Norfolk Nominees Limited v King

[2013] NZHC 556

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2012-409-002082 [2013] NZHC 556

BETWEEN  NORFOLK NOMINEES LIMITED Plaintiff

ANDPAUL ANTHONY KING Defendant

Hearing:         20 March 2013

(Heard at Christchurch by telephone)

Appearances: B A Vautier for Plaintiff/Respondent

Defendant/Applicant (P A King) in Person

Judgment:      20 March 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to application for stay pending appeal]

Introduction

[1]      By a summary judgment on 5 March 20131  this Court ordered Mr King to vacate his Christchurch property and to give possession of it to his mortgagee, Norfolk Nominees.  By reason of the terms of the order, it is calculated that Mr King has until this Friday, 22 March 2013 to vacate the property.

General nature of this litigation

[2]      Norfolk Nominees for three years has been seeking to recover from Mr King a $340,000 12 month loan made to Mr King in late 2009.  The summary judgment of

5 March 2013 was the latest round in that litigation.

1      Norfolk Nominees Ltd v King [2013] NZHC 398.

NORFOLK NOMINEES LIMITED V KING HC CHCH CIV-2012-409-002082 [20 March 2013]

The application

[3]      Mr King yesterday filed his own application for a stay pending appeal.

[4]      Mr King identifies what he seeks as both a stay of judgment and a stay of execution of the judgment, together with a stay of the associated costs orders.

[5]      As his grounds of application he invokes his right of appeal to the Court of Appeal and relies upon three propositions, namely that the Court erred in law in misapplying the facts to the law; the Court erred in law and in fact in assessing the evidence; and the Court erred in failing to have regard to the provisions of the Credit Contracts and Consumer Finance Act 2003.  Mr King supports his application with an affidavit in which he deposes that he is seeking to appeal against the whole of the judgment of 5 March 2013.   He refers to the CCCF Act and states that initial disclosure has not been given.

[6]      He states the belief that Norfolk Nominees are predatory lenders charging exorbitant fees and amounts of interest which are not disclosed before the contract is signed, and then picking up a house valued at $930,000 when rebuilt for a loan of

$331,800.

[7]      He proceeds to make comments in the nature of submissions as to the failure of the Court to recognise the essential nature of accurate initial disclosure.  That is followed by submissions as to the way in which the CCCF Act has been allegedly breached.

[8]      Mr King exhibits a letter which he has sent by email to the Commerce Commission  on  16  March  2013.    He  asks  the  Commission  to  intervene  in  his intended appeal.  (The Commission intervened in a previous, successful, appeal of Mr King’s in an earlier proceeding brought by Norfolk Nominees to recover its

loan).2     Mr King deposes that he has engaged counsel for the Court of Appeal

hearing, for which he intends to apply for legal aid.

2      King v Norfolk Nominees Ltd [2012] NZCA 190.

[9]      In his affidavit he then states that his grounds of appeal are that the Court erred in 13 ways identified at paragraphs 20-32 of his affidavit (reproduced as Schedule 1 to this judgment).

[10]     Mr King then deposes that he believes that the Court of Appeal should grant his appeal on the basis that the judgment is unreasonable and unsupported by the evidence.

[11]     Finally, he states that his personal situation is that he is single and bringing up two children with shared custody (his ex-fiancée having gone to live in the United Kingdom).

Norfolk Nominees’ opposition

[12]    Because of the urgency in dealing with this stay application, I convened a telephone conference of the parties yesterday.   Mr Vautier confirmed that the application  for  a  stay  would  be  opposed.    I  indicated  that  I  would  hear  the application today at 10.00 am by a telephone conference.  In the circumstances I was constrained  to  dispense  with  the  filing  of  a  notice  of  opposition  by  Norfolk Nominees or the filing of any synopses of submissions.  The hearing was to proceed upon the basis of oral submissions to be presented by Mr King and Mr Vautier.  That occurred.

[13]     Mr King took a preliminary objection to the form of Mr King’s application and to the significant degree to which Mr King’s affidavit did not remain confined to matters strictly of fact.

