Nandani v South Pacific Loans Limited
[2015] NZHC 491
•17 March 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2014-404-0003227 [2015] NZHC 491
BETWEEN VINDIYA SHILPA NANDANI
Plaintiff
AND
SOUTH PACIFIC LOANS LIMITED Defendant
Hearing: 3 March 2015 Appearances:
P M Webb for Plaintiff
P A Craighead for DefendantJudgment:
17 March 2015
(RESERVED) JUDGMENT OF ANDREWS J [Plaintiff's application for interim injunction]
This judgment is delivered by me on 17 March 2015 at 11 am pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
NANDANI v SOUTH PACIFIC LOANS LTD [2015] NZHC 491 [17 March 2015]
Introduction
[1] The plaintiff, Ms Nandani, has applied for an injunction restraining the defendant, South Pacific Loans Ltd (“South Pacific”), from entering into possession of and exercising its power as mortgagee to sell her property (“the family home”) in Papatoetoe, Auckland (“the property”).
[2] The application was made, without notice, on 11 December 2014. In a Minute issued the same day, Thomas J directed that it be served on South Pacific. Counsel for Ms Nandani and South Pacific subsequently filed a consent memorandum in which they agreed to a timetable leading to the hearing of Ms Nandani’s application. South Pacific undertook to take no steps against Ms Nandani which would be prohibited by the injunction, were it in place, until her application is determined.
Background
[3] The proceeding relates to two loan agreements between South Pacific and
Ms Nandani: one dated 9 January 2009 for $50,000, and one dated 3 March 2009 for
$40,000. Each loan was for three months, but was replaced by new loans at about three month intervals up to late September 2009. The two loans were consolidated into a single loan agreement dated 29 September 2009, for $97,149.35. New loan agreements were entered into for the consolidated loan up until 29 June 2011, when an agreement was entered into which required a final payment on 29 January 2014. Ms Nandani has defaulted on repayment of the loan.
[4] The initial separate loans, and the consolidated loan, are secured by way of a registered second mortgage over the property. Interest has been charged at 29.5 per cent on the loans and while some interest payments have been made, accrued interest, penalty interest, and costs, have resulted in the total amount owing as at
30 January 2015 being $484,583.59.
[5] In her affidavit evidence in support of the application for an interim injunction, Ms Nandani states that her husband, Mr Maharaj, was instrumental in arranging both loans. He had formed, with some associates, a building company
called 3 Maharajs Ltd. The company appears to have been involved in property development.
[6] In May 2007, Ms Nandani bought a property in Papatoetoe. She intended to subdivide it and construct a new house on the rear site. Her intention was to accumulate capital and purchase a house with an affordable mortgage. The subdivision proceeded, and the house at the front was then sold.
[7] By late 2008 Mr Maharaj’s company was in financial difficulty and his properties were facing mortgagee sale. However, the company was to construct the house to be built on the rear site. In early 2009, Mr Maharaj was under considerable pressure and not able to obtain timber and other supplies to complete building contracts. Ms Nandani says that on 9 January 2009 Mr Maharaj told her that he could obtain money from a finance company, but she had to go and sign papers. She says they had an argument and that eventually, he told her to “just fucken come and sign the papers”. She says she reluctantly went with Mr Maharaj to the offices of South Pacific.
[8] Ms Nandani says that she was presented with documents that had been prepared, and she had no opportunity to read them. She says no one from South Pacific asked her about the property, whether she was working, or whether she could afford to repay the loan. At that time she was engaged in a fulltime course of study and had no income. Further, Ms Nandani says that no one from South Pacific asked her if she wanted to see a lawyer, or suggested that she should see a lawyer before signing the document. She said the woman who dealt with her explained the amount that was being borrowed and the repayments to be made, and she then signed the loan document. She also signed an agreement to mortgage. She recalls going back the next day to sign another document, but cannot recall what that was.
[9] Ms Nandani further says that the circumstances in which the second loan of
$40,000 was obtained were similar. Her husband got her to go back to South Pacific as he wanted the money to fund construction work on another building project he was working on next door to her own property. She said Mr Maharaj telephoned South Pacific and made arrangements for her to go to the South Pacific offices.
Again, she says, the papers were all ready for her to sign and the South Pacific staff member did not explain anything to her but just told her where to sign them.
[10] Ms Nandani’s evidence is that the same thing happened when new loan agreements were entered into. On occasions, she was not given a copy of the loan agreement.
