Rice Craig Solicitors Nominee Company Limited v Cox HC Auckland CIV-2010-404-2802

[2011] NZHC 1071

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-2802

BETWEEN  RICE CRAIG SOLICITORS NOMINEE COMPANY LIMITED

Plaintiff

ANDSTEWART NEVILLE COX, GAYLE MARIE COX AND PARKHURST AOTEAROA LIMITED AS TRUSTEES OF THE COX FAMILY TRUST

First Defendant

ANDGAYLE MARIE COX Second Defendant

ANDSTEWART NEVILLE COX Third Defendant

Hearing:         9 September 2011

Counsel:         N W Woods for Plaintiff

G M Cox and S N Cox (defendants) in person

Judgment:      9 September 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Rice Craig (N W Woods) P O Box 72 440 Papakura, for plaintiff

Email:    [email protected]  /  [email protected]

Copy for:

Gayle M Cox and Stewart N Cox

Email:    [email protected]

Case Officer:       [email protected]

RICE CRAIG SOLICITORS NOMINEE COMPANY LIMITED V COX & ORS HC AK CIV-2010-404-2802 9

September 2011

[1]      The plaintiff in this proceeding is a solicitor’s nominee company.  The first defendants  are  trustees  of  the  Cox  Family  Trust,  the  owners  of  a  property  at

11 Duncansby Road, Stanmore Bay, Whangaparaoa Peninsula.  Mr and Mrs Cox are not only trustees of the trust. They are also being sued as guarantors.

[2]      This proceeding arises out of two loan transactions.  The plaintiff sues on a loan  agreement  of  7  August  2009  under  which  it  lent  the  Cox  Family  Trust

$1,538,000  repayable  after  two  years.    There  is  a  second  transaction  which  is relevant to the issues between the parties.   That is a loan of $1,015,000 which Rice Craig lent to Riverside Court Limited.   Riverside Court Limited is a company of which Mr and Mrs Cox are directors.   It was undertaking a development at Red Hibiscus  Road,  Whangaparaoa.    The  loan  to  Riverside  Court  Ltd  is  the  “Red Hibiscus loan” and the loan to the Cox Family Trust is the “Duncansby loan”.

[3]      The proceeding is a claim for repayment of the principal sum under the

Duncansby loan of $1,538,000 plus unpaid interest.   The amount due as at April

2011 is $1,606,659.51.  The defendants have filed an amended statement of defence. A copy of that amended statement of defence is attached.  In essence, the defendants claim relief under Part 5 of the Credit Contracts and Consumer Finance Act 2003, saying that the plaintiff has acted oppressively and they are entitled to relief under that Act.  Rice Craig has applied to strike out the affirmative defence.  It says that once the affirmative defence is got rid of, it is entitled to judgment.

[4]      The principles on which the courts decide striking out applications when it is claimed  that  there  is  no  reasonably  arguable  cause  of  action  or  no  reasonably arguable defence are these:

(a)      Pleaded facts, whether or not they are admitted, are assumed to be true, but this does not extend to pleaded allegations which are entirely speculative and without foundation.

(b)The cause of action or defence must be clearly untenable.  The Court has to be certain that it cannot succeed.

(c)      The jurisdiction is to be exercised sparingly and only in clear cases.

The courts are loathe to terminate the claim or defence short of trial.

(d)The  jurisdiction  is  not  excluded  by  the  need  to  decide  difficult questions of law which may require extensive argument.

(e)      The courts should be particularly slow to strike out a claim in any developing area of law, particularly where there are allegations of a duty of care in a new situation.

[5]      Decisions on striking out applications are primarily determined on their pleadings.  That means that the use of evidence in affidavits is limited.  In Marshall Futures Ltd v Marshall,1  Tipping J acknowledged that affidavits do have a place in striking out applications.  He said this:

The reason why the Court allows affidavits to be read for and against such an application is that although the pleadings as they stand may not for one reason or another disclose a cause of action the Court may be able to discern from the affidavits properly pleaded an arguable cause of action could be raised.  If that is so the Court may instead of striking out the pleading give the plaintiff an opportunity to amend so as to plead his tenable cause of action properly.

[6]      While that was said in relation to statements of claim, it applies equally to statements of defence.

