SPTC Limited v Pjaft Limited
[2018] NZHC 408
•13 March 2018
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2018-441-9
[2018] NZHC 408
BETWEEN SPTC LIMITED
First Plaintiff
AND
KAY ELIZABETH COOPER
Second Plaintiff
AND
PJAFT LIMITED
Defendant
Hearing: On the papers Counsel:
D J O’Connor for Plaintiffs
Judgment:
13 March 2018
JUDGMENT OF CHURCHMAN J
Introduction
[1]The applicants have applied, on a without notice basis, for the following orders:
(a)The defendant be restrained from selling the property at 17 Bell Street, Clive, Hawke’s Bay (the Property) under its power of sale as a second mortgagee.1
(b)The defendant be restrained from exercising its rights against the plaintiffs under an all obligations guarantee and indemnity.
1 The mortgagee sale is on Thursday, 15 March 2018 at 11am.
SPTC LIMITED and COOPER v PJAFT LIMITED [2018] NZHC 408 [13 March 2018]
(c)Such orders remain in force until the earlier of an order of the Court terminating the order or the written agreement of the plaintiffs and the defendant.
[2]The grounds on which each order is sought are as follows:
(a)There is a serious question to be tried.
(b)Damages would be an inadequate remedy for the plaintiffs.
(c)The balance of convenience lies with the granting of an injunction. The defendant will still have recourse to the sale of the property if it succeeds at trial and will not be significantly prejudiced.
(d)The overall justice of the case favours such relief being granted.
(e)That proceeding on notice would cause undue delay or prejudice to the applicants.
[3] This application is made in reliance on rules 7.46 and 7.53 of the High Court rules and the affidavits of Kay Elizabeth Cooper (Ms Cooper) dated 7 March 2018 and Nigel Barry Cooper (Mr Cooper) dated 8 March 2018.
Relevant Rules
[4]High Court Rule, r 7.46 is as follows:
7.46 Determination of application without notice
(1)The Registrar must refer an application without notice to a Judge for direction or decision.
(2)The Judge, on receiving an application without notice, must determine whether the application can properly be dealt with without notice.
(3)The Judge may determine that an application can properly be dealt with without notice only if the Judge is satisfied that—
(a)requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant; or
(b)the application affects only the applicant; or
(c)the application relates to a routine matter; or
(d)an enactment expressly permits the application to be made without serving notice of the application; or
(e)the interests of justice require the application to be determined without serving notice of the application.
(4)If the Judge determines that the application can properly be dealt with without notice, the Judge may—
(a)make the order sought in the application; or
(b)make any other order that the Judge thinks just in the circumstances; or
(c)dismiss the application.
(5)If the Judge determines that the application cannot properly be dealt with without notice, the Judge may—
(a)give directions as to service and adjourn the determination of the application until the application has been served on persons who are affected by the application; or
(b)if the Judge considers that the application has no chance of success, dismiss the application.
[5]High Court Rules, r 7.53 is as follows:
7.53 Application for injunction
(1)An application for an interlocutory injunction may be made by a party before or after the commencement of the hearing of a proceeding, whether or not an injunction is claimed in the party’s statement of claim, counterclaim, or third party notice.
(2)The plaintiff may not make an application for an interlocutory injunction before the commencement of the proceeding except in case of urgency, and any injunction granted before the commencement of the proceeding—
(a)must provide for the commencement of the proceeding; and
(b)may be granted on any further terms that the Judge thinks just.
Background facts
[6] The plaintiffs have applied to set aside the second mortgage and their personal guarantees on the grounds of unconscionability and undue influence and the second
mortgage on the ground of oppressive conduct under the Credit Contracts and Consumer Finance Act 2003.
[7]The guarantees and second mortgage were provided as security for a loan of
$250,000.
[8] The parties under the loan agreement are Cooper Fresh Limited (borrower), Cooper Produce Limited (covenantor) and the defendant (lender).
[9] Ms Cooper’s husband, Mr Cooper, is the sole director and shareholder of Cooper Fresh Limited and Cooper Produce Limited.
[10]Ms and Mr Cooper separated on 13 October 2017.
[11] The proceeds of the loan were not used by the plaintiffs and they received no personal benefit.
[12] Philip Alison is the sole director of the defendant company and has been Nigel Cooper’s friend for more than 30 years.
