CHEN v TAWA TRADE FINANCE LTD [2023] NZHC 1333

CHEN v TAWA TRADE FINANCE LTD [2023] NZHC 1333 [31 May 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-000492[2023] NZHC 1333BETWEEN LIYUN CHENFirst ApplicantLC1521319 DEVELOPMENT COLIMITEDSecond ApplicantAND TAWA TRADE FINANCE LIMITEDRespondentHearing: 25 May 2023Appearances: Self-represented ApplicantsI Ko for the RespondentJudgment: 31 May 2023JUDGMENT OF GORDON JThis judgment was delivered by meon 31 May 2023 at 11 am, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors/Counsel:Turner Hopkins, AucklandCopy to: the ApplicantsIntroduction[1] The first applicant, Liyun Chen, and the second applicant, LC1521319Development Co Ltd (the company), (together, the applicants) have sought permissionto apply by originating application to set aside a letter of demand and a Property LawAct 2007 (PLA) notice issued by the respondent Tawa Trade Finance Ltd (Tawa) untilthe applicants' claim in a separate proceeding (CIV-2023-404-427) is determined.[2] Tawa opposes the application.Background[3] The company, a property development company, took out two commercialloans from Tawa, a finance company providing second tier lending services. Ms Chenis the sole director of the company and guaranteed the loans in her individual capacityand in her capacity as sole trustee for the Royall Family Trust.[4] The first loan was in the sum of $1,766,000 with an expiry date of 17 December2022. The loan was secured by a mortgage over a property owned by the company,and a mortgage over a property owned by Ms Chen. The second loan was in the sumof $442,000 with an expiry date of 5 February 2023.1 That loan was secured by theexisting securities under the first loan agreement and an additional mortgage overanother property owned by Ms Chen.[5] The dispute arises from the point at which Ms Chen sought to renew or extendthe loan in light of the upcoming expiry date of the first loan. Ms Chen says first thatTawa agreed to extend the loan for an additional six months before the drawdown inAugust 2022, and then agreed to extend the loan for an additional two months withhigh lender fees and other fees of approximately $200,000.[6] In her affidavit in support of the opposition, Siyu (Winnie) Deng, a financialadviser assistant at Tawa, says that this is incorrect. The first and second loan1 The Term Loan Agreement for the second loan stipulates the term expiry date as 5 February 2022.However, as the term start date is only 5 August 2022, this must be incorrect and the date of5 February 2023, as written in the affidavit, is to be taken as the correct date.agreements contain no clauses indicating that the loans would be automaticallyextended after their respective expiry dates and the default position is that the loanmust be repaid upon that automatic expiry. The loans are not extended unless there isa prior agreement.[7] Despite this, Ms Deng says Tawa did provide an offer to extend the first loanfrom an expiry date of 17 December 2022 to a date of 17 February 2023 (two months).This was offered on the condition that the company agree to lender fees, interest, othervarious fees, a lump sum partial repayment of $200,000 by 16 January 2023, and fullrepayment of the remaining loan balance by 17 February 2023.[8] Ms Deng says Tawa did not receive any response from the applicants soMs Deng contacted Ms Chen via the WeChat message platform on 8 December 2022.Ms Deng advised Ms Chen that the first loan had expired after the loan extension offerwas not accepted. Ms Deng says at this point her communication with Ms Chen endedand future communications occurred between the lawyers.[9] The next part of this dispute relates to the applicants' attempt to refinance bysecuring a loan from a potential third-party. Ms Chen says in her affidavit that asolicitor for the applicants contacted the solicitors for Tawa, requesting anti-moneylaundering (AML) information because the potential third-party lender was inquiringas to whether money laundering was occurring in light of a six-month loan. Thesolicitors for Tawa replied by email stating Tawa was under no obligation to respondto such queries and the new lender was responsible for their own AML due diligence.They also requested from the applicants' solicitor a confirmed date on which theapplicants would repay the loan.[10] In a second affidavit in support of the opposition, Yizhong (Allen) Xu, the soledirector of Tawa, notes that Tawa's solicitors notified the applicants' solicitors thatthey were in default of the first loan and that default interest was payable on the loanfrom the loan expiry date. The applicants' solicitors advised that they were finalisinga refinancing of the loan but that the new finance company was seeking AMLinformation. Tawa's solicitors responded to the requests saying they were under noobligation to provide such information as noted above.[11] Mr Xu then says that after the applicants defaulted on both loans by 5 February2023, he instructed Tawa's solicitors to send a letter of demand, demanding thepayment of the amounts outstanding. However, he says this was not a statutorydemand.