Xiao v Sun
[2016] NZHC 454
•16 March 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2872 [2016] NZHC 454
UNDER the Credit Contracts and Consumer
Finance Act 2003
BETWEEN
HANYUE XIAO Plaintiff
AND
XIUFANG SUN Defendant
Hearing: 12 February 2016 Counsel:
A J B Holmes for Plaintiff
B O'Callahan, J A Frampton and Z Chen for DefendantJudgment:
16 March 2016
JUDGMENT OF DAVISON J
This judgment was delivered by me on 16 March 2016 at 12pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: Loo & Koo (Auckland) for Plaintiff
Kirkland Morrison O’Callahan & Ho (Auckland) for Defendant
XIAO v SUN [2016] NZHC 454 [16 March 2016]
Introduction
[1] The plaintiff, Ms Xiao, has applied for interim relief by way of an injunction to restrain the defendant, Ms Sun, from taking any steps to enforce compliance with the PLA notices dated 20 October 2015 (detailed below) pending the substantive hearing of this proceeding.
[2] Ms Sun opposes the plaintiff’s application for interim relief and has filed a counterclaim seeking judgment in the sum of $700,000 against Ms Xiao, being the outstanding amount due under the Term Loan Agreement and addenda, together with interest and costs. Ms Sun has also applied for summary judgment on both her defence to the claim and on her counterclaim. Ms Xiao opposes both applications.
Alleged facts1
[3] Both parties have VIP membership at the SkyCity Casino (the Casino).
[4] Ms Sun met Ms Xiao in about 2013 at the Casino. Ms Sun told Ms Xiao that she was once a black jack dealer at the Casino; that she was now a professional gambler; and that she knew how to count cards. She also told Ms Xiao that she is the wife of a Mr Hui Zhang, and that they had a child together.
Oral Loan Agreement
[5] In or about April 2014, Ms Xiao was gambling at the Casino and at the time had lost a significant amount of money. Ms Sun had been with her when this happened, and that same day offered to provide Ms Xiao with $10,000 worth of Casino chips by way of a loan. Ms Sun explained that as she was about to travel to China for a month, Ms Xiao could borrow and use the Casino chips to continue to gamble while she was away in China.
[6] When Ms Sun returned from China in late May 2014, she met Ms Xiao at the
Casino and requested immediate repayment of the loaned amount. Ms Xiao said she
1 The summary of facts is taken from the plaintiff ’s amended statement of claim dated 9 February
2016 and affidavit dated 2 December 2016. The defendant’s version of events is set out below.
was unable to repay her immediately and asked her for two days within which to arrange the funds to make payment. Ms Sun said that she would not accept any delay, and that she required to be repaid immediately.
[7] Ms Sun then suggested that she could arrange for a loan of $30,000 to be made to Ms Xiao from an unidentified wealthy friend of hers (“lender friend”) to enable Ms Xiao to repay her the sum of $10,000, and have the rest available to her to spend or gamble at the Casino. Ms Xiao agreed.
[8] According to Ms Xiao, the terms of the Oral Loan Agreement were that:
(a) interest was to be payable at the rate of four per cent per week (being
$1,200 per week);
(b) interest was to be paid in advance, and interest payment for the first week would be deducted from the loan amount to be advanced;
(c) interest payments were to be made using Casino chips, and handed to
Ms Sun in the female toilets at the Casino; and
(d) Ms Sun would assist Ms Xiao with her future gambling at the Casino. [9] Ms Sun assured Ms Xiao that with her help, she would be able to use her
winnings derived from further gambling to pay the weekly interest due on the loan.
[10] In accordance with the Oral Loan Agreement, Ms Sun proceeded to advance the sum of $18,800 in either Casino chips or cash to Ms Xiao, being the loan amount of $30,000 less the following deductions:
(a) $10,000 to repay Ms Sun for the Casino chips of that value previously loaned by her to Ms Xiao; and
(b) $1,200 to cover one week’s interest in advance.
Amended Oral Loan Agreement
[11] Some few weeks later, Ms Xiao had gambled and lost the all of the loaned sum of $18,800 that she had received from Ms Sun, and was unable to meet the weekly interest payment of $1,200 as it was then due.
[12] On or about April 2014, Ms Sun said she was able to arrange for her lender friend to advance to Ms Xiao a further $20,000 but that the interest rate would go up to five per cent per week. It was then agreed between them that Ms Xiao would accept a further loan to enable her to:
(a) pay $1,200 to meet weekly interest due for the following week;
(b)pay a further $1,000 as weekly interest to cover the additional amount advanced; and
(c) use the balance to spend or gamble at the Casino.
[13] Ms Xiao says that in accordance with this arrangement, Ms Sun advanced her the sum of $17,800 in cash or Casino chips being $20,000 less $2,200 (to cover one week’s interest in advance).
[14] In her affidavit, Ms Xiao says she cannot remember whether, on each particular occasion, Ms Sun gave her the advanced sum in cash or Casino chips: “[s]ometimes she gave one, and sometimes the other, or a mixture of the two.” Ms Xiao says she did not keep a record of the amounts advanced to her nor did she keep a record of the interest payments she made using Casino chips. She explains that she kept no records because she did not want her husband to find out about the loan arrangements and her losses at the Casino.
Further amended oral loan agreement
[15] Within several more weeks, Ms Xiao had either gambled or spent the amount of $17,800 that she had borrowed from Ms Sun, and soon found that she was again unable to pay the weekly interest to Ms Sun.
[16] Ms Sun then offered to arrange for her lender friend to lend Ms Xiao a further
$20,000 in order to enable her to:
(a) pay $1,200 to meet weekly interest for the following week;
(b)pay a further $1,000 as weekly interest for the additional amount advanced; and
(c) use the balance to spend or gamble at the Casino.
[17] Ms Xiao agreed. She says Ms Sun advanced her the sum of $17,800 in Casino chips or cash, being $20,000 less $2,200 (to cover one week’s interest in advance).
[18] Within a further couple of weeks or so thereafter, Ms Xiao had lost or gambled away all of the amount loaned to her and was again unable to pay the weekly interest to Ms Sun. Ms Sun suggested that once again, she would arrange a loan from her lender friend in the sum of $20,000. Ms Xiao agreed. She says that Ms Sun then proceeded to advance her the sum of $16,800 either in cash or Casino chips being the loan amount of $20,000 less $3,200 (to cover one week’s interest in advance).
[19] Ms Xiao says that during the period of May to June 2014, she made regular interest payments to Ms Sun of $3,500 per week.
Blacklist period
[20] In or about late June 2014, Ms Xiao voluntarily put her name on the Casino “blacklist” and was banned from gambling at the Casino for three months. This followed an incident where she had knowingly received and retained an overpayment of about $400 from the Casino when cashing up Casino chips (Ms Xiao says that Ms Sun was with her at the time this occurred). During the period of the three month ban, Ms Sun:
(a) told Ms Xiao that she would need to keep gambling in order to be able
to meet weekly interest payments then due;
(b)told Ms Xiao that if she did not continue to meet the weekly interest payments there would be severe consequences for her, as Ms Sun’s lender friend was a professional loan shark who was connected to criminal organisations; and
(c) offered to gamble on Ms Xiao’s behalf using Ms Sun’s own funds, and sharing any winnings with Ms Xiao so that Ms Xiao could apply her share of the winnings to pay the interest charges.
[21] Ms Xiao agreed. She says that although she was not allowed to enter the Casino’s gambling areas, she received reports from Ms Sun as to the gambling activities she had conducted on behalf of Ms Xiao.
