Tea Custodians (Bluestone) Limited v Greene HC Rotorua CIV 2011-463-000314

[2011] NZHC 1588

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2011-463-000314

BETWEEN  TEA CUSTODIANS (BLUESTONE) LIMITED

Plaintiff

ANDWARREN LEE GREENE ROBYN MARY DENYER Defendants

Hearing:         3 August 2011

Appearances: N J Robertson for the Plaintiff

R Vigor-Brown for the Defendants

Judgment:      3 August 2011

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

03.08.11 at 4:30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

N Robertson, Sanderson Weir, Auckland –  [email protected] / F Wood, Davys
Burton, Rotorua – [email protected]

R Vigor-Brown, Moana Law, Rotorua –  [email protected]

TEA CUSTODIANS (BLUESTONE) LIMITED V WARREN LEE GREENE HC ROT CIV 2011-463-000314 3

August 2011

[1]      The plaintiff sues to recover sums advanced to the defendants and secured by mortgage.  The plaintiff also seeks an order for vacant possession of the defendants‟ Rotorua property.

[2]      On 3 August 2005 the plaintiff lent the defendants the sum of $184,000.  On

21  December  2006  the  plaintiff  advanced  the  defendants  an  additional  sum  of

$44,000.   Interest was initially charged at 12.79 per cent per annum but was later reduced.   The loan was calculated to be repayable over 30 years at $2,484.13 per month.

[3]      Between  July  2009  and  November  2009  the  defendants  defaulted  on repayments.  On 17 November 2009 a s 119 Property Law Act notice for payment of arrears of $9,160.57 was issued.  Following that the plaintiff and defendants agreed to an arrangement for “capitalisation of arrears”.  In affect a further loan advance for missed payments of $10,915.09 was made.

[4]      Default continued and on 23 October 2010 the plaintiff issued a second s 119 notice demanding arrears due of $6,222.34.

[5]      In June 2011 the defendants made a payment of $100.00 towards the arrears

“to remedy the present default to the extent that it can be remedied”.

[6]      Save to complain that the plaintiff‟s claim includes interest upon default and legal fees, and with a general reservation concerning the plaintiff‟s calculation of the amount  due,  the  defendants  do  not  challenge  the  basis  of  the  plaintiff‟s  claim. Instead on 28 June 2011 in this proceeding they filed an application pursuant to sub- part 8 of the Credit Contracts and Consumer Finance Act 2003 (the Act).  It seeks orders:

(a)      For the change of the terms of the credit consumer contracts entered into between the plaintiff and the defendants which were the subject of the $184,000 and $44,000 advances.

(b)      A stay of the plaintiff ‟s  summary judgment and vacant possession

applications.

[7]      The application is advanced upon grounds:

(a)       The defendant Mr Greene sustained two injuries which had prevented the defendants from meeting their obligations to the plaintiff.

(b)      The defendants have remedied the defaults to the extent they can. [8] The applications are supported by the affidavit of Mr Greene.

Mr Greens’ evidence

[9]      The defendants are partners.  The security property is their family home.  Ms Denyer transferred a half share of the property to Mr Greene at the time of the initial advance by the plaintiff.

[10]     Mr Greene was 56 years of age when on 3 October 2009 he was involved in a motor vehicle accident.  The other driver died.  The Coroner‟s enquiry determined Mr Greene was the “innocent” party.

[11]     Mr Greene was admitted to hospital with a „fracture dislocation‟ to his right hip.  He remained in traction until 27 October 2009.  He says he was also diagnosed with  post-traumatic  stress  syndrome.    He  was  discharged  from  hospital  on  2

November 2009.

[12]     Since, he has been unable to resume his previous occupation.  He says he is unfit for work.  A doctor‟s certificate confirms he is permanently disabled and was until 19 May 2011 unable to return to employment.   Earlier on 5 April 2009 he suffered injuries to his left hand while working.  He was unable to resume work for six weeks thereafter.  He said at that time ACC declined his application for weekly compensation on the grounds that his tax returns for the previous financial year showed a net loss and no salary apportioned.  The defendants had operated a „mini

skip‟ business.  ACC required to sight financial accounts for 31 March 2009 before proceeding to assess compensation.

[13]     Mr Green asserts that ACC provided negligent advice and failed to undertake their duties as an insurer, as a consequence of which the defendants were unable to pay their mortgage.  They were without funds to pay their accountant to prepare the

2009  financial  accounts.     Eventually  the  accounts  were  completed  with  the assistance of family funding.  Those accounts were sent to ACC on 29 April 2011. Since, ACC has made two payments, one on 7 May 2011 for $349.84 and the other on 2 June 2011 for $2,350.31.  The latter payment covered the period 13 October

2009 to 28 January 2010.

