Haddon v G E Custodians [2011] NZCA 413 (26 August 2011)

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Haddon v G E Custodians [2011] NZCA 413 (26 August 2011)

Last Updated: 31 August 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA475/2010 [2011] NZCA 413

BETWEEN GARY FRANCIS HADDON Applicant

AND G E CUSTODIANS First Respondent

AND BARBARA GALE HADDON Second Respondent

AND GRAEME DOUGLAS HADDON Third Respondent

AND CHRISTOHPER TE IKA TEPARA Fourth Respondent

AND SANDRA RAEWYN JAMESON Fifth Respondent

Hearing: 23 August 2011

Court: Ellen France, Randerson and Harrison JJ

Counsel: C S Henry for Appellant E M S Cox and K N Mortimer for First Respondent No appearance by or on behalf of Second, Third, Fourth and Fifth Respondents

Judgment: 26 August 2011 at 3 p.m.

JUDGMENT OF THE COURT

1. The application for a stay of execution of the judgment of this Court issued on 21 July 2011 (CA475/2010); [2011] NZCA 335) is dismissed.
   
2. The costs of the application are reserved.

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REASONS OF THE COURT

Introduction

[1] On 21 July 2011 this Court[1] dismissed an appeal by the applicant (Mr Gary Haddon) after the first respondent (GE Custodians) obtained summary judgment in the High Court.[2] This granted GE Custodians vacant possession of two properties in respect of which it wished to exercise its power of sale under a mortgage. The first was a property owned by Mr Haddon and his wife at Glendene and the second was a property at Paeroa to be purchased by their son (Mr Graeme Haddon) and his partner (Mr Christopher Tepara).[3] The appeal and this judgment is concerned only with the Glendene property. We will refer to Mr Gary Haddon as Mr Haddon senior and to his son as Mr Haddon junior.
[2] On or about 11 August 2011, Mr Haddon senior filed an application in the Supreme Court for leave to appeal against the decision of this Court. GE Custodians has advised Mr Haddon senior that it wishes to obtain possession of the Glendene property and to proceed to exercise its power of sale, notwithstanding his application for leave to appeal to the Supreme Court.
[3] In consequence, Mr Haddon senior has applied to this Court for a stay of execution of the judgment of this Court under r 30(2) of the Supreme Court Rules 2004. The application is opposed by GE Custodians.

Background

[4] Mr Haddon senior and his wife are in their early 60’s and have lived in the Glendene property for some 40 years. They agreed to assist their son and his partner in the purchase of the Paeroa property. All four jointly borrowed $730,437 on first mortgage from GE Custodians in October 2007 secured over the Glendene and Paeroa properties as well as a property Mr Haddon junior and Mr Tepara owned at Otorohanga.
[5] From the advance, $131,000 was utilised by Mr and Mrs Haddon senior to refinance their existing first mortgage on the Glendene property, $100,000 was used to repay unsecured debts of their son and his partner, and the remaining funds were used to purchase the Paeroa property for $465,000. The term of the mortgage was for 30 years with a nominal interest rate of 9.69 per cent.
[6] Mr and Mrs Haddon senior, their son and Mr Tepara sought advice from a broker named Sandra Jameson. Initially, she applied for finance from three trading banks without success. Ultimately she applied for a loan through another broker, United Home Loans Ltd.
[7] A worksheet prepared by United showed that the net asset-worth of the four borrowers was of the order of $900,000. This figure was said to be supported by registered valuations of the Glendene and Otorohanga properties and by the contract price for the Paeroa property. The same worksheet showed that the four borrowers had a combined annual income of $179,412. The mortgage outgoings were calculated to be $76,647 per annum leaving a cash surplus after living and mortgage expenses of $86,264. The worksheet showed that United required proof of income and copies of the registered valuations and verification of other details. Against that background, United arranged with GE Custodians to provide a loan of up to almost 80 per cent of the nominated values of the three properties.
[8] Prior to committing themselves to the borrowing from GE Custodians, Mr Tepara’s son died suddenly and, soon afterwards, Mr Tepara suffered the first of a series of heart attacks. In consequence, valuable contracts which Mr Haddon junior and Mr Tepara had from the Ministry of Social Development were lost and their income was radically reduced.
[9] Ms Jameson deposed that she rang a United lending manager telling him of Mr Tepara’s loss. She inquired about what would happen if Mr Haddon junior and Mr Tepara lost their jobs or their income was reduced. She said in her affidavit that she was told this was not a matter of concern.
[10] A key fact is that Mr Haddon junior and Mr Tepara could, at that stage, have withdrawn from the Paeroa purchase and all four borrowers were not then committed to the proposed borrowing from GE Custodians. Notwithstanding the change in circumstances and a warning from Ms Jameson about the risks of proceeding, all four decided to proceed with the transaction, obtaining independent legal advice before they did so.
[11] Soon after the mortgage was granted, the borrowers sought “mortgage holidays” but their applications were denied. By September 2008, the borrowers were in default to the extent of some $36,856. Mr and Mrs Haddon senior, with the help of their family, repaid the arrears outstanding at that point.
[12] In December 2008 there was an offer by Mr and Mrs Haddon senior to pay GE Custodians $300,000 in return for a release from their personal covenants under the mortgage. These funds were to be provided with assistance from Mr and Mrs Haddon’s family or by refinancing through a credit union. GE Custodians was not prepared to release Mr and Mrs Haddon senior from their personal covenants.