[22] However, within several days, Ms Sun reported to her that she had lost
$8,000 when gambling and told her that she was required to repay her that amount. Ms Xiao was unable to do so, and was also unable to meet the weekly interest payments on the outstanding loans. Within another few weeks, Ms Sun told Ms Xiao that she had lost a further sum of $20,000 while gambling on Ms Xiao’s behalf.
[23] According to Ms Xiao, Ms Sun then said that she could again arrange for her lender friend to lend and advance Ms Xiao a further sum of $30,000. Ms Xiao agreed. The loan money was to enable Ms Xiao to:
(a) repay Ms Sun the amount of $8,000;
(b) meet weekly interest payments then due; and
(c) use the balance to spend or gamble at the Casino.
[24] Ms Xiao says that in respect of this loan, she received a balance of no more than $17,300 in cash or Casino chips, although she further states that she has not been able to determine or confirm the exact amount.
[25] Within another few weeks, Ms Sun reported to Ms Xiao that she had lost a further $20,000 while gambling on her behalf and said that Ms Xiao was required to repay her that amount. Again, she had arranged for a loan advance of $30,000 from her lender friend to be available for Ms Xiao to cover the lost amount, as well as pay the interest which was now accruing at a rate of $6,200 per week. Again, Ms Xiao agreed to a further loan. From that loan advance, Ms Xiao says she received only
$3,800 after deductions were made to cover the accrued interest on the earlier loans.2
First Written Loan Agreement
[26] At around the time of these events, Ms Xiao says that Ms Sun told her that:
(a) her lender friend required Ms Xiao to provide security for the loan advances and interest, and also required her to sign a written loan contract. Ms Xiao says she was told by Ms Sun that there would be severe consequences for Ms Xiao if she refused to provide security;
(b)the loan contract would be in Ms Sun’s name and not in the name of her lender friend, although she maintained that the loan was being advanced by her lender friend;
(c) the interest rate of five per cent per week would not be included and written into the loan agreement because it was too high to be formally recorded. Further, although the interest rate would be left blank in the agreement, interest would nevertheless continue to accrue and be payable weekly at the rate of five per cent per week pursuant to an Oral Loan Agreement;
(d) the principal sum of the loan would be stated in the agreement as
$100,000;
(e) Ms Xiao would be required to give security over the apartment located at 513, 149 Nelson Street (the Apartment) in which she has an
2 I note this is not pleaded in the plaintiff ’s amended statement of claim though mentioned in the plaintiff ’s affidavit.
interest as joint tenant together with her husband. Ms Sun said that because Ms Xiao’s husband was not a party to the agreement, the mortgage would not be registered.
[27] Ms Xiao says she agreed to give security over the Apartment and signed an agreement (being the First Written Loan Agreement) on the abovementioned terms. The First Written Loan Agreement was also signed by Ms Sun in July 2014. Ms Xiao says she did not receive a copy of this First Written Loan Agreement.
Further advance of $30,000
[28] Shortly after signing the First Written Loan Agreement, Ms Sun told Ms Xiao that she had lost a further $20,000 in the course of further gambling undertaken on behalf of Ms Xiao, and that Ms Xiao was required to repay that amount to her. Ms Xiao was unable to do so and was also unable to meet weekly interest payments.
[29] Ms Sun again once again said that she had arranged for her lender friend to advance a further sum of $30,000 to Ms Xiao in order to enable her to:
(a) repay the $20,000 to Ms Sun;
(b) pay $6,200 to meet weekly interest for the following week; and
(c) use the balance to spend or gamble at the Casino.
[30] Ms Xiao says she agreed to a further loan and subsequently received a sum of
$3,800 in cash or Casino chips, being $30,000 less the deductions required to repay the gambling loss of $20,000, and the interest payment of $6,200.
[31] Ms Xiao says that during July 2014, she made regular interest payments to Ms Sun of $6,200 per week but, by mid-August, she had run out of funds to meet any further interest payments.
Further advance of $50,000
[32] In August 2014, Ms Sun told Ms Xiao that she had lost another $10,000 while gambling on her behalf, and that Ms Xiao was required to arrange repayment of that amount to her.
[33] Ms Sun said that she had again arranged for her lender friend to advance a sum of $50,000 to Ms Xiao in order to enable her to:
(a) repay the $10,000 to Ms Sun;
(b) pay $17,400 to meet weekly interest for the following two weeks; and
(c) use the balance to spend or gamble at the Casino.
[34] Ms Xiao says she received the sum of $22,600 in cash or Casino chips as the balance of this further loan advance since $17,400 was deducted for payment of two weeks’ interest as well as the amount of $10,000 which Ms Sun had claimed to have lost while gambling on Ms Xiao’s behalf.
Further advance of $40,000
[35] Later in August 2014, Ms Sun told Ms Xiao that she had again lost a further
$10,000 while gambling on behalf of Ms Xiao, and that Ms Xiao was required to repay her that amount.
[36] Ms Sun once again said that she had arranged for her lender friend to lend Ms
Xiao the sum of $40,000 in order to enable her to: (a) repay the sum of $10,000 to Ms Sun;
(b) pay $22,400 to meet weekly interest for the following two weeks;3
and
3 I note the plaintiff ’s amended statement of claim at [53] records this amount as $21,400.
(c) use the balance to spend or gamble at the Casino.
[37] Ms Xiao says she received the sum of $8,600 in cash or Casino chips as the balance of this further loan advance, being the amount of $40,000 less $10,000 to repay the amount Ms Sun claimed to have lost while gambling, together with payment of two weeks’ of interest at $22,400.
Advance of $30,000
[38] In September 2014, Ms Xiao made interest payments of $10,700 per week to Ms Sun but, by the end of September, she needed to borrow a further amount in order to meet interest payments. Ms Sun again said that she had arranged for her lender friend to lend $30,000 to Ms Xiao. Ms Xiao says that she received in cash or Casino chips only $5,6004 as the amount of $24,400 was deducted from the loan advance in order to meet weekly interest payments for two weeks in advance.
[39] Ms Xiao says that, by October 2014, she had paid Ms Sun around $80,000 in interest, in addition to the amounts which had been deducted from the loan advances by Ms Sun to meet interest payments in advance.
Term Loan Agreement
[40] On or about 7 October 2014, Ms Xiao and Ms Sun attended the offices of Ms Sun’s solicitors, Focus Law, and there signed a “Term Loan Agreement” which had been prepared by Focus Law and which provided that:
(a) Ms Sun was the lender and Ms Xiao was the borrower;
(b) the principal sum was $250,000 comprised of loan advances of
“…various sums from May 2014 to date”;
(c) the term of the loan was six months;
(d) the interest commencement date and interest dates were described as
4 I note the plaintiff ’s amended statement of claim at [57] records this amount as $8,600.
“not applicable”;
(e) Ms Xiao agreed to give security over the Apartment; and
(f) it was conditional upon Ms Xiao signing the Term Loan Agreement,
“together with all of the securities”.
[41] At the same time, Ms Xiao also signed a form releasing Focus Law from all liability (release form), which relevantly provides:
1. Xiufang SUN has instructed us to prepare a Term Loan Agreement for her and you.
2. You have come to our offices to execute the Term Loan Agreement.
3. We have explained to you that we do not act for you and that you should obtain independent legal advice prior to the signing of the Term Loan Agreement.
4. Despite our advice above, you have elected not to obtain independent legal advice.
5. Please sign and return this letter in acknowledgement of our advice to you and release us from all liability on your decision.
[42] Ms Xiao says she was told by Ms Sun at this time that:
(a) the loan contract would be in Ms Sun’s name and not in the name of her lender friend (although the loan was actually being advanced by her lender friend);
(b)the interest rate would be left blank in the Term Loan Agreement but that it would continue to accrue at five per cent per week as per the earlier Oral Loan Agreement; and
(c) the sum of $250,000, recorded in the Term Loan Agreement as being advanced, included principal and interest.