[14]     Mr Greene said he still awaited contact from ACC regarding his entitlement to weekly compensation for the period 28 January 2010 to 19 May 2011.

[15]     He said it had always been the defendants intention to repay mortgage arrears from back pay received from ACC.

[16]     For the future he calculates he will receive weekly compensation of $400 per week.  He calculates an arrears payment of $27,200 will be paid for the 28 January

2010 – 19 May 2011 period.  He notes however that from that amount he will be required to pay tax and to refund Work and Income for the sickness benefit he has received over that period.

[17]     Meanwhile Mr Greene receives a sickness benefit of $256.40 and Ms Denyer

an invalid‟s benefit of $242.00, making a total weekly income of $498.40.

[18]     Mr Greene is considering legal action against ACC.  He will seek damages, interest and legal costs for the delay he says they have caused.

[19]     He applied for legal aid to cover costs for the present proceeding, but his application was declined.

[20]     It has been provided by the affidavit of the plaintiff ‟s Mr Harwood.   He explains  that  in  his  experience hardship  applications  need  to  be made  before  a borrower  goes  into  default.     Nevertheless  he  has  reviewed  the  defendants‟ application for an extension of loan term with a consequential reduction in loan repayments.    He  has  considered  also  their  application  for  a  postponement  of payments during “a specified period” although he notes the defendants have not indicated the length of that period.

[21]     Mr Harwood has considered the following factors: (a) The current size of the debt.

(b)      The current loan repayments. (c)          The interest rate.

(d)      The defendants‟ current income.

(e)       The potential ACC lump sum payment for Mr Greene. (f)      The term of the loan.

(g)      The age of the defendants. (h)   Loan affordability.

(i)       The value of the security.

(j)Any other matter relating to the loan repayment history including prior arrangements and capitalisation of arrears.

(k)      The policies and requirements of the lender.

(a)       The current monthly principal and interest payment for the loan is

$1,810.

(b)      The defendants have received a capitalisation of their arrears in June

2010 and have since failed to meet any payments.

(c)       The loan arrears are now in excess of $29,116.51 (as at 15 July 2011). (d)     The defendants have stated they consider the security property to be

valued in the vicinity of $250,000.

(e)       The loan balance is currently $258,194.88.

[23]     Mr Harwood stated that if the arrears sum of $29,116.51 was capitalised and the loan was recalculated on an interest only basis then the loan payments would be approximately $1,760 per month.    He calculates this repayment would be unaffordable  for  the  defendants  with  their  current  total  joint  weekly income  of

$498.40  or  approximately  $2,159.00  per  month.    Therefore  to  accommodate  a request for an increase in the loan term it would not be repaid for at least 40 – 45 years.   The plaintiff considers this is unacceptable from a lending and credit risk perspective. Also Mr Greene is aged about 57 years.

[24]     Mr  Harwood  states  the  mortgagee  must  balance  risk  factors,  responsible earning arrangements and the borrower‟s position for any hardship request.  Whilst having sympathy for the defendant circumstances he says the plaintiff cannot enter into  any further  arrangement  to  extend  the  term  loan  and/or  postpone  the  loan repayments.

The Credit Contracts and Consumer Finance Act 2003

[25]     Sub-part  8  of  that Act  provides  for  changes  to  be  made  on  grounds  of unforeseen hardship.

[26]     Section 55 provides that a debtor who is unable reasonably, because of injury, to  meet  the  debtor‟s  obligations  under  a  consumer  credit  contract  and  who reasonably expects to be able to discharge those obligations in terms of the contract, may apply to the creditor to agree to that change.   Section 58 provides that if the creditor does not agree to the debtor‟s request for change, the debtor may apply to the Court to change the terms of the contract and the Court may order those changes to be made.

[27]     Section 56 requires an application for change to seek:

(a)      The extending of the term of the contract and reducing the amount of each payment but without a change being made to the annual interest rate.

(b)Postponing during a specified period the date on which payments are due – again without consequential change to interest rates.

(c)      Extending the term of the contract and postponing during a specified period, the dates on which payments are due – again without consequential change to interest rates.

[28]     Section 56 provides that the change sought must not be more extensive than is necessary to enable the debtor to reasonably expect to be able to discharge his obligations; and that any change must be fair and reasonable to both the debtor and the creditor in all the circumstances.

