Norfolk Nominees Ltd v King
[2013] NZHC 398
•5 March 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-002082 [2013] NZHC 398
BETWEEN NORFOLK NOMINEES LIMITED Plaintiff
ANDPAUL ANTHONY KING Defendant
Hearing: 27 February 2013 (Heard at Christchurch)
Appearances: B A Vautier for Plaintiff
G D R Shand for Defendant
Judgment: 5 March 2013
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to summary judgment application for possession]
Introduction
[1] The plaintiff (Norfolk Nominees) makes a summary judgment application for an order that the defendant, Mr King, vacate a property which he mortgaged to Norfolk Nominees.
Background
[2] This is the second time that Norfolk Nominees has brought such a proceeding. In April 2011, Norfolk Nominees made a similar application. By a judgment of 8 August 2011, Chisholm J granted Norfolk Nominees an order for
possession.1 Mr King successfully appealed to the Court of Appeal. The Court of
1 Norfolk Nominees Ltd v King HC Christchurch CIV-2010-409-2966 and CIV-2011-409-562, 8
August 2011.
NORFOLK NOMINEES LIMITED V KING HC CHCH CIV-2012-409-002082 [5 March 2013]
Appeal, in quashing the orders made by Chisholm J, found that Norfolk Nominees, as lender, had issued an incorrect disclosure statement.2 However, it accepted the submission on behalf of the Commerce Commission (as Intervenor) that Norfolk Nominees could make corrective disclosure.
[3] Against that encouraging judicial background, Norfolk Nominees set out to perform “corrective initial disclosure”. This application requires the Court to determine whether the plaintiff’s second attempt at initial disclosure has been, beyond argument, effective.
The history of allegations of oppression and claims for statutory damages
[4] The loan transaction between Norfolk Nominees and Mr King was documented in October and November 2009. Mr King defaulted on an interest payment due in December 2009. A Property Law Act notice was issued in the same month.
[5] In January 2010, Mr King applied to the Disputes Tribunal claiming that the loan was oppressive and challenging various fees and claiming statutory damages under the Credit Contracts and Consumer Finance Act 2003 (“the “CCCF Act”).
[6] The Disputes Tribunal issued a decision and order on 9 February 2010. It found that the loan constituted a consumer credit contract under the CCCF Act and that a “financial fee” involved was unreasonable. The Tribunal made a finding of fact that the conduct of Norfolk Nominees was not oppressive:3
I do not consider that [Norfolk’s] conduct, or the terms of the loan, can be characterised as “oppressive”, and [Norfolk] did not behave in an unconscionable way.
The order was not appealed under s 50 Disputes Tribunal Act 1988.
2 King v Norfolk Nominees Ltd [2012] NZCA 190.
3 King v Norfolk Financial Management Ltd Disputes Tribunal Christchurch, 35/10, 9 February
2010 at [10].
[7] Chisholm J was required to consider old and new allegations of oppression when dealing with the previous summary judgment application.4 His Honour recorded that he was not prepared to revisit the Tribunal’s findings in relation to the absence of oppression or unconscionability, which related to events which had occurred before the Disputes Tribunal hearing. But Chisholm J did need to consider whether subsequent events might have altered the Tribunal’s findings.5 He found that subsequent events had not brought about a situation of oppression or unconscionability or to a claim for statutory damages under the CCCF Act.6
[8] In its subsequent judgment, the Court of Appeal did not overturn this aspect of the High Court judgment. There is an implicit recognition that Mr King did not have tenable arguments as to oppression and enforceability because the Court of Appeal expressly stated that, upon corrective disclosure, Norfolk Nominees would be able to proceed with the enforcement of the loan.
Norfolk Nominees’ case for possession
[9] The contractual documents giving rise to Norfolk Nominees’ claim are beyond dispute. The contract has been the subject of High Court and Court of Appeal judgments which have recognised the underlying contractual arrangements save that, in the appeal judgment, it was held that the contract could not be enforced, because of a failure of disclosure. The following history of Mr King’s loan and mortgage can largely be found in the previous judgments of the High Court and Court of Appeal, but is also established through the evidence adduced by the plaintiff in support of this application.
[10] Mr King owns and occupies a property at 4 Kidson Terrace, Christchurch. In November 2009, he entered into a loan agreement with Norfolk Financial Management Ltd (which is the manager of the Norfolk Mortgage Trust pursuant to s 3 Unit Trusts Act 1960). The mortgage was granted to the plaintiff, Norfolk
Nominees, as nominee for Norfolk Management Trust.
4 Norfolk Nominees Ltd v King, above n 1.
5 At [46].
6 At [47].
[11] The loan was for a principal sum of $340,000 for a period of 12 months with interest of 12 per cent to be paid in monthly instalments.
[12] Mr King made one payment of interest but has otherwise failed to pay any of the interest or incidental expenses (including rates) or repay the principal.
[13] Norfolk Nominees served a notice under the Property Law Act 2007 (“PLA")
on 23 December 2009.
