Norfolk Nominees Limited v King HC Christchurch CIV-2010-409-002966

[2011] NZHC 1360

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-002966

CIV-2011-409-000562

BETWEEN  NORFOLK NOMINEES LIMITED Plaintiff

AND  PAUL ANTHONY KING Defendant

Hearing:         30 June 2011

Appearances: B A Vautier for Plaintiff

Defendant appears in Person

Judgment:      8 August 2011

RESERVED JUDGMENT OF CHISHOLM J

[1]      These proceedings concern three inter-related matters:

(a)       An  application  by Norfolk  Nominees  Limited  for  the  registrar  to

conduct a mortgagee’s sale (CIV-2010-409-002966);

(b)      Mr   King’s   application   for   interim   and   permanent   injunctions

preventing the mortgagee’s sale, and for other relief (CIV-2010-409-

002966);

(c)       A   summary    judgment   application    by   Norfolk    Nominees    for possession of the mortgaged property (CIV-2011-409-000562).

In each case the property concerned is 4 Kidson Terrace, Christchurch, which is owned by Mr King and mortgaged to Norfolk Nominees.

[2]      An auction had been arranged by the registrar for 24 February 2011 and

Mr King’s application for an interim injunction was to be heard the day before the

NORFOLK NOMINEES LIMITED V KING HC CHCH CIV-2010-409-002966 8 August 2011

auction.   However, neither proceeded because of the earthquake on 22 February

2011.  Norfolk Nominees has now filed a notice to discontinue the application for the registrar to conduct a mortgagee’s sale, but it is proceeding with the application for possession so that it could assess the damage to the property before  taking the mortgagee’s sale any further.

Background

[3]     Norfolk Nominees holds the relevant securities as nominee for Norfolk Management Trust.   The trust’s affairs are managed by Norfolk Financial Management Limited.  It is convenient to collectively refer to these organisations as Norfolk Nominees.

[4]      Following correspondence between the solicitors for Norfolk Nominees and the solicitors for Mr King, the solicitors for Norfolk Nominees sent a loan offer and security documents to Mr King’s solicitors on 29 October 2009.  At that time the loan was to be for $270,000 and it was anticipated that the loan would be uplifted on

30 October 2009. That loan did not proceed.

[5]      After further communication between the solicitors a new loan agreement (the  loan  agreement)  was  sent  by  Norfolk  Nominees’  solicitors  to  Mr  King’s solicitors on 5 November 2009.   The new loan was for $340,000 over a term of

12 months with interest at 12%.   Security was to be by way of a registered first mortgage over the Kidson Terrace property.

[6]      At that time Norfolk Nominees  adopted the stance  that the loan did not constitute a Consumer Credit Contract under the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) and the loan documents included an acknowledgment by the borrower to that effect.   However, it is now common ground that the loan constituted a Consumer Credit Contract under the Act.

[7]      The loan agreement and security documents were duly signed by Mr King and returned by his solicitors to Norfolk Nominees’ solicitors on 18 November 2009. Their solicitors’ certificate certified that the loan agreement and security documents

were executed by Mr King on 17 November 2009 and that full initial disclosure was made that day.

[8]      When the loan was drawn down on 18 November 2009 the first instalment of interest  for  the  broken  period  from  30  October  2009  to  10  November  2009 amounting to $1206.45 was deducted.   According to Rochelle Miskelly, a legal executive  with  Norfolk  Nominees’  solicitors,   she  dated  the  loan  agreement

30 November  2009  after  it  was  received  back  from  Mr King’s  solicitors.    The document should have been dated 17 November 2009, but nothing turns on that.

[9]      The  interest  repayment  schedule in the  loan agreement  required the first monthly instalment of interest following the broken period up to 10 November 2009 ($3400) to be paid on 10 December 2009.  That payment was not made.  However, a payment of $2300 was received by the mortgagee on 21 December 2009.

[10]     Two days later, on 23 December 2009, Norfolk Nominees issued a notice under s 119 of the Property Law Act 2007.  Mr King responded by lodging a claim with the Disputes Tribunal alleging that the loan and mortgage were in breach of the CCCF Act and the Fair Trading Act 1986.

[11]     In its decision issued on 9 February 2010 the Disputes Tribunal found that the loan  constituted  a  Consumer  Credit  Contract  under  the  CCCF Act  and  that  a “financial fee” of $9400 that had been charged was unreasonable.  But the Tribunal rejected Mr King’s allegation that the loan was oppressive and concluded that there was no valid claim for statutory damages under s 88 of the CCCF Act.

