Reid v Carterton Auto Court Limited t/a McKenzie Motors [2014] NZHC 2372 (29 September 2014)

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UNDER	the Judicature Act 1908, the Judicature Amendment Act 1972, the Declaratory Judgments Act 1908, the Credit (Repossession) Act 1997, the Land Transfer Act 1952, the Crimes Act 1961, the Trustee Act 1956 and the New Zealand Bill of Rights Act 1990
IN THE MATTER OF	the judicial review of judgments of the Masterton District Court Registrar and the Masterton High Court Sheriff
BETWEEN	JAMES ROBERT REID and GRAEME FREDERICK HALE as trustees of THE FREDERICK FRANK TRUST Applicants
AND	CARTERTON AUTO COURT LIMITED trading as MCKENZIE MOTORS First Respondent

Hearing:	15 and 16 September 2014 (Heard at Wellington)
Appearances:	J R Reid as trustee in person K Lakshman for first respondent
_Judgment:	_{29 September 2014}

The background to the claims .......................................................................................................... [1] The proceedings ............................................................................................................................... [16] The issues ......................................................................................................................................... [23] The evidence .................................................................................................................................... [26] Did the return of the vehicle to the first respondent trigger obligations under the Act? .......... [47] Other arguments ............................................................................................................................. [62] Costs ................................................................................................................................................. [91]

[1] This is a claim, purportedly brought by way of application for judicial review, seeking declarations as to the allegedly unlawful nature of steps taken to recover amounts owing under a conditional purchase agreement for a motor vehicle, and the subsequent exercise of a power of sale of a residential property. The applicants also seek damages and compensation.

[2] In October 1999, the second-named applicant (Mr Hale) purchased a second- hand Mitsubishi motor vehicle (the vehicle) from McKenzie Motors LMVD of Masterton. That was the trading name of Carterton Auto Court Limited (the first respondent). In the Motor Vehicle Dealers Industry (MVDI) form of sale and purchase agreement, Mr Hale completed the agreement as “Mr G F Hale ... representing Frederick Frank Trust”. Mr Hale signed that contract “pp FF Trust” (the FF Trust).

[3] Similarly, some three weeks later, Mr Hale completed a conditional purchase agreement to record the terms of a credit contract to finance the purchase, which was also executed by him “pp Frederick Frank Trust”. The purchase price was $9,000. After a deposit of $2,500, the balance was financed on terms requiring 36 monthly repayments of $249.

[4] The repayment obligations under the conditional purchase agreement went into arrears in March 2002. The first respondent instructed a repossession agent to re-take possession of the vehicle, but those efforts were thwarted by Mr Hale to an extent that a complaint was made to the Police. Preliminary inquiries by the Police to ascertain the location and status of the vehicle were thwarted by Mr Hale. The officer involved, Senior Constable Matheson, understood the position to be that Mr Hale had sold the vehicle, or parted with possession of it with a view to its possible sale.

[5] In or after mid 2003, Mr Hale was charged under s 44 of the Hire Purchase Act 1971 with parting with possession or purporting to sell goods comprised in a hire purchase agreement with the intent to defraud the vendor. However, the day

before the first call of that criminal charge in October 2003, Mr Hale delivered the vehicle back to the first respondent’s garage in Masterton.

[6] Subsequently in October 2004, Mr Hale successfully defended the criminal charge. It was found not to be proven, essentially on the basis that the Police could not prove an intention to dispose of the vehicle that was subject to the hire purchase agreement.¹

[7] Mr Hale was declared bankrupt in September 2002 and discharged a little more than three years later.

[8] The vehicle was not resold by the first respondent, as generally occurs after there has been a repossession of a vehicle subject to a conditional purchase agreement. Instead, it remained at the first respondent’s garage, being stored in the workshop overnight and moved out into the yard each working day. Subsequently, in January 2006, it was dumped at the Masterton landfill for crushing, on the basis that it had no marketable value.

[9] In July 2006, the first respondent commenced proceedings in the Masterton District Court seeking judgment for the amount outstanding under the conditional purchase agreement. The statement of claim acknowledged that 19 payments totalling $4,731 had been made, leaving $4,233 outstanding. Total penalty interest calculated to 30 June 2006 of $5,579.37 was claimed, together with interest on an on-going basis at the contract rate of 22.08 per cent.