[14]     Mr Vautier reminded me that the Court of Appeal had in its 2012 judgment3 forewarned  Mr  King  that  he  had  reached  the  outermost  limits  of  the  Court’s tolerance in relation to compliance with rules of Court and that he had to expect that he would be required to strictly comply in the future.  Mr Vautier noted that the present  application  fails  to  identify a  source  of  jurisdiction  (which  would  have

required a reference to r 12 Court of Appeal (Civil) Rules 2005.  Mr Vautier noted

3      King v Norfolk Nominees NZCA 190 at [28].

also that Mr King’s stated grounds of application (which I have referred to at [4] above) essentially relate to the points for appeal rather than matters relevant to the balancing exercise on a stay application.

[15]    In the particular circumstances of this case I did not sustain Mr Vautier’s objection to the application filed.  I reminded myself that Mr King was appearing in person once again, having had representation at the summary judgment hearing and now again in the process of seeking new representation for the appeal.  While the form of application was clearly defective in parts, the combination of the application itself and the affidavit adequately disclosed the key points to be made in relation to an urgent application of this nature.

[16]     The grounds of opposition which Mr Vautier advanced on behalf of Norfolk Nominees thereafter had reference to the usual factors which the Court considers in relation to the stay application, to which I will return.

[17]    Finally, Mr Vautier observed that this particular stay application has been brought urgently towards the end of the period at which the possession order is to take effect.   He has not been able to respond in any considered or comprehensive way because I have had to urgently bring the matter on for hearing today.  That has meant that Mr Vautier has not been able to put evidence before the Court.  This led Mr Vautier to submit that in the particular circumstances of this case, involving an order for possession of a property, the justice of the case would be achieved by refusing the stay, thereby allowing the order for possession to take effect.  Such a course would recognise that as Norfolk Nominees in the coming weeks or months moves towards a mortgagee sale of the property, Mr King will have the opportunity (if he wishes to pursue it) to revisit the issue by seeking an order preventing the sale of the property.  That would be on reasonable notice to Norfolk Nominees so that Norfolk Nominees would then have the opportunity to fully brief and file evidence in opposition.  I will return to this possibility later in this judgment.

Stay of execution pending appeal

[18]     The Court’s jurisdiction to stay execution of a judgment arises under r 12

Court of Appeal (Civil) Rules 2005.  I refer particularly to sub-clauses (3) and (4)

which provide:

12       Stay of proceedings and execution

…

(3)      Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—

(a)       order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b)       grant any interim relief.

(4)      An order or a grant under subclause (3) may—

(a)       relate to execution of the whole or part of the decision or to a particular form of execution:

(b)       be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

[19]     I adopt the following as applicable considerations and principles:

[5]      I adopt the following as applicable considerations and principles:

(1)       The Court is required to balance the competing rights of the party who obtained the judgment appealed from (i.e. to the benefit of the judgment) against the need to preserve the appellant’s position against the event of the appeal succeeding.

(2)       The Court’s object, where it can be fairly achieved, is to arrange matters so that, when the appeal comes to be heard, the appeal Court may be able to do justice between the parties whatever the outcome of the appeal may be.

(3)       Factors which may be taken into account in the balancing of the competing interests include:

(i)       Whether the appeal may be rendered nugatory by the lack of a stay. This is not a determinative factor;

(ii)      Whether  the  successful  party  will  be  injuriously affected by the stay;

(iii)      The bona fides of the applicant as to the prosecution of the appeal;

(iv)     The effect on third parties;

(v)       The   novelty   and   importance   of   the   questions involved;

(vi)     The public interest in the proceeding;

(vii)     Issues of balance of convenience and the status quo are of modest relevance at most – to the extent they are relevant they will be covered by consideration of whether the appeal will be rendered nugatory and of the prejudice to the respondent: see Avowal Administrative Attorneys Limited v District Court at North Shore HC Auckland CIV 2006-404-07264, 8

May 2009 Venning J at [11].

(4)       Where a money judgment is appealed, the proceeding is generally stayed only upon payment by the defendant to the plaintiff of the judgment sum; the plaintiff giving security for repayment if the appeal succeeds: see Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd HC Auckland CIV 2005-404-3078, 31 January 2006 Faire AJ at [8].

The background in more detail

[20]     Mr King owned and continues to own a property in Christchurch.

[21]    In November 2009 he entered into the loan agreement pursuant to which Norfolk Nominees has obtained judgment.  Pursuant to the loan agreement Mr King obtained a loan of $340,000 in November 2009.   The term of the loan was 12 months.  The interest rate was 12 per cent payable in monthly instalments.  Mr King paid one monthly instalment.   Since then he has paid nothing, neither interest nor principal. The penalty interest rate is 22 per cent.