[7]      In this case the plaintiff has filed an extensive affidavit sworn by Mr Parker, one of the partners in Rice Craig.  The Coxes provided a document which is called a witness statement and brief of evidence in defence of an application for strike out and for judgment.  That document has copies of correspondence attached.  It was not a sworn document but, by consent of the plaintiff, Mrs Cox took the oath and

confirmed that what was set out in the witness statement was to the best of her

1         Marshall Futures Ltd v Marshall [1991] 1 NZLR 316 at 323.

knowledge, information and belief true and correct.  That document was treated as an affidavit for this application.

[8]      Mrs Cox appeared to represent herself.   Neither her husband nor Parkhurst Aotearoa Limited appeared or were represented.  Mrs Cox indicated that Parkhurst Aotearoa Limited and her husband did not have any defences separate from the defences that she was raising.  I treated her submissions as submissions that would be made by the other defendants if they appeared.  Anything that would go in her favour would also go in favour of the other defendants.

[9]      There is a lot of common ground between the affidavit of Mr Parker and the affidavit of Mrs Cox.  Where there are discrepancies between Mr Parker’s affidavit and Mrs Cox’s affidavit, I take the position that at trial Mrs Cox may be able to prove the matters to which she has deposed.  That follows the normal approach on strike out applications that the Court does not endeavour to resolve contested issues of fact.

[10]     The  essence  of  the  dispute  between  the  parties  revolves  around  events towards the end of 2009.   The lead up to those events was the Coxes’ Riverside Court development at Red Hibiscus Road.  The development was a subdivision to create 12 residential lots on which houses would be built.   In 2009 development works had not been completed.  When Rice Craig had made the initial loan on Red Hibiscus Road a registered valuer assessed the market value for the property at approximately $2 million.   Marac Finance Limited was registered as second mortgagee behind Rice Craig and was also providing project finance.  Some of the advances made by Marac Finance funded payment of interest to Rice Craig on the Red Hibiscus mortgage.

[11]     During 2009 Marac arranged for Red Hibiscus Road to be revalued.   This revaluation showed a substantial decline in value to the extent that Marac Finance required that the Coxes put Red Hibiscus Road on the market.

[12]     The Coxes listed Red Hibiscus Road with land agents who found a potential purchaser,  Mr  Lam.    There  were  negotiations  and  an  agreement  for  sale  and

purchase.   The agreement provided for payment of the sum of $1,168,000 with settlement on 16 December 2009.  Although this was not recorded in the agreement, the purchaser and the Coxes agreed that following the sale the Coxes would continue to project manage the development, for which they would be paid.   From those payments  the  Coxes  expected  to  be  able  to  continue  to  pay  their  mortgage instalments on the Duncansby loan.  Their case is that, up until this stage, they had generally paid instalments falling due on the Duncansby loan.

[13]     The agreement for sale and purchase with Mr Lam required the Coxes to complete the construction of a retaining wall alongside a stream.  The purchaser was to hold back the sum of $250,000 pending completion of the retaining wall.  Those funds  were  to  be  held  in  the  trust  account  of  the  purchaser’s  solicitors.    The agreement provided for a producer statement to be given by an appropriate professional and on that, the funds were to be paid over.

[14]     The Coxes conferred with Mr Parker of Rice Craig how this transaction could be  made  to  work.    With  the  $250,000  excluded  from  the  sums  to  be  paid  on settlement there would not be enough money immediately available to repay the Red Hibiscus loan in full.   There were also difficulties because Marac Finance had a second mortgage and land agents’ commission also had to be met.

[15]     The Coxes’ case is that in their discussions with Mr Parker about how the transaction could proceed, they did have an agreement with him in terms of what was pleaded in paragraph 17 of the statement of defence.  I pause here to note that Rice Craig disagree on that point and do not accept that there was the agreement that the Coxes allege.  Rice Craig’s position is a more limited one;  that there may have been discussions but they had not reached the stage of a fully concluded agreement. Mr Parker’s affidavit says that Rice Craig reserved its position. As I say, I am not to resolve that question of fact here.  I adopt the position that the Coxes at trial may be able to prove the position they allege.

[16]     The Coxes managed to achieve some of the matters that Mr Parker sought. The Coxes agreed that the proceeds of sale were not to be applied towards paying the land agent, and the Coxes would have to meet that expense themselves.  There was

some uncertainty at the outset as to how much of the proceeds of sale would have to go to Marac for Marac to give a discharge of its mortgage.