[10] Mr Hale was served with those proceedings on 8 August 2006 but took no steps to defend them. Judgment by default was entered on 19 January 2007 for

[11] No part of the judgment was satisfied and steps were taken to register it in the High Court. Subsequently on 21 September 2007, a writ of sale of a residential property in Woodville owned by the FF Trust (the property) was issued by the High

_{Court. In December 2007, a charging order was registered over the
property and}

7 February 2008. Correspondence from Wellington solicitors then acting for Mr Hale suggested that he was disrupting attempts to market the property, leading to the prospect of sale at a considerable under-value. The property was subsequently sold on 14 March 2008 for $93,500.

[12] As it transpired, Mr Hale facilitated the sale by having the FF Trust leave in a vendor mortgage of $33,500, as part of an arrangement that enabled him and members of his family to remain in possession of the property. The sale had been conducted in the name of the Sheriff of the Masterton High Court. Ms Hewton, who was acting as solicitor for the first respondent, attended to the conveyancing on instructions from the Sheriff. After deduction of an agent’s commission, the gross proceeds (after crediting the purchaser with the vendor finance of $33,500) amounted to some $55,300. Outstanding rates had to be paid of some $11,000, and charging orders or caveats lodged against the property by law firms for work undertaken on behalf of Mr Hale and the FF Trust required payments of approximately $14,500. Legal costs on the Sheriff’s instructions and the conveyancing for sale of the property amounted to a further $7,500. Ms Hewton accounted to the first respondent for the total that was then owed of some $15,700, leaving a balance of just over $6,000 which was paid to Mr Hale as trustee of the FF Trust.

[13] The upshot is that a claim for default on the conditional purchase agreement, plus costs and interest to July 2006, could have been settled for some $9,000, whereas the FF Trust has ended up accounting to the first respondent for $15,700 from the proceeds of sale of the property. The gravamen of the applicants’ complaint is that, whilst the vehicle remained in the first respondent’s custody for a prolonged period, interest continued to accrue at a high rate, on a credit contract that should have been terminated. The ultimate result has been the loss of a family home for the sake of a debt, that arguably should have crystallised when the vehicle was returned, when the amount owed was a fraction of the FF Trust’s equity in the property that has now been lost.

[14] No steps were taken to challenge the amount originally claimed in the District Court, or the post-judgment steps taken to enforce the judgment in the High Court. However, at least in March 2008, Mr Hale had solicitors acting on behalf of the FF Trust. Those solicitors asserted that Mr Hale had contracted with the first respondent personally in relation to the purchase of the vehicle, so that arguably the FF Trust would have a defence to the initiatives then being pursued to execute the judgment in respect of the property. In cross-examination, Mr Hale was inclined to accept Mr Lakshman’s suggestion that at least part of the reason for not taking steps to challenge the sale was legal advice to the effect that he could not succeed in blocking the proposed sale of the property.

[15] All of Mr Hale’s dealings in respect of the vehicle were with the owner of

[16] The history of the present proceedings is also less than straightforward. They were commenced by Mr Reid on behalf of Mr Hale in June 2010. Mr Reid included himself as an applicant, citing his capacity as “Community Advocate”. At that stage, Mr Hale was the sole trustee of the FF Trust and the proceedings were commenced citing Carterton Auto Court Limited as the first respondent, and suing also the Masterton District Court as second respondent and the Masterton High Court as third respondent.

[17] The pleading against the District Court and High Court was to the effect that they had facilitated an unlawful judgment against the FF Trust, and the use of powers to force the sale of the property. It was alleged that they were liable for the adverse consequences of that.

[18] The claims against the courts were struck out.²That strike out was appealed and upheld by the Court of Appeal.³Once the District Court and the High Court were struck out as parties, the characterisation as an application for judicial review

_{became inappropriate because there could be no possible allegation that
the first}

respondent had exercised a statutory power. Because the first respondent’s imperative was to achieve a substantive determination as soon as possible, Mr Lakshman did not take the point to require re-pleading in a more appropriate form.

[19] In addition, Mr Reid’s capacity to bring the proceedings on behalf of the FF Trust was challenged. He is not legally qualified, but sought permission to appear and conduct the proceedings. In September 2010, an order was made declining that application, which prevented him from acting on behalf of Mr Hale.⁴

In his judgment, Ronald Young J observed that the proceedings raised serious allegations of fraud requiring a careful analysis of the facts and the law that Mr Reid did not have the skills to undertake. Mr Hale was urged to seek legal advice.⁵

[20] Mr Reid’s response to that development was to have himself appointed as a trustee, and thereafter to sue on his own behalf as a trustee, as well as in the name of Mr Hale as his then co-trustee. Mallon J accepted that that status was sufficient to enable Mr Reid to act on the claim.⁶

