TIMOTHY TOILOLO v WESTPAC NEW ZEALAND LIMITED [2013] NZHC 1517

TIMOTHY TOILOLO v WESTPAC NEW ZEALAND LIMITED [2013] NZHC 1517 [21 June 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-3151[2013] NZHC 1517BETWEEN TIMOTHY TOILOLOPlaintiffAND WESTPAC NEW ZEALAND LIMITEDDefendantHearing: 21 June 2013Appearances: D Hayes for plaintiffM Pascariu for defendantJudgment: 21 June 2013(ORAL) JUDGMENT OF LANG J[on application for interim injunction][1] Mr Toilolo owns a house property situated at 40B Orams Road, Manurewa. He lives in that property with his wife and family.[2] The property is subject to a mortgage registered in favour of Westpac NewZealand Limited ("Westpac"). The mortgage secures loans and credit facilitiesWestpac has made to Mr Toilolo for personal purposes and also in respect of his accountancy business.[3] On 15 April 2013, Westpac served a notice under s 119 of the Property LawAct 2007 ("PLA") on Mr Toilolo. The notice required Mr Toilolo to remedy defaultsin his obligations to Westpac by making full payment of arrears owing to Westpac under the loans and facilities as at that date. The notice expired unremedied on 15 May 2013.[4] Westpac is now seeking to exercise its power of sale under the securities itholds over Mr Toilolo's property. It plans to hold an auction of his home on 26 June2013 at 9 am.[5] In this proceeding Mr Toilolo claims that Westpac has acted in a harsh and oppressive manner in exercising its rights under its securities. He now seeks an interim injunction preventing Westpac from proceeding with the auction until such time as his claim has been heard.[6] I am grateful to counsel for the speed with which they have filed evidence and submissions. This has enabled me to provide the parties with an immediatedecision so that they know where they stand five days out from the auction.Relevant principles[7] There is no dispute regarding the principles that apply in the present context. The Court is potentially required to determine two issues.1 First, it must decide whether the plaintiff has established a serious issue to be tried. If the plaintiff clears that hurdle, the Court must determine whether the balance of convenience favours the granting of an injunction. In this context the Court must consider the position of1 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129.both parties. It will need to determine whether damages will be sufficient to compensate the plaintiff in the event that an injunction is not granted and its claim is ultimately successful. It must also consider the position from the perspective of the defendant if an injunction is granted and the claim is ultimately unsuccessful.2Mr Toilolo's claims[8] Mr Toilolo advances his case under two broad heads. First, he claims that Westpac has acted harshly and oppressively in dealing with a deposit of $35,000 that he had lodged with the bank by way of security against his loans. He argues that the bank ought to have applied this sum against outstanding arrears and to repay hiscompany's overdraft. Instead, the bank has applied it against outstanding principal on two home loans. Allied to this is a submission that the bank acted harshly and oppressively in requiring his business to repay its overdraft.An arguable case?[9] There is no dispute that all of the contracts between Westpac and Mr Toilolo are credit contracts in terms of the Credit Contracts and Consumer Finance Act 2003("the Act"). The Court has the power under s 120(b) of the Act to re-open a creditcontract if it "considers that a party has exercised, or intends to exercise, a right or power conferred by [the] contract in an oppressive manner".[10] Section 118 of the Act defines the term "oppressive" as meaning "oppressive,harsh, unjust, burdensome, unconscionable, or in breach of reasonable standards of commercial practice." In GE Custodians Ltd v Bartle,3 the Supreme Court confirmed that, in considering whether there has been a breach of reasonable standards of commercial practice, the Court must adopt an objective standard that may be wider than the equitable doctrine of unconscionability.42 Ashmont Holdings Ltd v Bayer New Zealand Ltd HC Auckland CIV 2007 404 3518 10 September 2007 at [18].3 GE Custodians Ltd v Bartle [2011] 2 NZLR 31 (SC).4 Ibid, at [46].