Pang v Cao

Case •

[2023] NSWSC 773

•

01 May 2023

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Pang v Cao [2023] NSWSC 773
Hearing dates: 1 May 2023
Date of orders: 5 July 2023
Decision date: 01 May 2023
Jurisdiction: Equity - Duty List
Before: Parker J
Decision:

See [97]-[98] 

Catchwords:

LAND LAW – caveats – application for extension of caveat – cross-application for compulsory withdrawal of caveat – property acquired by defendant on behalf of plaintiff and on terms that plaintiff would pay for mortgage and holding costs – dispute between plaintiff and defendant about payment – defendant enters into contract to sell property to third party – prima facie case – delay – balance of convenience – third party rights – application for extension refused and caveat removed

Legislation Cited:

Nil 

Cases Cited:

Brose v Slade [2022] NSWSC 1785

Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1

International Computer Network Pty Ltd v Lumos International Pty Ltd [2018] NSWSC 1793

Sutherland v Vale (2008) 14 BPR 26,255

Texts Cited:

Meagher, Gummow & Lehane’s Equity Doctrines and Remedies, Heydon JD, Leeming MJ, Turner PG (5th ed, 2014, LexisNexis Butterworths)

Category:Principal judgment
Parties: Yuan Pang (Plaintiff)
Pengcheng Cao (Defendant)
Representation:

Counsel:
J D Jaffray/ R O’Donnell (Plaintiff)
A Macauley (Defendant)

Solicitor:
Concisus Legal Pty Limited (Plaintiff)
Jurisbridge Legal (Defendant)
File Number(s): 2023/123889
Publication restriction: Nil

JUDGMENT

  1. On 1 May, sitting in the Duty List, I heard and determined two interlocutory applications in this matter. The plaintiff applied for an extension of a caveat. The defendant made a cross application to have the caveat compulsorily withdrawn.

  2. The effect of the caveat was to prevent a contract for the sale of the land which was the subject of the caveat from being completed. Completion was due to occur at 3 pm on the following day, 2 May. It was not feasible to deliver a full decision on the applications. Instead, I gave a summary of my conclusions and made orders giving effect to those conclusions. This judgment sets out my reasons.

  3. The plaintiff in the proceedings is Yuan Pang. Her English name is “Lulu”. The defendant is Pengcheng Cao. His English name is “Denis”.

  4. The proceedings concerned a residential unit (initially one bedroom, which was later altered to contain two bedrooms) in a development called “Uno” at Green Square in Sydney. The registered proprietor of the property is Mr Cao. Ms Pang’s caveat claimed that Mr Cao held the property on trust for her.

  5. Evidence was given by way of affidavit. As is usual in applications of this kind, there was no cross-examination. Some of the correspondence in evidence (emails and messages) had been translated, and there were instances of the same correspondence being translated in two different ways. It was not however suggested that this made any practical difference for the purposes of this application.

Background and procedural history

  1. Ms Pang is a citizen of the People’s Republic of China. She came to Australia as a student in 2013 with a student visa. She graduated from the University of Sydney in 2015. Since graduation, she has been living in Sydney under what is known as “485 Graduate Working Visa”. The terms of this visa permitted her to be employed full time in Australia for a period of two years. I assume that the visa has been periodically renewed since 2017, although there is no evidence about this or when the visa is currently due to expire.

  2. Mr Cao is an Australian citizen. In 2011, he began working for H&T Realty Pty Ltd (“H&T”), a real estate agency with offices in the Sydney CBD. H&T has a focus on selling to Chinese nationals. In 2013, Mr Cao was promoted to the position of team leader. Mr Cao remained at H&T until about September or October 2020.

  3. Ms Pang began employment as a real estate agent at H&T in November 2015. This is how she came to know Mr Cao, who was Ms Pang’s boss until he left H&T.

  4. It seems to be common ground that Mr Cao did not merely supervise Ms Pang, but that he actively and closely tutored her in developing her skills as a real estate agent. From 2016, the relationship became a personal friendship. It was described in the evidence (perhaps euphemistically) as “complex” and tumultuous. According to counsel for Ms Pang, it was sexual in nature from 2016 until 2020. Since then, Mr Cao and Ms Pang have fallen out, and this appears to explain the dispute which has led to the present proceedings.

  5. The developers of the Uno development retained H&T to market the units in it. Marketing began on an off-the-plan basis in or around early 2017. The unit which is the subject of these proceedings was numbered 211. The asking price was $834,000, with a ten percent deposit.

  6. According to Ms Pang, Mr Cao suggested that she buy unit 211 as an investment. But while Ms Pang held only a temporary residency visa, it would not be possible for her to purchase the property (or at least to finance the acquisition). Mr Cao therefore proposed that he would acquire the unit, with Ms Pang paying the costs of doing so. Ms Pang eventually agreed. On 2 March 2017, Ms Pang paid the requisite holding deposit, which was $5,000, to Mr Cao. He later paid the deposit over to the developers and on 3 April he signed the purchase contract in his name.

  7. According to Mr Cao, the context was broader and the course of events was somewhat different. Mr Cao stated that in early March 2022, he told Ms Pang that he wanted to purchase a unit in the Uno development and was deciding between units 211 and 206 (another unit). Ms Pang suggested that he purchase unit 206, and he decided to do so. Mr Cao paid a holding deposit of $5,000 for the purchase of unit 206 on 6 March. He signed a contract to purchase on 14 March. It was only after this, on Mr Cao’s account, that Ms Pang approached him about purchasing unit 211. Mr Cao agreed to help Ms Pang obtain finance by using his name to purchase the unit, and Ms Pang agreed to make loan repayments, pay all costs related to the purchase and pay all bills. Mr Cao gave evidence that he signed the contract of sale on 21 March, which was later dated 3 April.