[14] This led to Mr King’s application to the Disputes Tribunal, in which he claimed that the loan was oppressive and that the loan and mortgage were in breach of the CCCF Act and the Fair Trading Act. The Tribunal found that the loan was a consumer credit contract under the CCCF Act and that a charged financial fee of
$9,400 was unreasonable. The Tribunal rejected the allegation that the loan was oppressive and concluded that there was no valid claim for statutory damages under s 88 of the CCCF Act.
[15] In a supplementary decision of the Tribunal, the Referee reduced the financial fee by $8,200 to $1,200 and directed that the contract documentation be amended so that the total capital borrowed was $331,800 and that the amount of interest payments should be recalculated accordingly as of the date of commencement of the
loan.7
[16] In the meantime, Norfolk Nominees had issued a second Property Law Act notice but by reason of developments in the Tribunal did not pursue that.
[17] Instead, in May 2010, Norfolk Nominees sent a disclosure statement based on the amended loan amount to Mr King. Mr King did not take steps to cancel the contract pursuant to cancellation rights under the CCCF Act. When no further payments were received Norfolk Nominees issued a third Property Law Act notice in
May 2010. Mr King, through solicitors, rejected that notice as invalid. This led to
7 King v Norfolk Financial Management Ltd Order of Disputes Tribunal, Christchurch, 35/10, 16
March 2010.
the first summary judgment proceeding between the parties. Norfolk Nominees was ultimately unsuccessful in that proceeding by reason of the failure of disclosure as found by the Court of Appeal in the 14 May 2012 judgment.
[18] Since May 2012 Mr King has continued to make no payments.
[19] On 17 July 2012, Norfolk Nominees served a further disclosure statement on Mr King. The disclosure statement identifies the correctly amended total loan advance of $331,800. The relevant pages of the disclosure statement are reproduced as Schedule A to this judgment. Again, Mr King took no steps to cancel the contract.
[20] On 25 July 2012, Norfolk Nominees served a Property Law Act notice on Mr
King.
[21] Following Mr King’s failure to remedy the default identified in that notice,
Norfolk Nominees now pursues summary judgment for possession of the property.
Mr King’s grounds of opposition
[22] For Mr King, Mr Shand indicated that his primary or fundamental ground of opposition lay in the proposition of law that a lender is not permitted under s 17 of the CCCF Act 2003 to give late disclosure . The corrective disclosure relied upon by Norfolk Nominees is therefore said to be ineffective, bringing into operation s 99 of the CCCF Act. I will return to the submissions in this regard.
[23] Turning to the 2012 disclosure document, Mr Shand submitted that it was ineffective also because:
(a) It contained no specification of the effective date of the statement;
(b)If there is construed to be a specified effective date, the statement is inaccurate as to the unpaid balance;
(c) The 2012 disclosure and the current possession proceedings constitute collectively with earlier Acts (especially around May 2010) acts of oppression which entitle Mr King to relief;
(d)Mr King is entitled to statutory damages under s 88 of the CCCF Act for each breach of s 17 and s 32 at $3,000 per breach (a total of
$9,000).
Plaintiff ’s summary judgment application – the principles
[24] The starting point for a plaintiff’s summary judgment application is r 12.2(1) High Court Rules, which requires that the plaintiff satisfy the Court that the defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.
[25] I summarise the general principles which I adopt in relation to this application:
(a) Commonsense, flexibility and a sense of justice are required.8
(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.
(c) The Court will not hesitate to decide questions of law where appropriate.
(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits.
(e) In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or
8 Haines v Carter [2001] 2 NZLR 167 at [97).
plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable.
(f) In assessing a defence, the Court will look for appropriate particulars and a reasonable level of detailed substantiation.
(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters, if the lack of a tenable defence is plain on the material before the Court.
(h)Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required for the protection of the integrity of the summary judgment process.
(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment. It does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.
[26] In this case, the plaintiff seeks to enforce its mortgage security over the property by obtaining from the Court an order that Mr King vacate and deliver up possession of the property. Accordingly, the application of the summary judgment jurisdiction in this case requires Norfolk Nominees to satisfy the Court that the plaintiff has the right, beyond argument, to enforce the contract made with Mr King in 2009.
The issues
[27] It is convenient to deal first with the issues raised by Mr King in relation to the 2012 disclosure.
Effective date
Specification of the effective date
[28] I summarise the disclosure regime which applies under the CCCF Act to this contract:
(a) By s 32(1) (dealing with “disclosure standards”) disclosure must be in writing in a disclosure statement and contain the information required by the Act.
(b)In the case of initial disclosure under s 17 of the Act, the lender must ensure that disclosure of as much of the key information set out in Schedule 1 to the Act as is applicable to the contract is made to the debtor either before the contract is made or within five working days of the day on which the contract is made.
(c) Section 34 provides for a model disclosure statement prescribed by regulations (which has been done and has been used by Norfolk Nominees in this case). It also provides that a person who uses such a model disclosure statement is to be treated as having complied with specified requirements of s 32(1) (being the requirements other than the requirement that disclosure must contain the information required by the Act). In other words, even if the model form is used, it is still for the lender to establish that its disclosure statement contains the information required by the Act.
