Company X (of which Haas was a shareholder and a director) had entered into a sale and purchase agreement in respect of a block of land. However, when the deposit for the property became due, Company X was not in a position to pay and entered into a loan agreement with Greenbank for the amount payable. The loan provided that:

- It would be guaranteed by Hass and his wife;
- The interest rate would be 21.7 percent rising to 25 percent on default;
- The principal sum would be repaid within 60 days or the day on which Company X received a GST refund in relation to the purchase; and
- A fee of $45,000 would be paid to Greenbank within 90 days from the date of the advance (which amounted to 32.14 percent of the principal sum).

Even having received Greenbank's loan, Company X could not afford to complete the sale and faced the possibility that the vendor would cancel the contract. As a result, Greenbank agreed to become the purchaser of the property and to credit the amount of the deposit, already paid, to the vendor against the company's and Haas's indebtedness. Later, Company X and Haas sued Greenbank on the basis that the loan agreement was oppressive.

The Court of Appeal held, that even though the finance rate pursuant to the Act amounted to 217.3 percent, the loan was not oppressive because:
- Company X had received legal advice, of which no complaint had ever been made;
- Company X entered into the sale and purchase (and subsequently the loan) because it saw the venture as a money making opportunity, whilst realising that high risks were involved given its liquidity problems;
- Mr Haas was an experienced businessman and was very keen to secure the purchase;
- The fee of $45,000 was justified because, given the risk and lack of security, Greenbank was entitled to some premium; and
- There was no evidence that Greenbank had taken advantage of the difficulties that Company X already faced.

This is a general summary only and should not be taken as a substitute for specific advice.

Russell McVeagh, law firm
Web site: Russell McVeagh

March 2001