JENNY LUCY NEE HARLAND V ASSET FINANCE LIMITED COA CA211/2011

JENNY LUCY NEE HARLAND V ASSET FINANCE LIMITED COA CA211/2011 20 April 2011IN THE COURT OF APPEAL OF NEW ZEALANDCA211/2011[2011] NZCA 156BETWEEN JENNY LUCY NEE HARLANDAppellantAND ASSET FINANCE LIMITEDRespondentHearing: 13 April 2011Court: Arnold, Ellen France and Stevens JJCounsel: J L Nee Harland in PersonP M Nee Harland to assist the AppellantN Burley and J W Berman for RespondentJudgment: 20 April 2011 at 4:00 PMJUDGMENT OF THE COURTA The application for interim relief under r 12(3) of the Court of Appeal (Civil) Rules 2005 is dismissed.B Costs are reserved.____________________________________________________________________REASONS OF THE COURT(Given by Stevens J)Introduction[1] The appellant, Jenny Nee Harland, has made an application for a stay of proceedings pending an appeal against a decision of Chisholm J in the High Court inwhich the appellant's application for an interim injunction was refused.1Mrs Nee Harland had sought such relief to prevent the respondent, Asset Finance1 Nee Harland v Asset Finance Ltd HC Napier CIV-2011-441-207, 7 April 2011.Ltd, the mortgagee of her property at 139 Tauroa Road, Havelock North (the property), from registering a transfer of that property to a third party following a mortgagee sale. After the hearing of the application, we issued a results only judgment dismissing the application. Our reasons for so doing follow.[2] Prior to the hearing of the interim injunction application, Chisholm J had made an interim order2 that: "Until that hearing the Registrar General of Lands is not to register a transfer of the title to [the property]".3 In this Court an order for a stay was granted by Arnold J to protect the position until the application could be heard on an urgent basis. The reality of the present application is that the appellant seeks a continuation of the interim order first made by Chisholm J, pending the hearing of the appeal. This Court has power to grant such relief in appropriate circumstances.4Background[3] The property has for some 21 years been the home of Jenny Nee Harland and her husband Peter Nee Harland, a barrister. She is the registered proprietor. The property is subject to registered first and second mortgages, the first of which was held by Public Service Investment Society (PSIS) and the second by the respondent. Both Mr and Mrs Nee Harland are shown as borrowers on the second mortgage security documents.[4] On 28 September 2010 Mrs Nee Harland was given notice as mortgagor by the respondent of a default under the second mortgage.5 The default notice specified the sums owing, comprising approximately $161,000 in respect of a final instalment due. Payment was to be made on or before 12 November 2010. The default was not remedied.[5] Shortly after the default notice was sent to Mrs Nee Harland, the first mortgage and the underlying loan agreement were assigned from PSIS to the2 By Minute dated 5 April 2011 at [4].3 The relevant identifier number is 47541.4 Court of Appeal (Civil) Rules 2005, r 12(3).5 Given under s 119 of the Property Law Act 2007.respondent at the respondent's request.6 It seems that notice of the assignment was sent to Mrs Nee Harland on 13 October 2010. Whether the letter was in fact received is unclear on the evidence. However, after the assignment had been effected Mr and Mrs Nee Harland certainly became aware of it when they were told by PSIS to make future payments under the first mortgage to the respondent. This request was complied with.[6] As the default notice under the second mortgage was not remedied by Mrs Nee Harland, the respondent took steps to have the property sold by auction on 16 December 2010. The day before the auction the parties agreed upon a refinancing arrangement that involved both the first and second mortgages and an additional security through a guarantor. The agreed interest rate was high. The refinancing arrangement gave the borrowers the option not to proceed. The auction of the property was cancelled.[7] Within a short time Mr and Mrs Harland elected not to proceed with the refinancing arrangement. The managing director of the respondent, Mr George,deposed that he formed the view that the borrowers were "unreliable and manipulative", so he decided that the property should be sold by a private treaty toavoid any risk of the sale process being disrupted.[8] In terms of valuation of the property, the respondent had a valuation from a registered valuer dated 22 March 2010 that assessed the market value at $410,000. On 23 November 2010 the respondent obtained an appraisal from Ray White Real Estate indicating a market value range of between $375,000 and $400,000. The appraisal suggested that, in a forced sale situation, anything above $300,000 should be seriously considered. Several offers were received by the respondent and rejected. The highest of these involved a purchase price of $320,000.