pleaded. Rule 5.48(4) also
6 Low Volume Vehicle Technical Association Inc v Brett [2019] NZCA 67, [2019] 2 NZLR 808 (footnotes omitted).
requires that be done. To state the obvious, qualified privilege is an affirmative defence. Proper pleading of qualified privilege as an affirmative defence serves two functions. First, it serves notice to the plaintiff that it will have to meet or manoeuvre past that defence. In that respect, the underlying purpose is similar to that for a statement of claim. Secondly, it prompts an obligation on the part of the plaintiff, under s 41 of the Defamation Act, to then give due notice of any intention to meet that defence by alleging ill will or improper advantage taken.
[65] The need to plead properly an affirmative defence has been restated without significant variation by this Court on many occasions. Those decisions have cited the observations of Buckley LJ in Re Robinson’s Settlement from over a century ago now:
The effect of the rule is, I think, for reasons of practice and justice and convenience to require the party to tell his opponent what he is coming to the Court to prove. If he does not do that the Court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over. The rule is not one that excludes from the consideration of the Court the relevant subject- matter for decision simply on the ground that it is not pleaded. It leaves the party in mercy.
[66]As we said in Manukau Golf Club v Shoye Venture Ltd:
If an affirmative defence is not pleaded in the statement of defence, a plaintiff will have no notice of it and not be able to answer it. Further, if there is no pleading setting out the nature of the affirmative defence, there is nothing defining the issue so it can be properly understood and determined by the Court. … Only if such affirmative defences are pleaded can they be defined, answered and properly analysed. It is possible for an affirmative defence that has not been pleaded to arise and be considered in the course of a hearing, but only if leave is granted to amend and add that defence.
[67] The failure to plead an affirmative defence properly does not mean the defence cannot be considered at all. Where justice requires that it be considered, there is room to do so. But justice must be done to both sides, as the passage quoted above from Manukau Golf Club makes clear.
[19] In his closing submissions, Mr Haines sought leave to file amended pleadings after the hearing. He said, rightly or wrongly, the defendants had relied on getting an adjournment.7 The adjournment application was unsuccessful, as was the defendants’
7 Mr Haines filed no opening submissions, and during the hearing it became apparent that he was raising issues which were not flagged earlier in the defendants’ pleadings. Therefore, Mr Haines agreed to close first followed by a response by Mr Haig and then a right of reply by Mr Haines. Further, as Mr Haines also raised new issues in his reply (including an application to amend the pleadings), Mr Haig was given a further opportunity to comment on that.
application for a stay to the Court of Appeal.8 Mr Haines said he would ensure the amendments were made quickly and would be done under the supervision of senior counsel, and that the amendments would be in line with the submissions he had made in closing as follows:
(a)The Bright deed of assignment assigned a bare shell with nothing owing under the loan agreement.
(b)A variation of the above argument based on “nemo dat quod non habet”: that the Bright loan had nothing owing under it so therefore nothing of value was assigned that could be enforced against the Haines’ interests.
(c)The Bright loan was unenforceable as it had been assigned contrary to a prohibition clause in the loan document.
(d)The deeds of assignment had errors in them and so were ineffective for various reasons.
[20] Mr Haig strongly opposed the proposed amendments. He said that there had been ample opportunity for the amendments to be made earlier. The liability judgment was dated August 2021 and the defendants had been directed to file amended pleadings within ten days of the judgment.9 However, the defendants did not amend the pleadings until nearly two years later. In addition, in minutes issued in December 2023 and January 2024, despite substantial breaches of the timetable directions, I gave the defendants additional time to file evidence and no indication was given that amendments would be sought to the pleadings.
[21] Mr Haig said that the arguments put forward by the defendants had shifted during the hearing and it had been difficult to respond to the amorphous and non-particularised defence position. Mr Haig said he had attempted to do so, but the plaintiff’s evidence had been based on the extant pleadings. Any amendments would
8 Minute refusing adjournment, above n 3; and Court of Appeal judgment refusing a stay, above n 4.
9 The liability judgment, above n 1, at [172].
require a reply (further pleadings) and consideration of whether further evidence was required. He said that some finality was required, not only in the interests of the parties but also of the wider public, including other creditors in the receivership and in the bankruptcy of Mr Memelink.
[22] I dismiss the application for amendment to the defendants’ pleadings, given the late stage at which it was sought and for the reasons outlined by Mr Haig. The prejudice to the plaintiffs would be significant. In any event, most of the issues which Mr Haines indicated were to be pleaded are variations on his arguments which were before the Court in the liability summary judgment hearing and which I comment on below.