Further advances
[43] Within about a week of signing the Term Loan Agreement, Ms Sun arranged
a further advance of $30,000. Ms Xiao says she received the amount of $16,300 in cash or Casino chips, being $30,000 less $13,700 (to cover one week’s interest in advance).
[44] In late October 2014, Ms Xiao travelled to Hong Kong unexpectedly. Ms Xiao says that prior to her departure, she was told by Ms Sun that she had lost another $10,000 whilst gambling on Ms Xiao’s behalf, and that, because she was going overseas, she was required to pay Ms Sun two weeks’ interest in advance. Ms Sun said she had arranged for her lender friend to advance a further sum of $50,000 to Ms Xiao to cover interest payments of $32,400. Ms Xiao says she cannot remember whether Ms Sun also deducted $10,000 from the sum being advanced for gambling losses, and says she is not sure whether she received the sum of $17,600 or
$7,600 from Ms Sun in respect of this advance.
[45] Ms Xiao says that, for several months, starting in November 2014, Ms Sun arranged for Ms Xiao to borrow a further $200,000 in order to be able to pay interest to Ms Sun. She says that, by the end of December 2014 or the start of January 2015, she was up to date with interest payments.
Caveat5
[46] On 24 October 2014, Ms Sun registered a caveat on the title of the
Apartment, claiming a security interest under the Term Loan Agreement.
Additional Addendum
[47] On 21 January 2015, the Term Loan Agreement was varied by means of a document entitled “Additional Addendum”. It was signed by both the plaintiff and defendant at the offices of Focus Law, with Ms Xiao again signing a release form which relevantly provides:
1. Xiufang SUN has instructed us to prepare an Addendum Term Loan
Agreement for her and you.
5 I note this is not addressed in Ms Xiao’s affidavit though set out in the plaintiff ’s amended
statement of claim at [74].
2. You have come to our offices to execute the Addendum.
3. We have explained to you that we do not act for you and that you should obtain independent legal advice prior to the signing of the Addendum.
4. Despite our advice above, you have elected not to obtain independent legal advice.
5. Please sign and return this letter in acknowledgement of our advice to you and release us from all liability on your decision.
[48] The Additional Addendum:
(a) extended the term expiry date for the Term Loan Agreement to 21 July
2015;
(b) recorded that Ms Xiao was to borrow an additional amount of
$280,000 from Ms Sun on the same terms and conditions as set out in the Term Loan Agreement; and
(c) deemed the further advance to be part of the principal sum to be secured by the Apartment.
[49] Ms Xiao says although she does not know the exact amount advanced to her, or how much Ms Sun deducted from that amount, she remembers that:
(a) in about December 2014 or early January 2015, Ms Sun arranged the sum of $100,000 to be advanced although she does not have a record of what she actually received;
(b)in about March 2015, Ms Sun arranged the sum of $40,000 to be advanced but says this was mostly to cover interest payments, and she only received the balance of around $7,000;
(c) later in March 2015, Ms Sun told her that the interest payment of
$30,000 of weekly interest “could just be added to the total, so from that I didn’t receive anything.”
Second Addendum
[50] On or about 23 February 2015, the parties entered into a “Second Additional Addendum” to the Term Loan Agreement. Again it was signed by the parties at the offices of Focus Law, with Ms Xiao again signing a release form which relevantly provides:
2. You have come to our offices to execute the Second Addendum to the
Term Loan Agreement.
3. We have explained to you that we do not act for you and that you should obtain independent legal advice prior to the signing of the Second Addendum to the Term Loan Agreement.
4. You have had sufficient time and opportunity to engage independent legal advice before deciding to enter into the Second Addendum to the Term Loan Agreement.
5. Despite our advice above, you have elected not to obtain independent legal advice.
6. Please sign and return this letter in acknowledgement of our advice to you and release us from all liability on your decision.
[51] The Second Additional Addendum provided that Ms Xiao was to borrow an additional $100,000 from Ms Sun on the basis that:
(a) it would be repayable within three weeks of it being advanced;
(b)Ms Xiao agreed to pledge her home located at 21 Loughros Place, Pinehill (the House) as additional security to secure all sums advanced to that date or in the future;
(c) the security over the Apartment and the security over the House were “all obligation” mortgages securing all obligations “(i.e. principle [sic] sum, any interest and any loss, costs (including legal costs) or otherwise that the Lender suffers as a result of the Borrower’s breach of the TLA, AA and this Second Additional Addendum)”
[52] Ms Xiao says that she was initially reluctant to enter into the Second
Additional Addendum, however she says she was told by Ms Sun that she would be
“in big trouble” with her lender friend if she did not pay, and that he would not demand repayment of the principal sum if the House was provided as security.
[53] Ms Xiao says that in about February 2015, Ms Sun arranged another loan for Ms Xiao to borrow a further $40,000. Ms Xiao says that Ms Sun delivered approximately $6,800 in cash or Casino chips to Ms Xiao, being $40,000 less
$33,200 (to cover one week’s interest in advance).6
Caveat7
[54] On 12 March 2015, Ms Sun lodged a caveat against the title of the House claiming a security interest under the Agreement and the First and Second Addenda.
Third Addendum8
[55] On or about 24 March 2015, the parties entered into a “Third Additional Addendum” to the Term Loan Agreement. It was again signed by the parties at the offices of Focus Law, with Ms Xiao also signing a release form, which relevantly provides:
2. You have come to our offices to execute the Third Addendum to the
Term Loan Agreement.
3. We have explained to you that we do not act for you and that you should obtain independent legal advice prior to the signing of the Third Addendum to the Term Loan Agreement.
4. You have had sufficient time and opportunity to engage independent legal advice before deciding to enter into the Third Addendum to the Term Loan Agreement.
5. Despite our advice above, you have elected not to obtain independent legal advice.
6. Please sign and return this letter in acknowledgement of our advice to you and release us from all liability on your decision.
6 I note this is not addressed in Ms Xiao’s affidavit though set out in the plaintiff ’s amended
statement of claim at [86].
7 I note this is not addressed in Ms Xiao’s affidavit though set out in the plaintiff ’s amended
statement of claim at [87].
8 I note this is not addressed in Ms Xiao’s affidavit though set out in the plaintiff ’s amended
statement of claim from [88].
[56] The Third Addendum provided that:
(a) Ms Xiao was to borrow an additional sum of $170,000 from Ms Sun on the same terms and conditions as the Term Loan Agreement;
(b) the repayment date was on or before 21 July 2015;
(c) the Term Loan Agreement and First and Second Addenda had created all obligation mortgages over the Apartment and House;
(d)all other sums mentioned in the previous documents had been advanced.
[57] Ms Xiao says that in about March 2015, Ms Sun arranged another loan for Ms Xiao to borrow a further $100,000. Ms Sun delivered $30,000 in cash or Casino chips to Ms Xiao, being $100,000 less $70,000 (to cover two weeks’ interest in advance).
Subsequent events
[58] Ms Xiao says she made interest payments in April and May 2015 but was unable to keep up. She says that Ms Sun made repeated demands for repayment, including on one occasion arguing with her in the car-park of the Casino.
[59] In May 2015, Ms Xiao confided in her mother about the loan arrangements. She gave birth to her third child on 11 May 2015 and on 18 May 2015, she made a payment of $100,000 to Ms Sun in reduction of the principal amount.
[60] On 3 June 2015, Ms Xiao sought legal advice.
[61] On 20 July 2015, Ms Sun’s solicitors wrote to Ms Xiao’s then solicitors requiring Ms Xiao to sign an Authority & Instructions Form (A&I) to enable them to proceed to sever Ms Xiao’s interest on the title of both the Apartment and the House; and to enable registration of mortgages over her interest in the two properties. Ms Xiao refused to sign the A&I form.
