Wallace v Tupou [2018] TOSC 14; CV 53 of 2017 (13 April 2018)

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IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

AND: HRH Salote Mafile’o Pilolevu Tuita and Lucy Anna ‘Ilaiu as trustees of the HRH SMPT Family Trust

Counsel: Mr. L Niu SC and Dr. J Turner for the plaintiffs
Mr. W. Edwards for the defendants

[1] The plaintiffs (the Wallaces) sue to recover NZ$2,104,822 said to be owed by the first defendant (Ms. ‘Ilaiu) as borrower under a term loan agreement dated 24 May 2016.

[2] The second defendant (HRH) and third defendants are sued as guarantors of Ms. ‘Ilaiu’s obligation.

[3] On 27 February 2018 the Wallaces obtained judgment by default against Ms. ‘Ilaiu under O.14 Rule 1 Supreme Court Rules. They then applied for charging orders over registered leases in which they contend Ms. ‘Ilaiu has an interest either solely or jointly with HRH.

(d) Applications by the Wallaces for charging orders to be made absolute and by Ms. ‘Ilaiu to discharge the charging orders.

[5] The Wallaces are New Zealand residents. Mr. Wallace had a company incorporated in New Zealand called International Produce Limited (IPL). It did business in Tonga. Mr. Wallace met Ms. ‘Ilaiu and HRH in around 2001.

[6] Ms. ‘Ilaiu and HRH are Tongan nationals. They have owned properties in New Zealand but they have now been sold. Tonga is their usual place of residence.

[7] Ms. ‘Ilaiu and HRH had shareholdings in a company called Global Trading Company Limited (GTCL).

[8] The Wallaces claim is founded upon a term loan agreement of 24 May 2016. There have in fact been a series of linked term loan agreements between the parties which I shall describe below.

[9] IPL as lender and GTCL as borrower entered into a term loan agreement dated 15 December 2011 (the first term loan agreement). The advance was $500,260 but included a ‘fee’ of $250,130. As will become apparent, loan fees charged by the Wallaces are the kernel of the dispute between the parties.

[10] The first term loan agreement contemplated further advances (Part 1 Annexure Schedule Loan Details). Other terms included the payment of interest at 15%. Principal and interest were repayable on 14 June 2012. GTCL acknowledged that the agreement was not a consumer credit contract under the Credit Contracts and Consumer Finance Act 2003 (CCCF). A mortgage was taken over Ms. ‘Ilaiu’s property at 69C Finch Street, Auckland. Ms. ‘Ilaiu provided her personal guarantee but as between her and the lender she was deemed to be a principal party (cl. 13(b)).

[11] The first term loan was not repaid on 14 June 2012. Mr. Wallace’s evidence was that the loan balance ‘reverted to zero’ on 14 October 2014. From the account statements produced I am not satisfied that is correct but nothing turns on it for present purposes and IPL made further advances.

[12] On 25 April 2015 Ms. ‘Ilaiu signed an acknowledgement that the debt owed to the Wallaces was $1,086,403.97 and would be repaid by 27 June 2015. Interest was to accrue at 2% per month.

[13] On 27 June 2015 IPL assigned to the Wallaces its right, title and interest in the first term loan agreement, the mortgage over 69C Finch Street and moneys payable to IPL by GTCL and Ms. ‘Ilaiu. Notice of the assignment was given to GTCL and Ms. ‘Ilaiu.

[15] On 2 September 2015 the Wallaces and Mrs. ‘Ilaiu entered into a second term loan agreement (the second term loan agreement). The principal sum was $1,255,000 plus further advances repayable on demand.

[16] Other terms included that interest was payable monthly from 30 June 2015 and from the date of further advances. The lower interest rate was 2% per month and the higher interest rate was 3% per month. The higher interest rate was to apply unless interest payments were made within 7 days of the due date for payment, in which case the lower interest rate would be accepted for the relevant interest period. Interest was payable upon any money not paid on due date, which included moneys due as interest (i.e. compounding interest) on a daily basis. There was an acknowledgment that the agreement was not a consumer credit contract. The advance was secured by mortgage over 69C Finch Street.

[17] Mr. Wallace says that Ms. ‘Ilaiu was to sign the second term loan agreement on 30 June 2015 when the amount owing was $1,120,000 but that it was not signed until 2 September 2015 when the amount owing with interest was $1,255,000 (rounded from $1,253,760). It is not clear therefore why interest was charged again on the principal sum of $1,255,000 from 30 June 2015. The interest charged for the months of July and August was substantial.

[19] On 24 May 2016 the Wallaces and Ms. ‘Ilaiu entered into a third term loan agreement (the third term loan agreement). This is the term loan agreement upon which the Wallaces rely. The principal sum was again $1,255,000 plus further advances repayable on demand.