[13] Philip Alison engaged Peter Sutherland to deliver the Guarantee and the A&I form to Ms Cooper to sign. Ms Cooper’s evidence is that Mr Sutherland took the A&I form to the Property (or her place of work, this is unclear in the memorandum of counsel in support of ex parte injunction) and told her “you need to get this done now”. He told her that she did not need to talk to lawyers because it is such “a good deal” and “we have to sign the documents now”. She signed the document when Mr Sutherland was there. He witnessed her signature.
[14] It is alleged that the defendant failed to ensure that Ms Cooper received legal advice before she signed the Guarantee and the A&I form; that the defendant failed to provide any proper explanation as to the meaning of the Guarantee and the A&I form to Ms Cooper before she signed the documents; and Ms Cooper says that she believed the loan was for $40,000 not $250,000.
[15] On 30 November and 1 December 2017, the defendant’s solicitors sent letters of demand to Mr Cooper’s companies. On 30 January 2018, the defendant put Cooper Fresh Fruit Limited into receivership.
Defences that might be relied on by defendant
[16] The defendant has alleged in exchanges with Mr Cooper that he deliberately failed to disclose all the liabilities of his companies when the monies were loaned to his companies. There were mistakes in the budgets and the financial positions of the companies which Mr Cooper provided to Mr Alison. There is outstanding tax owed and other creditors which were not disclosed to Mr Alison. Mr Cooper, however, believes that he gave all the information he had at the time to Mr Alison and did not deliberately misrepresent the financial position of his companies to Mr Alison.
Without notice
[17] High Court Rules, r 7.23(2) permits applications to proceed without notice where proceeding on notice would cause undue delay or prejudice to the applicant.
[18] Rule 7.23(3) requires that an applicant who makes an application without notice must file a memorandum setting out:2
(a)The background to the proceeding (including the material facts that relate to the proceeding);
(b)The grounds on which each order is sought;
(c)An explanation of the grounds on which each order is sought without notice; and
(d)All information known to the applicant that is relevant to the application including any known grounds of opposition or defence and any other party might rely on, or any facts that would support opposition to the application or defence of the proceeding by any other party.
[19] Extensive affidavits have been filed by Kay Elizabeth Cooper and Nigel Barry Cooper which provide copies of the loan documentation and relevant correspondence.
2 Rule 7.23(3).
[20] Counsel for the applicants has filed a memorandum covering the matters set out in r 7.23(3).
[21] An undertaking as to damages signed by Kay Elizabeth Cooper as a director of the first plaintiff and in her personal capacity as second plaintiff has been filed.
[22] The sole issue advanced in support of the application for an injunction being dealt with on a without notice basis is the impending auction date of the subject property which is scheduled for 15 March 2018 at 11.00am. That date has been publicly advertised with an indication that the property will not be sold prior to auction but will be sold at the auction.
[23] In these circumstances, I am satisfied that a requirement for the injunction application to be served and for a hearing to proceed on a defended basis is likely to result in the matter being unable to be heard before the scheduled auction date.
[24] I am satisfied that the delay caused by requiring the applicants to proceed on notice would be undue and has the potential to cause substantial prejudice to the applicant.
[25]Accordingly, I am prepared to address this matter on a without notice basis.
Analysis
[26] There is a two-part test to determine whether an interim injunction may be granted:3
(a)Is there a serious question to be tried?
(b)Where does the balance of convenience lie?
3 See Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
Is there a serious question to be tried?
[27] The phrase “a serious question to be tried” has been considered in a number of cases. It is a question that should not be treated lightly and it is not sufficient for the applicant to simply show a tenable cause of action; something more is required.4
[28] Courts have held that a creditor may not be able to rely on a loan agreement where it was brought about by pressure from a third party.5
[29]The issues that arise when undue influence is alleged are as follows:6
(a)Was the surety subject to undue influence?
(b)If so, were the circumstances as known to the creditor such as to put the creditor on inquiry as to the risk of undue influence?
(c)If so, did the creditor act in such a way as to insulate itself from the consequences of such undue influence?
For a surety to avoid liability in these circumstances all three issues must be answered in his or her favour (that is, issues (a) and (b) Yes and (c) No).