[29]     Section 57 does not allow a change application if a debtor has defaulted in a payment.  However that does not prevent an application being made if the debtor has remedied the default to the extent that it can be remedied.  [Emphasis mine]

Considerations

[30]     The evidence discloses that mortgage payments fell into arrears after Mr Greene received his injuries.  Clearly this occurred because he was not earning an income sufficient to meet mortgage payments.   However it is clear the defendants

would struggle to meet the requirement of s 55 as persons who could reasonably be expected to be able to discharge their mortgage obligations within a specified time.

[31]     Mr  Greene  has  issues  with  the  way  in  which  his  claim  for  weekly compensation has been handled.  Mr Vigor-Brown advises Mr Greene is considering filing court proceedings to pursue that claim.   But, even if he had been receiving weekly  compensation  it  is  doubtful  he  could  afford  to  meet  those  mortgage payments.      The   evidence   suggests   that   had   Mr   Greene   received   weekly compensation instead of the sickness benefit he did receive, he would likely only have been better off to the extent of about $100.00 per week. Also Mr Greene‟s offer to pay mortgage arrears from a lump sum expected from ACC would have offered little assistance.  In my discussion with Mr Vigor-Brown it appeared the most that could have been expected from a lump sum arrears payment from ACC was between

$7,500 and $9,000.

[32]     During an adjournment break in the course of the hearing Mr Vigor-Brown received a letter from his office.  It was from ACC and it advised that Mr Greene‟s application for compensation was declined.  The immediate effect of that advice is that there would be no lump sum payment of arrears and Mr Greene would be confined to a weekly sickness benefit payment of about $256.00.

[33]     In  that  situation  the  calculations  of  Mr  Harwood  provide  assistance.    If arrears were capitalised the defendants‟ mortgage would take 40 – 45 years to repay. An extension of the mortgage term for that period is not the same kind of reasonable expectation for the discharge of obligations that s 55 refers to.

[34]     Also, it is not the kind of change contemplated by the provisions of s 56 which were not intended to apply for other than reasonably short periods of time. Also that section makes it clear that any change must be fair and reasonable to the creditor as well as to the debtor.  This requires a balancing exercise and the Court accepts Mr Harwood‟s  evidence that a term loan of 40 – 45 years is unacceptable from a lending and credit risk perspective.  Mr Greene‟s evidence was to the effect that the defendants‟ property is worth less than the amount secured by the plaintiff‟s

advance.   The longer the debt remains unpaid the more likely the value of the security will dissipate.

[35]     Finally s 57 provides an impenetrable barrier for the defendants.  It is clear that section enables an application to be made if the debtor has remedied the default to the extent that it can be remedied.

[36]     When in June 2011 the defendants made a payment of $100 towards arrears they noted the payment was made “to remedy the present default to the extent that it can be remedied”.

[37]   It is clear by that notation that the defendants have misinterpreted the requirement for remedy „to the extent it can be remedied‟.  Section 57 does not state that the debtor must remedy the default to the extent that the debtor can.  Rather it is clear s 57 requires the extent of the default to be remedied.  That being the case and because the payment was made after, and in this case indeed well after the default occurred, the defendants are precluded by section 57 from making their application at all.

[38]     To read s 57 in the manner proposed on behalf of the defendants would permit the payment by a debtor of a very nominal sum with an explanation that no more could be afforded. The potential for abuse is obvious.

[39]     If sub-part 8 permits recourse to equity then such recourse is available only to those who have first addressed the consequences of their default.

[40]     In this case although the plaintiff has earlier agreed to capitalise a much more modest sum of arrears then owing further arrears of about $29,000 has accumulated. Understandably the plaintiff was not prepared to entertain any capitalisation arrangements in respect of those arrears.

Conclusion

[41]     The defendants‟ application under sub-part 8 is dismissed.

[42]     The  defendants  no  longer  contest  the  plaintiff ‟s  calculation  of  its  claim

amount.

Result

[43]     Judgment is entered for the plaintiff against the defendants in the sum of

$253,898.44 inclusive of interest to date of judgment.

[44]     The defendants are to pay the plaintiff‟s  costs calculated on a category 2B

basis and amounting to $10,230.24 inclusive of disbursements.

[45]     There is an order that the defendants shall by 1:00pm on 1 September 2011

vacate and deliver up possession of the security property contained in Certificate of

Title SA11B 1430.

Associate Judge Christiansen