Wroxton Finance Limited v Walton
[2013] NZHC 1560
•26 June 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-000447 [2013] NZHC 1560
BETWEEN WROXTON FINANCE LIMITED First Plaintiff
ANDCANTERBURY TRUSTEES (2007) LIMITED
Second Plaintiff
ANDCONRAD FREDERICK WALTON Defendant
Hearing: 4 June 2013
Appearances: G K Riach and T E Hutchinson for Plaintiffs
Mr C F Walton (Defendant) in person
Final Judgment: 26 June 2013
FINAL JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Wroxton Finance Limited (“Wroxton”) and Canterbury Trustees (2007) Limited (“CTL”) are private money lenders. In this proceeding they seek an order under s 137 of the Property Law Act 2007 directing the defendant to pass to them physical possession of his property in Christchurch which is secured to them by way of mortgage.
[2] Section 137 provides:
137 Exercise of power to enter into possession
(1) If a mortgagee becomes entitled under a mortgage, after compliance with subpart 5, to exercise a power to enter into possession of mortgaged land or goods, the mortgagee may exercise that power by –
WROXTON FINANCE LTD v CANTERBURY TRUSTEES (2007) LTD [2013] NZHC 1560 [26 June 2013]
(a) ... (b) ...
(c) applying to a court for an order for possession of the land or goods.
Subpart 5 sets out restrictions on exercise of this power, but none are in issue in this case.
[3] Wroxton and CTL say that Mr Walton is in default under an agreement by which they advanced funds to him, which required him to make certain payments, which he has not made. Mr Walton accepts that he has not made the payments but he opposes the entry of summary judgment against him on the ground that the contract was signed by him under duress, or alternatively that the contract is an unconscionable bargain.
The facts in more detail
[4] In 2009 Mr Walton and his late partner borrowed money from Wroxton and CTL, intending that it be repaid after 12 months. During that time Mr Walton’s partner died and when a significant earthquake occurred early in September 2010 he suffered damage to the contents of the home over which the loan was secured. The major earthquake on 22 February 2011 caused damage to the property and most of the remaining contents. A further earthquake on 13 June 2011 caused even more damage to the house and resulted in it being given a “white zone” designation which Mr Walton says prevented him from selling it, repairing it or refinancing it for six months.
[5] At the end of that period repairs were organised through the Earthquake Commission and its appointed contractor, Fletcher Building, which took control of the repair project in January 2012 with an expected repair period of two months. Over six months passed without the repairs being started. Eventually contractors came on site but in November 2012, having undertaken a good deal of work on the property, including removing its original roofing material, they moved off the site, leaving the property incomplete and surrounded by scaffolding. It remains in that condition now.
[6] The funds were borrowed to enable Mr Walton and his partner to set up a business operating webcams showing weather conditions and views from the roof of their property, which would be provided to television stations, and would attract advertising revenue. Mr Walton says that the loss of his partner, subsequent damage to his house, delays in the start of repairs, the unsatisfactory way the repairs have been carried out, and the house effectively being abandoned by the contractor in an unfinished state all conspired against his being able to operate the business, with the consequence that his cashflow was seriously diminished.
[7] Whilst those circumstances were being endured his mortgage from Wroxton and CTL fell into arrears, and in July 2012 Wroxton and CTL served on Mr Walton a notice under the Property Law Act 2007 demanding repayment of the outstanding advance and overdue interest. Mr Walton wrote to them pointing out the hardship he had suffered and asked them to accept a break in payments for 12 months, and to reduce the interest rate by 7 per cent. He did not remedy the defaults specified in the notice. Wroxton and CTL were not prepared to agree to this proposal.
[8] Mr Walton then lodged a formal complaint about them with the Financial Services Complaints Officer, which had the effect of staying any proceeding to recover the debt or to exercise the power of sale under the mortgage. The complaint was not successful as the loan was classified as a commercial advance, but Wroxton and CTL wrote to the Financial Services Complaints Officer making a proposal to resolve their differences with Mr Walton. A member of that office negotiated an agreement between Wroxton, CTL and Mr Walton. A document was signed on 13
December 2012 which records an advance of $598,207.40 to Mr Walton at an interest rate of 8 per cent per annum, with only interest to be paid for the first six months by monthly instalments of $3,988.04 starting in January 2013. The principal was to be repaid on 7 June 2013. A default interest rate of 18 per cent per annum was agreed. The agreement also permitted Wroxton to take immediate steps to sell Mr Walton’s property under its expired Property Law Act notice if he did not pay any one or more of the monthly instalments, or the principal, on the terms agreed. The original advance and interest were partially repaid from the new advance, and written off to the extent of approximately $8,000.