[20] The same interest rates and mostly identical terms applied as under the second term loan agreement. However, the Wallaces took additional security of an unregistered mortgage over HRH’s property at 95 Bell Road, Remuera and guarantees from HRH in her personal capacity and also from Ms. ‘Ilaiu and HRH as trustees of the HRH SMPT Family Trust.

[21] Ms. ‘Ilaiu and HRH signed the third term loan agreement and deeds of guarantee by counterparts. HRH was in Tonga when she signed the documents on 19 May 2016. Ms. ‘Ilaiu signed the documents in Auckland before a lawyer from Sinisa Law Limited.

[22] Sinisa Law Limited provided the Wallaces with a solicitor’s certificate giving undertakings that, inter alia, the terms and effect of the third term loan agreement and the guarantees had been explained to Ms. ‘Ilaiu and HRH, that Ms. ‘Ilaiu and HRH had confirmed that they understood the nature of the transaction and the extent of their liability, that they had advised Ms. ‘Ilaiu and HRH in their capacity as guarantors to seek independent legal advice and that Ms. ‘Ilaiu and HRH had chosen not to be independently advised

[23] In a letter of 24 March 2017 the Wallaces’ lawyers made demand upon Ms. ‘Ilaiu for payment of the balance owing under the third term loan agreement which was said to be $2,011,444. The demand was received by Ms. ‘Ilaiu on 27 March 2017.

[24] On 27 March 2017 a notice was issued by the Wallaces to Ms. ‘Ilaiu under s 119 Property Law Act 2007 (NZ) of their intention to exercise their power of sale as mortgagees of the Finch Street property.

[25] A notice was issued to HRH under s 122 Property Law Act 2007 (NZ) giving her notice of the Wallaces’ intention to recover any deficiency upon the sale of Finch Street from her as guarantor.

[26] 69A and 69B Finch Street were sold by another mortgagee and 69C Finch Street was sold by the Wallaces. The Wallaces received $987,071.05 from the proceeds. 95 Bell Road was also sold by another mortgagee but the Wallaces received nothing.

[27] As at 30 November 2017, the amount outstanding under the third term loan agreement was $2,104,822.29 as follows:

[30] The Wallaces applied for judgment by default on 21 February 2018. Judgment by default was entered on 27 February 2018.

[31] On 1 March 2018 the Wallaces applied for charging orders against registered leases of land at Neiafu and Kolomotu’a.

[32] On 5 March 2018 the court issued a notice to Ms. ‘Ilaiu to show cause why the charging orders should not be made absolute under O.34 Rule 3(1) Supreme Court Rules.

[34] The Wallaces charged fees upon advances under the three term loan agreements (the loan fees). Ms ‘Ilaiu challenges not only the loan fees but also interest charged on them. I should note that loan fees charged by the Wallaces under the third term loan agreement were reversed and do not form part of the sum claimed.

[35] The account statements produced by Mr. Wallace and Ms. ‘Ilaiu do not cover the entire period of the first and second term loan agreements but I have identified the following advances and their related loan fees in the table below.

Date	Advance	Loan Fee	Loan Fee as % of the Advance
15 Dec 2011	250,130	250,130	100%
13 Jun 13	25,000	24,000	96%
25 Jun 13	50,000	48,000	96%
6 Jul 13	2,000	2,000	100%
31 Jul 13	20,000	15,000	75%
1 Aug 13	5,000	4,500	90%
5 Aug 13	35,000	30,000	83%
9 Jan 14	25,000	25,000	100%
29 Jan 14	2,000	1,000	50%
22 Sep 14	50,000	50,000	100%
27 Sep 14	15,000	15,000	100%
3 Oct 14	15,000	4,500	30%
4 Oct 14	9,500	2,850	30%
8 Oct 14	15,000	2,250	15%
13 Oct 14	17,000	2,500	15%
14 Oct 14	223,045	130,000	58%
15 Oct 14	150,000	75,000	50%
3 Dec 14	27,950	27,950	100%
16 Dec 14	9,000	9,000	100%
22 Dec 14	45,000	22,500	50%
13 Jan 15	25,000	25,000	100%
2 Apr 15	15,000	15,000	100%
9 Apr 15	20,000	20,000	100%
11 Apr 15	57,500	57,500	100%
15 Apr 15	80,000	104,000	130%
21 Apr 15	15,000	19,500	130%
24 Apr 15	50,000	75,000	150%
17 Jun 15	5,000	5,000	100%
Totals	1,258,125	1,062,180	84%

(a) The Wallaces were the lenders under all the term loan agreements (albeit the first term loan agreement was assigned to them).

(b) GTCL was the borrower under the first term loan agreement. Ms. ‘Ilaiu was the guarantor but as between the Wallaces and herself Ms’ Ilaiu was regarded as a principal party.

