Mercedes-Benz Financial Services New Zealand Limited v Quadrant Wholesalers Limited
[2014] NZHC 1402
•20 June 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-814 [2014] NZHC 1402
BETWEEN MERCEDES-BENZ FINANCIAL
SERVICES NEW ZEALAND LIMITED Plaintiff
AND
QUADRANT WHOLESALERS LIMITED
First Defendant
DEAN FULLER Second Defendant
Hearing: 3 June 2014 Counsel:
O J B Lee for plaintiff
No appearance for the second defendantJudgment:
20 June 2014
RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff seeks summary judgment against the second defendant (Mr Fuller) on four agreements relating to the sale and purchase of Mercedes-Benz motor vehicles.
[2] The first contract, number 36157, dated 10 October 2008 (the consumer contract) was in the form of a consumer credit contract, and showed Mr Fuller as the purchaser. The other three contracts were written on the plaintiff’s business contract form, and the purchaser named in each was the first defendant (Quadrant). Mr Fuller, a director of the first defendant at the relevant time, provided guarantees
of the three business contracts.
MERCEDES-BENZ FINANCIAL SERVICES NEW ZEALAND LIMITED v QUADRANT WHOLESALERS LIMITED [2014] NZHC 1402 [20 June 2014]
The four contracts
[3] The first of the contracts (the consumer contract) provided for a cash price of
$375,958.13, payable over a five year term. Total interest charges were $163,570.70. The agreement provided for a default interest rate of 21.5 per cent per annum. Under cl 5.7 of the plaintiff’s Consumer Credit Contract General Terms, which were incorporated by reference in the consumer contract, legal and beneficial ownership of the vehicle was to remain with the plaintiff until all amounts owing to the plaintiff under the contract had been paid in full.
[4] Defaults with the monthly instalments began in August 2010, and the vehicle was voluntarily returned to the dealer on 13 December 2010. Thereafter, the plaintiff sent pre-possession and post-possession notices to Mr Fuller under ss 8 and 20 of the Credit (Repossession) Act 1997 (the CRA). The contract was not reinstated or settled, and a notice of intention to sell the vehicle was given by the plaintiff on
9 February 2011. The vehicle was sold at auction on 18 April 2011 for $162,603.14, leaving a balance due to the plaintiff of $201,654.49. The plaintiff seeks summary judgment against Mr Fuller for this sum.
[5] Contract 36159 (the first business credit agreement) was entered into between the plaintiff and Quadrant on 15 October 2008. Mr Fuller signed the agreement both on behalf of Quadrant and as guarantor. The agreement incorporated the plaintiff’s General Terms for a Business Credit Agreement issued in February 2008. The first business credit agreement provided for a cash price of $176,905.75. With fees, GST, and finance charges totalling $73,397.51, the total cost for the vehicle was
$272,786.48. That total price was payable by monthly instalments commencing on
5 March 2009, and finishing with a (substantially larger) payment in October 2012.
[6] Quadrant fell into default with the monthly instalments from September
2010. The plaintiff sent pre-possession notices to both Quadrant and Mr Fuller on
11 January 2011, but the defaults were not remedied. The plaintiff repossessed the vehicle on 28 January 2011. A post-possession notice was sent to Quadrant and to Mr Fuller on 29 January 2011, but the agreement was neither reinstated nor settled.
The plaintiff sent Mr Fuller a notice of its intention to sell the vehicle, and the sale took place on 26 March 2011.
[7] The shortfall following the sale was $129,705.25, and the plaintiff seeks summary judgment for that sum, together with default interest of $40,038.81 calculated to 10 May 2013 and ongoing interest to the date of judgment. The plaintiff also asks for a declaration that interest is to accrue on the judgment sum from the date of judgment to the date of payment at the default interest rate of
14.5 per cent per annum.
[8] The third contract (the second business credit agreement) was number 44460, entered into between the plaintiff and Quadrant on 7 January 2011. Again, Mr Fuller signed the agreement as guarantor. The term of the agreement was four years, and Quadrant was required to make monthly payments of various amounts, culminating in a final payment of $90,000 in May 2014. The cash price of the vehicle was
$247,944.90. With fees, and finance charges of $75,061.05, the total cost of the transaction (balance payable) was $360,567.68. The agreement incorporated the plaintiff’s General Terms for Business Credit Agreements issued in April 2009, and cl 7.10 of those terms and conditions provided that legal and beneficial ownership of the vehicle would remain with the plaintiff until all amounts owing under the agreement had been paid in full.