[21] In unrelated proceedings, Mr Reid has been declared vexatious, and is the subject of orders under s 88B of the Judicature Act 1908 prohibiting him from pursuing litigation in certain contexts. However, the terms of those orders do not preclude his pursuing the present claim.⁷

[22] In an amended statement of claim dated 8 October 2012, Mr Reid pleaded on behalf of the FF Trust that the first respondent had committed fraud, had acted in contravention of statute, and had obtained money by deception. The allegations were that the first respondent was obliged to treat the return of the vehicle as a voluntary return of goods in terms of s 36A of the Credit (Repossession) Act 1997 (the Act), which triggered obligations to serve a post-possession notice on the FF Trust, and thereafter to proceed to sell the vehicle. It was alleged that the first

_{respondent acted illegally by failing to cancel the credit contract and
the steps taken}

⁴_{Reid v Carterton Auto Court Ltd HC Masterton
CIV-2010-435-120, 15 September 2010 at [15].}

⁶_{Reid v Carterton Auto Court Ltd HC Masterton
CIV-2010-435-120, 1 December 2011.}

thereafter involved the first respondent using the credit contract dishonestly to obtain valuable consideration. It was alleged that this conduct involved a criminal offence under ss 228 and 240 of the Crimes Act 1961. The FF Trust sought a declaration that the first respondent had committed criminal offences, and that it had fraudulently claimed that the FF Trust was indebted to it pursuant to a credit contract. The FF Trust also sought an order that the first respondent pay sufficient damages and compensation to enable the FF Trust to repurchase the property that had been sold by the Sheriff.

[23] That amended statement of claim did not allege that the conditional purchase agreement recorded the FF Trust as the purchaser in error, or that there had been an informal agreement to vary the identity of the purchaser from the FF Trust to Mr Hale in his personal capacity. This was a significant plank of Mr Hale’s evidence. However, he was out of step with Mr Reid on it, who explicitly conceded that the FF Trust was the party liable under the contracts, and that he could not argue otherwise.

[24] Accordingly, the essential issue raised by the claim as argued by Mr Reid was whether the first respondent’s conduct after the vehicle was returned to it was in breach of the Act. The Act governs the conduct of creditors who take possession of goods that are subject to a security agreement. If there was a repossession of the vehicle that was regulated by the Act, then it is common ground that the steps required of the creditor were not taken by the first respondent.

[25] The first respondent’s District Court claim for default under the conditional purchase agreement resulted in a default judgment in January 2007, which is now more than seven years ago. As already noted, no steps were taken to challenge those proceedings whilst they were on foot, or within a reasonable time thereafter. Nor were any formal steps taken to challenge the court processes invoked to sell the property. Mr Hale stated that he was in ill health during that period, and was under pressure to the point of “persecution” by lawyers in the Wairarapa on other, unrelated matters throughout this period. Mr Reid accepted that to avoid the consequences of

the judgments that had been obtained by default, the applicants had to make out fraud. Otherwise, the FF Trust’s liability was res judicata in terms of the existing judgments. Mr Reid sought to reserve the prospect of the Court exercising a discretion, in the absence of fraud, if the outcome was nonetheless unconscionable.

[26] The explanations on behalf of the first respondent for its dealings with the vehicle when it was handed back by Mr Hale and thereafter depend primarily on reconstruction of the informal dealings that occurred between Messrs Hale and McKenzie. In apparent response to the original form of allegations in these proceedings, Mr McKenzie conveyed a typed note to Ms Hewton by way of fax on

• Mr Hale delivered the vehicle to McKenzie Motors under duress by the Featherston Police the day before his court case.

• Mr Hale insisted we not dispose of the vehicle as he guaranteed he would be able to settle the debt in full.

• After appraising the vehicle for sale we discovered the registration had expired and would require a full compliance inspection at

$350.00, relicencing would have been approximately $200.00 on the basis that no other compliance or Warrant of Fitness issues were

• The transmission was locked in fail safe. It would require major expenditure to remedy and would deem the vehicle uneconomic to reinstate to cover costs.

• The vehicle subsequently was delivered to Masterton Refuse Station for scrap as none of the wreckers were interested in purchasing it for any money.

[27] Mr Lakshman acknowledged that the note was hearsay, but urged that I treat it as an admissible business record, given the ostensibly reliable circumstances of its creation, and Mr McKenzie’s obvious unavailability.

[28] I heard evidence from Ms Hewton as to her instructions from Mr McKenzie, and her dealings with the various steps of recovery action that have occurred.