[9] Mr Walton did not pay the monthly instalments and, accordingly, Wroxton and CTL have brought this proceeding.
[10] In February 2013 Mr Walton filed a claim against EQC and its appointed contractor in the District Court at Christchurch seeking compensation for the way his claim had been handled. Although the defendants in that case have instructed solicitors, Mr Walton’s solicitor has not advanced it and there is no sign of the claim being resolved. The sum claimed is $150,000.
Mr Walton’s case
[11] Mr Walton says that the sum which Wroxton and CTL claimed under their Property Law Act notice issued in June 2012 was much greater than the sum which he had originally borrowed, yet he had made most of the payments of interest, even though some of them were paid late. He says he was shocked to find that the sum claimed was over $600,000, $100,000 more than he believed he owed. He said it was wrong for Wroxton and CTL to have charged penalty interest on each late instalment, because he in fact paid most of the instalments that he was required to pay. Because the sum claimed by Wroxton and CTL increased by over $100,000, it was too large a sum for him to refinance. Because he had not previously been asked to pay interest at the penalty rates he thought that the penalties had been waived. The additional sum claimed just added to the extreme difficulties he had experienced, which I have outlined. He felt vulnerable and, as he put it, the situation put him on edge.
[12] With the approval of Fletchers Mr Walton remained in the house because he had nowhere else to live, and living conditions were cold and rough with little comfort available to him. The situation is the same now, the following winter. The work which has been done to the house, and particularly to the roof, prevents Mr Walton using the roof for his webcam business, as the temporary material that has been placed on the roof instead of the permanent material which has been removed cannot be walked on regularly, which is required in order to monitor and adjust the webcam installations.
[13] Mr Walton says that Wroxton and CTL were aware, at the time he entered into the deed, that he had no money available for interest payments and that his financial situation would not improve until his home was fully repaired, or he was reimbursed for the losses he incurred as a result of the poor handling of the repair work. He says that he is now very close to resolving the situation with EQC and its contractor, and once that claim is settled satisfactorily he will be able to reduce the amount owing to Wroxton and therefore to refinance. In effect Mr Walton asks for more time to pay the sum which he acknowledges is owing to Wroxton and CTL, in the circumstances which have prevailed since the death of his partner in 2009.
The case for Wroxton and CTL
[14] Wroxton and CTL say that they have a right under the loan agreement to enter into possession of the land if Mr Walton defaults in making any agreed payment. They say, further, that the settlement agreement included a term which gave them the right to take immediate steps to sell Mr Walton’s property pursuant to the Property Law Act notice issued in 2012 in the event Mr Walton failed to pay any of the agreed monthly instalments of interest, or to pay the capital on the agreed date of 7 June. This agreement was recorded by deed, the breaches have occurred, and Wroxton and CTL are entitled to an order giving them possession of the property.
[15] Wroxton and CTL say that the agreement with Mr Walton was not obtained by duress. The principles on which a contract may be avoided for duress are well- established and are not met in this case. Similarly, the criteria for assessing whether a contract is an unconscionable bargain have not been met either.
[16] Accordingly they say that Mr Walton does not have an arguable defence to their application for summary judgment.
Discussion
[17] This is an application for summary judgment. Judgment may only be entered on a summary basis if a plaintiff can satisfy the Court that a defendant does not have an arguable defence. The onus of proof lies on the party asking that summary
judgment be entered.1 Where a plaintiff seeking summary judgment relies on a contract which, on its face, entitles it to the remedy it seeks, an evidential onus of proof shifts to a defendant to demonstrate a tenable defence, but nonetheless the overall onus of proving the absence of a defence remains with the plaintiff.2
Duress
[18] For a contract to be voidable on the ground of duress, certain elements must be established. These are summarised in Pharmacy Care Systems Ltd v Attorney- General:3
(a) There must be a threat or pressure.
(b) That threat or pressure must be improper.