Res judicata
[23] The doctrine of res judicata prevents an issue that has been previously ruled upon from being relitigated. The rationale for the operation of the doctrine is to promote the efficient use of state resources and uphold fairness to the individual.10 In White v Attorney-General, the Court of Appeal adopted the elements set out in Spencer Bower and Handley’s text on res judicata, noting that for the doctrine to apply, the first decision must:11
(a)be “judicial in the relevant sense”;
(b)have been delivered;
(c)be from a tribunal that has jurisdiction over the parties and the subject matter;
(d)be final;
(e)have been decided on the merits;
10 Flaszynski v Mason [2004] 1 NZLR 560 at [6].
11 White v Attorney-General [2021] NZCA 479, citing K R Handley Spencer Bower and Handley: Res Judicata (5th ed, LexisNexis, London, 2019) at [1.02].
(f)have determined a question raised in the later litigation; and
(g)be one that involved the same parties (or their privies) as in the later litigation.
[24]The decision on liability in this action meets those criteria.
[25] The argument based on the “prohibition on assignment clause” in the Bright loan documents was determined in the liability decision on the merits so cannot be relitigated by operation of res judicata. In any event, if it had not been squarely determined Henderson estoppel would apply to prevent it being raised again.
Henderson estoppel
[26] Mr Haig says the points alleging ineffective assignment of the finance company loans were either dealt with in the liability hearing or are new points which should have been properly raised in the previous hearing.
[27] The plaintiffs submit that the defendants have raised arguments that give rise to Henderson estoppel. That is on the basis that the matters now raised should have been pleaded as defences in the liability hearing. A serial approach to pleading or raising issues in defence is an abuse of process described by Isac J in LMCHB Ltd (formerly L&M Coal Holdings Ltd) v Buller Coal Ltd as follows:12
[123] Litigation should not be undertaken by instalment. It is therefore generally incumbent on a party to litigation to raise every point that is relevant to the issues before the court in that litigation. Except in special circumstances, the courts will not permit litigants to later re-open the same subject on a different basis. The rule promotes finality and alleviates the burden on defendants who might otherwise face successive waves of litigation concerning the same subject matter. It also promotes public confidence in the administration of justice by ensuring economy in the allocation of public resources to the question between the parties.
12 LMCHB Ltd (formerly L&M Coal Holdings Ltd) v Buller Coal Ltd [2023] NZHC 633, [2023] 2 NZLR 680 (footnotes omitted).
[124] Lord Bingham of Cornhill succinctly stated both the principle and the approach to be taken by the court in these terms:
… Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party.
(emphasis added)
[28] The defendants’ arguments about the effectiveness of the assignments of the finance company loans were determined and cannot be reopened at the quantum trial. The two arguments on the invalidity of the assignments put before the Court in this hearing could have been raised at the liability hearing. In fact, they are in essence the same arguments as pursued at the liability hearing. The “new’ arguments are, first that the loans were shells, as nothing was owing because Mr Memelink had repaid the finance company loans before the assignments were made. The second was referred to as an application of the principle of nemo dat by Mr Haines — that is, if there was nothing owing under the loans then Mr Memelink was assigned a loan with nothing owing under it.
[29] The defendants were legally represented at the liability hearing, and Mr Haines (then without a practising certificate) sat next to counsel during the hearing to assist. Whether the assignments were void or voidable and their effectiveness was at issue in
that hearing. The present arguments are variations on those arguments and should have been raised then.
[30] Accordingly, the defendants are estopped from raising the arguments relating to invalidity of the assignments.
The evidence
Accounting Evidence
[31] I issued directions and a timetable on 31 May 2023 following agreement between the parties, requiring the parties to file evidence by affidavit and notices of intention to cross-examine. Those directions contemplated that each party would have an expert accountant give evidence as to quantum and those experts would consult to produce a joint report by 8 December 2023.
[32] The defendants did not follow this procedure. I extended the time for them to file their affidavits and their expert evidence. Instead the defendants filed an application for adjournment which I declined but further extended the timetable to enable the defendants to file evidence. Mr Haines filed an affidavit but no accounting evidence. Mr Haines indicated the defendants accepted Mr Smith’s (an independent expert accountant called by the plaintiffs) figures and arithmetic subject to the defences raised.
Mr Gillman’s affidavit
[33] The defendants filed an affidavit from Mr Gilman in support of the adjournment application. Mr Gillman in his affidavit asserts that the loan was repaid before the assignment was made. This is despite Mr Gillman signing the deed on 7 December 2018, asserting that the amount under the loan was due and owing and the debt was assigned to the Memelink interests. The Trust objected to that affidavit being admitted for the purpose of the quantum hearing. I have already determined in the liability judgment that the Bright loan was assigned in terms of the deed of assignment. It follows that Mr Gillman’s affidavit is not relevant in this quantum trial and so inadmissible.