[17]     Matters proceeded within a fairly short space of time.   It appears from the evidence that Rice Craig were told about the agreement in December with the Coxes’ lawyer  writing  to  Rice  Craig  sending  them  a  copy  of  the  agreement  about

10 December.   Mr Parker received a final version of the agreement for sale and purchase on 14 December.  This was at a stage where settlement of the purchase was to occur on 16 December.

[18]     On 15 December Mr Parker sent a letter to the Coxes’ lawyer.  He set out a number of requirements stating that Rice Craig would consider settlement going ahead if those requirements were satisfied.   The letter required Mr Bogiatto, their lawyer, to give an undertaking.  It also required the purchaser’s solicitors to give an undertaking. That undertaking for the purchaser’s solicitors included this:

That we are upholding the irrevocable instruction from the purchaser to hold the sum of $250,000 in our trust account pending satisfaction of the conditions in the agreement, we are holding the sum of $250,000 in that trust account and that on satisfaction of the terms of Clauses 16 and 17 of the contract we will pay the sum of $250,000 to George Bogiatto, Solicitor, without deduction.

[19]     The undertaking to be given by Mr Bogiatto was that on receipt of the funds paid by the purchaser he would immediately pay the funds to Rice Craig in satisfaction of the unpaid balance as set out in a draft settlement statement Mr Parker had sent.   The purchase did not settle on 16  December.   On 17 December the purchaser returned to China, leaving the matter in the hands of his Auckland lawyers. They served a settlement notice on Mr Bogiatto.

[20]     On  16  December  the  purchaser’s  lawyer  sent  an  email  to  Mr  Bogiatto offering an amended undertaking.  Of importance is this wording:

We on having instructions from the purchaser to hold the sum of $250,000 in the trust account pending satisfaction of the conditions of agreement, we are holding the sum of $250,000 in our trust account, and on satisfaction of the terms of Clauses 16 and 17 of the contract we will pay the sum of $250,000 to George Bogiatto, solicitor, without deduction.

[21]     The significance of this amended wording is that the requirement that the instructions of the purchaser be irrevocable has been deleted.

[22]     Nothing  more  of  relevance  happened  before  Christmas.    Mr  Parker  was absent from Auckland in January 2010.   Mr Hunter of Rice Craig dealt with the matter in his absence.  Mr Hunter proposed an amended undertaking under which the purchaser’s solicitors themselves would undertake to hold the funds in their trust account rather than holding irrevocable instructions.   The purchaser’s solicitors demurred at giving that kind of personal undertaking themselves.  They indicated a willingness to revert to the original undertaking proposed by Mr Parker in his letter of 15 December 2009.  In the meantime the question of Marac had been resolved. The  purchaser  by  this  stage  had  lost  patience  and  in  early  February  2010  he cancelled the contract for non-performance as by this stage the settlement notice had long expired.

[23]     The Coxes’ case is that what looked like a potential lifesaver for them had disappeared.  Since then they have been unsuccessful in trying to sell Red Hibiscus Road.   Riverside Court Limited has gone into liquidation.  With the potential sale having fallen over, the Coxes lost their cashflow which would have enabled them to meet their obligations under the Duncansby Road loan.   Now they are unable to repay or roll over the Duncansby loan.   In addition, the Red Hibiscus loan is in default.   It is in those circumstances that they ask the Court to reopen the loan agreement under Part 5 of the Credit Contracts and Credit Consumer Finance Act.

[24]     Rice Craig raises a number of objections to the defence. The first objection is that even with the payment of the $250,000 there would not have been any surplus available  out  of  the  sale  of  Red  Hibiscus  Road.    I  reviewed  calculations  with Mr Woods.   He relied on a calculation by the Coxes.   However, there was also in evidence a calculation by Mr Parker.   On Mr Parker’s calculations there was an initial shortfall of approximately $179,000 before payment of the $250,000.  Once the $250,000 had been paid, then there would be about $70,000 by way of surplus in the hands of Riverside Court Limited.   The objection that there was not a surplus does not stand in the way of the Coxes’ defence.

[25]     The next argument raised by Rice Craig is that there were no terms in either loan agreement which provided that any surplus from Red Hibiscus Road had to be paid out to meet the loan on Duncansby Road.  Mrs Cox’s response is that whatever the legalities of the position might be, as long-standing borrowers from Rice Craig they would have done everything they could to meet their obligations and would ensure that the funds from Red Hibiscus would have been released to allow them as guarantors of the Red Hibiscus loan, as well as guarantors of the Duncansby loan, to meet their obligations.