[12]     Later Norfolk Nominees made application for the Tribunal’s decision to be recalled and clarified.   In a supplementary decision issued on 16 March 2010 the Tribunal reduced the “financial fee” by $8200 pursuant to s 42 of the CCCF Act and directed:

The contract documentation should  be amended  so  that  the total capital borrowed is $331,800 and the amount of interest payments should be recalculated accordingly as of the date of commencement of the loan.

[13]     In the meantime, Norfolk Nominees had issued a second Property Law Act notice.    This  reflected  that  it  had  not  received  any further  payments  since  the payment of $2300 on 21 December 2009.  Norfolk Nominees then took steps to sell the property by way of mortgagee’s sale and an auction date was arranged.   That auction was cancelled late in the piece because Norfolk Nominees decided that the Disputes Tribunal decision required it to make another initial disclosure under the CCCF Act.

[14]     On 14 May 2010 a disclosure statement based on the new loan amount (as amended by order of the Disputes Tribunal and showing new interest payments recalculated in accordance with that order) was sent by registered post to Mr King. This new disclosure statement was described as a disclosure statement under s 17 of the CCCF Act.

[15]     When no further payments were received another (the third) Property Law Act notice was issued on 26 May 2010 by Norfolk Nominees.  Steps were then taken to advertise the sale of the property.

[16]     By letter of 1 July 2010 Mr King’s solicitors informed Norfolk Nominees’ solicitors that the notice issued on 26 May was invalid, Norfolk Nominees were not entitled to enforce any rights under the loan contract or mortgage, and that Norfolk Nominees had failed to make valid disclosure.   It was alleged that the disclosure document issued on 14 May 2010 contained errors, including the interest commencement date of 30 October 2009 which was prior to the date of the loan contract  and  before  the  drawdown  of  the  loan.     It  was  also  alleged  that Norfolk Nominees was precluded by s 99 of the CCCF Act from enforcing the loan contract because it had not completed initial disclosure as required by the Act.  A claim for damages under s 88 of that Act was flagged.

[17]     Those allegations were denied by Norfolk Nominees’ solicitors in a letter to Mr King’s solicitors dated 2 July 2010.  They said that Mr King asked to draw down the loan on 30 October 2009 and that interest commenced on that date because Norfolk Nominees was then in a position to advance the funds.  They claimed that

the delays in drawdown arose because Mr King was negotiating with the outgoing mortgagee of Kidson Terrace.

[18]     On 6 August 2010 Norfolk Nominees’ solicitors informed Mr King that he had until 5 September 2010 to vacate the premises and that summary judgment proceedings seeking an order for possession would be issued if the premises were not vacated. They also noted that the decision of the Disputes Tribunal was final and binding in relation to any claim for statutory damages and that in any event there was a cap of $3000 on such damages.

[19]     Norfolk Nominees then applied to the registrar of the High Court to conduct a sale  of  the  Kidson  Terrace  property.    In  response  Mr  King  sought  an  interim injunction to prevent that sale proceeding and provided Norfolk Nominees with a copy of  his documents on  a  “Pickwick”  basis.    Then,  as already recorded,  the February earthquake intervened.

[20]     Norfolk Nominees’ application for summary judgment was filed on 13 April

2011.    It  is  opposed  by  Mr  King  on  similar  grounds  to  his  opposition  to  the

mortgagee’s sale.

[21]     Apart  from  the  payments  already  mentioned,  there  have  not  been  any payments under the mortgage.  In terms of the loan agreement the principal sum fell due for repayment on 30 October 2010.

Norfolk Nominees’ application for summary judgment

[22]     Norfolk  Nominees  seeks  an  order  by  way  of  summary  judgment  for possession of the property at 4 Kidson Terrace within 10 days of the service of such an order.  It relies on the following grounds:

(a)       Mr King has defaulted under the mortgage.

(b)A notice under s 119 of the Property Law Act requiring Mr King to remedy the defaults has not been complied with.

(c)       Norfolk Nominees’ power to enter into possession of the mortgage

property has arisen.

(d)      Mr King has no defence to Norfolk Nominees’ claim.

A  detailed  affidavit  has  been  sworn  by  Rochelle  Miskelly  in  support  of  the application for summary judgment.  That affidavit records the history of the matter and exhibits the relevant documents.