[29] I also heard evidence from Mr Grant Tatham who has been a long-standing employee at McKenzie Motors as the service manager. Mr Tatham did not deal directly with Mr Hale, but recalled the terms of instructions he received from Mr McKenzie when the vehicle was returned to their premises, and how the vehicle was dealt with thereafter.

[30] I also heard evidence from Senior Constable Matheson in relation to the inquiries he made after receiving a complaint from Mr McKenzie, his dealings with Mr Hale over a period in 2003 when the vehicle could not be located by a repossession agent appointed by Mr McKenzie, and the course of the criminal charge brought against Mr Hale.

[31] I am satisfied that the circumstances of creation of Mr McKenzie’s note, and the circumstances in which he made comments to Mr Tatham and Ms Hewton as they have described in their evidence, were sufficiently reliable to have regard to those hearsay statements. I found both Mr Tatham and Ms Hewton to be honest and careful witnesses, and I accept their evidence, relevantly in the present context, as to the dealings they had with Mr McKenzie that are relevant to the issues in this claim.

[32] There is accordingly an adequate evidentiary basis to analyse whether the circumstances of the return of the vehicle to McKenzie Motors in October 2003, and the first respondent’s subsequent dealings with the vehicle until it was disposed of, occurred in circumstances that fall outside the nature of dealings that are required to comply with the Act.

[33] Mr Hale’s evidence was quite unsatisfactory. He frequently claimed that he was not dishonest and that he would not act dishonestly, despite having to acknowledge a reasonably protracted course of intentional misrepresentations as to where the vehicle was throughout his dealings with the repossession agent instructed on behalf of the first respondent, and with the Police.

[34] When questioned on specific details that might reveal inconsistencies, Mr Hale avoided positive answers on the basis that he could not recall the sequence of events or times when relevant matters occurred. He reminded me a number of

times that he has recently had his 80^thbirthday, that he has had periods of serious ill health, including when some of the relevant events were occurring, and that he was under substantial stress because of the pressure of other, unrelated, legal proceedings. Making reasonable allowance for these factors, I remain doubtful of the accuracy of his evidence.

[35] I note that Judge Lovegrove had similar reservations about the reliability of Mr Hale’s evidence when he dismissed the criminal charge in October 2004. At that hearing, there was a clear credibility contest between Mr McKenzie and Senior Constable Matheson who gave evidence for the prosecution, and Mr Hale who gave evidence in his own defence. Relevant events would have been much clearer in everyone’s minds at that time, when it was far closer to the events in issue. The

Mr Hale gave evidence today consistent with his not having disposed of the vehicle but having retained it in his possession having hidden it away at all material times. He said in his evidence he had, in fact, never told Senior Constable Matheson he had sold the vehicle. He said he had not said that at any time. The most he could recall was having indicated he was seeking a valuation of the vehicle but he had never made any reference to sale. I have profound misgivings about accepting any such evidence and I vastly prefer the evidence of Senior Constable Matheson in respect of the nature of the dialogue that ensued between he and Mr Hale at all material times. What is very clear is that Mr Hale’s word is not hugely reliable, but that does not mean he has committed any offence under Section 44 of the Hire Purchase Act.

[36] I comment on two relevant respects in which I have difficulty with the credibility of Mr Hale’s evidence.

[37] First, early in his supplementary evidence-in-chief, Mr Hale was insistent that the payments under the conditional purchase agreement were made from his own personal bank account. It was only when Mr Reid drew his attention to the automatic payment form that was in evidence that Mr Hale conceded that the payments were made from an account operated by the FF Trust. Much later in his evidence, Mr Hale sought to explain that the payments were made from the FF Trust’s bank account because, at the relevant time, the bank had forbidden him

_{from operating his own bank account. I put to one side the question of
why the bank}

would allow Mr Hale to have control of a bank account in the name of a trust when aspects of his performance were sufficiently unsatisfactory for the bank not to allow him to operate a personal account. The fact that the bank had apparently forbidden him from operating his own account is a material feature of the operation of Mr Hale’s financial affairs at the relevant time. It is implausible that he would overlook that prohibition on operating a personal bank account, when he was so firm in his evidence-in-chief that the payments under the conditional purchase agreement were made from his own account.

[38] The second matter relates to Mr Hale’s evidence that he had a series of meetings with Mr McKenzie over a period of a year or so after handing back possession of the vehicle. Mr Hale was bankrupt throughout this period. He explained his reason for periodically calling on Mr McKenzie as including a concern to check that he did not have any additional or on-going liabilities in respect of the conditional purchase agreement.

