In King v ASB Bank Ltd [2013] NZHC 2914, the High Court considered whether the acceleration of loans and a resulting mortgagee sale constituted oppression by ASB under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), or a breach of the Fair Trading Act 1986 or the Code of Banking Practice (the Code).

It found on the facts involved that the bank was contractually entitled to insist upon payment in full, had exercised considerable restraint in enforcing its security and nothing in the circumstances of the case gave rise to a seriously arguable claim that the bank had exercised a right or power oppressively.

ASB had lent money to Mr King under a series of loan agreements.  The loans fell into arrears and various demands were made by the bank.  Repayment arrangements were entered into, but Mr King failed to honour them.  Eventually, ASB sold the secured property in a mortgagee sale and sought to recover the shortfall from Mr King.

Mr King claimed that ASB:

  • Had sold the property in retribution for Mr King complaining about ASB to the Banking Ombudsman
  • Summarily dismissed a repayment offer made by Mr King
  • Made false, misleading, or deceptive representations to the Banking Ombudsman
  • Failed to hold accurate information about Mr King, which prevented it from making informed decisions about his repayment offers
  • Negotiated in bad faith in relation to a second repayment proposal.

The High Court found that ASB's motives were purely commercial, rather than being driven by retribution for Mr King's complaints.  It noted that the bank had worked constructively with Mr King to reach an agreement about repayments, had carefully considered Mr King's proposals and had declined them for sound commercial reasons, in light of Mr King's history of defaults and the deteriorating security position.  Further claims that ASB made deceptive representations to the Banking Ombudsman, that it failed to hold accurate information about Mr King and had negotiated in bad faith were all unfounded.

While the court found that the bank's conduct did not appear to breach the Code, it also took the opportunity to observe that the Code was not to be implied into contracts between member banks and their customers, and did not impose any legal obligation on member banks (being a voluntary ethical code).

Heavy-handed enforcement (such as providing an oppressively short time to meet a demand for repayment, or making unlawful threats) may leave a lender vulnerable to a claim under the CCCFA.  However, lenders are not required to accept any repayment proposal put forward by customers and may legitimately exercise their commercial discretion.  This decision confirms that where a lender considers the customer's position, is open to renegotiating payment obligations and provides reasonable opportunities to repay, any claims to reopen the contract on the basis of oppressive exercise of enforcement rights will generally be unsuccessful.