Evidence at the hearing
[34] Mr Smith and Mr Shephard (one of the receivers of the Trust) gave evidence for the plaintiffs. For the defendants, Mr Memelink was called to give evidence (under subpoena) and Mr Haines gave evidence by affidavit. All witnesses were cross-examined.
Mr Smith’s evidence
[35] Mr Smith gave evidence as an expert accountant. He calculated the amounts owing under the loans based on the deeds of assignment and finance company records. Mr Smith had extracted the balances owing on the finance company loans as at 7 December 2018. These amounts were recorded in the deeds of assignment. Mr Smith calculated the amounts owing under the respective assigned loans up to February 2024, making appropriate adjustments and applying penalty interest rates.
[36] Mr Smith adjusted his calculations following an admission by Mr Memelink that the Trust had received funds from a drawdown under one of the finance company loans to purchase a boat.
[37] Mr Haines agreed that the opening balances as at 7 December 2018 (when the deeds assigned the loans) were correct figures based on the finance company documentation and the sums paid by the plaintiffs to the finance companies.
[38] I summarise Mr Smith’s evidence and the relevant issues raised by Mr Haines as follows:
(a)As at 7 December 2018 (the date of assignment to the Memelink interests), the opening balances of the loans assigned to Link Trust were: for the Fico Finance number one (#1) loan:
$110,001.54; the Fico Finance number two (#2) loan: $365,702.54 and the Bright loan (#3): $319,030.41. Mr Smith noted that these balances were different from those recorded in the Statement of Claim but were consistent with the deeds of assignment and the finance company statements. In the case of the Fico deed of assignment (which assigned
the two Fico loans), while the sums of the loans of $110,001.54 and
$365,702.54 were recorded, the deed recorded the total as $517,245.42, which included a sum for “costs and marketing costs”. The loan figures were correct but the additional amount for “costs and marketing costs” could not be verified. Therefore, the plaintiff agreed that the figure for “costs and marketing costs” should be deducted from the opening balance. Mr Smith adjusted the opening balances (as at 7 December 2018) accordingly.
(b)Mr Haines does not contest that the opening balances (as at 7 December 2018) taken by Mr Smith were the amounts owing to the finance companies at that date, nor does he take issue with the calculations to 12 February 2024 as adjusted and produced in Mr Smith’s spreadsheet
(c)The interparty loans owed by the Trust to Mr Haines as at 7 December 2018 totalled $60,825.59. Mr Smith prorated that amount over the value of the three loans, resulting in the opening balances being reduced to $107,598.15, $339,641.76, and $296,295.59 respectively. Mr Smith achieved this by attributing 92.78 per cent of the opening balance as owing by Mr Haines and 7.21 per cent to the Trust. These percentages reflect the value of the interparty loans as a percentage of the total loan balances as at the date of assignment.
(d)Until Mr Haines’ reply submissions, he had maintained that there was an agreement between him and Mr Memelink that the Trust should repay the interest on the finance company loans. However, in his closing reply submissions, Mr Haines withdrew that argument, acknowledging that it was not supported by the evidence, including his own. He then maintained that nevertheless the interparty loans should be deducted from the finance company balances at the respective dates on which those loans had been made (prior to the assignments), saying this was equitable. Mr Haines said that otherwise the Memelink interests would be “profiteering” by taking the assignment without
deduction of the interparty loans. I deal with those arguments below, but I conclude that Mr Smith has taken the correct approach by deducting the interparty loans from the opening balances so interest does not accrue on them from the date of the assignment.
(e)The interest rates applied were 22.95 per cent on the first Fico loan,
23.95 per cent on the second Fico loan, and 20.95 per cent on the Bright loan. Mr Smith calculated the interest compounding monthly based on the loan documents. In support of that approach, he pointed out that the Fico loans provide that default interest was charged to the debtor’s account at the end of the last day of the month. The Bright loan had conflicting clauses, indicating in one clause (cl 5.3) that the interest was to be calculated on a daily basis. Another clause (cl 4) defined interest as 12 months of repayments (of $2,376.15 each month), equating to a monthly compounding interest. Mr Smith’s evidence on this point was not challenged. I agree with Mr Smith that the interest was chargeable compounding monthly rather than daily.
(f)Mr Smith explained other adjustments he made, such as the timing of administration fees added to the loan by the Finance Companies. He was not challenged on any of these adjustments.
(g)Mr Smith calculated that up until 12 February 2024, the total amount owing under the three loans was $2,387,536.13, which included interest accrued from the date of assignment (7 December 2018) of
$1,640,220.63. Broken down by loan, that is:
(i) Fico loan #1: $350,790.35 (which includes $242,562.20 of interest accrued since the date of assignment of 7 December 2018).