[11] The Court is required to determine whether a right or power has been or willbe exercised oppressively "against all the circumstances that the Court sees fit".5Where a creditor proposes to exercise a right as a consequence of a default, the Court must assess whether the time given to the debtor to remedy the default is oppressive having regard to the likelihood of loss to the creditor.6[12] There is no dispute that Mr Toilolo was in default with his obligations under the various agreements the parties executed in respect of the facilities that Westpac provided to him. Nor does he contend that Westpac failed to comply with the notice requirements under the PLA. His claim rests solely on the two allegations set out above.7[13] In determining whether Mr Toilolo has established a serious case to be tried, it is necessary to have regard to the overall context in which Westpac committed the acts of which Mr Toilolo now complains. It seems to me that several factors are relevant in this regard.Exercise of contractual rights[14] Westpac uplifted the sum held on deposit and applied it to reduce the principal owing under the two home loan agreements at some stage between 6 and 16 August 2012. Mr Toilolo accepts that Westpac was contractually entitled to take that step.[15] As at that date the contractual relationship between Westpac, Mr Toilolo andMr Toilolo's accountancy company was governed by two home loan agreements, the mortgage registered against Mr Toilolo's property, a specific security agreement("SSA") and a general security agreement ("GSA"). The company had also entered into an overdraft agreement under which it was entitled to an overdraft facility in thesum of $14,000. The company guaranteed Mr Toilolo's obligations to Westpac, and Mr Toilolo guaranteed the company's obligations.5 Credit Contracts and Consumer Finance Act 2003, s 124.6 Ibid, s 124(b)(2).7 At [8].[16] The home loan agreements required Mr Toilolo to make all payments in the manner specified by Westpac. At all material times the agreements also required Mr Toilolo to make specified monthly payments of principal and interest. Westpac was entitled to charge default interest on any outstanding payment, and to use money deposited by Mr Toilolo in other accounts with Westpac to pay money owed under the loan agreements.[17] Under the SSA, Westpac was entitled to declare any indebtedness by Mr Toilolo to be immediately due and payable in the event of any default event (as thatterm was defined in the agreement). A default event included any failure to makepayments as required by Westpac under any loan agreement or facility. The SSAalso entitled Westpac to enforce its security interest by applying any securedproperty towards satisfaction of Mr Toilolo's debts. The $35,000 deposit wasexpressly included within the securities to which the SSA was to apply.[18] Under the GSA, Mr Toilolo's accountancy company gave Westpac a securityover all of its assets.[19] Westpac used the funds on deposit to reduce the home loans after it had issued notices under s 119 of the PLA to Mr Toilolo and his accountancy company on 23 May 2012. These required required Mr Toilolo and his company to remedy defaults under the two home loan agreements. At that stage the arrears amounted to $12,500. The notices were served on Mr Toilolo and his company on 25 and 29 May 2012 respectively. Correspondence then ensued between Westpac, Mr Toilolo and his solicitors. The notices expired unremedied, however, on 8 July 2012.[20] It follows that Westpac was contractually entitled under the SSA to apply the funds on deposit in reduction of the home loans. An event of default had occurred in terms of the SSA, and this entitled Westpac to resort to the security that it held in the form of the funds on deposit.[21] Westpac called up the company's overdraft after Mr Toilolo and his companyfailed to comply with letters of demand dated 1 March 2013. These required Mr Toilolo and the company (as Mr Toilolo's guarantor) to pay arrears of principal andinterest totalling $4,495.70 no later than 7 March 2013. The arrears related to the two home loan accounts, as well as arrears payable under another account.8 The letter to the company advised it that failure to remedy the default might result incancellation of the company's overdraft facility.[22] The bank cancelled the overdraft facility after Mr Toilolo and his company failed to remedy the defaults by 7 March 2013. This failure also prompted the bank to issue its PLA Notice on 3 April 2013. The amount outstanding under thecompany's overdraft facility formed part of the amount claimed in the PLA Notice.[23] Westpac was entitled to rely on the failure to pay the amount claimed in the letters of demand dated 1 March 2013 because it constituted a default event in terms of the SSA. The SSA then gave Westpac the power to require the company to repay the overdraft facility in full. Westpac was accordingly entitled to take that step.[24] The nub of Mr Toilolo's argument on this point was not that Westpac did not have that contractual entitlement. Rather, he contends that it was unfair of Westpac to exercise its contractual rights in this way. He argues that Westpac ought to have applied the funds held on deposit to repay outstanding arrears and, if necessary, torepay the company's overdraft facility. Had Westpac taken those steps, hisobligations to the Bank would have been met and Westpac would not have been required or entitled to sell his house property.