Mr King’s response

[23]     To  a  large  extent  Mr  King’s  response  to  the  application  for  summary judgment seeking possession reflects his response to the application for the registrar to conduct a mortgagee’s sale.   He contends that Norfolk Nominees has failed to comply  with   the   CCCF  Act   in   numerous   respects,   those   breaches   remain unremedied, there has accordingly been no default, and the mortgagee is thereby precluded from enforcing, or attempting to enforce, any of its remedies.

[24]     In particular Mr King alleges that there have been breaches of the disclosure requirements (ss 17, 18 and 32 of the Act), breaches of the provisions concerning interest (ss 38 and 39) and breaches of the provisions concerning fees (ss 40 and 42). He complains that despite these breaches Norfolk Nominees has “pushed ahead” with four attempted mortgagee’s sales.  He claims that the conduct of the mortgagee has been “oppressive” in terms of the CCCF Act.

[25]     Injunctive relief (either interim or permanent) is sought under both the CCCF Act and at common law.  Statutory damages under that Act are also sought.  Mr King seeks an order discharging the Norfolk Nominees mortgage without further payment or, alternatively, an order for statutory damages of $330,800.

Should there be injunctive relief?

[26]     Numerous issues have been raised by Mr King and it is appropriate to begin with the issue of disclosure which underpins most of his arguments.

Initial disclosure

[27]     Section 17 of the CCCF Act provides:

17       Initial disclosure

(1)      Every creditor under a consumer credit contract must ensure that disclosure of as much of the key information set out in Schedule 1 as is applicable to the contract is made to every debtor under the contract—

(a)      before the contract is made; or

(b)      within  5  working  days  of  the  day  on  which  the contract is made.

(2)      Every creditor under a consumer credit contract must ensure that a copy of all of the terms of the contract not disclosed under subsection (1) (other than terms implied by law) is given or sent to every debtor under the contract—

(a)      before the contract is made; or

(b)      within  5  working  days  of  the  day  on  which  the contract is made.

(3)       For the purposes of subsection (2), the copy of the terms of the contract must be given or sent in the same manner that disclosure is made under section 35.

Norfolk Nominees contends that it made initial disclosure in accordance with this section and that such disclosure met the standards specified in s 32 and the method described in s 35.

[28]     Mr King denies that this is the case.   He contends that Norfolk Nominees’ attempts at disclosure were both defective and ineffective.  Amongst other things he contends that the drawdown date of 30 October 2009 was wrong and that Norfolk Nominees  was  not  entitled  to  charge  interest  from  30  October  2009.    He  also contends that fees based on a percentage were illegal.   Moreover, he argues, the disclosure document was wrong to say that it was not a Control Credit Contract and that the calculation of interest at one per cent per month was wrong because it does not equate with 12% per annum.

[29]     I am satisfied that initial disclosure of the loan agreement (as it stood before the order of the Disputes Tribunal) was made on 17 November 2009 in accordance with s 17 of the CCCF Act.  This is confirmed by the contents of the loan agreement, Mr King’s signature, and his solicitors’ confirmation that “Full initial disclosure has been made to the borrowers on 17 November 2009” and the borrower “has been handed and has acknowledged receipt of a copy of the completed mortgage”.

[30]     Clearly that disclosure was within the timeframe specified in s 17(1).   The fact that the loan agreement was later dated 30 November 2009 is beside the point. The evidence establishes that Norfolk Nominees’ loan offer was actually accepted by Mr King on 17 November 2009.  Thus the loan contract between the parties came into existence at that time.  While Norfolk Nominees’ did not then consider that the loan constituted a Consumer Credit Contract for the purposes of the CCCF Act, that is also beside the point because, perhaps fortuitously, Norfolk Nominees made initial disclosure.

[31]     Mr King challenges the legality and accuracy of the “drawdown” date and interest charges.  However, the loan agreement specified that 30 October 2009 was the “Availability Date” and it was clear from the interest calculation schedule (Schedule 3) that interest was to commence on 30 October 2009.  Norfolk Nominees contends that this commencement date reflected that Mr King had initially requested that the advance be made on that day, that money had been set aside, and the letter from its solicitors to Mr King’s solicitors of 29 October 2009 confirmed that “... interest will therefore commence from tomorrow 30 October 2009”.

[32]     Regardless of the underlying reasons, the loan contract provided for interest to run from 30 October 2009.  The first instalment of interest for the broken period ending on 10 November 2009 amounted to $1206.45.  Thereafter there were regular monthly instalments until a further broken period at the end of the term of the loan. All of this was clearly agreed and stated in the loan contract and no issue was taken by Mr King or his solicitors at the time.