Fico loan #2: $1,167,217.47 (which includes interest accrued of
$824,425.71 since the date of assignment of 7 December 2018).
(iii)Bright loan: $869,528.31 (which includes interest accrued of
$573,232.73 set out in the deed of assignment of 7 December 2018.)
(h)Interest is presently accruing at an estimated $1,500 per day. This is a rough estimate based on an average of 23 per cent monthly compounding interest on the balance owing.13
Liability judgment
[39] The receivers, acting on behalf of the plaintiffs, were represented by Mr Haig at this quantum hearing. At the liability hearing Mr Memelink had instructed different counsel to act for the Trust. The defendants were also legally represented at the quantum hearing.
[40] The Trust had applied for summary judgment on liability for debts owed in relation to the three finance company loans of which it had taken assignment. The defendants opposed the application on a number of grounds which I determined were not tenable, including:14
(a)The Trust was not party to the loans nor the purported deeds of assignment.
(b)There was no notice given by the Trust or the finance company that assignments had been made.
(c)Mr Memelink, one of the signatories to the deeds of assignment for the Trust was an undischarged bankrupt.
(d)Lynx Trustees Ltd, which was a trustee of the plaintiff at the time of the deed of assignment, had been in liquidation since September 2019.
13 This was a rough estimate made by Mr Smith on the “back of an envelope” in response to a question by me.
14 At [94].
(e)The Land Registry recorded that the loans were discharged and not assigned.
(f)The Trust took assignment of a mortgage taken as security for the Bright loan over a property owned by one of the defendants and did not provide the redemption figure upon request.
(g)The Link Trust No.1 was an alter ego of Mr Memelink.
(h)There was an arguable counter claim.
Conclusion with respect to liability
[41] I dealt with all the defences and matters raised and concluded that the plaintiffs had established that the defendants had no tenable defence to the causes of action in relation to liability. I granted summary judgment for liability against the defendants and noted that the counterclaim and matter of quantum should proceed and be set down for trial as soon as possible.15
[42]The counterclaim is no longer pursued.
[43] I now consider the defences pleaded and issues raised by the defendants under the general headings: assignment of the loans; the interparty loans; the boat loan and legal fees; timing of set offs; and “clogging” the equity of redemption.
Assignment of finance company loans to Memelink interests
[44] I considered the issue of assignment in some detail in the liability judgment. In that decision I reviewed the terms of the deeds of assignment of the finance company loans.16 The deeds acknowledge the sums owing to the assignors, assert the assignor’s right to assign, and purport to assign the loan agreements. I took into account the loan agreements and the documentary evidence relating to the assignments, including the solicitors’ statements.17 In particular, I noted an email from
15 At [185].
16 At [76]–[83]
17 At [84]–[91
Bright’s solicitor to the Trust’s solicitor dated 6 December 2018, concerning a request pursuant to s 102 of the Property Law Act to redeem the mortgage and take assignment of the relevant security.18 That email indicated that the Bright solicitor was meeting her “clients” to sign the necessary paperwork to transfer the mortgage, together with the deed of assignment to the Memelink interests. Upon that occurring, she said she would immediately accept payment of the amount required to redeem the loan. A letter was also produced from the Official Assignee’s solicitor, indicating that the Official Assignee would consent to the Trust refinancing by General Finance Limited to repay the Fico and Bright loans.19 Mr Haines took no issue with the terms of the finance company loans and he acknowledged he had been provided with copies of the deeds of assignment, but said he had not received “any notice of assignment from Fico or Bright”.20 I found that he had received sufficient notice. 21
[45] In relation to the assignments the amended statement of defence pleads (insofar as is able to be ascertained from that document):
(a)There was no notice of purported assignment served on the Haines’ interests.
(b)The assignment was in violation of undertakings by Mr Memelink to the Court.
(c)The assignment did not name the Trust as the assignee.
(d)The mortgage was discharged before it was transferred, therefore the assignment was of a loan with a “zero balance”.
(e)The plaintiffs owed legal fees and had received loans from the defendants. Mr Haines had tried to settle the loans with the finance companies prior to assignments in a “commercially sensible manner”
18 At [91].
19 At [92].
20 At [179].
21 At [182(d)].
and the Trust “refused to provide the settlement figures and so clogged the equity of redemption”.
(f)The loans were in default due to the failure of the Memelink interests to pay the finance company loans.
[46]Further, in his affidavit dated 2 February 2024, Mr Haines asserted that:
(a)The loans were repaid by the Memelink interests before the assignments, so the assigned loans had a nil balance.
(b)The Memelink interests owed money on the finance company loans, and in particular received $20,000 under the second Fico loan, and
$73,425.59 in respect of the Bright loan.
