The Supreme Court has ordered that a dispute over a NZ$2 million loan must be settled in a New Zealand court.

Princess Pilolevu Tuita and Lucy Anna Tupou  aka  Lucy Anna ‘Ilaiu sought a judgement in the Tongan Supreme Court staying an earlier judgement in favour of New Zealanders Graeme McLean Wallace and  Valerie Isobel Wallace who claim they are owed NZ$2,104,822.

Princess Pilolevu is being sued as a guarantor of the loan.

The Wallaces made a series of loans to Ms ‘Ilaiu in New Zealand beginning in 2016. In his report on the case, Lord Chief Justice Paulsen said the Wallaces charged loan fees that were equal to 84 percent of the amount lent. Fees of $1,062,180 were made on advances of $1,258,125.

Lord Chief Justice Paulsen said 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,” he said.

The loans were not paid back. When the first loan was made a mortgage was taken over Ms. ‘Ilaiu’s property  at  69C  Finch Street, Auckland.

When the second loan was made,  the Wallaces took additional security of an unregistered mortgage over Princess Pilolevu’s property at 95 Bell Road, Remuera in Auckland, personal guarantees and also from Ms. ‘Ilaiu and the Princess as trustees of the HRH SMPT Family Trust.

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.

On March 27, 2017, a notice was issued by the Wallaces to Ms. ‘llaiu of their intention to sell the  Finch Street property.

A notice was issued to Princess Pilolevu giving her notice of the Wallaces’  intention  to recover any deficiency upon the sale of Finch Street from her as guarantor.

The properties at 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.

On December 7, 2017, the  Wallaces filed an action against the defendants. Judgment by default was entered on  February  27, 2018. On March 1, 2018 the Wallaces applied for charging orders against registered leases of land at Neiafu and Kolomotu’a.

Ms. ‘Ilaiu sought to have the judgement against her set aside on the grounds that:

That the Wallaces failed to make disclosure as  required by the New Zealand  Credit Contracts and Consumer Finance Act, with the result that the third term loan agreement is unenforceable;

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

And that

The Wallaces were not registered as financial  service  providers, making the third term loan agreement illegal and unenforceable.

Lord Chief Justice Paulsen said that in his view the third loan agreement was  oppressive.

“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,” he said.

In considering the nature of the loans, the evidence presented by Ilaiu and the Wallaces, the judge ordered the default  judgment  entered against Ms. Ilaiu set aside.

The judge said Ilaiu and Princess Pilolevu had applied for a stay on the ground that New Zealand was the appropriate legal forum to resolve the dispute.

“I am firmly of the view that New Zealand is the proper  and  most  convenient forum for resolving this  dispute,” he said.

“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.”

Lord Chief Justice Paulsen said the case would be stayed on the condition that Ilaiu and Princess Pilolevu sign statements agreeing to submit to the jurisdiction of the New Zealand courts.