  8. The parties agreed that in November 2017, Ms Pang paid Mr Cao the balance of the deposit on unit 211, which was $78,000 (all figures in this judgment are rounded to the nearest thousand dollars). At the time of paying Mr Cao the balance of the deposit, Ms Pang asked him to sign a receipt. The receipt described Mr Cao as a “borrower” and as having “borrowed” the sum (“received” was crossed out with “borrowed” written above it), although it did not specify an interest rate or a time for repayment.

  9. According to Ms Pang, the $78,000 was not provided by way of loan but to enable Mr Cao to purchase the unit on her behalf. She said that she described Mr Cao as a borrower only to forestall any suggestion that the payment to him was a gift. According to Mr Cao, he did not notice at the time he signed the note that he was described as the “borrower”. He also gave evidence that to the best of his recollection, the word “received” had not been crossed out when he was given the note to sign.

  10. The contract was stamped in July 2018. It appears that stamp duty was assessed at $33,000. Ms Pang gave evidence that she paid Mr Cao $29,000, a figure agreed to constitute stamp duty. Mr Cao gave evidence that he did not recall the conversations about stamp duty referred to by Ms Pang. He did, however, acknowledge that he received a transfer of $29,000 in his ANZ account, dated July 2018. He did not recall the reason for the difference between the $29,000 paid and the $33,000 assessed.

  11. The development appears to have been completed in around early 2020. Ms Pang gave evidence that, on 13 January, she paid Mr Cao $91,000, to the account from which mortgage repayments were taken. Counsel for Mr Cao accepted this, but submitted that based on known purchase costs, and the amount borrowed by Mr Cao, only $88,000 of the $91,000 was used.

  12. The purchase was settled two days later, on 15 January. Mr Cao was registered as the proprietor. Mr Cao financed the purchase with a mortgage loan from National Australia Bank (“NAB”) of $667,000. Ms Pang gave evidence that on or around 14 January Mr Cao said to her words to the effect of “congratulations, we have successfully settled. You are now a homeowner”.

  13. As part of the arrangements on settlement, NAB established an account from which mortgage repayments were to be drawn. The account was established in the name of Mr Cao and operated within NAB’s internet banking facilities. Mr Cao provided the password to Ms Pang. This enabled her to log in and monitor the account.

  14. In February 2020, Ms Pang had minor renovations undertaken to convert the property into a two-bedroom unit, at a cost of $2,000. Ms Pang says that she also spent $1,400 on furniture for the property at this time.

  15. The property was then rented out. This was arranged through an agent retained by Mr Cao. According to Ms Pang, however, she was understood by the agent to be the “landlord” or the “owner”, and on occasion she dealt directly with the agent and the tenant.

  16. The rent was paid into the mortgage account. Ms Pang would then deposit any monies required to keep the account in surplus. According to Ms Pang, she separately paid outgoings such as rates and electricity bills.

  17. By November 2020, the personal relationship between Ms Pang and Mr Cao was breaking down. By that stage Mr Cao had left H&T and had established his own real estate agency business. He unsuccessfully tried to persuade Ms Pang to leave with him. According to Ms Pang, Mr Cao began badgering her, calling her constantly and trying to apply emotional blackmail to her to continue to remain in contact with him. In particular, he seems to have claimed that Ms Pang was in some way indebted to him because of all of his help in establishing her career in real estate.

  18. In evidence was a copy of a WeChat conversation on 10 November 2020 (translated from Chinese).

Pang: Because of your help and support over the past four years, you are now asking me to compensate you with $500,000 Australian dollars. I agreed to this, and this amount will be paid to you over a period of three years, and I will give you $100,000 this year, and $50,000 has already been settled. I also hope that you keep your promise that this $500,000 is the final compensation for your emotional contribution, and once this amount is paid, we will be even and clear. This is documented as proof. 10 November 2020.

Cao: The $500,000 is the compensation for what I have done, but it cannot be called as compensation for emotional contribution, which I do not need and which you cannot compensate for. Settlement starts from the receipt of the $50,000.

Pang: Well, whatever way you define it, it's all good… I've earned less than $400,000 from H&T Realty … Let's just say that I worked like a dog these past few years, and I give you all the money I earned, it's okay with me. As long as we're even and clear.

Cao: Whatever you say, as long as we’re even and clear.

  1. Ms Pang paid $50,000 to Mr Cao on 10 November. In a WeChat message dated 13 November at 10:12pm, Mr Cao said:

50,000 treat it as a loan from you to me. In a year’s time I’ll repay you principal plus interest. Thank you.

  1. Mr Cao in his affidavit, however, denied that this meant the $50,000 was a loan. Rather, Mr Cao suggested that it was compensation.