[12] Mr Xu also says that after the demand expired on 2 March 2023, he instructedhis solicitors to prepare a s 119 PLA notice (the PLA Notice), which was served on thecompany, Ms Chen as the guarantor, and General Finance Ltd as an interested party.The PLA Notice gave 40 working days for the default to be remedied, meaning iteffectively expired on 9 May 2023 for the company and 10 May 2023 for Ms Chen asthe guarantor.Separate proceeding[13] In a separate proceeding (CIV-2023-404-427) (the substantive proceeding) theapplicants have filed a statement of claim seeking $5,150,000 in damages, $200,000in general damages, exemplary damages of $30,000, and interest (amount unstated).[14] The applicants say that the company borrowed from Tawa in June 2022 andthat Tawa repudiated its promise to renew the loan. As a result, the applicants soughtout another potential lender, who in turn requested information from the applicantsabout their loan with Tawa. The applicants say Tawa refused to provide a statementthat they were not in breach of the Anti-Money Laundering and Countering Financingof Terrorism Act 2009 (AML and CFT Act).[15] The applicants say as a result of this non-cooperation, the potential lenderrefused to agree to multiple loans that the applicants would have used to developseveral properties, which would therefore have increased their value. The applicantsalso assert that this non-cooperation on the part of Tawa is in breach of ss 118 and 120of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), in breach of theAML and CFT Act, in breach of the Fair Trading Act 1986, and was duress against theapplicants.[16] Tawa has not yet filed a statement of defence in the substantive proceeding.Applicants' submissions[17] The applicants submit that the PLA Notice issued by Tawa should be set asidebecause they have filed a statement of claim seeking a greater sum than the amountTawa may receive under the PLA Notice, and because the loan agreement expired inFebruary 2023 with no loan repayments outstanding.[18] The applicants say Tawa did not renew the loan and that they have paid theloan up until the date Tawa refused to renew it. They further submit that the offers byTawa to renew the loan with different fees and interest rates are oppressive and breachss 118 and 120 of the CCCFA. The applicants then say that because they did not renewthe loan on the substantially higher fees and interest, Tawa charged a high defaultinterest that could bankrupt the applicants and is oppressive under the ConsumerGuarantees Act 1993.[19] In relation to the PLA Notice, the applicants say some parts should be reversedbecause of the misconduct of Tawa and all interest paid to Tawa should be refunded.[20] The applicants say the loan expired in February 2023 and therefore Tawacannot collect any interest payments from the applicants, citing Li v Green LandInvestment Ltd.2Respondent's submissions[21] Tawa opposes the applicants' application and denies the allegations made bythe applicants in both the statement of claim and in the application. Tawa seeks ordersfrom the Court that the application be set aside on the basis the applicants do not haveany grounds to make an originating application, and because the Court does not havejurisdiction to determine the application.Service[22] Ms Ko, counsel for Tawa, also submits Tawa has not been served correctly inaccordance with the Companies Act 1993 and the High Court Rules 2016. Referring2 Li v Green Land Investment Ltd [2019] NZHC 2991, (2019) 20 NZCPR 661.to s 387 of the Companies Act which sets out the methods of service of documents oncompanies in legal proceedings, Ms Ko submits the email used by the applicants to'serve' Tawa's solicitor is not an address for service for Tawa. Ms Ko says the solicitornotified the applicants numerous times that she was not authorised to accept serviceof the application. Relevant correspondence is provided.Jurisdiction[23] Ms Ko also submits that r 19.5 of the High Court Rules does not apply herebecause it is not in the interests of justice to permit the proceeding to be commencedby way of originating application. Ms Ko says it does not secure the just, speedy, andinexpensive determination of the proceeding, citing Solar Bright Ltd v Martin.3[24] Ms Ko also submits that the High Court does not have jurisdiction to set asidea letter of demand, only a statutory demand. The letter of demand the applicants seekto set aside does not satisfy the definition of a statutory demand under s 289 of theCompanies Act 1993. Similarly, Ms Ko says there are no provisions which allow fora PLA notice under s 119 to be set aside by way of originating application.[25] Ms Ko submits that in any event, the applicants are subject to a s 119 PLAnotice due to their failure to repay the loan provided by Tawa. More specifically, theapplicants have failed to remedy the default in the sum of $2,208,000 plus contractualdefault interest accrued to the date of repayment, together with $1,222.25 being thereasonable costs and disbursements of Tawa in preparing and serving the PLA Notice.