(c) The victim’s will must have been overborne by the improper pressure
so that his or her free will and judgment have been displaced.
(d)The threat or pressure must actually induce the victim’s manifestation of assent.
(e) The threat or pressure must be sufficiently grave to justify the assent from the victim in the sense that it left the victim with no reasonable alternative.
(f) Duress renders the resulting agreement voidable at the instance of the victim.
(g)The victim may be precluded from avoiding the agreement by affirmation.
[19] In Moyes & Groves Ltd v Radiation NZ Ltd,4 the Court said that economic duress as a ground for avoiding liability under a contract should not be found lightly.
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
2 Auckett v Falvey HC Wellington CP296/86, 20 August 1986, per Eichelbaum J.
3 Pharmacy Care Systems Ltd v Attorney-General (2004) NZCCLR 187 at [98].
4 Moyes & Groves Ltd v Radiation NZ Ltd [1982] 1 NZLR 368 (CA).
[20] For the reasons which I have summarised in [4] – [6] Mr Walton’s mortgage with Wroxton and CTL fell into arrears. Mr Walton does not blame Wroxton and CTL for these events. Neither, of course, could he. Wroxton and CTL were within their rights to issue a Property Law Act notice demanding repayment of their advance. Mr Walton’s complaint about their conduct was destined to fail, as the advance was not within the category of advances that the Financial Services Complaints Officer could deal with. However, rather than forge ahead immediately with enforcement proceedings, Wroxton and CTL engaged in a negotiation which resulted in their substantially reducing the interest rate being charged on their advance, writing off a modest amount of the debt which had accrued, and giving Mr Walton a further period within which to repay the advance in full provided he paid interest at the reduced rate on a regular monthly basis for six months. Wroxton and CTL were not obliged to enter this agreement. They did so voluntarily. Had they adhered to their strict legal rights they could have forced a sale of the property late in 2012, sought repayment of a higher sum and charged interest at the previously agreed penalty rate in the meantime. No criticism can be made of their response to Mr Walton’s circumstances.
[21] Nor is it the fault of Wroxton or CTL that Mr Walton has not made the payments that he agreed to make. He expressed to me his view that Wroxton and CTL knew he could not meet the payments when the settlement agreement was entered, but there is no evidence to that effect; indeed, it is inherently unlikely that two finance companies would enter into an agreement of this sort if those companies knew in advance that the agreed payments of interest were not going to be met.
[22] The other criticism laid at the feet of Wroxton and CTL by Mr Walton is that they wrongly charged penalty interest when they issued the Property Law Act notice, in respect of instalments which he had paid late during the term of the original loan. No material was placed before the Court to substantiate that view. Mr Walton quite properly accepts that he was late with payments during the term of that advance and any time during that period he could have inquired of Wroxton and CTL what effect these late payments were having. The events in his life may have contributed to or caused his not having done so but, again, no blame can be laid at the door of Wroxton and CTL for charging interest in accordance with the original loan
agreement. There is no evidence that they waived their right to do so. In any event, the new terms of advance agreed in settlement of the complaint procedure clearly imply acceptance by Mr Walton that the sum said to be overdue was the amount he had to repay.
[23] The evidence does not establish a threat or any pressure by Wroxton and CTL, nor that Mr Walton’s will was in any way overborne by any of the events which occurred at the time the new advance and settlement agreement were arranged. The elements of duress as a defence to this claim are not made out.
Unconscionable bargain
[24] In some circumstances equity will intervene to relieve a party of an obligation under a bargain it has struck if to enforce that obligation would be unconscionable. In Gustav & Co Ltd v MacField Ltd, the Court of Appeal set out a summary of principles drawn from a number of cases on this area of law. It noted that the principles it stated are not exhaustive:5
1 Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.
2 This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.
3 A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party’s ability to assess his or her best interests. It is an open-ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.
4 If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.
5 MacField Gustav & Co Ltd v Ltd [2007] NZCA 205 at [30].
5 Before a finding of unconscionability will be made, the stronger party must know of the weaker party’s disability or disadvantage and must “take advantage of” that disability or disadvantage.