  2. In some way, which was not fully clear to me but did not have to be resolved for the purposes of the applications, Mr Cao also suggested that Ms Pang bore some financial responsibility for the purchase of unit 206, as well as unit 211. According to Mr Cao, in January or February 2021 there was a conversation with words to the following effect:

Cao: Unit 211 and Unit 206 had the same purchase price. I don't feel it is fair for me to pay higher interest for the investment loan, and the fact that I had to pay an extra $83,600 equity on my purchase of Unit 206. Those all resulted from me holding Unit 211 for you. Since both properties have the same purchase price and same structure, what about we do an exchange of properties? Unit 206 shall be put on the market for sale. The costs related to the sale of Unit 206 will be paid by you. Since the investment loan for Unit 206 had a lower leverage ratio and I paid extra equity when you purchased it, once Unit 206 is sold, I can receive the amount of the extra equity that I paid, from the net proceeds. The remaining net proceeds will belong to you. Then I can have Unit 211 as my own property.

Pang: I agree. I wish to sell the property and get the money as soon as possible.

Cao: I agree. Unit 206 will be sold. And Unit 211 will belong to me and I will no longer hold any property for you. I will return the $50,000 compensation you paid to me. By the way, you have to provide me a copy of the Note that we signed.

Pang: Sure. I will provide that to you.

  1. According to Ms Pang, no such conversation took place in or around January or February 2021, and she did not agree to the proposed exchange or swap of units 206 and 211.

  2. Ms Pang had continued to monitor the mortgage account, contributing to any shortfalls and paying outgoings. But in September 2021 she failed to make the necessary top-up payment to the mortgage account. For his part, Mr Cao declined to repay the $50,000. In October, he changed the password so as to prevent Ms Pang from having further access to the NAB mortgage account. According to Ms Pang, he also changed the address for rate notices and other outgoings so that she no longer received them.

  3. Ms Pang did not make any further payments of outgoings or contributions to the NAB mortgage account after this point. The parties remained in communication but relations between them were poor. Ms Pang was continuing to seek repayment of the $50,000. Mr Cao wanted to sell unit 211 but Ms Pang did not agree, and so he attempted to sell unit 206 instead.

  4. Mr Cao also claimed that Ms Pang was indebted to him for a substantial sum (later quantified at about $100,000). Part of this represented the shortfall on mortgage costs and other expenses which Ms Pang had not paid on unit 211. But most of it appears to have been calculated by Mr Cao based on an hourly rate for time spent on managing unit 211, and perhaps also unit 206 (including the correspondence with Ms Pang). There was no evidence that Ms Pang ever agreed to pay Mr Cao at the rates claimed, or indeed that she agreed to pay him for his time at all.

  5. In September-October 2022, the disagreements were still unresolved. On 9 September, Ms Pang sent a text message to Mr Cao in which she stated that she had consulted a barrister and urged Mr Cao to do likewise. The message went on to say (emphasis added, translated from Chinese):

…whether 211 is held on behalf or borrowed, it has nothing to do with 206. If you insist that it is held on behalf, I am willing to pay all the bills related to 211. However, without reaching a consensus on the legal relationship between the two sides, we believe that involving repayment regarding 206 is not feasible.

Regarding the loan of 50,000 yuan [sic; dollars], you initially asked to borrow from me claiming that you had to pay 10% for apartment 206, so you hoped that I could lend you the money to ease the pressure, and promised to repay in September 2021. However, until today, you have not repaid the principal and potential interest, which will be discussed along with the apartment.

Furthermore, in regards to your pursuit of other potential losses such as time, mental health, and opportunity costs, if you really want to resolve it together, I agree that we should leave it to the legal system. Both parties can provide their own evidence and let the law make the judgement. We both reserve the right to seek legal assistance and legal protection, and the debt recovery and compensation for damages should be assisted by the legal system.

  1. Ms Pang at the time had not in fact consulted a barrister or any other lawyer. She claimed to have done so in an effort to have Mr Cao to take what she was saying more seriously.

  2. On 9 October, Ms Pang wrote the following in a further text message to Mr Cao (emphasis added, translated from Chinese):

In the past few months of our email correspondence, I have repeatedly made it clear that I cannot accept your proposals and have requested to proceed with legal proceedings.

Now, my proposal for negotiations is as follows: if we cannot reach a consensus, we will proceed directly with legal proceedings.

1. Under the condition of negotiation, 211 can be regarded as property held by your side on behalf of my side. The bank interest difference and bills from September 2021 to present will be borne by my side.

2. Under the condition of negotiation, my side is willing to complete the transfer of 211 within three months after both parties reach a consensus.

3. Under the premise of reaching a peace agreement, if your side insists that our side bear the costs related to your attempted sale of 206 from January to August 2022, we require that you return the AUD 50,000 we lent to you as a condition.

3.1 If your side agrees to return the money, our side is willing to bear the loss in a spirit of mutual understanding and to resolve the dispute as soon as possible.

3.2 If your side does not agree to return the money, our side will not bear the loss.

4. In a spirit of mutual understanding and harmonious negotiation, our side is willing to bear the broker fees for the refinancing of 206. Other related costs need to be discussed specifically.

Please consider carefully and reach an agreement based on the above proposal before 11:59:59 pm on October 10, 2022. If we cannot reach an agreement, then we will each seek legal assistance.

  1. No agreement was reached. In December, Ms Pang went to China to get married.

  2. Mr Cao sent a lengthy email to Ms Pang on 6 January 2023. By this time, it appears that Mr Cao had unsuccessfully sought to sell unit 206. The parties remained in dispute. Mr Cao informed her that unit 211 would be sold.