[9] Again, Quadrant fell into default. The instalments were missed in February and March 2012. The plaintiff sent a pre-possession notice on 29 March 2012, and the vehicle was repossessed on 20 April 2012. A post-possession notice was sent on
2 May 2012, but Quadrant did not reinstate or settle the agreement. The vehicle was sold on 19 June 2012 for $120,000, leaving a shortfall due to the plaintiff of
$161,830.78. The plaintiff now claims that sum, together with default interest of
$20,958.54 calculated to 10 May 2013 and ongoing interest to the date of judgment. The plaintiff also asks for a declaration that interest shall accrue on the judgment sum from the date of judgment to the date of actual payment, at the default interest rate of 14.5 per cent per annum.
[10] The last of the contracts on which the plaintiff sues (the third business credit agreement) was number 44461, entered into between the plaintiff and Quadrant on
7 January 2011. Again, Mr Fuller signed the agreement as guarantor. The agreement provided for a cash price of $98,549.62. With fees, GST, and finance charges of
$26,000.21, the total cost of the transaction (balance payable) over the term of
32 months was $139,802.27. This agreement was also subject to the plaintiff’s
Business Credit Agreement General Terms issued in April 2009.
[11] Quadrant fell into default in October 2012, and a pre-possession notice was sent on 17 October 2012. The vehicle was repossessed on 6 November 2012, and a post-possession notice sent on 14 November 2012. On 8 February 2013, the plaintiff agreed to sell the vehicle to Mr Fuller for $30,000, on the basis that the sale was without prejudice to the plaintiff’s right to pursue the defendants for the shortfall. The sum of $30,000 was duly paid on 8 February 2013, leaving a shortfall due to the plaintiff of $57,465.98. The plaintiff seeks summary judgment for that sum, together with interest of $2,100.36 calculated to 10 May 2013 and ongoing interest to the date of judgment. The plaintiff also asks for a declaration that interest is to accrue on the judgment sum from the date of judgment to the date of payment at the default interest rate of $14.5 per cent per annum.
Mr Fuller’s opposition
[12] In his notice of opposition and affidavit, Mr Fuller contended that the vehicles which were the subject of the four agreements were all “mortgaged goods”, to which the provisions of Parts 3 and 4 of the Property Law Act 2007 (the PLA) applied. Mr Fuller contended in his opposition and affidavit that the plaintiff never had the right to call up or accelerate the loans’ repayment, as notices required to be sent under ss 128 and 132 of the PLA were never provided. Mr Fuller contended that he had never been afforded his legal right to remedy any defaults in respect of the loans, that the plaintiff had caused him loss in taking possession of the vehicles, and that the plaintiff was purporting to sell them other than in compliance with the law. Mr Fuller also contended that the plaintiff was barred from dealing with Quadrant’s interest in the mortgaged goods by the operation of s 32A of the Credit (Repossession) Act 1997 (CRA). Mr Fuller also contended that the plaintiff had
failed to provide the defendants with notices pursuant to ss 156, 162, 163 and 165 of the PLA, which apply where a mortgagee has entered into possession of mortgaged land or goods.
[13] Mr Fuller alleged that the plaintiff’s illegal actions had damaged his credit rating and consequently his business. He also alleged that the plaintiff had listed him as a defaulter on the Veda Advantage Credit Monitoring System, causing unjustified public humiliation to him and his business.
[14] In his affidavit in opposition, Mr Fuller acknowledged that he had guaranteed Quadrant’s obligations under the three business credit agreements. As for the consumer contract, Mr Fuller stated that he entered into the agreement for the purpose of purchasing the vehicle for Quadrant. At all material times, the vehicle was registered in the name of Quadrant, and Mr Fuller said that he only entered into the consumer contract “on the advice of the plaintiff’s finance broker on the basis that the costs would be less than the Business Credit Contract”.
[15] Mr Fuller annexed a copy of a “Vehicle Offer and Sale Agreement” entered into between Quadrant as purchaser and Continental Car Services (Wellington) Limited, relating to the same Mercedes-Benz vehicle which was the subject of the consumer contract. It does not appear to have been signed by Quadrant as purchaser, and the “Trader’s Acceptance” section of the agreement has not been completed. The form of the Vehicle Offer and Sale Agreement, having described the vehicle, continued:
I/we hereby offer to purchase the vehicle described above on the terms and conditions set out in this agreement.
[16] Beneath a section headed “Purchase price and payment”, the form contained
a request that the transaction be financed through the plaintiff over a period of
48 months “as per the lease/hire purchase agreement annexed hereto”. Towards the bottom of the agreement, there was a “retention of title” clause, in which the purchaser acknowledged that he or she understood that the purchase would be subject to a retention of title clause set out overleaf. However, the reverse side of the document was not produced in evidence.
