Beliquatum Property Developments Pty Ltd v Xiaolu Li

[2015] NSWSC 1764

Supreme Court

New South Wales

Medium Neutral Citation:	Beliquatum Property Developments Pty Ltd v Xiaolu Li [2015] NSWSC 1764
Hearing dates:	19 November 2015
Decision date:	19 November 2015
Jurisdiction:	Equity - Duty List
Before:	White J
Decision:	Refer to paras [20]-[22] and [24]
Catchwords:	REAL PROPERTY – withdrawal of caveats – restraint on distribution of proceeds of sale – shareholders in plaintiff company had engaged in a business venture to acquire, develop and sell property and to share in the profits of sale – plaintiff entered contract of sale for the property, with completion due imminently – plaintiff seeks withdrawal of defendant’s caveats over the property – defendant seeks orders to restrain plaintiff from distributing the proceeds of sale – held: (1) the caveats must be withdrawn and (2) there is no proper basis for restraining the plaintiff from distributing the proceeds of sale
Legislation Cited:	Real Property Act 1925 (NSW)
Category:	Procedural and other rulings
Parties:	Beliquatum Property Developments Pty Ltd (Plaintiff) Xiaolu Li (Defendant)
Representation:	Counsel: D R Pritchard SC (Plaintiff) P Finch (Defendant)     Solicitors: Buckingham Lawyers (Plaintiff) Bannister Law (Defendant)
File Number(s):	2015/332887

Judgment

1. HIS HONOUR: There are two applications before me. The plaintiff seeks an order pursuant to section 74MA of the Real Property Act 1925 (NSW) requiring the defendant to withdraw a caveat she lodged in respect of two properties in Peakhurst. That order is resisted by the defendant. By a cross-summons filed in Court today, the defendant, Ms Li, seeks orders against the contingency that the caveat is required to be withdrawn and a contract for the sale of the Peakhurst properties is completed. In that event she seeks an order that the net proceeds from the sales of the Peakhurst properties be paid into a trust account controlled by the solicitors for both parties or that, in any event, the plaintiff be restrained from repaying advances made by Mr Yongqi Liu and/or his wife, Kemei Dai, for the purchase of the properties until further order.

2. The plaintiff company was incorporated in July 2013. Mr Liu held 51 per cent of the shares and Ms Li held 49 per cent of the shares. The company was incorporated to be a vehicle for a proposed property development or developments. It is Ms Li's evidence that she agreed with Mr Liu that they would be partners in the acquisition, development and sale of suitable properties, that Mr Liu would fund the purchase and development costs of any property they agreed to buy, that his advances would be without interest, that Ms Li would find the properties, "do the feasibility", negotiate the purchase, obtain the development approval and oversee the construction and marketing.

3. She deposed there was a conversation with Mr Liu in September 2013 in which she said, and he agreed, that "the properties will be held by the company for us. I will be paid $5,000 each month. We will share the profits 51:49. The $5,000 paid to me will be a non-refundable advance on my share of the profits." She says that there were later conversations to the same effect.

4. The two Peakhurst properties were acquired on or about 30 June 2014 for a price of $1,900,000. It is common ground that the purchase price was funded by advances made by Mr Liu to the plaintiff company either by himself or by others on his direction. The total amounts paid by him exceeded $2,289,000.

5. On about 15 May 2015 the plaintiff company settled on the purchase of a property in Porter Street Ryde. It appears that that property had been identified by Ms Li. In November 2013 the plaintiff entered into a put and call option for the Porter Street Ryde property and that option was subsequently extended. The purchase price for that property was $2,850,000.

6. In order to fund the purchase of the property the plaintiff company borrowed owed $1,320,000 from Westpac. That loan is secured by a mortgage over the Peakhurst land. Ms Li says that the borrowing of $1,320,000 from Westpac was a breach of the agreement that she had with Mr Liu whereby it was his obligation to fund the purchase of the property and to do so with advances that would be interest free.

7. Contracts for the sale of the Peakhurst properties have been exchanged. The matter has some urgency because settlement was fixed for 6 November 2015. Shortly before then Ms Li lodged a caveat in respect of the Peakhurst properties. That caveat is holding up completion of the sale. A notice to complete has been served. The Peakhurst properties have been agreed to be sold for $2,830,000.

8. Ms Kemei Dai, the wife of Mr Liu, is now the sale director of the plaintiff. She intends to apply the net proceeds of sale after discharging the Westpac mortgage by applying the balance of the proceeds to repay a loan to Mr Liu. The amount to be paid to Mr Liu will be something less than $1,640,000. Ms Dai says this includes accrued interest on a loan to Mr Liu of some $282,565. Ms Li says that no interest is due.