[62] On 15 September 2015, Ms Sun’s solicitors registered instruments of transfer to transfer a half share in the title of the two properties from Ms Xiao to Ms Sun. That same day, Ms Sun also registered mortgage instruments to register a mortgage over Ms Xiao’s half share on the title of both of the two properties in favour of Ms Sun. In doing so, Ms Sun purported to exercise an irrevocable power of attorney granted to her by Ms Xiao pursuant to cl 5(g) of the Mortgage Memorandum
2011/4300 (the Memorandum).
[63] On or about 20 October 2015, Ms Sun’s solicitors served four PLA notices of default, pursuant to s 119 of the Property Law Act 2007, on Ms Xiao in respect of:
(a) the claimed principal amount of $700,000 owed to Ms Sun, secured by the mortgage against the Apartment;
(b)interest and the costs of enforcement, said to have accrued or to have been incurred under the Term Loan Agreement and addenda, secured by the mortgage against the Apartment;
(c) the claimed principal amount of $700,000 owed to Ms Sun secured by the mortgage against the House; and
(d)interest and costs of enforcement said to have accrued or to have been incurred under the Term Loan Agreement and addenda, secured by the mortgage against the House.
[64] On 3 December 2015, Ms Sun undertook to Ms Xiao not to take any steps in reliance on a failure to comply with the PLA notices pending determination of Ms Xiao’s application for the issue of an interim injunction.
The plaintiff ’s amended statement of claim dated 9 February 20169
[65] On 9 February 2016, Ms Xiao filed an amended statement of claim pleading two causes of action:
9 The plaintiff filed a statement of claim on 2 December 2015.
(a) breach of disclosure of obligations under s 18 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), at all relevant times; and
(b)reopening of oppressive credit contracts (being the Oral Loan Agreement, the First Written Agreement, the Term Loan Agreement, and the First, Second and Third Addenda).
[66] On the first cause of action, Ms Xiao claims:
A. A declaration that the Oral Loan Agreement, the First Written Agreement, the Term Loan Agreement and the First, Second and Third Addenda are unenforceable until Ms Sun has provided disclosure in accordance with sections 17 and 22 of the CCCFA;
B. An order restraining Ms Sun from exercising any powers of enforcement under the Term Loan Agreement and the First, Second and Third Addenda, including as against the Apartment and the House, prior to Ms Sun providing disclosure in accordance with sections 17 and 22 of the CCCFA;
C. A declaration that Ms Xiao is not liable for the costs of borrowing prior to Ms Sun providing disclosure in accordance with sections 17 and 22 of the CCCFA;
D. Statutory damages under section 88 of the CCCFA, in an amount equal to the interest charges, credit fees and default fees payable, or paid, to Ms Sun prior to Ms Sun providing disclosure in accordance with sections 17 and 22 of the CCCFA.
E.An order under section 94 of the CCCFA requiring Ms Sun to either refund the payments made by Ms Xiao to her, or credit those against any amount otherwise owing by Ms Xiao to Ms Sun;
F. Damages under section 94(b) of CCCFA;
G. Exemplary damages under section 94(c) of the CCCFA; H. Costs.
[67] In relation to the second cause of action, Ms Xiao claims:
A. An order that an account be taken to ascertain:
i. the amounts received by Ms Xiao from Ms Sun, as opposed to amounts deducted in respect of interest or amounts that Ms Sun claimed to have lost while gambling on Ms Xiao’s behalf, and
ii. the amounts paid by Ms Xiao to Ms Sun in respect of accrued interest.
B. A order [sic] directing Ms Sun to repay to Ms Xiao any amount paid by Ms Xiao to Ms Sun which exceeds the amount received by Ms Xiao from Ms Sun;
C. An order extinguishing any further obligation of Ms Xiao under the Oral Loan Agreement, Term Loan Agreement and the First, Second and Third Addenda;
D. An order that sets aside any security granted by Ms Xiao to Ms Sun, and that discharges the mortgages over the House and the Apartment;
E. Awarding costs on a solicitor-client basis to Ms Xiao under section
128 of the CCCFA.
The plaintiff ’s application for interim relief dated 2 December 2015
[68] Ms Xiao has applied for interim relief under r 7.53 of the High Court Rules (Rules) seeking to restrain Ms Sun from taking any action or exercising any power under the mortgages registered against her share of the properties.
[69] Mr Holmes submits that an order for interim relief ought to be made because the pleaded causes of action have real prospects of success. In his submission, the loan agreements (being the Oral Loan Agreement, the First Written Agreement, the Term Loan Agreement, and the First, Second and Third Addenda) are all consumer credit contracts within the meaning of the CCCFA. Since there is no dispute that Ms Sun failed to provide the required initial disclosure, it is at least arguable that the consumer credit contracts are unenforceable says Mr Holmes.
[70] Mr Holmes also submits that the credit contracts (specifically, the Oral Loan Agreement and the Term Loan Agreement) ought to be reopened on the basis that they are oppressive.
[71] Mr Holmes further submits that there is also a further serious question to be tried regarding the instruments lodged by Ms Sun against the title to Ms Xiao’s two properties. In his submission, neither the Term Loan Agreement nor its addenda incorporate the terms of the Memorandum as terms of the Term Loan Agreement. He refers to a passage of the Term Loan Agreement on the front page, which lists the relevant documents and terms and conditions that form part of the agreement, noting that the Memorandum is not mentioned therein. He says this can be contrasted to the
mortgage instrument lodged by Ms Sun’s solicitors over Ms Xiao’s House which
states:
This mortgage incorporates the provisions of [Memorandum Number
2011/4300] registered pursuant to section 155A of the Land Transfer Act
1952.
[72] Mr Holmes submits that the overall balance of convenience favours the granting of the orders sought, and that it is in the interests of justice that the orders be made.
The statement of defence and defendant’s counterclaim dated 22 December
2015
Statement of defence
[73] Ms Sun says the parties met in 2011 and, at that time, Ms Xiao was a confident gambler who did not need or want her advice on gambling techniques.
[74] Ms Sun denies lending to Ms Xiao the alleged amounts other than the principal amount of $250,000 which is the amount recorded as being advanced under the Term Loan Agreement.
[75] Ms Sun denies lending any amount to Ms Xiao on behalf of friends or another person.
[76] She admits that she gambled on behalf of Ms Xiao using her own money (on Ms Xiao’s request) during the period in which Ms Xiao was blacklisted at the Casino, but says that Ms Xiao has reimbursed her for those losses and that any such losses do not comprise any advances or repayments which are now the subject of this proceeding.
[77] Ms Sun says she did not charge Ms Xiao any interest on any amounts advanced prior to 7 October 2014 (which is the date when the parties entered into the Term Loan Agreement). She contends, however, that interest is payable under cl
3(c) of the Term Loan Agreement on the last day of each month at two per cent per
annum above the taxpayer’s paying rate from the date on which the moneys had become owing.
[78] Ms Sun says the full principal sum of $280,000 recorded in the First
Addendum was advanced by Ms Sun to Ms Xiao in cash as follows:
(a) in November 2014, she advanced the sum of $75,000 to Ms Xiao; (b) on 3 December 2014, she advanced the sum of $35,000 to Ms Xiao; (c) on 13 December 2014, she advanced the sum of $40,000 to Ms Xiao; (d) on 24 December 2014, she advanced the sum of $40,000 to Ms Xiao;
(e) on 11 January 2015, she advanced the sum of $60,000 to Ms Xiao;
and
(f) on 17 January 2015, she advanced the sum of $30,000 to Ms Xiao.
