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High Court punishes apartment sale defaulter to the tune of $470k
Tony Stickley | Friday July 10 2009 - 07:57am
A buyer that defaulted on an agreed apartment purchase has been hit with more than 50 times the vendor’s loss on the transaction.
At first blush The Docks Ltd appeared to lose a relatively insignificant $9000 when it eventually sold the property, but the company’s lawyer, Tim Allan of Grove Darlow, has managed to persuade Justice Raynor Asher in the High Court at Auckland to enter judgment for an astonishing $473,281.80.
The judge said that the figure, though high, was justified. Hong Wen Liu signed a contract for the unit at a purchase price of $589,000 with settlement due on October 16, 2007.
However, he defaulted and never settled.
In February last year the Docks cancelled the contract and eventually sold the property for $580,000 to another purchaser.
“The shortfall, therefore, was relatively modest,” Justice Asher observed.
He said that there were two elements that made the amount sought so high - interest and an underwrite fee.
The judge said that under the sale and purchase agreement interest was payable at four times the bill rate, which worked out at 34.56 per cent for just over a year when Mr Liu was in default prior to the resale.
“On the face of it this is an extraordinarily high interest rate, and I was concerned that it might have been a penalty,” Justice Asher said.
However, evidence was produced to show that taking into account the cost of servicing loans to second and third tier lenders “who demand very high interest rates,” legal fees, loan set-up charges and other fees, The Docks was itself paying interest of 27.1 per cent, only seven per cent less than Mr Liu had to pay.
The judge said he was satisfied that although the interest rate was very high, it was not a penalty and “not extravagant or unconscionable.”
He said that the Docks also had to pay a “very high” underwrite fee of $232,000.
“I am satisfied that the plaintiff was in a very difficult position when the defendant defaulted, and that a genuine underwrite agreement was entered into with a third party.
“The underwrite fee, although 40 percent of the purchase price, could be seen by the plaintiff reasonably as a better prospect than having to sell at a fire sale with all the attendant costs and fees.
“I have also been provided with satisfactory affidavit evidence proving that the underwrite fee was paid and is therefore a genuine loss arising from the defendant’s default,” Justice Asher said.
He entered judgment against Mr Liu for $473,281.80.
The action was initially defended, but there was no appearance for Mr Liu at the hearing.
Tony Stickley | Friday July 10 2009 - 07:57am
A buyer that defaulted on an agreed apartment purchase has been hit with more than 50 times the vendor’s loss on the transaction.
At first blush The Docks Ltd appeared to lose a relatively insignificant $9000 when it eventually sold the property, but the company’s lawyer, Tim Allan of Grove Darlow, has managed to persuade Justice Raynor Asher in the High Court at Auckland to enter judgment for an astonishing $473,281.80.
The judge said that the figure, though high, was justified. Hong Wen Liu signed a contract for the unit at a purchase price of $589,000 with settlement due on October 16, 2007.
However, he defaulted and never settled.
In February last year the Docks cancelled the contract and eventually sold the property for $580,000 to another purchaser.
“The shortfall, therefore, was relatively modest,” Justice Asher observed.
He said that there were two elements that made the amount sought so high - interest and an underwrite fee.
The judge said that under the sale and purchase agreement interest was payable at four times the bill rate, which worked out at 34.56 per cent for just over a year when Mr Liu was in default prior to the resale.
“On the face of it this is an extraordinarily high interest rate, and I was concerned that it might have been a penalty,” Justice Asher said.
However, evidence was produced to show that taking into account the cost of servicing loans to second and third tier lenders “who demand very high interest rates,” legal fees, loan set-up charges and other fees, The Docks was itself paying interest of 27.1 per cent, only seven per cent less than Mr Liu had to pay.
The judge said he was satisfied that although the interest rate was very high, it was not a penalty and “not extravagant or unconscionable.”
He said that the Docks also had to pay a “very high” underwrite fee of $232,000.
“I am satisfied that the plaintiff was in a very difficult position when the defendant defaulted, and that a genuine underwrite agreement was entered into with a third party.
“The underwrite fee, although 40 percent of the purchase price, could be seen by the plaintiff reasonably as a better prospect than having to sell at a fire sale with all the attendant costs and fees.
“I have also been provided with satisfactory affidavit evidence proving that the underwrite fee was paid and is therefore a genuine loss arising from the defendant’s default,” Justice Asher said.
He entered judgment against Mr Liu for $473,281.80.
The action was initially defended, but there was no appearance for Mr Liu at the hearing.
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