KEY POINTS:
Hanover Finance Ltd is facing legal action from a New Zealand property developer alleging that the 25 per cent interest charged on a US$3 million ($3.8 million) loan for a Los Angeles apartment block redevelopment breached Californian usury laws.
However, Hanover says the usury laws have no relevance to the loan agreement and the complaint will be swiftly rejected by the court.
New Zealand property developer Mark Cooper and associated Californian company Brockton Brentwood Property this week filed documents with the Los Angeles Superior Court alleging the interest charged on the loan breached Californian laws prohibiting rates for non-consumer loans of greater than 10 per cent or 5 per cent plus the San Francisco Federal Reserve's current cash rate.
Brockton Brentwood's president, Levin-based accountant David Petterson who provided the Business Herald with a copy of the documents, said his company had freely accepted the terms of the 12-month loan. Petterson said the loan was agreed on early last year after an alternative arrangement fell through "at the 11th hour". Petterson said the terms of the loan were accepted under "perceived duress", but "no one held a gun to our head".
On January 25 this year Hanover requested repayment of the US$3 million principal and US$842,000 in capitalised and accrued interest.
Brockton Brentwood decided it would contest the interest payable a couple of months ago after learning of California's usury laws.
Petterson said Brockton Brentwood was "quite happy to repay the money we borrowed" but it is now seeking a declaration from the court that Hanover is not entitled to any interest.
But Hanover legal counsel Bruce Stewart, QC, said the loan contract "expressly provides that the law of New Zealand applies, and the advice that we've received is that there's no reason why that shouldn't be enforced in California, particularly where you've got a New Zealand developer seeking finance from a New Zealand finance company".
That aside, Stewart understood loans involving finance companies were exempt from the Californian usury laws.