The plaintiff ’s evidence in reply
[17] In a reply affidavit sworn by the plaintiff ’s general manager, Credit Risk, the plaintiff provided further information in respect of the consumer contract. In this affidavit, the credit manager noted that the dealer had also provided the plaintiff with a declaration under s 14 of the Credit Contracts and Consumer Finance Act 2003, which Mr Fuller had signed, declaring that the credit he was seeking was for business purposes. An invoice for the vehicle had been made out to Quadrant.
[18] The plaintiff’s staff then queried the matter with the dealer, asking whether the dealer had used the correct form of agreement for the transaction. The plaintiff sent an email to the dealer on 29 June 2007, asking for clarification as to whether the contract was for Mr Fuller’s personal use of the vehicle. The plaintiff noted that if the vehicle was intended for business use, the agreement should have been documented as a hire purchase agreement and not a consumer credit agreement to which the provisions of the Credit Contracts and Consumer Finance Act would apply. The dealer replied on the same day advising that the contract was to be a consumer credit agreement, and the dealer would issue a new invoice. The dealer advised:
Although it is personal use Quadrant is funding this as Mr Fuller uses that as drawings.
[19] The dealer subsequently issued a replacement invoice showing Mr Fuller as borrower/purchaser, and the plaintiff paid the amount of the invoice to the dealer on
10 July 2007, together with the dealer’s commission. The plaintiff subsequently proceeded on the basis that the vehicle was being used by Mr Fuller for his personal use, and that he personally was the correct customer for the transaction. The plaintiff says that it was unaware that the vehicle was subsequently registered in Quadrant’s name, but in any event says that that does not affect the fact that the principal party liable on the consumer contract was Mr Fuller, and not Quadrant.
[20] As for Mr Fuller’s contention that he signed the consumer contract because of advice which he had received from the plaintiff’s “finance broker” that the costs would be less if the agreement were documented in that way, the plaintiff’s credit manager deposed that the plaintiff does not use finance brokers. Further, the
plaintiff’s interest rates, and other costs charged by the plaintiff to a customer for financing a vehicle, are the same regardless of whether a consumer or a business agreement is used.
Discussion
The Three Business Credit Agreements
[21] Mr Fuller contends that there has been a failure by the plaintiff to comply with various notice provisions of the PLA relating to mortgaged goods, and that the plaintiff was barred from dealing with Quadrant’s interest in the vehicles by the operation of s 32A of the CRA. If those defences fail, the opposition based on alleged damage to Mr Fuller’s credit rating and/or Mr Fuller being listed as a defaulter on a credit monitoring system, must also fail. And if the plaintiff has acted properly in the repossession and subsequent sale of the vehicles, Mr Fuller’s allegations of conversion and/or other unlawful actions cannot afford him any defence.
[22] It will be convenient first to consider s 32A of the CRA. In my view this section can have no application to the three business credit agreements. That is because the CRA is concerned with security interests in “consumer goods”, being goods used or acquired primarily for personal, domestic or household purposes, and the definition of the term “security interest” in the CRA means that the notice
requirements of the CRA do not apply to any agreement entered into by a company.1
[23] The requirements relating to the giving of notice to the borrower which were relevant in the case of the three business credit agreements, were those contained in Part 9 of the Personal Property Securities Act 1999 (the PPSA). These provisions generally apply to all security interests other than security interests in consumer goods to which the CRA applies.2 The PPSA contains requirements for creditors to
issue post-possession and post-sale notices,3 but there is no requirement in the PPSA
for a pre-possession notice to be issued before the goods are repossessed. Under s 107 of the PPSA, it is possible for the parties to contract out of the notice
1 Credit (Repossession) Act 1997, s 2(1).
2 Personal Property Securities Act 1999, s 105.
3 Sections 114 and 116.
requirements of Part 9 of the PPSA. That has been done in this case,4 and Mr Fuller has not taken any point about compliance with the PPSA.
[24] Mr Fuller’s principal contention was that the plaintiff failed to comply with certain notice provisions of the PLA which relate to “mortgaged goods”.
[25] Section 128 of the PLA provides as follows:
128Notice must be given to current mortgagor of mortgaged goods of exercise of powers
(1) No amounts secured by a mortgage over goods are payable by any person under an acceleration clause, and no mortgagee or receiver may exercise any power to sell the mortgaged goods, by reason of a default, unless—
(a) a notice complying with section 129 has been served (whether by the mortgagee or receiver) on the person who, at the date of the service of the notice, is the current mortgagor; and
(b) on the expiry of the period specified in the notice, the default has not been remedied.