(d) Loan fees were charged on advances made under all three term loan agreements. The loan fees were a feature of the parties’ relationship from the very start.

(e) All of the loan fees in the table above were charged under the first and second term loan agreements. Loan fees charged under the third term loan agreement were reversed.

(f) The table shows advances amounting to $1,258,125 in respect of which loan fees were charged of $1,062,180. The loan fees represented 84% of the amount of the advances.

(h) Interest was charged on the loan fees at the rates applicable under the first and second term loan agreements. I should note that there was a period between October 2014 and December 2014 when interest was not charged.

(i) The loan fees and interest charged on them necessarily increased the balance carried forward when the first and second term loan agreements were rolled over.

(j) Interest has been charged on the principal sum under the third term loan agreement at the higher interest rate of 3% per month on a compounding basis.

(k) Whilst I have not been able to calculate the sum of the loan fees and interest charged upon them it certainly appears likely that it would exceed the amount of the principal advance under the third term loan agreement.

[37] The principles upon which the court will typically act in deciding whether to set aside a default judgment are set out in O.14 Rule 4. The court may set aside a default judgment if:

[38] In Moehau & Ors v Pacific Stores Ltd (Unreported, Court of Appeal, 10 July 2009, AC 24 of 2009) the Court of Appeal said at [5]:

The leading case in Tonga on the relevant law is the decision of Ward CJ in Jewett Cameron South Pacific Ltd v Tu'uholoaki (1999) Tonga LR 51, where (at 53) his Honour said, after referring to the then Order 13 rule 3 (which was in terms corresponding to the present Order 14 rule 4 (1), apart from the insertion in the present rule of express reference to the question whether an order would cause the plaintiff to "suffer irreparable injury"):

"The defence must establish with potentially credible evidence on affidavit that there is a real likelihood that the defendant will succeed on the facts. The merits of the case is the most important consideration in all such cases and where there is a real possibility of success the defendant should not be denied his day in court. The classic statement of the principle is by Lord Atkin in Evans v Bartram [1937] AC 473 at 480 referring to the, then, equivalent rules in England which gave a discretionary power to a judge in chambers to set aside a default judgment."

Ward CJ then set out the passage from Lord Atkin's judgment, which fully supports his statement of the primacy of the merits upon such an application.

[39] Dr. Turner submitted that the authorities are all in accord that a defendant seeking to set aside a default judgment must show merits in terms of raising an arguable defence to the claim. I take no issue with that submission.

The primary consideration is whether he has merits to which the Court should pay heed; if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.

[41] Dr. Turner, with justification, was critical of aspects of Ms. ‘Ilaiu’s evidence and submitted that she lacked credibility. I do not intend to respond to the particular submissions he made. Findings on credibility are not required to determine this or the other applications that are before me.

[42] Ms. ‘Ilaiu also relied upon what Mr. Wallace referred to as the ‘non-authentic’ loan agreement. She also produced an account statement which was given to her on a without prejudice basis. I have not had regard to those documents.

[43] Ms. ‘Ilaiu acknowledged that she was ‘a bit slow’ in taking steps to oppose the Wallaces’ claim. She says that the Wallaces’ lawyer in Tonga, Mr. Laki Niu, was advised by her lawyer, Mr. Edwards, on 26 January 2018 that an application to oppose the claim would be made and that it was always her intention to defend the claim.

[44] Following Tropical Cyclone Gita of 12 February 2018 Ms. ‘Ilaiu left Tonga because her health could not cope with not having power or running water. She did not return to Tonga until 7 March 2018. By that time judgment had been entered against her.

[45] Ms. ‘Ilaiu said that she tried to keep in contact with Mr. Edwards but he too was without power and not back at work until 22 January 2018.

[46] Whilst Mr. Edwards did indicate to Mr. Niu that the claim would be opposed the communications between the lawyers concerned the position of HRH and not Ms. ‘Ilaiu and I take nothing from that.

[47] Dr. Turner submitted that Ms. ‘Ilaiu had not shown good reason for her failure to oppose the claim as:

(b) Ms. ‘Ilaiu left Tonga after the cyclone without instructing her lawyer; and

(c) Had she instructed Mr. Edwards when he returned to his office on 22 February 2018 there was still time to take steps before the entry of judgment on 27 February 2018.

[48] Dr. Turner’s submissions overlook that there was no certainty that Tropical Cyclone Gita would land in Tonga as well as the extent of the property damage and social dislocation it caused once it did. Ms. ‘Ilaiu could have done more to protect her position but it is understandable that the Wallaces’ claim was not Ms. ‘Ilaiu’s main priority in the days following the cyclone.