[39] If in fact there had been an informal agreement between the parties to the conditional purchase agreement to vary the identity of the purchaser from Mr Hale in his capacity as trustee of the FF Trust, to Mr Hale in his personal capacity, then Mr Hale’s bankrupt estate would have included his residual liability under the conditional purchase agreement. I am satisfied that Mr Hale understood the manner in which his bankruptcy operated, and the legal effect of it. If he was satisfied that the debt was a personal one, then the bankruptcy would have relieved him of any liability and there would be no need to monitor the on-going status of any personal liability he had with Mr McKenzie.

[40] I consider it far more likely that Mr Hale’s visits to Mr McKenzie were in a context in which Mr Hale appreciated that the FF Trust’s obligations under the conditional purchase agreement continued, despite his bankruptcy. In addition, as was put to him in cross-examination by Mr Lakshman, Mr Hale had a continuing interest on behalf of the FF Trust in resurrecting the agreement when the financial resources available to him enabled him to bring the obligations under the agreement up to date.

[41] Mr Tatham was clear in his recollection to the effect that the vehicle was to be stored when it was returned by Mr Hale. Implicitly, that would be storage of the vehicle on behalf of Mr Hale. Mr Tatham’s recollection is consistent with Mr McKenzie’s note, and is the most logical explanation for what subsequently occurred.

[42] The vehicle was appraised for sale. The registration and warrant of fitness for the vehicle had lapsed, and Mr Tatham assessed that the cost of repairs that would be necessary to have it pass a fitness inspection and be marketable for sale rendered it uneconomic to carry out the necessary work.

[43] I also accept from Mr Tatham’s evidence that Mr McKenzie adopted a practice he had in dealing with cars that were taken on a trade-in, namely driving it for a short period to identify any intermittent faults that might not be apparent on an immediate inspection.

[44] I am satisfied that the steps taken to assess the vehicle were on a contingent basis, and are not inconsistent with Mr McKenzie complying with a request from Mr Hale to store the vehicle on Mr Hale’s behalf.

[45] Mr Hale’s evidence was that he visited Mr McKenzie a number of times after returning the vehicle, to check on its situation. Mr Tatham did not observe Mr Hale at the premises on any such occasion. Accepting that such visits occurred, I consider that Mr Hale’s purposes in doing so were dominated by, or at least included, the purpose of touching base with Mr McKenzie, to keep alive the prospect that he would take the vehicle back again once he could resume his obligations under the conditional purchase agreement.

[46] One material detail that is not entirely clear is whether Mr Hale appreciated that the FF Trust would continue to incur interest on the outstanding instalments at

22 per cent per annum whilst the vehicle was stored with the first respondent. There is no evidence that Mr McKenzie warned him of that consequence. I consider it more likely than not that Mr Hale had not appreciated the consequences of his request for the vehicle to be held on his behalf, pending a sufficient improvement in

his or the FF Trust’s financial position, to enable them to resume liabilities under the conditional purchase agreement. There is no scope for arguing that Mr McKenzie had any obligation to warn Mr Hale that the contract would be continuing.

Did the return of the vehicle to the first respondent trigger obligations under the Act?

[47] Mr Reid asked numerous questions in cross-examination of the first respondent’s witnesses, the implicit purpose of which appeared to be to link Mr McKenzie’s earlier instructions to a repossession agent, and attempts to repossess the vehicle, to the subsequent circumstances in which the vehicle was returned to McKenzie Motors’ premises. There is a certain irony in that, given the extent of Mr Hale’s deceitful steps in resisting repossession of the vehicle. I do not consider Mr McKenzie’s earlier unsuccessful attempts to have an agent repossess the vehicle affect the status of the circumstances in which the vehicle was subsequently returned.

[48] Mr Lakshman urged that I deal with the nature of the dealings between Messrs Hale and McKenzie on the facts, without requiring them to conform with any particular procedure provided for under the Act. He cited the decision of Master Lang in Pitfield v Dorchester Finance Ltd as an example of a factual analysis of the dealings between parties to a contract governed by the Act, where what might otherwise have been treated as a repossession was held not to have been, so that the

[49] What constitutes a taking of possession of consumer goods for the purposes of the Act is not defined in it. Section 6 confines the Act to cases in which a creditor has a right to take possession of consumer goods pursuant to the terms of a security agreement or by virtue of the creditor retaining property in the consumer goods. The circumstances in which a creditor can take possession as defined in s 7 contemplate that such action will occur where the goods are located as a result of the debtor having possession of the goods. Accordingly, the concept of “taking possession” for the purposes of the Act excludes a passive receipt of the goods handed back to a

[50] That interpretation tends to be supported by the provisions of s 36A of the Act that provide for the voluntary return of goods comprised in a secured credit agreement.