[11] In short, Ms Nandani’s evidence is that Mr Maharaj obtained both loans from South Pacific and conducted the negotiations. She signed the agreements in the presence of her husband, after he told her she had to go and do so. She did not receive any independent advice and was not advised to seek independent representation.
[12] Mr Maharaj has said in his affidavit evidence that he insisted on Ms Nandani signing the documents, in order for him to obtain the loans for his company. He said that he had previously approached South Pacific for finance but was refused because neither he nor the company could provide security. He also says that he then proposed using his wife’s property as security. His evidence is that he was told that a loan could only be made to his wife, on the security of her property.
[13] A South Pacific Manager, Ms Malhotra, said in her affidavit evidence for South Pacific that Mr Maharaj’s application for a loan was denied because neither he nor his company could offer any security. She went on to say that in the following days, Mr Maharaj returned to South Pacific with Ms Nandani, who applied for a loan.
[14] In the substantive proceeding, Ms Nandani alleges that South Pacific knew that:
(a) she entered into the loan agreements under pressure from her husband;
(b) the loans were sought by Mr Maharaj for his company;
(c) the company had no acceptable security for either of the two initial loans, and was insolvent;
(d)the proceeds of the loans would not be used by Ms Nandani, and she would receive no personal benefit from it;
(e) Ms Nandani and Mr Maharaj were husband and wife, such that their relationship was domestic and not commercial;
(f) Ms Nandani lacked the capacity for any sophisticated commercial dealings; and
(g)Ms Nandani was suffering stress and anxiety as a result of the pressure being put upon her.
[15] Ms Nandani’s allegations include that South Pacific:
(a) failed to ensure she received separate, independent, legal advice before entering into any of the loan agreements;
(b)failed to give her any opportunity to obtain separate, independent legal advice; and
(c) failed to provide any or any proper explanation as to the meaning of the documents she was signing.
[16] Ms Nandani has pleaded causes of action in undue influence, unconscionable dealing, and that the loan agreements are oppressive within the meaning of s 118 of the Credit Contracts and Consumer Finance Act 2003. She seeks relief by way of an order that the loan agreements and the registered mortgage are null and void, an order that South Pacific repay her $27,639.00 (being interest paid), interest on that sum, and costs.
[17] South Pacific has filed a statement of defence. While admitting that it made
the loans, and holds a registered mortgage, it denies Ms Nandani’s factual
allegations, and denies any liability under any of the causes of action. Affidavit evidence has been filed by staff members who dealt with Ms Nandani and Mr Maharaj to the effect that there was no evidence or suggestion of any coercion by the part of Mr Maharaj, that Ms Nandani readily agreed to security being taken over the property, and that all the terms and conditions of each loan were fully explained to her before she signed the loans and mortgage documents.
Approach to application for interim relief
[18] The principles on which an interim injunction may be granted are well known. The threshold test requires Ms Nandani to establish that there is a serious question to be tried on her claims against South Pacific, and that the balance of convenience favours an interim injunction being granted.1
Submissions
[19] Mr Webb submitted for Ms Nandani that both limbs of the test are satisfied. He submitted that the affidavit evidence given by Ms Nandani and Mr Maharaj establishes that she was pressured by Mr Maharaj into entering into the loan and mortgage agreements, and that South Pacific had actual or constructive notice of this fact. He further submitted that the evidence also establishes that South Pacific did not advise her, or suggest to her, that she should seek independent advice before entering into the agreements.
[20] Accordingly, Mr Webb submitted, there is a serious question to be tried as to Ms Nandani’s claims for relief on the grounds of undue influence and/or unconscionable dealing. He also submitted that there is a serious question to be tried on Ms Nandani’s claim that the loan agreements were “oppressive contracts” under the Credit Contracts and Consumer Finance Act 2003. The issues to be determined are, in essence, factual, and can only be determined at trial.
[21] Regarding the balance of convenience, Mr Webb submitted that if an injunction is not granted, South Pacific will proceed to a mortgagee sale of the
property. That will effectively end the proceeding as it would then be, he submitted,
1 See Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
an argument “over ashes”, as Ms Nandani will have lost her home. Against that, South Pacific will be protected by the mortgage security over the property. Accordingly, he submitted, the balance of convenience favours an injunction being granted, in order to preserve the status quo.