(d)In Schedule 1 of the Act (dealing with key information) the following is one aspect of key information:
Initial unpaid balance
(b) the unpaid balance as at the date that is specified in the disclosure statement as the effective date of the statement, accounting for every payment made by the debtor on or before that date.
The relevant provisions of the CCCF Act
[29] The most relevant provision of the CCCF Act for the purposes of this judgment are ss 17, 22, 32, 34, 99 and 136. They provide:
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.
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.
32 Disclosure standards
(1) Disclosure must—
(a) be in writing in a disclosure statement; and
(b) contain the information required by this Act; and
(c) express the required information clearly, concisely, and in a manner likely to bring the information to the attention of a reasonable person; and
(d) not be likely to deceive or mislead a reasonable person with regard to any particular that is material to the consumer credit contract, guarantee, consumer lease, or buy-back transaction (as the case may be).
(2) A disclosure statement—
(a) may be in a single document or a series of related documents:
(b) may be included as part of 1 or more other documents.
(3) If a creditor provides 2 or more credit facilities to a debtor under 1 or more consumer credit contracts, disclosure may be made in 1 or more disclosure statements.
(4) The requirement to make disclosure in writing may be met by giving the required information in electronic form, whether by means of an electronic communication or otherwise, if—
(a) the information is readily accessible so as to be usable for subsequent reference; and
(b) the person to whom the disclosure is required to be made consents to the disclosure being made in electronic form and by means of an electronic communication, if applicable.
(5) For the purposes of this section, a person may consent to the information being given in electronic form subject to conditions regarding the form of the information or the means by which the information is produced, sent, received, processed, stored, or displayed.
34 Model forms
A person who uses a model disclosure statement prescribed by regulations in the manner required by those regulations is to be treated as having complied with the requirements of section 32(1)(a), (c), and (d).
99 Enforcement of consumer credit contract prohibited
(1) If disclosure is required under section 17 or section 22, no person (other than a debtor under the consumer credit contract) may, before that disclosure is made,—
(a) enforce the contract; or
(b) enforce any right to recover property to which the contract relates; or
(c) enforce any security interest taken in connection with the contract.
(2) This section does not limit any rights that a person has in connection with a bill of exchange.
136 Application of law relating to illegal contracts
The fact that a credit contract, a consumer lease, or a buy-back transaction has been entered into in breach of this Act, or that an act that breaches this Act has been committed in the course of the performance of any contract, lease, or transaction, does not—
(a) make that contract, lease, or transaction illegal; or
(b) make that contract, lease, or transaction or any provision of that contract, lease, or transaction unenforceable or of no effect, except as expressly provided in this Act.
Does the 2012 disclosure statement specify an effective date?
[30] Initially, in his oral submissions, Mr Shand appeared to suggest that the date on which the 2012 disclosure statement was dated (17 July 2012) was one and the same as the “effective date”. Clearly, Parliament did not intend the date on which the statement is produced and/or dated to be necessarily the “effective date”. If that had been so, the relevant provision of Schedule 1 would have simply referred to the date of the disclosure statement.
[31] In this case, the heading applied to page 2 of the disclosure statement under
“credit details” which reads:
Initial unpaid balance as at 18/11/2009,
was clearly provided as the specified effective date of the statement. It is a statement of the balance as at 18 November 2009. That that is when the contractual terms become effective is reinforced at page 3 of the disclosure statement which states:
When interest will begin to accrue: 18 November 2009.
[32] I therefore conclude that it is not arguable that Norfolk Nominees has failed in the 2012 disclosure statement to specify an effective date.
[33] On this basis, a consequential submission of Mr Shand to the effect that the
2012 disclosure statement failed to account for the single payment of interest later made by Mr King ($2,300 on 21 December 2009) falls away. The payments to be accounted for were only those up to the effective date.
Is the 2012 disclosure statement invalid by reason of the “funds paid” figure
stated?
[34] Schedule 1 of the Act requires, in relation to key information, that there be included in the initial disclosure:
(c) The amount and a description of each advance, charge, or payment accounted for in the unpaid balance disclosed under paragraph (b);
[35] As is shown in Schedule A to this judgment (the 2012 disclosure statement),
the final entry before the reference to a “Total loan advance” of $331,800.00 reads:
Less funds over paid on settlement $1,444.37
[36] In his written submissions filed one week before the hearing, Mr Shand said of this entry:
If the effective date is 18 November 2009 the statement has omitted the
$1200 payment by Mr King that is identified in the settlement statement [PBD47]. This payment is also referred to in the printout at PBD90. The figure of $1444.37 in the disclosure statement described as less funds overpaid on settlement is also inaccurate [PBD67]. This number does not refer to any actual transaction.
...
These inaccuracies then affect the accuracy of the payment amounts and interest calculation.
[37] As Mr Shand described the item of $1,444.37 in his oral submissions, it does not represent a fee or an advance or a charge or a payment (as referred to in Item (c) of the key information under Schedule 1 of the Act). Rather it is, on the face of it, purely a balancing entry inserted by the lender to come to a balance of $331,800. Mr Shand submitted that that cannot be a compliance with the Act, as the Act requires the lender to show actual transactions.