(c)Legal fees together with interest accruing at 14 per cent are owed by the Memelink interests to Mr Haines. This totals $2,022,083.33 as at 24 January 2024, being the fees of $1,150,000 plus interest accrued, but this Court has allowed fees of $603,750.00 for proof of debt purposes and that decision is on appeal. A finding has also been made by the Tribunal that there was an “absence of gross overbilling”.
(d)Mr Haines has been trying to resolve the question of legal fees and loans, producing a letter dating back to September 2018 raising that with the Memelink interests.
(e)Mr Memelink had agreed that in the first instance the Trust would repay the sums lent to him so all interest payments would be made on time. Apart from minor payments, the plaintiffs defaulted on that arrangement which caused the loans to go into default.
(f)The plaintiffs defaulted on repayment to Fico for funds used by it to buy a boat.
(g)In January 2019, Mr Haines wrote to Mr Memelink and his solicitors seeking a sum to redeem the mortgages on the property formerly owned by QSH Trust. The relevant property was at Manakau and was subject to a second mortgage as security for the Bright loan.
(h)Since 24 August 2018, Mr Haines has been a net creditor of the Trust. An offset should have been made on this date to stop compounding interest under the loans.
(i)In any event, the maximum sum that is the responsibility of the defendants under the assigned loans is $511,574.41 (prior to the offsets), and any sum found to be owed over and above that figure is “the responsibility of the plaintiff by virtue of subrogation”.
[47] Mr Haines, in his submissions filed on the morning of the final day of the hearing, raised further issues. These related to the Bright loan as follows:
(a)Prohibition on assignment: the Bright loan could not be assigned to the Trust due to cl 32.3 of the loan agreement which reads:
The Lender may Assign: The Lender may assign all or part of its rights and benefits under this Assignment and Security Documents or any of them to any one or more banks or financial institutions (each an “Assignee”).
(b)Zero owing under assigned loan: in relation to the Bright loan the principle of “nemo dat quod non habet”22 applies because Mr Gillman, one of the Bright directors who executed the deed of assignment, provided evidence by way of affidavit that the loan was repaid before it was assigned. Mr Gillman was forced to sign the deed of assignment due to the following circumstances:
Bright was motivated by not wanting to enter into protracted litigation with Mr Memelink post discharge and repayment of the loan, Mr Memelink was by then well known for being
22 Nemo dat quod non habet, which literally means "no one can give what they do not have", is a legal rule, sometimes called the nemo dat rule. It states that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title.
litigious and had, as noted, already made allegations that the loan was in some way fraudulent (which it was not).
(c)Errors in the body of the deed of assignment: the Bright deed was defective in multiple ways, including the date and narration of a guarantee listed. Therefore the deed could not be relied upon.
[48] I now consider the various grounds of defence and points raised by the defendants as to the effectiveness of the assignments.
Failure to serve the notice of assignments
[49] I found sufficient notice of the assignments had been received by Mr Haines:23 Mr Haines in his affidavit (in opposition to the summary judgment application dated 6 April 2021) had also acknowledged receipt of the deeds of assignment.24
[50] Therefore, it has already been determined that the Haines’ interests had actual knowledge of the assignments, and the issue cannot be reopened in this hearing.
Clause prohibiting assignment of the Bright loan
[51] I found that the Bright loan and other loans could be assigned and specifically referred to the clause relied upon by Mr Haines (clause 32) in a footnote.25
[52] The issue was put in more detail in this hearing. Mr Haines argued that cl 32.3 of the Bright loan agreement says that the lender may assign all or part of its rights and benefits under the agreement and security documents “to any one or more banks or financial institutions (each an ‘Assignee’)”.
[53] Mr Haines relied on New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd in support of his submission that this clause means the loan
23 At [182].
24 The notice of opposition states that the deeds make no reference to the assignees acting in their capacity as trustees of the Link Trust (No. 1). This argument was rejected and not raised in this hearing.
25 The liability judgment, above n 1, at [112].
agreement is invalidly assigned and so cannot be enforced by the assignee.26 That case dealt with a situation where the Crown and Advanced Management Systems Ltd (AMS) were parties to a software development agreement. The Crown transferred the copyright in return for a payment or consideration to a third party without the consent of or giving notice to AMS. The agreements between AMS and the Crown included provisions that gave the right to AMS to purchase the source code in certain circumstances. The Crown by assigning its rights precluded itself from being able to transfer the source code to AMS.27
[54] The Court of Appeal in New Zealand Payroll Software Systems Ltd noted that an agreement not to assign, or to assign only with consent, had a clear commercial purpose and signalled that the identity of the other party mattered to them.28 Therefore, that case warranted the reversal of the general rule that contractual rights may be assigned.