[9] Ultimately, on 26 January 2011, the respondent accepted an offer from a purchaser at $356,000. The relevant agreement for sale and purchase contained an impediment to settlement clause granting the vendor the option in certain circumstances of cancelling the contract or pursuing the removal of any caveat filed6 Pursuant to s 102 of the Property Law Act.in respect of the property. In all other respects the agreement for sale and purchase was unconditional and settlement was scheduled to occur the following day.[10] Shortly before this, on 15 January 2011, Mrs Nee Harland had entered into an unconditional agreement of sale of the property to her husband at the price of $455,000. On the basis of this agreement, Mr Nee Harland lodged a caveat which prevented the settlement of the sale by the respondent to the third party dated 26 January 2011. Following the taking of steps by the respondent under the Land Transfer Act 1952,7 this led to Mr Nee Harland filing an application for an order that the caveat not lapse.[11] The application came before Associate Judge Gendall, who found that the caveat had lapsed and there was no jurisdiction to make the order sought by Mr Nee Harland.8 An application for leave to file a second caveat was declined at the same time.[12] On 31 March 2011, Mrs Nee Harland filed the application for an interim injunction that was refused by Chisholm J.High Court decision[13] Two causes of action were advanced in support of the application. First, a claim of unconscionable conduct by the mortgagee (the respondent) and second, a claim that in accepting a price for the property of $356,000 the respondent had breached a duty of care to obtain the best price reasonably obtainable at the time of sale.9[14] We will deal with the second cause of action first. Chisholm J found that it"lacks strength", stating:[25] the mortgagee had the benefit of a valuation from a registeredvaluer and a real estate appraisal. It is significant that the real estate appraisal indicated that in the context of a forced sale any offers over7 Land Transfer Act, s 145A.8 Nee Harland v Asset Finance Ltd HC Napier CIV-2011-441-143, 25 March 2011.9 Property Law Act, s 176.$300,000 should be seriously considered. Given that the auction in December was aborted at the last minute, the market place must have been aware from the preceding publicity that this was a forced sale.[26] In all the circumstances it was open to the mortgagee to decide that rather than attempting a further auction there should be sale by private treaty. The steps that were then taken have been detailed in Mr George's affidavit.Clearly there were efforts to promote the sale. Several offers were rejected because the price was too low. The offer that was accepted was well abovethe $300,000 mentioned in the real estate agent's appraisal.[15] On appeal, this cause of action was not pressed by Mrs Nee Harland. She was right not to do so as the findings of the Judge are unimpeachable.[16] The claim based on unconscionability was advanced relying on an alleged failure to disclose the terms of the assignment of the first mortgage from PSIS to Asset Finance Ltd and an allegation that Mrs Nee Harland was misled into believing that both mortgages required repayment when in fact only the second mortgage was"being called up".[17] The Judge had found that there was not an arguable case based on unconscionable conduct. He held that there were several problems with this cause of action:[19] First, the Property Law Act notices are clear as to the mortgage involved, the amount to be paid, and the date by which it was to be paid. Despite that the default continued (and still continues).[20] Secondly, I have difficulty in understanding how Mr Nee Harland, as a barrister and solicitor, could have been confused about what was required to remedy the default. This [is a] matter that also weighed with Associate Judge Gendall. There is no suggestion that any Property Law Act notice was issued in relation to the first mortgage. Moreover, the applicant continued to pay instalments under the first mortgage after she (and Mr Nee Harland) had become aware that it had been assigned to Asset Finance Limited. Mr Nee Harland (and through him, his wife) seems to have been under the impression that Asset Finance Limited, as assignee, could alter the terms of the first mortgage (which was for a term of 30 years at a comparatively low interest rate). I do not understand how this could have ever been a possibility or how a solicitor could have thought it was a possibility.