[38] This item of $1,444.37 was the only financial item to which Mr King took exception in the 2012 disclosure statement. None of the other financial figures was raised in grounds of opposition.
[39] It is tempting to view it against the total loan of approximately $330,000 which Mr King obtained as trivial. I am mindful, as no doubt the parties are, of the unambiguous beck within the judgment of the Court of Appeal, when the Court observed that this is not a case which should have to go to a merit trial. The Court observed that Mr King had picked away at the loan in an endeavour to deflect the consequences to him of the sale, for a respectable period of time. The Court noted the potential existence of equity in the property and the interest that both parties therefore had in resolving their issues, without the expense of Court proceedings.
[40] Such an invocation to Mr King to not continue to “pick away” at the loan cannot however supplant the legal obligation upon Norfolk Nominees to put its own house in order. This was expressly recognised by the Court of Appeal in the comments immediately before those I have referred to, when the Court referred to the acceptance by the Commerce Commission that it was open to the lender to complete a further and correct disclosure statement, thereby enabling it to proceed
with the enforcement of its loan (my emphasis).9
[41] Those drafting the 2012 disclosure notice for Norfolk Nominees faced an unusual situation. The effective date of disclosure was appropriately 18 November
9 King v Norfolk Nominees Ltd, above n 2, at [64].
2009, when the advance was actually made. However, through Mr King’s subsequent proceeding in the Disputes Tribunal, Norfolk Nominees had to recognise the “reduction” of the total loan advance to the Tribunal’s stated $331,800. That left Norfolk Nominees to recognise in its disclosure statement the $1,200 paid by Mr King in advance and the recalculation of interest to the date of commencement of the loan.
[42] Norfolk Nominees chose on the 2012 disclosure statement to refer to the payment in credit globally as “funds overpaid on settlement” which is the effect of the Disputes Tribunal rulings in 2010.
[43] It was undoubtedly possible for Norfolk Nominees to further break down the figure of $1,444.37 into the $1,200 actual payment figure and the $244.37 re- crediting of interest. The need to re-credit interest (because it arose after the event) is understandably not a specific item covered by Schedule 1 of the CCCF Act. Its inclusion in a single sum with the $1,200 Mr King had actually paid is understandable. Through the recognition of that global sum, Mr King has received full credit for his $1,200 and the interest adjustment ordered by the Disputes Tribunal. In the context of this case, there is no materiality in the decision by the lender to deal with the credit in a single item.
[44] The global treatment of the $1,444.37 does not drive, as Mr Shand submitted, inaccuracies in the payment amounts and the interest calculation contained in the balance of the disclosure statement. Those are based on the correct total loan balance of $331,800 stipulated by the Disputes Tribunal following Mr King’s proceedings in that jurisdiction.
[45] Mr King has no arguable basis on which to assert that Norfolk Nominees’ disclosure was invalid by reason of an error or misdescription of one of the items in the disclosure.
Oppression
[46] Without particularisation, Mr King’s notice of opposition asserted simply that Norfolk Nominees had purported to exercise its rights under any contract in an oppressive way.
[47] In his affidavit in support, Mr King spoke to that allegation in more detail. He deposed that since he had entered into the loan agreement on 17 November 2009, he had been subjected to aggressive and oppressive conduct by Norfolk Nominees and associated entities. He referred to Norfolk Nominees’ attempts to take his property and to release the equity to themselves.
[48] Mr King referred specifically to four Property Law Act notices issued in
2009, 2010 (twice) and 2012. He referred also to scheduled and advertised mortgagee sales in 2010 (twice) and in 2011.
[49] Mr King noted that by reason of the Court of Appeal’s decision, none of those steps was legally sustainable because of Norfolk Nominees’ conduct in relation to the loan agreement.
[50] Mr King identified a single incident as illustrating the conduct of Norfolk Nominees. He referred (as did Mr Shand in submissions) to an email of one Jack Porus dated 3 May 2010. Mr Porus is a partner of Glaister Ennor, a founder of the Norfolk Mortgage Trust, and a director of its management company. Mr Porus’s email records that:
We need to make disclosure and issue a new PLA notice to the borrower on this one [being the King loan].
[51] In the email, Mr Porus went on to suggest that the auction be delayed.
[52] Mr Shand submitted that it amounted to oppression when Norfolk Nominees subsequently (on 26 May 2010) served a Property Law Act notice and scheduled a mortgagee sale for late July (which was advertised in early July), notwithstanding
that such enforcement steps were in relation to a contract for which Mr Porus implicitly recognised there had been no proper disclosure.
[53] Mr King’s raising of oppression in response to the present disclosure and
Property Law Act notice requires a reality check.
[54] The only “oppressive” element specific to the present disclosure and Property Law Act notice which Mr King could suggest lies in what he has deposed to as Norfolk Nominees’ attempt since 2009 to take his property and to release the equity in it to themselves. Of itself, it cannot be oppression for a creditor who has lent
$331,800 to a borrower to seek to recover agreed security through attempting proper disclosure and notification.