[49] I do not accept that had Ms. ‘Ilaiu instructed Mr. Edwards on 22 February 2018 he would necessarily have had time to oppose the claim by 27 February 2018. Ms. ‘Ilaiu was in New Zealand. Mr. Edwards would have faced practical difficulties taking instructions, preparing affidavits at a distance and getting them signed in New Zealand and returned. In addition, the issues that arise are novel for a Tongan lawyer.

[50] I am satisfied that Ms. ‘Ilaiu did not take steps to oppose the claim because of the effects of Tropical Cyclone Gita and is reasonably explained.

[51] It is agreed that the proper law of the term loan agreements is the law of New Zealand.

[52] Ms. ‘Ilaiu relies upon the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (NZ) (FSPA) and the CCCF.

[53] There were no differences between Counsel as to the terms of the statutes. I was referred to relevant New Zealand case law. I gave Counsel the opportunity to do further research and I received supplementary submissions from Dr. Turner on two occasions. Evidence on the applicable New Zealand law was also contained in two affidavits of an expert witness, Mr. Mark Hopkinson.

(a) That the Wallaces failed to make disclosure as required by the CCCF with the result that the third term loan agreement is unenforceable;

(b) That the loan fees were oppressive in terms of the CCCF and are irrecoverable along with the interest charged upon them with the result that there is nothing owed to the Wallaces; and

(c) The Wallaces did not register as financial service providers under the FSPA rendering the third term loan agreement illegal and unenforceable.

[55] The purposes of the CCCF include providing remedies for debtors in relation to oppressive credit contracts.

[56] The term credit contract is defined in s 7. It is enough for me to say that all of the term loan agreements were credit contracts.

[57] Part 5 of the CCCF is concerned with reopening of oppressive credit contracts (s 117). Section 118 defines oppressive as ‘oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice’.

[58] Under s 120 the court (which means any court or tribunal by or before which a matter falls to be determined) may reopen a credit contract that is oppressive.

[59] Section 124 sets out a list of considerations to which the court may have regard in deciding whether to reopen a credit contract.

[60] Section 122 is concerned with the circumstance where credit is rolled over from one credit contract to another. This was the case here. It provides that where a creditor under a reopened credit contract is aware that some of the credit provided is used to pay amounts owing under other credit contracts or the creditor has received funds to reduce the amount owing obtained from other credit contracts then those other credit contracts can be reopened as well. The creditor under those other credit contracts must be the same person or a related company. In this case the Wallaces were the lenders under all three term loan agreements and s 122 may be engaged.

[61] Section 125 imposes time limits within which proceedings seeking the reopening of a credit contract may be commenced. Most relevant is s 125(1)(c). It provides that proceedings are to be commenced ‘...1 year after the due date for the performance of the last obligation required to be performed under the contract...’. Section 125(4) provides that ‘Proceedings seeking the reopening of a credit contract...may not be commenced at any other time.’

[62] Section 127 gives the court broad remedial powers when it reopens a credit contract which include the power to order that any obligation under the credit contract is extinguished (Real Finance Limited v Stefano [2016] NZHC 2293 at [36]).

[63] Dr. Turner argued that Ms. ‘Ilaiu cannot rely on Part 5 of the CCCF as the time within which she might commence an action has now passed (s 125). He submitted that the last obligation to be performed by Ms. ‘Ilaiu under the third term loan agreement was to make payment following receipt of the demand served upon her on 27 March 2017. On this basis any action had to be commenced by 27 March 2018.

[64] The High Court of New Zealand has held that the power of the court to reopen a credit contract under s 120 on its own motion is not qualified by s 125 (Real Finance (supra) and Diners Club (NZ) Limited v District Court of Auckland [2017] NZHC 2616). The court may reopen a credit contract in any proceedings that come before it.

[65] In Real Finance the creditor under a credit contract applied for judgment by default against the borrower. The District Court Judge reopened the credit contract notwithstanding that the debtor had taken no steps in the proceeding. Mallon J said at [43] and [48]:

[43] Section 120 is not expressly subject to section 125. Rather, s 120 provides the court with the power to reopen a credit contract ‘in any proceedings (whether or not brought under this Act)’. The power is expressed widely. It may be exercised in any proceeding where the court considers oppression arises in a credit contract, not simply when a party has brought a proceeding specifically seeking the reopening of a contract. In my view it is only when a proceeding is brought seeking to reopen a contract that section 125 applies.

[48] Real Finance submits that, if the court can act of its own initiative, that circumvents the one year time limit for bringing proceedings to reopen an oppressive contract set out in s. 125. I do not agree. The time limit set out in s 125 applies only to proceedings which are brought to reopen a credit contract. The court will only act on its own initiative under s 120 where there is already a proceeding before it where the issue arises. Typically this will be a proceeding seeking judgment for the debt. There is no reason why a debtor should not be able to resist judgment for the debt if it arises under an oppressive contract. Otherwise the creditor under an oppressive contact could wait to commence its proceeding for the debt until one year after the due date for performance of the last obligation under the credit contract has elapsed. In this way the creditor would be able to circumvent the prospect of the contract being reopened for oppression if that jurisdiction only arises in a proceeding commenced under s 125.