[26]     As a question of fact, Mrs Cox’s position is entirely plausible and can be accepted.   The matter needs to be considered from the legal point of view.   The obligations  under  the  Red  Hibiscus  loan  are  independent  of  the  repayment obligations  under  the  Duncansby  loan.     The  fact  that  these  are  independent obligations bears on the way that the matter is considered under the Credit Contracts and Consumer Finance Act.

[27]     Section 120 of the Credit Contracts and Consumer Finance Act allows for credit contracts to be reopened.   It is common ground that if there was to be any reopening in this case it would be on the basis of s 120(b), that is, whether a party has exercised, or intends to exercise, a right or power conferred by the contract in an oppressive  manner.    Mrs  Cox  accepted  that  neither  the  Red  Hibiscus  nor  the

Duncansby loan agreements were oppressive2  and did not suggest that the parties

had been induced to enter into either loan agreement by oppressive means.3

[28]     In this proceeding the only relevant exercise of the power under s 120(b) is the power to seek repayment of outstanding interest and principal.   By itself the exercise of that power is not oppressive.

[29]     The exercise of power that the Coxes are concerned about is what Rice Craig did in relation to the release of the mortgage over Red Hibiscus Road.   On the Coxes’ case,  Mr  Parker  had  agreed  with  them  to  the  proposal  for  leaving  the

$250,000 in without, at that stage, insisting on the purchaser’s solicitor giving an

2      Section 120(a).

3      Section 120(c).

undertaking on the terms set out in the letter of 15 December 2009.  Their argument is that when Mr Parker then introduced this requirement for an undertaking as to irrevocable instructions in his letter of 15 December 2009, that was oppressive in terms of s 118 of the Credit Contracts and Consumer Finance Act. What they raise is the exercise of a power or right in relation to the Red Hibiscus loan, not an exercise of power in relation to the Duncansby loan.

[30]     Only the exercise of a power or right in relation to the Duncansby loan can be relevant.   The fact that the Coxes, as guarantors of the Red Hibiscus loan, face liability under that  loan  does  not  mean  that the exercise  of power for  the Red Hibiscus loan can be relevantly raised as an exercise of power when Rice Craig is suing only on the Duncansby loan.   In other words, there has not been a relevant exercise of power here arising out of what was done on the arrangements for the discharge of the Red Hibiscus mortgage.  Instead, the powers being exercised here are simply to enforce overdue interest instalments and overdue principal.  Those are conventional steps which do not of themselves amount to oppression in terms of s 118 of the Credit Contracts and Consumer Finance Act.

[31]     I now look at the actions of Rice Craig in relation to the discharge of the mortgage to consider whether those actions could be oppressive in terms of s 118.

[32]     It  is  necessary  to  bear  in  mind  that  Rice  Craig  is  a  solicitors  nominee company.  It is lending out funds placed with it by contributors, and its foremost duty is to its contributors to protect and uphold their interests under the loan agreement. It was faced with a situation where it was being asked to give a release of a first mortgage and accept, first, payment of less than all the amounts payable under the loan agreement and, second, a proposal under which funds would be left in to be paid at a later date.  In this situation the nominee company needs to ensure that the contributors’ funds are properly protected.

[33]     The arrangements proposed had elements of risk to Rice Craig.  Experienced lawyers are all too often aware of arrangements under which funds are left in, for example, for work to be completed, only for parties to change their minds.  Their

enthusiasm to pay the funds held back may not be as high as it was when they entered into the initial agreement.

[34]     Rice  Craig  was  properly  protecting  the  interests  of  its  contributors  by requiring that the purchaser’s solicitors give irrevocable instructions.   That would have ensured that, even if the purchasers had a change of heart later, they could not reverse the instructions to their solicitors to hand over the funds.  So in requesting irrevocable instructions, Mr Parker was taking a responsible course consistent with a lender’s obligations to its contributors.   To that extent there was not a breach of reasonable standards of commercial practice.

[35]     In hindsight, it is possible to see how matters might have been managed better.  Mrs Cox points to the fact that Mr Parker wrote his letter to Mr Bogiatto on

15 December, the eve of the date of settlement.  She says that if this matter had been raised at an earlier time there would have been the opportunity to take the matter up with the purchaser directly.  Given more lead-in time, there were greater chances of the purchaser and the solicitors agreeing to the arrangement proposed.   That is a hindsight judgment. All too often we can see how matters might have been managed better if we had only known how matters would unfold.