[55] Through the outcome of the proceeding heard by Chisholm J and ultimately determined by the Court of Appeal in 2012, Mr King has had the benefit of that process of enforcement being effectively set aside. As it was, it was set aside not upon the basis of any perceived merit in grievances of Mr King up to that point, other than in a failure of correct disclosure. The decision of the Disputes Tribunal dated 9 February 2010 is a binding finding against Mr King to the effect that there had been no oppression (or unconscionable conduct) to that date. At the hearing of the previous summary judgment claim in June 2011, Chisholm J, faced with fresh oppression allegations by Mr King, understandably recorded that he was not
prepared to revisit the Tribunal’s findings.10 His Honour accepted that he did need to
consider whether events subsequent to the Tribunal’s decision might have altered the Tribunal’s findings. His Honour found that they did not and that there was no ground for a claim by Mr King as to oppression, unconscionability, or indeed for statutory damages under the CCCF Act.11
[56] In short, Mr King’s allegations of oppression occurring before June 2011 have already been considered and rejected. They are, in any event, appropriately regarded as historical allegations because the focus in this proceeding must be upon
the conduct of Norfolk Nominees in relation to its present disclosure and
10 Norfolk Nominees Ltd v King, above n 1, at [46].
11 At [47].
notification. There is no allegation of oppression specific to the present events. It is not arguable that the Court should interfere with Norfolk Nominees’ contractual rights upon the basis of oppression.
Statutory damages
[57] Mr King asserted in his notice of opposition that he has a right of set-off for statutory damages under s 134 of the CCCF Act 2003. It is sufficient for these purposes to note that Mr Shand identified what he submitted were three arguable breaches of s 17 and of s 32 of the Act which would, based on a $3,000 sum of statutory damages under s 89 of the Act, amount to $9,000.
Discussion
[58] Mr Shand did not press this argument. The present claim is for possession of the property so that a mortgagee sale may be conducted. There is no monetary claim against which to set-off the asserted statutory damages, even if they were arguable (which I do not find). Any such set-off can be argued as and when the time for accounting from any realisation of the security arrives. Until then, it is moot.
[59] Accordingly the set-off claim cannot affect Norfolk Nominees’ claim in this
proceeding.
The availability of corrective initial disclosure
[60] The primary submission of Mr Shand is that initial disclosure as required by s 17 of the CCCF Act cannot be given after the expiry of the five working day period following the day on which the contract is made.
[61] As I do not come to this issue in a vacuum, it is useful to summarise the findings of the Court of Appeal in relation to the previous summary judgment proceeding. Given the relevance of the findings of the Court of Appeal to the issues on the application before me, I put the hearing of the Court of Appeal into some
context. Mr King had appeared in person before the High Court and did so again in the Court of Appeal.
[62] The Commerce Commission was represented by counsel at the hearing in the Court of Appeal. The Commission appeared as Intervenor pursuant to s 112 of the CCCF Act. The Commission explained to the Court of Appeal that it intervened because it took the view that there were a number of issues in the appeal relating to the High Court’s interpretation of disclosure provisions which merited clarification.
Sections 17, 32 and 99 of the Act were particularly identified.12
[63] As the Court of Appeal observed:13
The functional effect [of the intervention] is that Mr King has, fortuitously for him, had the benefit of what amounts to a white knight in this proceeding.
[64] It was in that context that the Court of Appeal came to its judgment. While the finding that Norfolk Nominees had not made compliant initial disclosure to Mr King was sufficient to dispose of the appeal, the Court took the opportunity to discuss a number of aspects of the legal framework of initial disclosure under the Act as either already applied to the contract or would apply in the event Norfolk Nominees chose to undertake corrective disclosure.
[65] The Court of Appeal’s findings, in summary, were:
Disclosure requirements under the CCCF Act
Section 99 of the CCCF Act prohibits the enforcement of a consumer
credit contract where disclosure has not been compliant.14
12 King v Norfolk Nominees Ltd, above n 2, at [30].
13 At [31].
14 At [44].
As a consequence, the creditor may not enforce the contract until such time as it has provided the required disclosure.15
Validity of the underlying transaction
The subject transaction is not avoided – by reason of s 136 of the CCCF Act, a breach of the legislation does not render the contract illegal, neither does it render the contract unenforceable or to no effect, except as
expressly provided in this Act.16
Role of corrective disclosure
Corrective disclosure can be provided by Norfolk Nominees and the
subject contract will then become enforceable.17
As accepted by the Commerce Commission (as Intervenor) on the appeal, it is open to Norfolk Nominees to complete a further and correct disclosure statement, thereby enabling it to proceed with
enforcement of its loan.18
[66] The legal consequences of corrective disclosure were not directly in issue in the previous summary judgment proceeding as it reached the Court of Appeal. To the extent that the Court of Appeal identified the legal consequences of corrective disclosure, it may be said that the observations were obita dicta. Mr Vautier did not suggest at the hearing before me that, as a matter of precedent, the findings on corrective disclosure are strictly binding upon this Court in this present proceeding. However, the findings of the Court of Appeal were made in the light of considered submissions in a setting in which the Court of Appeal apparently recognised the need for broader consideration of the legal issues. There was an inevitability that Norfolk
Nominees, as lender of $331,800, would pursue corrective steps. In this situation,
15 At [45] and [47].
16 At [46] and [47].
17 At [46].
18 At [64].
the observations of the Court of Appeal must be taken by this Court as highly persuasive, even if technically obiter. I treat the Court of Appeal observations as to be applied unless Mr Shand is able to point to some step in the Court of Appeal’s reasoning or observations which is at least arguably per incuriam.