[55] The circumstances of the loan agreement in the present case are entirely different to that of a contract for software development, where the assignment without consent put the assignor in breach of the principal contract and each party was dependent on the other for preservation of copyright. There is no reason for the reversal of the general rule that contractual rights may be assigned, in this case.
[56] In every case, the relevant clause must be interpreted in context. In this case, cl 32.3 is permissive and does not prohibit the finance company from assigning the loan nor require the consent of the other party for valid assignment. That contrasts with the wording of the preceding cl 32.2, which prohibits in clear terms any assignment by the borrowers.
[57] Therefore the argument would fail on its merits, but in any event the point is res judicata. Mr Haig further noted that if it was not res judicata then Henderson estoppel would apply. I accept that submission and therefore whether by way of res judicata or Henderson estoppel, the defendants are precluded from arguing this issue.
26 New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd [2003] 3 NZLR 1.
27 At [19].
28 At [26].
[58] Mr Haines also pleads that s 102 of the Property Law Act did not apply to require Bright to assign its mortgage to the plaintiffs, as it was a “current mortgagor”. That argument was presumably relevant to respond to the fact that the s102 request by the Trust would have overridden any prohibition on assignment due to the operation of cl 32.2. Sections 102 and 103 read:
102Request to mortgagee to transfer mortgage
(1)The current mortgagor or any other person who is entitled to redeem the mortgaged property may, at any time (except a time when the mortgagee is in possession of the property), request the mortgagee to transfer the mortgage to a nominated person (except the current mortgagor).
(2)A mortgagee under a subsequent mortgage or the holder of any other subsequent encumbrance may make a request under subsection (1) despite any intermediate interest.
(3)A request made under subsection (1) by a person other than the current mortgagor prevails over a request made by the current mortgagor.
(4)If 2 or more requests are made under subsection (1) by persons other than the current mortgagor, the request of the person whose interest has priority prevails.
103Mortgagee must transfer mortgage after receiving request
The mortgagee must, after receiving a request made under section 102, transfer the mortgage to the nominated person on—
(a)payment to the mortgagee of all amounts that would have been payable if the discharge of the mortgage had been sought under sections 97 to 101; and
(b)the performance of all other obligations secured by the mortgage.
[59]This argument was dealt with in the liability decision as follows:29
[131] Initially the Haines’ interests submitted that s 102 of the Property Law Act (which prohibits requests by current mortgagors to mortgagees to transfer the mortgage to a nominated person) applied to make the assignment illegal. The argument was that as a mortgagor could not make a request for such a transfer, the deed of assignment was tainted with illegality and therefore could not be enforced.
[132] This ground of opposition was withdrawn by Ms Evans in the course of oral argument. It appears no relevant request was made. In any event, the
29 The liability judgment, above n 1.
effect of such a request is not clear but it is unlikely to wholly invalidate the assignment.
[133]This ground has been withdrawn.
[60] It cannot be raised again at this hearing. In any event it would likely fail on its merits as the Trust was not a “current mortgagor” in relation to the property secured under the mortgage being enforced.
Assignment of a loan that had already been repaid (the zero-sum loan and nemo dat arguments)
[61] The allegation that the balance owing on the finance company loans was zero and there was a transfer of a mere loan document without any monies owing was dealt with in the liability judgment. The defendants had argued that the loan was repaid before assignment and I rejected that argument.30 The present arguments are effectively another way of asserting that the loans were repaid before they were assigned. That decision cannot be revisited here because of the operation of res judicata. In the alternative Henderson estoppal applies.
[62] Mr Haines also pointed to the handwritten inserts made in the Fico deed of assignment. The correct balances owing on the two loans assigned under that deed are recorded in handwriting in the “Background” section with the total inserted of
$517,245.42 said to include “costs and marketing costs” There was no evidence that the handwritten amendments were made after execution of the deeds.
[63] In addition, Mr Haines argued that there was no specified settlement date filled out in that deed of assignment and it was not permissible to go outside the terms of the deed to supplement that information therefore the deed was invalid or ineffective. 31
[64] Mr Haines pointed to an error in the Bright loan document. One of the securities listed in the “Background” recitals was a guarantee which related to the Fico loans.
30 At [119].
31 Mr Haines referred to J F Burrows “The Law Relating to Deeds in New Zealand” (1971) 2 Otago LR 240 in support of his submission. The article does not appear to be relevant to this particular submission.
[65] In relation to the settlement date, the Bright deed of assignment was dated 7 December 2018, and the settlement date was referred to in that deed as being 7 December 2018. This was apparently provided to Mr Haines at the same time as the Fico deed of assignment. There is no suggestion that Mr Haines was misled by the fact that the settlement date was not specified in the Fico deed of assignment.