[22] Mr Craighead submitted that some material facts are not disputed. He identified these as being that there is no evidence that Ms Nandani ever said or indicated to anyone at South Pacific that she signed the first loan (and all the loans thereafter) that she was under any pressure from Mr Maharaj; that both Ms Nandani and Mr Maharaj benefitted from the lending, which the assisted the company’s financial position; that Ms Nandani was not devoid of commercial experience; and that the company’s financial health was of benefit to Ms Nandani, personally, as it had the contract to build the house. Mr Craighead submitted that these undisputed facts were sufficient to show that Ms Nandani could not succeed in any of her causes of action.
[23] If that submission were not accepted, Mr Craighead submitted in the alternative that the balance of convenience favours South Pacific being allowed to sell the property, because the loan was part of a commercial venture from which Ms Nandani sought to make a profit, the debt due is substantial, and a delay in selling the property will lead to a loss to South Pacific. He also submitted that damages (noting that there was no suggestion that South Pacific could not pay damages) would be an adequate remedy for Ms Nandani.
Is there a serious question to be tried?
[24] The phrase “a serious question to be tried” has been considered in a number
of cases. In Re Lord Cable (deceased) Slade J said:2
[It is] necessary for any plaintiff who is seeking interlocutory relief to adduce sufficiently precise factual evidence to satisfy the court that he has a real prospect of succeeding in his claim for a permanent injunction at the trial.
2 Re Lord Cable (deceased) [1976] 3 All ER 417 (CH) at 431.
[25] In his judgment in Ansell v New Zealand Insurance Finance Ltd, Eichelbaum J said that this is a question that should not be treated lightly. It is not sufficient for the applicant to simply show a tenable cause of action and that there is a conflict of evidence on the facts. Something more is required.3
[26] The plaintiff’s causes of action are all based on the same factual narrative. I turn to consider the three causes of action.
Undue influence
[27] Mr Webb referred me to a line of authority where the courts have held that a creditor may not be able to rely on a loan agreement where it was brought about by pressure from a third party. In particular, he referred to the judgments of the House of Lords in Barclays Bank plc v O’Brien,4 and Royal Bank of Scotland plc v Etrick (No 2),5 and the judgments of the Court of Appeal in Wilkinson v ASB Bank Ltd,6 and Hogan v Commercial Factors Ltd.7
[28] In Hogan v Commercial Factors Ltd, the Court of Appeal summarised the issues arising when undue influence is alleged, as follows:8
… it is sufficient to note that cases of this sort throw up three issues:
(a) Was the surety subject to undue influence?
(b) If so, were the circumstances as known to the creditor such as to put the creditor on inquiry as to the risk of undue influence?
(c) If so, did the creditor act in such a way as to insulate itself from the consequences of such undue influence?
For a surety to avoid liability in these circumstances all three issues must be answered in his or her favour (that is, issues (a) and (b) Yes and (c) No).
[29] While in the present case Ms Nandani is a principal borrower rather than a surety, or guarantor, the three threshold questions are equally relevant here. The
3 Ansell v New Zealand Insurance Finance Ltd HC Wellington A434/83, 30 November 1983.
4 Barclays Bank Plc v O’Brien [1994] 1 AC 180 (HL).
5 Royal Bank of Scotland plc v Etrick [2002] 2 AC 773 (HL).
6 Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 (CA).
7 Hogan v Commercial Factors Ltd [2006] 3 NZLR 618 (CA).
8 At [13], per William Young J.
factual difference between obtaining a loan as principal debtor, secured by a mortgage over your home, and guaranteeing a loan, where the guarantee is secured by a mortgage over your home, does not give rise to any difference in the application of the legal principles concerning claims of undue influence. I therefore address the threshold requirements.
[30] I am satisfied that Ms Nandani has provided a sufficient evidential basis to establish that she was subject to undue influence from Mr Maharaj. Both she and Mr Maharaj have given affidavit evidence as to the pressure he applied in order to have her sign the agreements, so that advances could be made to Mr Maharaj’s company.
[31] Ms Nandani has also provided a sufficient evidential basis to establish that there were circumstances known to South Pacific, such as to put it on inquiry as to the risk of undue influence. Those circumstances are that Mr Maharaj had approached South Pacific for a loan for the company, and had been denied a loan because neither he nor the company could provide security. South Pacific only dealt with Ms Nandani when Mr Maharaj brought her to its office, within days of his being denied a loan, to get a loan on the security of the property.