[51] I accordingly find that there was not a taking of possession of the vehicle for the purposes of the Act.

[52] Mr Reid submitted that the Act did apply because there had been a voluntary return of goods as contemplated by s 36A. Section 36A(1) provides as follows:

(1) A secured credit sale agreement is terminated by the return of the consumer goods comprised in the agreement if they are returned—

(a) in accordance with any term of the agreement that permits the debtor to return the goods and terminate the agreement; or

(b) by the debtor for the purpose of terminating the agreement and the creditor agrees to the termination of the agreement.

[53] My attention was not drawn to any term of the agreement that permitted the debtor to return the goods and terminate the agreement in terms of s 36A(1)(a), nor can I find any such provision within the terms of the agreement as exhibited.

[54] In addition, there was no evidence that Mr Hale returned the vehicle and negotiated a termination with Mr McKenzie. The version of that exchange as I have found it to occur was to the contrary effect.

[55] It follows that the protections for a debtor that would apply when there has been a voluntary return of goods under s 36A did not avail Mr Hale and the FF Trust. Had the section applied, then the rights and obligations of the creditor and debtor would have been regulated as if there had been a repossession for the purposes of the Act.

[56] Mr Reid argued that the debtor’s obligations under the conditional purchase agreement crystallised at the time Mr Hale handed the vehicle back into the first respondent’s possession. He cited the decision in Expansionary Holdings Ltd v

Cambridge Discounts Ltd as authority for this proposition.¹⁰Mr Reid provided me with a copy of the headnote of the case, but did not address the facts or cite any particular reasoning in the decision that he relied on. He possibly relied on the decision for the propositions that the return of the vehicle to the first respondent was sufficient to crystallise obligations under the conditional purchase agreement so that interest could not run thereafter, and also that the reasoning in that case supported the proposition that the first respondent had to proceed with a sale of the vehicle.

[57] Expansionary Holdings involved a dispute between a motor vehicle dealer that had sold a car pursuant to a hire purchase agreement, and the finance company to which the dealer had assigned its rights under the hire purchase agreement. The terms of that assignment required the dealer to assume obligations as a principal debtor, and the purchaser of the vehicle had defaulted after variations to the agreement had been agreed between the purchaser and the finance company, without the involvement of the dealer.

[58] In any event, the vehicle that was the subject of the hire purchase agreement had been sold, and an issue was the entitlement of the finance company to continue charging interest at the contract rate after that date.

[59] Panckhurst J treated s 34 of the Hire Purchase Act 1971 as requiring a debt outstanding to be crystallised at the date of sale of the goods that were the subject of the agreement. In particular, interest at the finance rate could not continue to accrue.¹¹

[60] However, that reasoning was premised on there having been a repossession of the vehicle on behalf of the creditor, and a sale of it to recover part of the money outstanding. A comparable step has not occurred in the present case. There is nothing in the reasoning in Expansionary Holdings that could treat a return of the vehicle into the possession of the creditor as the equivalent of a sale of the vehicle by

_{the creditor, for the purposes of crystallising the debt. Given the
factual findings I}

¹⁰_{Expansionary Holdings Ltd v Cambridge Discounts Ltd
(2001) 7 NZBLC 103,364 (HC).}

have made as to the circumstances of Mr Hale returning the vehicle, the reasoning in

[61] It follows that the first respondent’s dealings with the vehicle after it was returned were not regulated by the Act, so no issue can arise of consequences of non-compliance with the Act.

[62] Even if I am wrong in this finding, and the provisions of the Act did apply because the circumstances of the delivery of the vehicle to McKenzie Motors constituted either a repossession or a voluntary return of goods under s 36A, then I would not be persuaded that the basis for the applicants’ claim was made out. The applicants alleged, not only that there had been breaches of mandatory provisions in the Act that applied to the dealing with the vehicle, but that such steps were taken intentionally so as to constitute criminal conduct involving fraud.

[63] It was alleged to be a criminal breach of the Act by virtue of s 107 of the Crimes Act. That creates an offence for everyone who, without lawful excuse, contravenes any enactment by wilfully doing an act which it forbids, or by wilfully omitting to do any act which it requires to be done. There is no scope for a finding that Mr McKenzie appreciated that the Act applied, and wilfully dealt with the vehicle and/or Mr Hale and the FF Trust in contravention of it.