[79] Ms Sun says the full principal sum of $100,000 recorded in the Second
Addendum was advanced to Ms Xiao in cash in February 2015.
[80] Ms Sun says the full principal sum of $170,000 recorded in the Third Addendum was advanced by Ms Sun to Ms Xiao in cash, comprised of the following:
(a) $20,000 in February 2015;
(b) $50,000 in February 2015; and
(c) $100,000 on 19 March 2015.
[81] She admits that on 18 May 2015, Ms Xiao made a payment of $100,000 into Ms Sun’s solicitors’ trust account and says this was in repayment of principal amounts advanced to her.
[82] She says the total principal sum advanced to Ms Xiao was $800,000, and that the outstanding sum under the Term Loan Agreement and its addenda is $700,000.
[83] Ms Sun admits that she did not, at any point, provide initial, continuing or variation disclosure to Ms Xiao of the kind set out under sch 1 of the CCCFA but says that the CCCFA does not apply in the circumstances. She is a housewife and has never been in the business or practice of providing credit either on her own behalf or on behalf of others, she says.
[84] Ms Sun says the Term Loan Agreement incorporated the Memorandum under which Ms Xiao irrevocably appointed her as a lawful attorney for the purpose of anything necessary to secure the full benefit of her rights under the mortgage.
Counterclaim
[85] Ms Sun also filed a counterclaim seeking judgment in the sum of $700,000 against Ms Xiao, being the outstanding sum due under the Term Loan Agreement and addenda, and costs. She also seeks interest in accordance with the Term Loan Agreement, as follows:
(a) interest at 10.4% per annum from 7 October 2014 until 21 January
2015;
(b) interest at 10.4% per annum from 24 February 2015 until 24 March
2015;
(c) interest at 11.21% per annum from 8 May 2015 to 18 May 2015; and
(d)interest at 11.21% per annum from 19 May 2015 until the date of payment.
The defendant’s interlocutory application for summary judgment dated 22
December 2015
[86] Ms Sun filed a notice of opposition to Ms Xiao’s application for interim relief
and filed an application for summary judgment against Ms Xiao seeking:
(a) to dismiss the whole of Ms Xiao’s claim; and
(b)judgment in the sum of $700,000, being the outstanding sum due under the Term Loan Agreement and addenda, and costs.
[87] Mr O’Callahan, for Ms Sun, submits that although the statutory presumption places the onus on the defendant to satisfy the Court that the credit contract was not a consumer credit contract, the facts are of such a nature that, ultimately, the evidential onus has shifted to the plaintiff.
[88] In Mr O’Callahan’s submission, this case is properly determined on a summary basis because the Court can be satisfied on the evidence before it that, first, Ms Xiao’s version of events is not credible, and further that Ms Sun was not in the business of lending or in the practice of lending on behalf of others. In any event, says Mr O’Callahan, there is no evidence that the lending contracts are oppressive.
[89] Mr O’Callahan submits that all advances now being claimed were recorded in
the Term Loan Agreement and its addenda, being:
7 October 2014 $250,000
21 October 2014
$280,000
23 February 2015
$100,000
24 March 2015
$170,000
Total
$800,000
[90] In Mr O’Callahan’s submission, the Term Loan Agreement incorporates the Memorandum. There is no challenge that the Memorandum enables Ms Sun to act as Ms Xiao’s attorney in executing the mortgage instruments for registration.
[91] Mr O’Callahan submits that Ms Xiao’s application for interim relief should
not be granted because:
(a) Ms Xiao’s claim is not plausible and contradicts the WeChat messages between the parties, and the terms of the Term Loan Agreement and addenda;
(b)the parties did not enter into consumer credit contracts within the meaning of the CCCFA so the disclosure requirements do not arise; and
(c) even if the parties did enter into consumer credit contracts, it was not oppressive (for example, there is no evidence that Ms Xiao has paid interest to Ms Sun or that the principal sums recorded in the Term Loan Agreement and addenda are capitalised interest).
Analysis: the plaintiff ’s application for interim relief
Relevant law
[92] The starting point for when the court considers the grant of an interlocutory injunction is that it is a remedy that is both temporary and discretionary.
[93] An application for interim relief under r 7.53 of the Rules is to be determined in accordance with the approach taken in American Cyanamid Co v Ethicon Ltd, namely to consider, first, whether the evidence before the court discloses that there is a serious question to be tried and, secondly, where the balance of convenience lies.10
However, the two heads are not exhaustive. The ultimate consideration is where the
overall justice lies.11
[94] The purpose of granting an interim relief is:12
… to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff’s
10 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 408 (per Lord Diplock).
11 Harvest Bakeries Ltd v Klissers Farmhouse Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
12 American Cyanamid Co v Ethicon Ltd, above n 10, at 321 (per Lord Diplock).
need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff’s undertaking in damages if the uncertainty were resolved in the defendant’s favour at the trial.
[95] In determining where the balance of convenience lies, the court must weigh one interest against another.13
[96] The evidence available to the court at an interlocutory injunction is incomplete because “it is given on affidavit and has not been tested by oral cross- examination”.14 In Eng Mee Yong v Letchumanan, Lord Diplock explained:15
if there appears to be any conflict of evidence which is not on the face of it implausible, such a conflict ought not to be disposed of on affidavit evidence only. It leaves a serious question to be tried.
...
It is for [the Judge] to determine in the first instance whether statements contained in affidavits that are relied upon as raising a conflict of evidence upon a relevant fact have sufficient prima facie plausibility to merit further investigation as to their truth.
Application
[97] I have set out the plaintiff’s causes of action in these proceedings in order to determine whether there is a serious question to be tried in respect of any of them. I now consider each of these in turn as to whether there is an arguable basis and serious question to be tried as regards each cause of action and the relief sought.
[98] Under both causes of action, section 13 applies. It provides:
13 Presumption relating to consumer credit contract
In any proceedings in which a party claims that a credit contract is a consumer credit contract, it is presumed that the credit contract is a consumer credit contract unless the contrary is established.
[99] It seems clear that the statutory purpose for the presumption is to redress the
13 See Lord Diplock’s comment in Siskina (Owners of Cargo Lately Laden on Board) v Distos Compania Naviera S.A. [1979] ACT 210 (HL) at 256: “The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action”.
14 American Cyanamid Co v Ethicon Ltd, above n 10, at 322 (per Lord Diplock).
15 Eng Mee Yong v Letchumanan [1980] AC 333 (PC) at 338 and 341.
likelihood of an imbalance of information as between lender and borrower. I agree with Mr Holmes’s submission that it may often be difficult, if not impossible, for a borrower to prove that a lender carries on a business or practice of providing credit, or enters into contracts in their own name on behalf of another, and certainly prior to provision of discovery or the availability of cross-examination.
[100] Mr O’Callahan submits that here the circumstances are of such a nature that ultimately the evidential onus has shifted to the plaintiff. I do not agree. Section 13 imposes an evidentiary onus upon the creditor to rebut the presumption and establish that the credit contract is not a consumer credit contract. Unless and until it has been rebutted, the presumption remains in effect and may be relied upon by any party to a credit contract who claims that it is a “consumer credit contract”. The presumption is consistent with the general scheme of the Act which is designed to protect the interests of consumers in connection with credit contracts and to promote transparent
markets for credit.16
[101] Ms Xiao relies upon the presumption contained in s 13. While Ms Sun has denied that her advances and loans made to Ms Xiao were consumer credit contracts, she has not by means of that denial or by means of any evidence she has given in her affidavits, in my view, rebutted the presumption that the credit contracts are consumer credit contracts under the CCCFA. At this preliminary stage, I find that the s 13 presumption has not been rebutted.