The judgment under appeal

[13] On behalf of Mr Haddon senior, Mr Henry raised a number of points in support of his appeal against the grant of summary judgment in the High Court. All the points raised were rejected and the summary judgment upheld. In brief summary, this Court held:

• A defence alleging that GE Custodians had failed to comply with its disclosure duties under the Credit Contracts and Consumer Finance Act 2003 (the CCCFA) failed because the disclosure requirements of the CCCFA did not apply to the loan in question; there had been a failure to raise the disclosure point in Mr Haddon senior’s notice of opposition; and, in any event, if there was such a duty it was substantially complied with.
• There were no grounds for holding that the relevant credit contract was oppressive such as to entitle the Court to re-open the contract under s 120 of the CCCFA.
• The terms of the contract were conventional.
• Although the transaction worked real hardship on Mr Haddon senior and his wife, neither GE Custodians nor United had induced them to enter into the transaction.
• They consciously assumed the risk that had eventuated and had proceeded with the transaction with knowledge of the change in circumstances of their son and Mr Tepara.
• They had an opportunity to withdraw but did not do so.
• There was no evidence to suggest that GE Custodians had any reason to be concerned that Mr Haddon junior and Mr Tepara had exerted any undue influence over Mr and Mrs Haddon senior who were intent on assisting their son and his partner.
• They obtained independent legal advice before entering the transaction.
• The terms of the transaction were explicit and would have been clear both to the borrowers and to their legal adviser.
• GE Custodians was entitled to assume the borrowers were independently advised about the liability and risks they were undertaking.
• On the face of the information provided to United, there was more than adequate security and income to service the mortgage.
• Even assuming that United was the agent of GE Custodians, the advice of Mr Tepara’s changed circumstances which Ms Jameson gave to United’s lending manager was not such as to put GE Custodians on notice of any lack of creditworthiness on the part of the borrowers; in particular, Ms Jameson did not say that GE Custodians could no longer rely on the borrowers’ then disclosed income capacity and it was highly unlikely she would have given any such indication to United.

Current position

[14] Mr Haddon has deposed that he has recently been made redundant from his employment and is under ACC care for an injury to his shoulder. He says that he will be unable to seek employment for at least the remainder of this year.
[15] A witness for GE Custodians has deposed that, as at 18 August 2011, the status of the loan was:

(a) Initial principal: $730,437.00

(b) Term (Remaining): 25 years, principal and interest.

(c) Interest rate: 8.3 per cent per annum.

(d) Monthly instalments: $5,628.34.