[22]    Litigation has ensued.  In my judgment of 5 March 2013 that litigation is summarised.  In the course of the litigation the failure of Norfolk Nominees to give valid initial disclosure under the CCCF Act was ultimately identified.  Whereas the High Court in August 2011 granted Norfolk Nominees an order for possession, the Court of Appeal in allowing the appeal quashed the possession order upon the basis of  incorrect  initial  disclosure.    In  doing  so  the  Court  of Appeal  accepted  the

submission on behalf of the Commerce Commission (as intervenor) that Norfolk

Nominees could make corrective initial disclosure.

[23]     In the light of that outcome, Norfolk Nominees  attended to disclosure a further time.  The proceeding came before me as a summary judgment application for possession pursuant to the most recent disclosure.  Mr King, through counsel, raised a number of grounds of opposition.   Foremost was the proposition that corrective disclosure is not permissible under the CCCF Act.  In other words, it was argued that once a lender fails to make proper initial disclosure and the period prescribed under s 17 for initial disclosure has expired, the lender has no right to recover any money whether interest or principal.  That proposition was contrary to the position as accepted by the Commerce Commission in the previous Court of Appeal  hearing  and  contrary  to  the  conclusion  of  the  Court  of  Appeal  in  its judgment.

[24]     I found in the judgment of 5 March 2013, consistently with the conclusion of the Court of Appeal, that corrective initial disclosure is permissible.  I also rejected other  grounds  of  opposition  which  specifically  related  to  the  contents  of  the corrective disclosure completed by Norfolk Nominees in 2012.

The possibility of a nugatory appeal

The order as to possession of the property

[25]     By its nature, the order made in the summary judgment as to possession is a preliminary  step  towards  recovery  of  Norfolk  Nominees’  loan  (principal  and interest).  Possession is a step in anticipation of the preparation of a property for sale and the subsequent process of sale by the mortgagee.  In that way, it is an order of a different nature to a money judgment which, if met by the judgment debtor, satisfies the outstanding liability to the judgment creditor in full.  The possession order is the beginning of a process which may do that but not immediately.

[26]     The members of the Court of Appeal, by that Court’s 2012 judgment, were at pains to encourage Mr King to resolve the repayment of the Norfolk Nominees loan

without another round of litigation.  The Court of Appeal accordingly made clear its view as to the appropriateness of corrective initial disclosure.  Mr King chose not to heed that warning and instead put Norfolk Nominees to this further litigation.  By the summary judgment, Norfolk Nominees eventually obtained in March 2013 the judgment for possession so as to clear the way for enforcement of repayment or partial repayment of a loan of $340,000 (and interest and costs) initially lent in November 2009.

[27]     By  the  nature  of  a  mortgagee  sale  process,  Mr  King  will  have  some additional time with the use of Norfolk Nominees’ money even if the Court does not stay execution of the possession order.  As against that, the effect of staying the possession order is that the prospect of Norfolk Nominees’ recovering its money is deferred for an indefinite period.

[28]     It is possible and even likely that at some point before an appeal outcome (assuming Mr King’s appeal were successful) the sale of the property would render the appeal against the possession order nugatory.  On the other hand, Mr King would then have his right (having established defective initial disclosure) to obtain repayment of the proceeds of the sale of his property.  In this way, there is at one level (preservation of Mr King’s property) the potential for a nugatory appeal but at the broader level (the competing rights of Norfolk Nominees and of Mr King to the loan principal at $340,000 and the interest) the reality that Mr King will be able to recover any payments made in the interim.  There is no suggestion in Mr King’s evidence that Norfolk Nominees is not incapable of repaying any money it receives from the sale of the property.

[29]     In the meantime, Norfolk Nominees will have its obligation as mortgagee to obtain for the property the best price reasonably obtainable.4

[30]     In his submissions Mr King has emphasised, going beyond what he has put in evidence  on  the  application,  that  the  property  is  the  home  for  himself  and  his children.  He contrasts this with the position of the loan of Norfolk Nominees, being

a financier.  Whereas Norfolk Nominees, through a stay, would be denied access to

4      Section 176(1) Property Law Act 2007.

the property for the purposes of recovering finance, Mr King and his children would be out of a home for the time being.   Mr King invited me to take judicial notice (which I am prepared to do) of the constrained yet inflated rental market in Christchurch following the Christchurch earthquakes.