[26] Ms Ko says that due to the expiry of the PLA Notice and the applicants' failureto remedy the default, Tawa is entitled to exercise its statutory rights and obligationsas a mortgagee under the PLA, namely, to enter into possession of the mortgaged landand to sell the mortgaged land.[27] Ms Ko also submits that the statement of claim should be struck out becausethe pleading discloses no reasonably arguable cause of action. There is, however, noapplication by Tawa for strike-out. In any event, such an application would need to3 Solar Bright Ltd v Martin [2019] NZHC 300 at [18] and [26].be made in the substantive proceeding. Ms Ko sought in the alternative an extensionof time to file and serve a statement of defence. Such an application would similarlyneed to be made in the substantive proceeding.DiscussionInterests of justice[28] Ms Chen, and the Royall Family Trust, a trust of which she is the sole trustee,made an application in similar circumstances to those in the present case. It was heardearlier on the same day as the present application. In a judgment on that application,I said:4[34] Whether it is in the interests of justice to permit the applicants tocommence the proceeding by way of an originating application depends onwhether there is otherwise, in the law, an ability for the applicants to seek aninterim injunction or some form of interim relief that would effectivelytemporarily prevent General Finance from exercising any of the three powersit is entitled to exercise under notices issued in accordance with s 119 or s 122of the PLA.[35] Commentary on the jurisdiction to restrain the exercise of the powerof sale by a mortgagee says that a mortgagor may apply for an injunction atany point in the sale process.5 However, there are four principal grounds forsuch an injunction, none of which are present in this case.6[29] I focus on the PLA Notice and put to one side the letter of demand. It is not astatutory demand, nor is it otherwise a statutory instrument. It is simply a solicitor'sletter demanding payment.[30] The position is simply that the company took out two commercial loans fromTawa, a financial provider, with Ms Chen guaranteeing both loans. The loans weresecured via mortgages on properties owned by the applicants. Tawa provided theapplicants with a loan extension offer on 6 December 2022 that was subject to4 Chen v General Finance Ltd [2023] NZHC 1329.5 DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed,LexisNexis) at [15.131].6 At [15.131(a)–(d)] the four grounds are (a) the mortgage is invalid at law or in equity, (b) themortgagee has no right to exercise the power, (c) the mortgagee is exercising or intends to exercisethe power in an improper manner, (d) the mortgagor has an equitable set-off against the mortgagedebt.repayment conditions by 16 December 2022, however, the applicants did not acceptthe loan extension offer.[31] Both loans expired (the first on 17 December 2022 and the second on5 February 2023). A letter of demand was sent to the applicants on 23 February 2023demanding the applicants to remedy the default, and upon the applicants' failure tocomply with the letter of demand, Tawa served a s 119 PLA notice on the company on8 March 2023, and on Ms Chen on 9 March 2023. The PLA Notice had expired forboth the company and Ms Chen by 9 May 2023. Tawa is simply seeking to enforceits contractual rights under the loan documentation.[32] As regard the applicants' claim of oppression, I refer to the following paragraphin the judgment in Chen v General Finance Ltd:7[38] As regards the applicants' claim of oppression, despite Ms Chen'sassertion otherwise, it does not appear that General Finance had any obligationto extend the term of the loan. However, it offered to do so subject to the loanreduction being made, even though the Trust had frequently been overdue withmonthly payments. There is no oppression in those circumstances.[33] Regardless of what Ms Chen thinks of the rates proposed on any renewal ofthe loan, because there was no obligation to renew the loan, I do not find there wasany oppression on the part of Tawa.[34] I further do not accept Ms Chen's submission that because Tawa did not renewthe loan, it is not able to collect any unpaid interest after the term of the loan hadexpired. That cannot be right. Default interest is provided for in the contract.Ms Chen's reliance on Li v Green Land Investment Ltd8 is misplaced. In that case theCourt considered there were serious reasons to doubt the credibility and authenticityof the alleged term loan agreement. There was good reason to suspect that thatagreement was a concoction rather than a single authentic document. That is not thecase here.7 Chen v General Finance Ltd, above n 4.8 Li v Green Land Investment Ltd, above n 2.