[21] Thirdly, ss 102 and 103 of the Property Law Act do not require notice to be given. Finally, to the extent that it is suggested that the refinancing package negotiated on the eve of the auction added to the problem, the reality is that that refinancing package came to nothing.[18] It is difficult to fault the Judge's reasoning. Recognising this,Mrs Nee Harland changed tack on appeal and sought to rely on an alleged breach of statutory duty by the respondent arising from the assignment of the first mortgage.Submissions on appeal[19] Mrs Nee Harland submits that when the first mortgage was assigned to the respondent there arose a statutory duty to disclose key information concerning the first mortgage to the mortgagor. Such obligation flowed from s 132(1) of the Credit Contracts and Consumer Finance Act 2003 (the Act). The information to be disclosed comprised all that required as part of initial disclosure under s 17 of the Act. Because of the alleged breach of s 132(1) of the Act, the respondent was prohibited from enforcing any right to recover property,10 including the second mortgage.[20] In the course of argument, Mrs Nee Harland accepted that she was aware at the time of the fact of the assignment of the first mortgage. She also accepted that, at the time the first mortgage was entered into with PSIS, all relevant disclosure was made by the mortgagee. Any disclosure following the assignment would have been a repeat of that earlier disclosure. There is no dispute as to the accuracy of the default notice in respect of the second mortgage, and no dispute that the second mortgage remained in default at all material times.[21] The claimed link between the alleged breach of statutory duty under s 132(1) of the Act in respect of the first mortgage and the enforcement of the second mortgage by mortgagee sale is that the alleged breach caused confusion at the time of enforcement. Mrs Nee Harland says she was distracted by events surrounding assignment of the first mortgage to her eventual detriment and prejudice.[22] For the respondent, Mr Burley submits that s 132(1) of the Act does not have the meaning contended for by Mrs Nee Harland. Section 17 of the Act is not engaged by the assignment of the first mortgage to the respondent.10 Under s 99(1)(b) of the Act.[23] Further, any issue concerning the assignment of the first mortgage is irrelevant because the enforcement by the respondent proceeded solely in respect of the second mortgage. That action was not tainted by any alleged breach of obligation to disclose information concerning the first mortgage. There was no causal link between the alleged breach and the mortgagee sale process.[24] Mr Burley submits that any cause of action based on s 132(1) of the Act was not seriously arguable. Moreover, both the balance of convenience and the overall justice of the situation favoured a dismissal of the appeal.Evaluation[25] The key contention based on s 132(1) may be shortly disposed of. The section provides:132 Provisions relating to assignment of credit contracts, consumer leases, or buy-back transactions(1) An assignee of a credit contract, a consumer lease, or a buy-back transaction from a creditor, a lessor, or a transferee takes the contract, lease, or transaction subject to all equities and to all rights and remedies under this Act that the debtor, the lessee, or the occupier has or would have against the original creditor, the original lessor, the original transferee, or any subsequent creditor, lessor, or transferee.[26] We are satisfied that s 132(1) does not have the meaning contended for by Mrs Nee Harland. What it provides is that an assignee such as the respondent takesany rights acquired under the assignment "subject to all equities and to all rights andremedies under this Act that the debtor has or would have against the original creditor". If any such equities, rights or remedies existed prior to the assignment,they would not thereby be extinguished. It does not mean that the assignee is somehow required to repeat the initial disclosure made by the original creditor PSIS at the time the first mortgage as entered into. Both Mr and Mrs Nee Harland acknowledged that they were aware of the assignment. Thus the challenge raised under s 132(1) is purely formal rather than based on any substantive concern.