  3. On 10 and 11 January, the parties exchanged the following emails (emphases added; translated from Chinese):

Mr Cao to Ms Pang: 10 January 2023, 10:43

My furniture has been placed in 211, so the rental income of 211 includes my furniture income. This part was not included in the previous calculation. 211 starts from 3 March 2022, and the lease term is one year, 52 weeks. Because the 211 lease ends in March - one month later than 206 - my furniture cannot be moved back to 211 in time. This part of the loss is calculated as half a year and 26 weeks. Furniture is based on the market price of $50 a week. A total of $3900 is owed for furniture. In addition, you will be notified after the inquiry of the storage and moving fees for the furniture for the next six months.

As of 6 January 2023, your actions have cause me to suffer the following losses.

1. Labour fee for settling 211: $5,845

2. 211 arrears and interest payable: $11,988.91

3. 206 sale costs and interest: $32,333.62

4. 206 and 211 interest difference: $19,124.65

5. 211 sale fee: $749.92

6. 206 refinancing fee: $3,000

7. Furniture rental and compensation: $3,900

Total: $76,942.10

In addition, you can estimate the advertising fees and commissions that need to be paid for 211 sale.

In addition, let me update you that I will make an appointment with the agent to see the house tomorrow. I believe they should issue a sales agency contact soon. I would like to remind you again that before my agent signs the sales agency contract, you can avoid worsening the situation by acknowledging the facts, paying back the money, and apologising.

Ms Pang to Mr Cao: 11 January 2023, 9:14

Let me be clear that if the 211 house is entrusted, I do not agree with your insistence on selling it. I request that service of the agent be suspended immediately and that it [the property] be transferred to my family before 1 March 2023. If all my previous payments were the money you borrowed from me, then you can deal with 211 as you wish, and just repay the loan.

Mr Cao to Ms Pang: 11 January 2023, 9:49

There is no such thing as “if it is entrusted”. Facts are facts. I have also made it clear several times. 1 Admit the fact that it has been entrusted. 2. Pay off the arrears. 3. Unconditionally resume the repayment. Under the premise that these three conditions are met, the 211 sale can be postponed. This dispute, which has been dragged out for more than a year, has to be resolved.

Mr Cao to Ms Pang: 11 January 2023, 10:10

I have shown the house to the agent. The agent will send me the contract today, and it will be open next Saturday, the 21st.

  1. On 14 January, Mr Cao wrote to Ms Pang complaining that she had failed to pay amounts due under the mortgage. He wrote:

The 211 bank account had deducted a $395 annual fee, which I have paid on behalf of us. Now the total amount of outstanding payments has reached $102,203.50. please make the payment immediately.

  1. The following email exchanges took place:

Mr Cao to Ms Pang: 1 February 2023: 8:28pm

Please find attached the January rental statement and related bills for 211. Please pay the outstanding balance of $99,925.43 immediately.

Ms Pang to Mr Cao: 9 February 2023: 11:28pm

You cannot unilaterally determine what the amount in dispute is.

I request that the property be transferred to my family before 1 March.

If the amount in dispute is to be negotiated, the agreements needs to be completed before 1 March.

  1. Initially, it seems that attempts were made by the agent to market the property on the basis that the sale would be subject to the existing tenancy. But according to Mr Cao, he was advised by the agent that no buyers could be found, and it would be necessary to obtain vacant possession and to “style”
    the property by improving its appearance. Mr Cao raised this with Ms Pang. The parties exchanged the following emails:

Mr Cao to Ms Pang: 22 February 2023: 12:22pm

MGM Martin [the selling agent] has opened the property for inspection twice without advertising on REA and Domain, but no one came to inspect. They suggested advertising and doing styling before the next inspection. After negotiating with them multiple times, the advertising cost is $5,000 for REA and Domain Premium, styling is $3,949, and photography is $800. I insisted on using my own photographer for only $220 and styling for $3,000. They strongly disagreed. They have confidence in selling the property within three weeks. They just sold a one-bedroom unit for $765,000 in Infinity. Furniture will be delivered on March 2nd, photos taken, and the first inspection will be on March 4th.

… According to the lawyer's advice, I will keep you informed of the situation and progress. Unless you repay the outstanding loan, there is nothing else to discuss, so please do not make any unreasonable demands. Your outstanding loan has now exceeded AUD 100,000, and I will seek legal action to recover the debt if the property is sold for an insufficient amount.

Ms Pang to Mr Cao: 24 February 2023: 10:37pm

I reiterate again that there is no need for styling or advertising, or for MGM to sell [the property]. I will take back the 211 house myself, unless you do not admit that 211 is entrusted for me, in which case all the 211 related expenses I paid, totalling over $230,000 AUD before and after, are all your loans, and the expenses you disposed of for 211 naturally have nothing to do with me. If you believe 211 to be my property, then you have no right to dispose of my property arbitrarily under my repeated explicit requests.

  1. On 28 February, the issue remained unresolved, and Mr Cao wrote to Ms Pang:

Please immediately repay the total outstanding amount of AUD $103,721.43, generated from [unit 211] since October 2021.

[Bank details were set out]

If payment is not made, all outstanding debts will be deducted from the proceeds of the sale of 211, and the remaining amount will be recovered through legal means. Please refer to the attachment for a breakdown of the outstanding debts and the latest payment of the 211 marketing fee invoice.

  1. The following day, Mr Cao terminated the tenancy over the property. The agent then sought further offers on the property. According to Mr Cao, the agent reported to him in the following terms:

[CB 2/56]

Agent:    We have received a number of oral offers. One is $685,000. Forget this. It is too low. I've already told the buyer it is too low, and it is not possible. We've got another offer at $700,000 and one at $715,000.