[35] I quote further from the judgment in Chen v General Finance Ltd:9[41] Turning to an interim injunction generally as a form of equitablerelief, commentary characterises it as an interlocutory order that seeks toprotect a plaintiff from prejudice to its legal or equitable rights that may arisebecause of the delay between the filing of its claim and the trial.10 Moreover,it is "in circumstances where that prejudice cannot be adequately compensatedby an award of damages".11 The commentary emphasises the need for a legalor equitable right to be at issue.12[42] In the present case, the applicants do not have a legal or equitable rightat issue which may be prejudiced by General Finance exercising any one ofthe powers it is entitled to under the PLA Notices. The applicants' claim inthe substantive proceeding seeks damages. Therefore, the success of theapplicants in that proceeding and their ability to be awarded the damagessought is not affected by the exercise of General Finance's contractual rights.While, if the applicants are successful in the substantive proceeding, an awardof damages may effectively set off what the applicants owe to GeneralFinance, this is not a legal or equitable right that requires protection in theinterim by an injunction.[36] The situation is the same here. There is no right at risk that the applicants willlose if Tawa exercises its rights under the PLA Notice prior to the substantiveproceeding being determined.[37] For all the above reasons, I conclude it is not in the interests of justice for theapplicants to be permitted to commence their proceeding by an originating application.Is there a serious question to be tried?[38] Even if I had granted leave, the application would fail on the merits. I utilisethe principles adopted in an interim injunction application.13[39] It was the applicants who did not accept the loan offer extension, and Tawawas under no obligation to provide the information requested by the applicants inrelation to the AML and CFT Act to either the applicants or their new lender. Further,it was not Tawa's responsibility to resolve any client due diligence issues between the9 Chen v General Finance Ltd, above n 4.10 Andrew Barker A to Z of New Zealand Law (online ed, Thomson Reuters) at [51.6.1.1]citing Northern Drivers Union v Kawau Island Ferries Ltd [1974] 2 NZLR 617 (CA) at 620.11 At [51.6.1.1].12 At [51.6.1.3].13 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).applicants and the new lender, and the CCCFA does not apply to the applicants becausetheir loans were commercial loans.Balance of convenience[40] Further adopting the approach in an interim injunction application, in my viewthe balance of convenience would favour Tawa even if there were a serious questionto be tried. I say that because the applicants' substantive claim is a claim for damages.[41] However, the Court is not in a position to take this issue any further. Becausethe application was not filed as an application for an interim injunction, there is noinformation, on either side, as to their financial standing.[42] This then brings me back to the interests of justice which is where the analysisstarted. Standing back and asking where the overall interests of justice lie, (the finalstep in considering an interim injunction) again, for all the above reasons, they lie withTawa.Result[43] I do not overlook the submission that Tawa was not properly served with theapplication. There is evidential support for that submission. There is also the fact thatthe company was not represented by counsel at the hearing. The general rule, whichis only departed from in exceptional circumstances, is that a corporation is not anactual person and can only present a case in Court through counsel holding a currentpractising certificate (including by way of in-house counsel).14 The Court does,however, retain a residual discretion to allow non-lawyers to appear on behalf ofcompanies in exceptional circumstances.15[44] One circumstance where the Court may, in its discretion, consider an exceptionto the rule is justified, is where the matter is particularly straightforward such that theassistance of counsel is not needed by the Court.14 Re GJ Mannix Ltd [1984] 1 NZLR 309 (CA) at [311].15 Keemati Ltd v Mr Civil Ltd [2021] NZHC 538 at [6] where the Court set out relevantconsiderations in the exercise of the Court's discretion.[45] I do not take either of those procedural matters, namely lack of proper serviceand representation, any further. I have preferred to proceed by determining theapplication on the merits.[46] As set out above, it is not in the interests of justice for the applicants tocommence their proceeding as an originating application. The application to do so is,therefore, refused.[47] Even if permission had been given for the applicants to commence theirproceeding by an originating application, any such application would fail on themerits.Costs[48] I did not hear from the parties on costs. Costs are therefore reserved. If costscan be agreed, counsel and Ms Chen are to file a joint memorandum within 20 workingdays of the date of this judgment. If costs cannot be agreed, Tawa is to file and serveits memorandum within five working days of the date for the joint memorandum.Ms Chen is to file and serve the applicants' memorandum within five working days ofservice of Tawa's memorandum on her.[49] Costs memoranda are not to exceed three pages (excluding attachments). I willdetermine costs on the papers._____________________________Gordon J