(e) Balance owing: $1,121,685.59; and

(f) Current arrears: $407,594.93

[16] Prior to the application for a stay, no payments under the mortgage had been made since October 2008. Recently, Mr Haddon senior paid $6,200 towards the arrears. GE Custodians has unconditional sale agreements to sell the Paeroa property for $325,000 and the Otorohanga property for $22,000. On the basis that the Glendene property may be worth $350,000 in the current market, the expected shortfall after sale of all the properties will be approximately $500,000.
[17] The ongoing cost to GE Custodians of the Glendene property not being sold pending the application for leave to appeal and any appeal being heard is approximately $2,400 per month (calculated at 8.39 per cent per annum on a sum of $350,000). The actual cost to GE Custodians of borrowing those funds would be approximately half that figure or $1,250 per month.
[18] Mr Cox informed us on behalf of GE Custodians that possession of the Glendene property would not be sought for four weeks from the date of hearing of the application for stay. For his part, Mr Henry advised that he had instructions from Mr Haddon senior to offer to pay GE Custodians $1,200 per month in the meantime with a first payment in three to four weeks time.
[19] Mr Henry submitted there were good grounds for an appeal to the Supreme Court. The specific grounds to be raised were that this Court had erred in relation to the disclosure issue; both the High Court and this Court had erred in failing to adopt the proper approach to determination of an application for summary judgment; this Court had erred on a number of factual issues including finding that the borrowers had consciously assumed the risk which had eventuated and that GE Custodians was entitled to assume that the Haddons were independently advised as to the liability and risks they were undertaking.

Discussion

[20] Mr Henry submitted that, unless a stay were granted, the appeal would be rendered nugatory. GE Custodians would take possession of the property and, in due course, would proceed with a mortgagee’s sale. To counter this point, Mr Cox submitted that damages would be an adequate remedy. There was no question about the capacity of GE Custodians to meet any damages award or any compensation ordered by the Court should the transaction be reopened under the CCCFA. We accept Mr Cox’s submission on this point.
[21] Mr Henry also relied on the strength of the proposed appeal. Our assessment is that the prospects of success on appeal are weak having regard to the Supreme Court’s decision in GE Custodians v Bartle.[4] On the face of things, Mr and Mrs Bartle were in a much stronger position than the present applicant, yet their claim failed in the Supreme Court. A critical factor, both in Bartle and in the present case, is that independent legal advice was taken. Unlike Bartle there is no evidence here that Mr and Mrs Haddon senior were unaware of the risks they were taking or were misled in any way about the nature of the transaction. There was nothing to alert GE Custodians to the possibility that Mr and Mrs Haddon senior required (exceptionally) legal advice which was independent of the advice given to their son and Mr Tepara. Indeed, there was no evidence of any conflict of interest between them. Importantly, all the borrowers proceeded with the transaction with knowledge of the risks they were assuming.
[22] Mr Henry submitted that there was little prejudice to GE Custodians if a stay were granted, at least until the Supreme Court had the opportunity of considering the application for leave to appeal. He informed us that the Supreme Court had directed that the applicant’s submissions were to be filed by 12 September and GE Custodians’ by 3 October. Any financial detriment to GE Custodians would be minor given the offer to pay $1,200 per month in the meantime.
[23] Mr Cox accepted that the financial detriment to GE Custodians would be relatively small in the period between now and the time the Supreme Court decides whether leave to appeal should be granted. However, he submitted that this Court should weigh in the balance the fact that no payments were made under the mortgage for a period of three years. Even now, the offer to pay $1,200 per month is only a fraction of the current outgoings and there is no offer to pay any of the arrears.
[24] Finally, we note that Mr Haddon senior’s application for leave to appeal asserts that the issues to be raised in the Supreme Court are of general and public importance. It is said to be important for lending institutions such as GE Custodians to be clear about the parameters within which such institutions may properly operate.

Conclusion

[25] Having regard to the well-settled criteria of determining applications for stay,[5] we conclude that the application for a stay should be dismissed. Prime considerations are that the principles in this area are well-settled since the Supreme Court’s decision in Bartle; GE Custodians has not until very recently received any payments under the mortgage for three years and is entitled to enforce its security; there are no issues of novelty or importance beyond the immediate parties; the grounds for appeal appear to be weak; damages would be an adequate alternative remedy in the event of leave to appeal being granted and the appeal being allowed; the balance of convenience and overall justice favour a refusal of the application.
[26] We have been informed that an application for legal aid has been made. As this may affect any award of costs, we will reserve costs at this juncture. The first respondent may apply for costs at a later stage if it wishes to do so.

Solicitors:
Witten Hannah, Takapuna for Appellant
Gibson Sheat, Wellington for Respondent

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[1] Haddon v GE Custodians [2011] NZCA 335.
[2] GE Custodians v Haddon HC Auckland CIV 2009-404-6464, 2 July 2010.

[3] The Paeroa property was ultimately owned by Mr Haddon junior, Mr Tepara and a family trust, the trustees of which included Mr Haddon senior and his wife.
[4] GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31.

[5] Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA); and Keung v GBR Investment Ltd [2010] NZCA 396.