[36]     The evidence shows that this transaction proceeded within a very short space of time.  Rice Craig was provided with a copy of the contract only a few days before settlement.   The fact that this question of undertaking could have been addressed earlier does not mean the omission to address the matter earlier makes that omission oppressive in terms of s 118 of the Credit Contracts and Consumer Finance Act.  It needs to be something much stronger than that to give the Coxes an arguable case for oppression.  On that ground I am not satisfied that there is an arguable defence which the Coxes can rely on under Part 5 of the Credit Contracts and Consumer Finance Act.

[37]     This has brought me to the conclusion that, unfortunate as this has been for the Coxes, they do not have an arguable defence in terms of their pleadings to the statement of claim.  In my judgment their argument under the Credit Contracts and Consumer Finance Act is not an arguable defence. The balance of the pleadings does

not show any other matters capable of serious argument.   The case has stood or fallen on the Credit Contracts Act point alone.  Rice Craig has proved the service of notice under the Property Law Act to entitle Rice Craig to accelerate the loan, but in any event the time for payment of the principal has passed.

[38]     Accordingly,  I  make  orders  striking  out  the  defence  in  the  statement  of defence.  I find that Rice Craig is entitled to recover judgment.  It may seal judgment for the amounts claimed.

[39]     I make these orders:

(a)       I make an order striking out the statement of defence;

(b)I give Rice Craig judgment on the sums claimed, including interest at the default rate up to the date of this hearing; and

(c)       I give Rice Craig costs on the 2B scale.

[40]     Mr Woods is to file and serve a memorandum as to costs.  The Coxes will have five working days after the memorandum is filed in which to file any submissions they may wish to make as to costs.

[41]     This matter has been heard in chambers as a strike out application.   If the parties wish to challenge the decision I make on a strike out application, the remedy is to apply for a review of the decision by a Justice of this Court.

[42]     The normal period for filing an application for review is five working days from the date of the decision.   I am conscious that Mrs Cox has not been legally represented and the other defendants have not appeared.   They may wish to seek legal  advice  and  retain  the services  of  a lawyer before considering  any review application.  In my judgment it is a tall order to instruct a lawyer to consider a case like this, give full advice whether a review should be mounted, and then file and serve that review within five working days.

[43]     For that reason I extend the time for filing a review to 15 working days.  If the defendants wish to seek a review of my decision, it is to be filed and served no later than 30 September 2011.

............................................

Associate Judge R M Bell

ATTACHMENT

AMENDED STATEMENT OF DEFENCE FOR

FIRST, SECOND AND THIRD DEFENDANTS

CIV-2010-404-28-2         Rice Craig Solicitors Nominee Company Ltd  v Cox & Ors

[44]

THE FIRST, SECOND AND THIRD  DEFENDANTS by their solicitor say:

1        They admit the allegations contained in paragraphs 1     —   4.

2        They admit the allegations  contained in paragraph 5, 6 and 7.

3They admit  that on or about the  07th  January 2010 $10,573.75  was interest due pursuant to the loan agreement and the mortgage.

4Save  to admit that certain  notices  dated  04  Pebniary  2010 were received by the second and third defendants they deny each and every other ailegation contained in paragraph 9.

5        They deny each and every aiiegation  contained  In paragraph  10.

6They have no knowiedge  of and they therefore  deny the aiiegation in paragraph  11.

7        They admit the ailegations contained In paragraph  12. AFFIRMATIVE  DEFENCE

By way of affirmative  defence the first defendant says:-

8By written  agreement  dated 31 March 2008 the piaintiff advanced to Riverside Court Limited $1,015,000  repayabie on 07 April 2010 with Interest.

9The advance referred  to in the preceding paragraph was registered  by way of mortgagee 7821872,1 as security for the ioan agreement over a property  described  In Certificate  of Title NA357260 (North Auckland Registry) being Lot 48 DP389329.  (“the Property”).

10The  Directors   of Riverside  Court  Limited  are the second  and  third defendants in this proceeding were guaranteed the ioan to the piaintiff.