[32] Ms Nandani has also provided a sufficient evidential basis to establish that South Pacific did not act in such a way as to insulate itself against the consequences of the undue influence. Ms Nandani’s affidavit evidence is that she was given no opportunity to read the document she was required to sign, she was given only basic information as to the amount being borrowed and the repayments to be made, and she not asked or advised to obtain any independent legal advice. This is confirmed by Mr Maharaj, who also says it was he who always dealt with South Pacific.
[33] While all the above matters will have to be explored by evidence and cross- examination at trial, I am satisfied that Ms Nandani has a real prospect of succeeding in her cause of action in undue influence, and there is a serious question to be tried. That conclusion is sufficient to satisfy the first of the limb of the test for an interim injunction. However, I comment briefly on Ms Nandani’s two other causes of action.
Unconscionable bargain
[34] The Court of Appeal said in Attorney-General for England and Wales v R:9
These authorities demonstrate that for a bargain to be characterised as unconscionable, and thus able to be set aside, there will necessarily be: (1) serious disadvantage on the part of the weaker party known to the stronger party; and (2) the exploitation of that disadvantage by the stronger party in circumstances amounting to actual or equitable fraud. Associated with (1) and (2) will usually, but not necessarily be: (3) some procedural impropriety, established or presumed, and attributable to the stronger party; and (4) a substantial inadequacy of consideration. …
[35] Ms Nandani’s case on this cause of action is that the disparity in their respective ages (she is younger than her husband), her lack of sophistication in commercial dealings, her dependency on her husband, and the fact that she was stressed by the dire consequences of her husband’s company, result in her having been at a serious disadvantage when she entered into the loan and mortgage documents. This was then exploited by South Pacific by failing to ensure that she was separately advised, failing to provide any proper explanation as to the documents she signed, and as a result of procedural improprieties (for example, failing to give Ms Nandani copies of all documents, and registering a mortgage by using a defective power of attorney). Further, Ms Nandani contends that there was no, or no sufficient, consideration, as Ms Nandani took on borrowing against the property, and thus put her personal asset at risk, for the purposes of her husband’s business.
[36] The above matters are, again, fact specific. However, I am satisfied that there is a sufficient evidential basis to conclude that there is a serious question to be tried on this cause of action.
Oppressive contract
[37] Mr Webb acknowledged that there is some difficulty with this cause of action, and it will need to be established that the agreements come within the Credit Contracts and Consumer Finance Act. Accordingly, I do not comment further on this
cause of action. However, in the light of my conclusion that there is a serious
9 Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at [89], per Tipping J.
question to be tried on Ms Nandani’s two other causes of action, any difficulty with the “oppressive contract” cause of action is not fatal to her application for an interim injunction.
[38] I am, therefore, satisfied, that there is a serious question to be tried.
Where does the balance of convenience lie?
[39] In assessing the balance of convenience, I consider Ms Nandani’s chances of success, whether damages would be an adequate remedy, and whether the status quo should be preserved.
[40] While the question of the chance of Ms Nandani succeeding at trial is strictly more relevant to the threshold question of whether there is a serious question to be tried, the chance of injustice to South Pacific resulting from an injunction being granted will be lower if Ms Nandani has a strong case. Ms Nandani relies on clear authority in situations which appear to have considerable similarity to this case, in which undue influence has been held to void loan contracts. Acknowledging that much will depend on evidence and cross-examination at trial, on both sides, Ms Nandani’s case may fairly be regarded as moderately strong. It is not merely hypothetical or speculative.
[41] Turning then to the adequacy of damages, the application seeks an injunction to prevent South Pacific from selling Ms Nandani’s home. If the injunction is granted, South Pacific will still have recourse to the sale of the property if it succeeds at trial. Notwithstanding the substantial amount said to be owing to South Pacific, I do not consider it will be significantly prejudiced if an injunction is ordered.
[42] The final question is whether it is appropriate to grant an injunction, to preserve the status quo. In this case, as already noted, preventing a mortgagee sale of the property will not displace South Pacific’s rights to take this course of action, if it succeeds at trial. As such, it has the effect of freezing the status quo, pending the outcome at trial.
[43] Taking all of the above factors together, I consider that the balance of convenience falls in favour of granting the injunction that is sought.
[44] I make orders in terms of paragraphs 1(a) and (b) of the application filed by
Ms Nandani, dated 11 December 2014.
[45] Costs are reserved.
Andrews J
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