First cause of action: breach of disclosure obligations under the CCCFA
[102] The CCCFA is the centrepiece of the legislative framework regulating credit transactions.17
[103] Part 2 of the Act governs consumer credit contracts. A consumer credit contract is defined in s 11 and contains the following criteria relevant here:
16 Credit Contracts and Consumer Finance Act 2003, s 3. See also, Burke v Advanced Securities
Ltd [2008] NZCA 93 at [41].
17 Sportzone Motorcycles Ltd (in liq) v Commerce Commission [2015] NZCA 78, [2015] 3 NZLR
191 at [23].
(a) the arrangement must be a “credit contract” as defined by s 7;
(b) the debtor is a natural person;18
(c) the credit is to be used, or is intended to be used, wholly or predominantly for personal, domestic, or household purposes;19
(d)interest charges are or may be payable under the contract,20 and/or a security interest is or may be taken under the contract;21
(e) when the contract was entered into, the creditor:22
(i)carried on a business of providing credit (whether or not the business is the creditor’s only business or the creditor’s principal business);
(ii)made a practice of providing credit in the course of a business carried on by the creditor; and/or
(iii)made a practice of entering into credit contracts in the creditor’s own name as creditor on behalf of, or as trustee or nominee for, any other person.
[104] Subpart 2 provides for the required disclosure of a creditor under a consumer credit contract in relation to certain matters. Section 17 provides for initial disclosure, which must be made before the contract is entered into or within five working days of it being made. Sections 18 to 21 set out the requirement for continuing disclosure and its mandatory contents. Additionally, variations to consumer credit contracts must be disclosed to the debtor and further disclosures
must be provided upon request from a debtor.23
18 Section 11(1)(a).
19 Section 11(1)(b).
20 Section 11(1)(c)(i).
21 Section 11(1)(c)(iii).
22 Section 11(1)(d).
23 Sections 22–24.
[105] Ms Sun takes issue with s 11(1)(d), saying that she did not carry on a business of providing credit or make a practice of providing credit, or enter into any credit contracts in her own name as creditor on behalf of another person. In her affidavit dated 22 December 2015, she explains:
(a) She provided loans in her own name and not on behalf of any other person. She herself borrowed money which she used to keep lending to Ms Xiao. She says:
I did this because she was my friend and I felt sorry for her and she said she needed money. This was not an organised business and the friends that I borrowed from are not professional lenders. I also asked to borrow the money from my friends for myself and took on responsibility to repay them myself. Ms Xs Xiao’s responsibility was to repay me.
(b)Apart from loans to the plaintiff, she has also lent money to two other friends and the amounts loaned were usually in the form of Casino chips. In both instances, the amounts lent did not exceed $10,000.
(c) She has never charged fees or interest or any other amounts for the Casino chips or money she has lent. She says the outstanding amount recorded in the Term Loan Agreement was entirely principal and that she had not charged or received interest at any point. Ms Xiao, however, promised to pay interest upon repayment “at a good rate” though the amount was not specified. Ms Sun explains:
I trusted her because she was my friend and agreed there should be some interest, so I could give this to my friends and family upon repayment as a “thank you”, if possible… Ms Xiao did not ever pay me any interest.
[106] Mr O’Callahan submits this is not a case where s 11(1)(d)(iii) applies because both parties now acknowledge that Ms Sun was just “pretending” at all times when referring to lending on behalf of an unnamed friend. Mr Holmes, on the other hand, submits that Ms Sun’s assertion that she was just pretending cannot be relied upon without proper examination at trial. It is Mr Holmes’s proposition that if Ms Sun was lending on behalf of another person, as her contemporaneous documents and statements clearly suggest, then the loan agreements are consumer credit contracts.
[107] I agree with Mr O’Callahan’s submission that where both parties now accept that the lender friend to which Ms Sun referred was in fact nothing more than a fictitious person, then whether or not Ms Sun actually entered into credit contracts on behalf of any other person is not a real question to be tried. However the difficulty with that submission is that it is not clear upon what basis Ms Xiao now accepts that Ms Sun used the device of an entirely fictitious person in order to employ a coercive strategy. One possible explanation is that Ms Xiao has accepted Ms Sun’s assertion at face value, simply to avoid having any possible liability to or connection with a lender with connections to a criminal underworld (in the event that Ms Sun’s lender friend did in fact exist). Whether Ms Sun was in fact acting on behalf of some other person when arranging the loans to Ms Xiao, at present remains an unresolved issue to be determined at a substantive hearing.
[108] For present purposes I consider the question turns to the applicability of sections 11(1)(d)(i) or (ii), or both. There is no definition of what constitutes a “business” in the CCCFA. Mr O’Callahan refers me to the Court of Appeal decision of Grieve v Commissioner of Inland Revenue in which the meaning of a “business” in the context of income tax legislation24 is considered and reiterated, as set out in
Calkin v Commissioner of Inland Revenue as:25
The decision whether or not a taxpayer is in business involves a two-fold inquiry: as to the nature of the activities actually carried on - including the period over which they are engaged in, the scale of operations and the volume of transactions, the commitment of time, money and effort, the pattern of activity and the financial results - and as to the intention of the taxpayer in engaging in those activities.
[109] I also have regard to the meaning of “business” in other consumer protection
legislation, such as the Consumer Guarantees Act 1993 and the Fair Trading Act
1993. In both Acts, the term “business” is defined as:
business means any undertaking—
(a) that is carried on whether for gain or reward or not; or
(b) in the course of which—
(i) goods or services are acquired or supplied; or
24 Grieve v Commissioner of Inland Revenue [1984] 1 NZLR 101 (CA).
25 Calkin v Commissioner of Inland Revenue [1984] 1 NZLR 440 (CA) at 446.
(ii) any interest in land is acquired or disposed of—
whether free of charge or not
[110] In my assessment, the matters which make it seriously arguable that Ms Sun was in the business of providing credit at relevant times are:
(a) the lengthy period of lending (between April 2014 and March 2015);
(b)the frequency of lending (the sums being advanced in numerous instalments, as well as other sums being advanced on other occasions to which Ms Sun refers but does not specify);
(c) the charging of a very high interest rate for commercial gain (which Ms Sun accepts formed part of the arrangement though she says she did not receive any payment of interest from Ms Xiao, and that the payments made by Ms Xiao were not payments of interest but were repayments of other amounts loaned);
(d)Ms Sun’s insistence on interest payments being made strictly on time, and her calculation of overdue sums of interest and principal in an inflexible manner, consistent with a commercial lending operation rather than informal lending to her friend;
(e) the commitment of time, money and effort on the part of Ms Sun in arranging for funding from various third parties so that she could then on-lend a borrowed sum of $800,000 to Ms Xiao, which seems inconsistent with Ms Sun’s assertion that she was motivated by a desire to help a friend. Further, that she would do so with no expectation or agreement to receive any reward or benefit seems implausible;
(f) there is evidence of lending to at least two other people; and
(g)Ms Sun says she is a housewife (or to put it more accurately, a stay-at- home mother) and speaks of receiving minimal child support
payments in the sum of $200 per week. She has disclosed no other source of income and provided no financial information which could indicate an ability to fund the advances to Ms Xiao or to indicate that she was not receiving income from Ms Xiao (here, I refer to the affidavit of Ms Ye Shinkarenko dated 9 February 2016, wherein she states that Ms Sun, in about February 2015, spoke openly to her about her loans to Ms Xiao and that she used the charging of a high interest as a source of income).
[111] For these reasons, I am satisfied that it is at least arguable that Ms Sun was in the business of providing credit at all relevant times and that, pursuant to s 17 and ss
18 to 21 of the CCCFA, she was required to make disclosure.