[66] Whilst Dr. Turner may be correct that it is now too late for Ms. ‘Ilaiu to commence an action to reopen the third term loan agreement (or any of the other term loan agreements) she is entitled to resist the Wallaces’ claim on the ground that the amount they seek to recover arises under an oppressive credit contract.

[67] In supplementary submissions Dr. Turner argued that both the Stefano and Diner’s Club cases concerned consumer credit contracts where the loans or credit were advanced by professional finance or credit card companies and the courts’ reasoning ‘depended heavily’ on the contracts being of a consumer nature. In both cases the courts were mindful of a purpose of the CCCF to protect the interests of consumers in connection with credit contracts but there is nothing to suggest that their interpretation of s 120 applied only to consumer credit contracts.

[68] I would note at this juncture that when the Wallaces applied for judgment by default against Ms. ‘Ilaiu there was nothing before the court identifying the loan fees. Had I been aware of the loan fees I would have refused to enter judgment without first conducting a hearing.

[69] The next issue is whether there is an arguable case that the third term loan agreement was oppressive within the meaning in s 118 of the CCCF and able to be reopened by the court.

[70] It is clearly arguable in my view that the third loan agreement was oppressive. The principal sum under the third term loan agreement was a balance brought forward from the totality of the dealings between the parties under the first and second term loan agreements. The first and second term loan agreements had the following relevant characteristics:

(a) Loan fees which were large both in dollar terms and as a percentage of the advances (up to 150%);

(b) The loan fees were calculated as a percentage of the advances and cannot have borne any relationship to the Wallaces’ actual costs;

[71] It is for the trial Judge to finally decide whether the third term loan agreement was oppressive. On the evidence before me I consider that the matters referred to in ss 124(1)(a), (b), (c), (e), (f), (g), (h), (i), (k), (l) of the CCCF may all be engaged in the enquiry. I note the following aspects of the evidence.

[72] The loan fees were very large; bewilderingly so. I have never come across a case where such fees have been charged let alone on a repeated basis over a period of years.

[73] The Wallaces do not offer a satisfactory justification for the loan fees. There was no attempt to explain them as reflecting actual costs. Mr Wallace says that they did not insist on the loan fees, that Ms. ‘Ilaiu agreed to them and that they were an incentive offered by Ms. ‘Ilaiu to ‘persuade’ them to advance ‘more funds’. These matters do not take the Wallaces very far. The terms of an oppressive credit contract will always, strictly speaking, have been agreed by the debtor. If, as Mr. Wallace says, Ms. ‘Ilaiu felt she had to offer such large sums as an incentive to obtain more funds that suggests a significant inequality of bargaining positions.

[74] The nature of the relationship and other dealings between the parties will be relevant. I have no clear idea what their relationship was and no way of assessing its implications.

[75] The interest rates under all three term loan agreements were high. It is difficult to see how such rates were justified as a reflection of risk for what the Wallaces say were business loans, secured by mortgages and guarantees and repayable on demand. I do not overlook that the Wallaces also say that these were intended to be short term advances (upon which higher rates of interest may typically apply) but this assertion runs counter to the upon demand nature of the term loan agreements and the fact that the Wallaces continued to make many advances over a period of years.

[76] Ms. ‘Ilaiu has not put before the court evidence that the terms of the term loan agreements were less advantageous than any other creditor may have offered or were not in accordance with reasonable standards of commercial practice. A court would generally expect such evidence. However, the courts need to be informed as to how the contract in question measures up against reasonable standards will not apply in cases where the oppressive aspect is beyond rational dispute. It is arguable in my view that the combination of the factors I have referred to above (but in particular the loan fees) make this such a case (Greenbank New Zealand Limited v Haas [2000] NZCA 145; [2000] 3 NZLR 341 (CA) and section 124(1)(h)).

[77] A feature telling against Ms. ‘Ilaiu is that she had legal advice. The importance to be attached to this is a matter for the trial Judge who can consider the nature and content of the advice that she received. There is no evidence before me about that.

[78] Dr. Turner submitted that another important factor is that the third term loan agreement is ‘unlikely’ to be a consumer credit contract (s 124(e) and King v Woods [2013] NZHC 3467). This is disputed by Ms. ‘Ilaiu and for reasons I shall come to I cannot dismiss her position as unarguable.

[79] Ms. ‘Ilaiu has an arguable defence that the third term loan agreement was oppressive. She should be allowed to resist the Wallaces’ claim on that basis. If the court were to reopen the third term loan agreement it could choose to also reopen both or either of the first and second term loan agreements under s 122. It could also extinguish any liability that Ms. ‘Ilaiu has to the Wallaces.