Norfolk Nominees’ submissions
[67] Unsurprisingly, Mr Vautier was content to adopt the Court of Appeal’s
reasoning and findings in relation to corrective initial disclosure.
[68] Mr Vautier added this in relation to Parliament’s intention in relation to enforcement. He referred to the express wording of s 99(1) of the CCCF Act. The subsection provides that no person may enforce the relevant contract if disclosure is required under s 17 or s 22 of the Act “before that disclosure is made” (my emphasis). The equivalent provision of the prior legislation, (s 24 Credit Contracts Act 1981) contained almost exactly the same wording, namely “before the disclosure is made”.
[69] Mr Vautier submitted that if Parliament’s intention had been that no corrective disclosure could ever take place, the relevant wording of s 99 of the CCCF Act (and presumably of s 24 of the 1981 Act) would have been:
... no person may ... if ... disclosure is not made
(Mr Vautier’s emphasis).
Submissions for Mr King
[70] Mr Shand submitted that “corrective” initial disclosure is not permissible
under the CCCF Act.
[71] Mr Shand noted that the prohibition of enforcement under s 99 relates both to initial disclosure under s 17 of the Act and to variation disclosure under s 22 of the Act. He distinguished the nature of ss 17 and 22 in this way. He observed that under s 17(1) the creditor must ensure that disclosure has been made within a specified
time frame (namely at the latest, five working days from the making of the contract). He contrasted that with the provisions of s 22(2) as to variation disclosure which require that such disclosure must be made before the change takes effect. Mr Shand submitted that the absence of a specific time cut-off under s 22, and instead the referencing to “before the change takes effect”, means that it is possible to have later disclosure under s 22.
[72] Mr Shand submits that there is a crucial distinction between the scheme of s
17 (initial disclosure) and s 22 (variation disclosure). Mr Shand submits that s 17 provides “specific time frames” so that the very final point at which disclosure may occur (within five working days of the day on which the contract is made). He contrasts that with s 22 which he submits is not so constrained by specific time frame
– he says that the effect of s 22 is that disclosure must simply be made before the variation takes effect. He implies that therefore under s 22 the time for a disclosure which has not been made is simply running on.
[73] Mr Shand submits that the consequence of reading s 17 and s 99 together is that once the five working days have run without disclosure, the opportunity for initial disclosure is lost.
[74] Mr Shand submits that such an outcome fits with the purposes of the Act as specified in s 3 of the Act. Mr Shand invokes in particular s 3(b)(ii) which defines as one of the purposes of the Act the provision for the disclosure of adequate information to consumers under consumer credit contracts and consumer leases to enable consumers to become informed of the terms of consumer credit contracts or consumer leases before they become irrevocably committed to them. Mr Shand submitted that a borrower such as Mr King is irrevocably committed once he loses his right to cancel. Mr Shand submits the right to cancel under s 17 (following initial disclosure) is lost in the event of late disclosure. He submits that this arises because the debtor under s 27 of the Act must cancel within three working days of the day that disclosure is made under s 17. He argues that because s 17 specifies the five working day period from the day on which the contract is made the debtor in effect has a maximum period of eight working days in which to cancel. Mr Shand submitted that the Court of Appeal did not deal directly with this consequence of
allowing corrective disclosure, which on his submission, lies in the irrevocable commitment of the debtor to the contract, without ever having been fully informed of its terms.
[75] Turning to s 99 of the Act, Mr Shand noted that the consequences of the prohibition on enforcement may be harsh on a lender, but that is consistent with the regime of the Act. He emphasised that s 99 is an express prohibition of enforcement of the contract before disclosure as required under s 17 is made. His submission is that such disclosure can no longer be made because the five working day period expired with the initial disclosure requirement unsatisfied.
[76] Mr Shand then turned to the provisions of s 136 of the Act. He submitted that the proviso to s 136(b) (“except as expressly provided in this Act”), means that the express prohibition on enforcement under s 99 operates to render the contract unenforceable.
[77] Mr Shand then referred to a decision of the United Kingdom House of Lords in Wilson v First County Trust Ltd.19 That case concerned the rights and obligations of a borrower and a pawnbroker under the Consumer Credit Act 1974. The pawnbroker lent Mrs Wilson £5,000 for six months on the security of her motor car. A credit fee of £250 (which was added to the total loan) was treated as being part of the amount of credit, in breach of the legislation. The required document signed by Mrs Wilson did not therefore contain the prescribed terms. The legislative consequence was that the entire agreement, including the security arrangement, was
unenforceable.
