Most Read Contributor in New Zealand, September 2016
The Court of Appeal has ruled that a lender can issue an
acceleration notice without waiting for a Property Law Act
(PLA) notice to expire. A lender can also include the
acceleration notice in its PLA notice.
judgment overturns an earlier decision by the High Court and
restores a crucial right to bankers and other lenders.
A lender accelerates a loan after a default by requiring all
future payments to be paid immediately. Where the loan is secured
by a mortgage, a PLA notice is required before any acceleration is
effective, except where the lender holds a general security
interest over a corporate borrower.
Mr Koroniadis was the guarantor of a commercial loan given by
the bank to his company and secured against a mortgage over the
company's property. The company defaulted and the bank took the
usual steps as required by the PLA: it served a demand on the
company, served PLA notices in respect of its mortgage, and
attempted (with some difficulty) to serve PLA notices on Mr
Koroniadis in connection with his guarantee.
The bank then sought to bankrupt Mr Koroniadis as a means to
recover under the guarantee. Mr Koroniadis went to court to defeat
this, representing himself. The Judge in the lower court stayed the
bankruptcy application to allow Mr Koroniadis to appeal to the
Court of Appeal out of time.
In doing so, the Judge suggested to Mr Koroniadis an additional
ground of appeal, namely that the bank had not waited until the
expiry of a PLA notice before accelerating the loan by way of a
further, separate notice. This was effectively where another lender
had run aground in the High Court, in the earlier ANZ v
For our commentary on the High Court decision, click
The Court of Appeal decision
The Court of Appeal was very clear that a further notice was not
required to accelerate the loan after the expiry of the PLA notice,
There is no reason in principle
why a notice issued under s 119 to comply with s 120 of the PLA
cannot also satisfy the requirement for a demand to call up the
principal under the term loan, provided it has that effect. Section
120(1)(d) confirms that the notice can address various
The PLA notice served by the bank, as drafted, did spell out
such a consequence. Accordingly, from the time that it expired, the
bank's loan was payable in full and the bank was entitled to
sell the mortgaged property and to pursue Mr Koroniadis under his
Responding to another of Mr Koroniadis's arguments, the
Court said that the late service of the PLA notice on Mr Koroniadis
(as guarantor) was not a problem for the bank. The fact that the
period in the notice had expired by the time the bank could serve
Mr Koroniadis did not matter, as the bank had not sold the property
at that stage.
Chapman Tripp comments
The Court of Appeal's approach effectively overrules the
ANZ v Boyce decision. In our view it better reflects how
the statute is drafted. It is also more pragmatic, and in
accordance with usual practice.
Although not expressly referenced by the Court of Appeal,
it's worth noting the policy intention behind the Act is to
protect the borrower against the potential hardship and prejudice
caused by a lender accelerating a loan. It is not intended to
provide a list of technical defences to summary judgment where such
prejudice is absent. The key thing is that the guarantor be allowed
an opportunity to refinance or negotiate another solution with the
bank. On the facts, Mr Koroniadis had not lost that
Notwithstanding the Court of Appeal's approach in
Koroniadis, lenders need to be very careful about both
drafting and sequencing when preparing enforcement notices. Much
can turn on how the loan contract is drafted.
Some loan contracts say that acceleration is automatic, arising
without need for further notice or demand. Where this is not the
case, lenders will need to consider whether acceleration is
required. If so, an acceleration notice will be necessary. While
that can form part of the PLA notice, for clarity lenders may be
better to issue two notices:
the PLA notice itself (which must still warn that, among other
things, acceleration is a forthcoming consequence), and
a separate acceleration notice (as required by the loan
What is now clear - thanks to Koroniadis - is that those notices
can be served at the same time.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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