Auckland property investor Liyun Chen was ordered to pay $1.1 million as guarantor after her company defaulted on a loan refinancing properties in Auckland suburb Flat Bush. This amount will increase, with interest running at 28 per cent until payment.
The High Court was told Ms Chen misled financier Tawa Trade Finance Ltd by signing a loan contract as guarantor for her company LC1521319 Development Co Ltd promising Tawa Finance would have first mortgage security when rights to a first mortgage over Flat Bush had already been promised to General Finance.
The Tawa Finance loan was a short-term six month loan dated June 2022, rolled over for six months at her request. Security was offered over multiple Flat Bush properties.
Unable to refinance at end of the roll-over period, Ms Chen raised a raft of legal reasons why Tawa Finance could not force repayment, variously alleging: promises of a further extension had been made; Tawa was in breach of the Credit Contracts and Consumer Finance Act; there had been a failure to comply with the Anti-Money Laundering and Countering Financing of Terrorism Act; there were breaches of the Fair Trading Act, and; that Tawa Finance had failed to get the best price when selling up the Flat Bush properties.
Associate judge Taylor dismissed all these claims. LC Development was in breach of contract from the start because it was never in a position to give Tawa Finance the promised first mortgage security.
Evidence was given that Tawa Finance was owed some $2.5 million subsequent to the discovery it did not have first mortgage security, instead ranking behind General Finance. It first had to account to General Finance before claiming monies from forced sale of the Flat Bush properties.
General Finance’s right to first mortgage security was contained in an agreement to mortgage, later protected by a caveat registered against title to the Flat Bush properties.
Ms Chen claimed Tawa Finance sold the properties at below market values. Tawa said Ms Chen was incorrectly using as her benchmark market values as at 2021. Market prices had fallen since.
Ms Chen said Tawa Finance had unreasonably rejected a conditional sale she herself had organised. Judge Taylor said Tawa was under no obligation to accept a conditional offer and further was under no obligation to accept a deal on offer whereby $100,000 of the price was to go to Ms Chen’s former partner.
Ms Chen also complained that Tawa Finance was delaying sale of one property so as to accrue more penalty interest, wiping out any equity in the property.
Judge Taylor ruled Tawa Finance had acted properly, taking advice from reputable real estate agents in how to best market the Flat Bush properties.
Chen v. Tawa Trade Finance Ltd – High Court (1.03.24)
24.067