[78] Lord Hobhouse observed:20
The relevant provisions of the Act are a legitimate exercise in consumer protection. Borrowers are vulnerable and not on an equal footing with lenders. The Act legitimately regulates the transparency in recording of the terms of the loan transaction and makes provision for the clear obtaining of the borrower’s informed consent to those terms. Any such Act would have to provide effective sanctions against the lender for any failure to comply with the requirements of the Act otherwise they will be liable to be flouted,
19 Wilson v First County Trust Ltd [2003] UKHL 40, [2004] 1 AC 816.
20 At [138].
as occurred in this case. The values to which the legislative provisions were applied were appropriate to consumer legislation.
[79] Lord Nicholls observed to similar effect:21
I consider, ... that there is no relevant restitutionary remedy generally available to a lender in the circumstances now under consideration. The message to be gleaned from sections 65, 106, 113 and 127 of the 1974 Act is that where a court dismisses an application for an enforcement order under s
65 the lender is intended by Parliament to be left without recourse against the borrower in respect of the loan. That being the consequence intended by
Parliament, the lender cannot assert at common law that the borrower has been unjustly enriched. That would be inconsistent with the parliamentary
intention in rendering the entire agreement unenforceable.
[80] Mr Shand appropriately drew my attention to the fact that the relevant legislation in the United Kingdom had subsequently been altered by statute. Parliament has now granted to the Courts a discretion which did not exist in the 1974
Act. Mr Shand commented that Parliament was responding to a situation where borrowers were taking advantage of judicial interpretations of the legislation.
[81] Mr Shand submitted that in New Zealand we are still in the “Wilson period” wherein contracts such as the present are unenforceable and there is no discretion in the Court to relieve the lender from such a consequence.
Discussion
[82] Under s 17 of the CCCF Act (as to initial disclosure), the creditor has an obligation to make initial disclosure either before the contract is made, or within the five working day period afterwards. The failure to do so gives rise to a prohibition on enforcement (s 99 of the Act) and entitles the borrower to statutory damages of specified amounts (ss 88 and 89 of the Act) subject to the Court’s discretion on just and equitable grounds to reduce the damages (s 91 of the Act).
[83] The plain purpose of that regime, as reinforced by s 3 of the Act, is to protect the interests of consumers and to enable the borrower to have full information upon
21 At [49].
which he or she may choose to cancel before becoming irrevocably committed. The analysis provided by Mr Shand whereby it was suggested that Mr King has lost his right of cancellation in this case because of Norfolk Nominees’ failure to give initial disclosure within five working days after 17 November 2009, is flawed. The borrower, by s 27(1) of the Act, has the right to give notice of cancellation:
... within 3 working days of the day that disclosure is made under s 17 (or at any time if that disclosure has not been made)...
[84] By the words in parentheses, Mr King had the right to cancel so long as disclosure was not made under s 17 of the Act. If Mr Shand’s primary argument, namely that corrective disclosure cannot be made, is assumed to be correct, then Mr King’s right to cancel is preserved by the words in parentheses in s 27(1) of the Act. If, on the other hand, the Court of Appeal’s finding that corrective initial disclosure can be given is applied, then Mr King had his right to cancel in the three working days after Norfolk Nominees gave Mr King corrective initial disclosure on 17 July
2012.
[85] Thus, the purposes of the Act as identified by Mr Shand are not cut across by the concept of corrective initial disclosure.
Further submissions for Mr King
[86] Mr Shand’s submissions then turned to s 99 of the Act. Section 99(1) provides that no person (other than the debtor) may enforce the contract, if disclosure is required under s 17 or s 22 before that disclosure is made ...
[87] In other words, Parliament has legislated that the consequence of not complying with s 17 or s 22 is that the contract is unenforceable by the lender until such time as disclosure is made. As Mr Vautier submitted, the referencing of the resumed right to enforce is to the time at which disclosure is made. If Parliament’s intention had been to prohibit enforcement if disclosure was not made strictly in terms of s 17 or s 22, the legislation could clearly have stated that. It did not do so. Instead it stipulated a period, namely until initial disclosure is made.
Unenforceability under s 99, in other words, is unenforceability for the time being. It is not unenforceability forever.
[88] This conclusion takes us back to s 17 and s 22. Given that Mr Shand, at this point, introduced the suggestion that there was a conceptual difference in the regime of the two sections based on specification of a point of time, I deal with that submission first.
[89] It is the case that s 17 contains, as Mr Shand submitted, a specific time frame. Disclosure must take place, at the latest, within five working days of the day on which the contract is made. On the other hand, Mr Shand’s submission that the time for variation disclosure under s 22 is not defined in terms of a specific time is incorrect. In effect, s 22(2) provides that disclosure under s 22 must be made before the change takes effect.
[90] The nub of Mr Shand’s submission is that the correct construction of s 22(2) is that time is at large for the lender to make a variation disclosure under s 22. That submission involves an incorrect understanding of the meaning of the words “before the change takes effect”. Whereas s 17 has its time focus on the day on which the contract was made, s 22 (dealing with variations) understandably has its focus on when the variation is to take effect. That concept remains, as does the date of the making of the contract, a contractual issue unaffected by the legislation. The date at which the variation is effective is a contractual issue. If, for instance, the contract says that the variation is to become effective on 1 March 2013, that is the date before which disclosure must be made under s 22(2).