[31]     The reality is that who should have possession of the house for the time being flows from the principle that the creditor ought not to be deprived of the fruits of its judgment.  The summary judgment (to be appealed) involves recognition of Norfolk Nominees’ right to go into possession to ready the property for sale and sell it.  Mr King’s focus on who should have the benefit of possession pending the appeal is concerned more with the interim adjustment of rights pending an appeal hearing rather than whether the appeal is itself rendered nugatory by refusing a stay.

The reservation of costs

[32]    The costs order made against Mr King as a result of Norfolk Nominees’ successful summary judgment application was that costs be reserved.   On the contractual documentation between the parties the normal order would have been for the reasonable solicitor/client costs of the plaintiff to be paid by the defendant.  In my judgment I anticipated that agreement would be reached on the form of such a costs order.5   I reserved leave to the parties to file submissions. As it was, I have yet to receive submissions.

[33]     There is no justification upon the basis of the “nugatory appeal” approach to stay the outcome in relation to costs.  To the contrary, it is appropriate that I proceed to determine costs so that those are finally resolved before any subsequent Court of Appeal hearing.  Enforcement of any order I make as to the payment of costs will not render the appeal nugatory as costs can always be ordered to be repaid by Norfolk Nominees to Mr King in the event his appeal is successful.

Will the plaintiff be injuriously affected by a stay?

[34]     I adopt what I have said earlier.

5 At [98].

[35]     In considering injury to the creditor the focus must be on the period from late-2012 when I have found corrective disclosure was lawfully completed.  I accept the thrust of a submission made by Mr King that it would be inappropriate in this context to have regard to the earlier years in which Norfolk Nominees was out of its money because of its own failures under the CCCF Act.

[36]     In relation to an intended mortgagee sale, there are the added complications and uncertainties of the real estate market.  The Courts recognise the rights of mortgagees to determine the appropriate time for sales when the mortgagee’s power of sale is invoked.  To suspend that decision-making power for a further period potentially amounts to an additional injury to the creditor in the event it is later left with a less opportune time for marketing the property.

[37]     Mr King made a submission to the effect that there was no need for the Court to permit Norfolk Nominees to go into possession at this point as there is ample equity in the property.  To the extent that there is anything approaching evidence to support that proposition it is contained in a sentence in Mr King’s affidavit which reads:

They (Norfolk Nominees) are aiming to pick up a house valued at $930,000 when rebuilt for a loan of $331,800.

The thrust of Mr King’s submission was that a stay lasting some months until an appeal hearing is unlikely to result in irrecoverable losses for Norfolk Nominees given the margin of equity.

[38]     Mr Vautier met that submission in a number of ways:

(a)      Mr King’s evidence as to Norfolk Nominees “picking up a house valued at $930,000” involves the incorrect assumption that Norfolk Nominees stands to achieve a windfall beyond the core indebtedness – Norfolk Nominees of course will only recover what is secured;

(b)There is no proper evidence before the Court as to any value of the property  at,  let  alone  beyond,  the  core  debt  –  that  submission  is correct;

(c)       The $331,800 is only part of the indebtedness secured, with some

$15,000 of costs remaining from the previous proceeding and something in excess of $10,000 likely to be fixed for the summary judgment  proceeding.    Additionally,  because  of  the  22  per  cent penalty interest rate, Mr King’s debt has continued to increase since corrective disclosure was completed in July 2012 at that rate (compounding) involving an increase of at least $6,000 every month. The property at present remains in the possession of Mr King.  There is no immediate ability on the part of Norfolk Nominees to have a full valuation of the property completed in the context of this urgent application.  I must treat the situation as involving a serious risk of the erosion of any equity in the property to the point that Norfolk Nominees may well be injuriously affected by a stay through the elimination of any remaining equity;

(d)Mr Vautier noted the understanding of Norfolk Nominees (confirmed by Mr King in reply) that the property at present stands uninsured because of issues between householder and insurer as a result of the impact of the Christchurch earthquakes.  Mr Vautier submits that the combination of maintenance of the property being left to Mr King and the uninsured state of the property means that Norfolk Nominees is at further risk so long as it is not in possession and unable to move to sale.  I accept that those matters of uncertainty create additional risk for Norfolk Nominees.

The bona fides of the applicant as to the prosecution of appeal

[39]    I have no information to suggest that Mr King is other than serious in his intention to appeal.  I accept that his now repeated view that corrective disclosure is not valid as a matter of law is genuinely held.