[80] The CCCF requires a creditor to make certain disclosures of information applicable to consumer credit contracts (Part 2, ss. 10-26A).

[81] The term consumer credit contracts is defined in s 11 of the CCCF as follows:

(b) the credit is to be used, or tended to be used, wholly or predominantly for personal, domestic, or household purposes; aes; and

(i) the creditor, or one of the creditors, carries on a business of providing credit (whether or not the business is the creditor’s only business or the creditor’s principal business):

(ii) the creditor, or one of the creditors, makes a practice of providing credit in the course of a business carried on by the creditor:

(iii) the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor’s own name as creditor on behalf of, or as trustee or nominee for, any other person:

(iv) the contract results from an introduction of one party to another party by a paid adviser or broker.

(1A) For the purposes of subsection (1)(b), the predominant purpose for which the credit is to be used is—

(a) the purpose for which more than 50% of the credit is intended to be used; or

(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

[82] Section 17 requires a creditor to make initial disclosure before the contract is entered into.

[83] There are serious consequences for a creditor who fails to make initial disclosure. The creditor may not enforce the contract before disclosure is made (s 99(1)(a)). The creditor cannot enforce any security interest taken in connection with the contract (s 99(1)(c)). The debtor may also recover statutory damages from the creditor also (ss 88 and 89).

[84] Section 13 provides that in any proceedings in which a party claims that a credit contract is a consumer credit contract this will be presumed unless the contrary is established.

[85] Section 14(1) and (3) provide that a credit contract is not a consumer credit contract if the debtor makes a declaration in ‘a separate written document’ before entering into the contract that the credit is to be used wholly or predominantly for business or investment purposes (or both). The debtor must confirm that he read and understood the declaration. The declaration will not be effective if the creditor knew or had reason to believe when the declaration was made that the credit was in fact to be used for personal, domestic and household purposes (s14(2)).

[86] Dr. Turner accepted that initial disclosure under s 17 had not been made but argued that the third term loan agreement was not a consumer credit contract and the disclosure provisions in the CCCF do not apply.

[87] The primary reasons it is argued that the third term loan agreement was not a consumer credit contract are:

(a) The advances were used for business purposes and not wholly or predominantly for personal, domestic or household purposes (s 11(1)(b)); and

[88] It appears to me from an examination of the evidence and the account statements that advances were made for both personal and business purposes. I am not able to exclude the possibility that the advances were predominantly for personal, domestic or household purposes. I allowed the parties to call further evidence in relation to this aspect. Affidavits were filed by Mr. Wallace and Ms. ‘Ilaiu which did little to assist me.

[89] In relation to the status of the Wallaces, Dr. Turner relied upon King v Woods (supra). Whether the Wallaces were in the business of providing credit is factual enquiry. In King the Associate Judge was satisfied that there was ‘no evidence’ that the plaintiffs carried on any sort of credit business. He does not appear to have considered section 13 at all.

[90] In the present case there is evidence from which it can be inferred that the Wallaces were carrying on a business of providing credit. I refer to the series of term loan agreements, the size and number of the advances, the taking of security and guarantees, the charging of large loan fees and the high interest rates. All indicate a continuous activity for the purpose of making a profit i.e. a business.

[91] The Wallaces relied on the expert evidence of Mr. Hopkinson, an experienced corporate and commercial lawyer in Auckland. He expressed the opinion that the advances made by the Wallaces under the third term loan agreement and its predecessor agreements were business loans and not consumer credit contracts. He supported his conclusion with reference to the term loan agreements, which refer to the advances being for business purposes, and a declaration signed by Ms. ‘Ilaiu in relation to the second term loan agreement that the loan was primarily for business or investment purposes.

[92] Whilst I found Mr. Hopkinson’s affidavit helpful I am unable to accept his conclusion. He did not identify and address matters suggesting a contrary view, such as the large number of advances for cleaning and garden maintenance. He did not mention the presumption in s 13. He did not mention either that terms in term loan agreements are not s 14 declarations and do not displace the presumption in s 13. He said also that the declaration signed by Ms. ‘Ilaiu was ‘conclusive’ but did not mention the exception in s 14(2).

[93] It is arguable in my view that the third term loan agreement was a consumer credit contract to which the disclosure provisions of the CCCF applied. If that is so there has been no initial disclosure and, inter alia, the Wallaces cannot bring an action to enforce the contract until disclosure is made. It follows that Ms. ‘Ilaiu has an arguable defence to the Wallaces’ claim on this basis also.

[94] I do not accept that Ms. Ilaiu’s third defence is arguable. Even if the Wallaces were required to register under the FSPA their failure to do so would not render the third term loan agreement unenforceable nor entitle them to any damages or any other statutory remedy against the Wallaces.