11       Pursuant   to an undated  Agreement  entered  into in November  2009

Riverside  Court  Limited  soid the property to Shung Kee Lam with settiement to occur on 16 December 2009, and in particuiar say:

•    Purchase price - $1,168,000.00

•    Deposit - $80,000.00

•    Deposit stakehoider —   Ross Holmes Lawyers

L2Conditions  precedent  or subsequent to settlement as set out in special conditions   15 —   21.

[3Prior to the execution of the Agreement for Sale and Purchase Tom Parker, on behalf of the plaintiff,  was provided with a  copy of the special conditions referred to  in   the  preceding paragraph for  his approval.

14Tom Parker, on behalf of the plaintiff approved the special terms and conditions of  the Agreement to  Sale and  Purchase  referred  to  in paragraph   11 above.

15In reliance on the approval so given Riverside Court Limited entered into an Agreement  for Sale and Purchase.

16At no time prior to Riverside court Limited entering into the Agreement for Sale and Purchase, or subsequently prior to 15 December 2009 did Tom Parker, on behalf of the plaintiff,  stipulate that  he required a particular form  of  undertaking from  the  purchaser’s solicitor,  nor mention that the word “irrevocable” was required  in any undertaking.

1?At all relevant times the purchaser,  Shung Kee Lam was ready, willing and able to settle the purchase,  and in particular:­

(a)Riverside Court Limited sought a  discharge of the mortgage from the plaintiff on 10 December 2009, by letter from George Bogiatto to Rice Craig dated 10 December  2009.

(b)In addition the second, third defendants met with Tom Parker, representing the plaintiff, on site in early December to discuss the  terms  of  the  Agreement for  Sale and  Purchase and discharge of the mortgage.

(c)      The discharge of mortgage  sought was a partial discharge; (d) The discharge of the mortgage sought was subject to:

(i)    The plaintiff’s agreement that the sum of $250,000.00 be retained in the trust account of Ross Holmes,  solicitors to  be  released by the  end of  February 2010 or  or completion of works to  be  undertaken to the propert which the first defendant as vendor had agreed to wit[

the purchaser  In the Agreement for Sale and Purchase, and

(Ii)     The first  defendant obtained a  discharge of  mortgage from the second mortgagee,   MARAC, in consideration for a payment  of $30,000.00 which it later obtained.

(e)Tom Parker on behalf  of the plaintiff  agreed to the foregoing terms in  consideration   for providing    a  partial discharge  of mortgage to enable the settlement to proceed.

.8RIverside Court  Limited  sought  a discharge  of the mortgage over the land from the plaintiff and in particular:­

(I)On FrIday 05 January  2010  the second and third defendants spoke to Scott Hunter,  of the firm of Rice Craiq,  Solicitors, representing the plaintiff by telephone discussion.

(II)Scott Hunter advised that there  were no other  partners  in the office of Rice Craig.    He could not contact  any of them  as they were on holiday.   He was not happy to make a decision  himself to discharge the mortgage without the word “Irrevocable” being

Included    in   the  solicitor’s  undertaking     of  Ross   Holmes,

solicitors.

(NI)     The plaintiff requested an irrevocabie undertaking by email of

Scott Hunter to S Cox dated 15 January 2010 as follows:­

“we personally undertake that we are holding the sum of

$250,000.00 in our trust account. and that on satisfaction of the terms of Clauses 16 and l7of the Contract that we will pay  the sum of  $250,000.00 to  George Boglatto solicitor without deduction

(iv)Additionally the firm of Rice Craig on behalf  of the plaintiff  by letter of 15 December 2009 wrote  to the soilcitor for the first defendant  setting out the terms upon which it was prepared to provide a partial discharge of mortgage.

19The plaintiff  refused to provide  a discharge  of the mortgage to allow Riverside Court Limited to complete the sale of the property unless it was first  provided from the solicitors acting for the purchaser  (Ross

Holmes  Law)  with an Irrevocable  undertaking   notwithstanding   that

Ross Holmes Law had agreed to provide an undertaking  as follows;­

(a)The author of the undertaking  was Teddy Chow, given by email of 16 December 2009 transmitted  to the firm of Rice Craig by letter from George Bogiatto on 23 December 2009.  The terms of the undertaking were as follows:­

“the Agreement attached between Riverside Court Limited and Shung Kee Lam  Is the validly executed Agreement between the abovenamed and there are up until now no alterations or amendments to that agreement;

We are having instructions from the purchaser to hold the sum of  $250, 000.00 In   our  trust  account  pending satisfaction  of the condition  in the Agreement,   we are holding the sum of $250,000.00 in our trust account, and that on satisfaction  of the terms of Clauses .16 and 17 ot the contract that we will pay the sum of $250,000.00  to George Boglatto, Solicitor,  without  deduction.”