[66] The fact that no issue was earlier taken indicates that the deeds were not misleading. The errors were clerical errors which were not material to the effectiveness of the deeds in the circumstances. The deeds were clear about what was being assigned and who the parties to the assignments were. There was no evidence that the lack of the completion of the settlement date in the Bright deed misled Mr Haines. Those errors do not affect their enforceability.
[67] Those arguments were not raised at the liability stage. These arguments are also precluded by the operation of res judicata or in the alternative Henderson estoppel.
Terms of the interparty loans and payment of legal fees
[68] Mr Haines issued his legal bill for $1,150,000 to Mr Memelink on 22 August 2018. Mr Haines emailed Mr Memelink’s lawyer in October 2018 referring to the need to resolve the issue of the interparty loans and legal fees. While there is an offset of the obligation between the parties suggested as an option, the proposal does not suggest there be an offset against the finance company loans which had not been assigned at that date. Mr Haines in an email to Mr Memelink in October 2018 said:
The loans to both Fico and Bright Enterprises are in default and PLA Notices have now expired, giving the lenders the ability to act on their respective securities and guarantees. I have had no direct correspondence from either lender in some time. The last communication I received was an email from Alex Reith a couple of weeks ago, which I note you were copied into.
I have now been sentenced to six months Home Detention and are now carrying out that sentence. I do not hold a current practising certificate and are unable to work or earn as a result. This means that I have no ability to make payments to either finance company at this time. This however, does not distract from my legal and moral obligations to honour my share of these debts. Unfortunately the reality of my situation prevents me from making any meaningful payments at this time.
There is also the issue of outstanding funds lent to Mr Memelink and the outstanding legal fees. As I have previously indicated I am happy to work
with Mr Memelink and his trust, to work out a commercially sensible solution. I would suggest some sort of offset of the respective obligations between the parties being the most sensible approach with potentially a cash difference being paid or acknowledged as a debt. As previously indicated I am happy to meet with yourself and Mr Bassett-Burr to work through these issues on a without prejudice basis. The Official Assignee has provided time with the forms to file claims against Mr Memelink’s bankrupt estate. I am yet to file any claim in the hope that a sensible solution can be amicably reached.
[69] Consistently with earlier correspondence concerning the loans being in default and the issue of Property Law Act notices in April 2018, the October 2018 email asserts no arrangement that the Memelink interests had agreed to pay the finance company interest to keep the loans out of default. Mr Haines’ assertion up to his closing submissions that there was some arrangement that Mr Memelink would pay the interest on the loans and so keep them up to date (not incurring penalty interest) had no merit. Mr Haines knew of Mr Memelink’s impecunious state and the fact that he was facing bankruptcy. I would have expected Mr Haines, who was then a practising solicitor, to ensure any such arrangement was recorded in writing. In cross-examination Mr Haines agreed there had been nothing in writing but said writing was not required for on demand loans. He said no demand had been made.
[70] There was no agreement the Trust would pay interest to Fico and Bright to keep the finance company loans out of default. Mr Haines acknowledged this in his closing submissions. There were no terms agreed to on those loans and I find they were loans repayable upon demand and interest free.
[71] Mr Haines then argued that in equity the interparty loans and the legal fees should be offset against the finance company loans at the time they were made or, in the case of the legal fees, at the time the fee note was rendered in August 2018.
Equitable intervention/offset
[72] Mr Haines did not develop his equitable damages or offset arguments in any detail.
[73] There is no evidence which would support an unconscionability argument, nor evidence of any representations by the Trust that the interparty loans or the legal fees would be offset against the finance company loans, to support equitable intervention.
There was no fiduciary relationship established or pleaded, although at the liability hearing, it was argued that it formed part of the context for the parties’ business dealings. The argument was not pursued at this hearing and if anything, the relationship was such that the obligation was on Mr Haines as Mr Memelink’s solicitor to ensure that all arrangements were documented and Mr Memelink received independent advice on the interparty loans.
[74] I dismiss Mr Haines’ argument was that it was equitable that there be an offset of the interparty loans on the dates of the advances to the Trust or of the legal fees when rendered, against the finance company loans . I allow the offsets but as at the date of assignment of the finance company loans to the Trust.
Offset of the boat advance and legal fees
The legal fees
[75] The liability judgment summarised the relationship between Mr Memelink and Mr Haines which led to the legal fees now claimed as a set off by the Haines’ interests.
In that judgment I said:32
[8] As I have noted, Mr Memelink and Mr Haines’ business started with Mr Haines acting as the lawyer for Mr Memelink and his interests, in about October 2016. Mr Haines was the solicitor in a firm that did work for Mr Memelink. Mr Haines subsequently left the firm to practise on his own account and Mr Memelink and his interests followed Mr Haines as clients.