[33]     Under s 37(2) of the CCCF Act the loan contract was required to specify the interest rate in terms of an annual interest rate.  In accordance with that provision the

annual interest rate was specified at 12%.    Despite Mr  King’s argument to the contrary, there was no breach of s 38 of s 39.  Interest only became payable at the end of the period to which it related and the monthly interest instalments were determined by applying the annual interest rate divided by 12.  Nor was there any breach of s 40 in relation to the default interest rate which was 10% above the standard interest rate.

[34]     Finally, I am satisfied that the disclosure standards contained in s 32 and the requirements as to how disclosure is to be made in s 35 were met.  This meant that Mr King had the right to cancel pursuant to s 27 for the period of three working days after the disclosure was made on 17 November 2009.  He did not exercise that right.

[35]     I therefore reject Mr King’s arguments relating to initial disclosure.

Implications of Disputes Tribunal ruling

[36]     Disclosure is required under Subpart 2 of the CCCF Act in relation to the following matters:    “initial disclosure”, “continuing disclosure”, “variation disclosure”,  and  “request  and  guarantee  disclosure”.     The  issue  is  whether Norfolk Nominees  was  required  to  make  further  disclosure  under  any  of  these provisions following the Disputes Tribunal ruling.

[37]     As  its  name  suggests,  “initial  disclosure”  under  s  17  is  required  at  the beginning of the credit process.  That is apparent from the statutory requirement that initial disclosure under a contract must in terms of s 17(1) be made:

(a)       before the contract is made; or

(b)      within 5 working days of the day on which the contract is made.

This disclosure regime would not make sense if initial disclosure was required for reasons that were not apparent for many months after the loan contract was made (by reason of the Tribunal’s decision).  It is also apparent from the structure of the CCCF Act that the other types of disclosure required by Subpart 2 will arise after initial disclosure.

[38]     Consequently  it  is  difficult  to  see  how  s  17  required  further  “initial” disclosure.  All that was required was a recalculation of the interest payments as at the date of the commencement of the loan as required by the Disputes Tribunal and notification of the recalculated payments.  Unless some other provision of the CCCF Act  requires  formal  disclosure  in  terms  of  the  Act,  that  notification  could  be informal.

[39]     “Continuing disclosure” as required by ss 18 and 19 does not apply.  Those provisions relate to revolving credit contracts and s 21(1)(a) states that ss 18 and 19 do not apply where, as is the case here, the amount of the advance was known when the loan agreement was entered into.   The fact that the amount of the loan was altered by the Disputes Tribunal does not bring this case any closer to those sections.

[40]     The third possibility is “variation disclosure” under ss 22:

22       Disclosure of agreed changes

(1)       Every creditor under a consumer credit contract must ensure that disclosure of the following information is made to every debtor under the contract if the parties to the contract agree to change the contract:

(a)       full particulars of the change:

(b)       any other information prescribed by regulations to be information that must be disclosed under this section.

(2)       Disclosure  under  this  section  must  be  made  before  the change takes effect.

(3)       Disclosure is not required under this section in relation to a change that—

(a)       reduces   the   obligations   that   the   debtor   would otherwise have, unless the obligations are reduced following an application under section 55; or

(b)       extends the time for payment of any payment to be made under the contract, unless the time for payment is extended following an application under section

55; or

(c)       releases the whole or any part of a security interest relating to the contract; or

(d)      changes the place where payments are to be made.

This is not a situation where the parties to the contract have agreed to change it within the contemplation of s 22(1).  In any event, s 22(3)(a) applies.

[41]     The remaining sections concerning disclosure are ss 23 and 24.  Section 23 does not apply because the creditor has not exercised a power under the contract to change any of the matters specified in s 23(1).  And s 24 does not apply because there has been no request for disclosure.

[42]     Even if I am wrong about the application of s 17 (which is the only section that could conceivably apply), Norfolk Nominees took the precaution of making a further “initial” disclosure on 14 May 2010.  I am satisfied that if this had been a legal requirement the disclosure of 14 May would have satisfied the requirements of ss 17, 32 and 35.

[43]     Mr King challenged the contents of the May disclosure.  His challenge based on drawdown and interest has already been traversed and the conclusions already reached apply equally to this disclosure (if it was in fact required).   Mr King also claims that Norfolk Nominees were not entitled to deduct the instalment of interest amounting to $1206.45.  However, by the time the loan was advanced that instalment of interest was payable and under those circumstances I am not aware of any valid reason why it should not have been deducted.