WThe  plaintiff   did  receive  an undertaking   from the solicitors  for the purchaser but nevertheless still refused to provide  a discharge  of the mortgage.

Z1       Riverside Court Umited was prevented from completing the sale of th€

land to the purchaser Shung Kee Lam by the actions of the plaintiff.

22The purchaser  Mr Lam cancelled the agreement  for sale and purchase with Riverside Court Limited and in particular:­

(a)The defendants would have received $1,168,000.00  subject  tc the following adjustments:-

Retention for cost of construction of              $250,000.00 retentIon wall

Rice   Craig     Nominees     Limited  —               $1,061,006.89

Mortgage repayrrient

Land agents commission  $38,475.00

6 I

Allowance for legal fees  $4,000.00

Apportionments on  settlement  of                2,100.00 sale approximately

The second and third defendants  had agreed orally with the first defendant to make payments to it sufficient to maintain all interest payment obligations to the plaintiff from the receipt of project management fees.

23The sale of the property to Mr Lam would have enabled the defendants in this proceeding to maintain their interest payment obligations to the plaintiff.

24But for the refusal of the plaintiff to  provide a  partial discharge  of mortgage  in respect of the land to Riverside Court Limited, the defaults alleged by the plaintiff In respect  of the loan agreement  and mortgage would not have been committed  by the defendants.

25At all relevant times the plaintiff was aware of the relationship of Riverside Court Umited to the defendants in this proceecifng by virtue of  antecedent transactions between the  plaintiff  and  all   of  those entities and in particular:­

(I)The second  and third defendants were at all times the sole directors of Riverside Court Limited.

(N)Riverside Court Limited  had entered  Into an  unconditional contract for the sale of Lot 48 Red Hibiscus Road.

(iii)The plaintiff was aware that the second and third defendants had entered into a  project management  agreement dated 06

December 2009 with the purchaser of the land, enabiing the second and third defendants to derive Income.

(iv)That the first, second  and third defendants from the income to derived would have been able to make the interest payments to the plaintiff in respect of the property at  11 Duncansby Road.

(v)Scott Hunter and Tom Parker of the plaintiff had advised the defendants in January 2010 in discussions  that they had had unsatisfactory past dealings with the firm of Ross Holmes,  but neither had ever dealt with Teddy Chow of that firm previously.

7 I

(vi)The plaintiff declined toaccept a form of undertaking contained In   an  email  dated  16  December 2009  by  Ross  Holmes, solicitors, to George Boglatto, and transmitted to Rice Craig, solicitors, by  letter  dated  23  December  2009  by George Boglatto.

(vii)That the form of  undertaking referred to  In  the preceding subparagraph  was sufficient to  protect the  Interest of the plaintiff.

(viii)The defendants  notified Tom Parker and Scott Hunter of the plaintiff verbally that they would  place a caveat on Lot 48, Red Hibiscus to  further  protect the  continuIng  Interest of  the plaintiff under its mortgage to the first defendant.

(ix)Tom Parker, on behalf of the plaintiff agreed to this course of action.

(x)The  defendants provided Tom  Parker of  the  plaintiff  in November 2009 with a copy of the contract for sale of land and the conditions.

(xi)By letter of 15 December 2009 from Rice Craig, solicitors,  for the plaintIff to the solicitor for the first defendant, the plaintiff agreed to  provide a  partial discharge  of the  mortgage on settlement  but  reserved the   personal covenance of  the borrower and guarantors under the mortgage subject to the further condition  that  an undertaldng  be obtained from the purchaser’s solicitor.

(xii)An undertakIng in  the  form  required by the  plaintiff was substantlaiiy obtained by the  first  defendant sufficient to protect its position.

(xiii)That the requirement of the inclusion of the word “irrevocabie” in the form of undertaking to be obtained from Ross Holmes, solicitors, was unnecessary  and unreasonable   in  all of  the circumstances.

6In view of the conduct of the plaintiff, the defendants seek re-opening of the loan agreement and securIties provided to the piaintiff pursuant to the Credit Contracts and Consumer Finance Act 2003.