[30] I am satisfied that the applicants have met the standard of establishing that there is a serious question to be tried in relation to the issue of whether Ms Cooper was subject to undue influence from Mr Sutherland. The applicants have also met the same threshold in relation to the question of whether the defendant acted in such a way as to insulate itself from the consequences of undue influence. There is an evidential basis for asserting that not only was Ms Cooper not advised to get independent legal advice before signing the documents, she was actually told there was no need to talk to lawyers.
[31] In terms of unconscionable bargain, the Court of Appeal in Attorney-General for England and Wales v R said:7
These authorities demonstrate that for a bargain to be characterised as unconscionable, and thus able to be set aside, there will necessarily be: (1)
4 Ansell v New Zealand Insurance Finance Ltd HC Wellington A434/83, 30 November 1983.
5 See Barclays Bank Plc v O’Brien [1994] 1 AC 180 (HL); Royal Bank of Scotland plc v Etrick [2002] 2 AC 773 (HL); Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 (CA); Hogan v Commercial Factors Ltd [2006] 3 NZLR 618 (CA).
6 Hogan v Commercial Factors Ltd, above n 5, at [13], per William Young J.
7 Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at [89], per Tipping J.
serious disadvantage on the part of the weaker party known to the stronger party; and (2) the exploitation of that disadvantage by the stronger party in circumstances amounting to actual or equitable fraud. Associated with (1) and
(2) will usually, but not necessarily be: (3) some procedural impropriety, established or presumed, and attributable to the stronger party; and (4) a substantial inadequacy of consideration. …
[32] Ms Cooper has no formal qualifications, no legal experience and limited commercial ability. Mr Alison knew that she was married to Mr Cooper and his companies were under financial stress. This meant that Ms Cooper was at a serious disadvantage when she signed the Guarantee and the A&I form. It is arguable that she was exploited by the defendant in failing to ensure that she was separately advised.
[33] The final cause of action alleged is oppressive conduct. Under the Credit Contracts and Consumer Finance Act, the lender is under a responsibility to ensure that it does not induce the borrower to enter into the agreement by oppressive means.8 Oppressive is defined as: “harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.”9 It will, however, need to be established that the agreements come within the Credit Contracts and Consumer Finance Act.
[34] I am satisfied that the applicants have met the evidential threshold of raising a seriously arguable case in relation to the causes of action in undue influence and unconscionability, and there is a serious question to be tried.
Where does the balance of convenience lie?
[35] Counsel for the plaintiffs submits that the balance of convenience lies with the granting of an injunction. The injunction has the effect of freezing the status quo, pending the outcome at trial.
[36] The defendant denies any pressure was put on Ms Cooper and said she did have the opportunity to take legal advice.
8 Credit Contracts and Consumer Finance Act 2003, s 9C 3(e)(iii).
9 Section 118.
[37] In assessing the balance of convenience, I consider whether damages would be an adequate remedy and whether the status quo should be preserved.
[38] On the issue of the adequacy of damages, the application seeks an injunction to prevent the defendant from selling Ms Cooper’s home. If the injunction is granted, the defendant will still have recourse to the sale of the property if it succeeds at trial and will not be significantly prejudiced. Preventing a mortgagee sale of the property will not displace the defendant’s right to this course of action if it succeeds at trial. I do not consider the defendant will be significantly prejudiced if an injunction is granted.
[39] The plaintiffs have provided an undertaking as to damages. The first plaintiff (the Trust) holds the Property on trust. ANZ has a first mortgage on the Property. The first mortgage is $700,000. The registered valuation is $900,000. There is no default by the Trust on the first mortgage. The Trust does not own any other assets. Ms Cooper works full time as a sales representative selling fireplaces. She does not own any significant assets of any value.
[40] The final question is whether it is appropriate to grant an injunction to preserve the status quo. As noted above at [38], preventing a mortgagee sale of the property will not displace the defendant’s rights to take this course of action, if it succeeds at trial.
[41] I therefore find that the balance of convenience falls in favour of granting the injunction that is sought.
Conclusion
[42] Pending further order of the Court, I make the orders in terms of paragraphs 1(a)–(c) of the application filed by the plaintiffs, dated 8 March 2018.
[43] Leave is reserved to the defendant to apply on notice to rescind the order made by the Court.
[44]Costs are reserved.
Churchman J
Solicitors:
John McDowell, Napier for Plaintiffs
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