The effect on third parties

[40]     There is  no  suggestion  on  a relevant  effect  on  third parties to take into account.

The novelty and importance of the questions involved

[41]     There is a degree of novelty to the central issue which Mr King has pursued as to the unavailability of corrective disclosure under the CCCF Act.  On the other hand, the point is not completely new as it has been deliberately visited by the Court of Appeal (albeit arguably obiter) in relation to this very contract.   It has also clearly been the subject of considered submissions from the Commerce Commission as intervenor in the previous proceeding.

[42]    I nevertheless recognise that there is some novelty and importance in the questions involved.  The issue as to whether corrective initial disclosure can be effective does not appear to have been determined as a central issue in any decided New  Zealand  case  previously.    While  I  found  in  the  summary  judgment  that authority from the House of Lords (which held that corrective disclosure out of time was not available) is not applicable in New Zealand,  Mr King’s stay application signals an intention to revisit the applicability of the House of Lord’s approach (albeit since abolished by legislative amendment).

The public interest in the proceeding

[43]     Although Mr King has assiduously resisted attempts by Norfolk Nominees to recover its loan, through central reliance on the failure of initial disclosure, there has been no demonstrated public interest in the outcome of the proceeding.  That said, the Court appreciates that there may be some interest in some sectors such as those substantially involved in commerce and particularly in lending and borrowing.

Balance of convenience and status quo

[44]     To the extent these matters of balance of convenience and status quo arise, they come into play in the observations I have already made, especially as to whether the appeal would be rendered nugatory without a stay and whether the plaintiff would be injuriously affected by a stay.

Standing back

[45]     For the reasons I have stated, I do not view this as a case in which, when the appeal comes to be heard, the appeal Court will be unable to do justice between the parties whatever the outcome of the appeal.   If the Court of Appeal concludes (contrary  to  its  previous  conclusion)  that  corrective  initial  disclosure  cannot  be carried out under the CCCF Act, then any monies recovered by Norfolk Nominees pursuant to its purported rights as creditor will be repayable.

[46]     While the loss of Mr King’s home is a factor to be weighed in the balance, I find it ultimately out-weighed by the prejudice to Norfolk Nominees were the Court to prevent its acting on the right of enforcement required in the summary judgment.

A second round of this application?

[47]     I have reached the above conclusions without a need to further take into account Mr Vautier’s suggestion that Mr King’s interests would be adequately protected through the preservation of his right to come back to Court closer to the date of a mortgagee sale and to then seek the stay of any mortgagee sale process.  On reflection, I would not find that an apposite solution. The summary judgment is as to possession.  As the unsuccessful party, Mr King was entitled to apply for a stay of that order.  The summary judgment was not as to a mortgagee sale as such.  If Mr King were to pursue relief in relation to a mortgagee sale it would almost certainly need to be in the context of a stand-alone proceeding in which interim injunctive relief was sought.  That would be a new layer of litigation, the possibility of which I do not consider should be brought into account in this judgment.

Conclusion

[48]     The application for a stay should be declined on the basis that dismissal of the application best does justice between the parties whatever the outcome of the appeal.

[49]     Norfolk Nominees as respondent is entitled to the costs of the application. The contract provides for the reasonable solicitor/client costs of the plaintiff to be paid by the defendant.  Mr King accepted that if my judgment were to dismiss the application that costs would follow the event and that Norfolk Nominees would then be entitled to its reasonable solicitor/client costs.

[50]     I direct the plaintiff within five working days to file and serve an affidavit attaching the fee and disbursement notes relevant to this application, including reasonable detail of the attendances.

[51]     Leave is reserved to the defendant, in the event there is any challenge, to file and serve within three working days thereafter a memorandum (no more than three pages) identifying any grounds of challenge.   The plaintiff may reply by memorandum filed and served within three working days thereafter.  I will then on the papers fix  the sum to be paid.

Orders

[52]     I order:

(a)       The  defendant’s  application  for  an  order  staying  execution  of  the

summary judgment of 5 March 2013 is dismissed;

(b)The reasonable solicitor/client costs of the plaintiff of and incidental to the application are to be paid by the defendant, in a sum to be fixed by the Court.

Associate Judge Osborne

Solicitors:

Glaister Ennor , PO Box 63, Shortland Street, Auckland 1140
Mr P King, 4 Kidson Terrace, Christchurch 8022