Second cause of action: reopening of oppressive credit contracts
[112] Ms Xiao pleads that the Oral Loan Agreement and the Term Loan Agreement were oppressive within the meaning of s 118 of the CCCFA and that, as a result, the court may reopen the transaction pursuant to s 120 of that Act.
[113] The powers of the court on reopening an oppressive contract are set out in s
127, and include the general power to make “any orders” that the court considers
“are necessary to remedy the matters that caused the court to reopen the contract…”
[114] Section 124 sets out matters which the court must have regard to when deciding whether s 120 applies and whether to reopen a credit contract as oppressive. I will consider each of those matters in turn. I also have regard to the Supreme Court’s comment in GE Custodians v Bartle that:26
the various words which together form the definition of the term “oppressive” all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice.
[115] First, there is strong evidence in support of the view that Ms Xiao was
26 GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 13 at [46] citing with approval
Arnold J’s comment in Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA) at [24].
induced to enter into the arrangement.27 For example, Ms Xiao says she was required to sign a written document prior to the signing of the Term Loan Agreement in circumstances where she believed:
there would be severe consequences if I did not… because if her friend started against me she could not stop him, and my family would find out and my marriage would breakdown. I had no choice so I agreed to do so.
[116] Ms Sun, herself, explains that she “pretended that someone else was putting pressure on me to get her to sign a loan agreement. This was just so she will take me more seriously.”
[117] I am in no doubt that, at the relevant times, Ms Xiao herself believed that she stood to benefit from the lending arrangement, and so the making of threats by Ms Sun was not the only reason for Ms Xiao entering into the loan contracts. Nevertheless, I consider that the pressure applied by Ms Sun was a material, contributing and operating influence upon Ms Xiao which induced her to accept and agree to the establishment of the loans. Therefore, for the purposes of s 124, I consider it is sufficient and enough that there was an inducement of the requisite
character.28
[118] Secondly, it is not in dispute that Ms Sun failed to comply with lender responsibilities specified in s 9C of the CCCFA.29
[119] Thirdly, it is seriously arguable that the parties’ bargaining power was
disparate in all the circumstances,30 for the following reasons:
(a) The parties were not at arm’s length in conventional commercial terms. The terms of the written agreements were drafted by Ms Sun’s solicitors, and signed by the parties at the offices of Ms Sun’s solicitors, without Ms Xiao seeking or obtaining independent legal
advice in circumstances where both parties were well aware that Ms
27 Section 124(1)(a).
28 Noting the Supreme Court’s comment in GE Custodians v Bartle, above n 26, at [46] that the scope of oppression under the Act is broader than the equitable doctrine of unconscionability.
29 Section 129(1)(b).
30 Section 124(1)(c).
Sun’s solicitors were only acting in her interests alone.
(b)According to Ms Xiao’s version of events, Ms Sun presented herself as being a consistently successful and competent gambler who could show Ms Xiao how to be a consistent winner.31 Ms Xiao says she used to watch Ms Sun gamble, and saw that she would often win “so I believed her and trusted her advice on how to improve my game”. The very first loan was made in response to a situation in which Ms
Xiao had lost a significant amount of money while gambling at the Casino. This background makes it arguable that, from the outset, Ms Sun was in a position to exploit Ms Xiao’s vulnerability for her own commercial gain.
(c) Ms Sun and Ms Xiao were close friends. Ms Xiao confided in her and told her that she had a gambling problem which she kept secret from her husband. It is arguable that knowledge of Ms Xiao’s double life put Ms Sun in a stronger bargaining position, and made Ms Xiao susceptible and vulnerable to Ms Sun’s demands. In Ms Xiao’s affidavit, she explains:
Ms Sun knew where I lived and I was very worried that Ms Sun would come to my home and confront me in front of my family and tell my husband. If she did that, my marriage would break down, and I would have had no way to pay. It would have been terrible.
(d)According to Ms Xiao’s version of events, the terms of the lending contract, such as the requirement of strict adherence to payments of interest on a weekly basis, and the calculation of interest thereon, were non-negotiable and determined by Ms Sun alone.
(e) There is prima facie plausible evidence to suggest knowledge on the part of Ms Sun of Ms Xiao’s inability to meet the liabilities assumed under the lending agreements. On the strength of that knowledge, it
could be argued that Ms Sun set out to exploit Ms Xiao’s vulnerability
31 Though Ms Sun says in her affidavit that it is Ms Xiao who has been gambling for longer
periods than her “so she would not need my assistance to play cards”.
and took advantage of the inequality of bargaining power, placing Ms Xiao with no other choice but to accept the terms as determined and stipulated by Ms Sun.
[120] Fourthly, it is not in dispute that the contract is a credit contract32 and, as I have concluded, it is at least arguable that the contract is a consumer credit contract.33
[121] Fifthly, Ms Xiao did not, at any point, obtain legal or other independent professional advice when signing the Term Loan Agreement and each addendum thereafter.34 Mr O’Callahan submits it is enough that she was advised to take independent advice before signing each of the loan agreements. However regard must be had to the wording of s 124(1)(f), which makes clear the issue is whether or not legal or other professional advice was obtained by the debtor under the arrangement. In my view, the failure to take independent advice in the face of a recommendation to take it does not save or excuse a contract that is oppressive, or
mean that such a contract is necessarily immune from being reopened as oppressive under s120. That Ms Xiao was required to sign a release form is of course relevant. However, the evidence indicates that the Term Loan Agreement was prepared and executed on the same day and upon arrival at Ms Sun’s solicitors’ office which suggests there was little time or opportunity for Ms Xiao to consider the terms and consequences of the agreement.
[122] Sixthly, there is strong evidence in support of the proposition that Ms Sun subjected Ms Xiao to unfair pressure or tactics or otherwise unfairly influenced her to enter into the various arrangements.35 Although Ms Xiao now concedes that Ms Sun’s lender friend, who was said to be a professional loan shark and connected to criminal organisations, does not in fact exist, that is not to say that Ms Xiao did not, at the relevant times, believe Ms Sun that such a person did in fact exist. Ms Xiao’s affidavit explains that although she did not know the identity of Ms Sun’s lender
friend, she nevertheless believed that Ms Sun knew people of that kind.
32 Section 7.
33 Section 124(1)(e).
34 Section 124(1)(f).
35 Section 124(1)(g).
[123] The nature and extent of that pressure seems to be prevalent throughout the arrangement.36 For example, Ms Xiao says that on some occasions, Ms Sun offered to pay weekly interest to her lender friend on Ms Xiao’s behalf because “this was better than having her “friend” not be paid, as she would not be able to stop him once he started.” That kind of comment must have been employed by Ms Sun to reinforce what she now claims to have been a false story that she had created as
regards the existence of a lender, and to apply pressure upon Ms Xiao. Such a tactic was obviously designed to apply coercive pressure of a kind totally unacceptable and extraneous to ordinary commercial dealings.
[124] Relevant too, is the pressure which Ms Xiao says was placed upon her to continue gambling or to allow Ms Sun to gamble on her behalf during the period in which she was voluntarily blacklisted from the Casino. Ms Xiao says:
While I was banned from the casino, Ms Sun put pressure on me to continue to gamble. She said that there was no way that I could to repay [sic] my debt or the interest if I was not playing and that I needed to keep playing…
After I was blacklisted, Ms Sun suggested that we go together to the Hamilton Casino and gamble there. We went there, but somehow Sky City discovered that we were there and my VIP host called me and told me not to go there anymore as I could end up with a longer ban.
Ms Sun then suggested that she gamble on my behalf. She offered to play with her own money and then whatever she won would be for me, to help me not get in trouble with her “friend”.