Mr Cao:    I know you sold recently a one-bedroom apartment, plus one car space, in the Infinity building, which is next door, for $765,000. I know it's a better building and location, but could you try push the price higher?

Agent:    I will try to push the price a bit higher. But, you need to know, Infinity is much better than Uno.

Mr Cao:    I understand, but please try your best.

  1. Eventually Mr Cao accepted an offer from a purchaser, Mr Zheng, to buy unit 211 for $720,000. The contract was signed on 7 March and provided for completion on 18 April. Seven days after signing the contract, on 14 March, Mr Cao emailed a copy of it to Ms Pang.

  2. There was no immediate response from Ms Pang. She did not return to Australia from China until 23 March. According to her, that was when she first saw Mr Cao’s email and the attached contract. On 31 March, her solicitors lodged a caveat over the property. The caveat claimed a beneficial interest in the property, on the basis that Mr Cao held the property in trust for her.

  3. In response, Mr Cao, through his solicitors, applied for the issue of a lapsing notice. The notice was served (following some prior correspondence between the solicitors) on 17 April. These proceedings were commenced by Summons on the following day (18 April, coincidentally the date for settlement under the contract with Mr Zheng).

  4. A hearing took place on that day before the Duty Judge. Both parties were represented, and a cross-application was foreshadowed on behalf of Mr Cao for removal of the caveat. Directions were made to bring Ms Pang’s application for interlocutory relief, and the foreshadowed cross-application by Mr Cao for removal of the caveat, on for hearing on 1 May.

Extension of caveat

  1. Both parties agreed that in deciding whether to extend the caveat the Court should follow the principles stated by Brereton J in Sutherland v Vale (2008) 14 BPR 26,255 at [11]:

It is well established that an application for an order extending the operation of a caveat, a test substantially the same as that for an interlocutory injunction applies. First, the applicant must determine that the caveat has or may have substance, the phrase, ‘may have substance’ encompassing the concept of a seriously arguable case; secondly, the Court will have regard to considerations of the balance of convenience and prejudice; and finally, to other discretionary considerations.

  1. It is convenient to deal with the extension application under three headings: prima facie case; delay; and balance of convenience.

Prima facie case

  1. Ms Pang’s Summons claims declaratory relief to the effect that Mr Cao acquired, and thereafter held, the property as trustee for her. Prayers 8-10 are:

A declaration that the Defendant holds Lot 251 of Strata Plan 93826, otherwise known as 211/12 Paul Street, Zetland 2017 (the Property), on constructive trust for the Plaintiff.

In the alternative to Order 1 [sic], a declaration that the Defendant holds the Property on resulting trust for the Plaintiff, in share to be determined by the Court.

An order that:

a. the Plaintiff discharge the Defendant’s mortgage over the Property;

b. at the same time as (a), above, the Defendant cause:

i. the legal title to the Property be transferred to the Plaintiff, or the Plaintiff’s nominee;

ii. provide the original certificate of title for the property to the Plaintiff’s solicitors.

  1. Counsel for Ms Pang put her case for the recognition of a trust as a resulting trust, or, alternatively, a constructive trust. At least two bases for the imposition of a constructive trust were identified. One was a failed joint endeavour, along the principles of Muschinski v Dodds (1985) 160 CLR 583. The other was a common intention constructive trust.

  2. A somewhat similar situation arose in a case before me, Mao v Bao [2021] NSWSC 1096. In that case, a Chinese businessman provided an Australian businessman with money to buy a property for the Chinese businessman to live in. As in the present case, the Chinese businessman was not a permanent resident of Australia. That case was conducted on the basis that the property acquired was held on trust. Although the precise nature of the trust was not the subject of debate between the parties, it seems that the trust would have properly been characterised as an express one, arising out of an agreement between the parties.

  3. In Mao v Bao, no issue about the statute of frauds was raised. That may not have been relevant because the agreement was made when the deposit monies were first provided, and the monies would have been impressed with a trust from that point. There seems to me to be no difficulty with the creation of an oral trust over a sum of money, and the subsequent tracing of the equitable interest in the money to the property once acquired. When I raised this idea with counsel for Ms Pang, counsel indicated that the alleged trust could be sustained on that basis also.

  4. Although not expressly stated in the Summons, counsel for Ms Pang indicated that she would also be seeking orders requiring Mr Cao to account as trustee. Counsel did not suggest that there had been any collusion between Mr Cao and the purchaser of the property. But counsel did foreshadow a claim that Mr Cao had sold the property at an undervalue and thereby sacrificed Ms Pang’s interest.

  5. Counsel for Mr Cao did not dispute that there was a prima facie case that he purchased the property on behalf of, and effectively as trustee for, Ms Pang. Indeed, it was not clear to me that this is in dispute in these proceedings at all. As counsel for Ms Pang pointed out, there are numerous statements in the evidence in which Mr Cao acknowledged as much.

  6. But counsel for Mr Cao did emphasise, consistently with my conclusions in Mao v Bao, that Ms Pang was obliged to discharge the mortgage before she could claim to be the beneficial owner of the property. Counsel submitted that no obligation arose to transfer ownership until Ms Pang tendered the amount outstanding under the mortgage, or at least produced an unconditional offer from a financier to lend Ms Pang sufficient funds to be able to discharge the mortgage. In counsel’s submission, this had not occurred when the proceedings had commenced (and had not even occurred at the date of the hearing).