6 The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.
7 “Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:
... circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
8 If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.
[25] To succeed in this defence Mr Walton must show that at the time he entered this agreement he was under a significant disability or disadvantage, but that does not arise simply from an inequality of bargaining power. Even if it were shown that in the circumstances of this case Mr Walton, as borrower, and Wroxton and CTL as lenders, held their respective bargaining positions prior to the agreement on an unequal basis, it must also be shown that there was a characteristic personal to Mr Walton which significantly diminished his ability to assess his best interests. There is no evidence that Mr Walton suffered from any disability or disadvantage. He was in the position of a borrower who owed money to a lender which was overdue and in respect of which he was necessarily under some pressure. He had been through, and was still going through, difficult times in his personal life as I have outlined, but the evidence does not suggest, let alone establish, that these placed Mr Walton under any form of disability or disadvantage in negotiating the terms of the advance relied on by Wroxton and CTL.
[26] Quite apart from that, the agreement struck between Wroxton, CTL and Mr Walton placed him in a better position than previously. He received an extension of time to meet his commitments, a significantly reduced interest rate, and a reduction in the sum that he owed. Furthermore, Mr Walton was assisted in the negotiations leading to this agreement by an independent officer of the Financial Services Complaints office. This demonstrates that there were no grounds to suggest to Wroxton or CTL that Mr Walton was acting under any disability or disadvantage. Wroxton and CTL voluntarily entered the settlement agreement knowing that it favoured Mr Walton.
[27] None of the elements of an unconscionable bargain have been shown to apply.
[28] For these reasons I am satisfied that neither of the defences relied on by
Mr Walton is arguable.
Residual discretion
[29] Rule 12.2(1) of the High Court Rules provides that the Court may give judgment against a defendant if a plaintiff satisfies the Court the defendant does not have a defence – but it does not provide that it must do so. The Court has a discretion. The principles on which that discretion must be exercised have been established in a number of cases.
[30] In Pemberton v Chappell6 the Court of Appeal noted that there is only the most limited scope for the discretion to be exercised against the entry of summary judgment, where injustice is not claimed. It referred to European Asian Bank AG v Punjab & Sind Bank.7 Robert Goff LJ said that once the plaintiff has satisfied the Court that there is no defence:
it is difficult indeed to conceive of circumstances where the Court should not give judgment for the plaintiff ... It can only be a discretion of the most residual kind.
6 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
7 European Asian Bank AG v Punjab & Sind Bank [1983] 2 All ER 508 at 515.
[31] The Court will not allow the summary judgment procedure to be used oppressively. In Capital & Coast District Health Board v Hunt Group Management Ltd8 the Court said:
[75] Here I am satisfied that the plaintiffs are not using the summary judgment procedure unjustly or as an instrument of oppression but purely to enforce their rights as landlord to retake possession of the premises in question.
[32] In Tea Custodians (Bluestone) Ltd v East View Constructions (Albany) Ltd,
Venning J said:9
The residual discretion may be invoked to avoid oppression or injustice. In this case to enter judgment against the defendants would not be an injustice as Mr Buckley [the second defendant] has accepted that the debt is owing. There are, regrettably for Mr Buckley, no particularly unusual features. This is simply a debt borrowed by the company and guaranteed by Mr Buckley that he is not in a position to repay at present.
[33] The Court will also consider the commercial purpose of a contract which a plaintiff seeks to enforce. In Dominion Breweries v Countrywide Banking Corporation Ltd,10 the Court declined to exercise its discretion not to exercise summary judgment:
To do so would be to defeat the commercial purpose of the contractual exclusion, would be out of touch with business realities and would keep Dominion Breweries waiting for payments it was intended it should receive monthly while managing the hotel, whilst protracted proceedings on the counterclaim are litigated.
[34] The Court again referred to the commercial purpose of the bargain the parties had made in Bromley Industries Ltd v Marin & Judith Fitzsimons Ltd.11 In this case the Court of Appeal noted the distinction between exercise of a discretion not to enter summary judgment and consideration of whether subsequent execution of the judgment may lead to a miscarriage of justice, the latter being provided for in
r 17.29. The Court observed that an application under that rule is the appropriate
8 Capital & Coast District Health Board v Hunt Group Management Ltd HC Wellington
CP141/02 15 October 2002.