[44]     It was also argued by Mr King that even if the Court found against him on those matters, the disclosure “was still wrong” because the fees were unreasonable. But the fees issue was traversed by the Disputes Tribunal which made the reduction that  it  considered  appropriate.    I  do  not  see  any reason  to  revisit  its  decision. Mr King also noted that his full name was not included in the disclosure statement and that this contravened the statutory requirements.   However, s 32(2) allows a disclosure statement to be included in one or more documents.   The letter accompanying the disclosure statement was addressed to Mr King and forms part of the disclosure statement.  Thus his name was specified.  Although his full Christian names were not stated, in the circumstances this was not a matter of substance.

[45]     Mr  King  complains  that  the  loan  documents  and  conduct  of  Norfolk Nominees was oppressive.  He relied on the decision of the Court of Appeal Bartle v GE Custodians.[1]     However, that decision was later overturned by the Supreme Court: GE Custodians v Bartle.[2]   In any event, I do not believe that either decision is of particular significance in this case.

[1] Bartle v GE Custodians [2010] 3 NZLR 601

[2] GE Custodians v Bartle [2010] NZSC 146

[46]     As already mentioned, the Disputes Tribunal considered whether there had been oppression by virtue of the conduct of Norfolk Nominees or the terms of the loan. The Referee found:

The other claims made by the applicant have not been established.  I do not consider that the respondent’s conduct, or the terms of the loan, can be characterised as “oppressive”, and the respondent did not behave in an unconscionable way.   The applicant wanted  money urgently, and was to some extent careless in safeguarding his own interests.   He was certainly unwise to sign the loan offer without obtaining legal advice.   There was nothing misleading or deceptive in the conduct of the respondent, and no breach of the Fair Trading Act 1986 was shown.  If the brokers involved had in any way misled the applicant, that was a matter between him and them, and not the concern of the respondent.  The applicant does not come into any of the categories of statutory damages prescribed in s 88.

Of course those findings arose from events that had occurred before the Disputes Tribunal hearing.  While I am not prepared to revisit the Tribunal’s findings, I need to consider whether subsequent events might have altered the Tribunal’s findings.

[47]     I  have  not  been  persuaded  that  this  is  the  case.    Although  the  auction following the Disputes Tribunal decision seems to have been cancelled relatively late in the piece, it is not surprising that the mortgagee decided to take the precaution of making a further “initial” disclosure.  As far as the second auction is concerned, the intervention of the earthquake was beyond everyone’s control.   Nor have I been persuaded  that  any  other  actions  of  the  mortgagee  since  the  Disputes  Tribunal hearing have given rise to oppression, unconscionability, or to a claim for statutory

damages under the CCCF Act.

[48]     Injunctive relief, whether interim or permanent, is discretionary.  In this case

Mr King has not met any interest instalments since the part payment of $2300 on

21 December  2009.    It  is  now  approaching  12  months  since  the  principal  sum became repayable.  In addition there are rates arrears.

[49]     Mr King seems to have pinned his hopes on establishing deficiencies in the loan process which would render the securities unenforceable by virtue of s 99 of the CCCF Act.  I have not been persuaded that any such deficiencies exist.  Even if I am wrong about that, the failure to make payment since 2009 indicates that this is not a case where the Court could properly exercise its discretion in favour of injunctive relief, either interim or permanent.

Norfolk Nominees’ claim for possession

[50]     The conclusions already reached mean that Mr King does not have a defence to the claim by Norfolk Nominees for possession.  Mr King has defaulted under the mortgage and has not complied with the most recent property law notice requiring him to remedy that default.   Clause 19 of the mortgage entitles the mortgagee to enter into possession at any time after default.

[51]     Norfolk Nominees is therefore entitled to summary judgment.

Result

[52]     Mr King’s application for interim/final injunctions and statutory damages in

CIV-2010-409-002966 is dismissed.

[53]     Norfolk Nominees’ application for an order for possession in CIV-2011-409-

000562 is granted.  There will be an order for possession in terms of paragraph 1 of the application filed on 13 April 2011.

[54]    Norfolk Nominees is entitled to costs on a 2B basis in relation to the applications referred to in [52] and [53] above.  However, there will be no order as to costs in relation to Norfolk Nominees’ application for the registrar to conduct a mortgagees sale which was discontinued on 28 June 2011.

Solicitors:

Glaister Ennor, P O Box 63, Auckland

Copy to Mr King, 4 Kidson Terrace, Christchurch