Wake Up Commercial Limited v Extension Capital Limited

[2022] NZHC 1824

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-001239

[2022] NZHC 1824

BETWEEN

WAKE UP COMMERCIAL LIMITED

First Applicant

AND

MICHELLE JOY O’BYRNE

Second Applicant

AND

EXTENSION CAPITAL LIMITED

Respondent

Hearing:	(On the papers)
Counsel:	Edwin Morrison and Patrick Shanahan-Pinker for the Applicants
Judgment:	27 July 2022

JUDGMENT OF MOORE J

This judgment was delivered by me on 27 July 2022 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar / Deputy Registrar Date:

WAKE UP COMMERCIAL LIMITED & ANOR v EXTENSION CAPITAL LIMITED [2022] NZHC 1824 [27 July 2022]

Background

[1]                   The Registrar has referred this file to me as Duty Judge. The applicants, Wake Up Commercial Ltd (“Wake Up”) and Michelle O’Byrne, apply on a without notice basis for an interim injunction restraining Extension Capital Ltd (“Extension Capital”) from exercising its power of sale under mortgage instrument 12366013.1. The mortgage instrument is registered against the title to Ms O’Byrne’s family home at Casement Road, Whangamata (“the Casement property”).

[2]                   The mortgage loan was advanced to enable Wake Up to purchase a residential property at 135 Leybourne Circle, Glen Innes (“the Leybourne property”), which it intended to develop. It is not disputed that the loan was not paid. The Leybourne property was sold. Extension Capital received the net sale proceeds.

[3]                   Ms O’Byrne personally guaranteed the loan by way of a mortgage over the Casement property. Extension Capital now seeks to exercise its power of sale over that property. Ms O’Byrne wishes to avoid the irreversible sale of her family home.

[4]                   The applicants’ position is that the loan was intended to finance the purchase of the Leybourne property in the short-term only, on the understanding that Extension Capital would offer a second loan for the purpose of funding the long-term development of the Leybourne property site. The applicants argue that no development loan followed, and the terms of the short-term loan meant that default was inevitable. Their position is that the loan was oppressive and usurious. On that basis they seek an interim injunction.

Legal principles

[5]                   The principles to consider on applications for interim injunctions are well settled. The Court must assess:1

(a)whether there a serious question to be tried;

(b)the balance of convenience; and

1      Intellihub v Genesis Energy Ltd [2020] NZCA 344 at [23].

(c)where the overall justice lies.

Should the application for an interim injunction be granted?

[6]                   I am satisfied that the application for an interim injunction should be granted, for the reasons which follow.

Serious question to be tried

[7]First, I consider that there is a serious question to be tried.

[8]                   The applicants filed an affidavit of Ms O’Byrne sworn on 22 July 2022. She deposes that she met a former banker, Richard Goodall, when searching for a professional to assist her in franchising her make-up business.   She says she and   Mr Goodall “got on very well” and they subsequently discussed developing the Leybourne property. She says that Mr Goodall had business contacts through which he procured finance for the purchase.

[9]                   Ms O’Byrne says she made an offer to purchase the property for $2,350,000 after Mr Goodall assured her finance had been secured. Her offer was accepted. Extension Capital subsequently paid the deposit that same day, before she had received or signed any loan documents.

[10]               Ms O’Byrne subsequently received the loan offer and documents. Relevant terms of the loan facility were:

(a)a principal amount of $2,350,000;

(b)a two month term;

(c)an application fee of $5,000;

(d)an establishment fee of $110,000;

(e)a brokerage fee of $23,000;

(f)legal fees of $7,245 and $3,000;

(g)default interest at the rate of 25% per annum; and

(h)collateral being provided by way of a registered mortgage against the Casement property.

[11]               Ms O’Byrne deposes that Mr Goodall told her that this loan would be replaced with another loan to cover the development of the Leybourne property. He also said that the establishment fee was to cover the purchase loan and the development loan. Ms O’Byrne says she relied on Mr Goodall’s professional advice when signing the documents (and that of her lawyers).

[12]               Two weeks after the purchase of the Leybourne property, Extension Capital wrote to Ms O’Byrne advising her that the loan was going to expire the following month. She was concerned that the development loan had not followed. She engaged lawyers to contact Mr Goodall. His solicitors responded. They said Ms O’Byrne was aware that this was a bridging loan and that it was advanced on the basis that she put up the Casement property as collateral.

[13]               The loan term expired. Extension Capital sent a letter of demand. The Leybourne property was sold. Extension Capital took the proceeds. The proceeds were insufficient to meet the applicants’ liability under the loan. Extension Capital then took steps to sell the Casement property.

[14]               The applicants submit that there is a serious question to be tried. They argue that the loan was an oppressive credit contract under the Credit Contracts and Consumer Finance Act 2003. Without any development loan, there was no basis for Extension Capital to believe that the applicants could meet their obligations. Default was inevitable.

[15]               The applicants claim that Extension Capital agreed to provide the subsequent development loan. Whether that is the case may well turn on the credibility of witnesses.

[16]               If that is the case, then it is arguable that Extension Capital’s conduct in seeking to enforce the loan is oppressive. The terms of the loan taken at face value, and the financial position of Wake Up at the time the loan was issued, are such that it appears Wake Up could never have met its liability. It would have to repay a loan covering the entire purchase price of a property development (plus further fees) within a timeframe where it would be impossible to complete that development and realise any profit. Without obtaining a development loan the only realistic way it could meet its liability would be through the sale of the collateral.

[17]I therefore consider that there is a serious question to be tried.

Balance of convenience

[18]               The applicants then submit that the balance of convenience supports the granting of an injunction. They submit that an exercise of the power of sale will result in Ms O’Byrne losing her family home, which is also her only significant asset. There is a high risk that a sale in the present market would result in Ms O’Byrne suffering considerable losses.

[19]               I accept that if an injunction is not granted it is highly likely that Ms O’Byrne will irreversibly lose her family home.

[20]               On the other hand, the prejudice to Extension Capital in delaying the potential mortgagee sale is fairly limited. It has already recovered a significant portion of the amount owed under the loan through the sale of the Leybourne property. There is nothing before the Court to indicate that recovery of the remainder is urgent.

[21]               I am satisfied that the balance of convenience favours the issue of an interim injunction.

Overall justice

[22]               It follows that I consider the overall justice of the case to favour granting an interim injunction.

Result

[23]I accordingly order that:

(a)Extension Capital is restrained from exercising its power of sale under mortgage instrument 12366013.1 until further order of the Court;

(b)the injunction is conditional upon the applicants’ undertaking as to damages (dated 22 July 2022 and signed by Ms O’Byrne);

(c)the applicants are to serve a copy of these proceedings on the respondent and the respondent’s solicitors;

(d)leave is granted to the respondent to apply to the Court for further orders; and

(e)this matter is to be set down for mention in the Duty Judge list for the week commencing 1 August 2022, at which time the issue of whether the interim injunction should be sustained, amended or revoked will be addressed and any further orders made.

[24]Costs are reserved.

Moore J

Solicitors:

K3 Legal Limited, Auckland