[91] Accordingly, and contrary to Mr Shand’s submission, there is no conceptual difference in the periods of unenforceability between s 17 and s 22 of the Act – they both provide for unenforceability to come to an end at given points of time. There is accordingly no justification to distinguish the two in that regard or to suggest that the Court of Appeal’s observations as to corrective disclosure should be limited to one or other section. That said, it will remain the case where initial disclosure or variation disclosure does not occur within the specified period under s 17 or s 22 as the case may be, that any later corrective disclosure will not be strictly in terms of s 17 or
s 22. The lender can no longer comply with the time limit. But there is a combined effect of ss 99 and 17 (and 22). Notwithstanding the literal difficulty, Parliament must be taken to have intended that corrective disclosure may be made into the future and the contract will upon late disclosure become enforceable. That is also entirely consistent with the purposes of the legislation as I have discussed them. Notwithstanding the fact that the contract has become enforceable, the debtor retains the right of cancellation when (corrective) disclosure is made.
[92] Observations by the Lords of Appeal in Wilson v First County Trust Ltd22 as to Parliament’s intention in the Consumer Credit Act 1974 turn on the wording and construction of that Act. The consumer protection aspects of legislation in both the United Kingdom and New Zealand may be similar, but the New Zealand legislation is to be interpreted in the light of its specific and not only its general purposes. The regime of the CCCF Act, as the Court of Appeal found it to be delivers the outcomes which precisely accord with the Act’s purposes. Most importantly, the debtor obtains all the adequate information upon which to become informed of the terms of the contract, before he or she becomes irrevocably committed to it. At the same time, there remain for the lender serious permanent consequences in terms of the loss of the right to enforce interest payments for the time being (thereby depriving the lender of a return on its money) and the liability of the lender to statutory damages on account of each breach.
[93] Finally, I turn to s 136 of the Act. The effect of s 136(a) is to preclude the operation of the Illegal Contracts Act 1970 from breaches of the CCCF Act. In other words, the CCCF Act, in relation to provisions as to enforceability, becomes its own code. Hence, under s 136(b), breaches of the Act do not make the contract in question unenforceable or of no effect, except as expressly provided in the Act. Unenforceability of the contract arises if and to the extent that other provisions of the
CCCF Act specify.
22 Above at [19].
Conclusion
[94] The Court of Appeal has already visited the specific issue of enforceability which arises in this case in relation to the previous summary judgment application. As I noted, the findings of the Court of Appeal must be treated by this Court as highly persuasive. I have embarked on a fresh examination of the issues as to enforceability because of the nature of this particular proceeding. It deals with a different set of facts because of the disclosure which has taken place since the Court of Appeal judgment. Fresh consideration was also important because Mr King was not faced in the Court of Appeal hearing with making submissions on the implications of corrective disclosure – the previous summary judgment hearing turned on other issues. The conclusions of the Court of Appeal were undoubtedly informed in part through considered submissions from the Commerce Commission as Intervenor. That is a substantially different role to the role of Mr King in presenting his own submissions in his own interest. Mr King has now had that opportunity through Mr Shand’s submissions.
[95] I find no reason to depart from the findings of the Court of Appeal which I
will therefore follow.
Outcome
[96] I am satisfied that Mr King has no arguable defence to Norfolk Nominees’s
claim to an order for possession.
[97] Norfolk Nominees seeks an order that possession be delivered up within 10 working days after service of the order. Mr Shand did not address submissions to this aspect of timing. I consider that a period of 10 working days is appropriate. It is a period frequently adopted, precisely because it balances the contractual entitlements of the plaintiff against a defendant’s practical needs in vacating the mortgaged property.
[98] In Norfolk Nominees’s statement of claim, it has included a prayer for
recovery of solicitor/client costs. The contractual entitlement of those costs is
correctly identified in the statement of claim as arising under cl 23(a)(ii) of the mortgage. Counsel did not address me in relation to the topic of solicitor/client costs. On the contractual documentation, the normal order would be for the reasonable solicitor/client costs of the plaintiff. As it is, costs should be reserved for now. I anticipate that agreement will be reached on the form of a costs order. In the event it is not, counsel are to file written submissions (no more than four pages) with the plaintiff to file its memorandum first to be followed within five working days by the defendant. I will then determine costs on the papers.
Relevance of interest calculations
[99] It was common ground between Mr Vautier and Mr Shand that in relation to the summary judgment application for an order of possession, it is not for the parties or the Court to visit issues which will be live as to the correct calculation of interest, particularly having regard to the difficulty which Norfolk Nominees has had in effecting correct disclosure.
Orders
[100] I order:
(a) The defendant shall vacate and deliver up possession of the property at 4 Kidson Terrace, Christchurch, being the property contained and described in Certificate of Title CB 21A/72, (Canterbury Registry) to the plaintiff within 10 working days after service of this Order upon the defendant;
(b) The costs of and incidental to this proceeding are reserved.
Associate Judge Osborne
Solicitors:
Glaister Ennor - Email: [email protected]
Grant Shand - Email: [email protected]
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