[125] I also note that in her affidavit, Ms Xiao claims that Ms Sun employed tactics37 such as threatening to tell Ms Xiao’s husband about her gambling addiction if there was a default of payment in circumstances where she knew Ms Xiao did not want him to find out. Ms Xiao refers to several specific occasions of this occurring in her affidavit.
[126] There is also an assertion that Ms Sun’s own gambling losses were deducted from the principal amount being advanced to Ms Xiao, as well as the prima facie plausible allegation that Ms Sun deducted from the sum being advanced to Ms Xiao
for past and future interest payments.
36 Section 124(1)(g).
37 Section 124(1)(g).
[127] Mr O’Callahan submits that the terms of the arrangement were reasonably straightforward and there is nothing to suggest that Ms Xiao failed to understand them. I do not agree. The credit contracts were rather complex.38 The Term Loan Agreement was predicated on oral/written terms, upon which a number of addenda were made. It is alleged that, in the written agreements, the interest rate of five per cent per week was deliberately not recorded because it was recognised as being extraordinarily high though, it continued to apply as per and in accordance with the terms of the Oral Loan Agreement. The method of payment appears to be an added
complicated feature:
… we had a complicated system… In the bathroom, I would give her casino chips for the value of the interest payment. Ms Sun had told me that we needed to do it this way because there were surveillance cameras everywhere and she would be in trouble if she was caught receiving the chips or money from me at the casino. I did not doubt her because she used to work at the casino.
[128] If Ms Xiao’s version of events is ultimately found to be credible and accepted, then the interest amount payable under the terms of the agreements would be around 260% per annum. The charging of an extremely high interest rate, which was at times charged in advance,39 continued under the Oral Loan Agreement in circumstances where the Term Loan Agreement provided that interest was “not applicable”. In my assessment, it is seriously arguable that the terms of the
arrangement went well beyond that which was reasonably necessary to protect the interests of Ms Sun.40
[129] I also have regard to the length of time Ms Xiao had to remedy default.41 For example, in her affidavit, Ms Xiao says that Ms Sun demanded repayment of
$10,000 “…immediately, and asked for two days to arrange the money.” She adds:
Ms Sun told me that she could not accept any delay, and that she needed to be paid immediately.
[130] That is to be compared to and contrasted with Ms Sun’s assertions that any such pressure that she placed on Ms Xiao was done in order to ensure that Ms Sun’s
38 Section 124(1)(k).
39 See generally, s 38.
40 Section 124(l)(ii).
41 Section 124(1)(m).
requests for repayment would be taken seriously.
[131] On balance, I consider the plaintiff’s contention that the court should reopen the credit contracts pursuant to s 120 is seriously arguable.
Pleading: the mortgage was lodged without authority
[132] Ms Xiao also pleads that Ms Sun had no authority to lodge instruments of title against Ms Xiao’s two properties. Ms Sun, on the other hand, pleads that she was entitled to do so under a power of attorney granted to her by cl 5(c) of the Memorandum.
[133] Counsel have each addressed the question of whether or not the Memorandum is properly to be treated as having been incorporated into the Term Loan Agreement. In light of my finding as to the seriously arguable nature of the plaintiff’s propositions that the credit contracts are unenforceable (because of the failure to provide initial disclosure) and should be reopened because they are oppressive and in contravention of reasonable standards of commercial practice, it is not necessary for me to determine at this interlocutory stage, the issue as to whether the Memorandum is incorporated into the Term Loan Agreement. Even if the Memorandum is properly to be incorporated into the Term Loan Agreement, as the defendant contends, the outcome of the plaintiff’s interim relief application remains the same.
Conclusion
[134] Having reviewed the affidavit evidence and exhibits attached therein, I have not found Ms Xiao’s evidence at this preliminary stage to be implausible. Rather, it provides a plausible basis for the plaintiff’s contention that she has demonstrated an arguable case against the defendant. I am satisfied, therefore, there are serious questions to be tried. In my assessment, the balance of convenience and the overall justice of this case clearly favours the granting of the orders sought by the plaintiff.
Summary judgment applications
[135] The questions on a summary judgment application are:42
(a) whether the defendant has satisfied the Court that none of the causes of action in the plaintiff’s amended statement of claim can succeed; and
(b) whether the defendant has satisfied the Court that the plaintiff has no
defence to the defendant’s counterclaim.
[136] The principles are well settled, and are summarised in this way:43
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1NZLR at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: Maclean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept
uncritically evidence that is inherently lacking in credibility, as for example
where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341(PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[137] I have already concluded that there are real questions to be tried. To that extent, the granting of the plaintiff’s application for interim relief effectively answers the defendant’s applications for summary judgment.
[138] In any event, I am satisfied that there are material conflicts of evidence which cannot be determined on a summary basis. For example:
(a) whether payment of interest was a term of the Oral Loan Agreement;
(b) if so, whether interest was payable at four or five per cent per week;
42 High Court Rules, r 12.2.
43 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
(c) whether the Term Loan Agreement was a collateral contract to the
Oral Loan Agreement;
(d) whether Ms Xiao made payments of interest on the loans;
(e) whether Ms Xiao actually received the full amount claimed by Ms
Sun as being advanced by her; and
(f) whether other repayments made to Ms Sun during the relevant time were for accrued interest or whether those sums constituted repayment of some other (unspecified) borrowed sums.
[139] Mr O’Callahan submits that, notwithstanding there are factual disputes, the Court may nevertheless take a robust approach and use its judgement to assess the evidence which, he says, is in the defendant’s favour. He further submits that Ms Xiao’s version of events is unreliable and should be put to one side. For instance, he said the WeChat44 messages exhibited to Ms Sun’s affidavit record most of the advances and there is nothing contained in those records, or any other record, to suggest that Ms Sun was charging interest.
[140] However, I cannot accept uncritically the evidence upon which he relies. Mr O’Callahan’s proposition is confronted by two difficulties. First, I am not convinced that the WeChat messages are wholly reliable on a summary basis because, as Ms Sun explains, the WeChat record only captures the parties’ conversations from 29
September 2014 and, in any event, Ms Sun says that she herself is unable to identify from that record a further sum of $45,000 which she believes to be owing to her. Ms Sun further explains, “I expect therefore that I would have had telephone conversations or talked about it in person with Ms Xiao…”
[141] Furthermore, I note that the WeChat messages have been translated into English and, during the course of oral submissions, Mr Holmes questioned the accuracy of these translations and referred to specific examples. Arguably, this
further challenges the reliability and credibility of the WeChat record. For those
44 WeChat is a text and voice messaging communication service developed and operated by internet company, Tencent Inc in China.
reasons, I am not satisfied that the WeChat messages sufficiently capture the full extent of the parties’ communications.
[142] Secondly, Ms Xiao deposes that the reason there is no record of the interest rate which was agreed between the parties was because the interest rate was said to be too high. For that reason, says Ms Xiao, it was recorded as “not applicable” under the Term Loan Agreement though it continued to apply under the terms of the Oral Loan Agreement. For the purposes of the present applications, I have not found Ms Xiao’s evidence to be inherently lacking in credibility or inherently improbable. The credibility of deponents is ultimately and more appropriately assessed by the trial Judge.
Conclusion
[143] For the above reasons I am satisfied that it is necessary that Ms Sun be restrained from taking any steps to enforce the mortgages until both the legality of the mortgages and any security granted thereunder are determined pursuant to a substantive hearing.
[144] Accordingly, I grant Ms Xiao’s application for an order by way of interim injunction to restrain the defendant, Ms Sun, from taking any steps to enforce compliance with the PLA notices dated 20 October 2015.
[145] Costs are reserved. The plaintiff is to file memorandum by Wednesday 30
March 2016, with any response from the defendant to be filed by Wednesday 13
April 2016. Memoranda are not to exceed seven pages in length.
Davison J
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