(2) No mortgagee or receiver may exercise any power to sell the mortgaged goods, by reason of the goods being at risk, unless, not less than 10 working days before selling the goods, a notice in the prescribed form has been served (whether by the mortgagee or receiver) on the person who, at the date of the service of the notice, is the current mortgagor.
(3) Subsections (1) and (2) are subject to sections 135 and 136.
(4) A notice required by this section may be given in the same document as a notice under section 118.
[26] Section 132 of the PLA provides:
132Notice of intention to recover deficiency in relation to mortgages over goods
(1) This section applies if, under a mortgage over goods,—
(a) the mortgagee or receiver proposes to exercise a power to sell the mortgaged goods; and
(b) the mortgagee proposes to recover any deficiency on the sale from a former mortgagor or a covenantor.
4 See, for example, the plaintiff ’s General Terms and Conditions, para 7.7(b).
(2) The mortgagee or receiver must serve notice of the intentions referred to in subsection (1) on the former mortgagor or covenantor concerned at least 10 working days before the exercise of the power of sale.
(3) Subsection (2) applies whether or not the former mortgagor or covenantor has been served with a copy of the notice required under section 118 or 128.
(4) However, subsection (2)—
(a) is subject to section 135; and
(b) does not apply if a court has, under section 136, granted leave to claim a deficiency without serving a notice under this section.
(5) A failure to serve a notice under subsection (2) on a former mortgagor or a covenantor does not prevent—
(a) the mortgagee or receiver from exercising the power of sale;
or
(b) the mortgagee from recovering any deficiency from that former mortgagor or covenantor.
(6) However, a former mortgagor or a covenantor who is prejudiced by a failure to serve a notice under subsection (2) is, to the extent of the prejudice, released from liability to the mortgagee for the deficiency.
[27] It will be seen that both sections apply to “a mortgage over goods”. Sections
156, 162, 163 and 165 of the PLA contain a number of provisions which are applicable when a mortgagee has entered into possession of mortgaged land or goods.
[28] In this case, the plaintiff says that there was no “mortgage over goods” because the mortgagor in a mortgage over goods must be the owner of the goods. The plaintiff retained ownership throughout under its retention of title clauses, and neither Quadrant nor Mr Fuller was ever the owner of the mortgaged goods.
[29] Under s 4 of the PLA, the term “mortgage” is defined as follows:
Mortgage includes –
(a) any charge over property for securing the payment of amounts or the performance of obligations; and
(b) any registered mortgage; and
(c) any mortgage arising under a mortgage debenture.
[30] The term “charge” is not defined in the PLA, and counsel for the plaintiff was unable to locate any cases where the definition of “mortgage over goods” has been considered in the context of determining whether the notice requirements in the PLA apply to a particular security agreement. However, commentators who have considered the inter-relationship between the PPSA and the PLA notice provisions have generally favoured the view that the term “mortgage”, as used in the PLA notice provisions for mortgages over goods, should be interpreted in the traditional sense of a security interest granted by the owner of the goods. The plaintiff submits that that interpretation makes sense because if the term “mortgage” was interpreted so as to include any security interest then the provisions of the PLA would always apply and there would be no point in having two separate notice regimes, one in the PLA and one in the PPSA.
[31] The learned authors of Gault on Commercial Law state:5
… [T]he reality is that the Property Law Act requirements can only apply where there is a mortgage or charge over equipment, which excludes any retained title, conditional sale and situations when a lease or bailment becomes a security interest.
[32] The learned authors of Heath and Whale on Insolvency note:6
Moreover, it is probable that where legislation passed after the [PPSA], such as the [PLA] … still uses terminology such as “mortgage” or “charge”, rather than “security interest”, this was done deliberately to ensure that relevant provisions applied only to mortgages or charges as traditionally conceived, rather than to the broader concept of a security interest.
[33] I take a mortgage or charge, as “traditionally conceived”, to be one where the owner of the goods in question has given the charge. That view seems to me to be consistent with the views of the authors of Gault on Commercial Law and Heath and Whale on Insolvency quoted above, and it also appears to be consistent with certain
definitions contained in s 4 of the PLA. For example, “mortgagor” is defined to
5 Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Brookers) at [8A.6.013(c)].
6 Paul Heath and Michael Whale Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [25.4].
mean a person who is the owner of property that is subject to a mortgage, and “current mortgagor” in relation to a mortgaged property means a mortgagor who is “currently the owner of the property”.