[25] That argument ignores the fact that Mr Toilolo did not provide the funds on deposit for the express purpose of meeting loan arrears and/or repaying hiscompany's overdraft facility. Rather, he placed them on deposit as security for thewhole of any indebtedness that he and his company might incur to Westpac. He had no ability or right to determine how Westpac chose to use those funds. Westpac was entitled to use them as it saw fit once a default event occurred. The exercise of contractual rights in this way cannot, in my view, amount arguably to oppressive conduct in terms of the Act.8 A Westpac Access Account.[26] That is particularly so in the case of the company's overdraft facility, becausethe letters of demand dated 1 March 2013 only required the company and Mr Toilolo to repay the sum of $4,495.70. Had they taken that step, Westpac would not havecalled up the overdraft facility. Moreover, Westpac continued to permit Mr Toilolo'scompany to use the overdraft facility even after it had called for the facility to be repaid. It did so in order to enable Mr Toilolo to place his property on the market or to refinance his borrowings with another institution.Mr Toilolo's borrowing history[27] The issue of oppression also needs to be considered having regard to the previous relationship between Westpac and Mr Toilolo. In particular, Mr Toilolo'sborrowing history is relevant.[28] The evidence reveals that Mr Toilolo has been a customer of Westpac since 2003. Between 2003 and 2013 he and Westpac have been parties to numerous loan agreements. It is also clear, as Mr Toilolo freely acknowledges, that since 2009 he has not been a model customer. Since that time Westpac has issued PLA notices on three separate occasions because Mr Toilolo and/or his company have fallen into arrears with payments. His original accountancy company was also placed inliquidation, but the bank permitted the company's overdraft facility to be transferredto his present company.[29] Perusal of the correspondence shows that Westpac has spent an inordinate amount of time and effort in dealing with Mr Toilolo's accounts. It is not surprisingthat the bank now seeks to bring matters to a conclusion.[30] A further complication has also arisen, because earlier this year Westpac learned that in or about April 2011 Mr Toilolo obtained a loan in the sum of $40,000from Avanti Finance Ltd. Avanti has taken a second mortgage over Mr Toilolo'sproperty as security for this advance. It now transpires that when Mr Toilolo applied for the loan, he provided Avanti with a statement purporting to be prepared by Westpac. The statement recorded that Mr Toilolo owed Westpac the total sum of approximately $209,000 as at 12 April 2011. This information was patently incorrect, because Mr Toilolo owed Westpac at least $400,000 as at April 2011.[31] Avanti discovered the true position when Westpac served it with a copy of the PLA notice it had issued on 3 April 2013. It then immediately sought an explanation from Westpac. After Westpac made enquiries of its staff, it advised Avanti that the statement in question had not been signed by any member of its staff. There is therefore the possibility that Mr Toilolo provided Avanti with a forged or false document in support of his loan application. This places Westpac in a difficult position because, until the true position can be established, Avanti is likely to continue to believe that Westpac misled it.Previous opportunities given to Mr Toilolo[32] Mr Toilolo cannot, and indeed does not, argue that Westpac has not provided him with opportunities to prevent a mortgagee sale occurring. By way of example, Mr Toilolo had failed by August 2012 to remedy the defaults set out in the PLA that Westpac had issued on 23 May 2012. This had required Mr Toilolo to pay the sum of $12,500.21, being the arrears then owing under the two home loan agreements, nolater than 8 July 2012. On 6 August 2012, Westpac's solicitors advised Mr Toilolo'ssolicitor that Westpac proposed to apply the funds on deposit in reduction of the principal owing under the two home loans. They also advised Mr Toilolo's solicitorthat Westpac was prepared to allow Mr Toilolo to sell his property himself, provided he kept the bank fully informed as to progress. Mr Toilolo did not take up this opportunity.