  7. Counsel for Mr Cao did not appear to dispute that if the sale took place his client would have to account for the sale proceeds in Ms Pang’s favour, less any outstanding outgoings. While the possibility of a claim for just allowances for the work done by Mr Cao in acquiring and holding the property could not be ruled out, counsel disclaimed any intention to pursue the time-charged claim put forward in the 2022 correspondence, or his earlier demand for $500,000. It was clear however that any allegation by Ms Pang that the property had been sold at an undervalue would be vigorously resisted.

  8. Clearly there was a prima facie case that Mr Cao acquired unit 211 for the benefit of Ms Pang. That did not necessarily mean, however, that Ms Pang was entitled to have the caveat extended. To obtain such an extension, Ms Pang needed to be able to establish a prima facie case that she would ultimately be entitled to remain in possession of the unit: see Makaritis v Makaritis [2022] NSWSC 468 at [41]-[42].

  9. For this purpose, it was not enough for Ms Pang to allege that the property was being sold to Mr Zheng at an undervalue. This allegation (which was not supported by any evidence on the application and was contradicted by Mr Cao’s account of his dealings with the agent) was one which could be dealt with as a monetary claim as part of the process of taking accounts. What Ms Pang needed to do was to establish a prima facie case that Mr Cao was obliged to retain the property for her, and had therefore not been entitled to sell to Mr Zheng at all.

  10. On the evidence which I have summarised, this was problematical. Mr Cao’s claim for payment of tens of thousands of dollars in fees, and his attempts to link unit 211 with unit 206, may have been unreasonable. But at the same time, as Ms Pang through her counsel accepted, Mr Cao was not obliged to continue as mortgagor. Once he became unwilling to do so, Ms Pang’s obligation was to pay out the mortgage, or take a transfer of the property which would result in the mortgage being discharged. If she was not prepared to do that, then, at least in the absence of some special understanding or agreement between the parties, Mr Cao was within his rights to sell the property and account to Ms Pang for the proceeds afterwards.

  11. The correspondence between the parties shows that, by January this year, Mr Cao had made it clear that he was not prepared to continue as mortgagor and that the issue had to be brought to a head. It is true that Ms Pang did mention taking a transfer of the unit. But at the same time, she failed to embrace, fully and unequivocally, the proposition that the unit being held on trust for her and at her cost. More importantly, she seems to have taken no active steps (at least that she told Mr Cao about) to arrange a transfer, and the associated finance. On the face of it, by the time she did take such steps, Mr Cao had already entered into an arms’ length contract with Mr Zheng.

  12. For present purposes, I do not need to make a final decision on whether Mr Cao was guilty of breach of trust in selling when he did. It is sufficient to say that, on the evidence before me, the case for Ms Pang being entitled to remain in possession was at best a weak one.

Delay

  1. The Summons was supported by an affidavit of Ms Pang’s solicitor, Mr Oi. In the affidavit, Mr Oi acknowledged that there had been some delay by Ms Pang in bringing the proceedings after she had been aware of the contract for sale for more than four weeks. He explained this by saying that Ms Pang had been in China preparing for her wedding.

  2. Counsel for Mr Cao submitted that Ms Pang was guilty of significant, unreasonable and unexplained delay. Counsel referred to her failure to take any steps to prevent the sale of unit 211, pay out the mortgage, or bring an end to Mr Cao’s custodianship, notwithstanding having been put on notice of the sale by Mr Cao. Counsel resisted the fact that this was excused by Ms Pang being in China for her wedding, on the basis that she continued to reply to emails during January and February 2023. Counsel submitted that she could have lodged a caveat much earlier.

  3. I do not think there can be any doubt that there has been a significant delay in bringing these proceedings, and the present application, before the Court. The evidence shows that by September last year, Ms Pang was telling Mr Cao that unless the dispute between them, which involved unit 211, as well as unit 206, Mr Cao’s other demands, and the repayment of the $50,000, could be resolved, legal proceedings would be necessary.

  4. Ms Pang also claimed to have consulted a barrister on the subject. It does not matter that in fact she had not done so. The important point is that her claim bespoke an appreciation on her part that proper protection of her legal interests, and advancement of her claims, required legal advice, and, probably, court proceedings.

  5. Had Ms Pang obtained legal advice at that time and then sat on her hands waiting until this year to lodge the caveat and bring proceedings, there would have been a strong argument for refusing her application merely on the ground of laches: see the discussion of delay in the context of interlocutory relief in Meagher, Gummow & Lehane’s Equity Doctrines and Remedies, Heydon JD, Leeming MJ, Turner PG (5th ed, 2014, LexisNexis Butterworths) at [38-045]. Ms Pang could be in no better position because she did not in fact obtain legal advice she claimed to have obtained. Therefore, I considered delay to be a significant factor in the application.

Balance of convenience

  1. Counsel for Ms Pang submitted that the balance of convenience favoured their client for three main reasons. First, that Ms Pang’s interest appeared to be undisputed. Second, if unit 211 was sold, Ms Pang’s interest would be destroyed. Third, the claimed interest was to be transferred an estate in fee simple.

  2. Counsel referred to authority that where the nature and extent of the caveator’s interest is undisputed and removal of the caveat would clearly destroy the caveator’s interest, it is “very unusual” for a removal application to be granted, citing Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1 at [78]; International Computer Network Pty Ltd v Lumos International Pty Ltd [2018] NSWSC 1793. As I have pointed out, however, the real question on an application such as this is not so much the nature of the interest claimed, but rather, whether there is a prima facie case that the plaintiff will be entitled to remain in possession at the end of the proceedings.