9. It is common ground that Mr Liu made advances of principal for the purchase of the Peakhurst properties, let alone the balance of the purchase price on the Ryde property, which substantially exceed the sum it is proposed would be repaid to him from the proceeds of sale of the Peakhurst lands.

10. It is also common ground that the ascertainment of profits available from the plaintiff company's acquisition, development and sale of the Peakhurst and Ryde lands is to be struck after the advances made by Mr Liu are deducted and indeed, I would say, repaid.

11. It is clear that Ms Li does not have an equitable interest in the Peakhurst lands that can support the caveat. The highest her evidence goes in that respect is evidence of the conversation with Mr Liu in which she says that she said that the properties that she would find in the future would be "held by the company for us". That was said in the context of her saying that the arrangement between the parties was for the division of profits approximately equally after deducting certain amounts from her share of the profit.

12. The language she used was not language of trust. Any such trust would be unenforceable for want of writing. At the time of the language was used there was no trust property identified. No properties had been acquired.

13. The interest claimed in the caveat was that by an agreement made in made on about 27 September 2013 it was agreed that land would be acquired and developed for the benefit of Mr Liu and Ms Li. The particulars of the interest claimed do not identify any interest in the land. Even if there were such an interest, it is clear that the parties agreed that the land was to be acquired for the purpose of development and sale. There would be no basis upon which Ms Li could restrain the sale. Moreover, she has not offered an undertaking as to damages and there is no evidence to suggest an undertaking as to damages would be worthwhile. For all these reasons the caveat must be removed.

14. The question is then is whether I should make orders for the payment of the net proceeds of sale after the payment out of the Westpac mortgage into a jointly controlled account or should restrain the plaintiff from remitting the balance of the proceeds of sale to Mr Liu.

15. There is no proper basis to take either course. The evidence does not show that the net proceeds of sale are to be held on trust. To the contrary, the evidence is that there is an agreement to share profits and those profits will only be struck after repayment of advances to Mr Liu. Mr Liu is entitled to repayment of moneys he has paid, whether he is regarded only as an unsecured lender or whether repayment of the advances is said to be made under a mortgage.

16. The defendant complains that the plaintiff has executed a mortgage over the Porter Street Ryde property to secure advances made by Mr Liu. Whether that complaint is justified or not, it provides no basis for restraining the repayment of the advance made by Mr Liu for the acquisition of the Peakhurst properties from the balance of the proceeds of the sale of the Peakhurst properties.

17. Moreover, there would be no disadvantage to Ms Li from the remittance of the balance of the proceeds of sale to Mr Liu. There may well be a question as to whether all of the repayment should be treated as repayment of principal rather than, as Ms Dai said, partly as repayment of interest. But those are matters which would be determined on the taking of an account after the sale of the Porter Street, Ryde property.

18. Likewise, the complaint that Ms Li makes about the granting of a mortgage over the Porter Street property is irrelevant to the application to restrain the distribution of the proceeds of the sale of Peakhurst properties. Mr Finch who appears for Ms Li submitted that by converting an unsecured loan into a secured loan Ms Dai and Mr Liu have deprived Ms Li of profits available on the taking of accounts. I do not agree. It is clear that the accounts cannot be taken until the second property, which was the subject of the agreement, is realised. At the moment there are no profits to be divided because the proceeds of sale of the Peakhurst lands will be applied in payment out of the moneys borrowed from Westpac and the advances made by Mr Liu for the purchase of the Peakhurst properties.

19. It may be that Ms Li, on the taking of accounts, could say that Mr Liu's share of the profit should be struck after making allowance for interest paid to Westpac on the Westpac loan but, again, that is not a reason for restraining the repayment of the advances made by him.

20. I order that by 12 noon on 20 November 2015 the defendant withdraw caveats AJ919325U and AJ19323Y.

21. I order that the claims for relief in paragraphs 1 and 2 of the cross summons be dismissed.

22. I stand the matter into the Registrar's list on 1 December 2015.

23. Prima facie the defendant should pay the plaintiff's costs of the claim for interlocutory relief in the summons and the interlocutory relief in the cross summons.

[Parties addressed.]

24. I order that the defendant pay the plaintiff's costs of the claims for interlocutory relief in the summons and the claim for interlocutory relief in the cross-summons.

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Decision last updated: 25 November 2015