Court warned misuse of AI could amount to contempt or attract costs sanctions
The Supreme Court on 1 May 2026 dismissed Liyun Chen's bid to overturn summary judgments won by two property financiers over defaulted refinancing loans.
In Chen v Goodmore Investments (NZ) Ltd [2026] NZSC 40, Justices Ellen France, Kós, and Miller refused leave to appeal in four applications tied to Chen's failed attempt to refinance her property portfolio. The court ordered Chen to pay each respondent $2,500 in costs.
Goodmore Investments (New Zealand) Ltd, a construction and property development financier, entered into a loan agreement in January 2021 with Chen (personally and as trustee of the Royall Family Trust), LC1521319 Development Co Ltd, and RHC Property Investment Ltd. The loan provided 12-month interest-only financing to refinance four properties: Jeffs Road, Hillcrest Road, Umbria Lane, and Living Stream Road. The obligations were cross-guaranteed and secured by mortgages over the same properties.
The borrowers defaulted. Goodmore discharged mortgages over Jeffs, Living Stream, and Hillcrest between June and August 2022 for two partial repayments, then instructed Barfoot & Thompson to market and sell Umbria. Chen tried to stop the sale, but Goodmore accepted a $2.15 million offer in June 2023.
Tawa Trade Finance Ltd, a similar financier, entered into a six-month loan agreement with LC1521319 Development Co in June 2022 to refinance Jeffs and Living Stream. The parties signed another agreement in August on similar terms to provide an equity release over Tipu Road, owned by Chen personally. Both loans expired without repayment. Tawa sold Jeffs and Tipu by auction in July 2023 but still faced a shortfall.
The borrowers sought relief in the High Court, pleading oppressive conduct under ss 118–120 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), faulty disclosure as to consumer credit contracts under s 17 of the CCCFA, and breach of Goodmore's best price duty under s 176 of the Property Law Act 2007 in respect of the sale of Umbria. Other claims were based in the Companies Act 1993, the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, the Fair Trading Act 1986, and the Consumer Guarantees Act 1993. Both financiers obtained summary judgment as to the borrowers' claims and for their shortfalls. The Court of Appeal upheld those decisions, finding the loan agreements were not subject to enhanced CCCFA protections because they were not consumer credit contracts.
Chen proposed to argue all the agreements were at least partly consumer credit contracts and that both lenders committed CCCFA fraud. As to the sale of Umbria, she argued the Court of Appeal erroneously minimised the relevance of a $5.05 million valuation from February 2022. She also alleged self-dealing by Barfoot, seeking to admit evidence that the registered proprietor of Jeffs shared a name with a Barfoot agent, and claimed the Tawa loans were "illegal, void and unenforceable" because Tawa was not registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPRDR Act) at the time.
The Supreme Court rejected each ground. It held the proposed appeals raised essentially factual questions, lacked any realistic prospects of success and therefore raised no matter of general or public importance. Nothing Chen proposed to argue suggested the loans were anything but commercial under the CCCFA. The court found her oppression arguments against Tawa were supported only by assertion and were largely made in the Court of Appeal for the first time. On the FSPRDR Act point, the court held that even assuming Tawa was unregistered, it would only be precluded from enforcing consumer credit contracts, which these loans were not.
The court also flagged a separate concern. Many of Chen's authorities were irrelevant or did not exist, appearing to be hallucinations of a generative artificial intelligence application. The court identified "Peterson v Forbes 1997 2 NZLR 216 (CA)" and "Vélez v Ticketmaster NZ Limited 2023 NZSC 113" as authorities that did not exist, noting the neutral citation Chen gave for Vélez actually belonged to the court's judgment in Yan v Mainzeal Property and Construction Ltd (in liq). A third authority, Dorchester Finance Ltd v Deloitte [2012] NZCA 226, was a real case but concerned contract interpretation rather than the CCCFA oppression Chen claimed it supported.
Citing its recent decision in Jones v Family Court at Whangārei [2026] NZSC 1, the court warned: "Misuse of AI in legal proceedings has serious implications for the administration of justice and public confidence in the justice system. Persons filing submissions in court must ensure all authorities referred to are genuine and correctly cited."
The court said such misuse may in serious cases amount to obstruction of justice or contempt of court, and some such cases may call for costs sanctions, though it declined to impose them in the circumstances of this case.