[9] The work Mr Haines did as lawyer for the Memelink interests was not conveyancing but was related to the litigation in which the Memelink interests were involved. Mr Haines also dealt with claims against the Memelink interests, which ultimately resulted in Mr Memelink’s bankruptcy in August 2018. Mr Memelink blames Mr Haines for his bankruptcy. He says the finance company loans that his interests were guaranteeing to enable Mr Haines to raise money, were not repaid or serviced by Mr Haines as they should have been. The Memelink interests were then required to finance the defaults as guarantors and owners of property secured under the loans. That is how Link Trust acquired the assignment of the loans.
[10] In addition, Mr Memelink says that his bankruptcy was the result of Mr Haines’ actions as his lawyer leading up to the bankruptcy. This included the compilation of a list of assets and liabilities on behalf of Mr Memelink that was produced for the purposes of persuading creditors to enter an arrangement. It listed, as a liability, a bill of costs for legal fees owed to
32 The liability judgment, above n 1.
Mr Haines for fees in excess of $1 million. This fee note was issued shortly before Mr Haines ceased practice as a lawyer.
[76] Subsequently, Associate Judge Johnston allowed a proof of debt for the legal fees against the Memelink bankrupt estate for the sum of $603,750.00.33 The Haines’ interests have appealed this to the Court of Appeal, arguing quantum meruit and seeking the full amount of the bill of costs, in excess of $1 million.
[77] The NZLS is presently seeking orders from the Lawyers and Conveyancers Disciplinary Tribunal that Mr Haines be penalised for breaching the Rules of Professional Conduct by acting for Mr Memelink while he was involved in business dealings with the Memelink interests. The penalty sought is that the bill of costs be unenforceable in its entirety.34
[78] The terms and conditions accompanying the legal bill of costs are relied on by Mr Haines to charge interest of 14 per cent on any outstanding balance of fees. Mr Memelink denies receiving those terms and conditions. Mr Haines has produced the terms and conditions and given evidence that they were supplied to the Memelink interests. The Tribunal accepted that the terms and conditions were delivered to Mr Memelink. It will be a matter for the receivers as to whether they accept the proof of debt including interest.
[79] I am not required to determine the amount of the legal fees nor how they are to be taken into account as that is a matter to be dealt with in the receivership process. There was no evidence of any agreement between the Trust and Mr Haines that the legal fees would be offset against outstanding finance company loans. Based on the evidence any offset between the legal fees and the amounts owing (under the finance
33 Haines v Official Assignee [2023] NZHC 1203 at [99].
34 A letter from Mr Moon of the NZLS to Mr Memelink dated 30 January 2024 noted that the Tribunal in April 2022 found Mr Haines guilty of seven charges of misconduct and two charges of unsatisfactory conduct. Findings of misconduct were made concerning the fee of $1.15 million (being the legal costs that are subject of dispute in these proceedings). The Tribunal signalled it would be seeking an order that the fee be cancelled in full under s 156(1)(f) of the Lawyers and Conveyancers Act 2006. It noted that in Haines v National Standards Committee (No 1) [2023] NZHC 3039, dated 30 October 2023, Mr Haines’ appeal (on findings of misconduct by the Tribunal) was dismissed. The decision from the Tribunal on the penalty, is likely after 16 February 2024 following the filing of submissions, according to Mr Moon.
company loans) should at the earliest be effected at the date of the assignment of the loans, not at the time of the rendering of the legal fees.
Advance by finance company to Mr Memelink to purchase boat
[80]Until this hearing, Mr Haig had disputed that the Trust had used funds of
$20,300 from a drawdown under the second Fico loan for the purchase of a boat, as alleged by Mr Haines, as Mr Memelink had been equivocal about whether the boat had been purchased by himself personally or by the Trust. However, in his evidence at the hearing, Mr Memelink agreed that it was the plaintiffs that purchased the boat. Accordingly, that amount should be deducted from the finance company loan and no interest should accrue on that drawdown. Mr Smith has recalculated his figures on that basis, deducting the sum of $20,800, including the costs added by the finance company, and there is no interest on that amount in Mr Smith’s calculations of the amount owing under the assigned loans.
[124] Accordingly, any application for costs should be made by memorandum with supporting submissions on or before five days from the date of this judgment. Any response should be made within a further five days, and any reply to that within a further three days. The submissions should cover not only the costs of the quantum hearing but also the costs on the counterclaim discontinuance.
Grice J
Solicitors:
Gibson Sheat, Wellington
J D Dallas Lawyer, Wellington
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