[95] The Wallaces argue that they will suffer irreparable injury if the default judgment is set aside as they financed the advances made to Ms. ‘Ilaiu though bank loans and they have been paying interest on that money since June 2015 pending payment from the defendants. They also say that their home is at risk of being sold if they cannot secure prompt payment.

[96] I am not satisfied that the Wallaces obtained bank loans for the purpose of making advances to Ms. ‘Ilaiu. Mr. Wallace identifies mortgage loans that he says were used to fund advances but there is no obvious correlation between those loans and the advances made to Ms. ‘Ilaiu.

[97] There is also nothing before me, other than the bald statements of Mr Wallace, to suggest that the Wallaces home is at risk of being sold.

(a) Ms. ‘Ilaiu’s failure to oppose the Wallaces’ claim is reasonably explained;

[99] Accordingly I order that the default judgment entered against Ms. Ilaiu on 27 February 2018 is set aside.

[100] As I consider it is arguable that Ms. ‘Ilaiu has a defence to the whole of the Wallaces’ claim it is not necessary for me to consider the Wallaces’ application to vary the default judgment and this application is dismissed.

[101] Ms. ‘Ilaiu and HRH apply for a stay on the ground that New Zealand is the forum conveniens. The Wallaces accept that the court has the power to order a stay but argue it is not proper to do so in this case.

[102] I remind myself that this application is to be considered in the context that the Wallaces were entitled to commence their action in Tonga and Ms. ‘Ilaiu and HRH have both been validly served in this country.

[103] I was referred to the leading case of Spiliada Maritime Corp v Cansulex Ltd [1986] UKHL 10; [1987] AC 460 from which I take the following principles (see particularly judgment of Lord Goff and in a New Zealand context also see Exportrade Corporation v Irie Blue New Zealand Limited [2013] NZCA 675 at [77]- [78]):

(a) In general the burden of proof rests on a defendant to persuade the court that it is not the natural or appropriate forum for the trial and that there is another available forum that is clearly or distinctly more appropriate;

(b) If the court is satisfied that there is another available forum which is prima facie the appropriate forum for the trial the burden shifts to the plaintiff to show special circumstances by reason of which justice requires that the trial of the action should nevertheless take place in the country in which the proceeding was commenced;

(c) The natural forum will be the one with which the action has the most real and substantial connection including factors affecting convenience or expense (such as the availability of witnesses), the law governing the relevant transaction and the places where the parties reside or carry on business; and

(d) Special circumstances by reason of which justice may require a stay not to be granted will include consideration of factors such as the inability of the plaintiff to obtain justice in the foreign jurisdiction, advantages that the plaintiff may derive from invoking the jurisdiction in which the proceedings was commenced and the application of any relevant limitation periods.

[104] I am firmly of the view that New Zealand is the proper and most convenient forum for resolving this dispute.

[105] As I have noted it is accepted that the proper law is the law of New Zealand.

[106] The parties’ relevant dealings with each other took place over a period of years almost entirely in New Zealand.

[107] The term loan agreements were entered into in New Zealand. Payments under the term loan agreements were made to the Wallaces in New Zealand. Mortgages were taken over properties in New Zealand. The parties were represented by New Zealand solicitors. The demand that the Wallaces rely upon for payment was served upon Ms. ‘Ilaiu’s solicitors in New Zealand. The meetings between the Wallaces and the defendants to negotiate payment were held in New Zealand.

[108] By comparison any connection between the transactions in issue and Tonga is entirely superficial save, perhaps, for the single fact that HRH signed the third term loan agreement and guarantee by a counterpart whilst in Tonga.

[109] Dr. Turner submitted that both Ms. ‘Ilaiu and HRH reside in Tonga and it follows that it would be more affordable and convenient for them if the action was heard in Tonga.

[110] I also put it to Mr. Edwards during his submissions that the cost of having this action heard in Tonga would be a fraction of what it would cost to litigate in New Zealand. This was because of the lower court and lawyers’ fees that apply here.

[111] Upon reflection I do not accept that it would be either more convenient or affordable to have this case litigated in Tonga.

[112] The legal issues that arise will be unfamiliar to a Tongan lawyer. There is no legislation comparable to the CCCF here. If this action is heard in Tonga both parties will be represented by a New Zealand lawyer and a Tongan lawyer acting as agent. The Wallaces have already engaged a New Zealand and a Tongan lawyer. I am advised the defendants will do the same. There will therefore be a doubling up rather than a saving on lawyers’ fees along with additional travel and accommodation costs to bring them to Tonga for interlocutory matters and the trial.

[113] Dr. Turner argued that the only material witnesses will be the parties themselves. He is almost certainly wrong about that.