9 Tea Custodians (Bluestone) Ltd v East View Constructions (Albany) Ltd HC Auckland
19 December 2008 at [7].
10 Dominion Breweries v Countrywide Banking Corporation Ltd CA314/91, 18 August 1992.
11 Bromley Industries Ltd v Marin & Judith Fitzsimons Ltd [2009] NZCA 382.
way to have the Court consider the effect of execution of the judgment on parties in the position of the respondents in that case.
[35] Mr Walton says that it would be unjust for judgment to be entered against him when he has a proceeding underway to recover damages for the way that repairs to his house have been, as he sees it, mishandled. He says that damages recovered in that case will be applied to reducing the debt to Wroxton and CTL, making it easier for him to refinance. He says that the poor handling of the repairs has led to delays in reinstating his business from which cashflow to service the mortgage would have been derived, and had it been possible to operate the business the present position would have been avoided.
[36] There are, however, further factors to be taken into account. First, it was initially Mr Walton’s decision to step away from running his business and concentrate his efforts on the repairs to his house, after the earthquakes. Secondly, the claims he believes he has against EQC and its contractor are unrelated to his separate contractual agreements with Wroxton and CTL. Thirdly, there is no certainty that Mr Walton will recover the amount he claims against those parties, some $150,000, nor when he may do so, but even if he does it is not clear that this will materially assist with repaying the Wroxton and CTL debt which is some four times that amount. Mr Walton said he could partially repay the loan from this source and refinance the balance; Mr Riach pointed out that Mr Walton does not appear to have an identified source of income which he would need if he endeavoured to borrow from a different source.
[37] There is no basis to find that Wroxton and CTL are acting unfairly or oppressively. It is clear that refusing to enter judgment would defeat the commercial purpose of the contract that Wroxton and CTL entered with Mr Walton, and as Venning J put it in Tea Custodians (Bluestone) Ltd (above) that:
this is simply a debt borrowed by [Mr Walton] that he is not in a position to repay at present.
[38] In Capital & Coast District Health Board v Hunt Group Management Ltd,12 the Court declined to exercise its discretion not to enter summary judgment on an application for possession to be given of a health care facility then occupied by a significant number of elderly residents. However, although it entered summary judgment as sought, it stayed the judgment for a period of three months to enable the defendant to take steps to relocate the residents.
[39] In this case the property of which possession is sought is Mr Walton’s home. An order for possession to be given immediately has the potential to cause at least significant inconvenience, if not hardship. The evidence shows that he has lived in the property for many years and there are certain practical steps involved in moving out.
[40] However, the real point of hardship argued by Mr Walton is his view that he can resolve his differences with Wroxton and CTL if he has a favourable outcome on his claim against EQC and Fletchers, so he may not need to lose his home at all. Counting against him on this argument are the factors I have already referred to. As well, over three months have passed since the claim was lodged and nothing appears to have been done to bring it to a conclusion. However, I cannot exclude the possibility that the claim will be resolved promptly and a pathway to repayment of Wroxton and CTL will emerge as a result.
[41] In the interim judgment issued on 12 June I invited the parties to lodge written submissions in relation to whether judgment should be entered now, but stayed for a period of eight weeks, for the reasons set out above. I have received and considered submissions. Mr Walton points out that he is doing everything within his power to have his claim against EQC and Fletchers dealt with promptly, and he has produced an email from his solicitor advising that he is endeavouring to arrange a settlement meeting. He says he certainly needs time to find suitable alternative accommodation and move the contents of his home in an orderly fashion if he is
unable to resolve his position with Wroxton and CTL.
12 Capital & Coast District Health Board v Hunt Group Management Ltd HC Wellington
CP141/02 15 October 2002.
[42] Wroxton and CTL oppose a stay, largely for the reasons already argued on their behalf in support of this application for summary judgment. They offered a three week grace period from judgment being entered, for the defendant to vacate.
[43] It is now two weeks since the interim judgment was issued. In my view Mr Walton should have a further period of four weeks before the judgment takes effect. I enter judgment for the plaintiffs in terms of the application for summary judgment. The judgment is stayed until 12 noon on Wednesday, 24 July 2013. This gives Mr Walton a total of six weeks from the issue of the interim judgment within which he may be able to resolve the claim by the plaintiffs, or otherwise move from the home before the possession order takes effect.
[44] The plaintiffs are entitled to costs on a 2B basis plus disbursements to be fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Harmans Lawyers, Christchurch. Defendant – Mr C F Walton, Christchurch.
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