  3. On the evidence before me, the current value of the unit is well below what Ms Pang paid for it. Counsel for Ms Pang acknowledged orally that this was so, but stated that Ms Pang wished to have the ability to sell the property in the future when the market has recovered.

  4. By the time the hearing took place, Ms Pang’s legal advisors had recognised that discharging the existing mortgage debt (which I was informed stood at $625,000) was a critical factor in the balance of convenience. Mr Oi’s second affidavit of 22 April stated that Ms Pang was seeking to obtain a loan approval to enable her to pay out the mortgage. At the hearing on 1 May (a Monday), a further affidavit from Mr Oi was filed which attached a conditional approval from NAB in the sum of $640,000. The bank’s email, dated 28 April (the previous Friday) at 12:58pm, stated:

We're pleased to confirm that your Home Loan application has been conditionally approved for AUD 640,000. This conditional approval is valid for 3 months.

What's next? There's nothing more you need to do now. When you want to proceed with this application, please let us know. We'll then verify the security and the information you've provided in your application. We'll complete a valuation and a further credit assessment (if required). As long as each of these are acceptable to us and your financial situation hasn't changed, we'll send you our formal offer, which will include the terms and conditions.

If you'd like to discuss your application with us, or you have any questions, feel free to contact your banker, visit your branch or give us a call on 131312.

We'll be happy to help.

  1. This email was, I suppose, a positive development. But it did not involve any commitment by the Bank. It remained open to the Bank to undertake a further credit assessment, and there was no promise to do so by any particular date within the three-month period of the “conditional approval”.

  2. Nor was there in Mr Oi’s initial affidavit any information about Ms Pang’s ability to meet the undertaking as to damages. This was partially addressed in Mr Oi’s second affidavit and then in the third affidavit filed on the day of the hearing. Ms Pang said that she owns a half share of another investment property with her mother and suggested that there was some equity in that property.

  3. In the course of the hearing on 1 May, counsel for Mr Cao provided to the Court an undertaking on his client’s behalf that if the application was refused and the caveat was removed, that on completion of the contract with the purchaser, Mr Cao would pay into court the net sale proceeds after payment and discharge of all land taxes, council rates, strata levies and other liabilities owed on the property; or monies owing to the first registered mortgagee; or conveyancing costs payable to any third party; and all costs associated with the sale and marketing of the property owed to any third party.

  1. For their part, counsel for Ms Pang indicated that she would be prepared to undertake to pay into court the amount claimed as a shortfall by Mr Cao ($12,000), even though only $11,000 is accepted by Ms Pang. Counsel also indicated that Ms Pang would give an undertaking to meet the ongoing mortgage payments (although this was potentially qualified, in a way which was not made clear, by the possibility of an application to have the property let out).

  2. This undertaking was not reduced to written form, and was criticised by counsel for Mr Cao on the ground that Ms Pang had no equity to require him to continue to hold the property, and be exposed to the mortgage liability, any longer than was absolutely necessary. When it appeared that the undertaking might not be enough, counsel foreshadowed the obtaining of further instructions.

  3. Those further instructions resulted in an unsigned affidavit which was provided in the course of the reply submissions by counsel for Ms Pang. In the unsigned affidavit, Ms Pang indicated that she could obtain financial assistance from her husband and from her family to raise the monies necessary to pay out the mortgage. On Ms Pang’s behalf, counsel offered an undertaking for the continuation of the caveat that Ms Pang would pay the sum of $400,000 by Friday 5 May and the further $227,000 by Friday 12 May.

  4. Counsel objected to what he characterised (correctly) as a re-opening of Ms Pang’s case. Counsel observed that the question of Ms Pang’s financial circumstances had been raised as an issue well before the hearing of the interlocutory applications, and, in any event, the onus lay on her to provide appropriate undertakings to deal with the balance of convenience, and to provide evidence demonstrating that these undertakings would be met. In the end, I decided to permit the tender of the unsigned affidavit as evidence of assertions made by Ms Pang. But owing to the circumstances in which the unsigned affidavit came before the court – counsel for Mr Cao had no real opportunity to scrutinise it – if admissible at all, it is of very little weight so far as it purports to demonstrate what Ms Pang’s financial position is.

  5. Counsel for Ms Pang, orally, put the balance of convenience in the case in the following way. Counsel calculated Ms Pang’s loss, if the unit is sold to Mr Zheng, as $135,000, being the difference between the figure Ms Pang had spent on the unit and the figure Mr Zheng had agreed to pay. Counsel contrasted this with the sum of $12,000 (on Ms Pang’s case, $11,000), representing the outstanding expenditure which had been paid for by Mr Cao. Counsel submitted that the difference between the two figures effectively represented the balance of convenience, and was therefore very much in Ms Pang’s favour. Counsel also submitted that Mr Cao’s behaviour towards Ms Pang had been overbearing and, perhaps, exploitative.

  6. I did not agree with counsel’s financial analysis. I accepted, of course, that the sale of the property at the current price would crystallise a loss for Ms Pang which could be significant in the context of her overall financial position. I accepted also that Ms Pang wishes to retain the property. It was briefly suggested by counsel that Ms Pang might wish to live at the property, but this does not seem very likely, given Ms Pang’s personal circumstances.