[114] It is likely that if the case is heard in Tonga the parties will call expert evidence to prove New Zealand law. The defendants will need to call expert evidence as to the terms upon which they could have obtained the advances from persons/entities other than the Wallaces and concerning the prevailing reasonable standards of commercial practice in New Zealand. One can reasonably anticipate that the defendants may also call their solicitor to give evidence and other witnesses to illumine the nature of the relationship between the parties. Most if not all of those witnesses will reside in New Zealand.

[115] The High Court of New Zealand has strict case management procedures and sophisticated discovery rules which in my view puts it in a better position to deal with a case such as this. I note also that a commercial Judge sitting in New Zealand will have a better feel than a Judge in Tonga for the reasonable standards of commercial practice.

[116] Dr. Turner argued that there are special circumstances that require that the trial should be conducted in Tonga. Whilst Tonga and New Zealand share rights of reciprocal enforcement of judgments any registration of a judgment obtained in New Zealand may be set aside if the Supreme Court of Tonga is satisfied that the New Zealand court did not have jurisdiction in the circumstances of the case.

[117] Dr. Turner argued that it is a fundamental principle of private international law that a foreign court will only have jurisdiction if the defendant voluntarily submits to the jurisdiction of that court. He further submitted that if the defendants, who are not resident in New Zealand, were to take no steps in an action taken by the Wallaces in the New Zealand courts they would not have submitted to the jurisdiction of the New Zealand courts and reciprocal registration in Tonga of any judgment the Wallaces obtained would not be available (section 6(1) and (4) Reciprocal Enforcement of Judgments Act).

[118] These submissions overlook s 6(3)(a)(iii) of the Reciprocal Enforcement of Judgments Act which provides that a foreign court will be deemed to have had jurisdiction:

if the judgment debtor, being a defendant in the original court, had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or the courts of the country of that court.

[119] Ms. ‘Ilaiu and HRH have by virtue of their application for stay and the content of their affidavits agreed to submit to the jurisdiction of the New Zealand courts. Ms. ‘Ilaiu states at para 39 of her affidavit of 8 March 2018 ‘I say that clearly the appropriate forum to hear this contract dispute according to New Zealand law is the New Zealand Courts’. HRH says in para 20 of her affidavit of 22 March 2018 ‘I say that the appropriate forum for hearing this matter is New Zealand’.

[120] To put the matter beyond doubt this court can make it a condition of granting a stay that the defendants provide their written agreement that in respect of the Wallaces’ claim they will submit to the jurisdiction of the New Zealand courts and thereby satisfy s 6(3)(a)(iii).

[121] The Wallaces raise a further issue. They say that any judgment obtained in New Zealand would be worthless. The defendants have no assets in New Zealand. Should the Wallaces obtain a judgment it will most likely have to be enforced in Tonga. This is matter which weighs against the granting of a stay (Americhip Inc v Dean [2015] NZLR 498 at [73]-[74]).

[122] However, against that there is nothing before me to suggest that other than having to bear the inconvenience and relatively minor cost to register their judgment in Tonga (should they obtain one) that the Wallaces will otherwise be disadvantaged when taking enforcement proceedings.

[123] I am satisfied that New Zealand is the natural and proper forum to hear the Wallaces’ claim and that there are no special circumstances by reason of which justice requires the action to be heard in Tonga.

[124] The Wallaces’ action will be stayed subject to a condition that Ms. ‘Ilaiu and HRH, both in their personal capacities and as trustees of the HRH SMPT Family Trust, provide their written agreement that in respect of the subject matter of the Wallaces’ claim they will submit to the jurisdiction of the New Zealand courts.

[125] It was accepted in respect of two of the registered leases that as they are not registered in the name of Ms. ‘Ilaiu she does not have any interest in them that can be charged (Lopeti v Lopeti & Ors (Unreported Court of Appeal, AC 15 of 2017, 26 March 2018) and s 126 of the Land Act).

[126] In any event as I have set aside the default judgment obtained against Ms. ‘Ilaiu the charging orders must be discharged.

(a) The default judgment obtained against Ms. ‘Ilaiu on 27 February 2018 is set aside.

(c) This action is permanently stayed subject to a condition that within the period of 14 days the defendants are to provide to the Wallaces and to the court their written agreement that in respect of the subject matter of the Wallaces’ claim they submit to the jurisdiction of the New Zealand courts.

(d) The order of this court of 5 March 2018 granting charging orders over registered leases 4940A, 6244 and 6827 is discharged.

[128] I am minded that costs should lie where they fall but if any party wishes to seek costs they may file a memorandum within 14 days. The other party shall have 7 days to respond.

Principal Amount	$1,255,000
Further advances	$171,121.17
Total interest charges	$1,670.772.17
Subtotal	$3,096,893.34
Less receipts	($992,071.05)
Balance	$2,104,822.29