[34] In this case, each of the business credit agreements contained a clear provision that the plaintiff was to remain the owner of the vehicles. In those circumstances there was no mortgage or charge given by Quadrant or Mr Fuller which could have brought the PLA provisions into play.
[35] I conclude accordingly that the plaintiff was not required to serve any notices under the PLA, and Mr Fuller has no reasonably arguable defence based on a failure by the plaintiff to serve PLA notices.
[36] Mr Fuller, not having raised any other arguable defences, the plaintiff is entitled to summary judgment on its claims on each of the first, second and third business credit agreements.
The Consumer Contract
[37] Mr Fuller claims in essence that he purchased the vehicle on behalf of Quadrant for business purposes rather than for personal use, and that the plaintiff accordingly used incorrect notice procedures under the CRA when it repossessed and sold the vehicle.
[38] In my view, there is no merit in that contention. Mr Fuller signed the consumer contract with the plaintiff in his own name, without any suggestion that he was acting as agent for Quadrant. Further, the dealer in Wellington issued an invoice to the plaintiff for the sale of the vehicle stating that it was being acquired by Mr Fuller. The plaintiff then paid the dealer for the vehicle. In the consumer contract, Mr Fuller acknowledged receipt of a copy of the plaintiff ’s “Terms and Conditions – Consumer Credit Contract, issued 01/06”, and cl 5.7 of those terms and conditions provided that Mr Fuller agreed that legal and beneficial ownership of the vehicle would remain with the plaintiff until all amounts owing to the plaintiff under the agreement were paid in full.
[39] Mr Fuller did produce a copy of an undated form of the Vehicle Offer and Sale Agreement which named Quadrant as the party offering to purchase, but this document itself contained a retention of title clause which apparently provided that title to the vehicle would remain with either the plaintiff or the dealer, and the dealer invoiced the plaintiff for the vehicle on 10 July 2007. The plaintiff duly settled with the dealer on that date, and Mr Fuller subsequently entered into the consumer contract, in which he personally acknowledged delivery of the vehicle. The retention of title cl 5.7 in the terms and conditions ensured that title to the vehicle at all relevant times remained with the plaintiff. The fact that the vehicle may have been registered in the name of Quadrant does not effect that conclusion.
[40] Mr Fuller referred in his notice of opposition to s 32A of the CRA. That section provides as follows:
32A Disposal of consumer goods to purchaser for value and in good faith
(1) A purchaser for value and in good faith who takes possession of consumer goods sold by a creditor takes the consumer goods free from the following interests:
(a) the interest of the debtor:
(b) any interest subordinate to that of the debtor: (c) any interest subordinate to that of the creditor.
(2) Subsection (1) applies whether or not registrations relating to security interests that are subordinate to the security interest of the creditor selling the consumer goods have been removed from the register.
[41] It seems to me that this section is directed purely to the protection of someone who acquires consumer goods which have been sold by a creditor, (provided that the purchaser has acted in good faith and provided value for the consumer goods). It does not create obligations on the creditor. In my view, s 32A could not provide Mr Fuller with any arguable defence to the claim on the consumer contract.
Conclusion
[42] There is nothing in the notice of opposition or in the affidavits filed to suggest that Mr Fuller might have an arguable defence to any of the plaintiff’s claims.
Judgment
[43] There will accordingly be judgment for the plaintiff against the second defendant as follows:
(a) On its first cause of action (in respect of the consumer contract), the sum of $201,654.49. There was no claim for interest on this cause of action.
(b)On its second cause of action, (in respect of the first business credit agreement), the sum of $129,705.25, together with the further sum of
$60,742.10 being interest at the default rate of 14.5 per cent per annum (12 per cent above the Official Cash Rate, which the evidence shows at 2.5 per cent per annum) from 29 March 2011 to the date of this judgment.
(c) On its third cause of action (in respect of the second business credit agreement), the sum of $161,830.78, together with the further sum of
$46,474.44 being interest at the default rate of 14.5 per cent per annum from 27 June 2012 to the date of this judgment.
(d)On its fourth cause of action (in respect of the third business credit agreement), the sum of $57,465.98, together with the further sum of
$10,542.84 being interest at the default rate of 14.5 per cent per annum from 15 March 2013 to the date of judgment.
(e) The plaintiff is also entitled to costs, which are fixed on a scale 2B
basis at $6,766, plus disbursements of $1,860.22.
Associate Judge Smith
Solicitors:
P M Hunter, Simpson Western for Plaintiff
Gilbert Law, Wellington for Second Defendant-
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