[64] Mr Reid acknowledged in his closing submissions the prospect of an alternative to his original argument, in that Mr McKenzie may have negligently failed to appreciate that the provisions of the Act applied. The evidence would certainly never justify any more than a finding of inadvertent omission to follow the procedures required by the Act.

[65] The second aspect of the alleged criminality of the first respondent’s conduct

By filing a claim in the District Court and obtaining a default judgment against the applicant trust using the credit contract, the first respondent dishonestly used the document to obtain a valuable consideration. Such an action is a criminal offence under ss 228 & 240 of the Crimes Act 1961 and amounts to fraud and obtaining by deception.

• The representation in the District Court statement of claim that the obligations under the conditional purchase agreement were continuing was wrong because the contract had been frozen or cancelled from the time of return of the vehicle.

• It was fraudulent not to disclose in the statement of claim that the goods which were the subject of the conditional purchase agreement had been repossessed. Consequently, the first respondent had used its statement of claim to fraudulently and by deception cause loss to the FF Trust.

• Section 228 of the Crimes Act creates an offence for theft by a person in a special relationship, and s 240 provides for the offence of obtaining by deception. Both sections had allegedly been breached.

[67] These allegations are misconceived. I am satisfied on the evidence that Mr McKenzie gave Ms Hewton instructions to recover a debt on terms that he believed the first respondent was entitled to enforce. I also consider it more likely than not that Mr McKenzie had a reasonable basis for his belief that the first respondent was entitled to pursue its claim against Mr Hale as the trustee of the FF Trust on the terms that it did.

[68] To the extent that this aspect of the applicants’ claim relies on the proposition that the return of the vehicle required the creditor to terminate the contract, and automatically terminated the entitlement of the creditor to claim interest in accordance with the contractual provisions, then it is misconceived.

[69] In any event, there is no scope for suggesting that Mr McKenzie intentionally instructed Ms Hewton to pursue a claim which he appreciated was misrepresented.

In the ordinary course, a plaintiff commencing a claim for a liquidated sum must contemplate that the defendant will take the opportunities that always arise to challenge any error or exaggeration in the claim, before the Court would act on it.

[70] It follows that the applicants are not entitled to a declaration to the effect that the judgments adverse to their interest were procured by criminal conduct.

[71] Mr Reid pursued other issues in cross-examining witnesses and in his submissions that cannot help the applicants in making out their claims for relief. Mr Reid did not relate these issues to any component of the operative statement of claim, but I note the concerns he focused on, and comment on them.

[72] Mr Reid was concerned at apparent inconsistencies in the identity of the vendor of the vehicle, and the financier of the hire purchase arrangement. The standard form sale and purchase agreement for the vehicle, in a partly printed and partly handwritten box, recorded the wish of the purchaser for the balance outstanding, together with charges over a period of 36 months, to be financed by “Brumac”. The conditional purchase agreement recording the financial details and payment of instalments was simply completed between McKenzie Motors as vendor and Mr Hale as purchaser.

[73] When the financing statement in relation to the vehicle was registered on the Personal Property Securities Register (PPSR), the secured party was nominated as “Brumac No 2 Trust”. Mr Reid argued that the details on that register should be determinative as to the identity of the parties in any subsequent litigation.

[74] In cross-examination, Ms Hewton acknowledged that “Brumac” was a contraction of Mr McKenzie’s first and last names, and that she was aware that a trust with which he was associated provided finance for hire purchase agreements on vehicles sold by his firm.

[75] She also explained her understanding of a practice in such transactions for the financier to leave to the dealer who had sold the vehicle the task of administering the

conditional purchase agreement and, if necessary, enforcing the vendor’s rights in

[76] If Mr Reid’s point was that inconsistency between the financier of the credit aspect of the contract, and the vendor that assumed responsibility to administer and enforce the contract, somehow disentitled the vendor to enforce the contract, then there could be nothing in it. The creditor’s status on the PPSR was irrelevant to the first respondent’s claim that depended simply on the conditional purchase agreement to which it was a party.

[77] If Mr Reid’s point was that allowing discrete participation by the vendor, when the financier was not a distinct legal entity, would be inconsistent and unfair when the steps to pursue compliance with the contract were taken on the basis that rolled Mr Hale and the FF Trust together, then there could also be nothing in that point. As trustee, Mr Hale assumed personal liability, and committed the FF Trust to the transaction. Once the purchaser was in breach, both became vulnerable to claims for the consequences of such breaches.