[27] We are also satisfied that the default notice in respect of the second mortgage was clear in its terms and could not have been the source of any confusion ordistraction on the part of Mrs Nee Harland at the time she was facing the prospect of enforcement action under the second mortgage. The second mortgage remained in default at all material times. We conclude that, even if there were some possible merit in the alleged breach of s 132(1) of the Act, there was no causal link between that and the enforcement action being taken under the second mortgage. It follows that any cause of action based on an alleged breach of s 132(1) of the Act is not arguable.[28] There is one respect (not pleaded in the amended statement of claim) in which it is perhaps arguable that the assignment of the loan agreement underlying the first mortgage operated to Mr and Mrs Nee Harland's disadvantage. Each of them entered into what was described as a general security agreement with the respondent when they borrowed the money secured by the second mortgage. Those security agreements secured any money owing at any time to the respondent. After the assignment or transfer the respondent appears to have treated monies owing under the first mortgage as falling within the scope of the security agreements. In other words, as a practical matter, the scope of the agreements was expanded as a consequence of the transfer. However, even if there were an issue about this, it is not material to the present circumstances, given that the mortgagee sale resulted solely from Mrs Nee Harland's default in relation to the second mortgage.[29] When considering an application for a stay, there are a number of factors to be taken into account. As discussed by this Court in Duncan v Osborne Buildings Ltd,11 these factors are to be weighed "in the balance" between the successfullitigants to the fruits of a judgment and the need to preserve the position in case the appeal is successful. In Keung v GBR Trustees Ltd this Court endorsed the factors to be taken into account as including:12(a) whether the appeal may be rendered nugatory by the lack of a stay;(b) the bona fides of the applicant as to the prosecution of the appeal;(c) whether the successful party will be injuriously affected by the stay;11 Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 (CA) at 87.12 Keung v GBR Trustees Ltd [2010] NZCA 396 at [11], citing Dymocks Franchise Systems (NSW)Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].(d) the effect on third parties;(e) the novelty and importance of questions involved;(f) the public interest in the proceeding; and(g) the overall balance of convenience.[30] This Court in Keung also stated that, although the list did not include the apparent strength of the appeal, this has been treated as an additional factor.13 We would only add that similar factors, including the strength of the appeal, will be relevant in the case of an application for interim relief.[31] In terms of the overall balance of convenience, we agree with the analysis of the Judge in the decision appealed from.14 In particular, we are satisfied that damages would provide an adequate remedy in the event that Mrs Nee Harland'sclaim were eventually to succeed. Whilst Mrs Nee Harland may have had a 21 year association with the property, that on its own is not sufficient to detract from the proposition that, in a case involving breach of statutory duty in circumstances such as the present, damages would be an adequate remedy.[32] We are also influenced, as was the Judge,15 by the possible prejudice to the third party purchaser under the agreement with the respondent dated 26 January 2011. That agreement has already settled and any further delay in obtaining vacant possession is likely to have an inevitable impact upon, and cause prejudice to, the purchaser. Having paid for the property, the purchaser is entitled to possession, in the absence of a reasonably arguable cause of action against the respondent vendor. This is not a situation where the interests of the third party should be ignored.[33] Accordingly, for the reasons set out above we agree with the conclusions ofthe Judge on the balance of convenience. We are also satisfied that the Judge'sconclusion on the overall justice of the situation was correct. The circumstances as presented to us by Mrs Nee Harland, although stressful and obviously disappointing for her, are not such as to warrant the grant of an interim injunction pending appeal.13 At [11].14 At [28]–[29].15 At [30].Result[34] The application for a grant of interim relief under r 12(3) of the Court of Appeal (Civil) Rules 2005 is dismissed. So far as costs are concerned, in the normal course the respondent would be entitled to an award of costs. However, we were informed from the bar that Mrs Nee Harland has made an application for legal aid. If such a grant is made this will affect the position regarding costs. We therefore direct that costs be reserved.Solicitors:Osborne, Attewell, Clews, Whakatane for Respondent