[33] Then, on 16 August 2012, Westpac's solicitors advised Mr Toilolo's solicitorthat the bank would withdraw the PLA notice and desist from undertaking amortgagee sale provided Mr Toilolo paid the outstanding arrears and the bank's costsby 24 August 2012. Mr Toilolo failed to take up this opportunity as well.Mr Toilolo's occupation[34] It is also relevant in this context that Westpac is not dealing with a person who can be described as inexperienced or naïve in business affairs. Mr Toilolo is a chartered accountant. As such, he can reasonably be expected to know and understand the importance of complying with bank requirements, and the consequences of failing to do so.The outlook[35] More than a year ago, on 7 June 2012, Mr Toilolo's solicitor wrote to Westpac's solicitors and sought a period of grace for six months to enable Mr Toilolo to put his affairs in order. They said that the value of his assets exceeded the value ofhis liabilities by the sum of $82,500. In saying this, Mr Toilolo's solicitor ascribed a value to Mr Toilolo's accountancy practice of $110,000. Mr Toilolo's solicitor saidthat the practice was profitable, and that it had provided Mr Toilolo with a net income of $26,815 for the year ended 31 March 2012. They also said that Mr Toilolo expected to receive approximately $120,000 from the settlement of a defamation claim.[36] It is now more than a year since Mr Toilolo's solicitor wrote that letter, and it would appear that Mr Toilolo's position has not improved to any great extent. Avaluation report obtained in respect of his home in May 2013 records that it may be worth $400,000 to $415,000 if sold on the open market, but only $347,000 to $360,000 if sold by the mortgagee. Mr Toilolo still owes Westpac the sum of approximately $415,000, and the costs involved in a mortgagee sale will increase that figure. Westpac is therefore proceeding to sell the property in the knowledge that the sale will almost certainly produce a significant shortfall. It cannot be criticised, in my view, for attempting to minimise the extent of its loss.Conclusion[37] All of these matters persuade me that Mr Toilolo cannot establish, even to an arguable standard, that there is a serious issue to be tried in relation to his claim of oppression. His application therefore fails at the first hurdle. For that reason it is not strictly necessary for me to consider the balance of convenience. For completeness, however, I will briefly address that issue.Balance of convenience[38] Mr Toilolo says that the sale of his home will be devastating for himself and his family. As well as being their place of residence, he says it is a place of emotional and spiritual significance for the family. Although he concedes thatWestpac would be able to pay any damages the Court might order if he ultimately succeeds with his claim, he says that this will not compensate the family for what they have lost. He also points out that he has been keeping up to date with mortgage payments, and that the company overdraft is the only facility or loan in arrears.[39] Westpac emphasises that there is currently no equity in Mr Toilolo's property,particularly when the second mortgage to Avanti is factored into the equation. It says that it should not be required to wait any longer for the return of its principal, and that the Court should permit the scheduled auction to proceed.[40] On this point the balance of convenience firmly favours the bank. Although I accept that the sale of the home will produce very real difficulties for Mr Toilolo and his family, Westpac is now entitled to exercise its powers under the mortgage to sell the property and repay the loans that it has made to Mr Toilolo. It is quite clear that there is no equity in the property, and on that basis there is no justification for any further delay. Westpac is well able to meet any award of damages in the unlikely event that Mr Toilolo ultimately succeeds in his claim.[41] A further relevant factor in this context is the extent to which Mr Toilolo'sundertaking as to damages has any real worth. He has not provided the Court with any details as to his current financial position. The lack of equity in the property, coupled with the fact that the company remains unable to repay the overdraft facility, suggests that the undertaking might very well be worthless. This, too, counts against the granting of injunctive relief.Result[42] The application for an interim injunction is dismissed.Costs[43] Westpac already has the ability under its securities to recover its costs from Mr Toilolo. For that reason I make no order as to costs.Next event[44] There is some uncertainty as to whether the proceeding will continue further.It is therefore nominally adjourned to the Associate Judge's Chambers List forreview on 21 August 2013 at 2.15 pm. Attendances on that date will not be necessary if a notice of discontinuance is filed in the meantime.Lang JSolicitors:Minter Ellison Rudd Watts, AucklandCounsel:David Hayes, Hamilton