[78] Mr Reid contested the lawfulness and reasonableness of the circumstances in which the vehicle was disposed of by Mr McKenzie delivering it to the Masterton landfill to be crushed. Mr Reid disputed Mr Tatham’s evidence that the vehicle would cost an uneconomic amount to repair to a marketable state, when assessed at the time of its return to McKenzie Motors. After that, it appears to have travelled somewhat more than 400 kilometres in the period between October 2003 and January 2006. Mr Reid appeared to want to argue that on some basis the vehicle must have had some value when it was returned, creating an obligation for the first respondent to make an allowance for that value when pursuing the claims against Mr Hale and the FF Trust.

[79] I accept Mr Tatham’s evidence on the condition of the vehicle when returned. Because it was uneconomic to repair it, there is no basis on which Mr Hale can assert an obligation on the vendor to have carried out such repairs. It is understandable that whatever minimal value the vehicle may have had in its unregistered and unlicensed state when returned would certainly dissipate over the period in which it was stored

at McKenzie Motors. Mr Tatham dismissed the prospect that a vehicle of this make and age would have any value for parts.

[80] As to the benefit accruing to McKenzie Motors by virtue of the use for some

400 or more kilometres, there was no basis on which I could calculate the value that

[81] Accordingly, there is no basis on which a material criticism could be advanced against the first respondent for failure to account for some value in the vehicle in all of these circumstances.

[82] Other themes in Mr Reid’s presentation of the case included criticisms of the Police for having persisted with the criminal prosecution of Mr Hale, and the prospect of collusion or favourable treatment being accorded to Mr McKenzie by court staff.

[83] Mr Reid’s attempted criticisms of the Police action in his cross-examination of Senior Constable Matheson were not justified. A decision to lay the information was made when Mr Hale had refused to acknowledge where the vehicle was, having given explanations which included a purported sale of it. Persisting with the charge after the vehicle had been returned to McKenzie Motors was justified, given the terms of the charge and the state of the facts in the period to which the charge related. Mr Hale’s acquittal did not signal any impropriety or improper purpose on the part of the Police.

[84] Mr Reid laid no foundation for the criticism that the first respondent’s proceedings were accorded favourable treatment, or were treated other than in accordance with usual processes. The documents are consistent with usual procedures being followed, and this point can be disregarded.

[85] Mr Reid’s final plea was that the Court should now review the alleged unconscionability of the final outcome. Mr Reid argued that the threshold for doing so ought to be lower than usual because all of the court orders adverse to Mr Hale and the FF Trust were made without substantive consideration of the merits of the

competing positions. Further, that all orders were made by court officers rather than by judges.

[86] From Mr Reid’s perspective (putting to one side the untenable allegations against the District Court and the High Court), the disproportionately adverse outcome for Mr Hale and the FF Trust resulted from overreaching behaviour on the part of the first respondent. The first respondent was blamed for the judgment sum ballooning out to an unconscionable amount because the first respondent continued to charge interest at the extremely high rate of 22.08 per cent per annum, making it impossible for Mr Hale and the FF Trust to provide for repayment without needing to resort to the property.

[87] So far as the financial outcome of sale of the property is concerned, the terms of the sale were materially affected by Mr Hale’s own involvement in providing vendor finance on terms that enabled his family to remain in occupation.

[88] Mr Reid described the extent of charges against the property that had to be repaid as “the vultures circling”. However, it mischaracterises the circumstances of the sale to attribute any responsibility to the first respondent for the extent of other payments that had to be made from the sale proceeds to third parties before the Sheriff accounted to Mr Hale and the FF Trust for the residual balance. The FF Trust still retains an interest in the property as mortgagee to the extent of $33,500.

[89] On the basis of the circumstances of return of the vehicle as I have found them to be, I would not be persuaded that there was any level of unconscionability in the financial outcome that could justify a re-opening of the court orders as between the applicants and the first respondent.

[90] Accordingly, all aspects of the applicants’ claims for relief are declined.

[91] The first respondent is entitled to costs and disbursements. If agreement cannot be reached on quantum, I invite memoranda – first on behalf of the first respondent within 28 days of issue of this judgment, and thereafter on behalf of the

applicants within 21 days of service of any memorandum on behalf of the first respondent.

High Court of New Zealand Decisions

Reid v Carterton Auto Court Limited t/a McKenzie Motors [2014] NZHC 2372 (29 September 2014)