  7. But the problem was that the Court could not be satisfied that the sum of $135,000 really measured the prejudice to Ms Pang. It was reasonable to suppose that if Ms Pang were to continue to hold the property, then eventually its value would increase again. But no one could say how long that would take. For all the Court knew, the property might decline in value even further. It might prove best for Ms Pang to take the loss immediately.

  8. Furthermore, counsel’s argument did not, in my opinion, acknowledge the full extent of the detriment to Mr Cao. If the caveat were extended, Mr Cao would be subject to ongoing obligations to the Bank as mortgagor. His ability to deploy his own personal equity and credit rating for his own benefit would continue to be diminished. Admittedly, with the change in Ms Pang’s position in the course of the hearing and the offer of undertakings to payout the mortgage by 15 May, this might not be for a very long period. But, in principle, it was undesirable that he should be forced to do so for one moment longer than he was prepared to.

  9. More importantly, an extension of the caveat would make Mr Cao unable to settle the sale of the unit to Mr Zheng. Mr Cao had already been placed in default by the caveat. If he failed to complete in the face of Mr Zheng’s notice, Mr Cao would be forced into a repudiation, rather than merely a breach, of the contract, and would be exposed to an action for damages by Mr Zheng.

  10. Elsewhere in their argument, counsel for Ms Pang acknowledged this. But counsel pointed out that Mr Zheng has not intervened in the proceedings and there was no evidence from him about his intentions. Nor, counsel pointed out, was there any evidence from Mr Cao about the matter. Counsel submitted that, in the circumstances, the detriment to Mr Cao resulting from failing to complete the contract on 2 May was of little substance.

  11. Counsel relied on the judgment of Kunc J in Brose v Slade [2022] NSWSC 1785. That was a case between a father and mother on one hand, and their daughter and son-in-law on the other. The dispute centred on a large rural property on five separate titles, some of which were owned by the parents and some by their superannuation fund. The parents listed the property for sale. The daughter and son-in-law (the plaintiffs) claimed an interest in the property as a result of past work on it, and a succession planning agreement. They lodged caveats on the properties to protect their claimed interests.

  12. In response, the solicitors for the parents stated that a buyer had been found for a specified price (although contracts had not been exchanged). The solicitors foreshadowed a question about the balance of convenience in extending the caveat, and in particular whether the plaintiffs would be able to satisfy their undertaking as to damages if the sale went off.

  13. The plaintiffs then commenced proceedings. A few days later, the parents exchanged contracts with their buyer. The plaintiffs sought an extension of the caveat. This was opposed on several grounds, including the foreshadowed ground about balance of convenience.

  14. Kunc J stated at [88]-[89], [92]:

There is no evidence from the current purchaser (even by solicitor’s correspondence, for example) as to what may happen to the contract for sale. Nor, for understandable reasons, does Bruce [the father] say anything on that topic. His evidence … assumes and is fearful of the loss of the present sale, but there is no evidence before the Court that enables the likelihood of that assumption proving true to be assessed. In my respectful view, in the absence of evidence, for the Court to conclude that the sale at the current price will be lost forever would be speculation. There is obviously a chance it may be lost, but how great that chance is cannot be assessed. It has certainly been my experience both at the bar and on the bench that an inability to complete a contract for the sale of land pending third party legal proceedings does not always lead to termination of the contract.

Nevertheless, the view to which I have come would be the same even if the evidence were that the current sale will be lost forever and the deposit returned. This is because the evidence is too general and speculative to enable the Court to make any conclusion about any future sale price and how long any sale might take to achieve. To describe the evidence as such is not a criticism of the parties, who have sought to provide the best evidence they can in urgent circumstances. Furthermore, assuming no deleterious effect from the floods, the only relevant, objective fact currently available to the Court – that the present sale was achieved within three months – suggests that fear of a long delay if the blocks have to be put back on the market may be unrealistic.

…

Furthermore, as a matter of discretion, I have taken into account that Bruce took a calculated risk in entering into the contract for sale of the Slade Land with knowledge of the plaintiffs’ claim and these proceedings having been commenced. I do not regard the alleged doubts entertained about the plaintiffs’ undertaking … as sufficient to negative this consideration.

  1. In my view, Brose is distinguishable. One difference is that it concerned a rural property, where a sale is typically a long and complex process. With respect, it is quite understandable for his Honour to observe in that context that the existence of a dispute very often would not result in the sale of a multi-million-dollar piece of property being frustrated. But I do not think the same considerations apply to an ordinary residential unit in Sydney. There is no reason whatever to think that a purchaser of such a unit, whether intending to live in it or hold it as an investment, would be prepared to hang around for a period of months or possibly longer in order to complete the sale.

  2. Even more importantly, in Brose the contract was entered into after the caveat had been lodged and the proceedings had begun. There may have been room to argue about the fact that the parents placed the property on the market before the caveat was lodged, but it is not necessary to consider this in the present case. Here, the sale contract was entered into well before the caveat had been lodged or the proceedings had begun.

  3. I acknowledge that the evidence did not allow the Court to make any judgment about what damages might have been incurred by forcing Mr Cao to repudiate the contract. But I did not think that was essential. The simple fact was that repudiation was going to expose Mr Cao to being sued.

  4. Counsel for Ms Pang accepted that her undertaking as to damages would include an indemnity against any costs Mr Cao might incur (or at least might reasonably incur) if that happened. But in my view, even if that indemnity had been properly secured (and the evidence did not really establish that) it was not enough to negate the prejudice.

  5. Breach of contract, even if it is not followed by litigation, can itself be a subject of prejudice. It may damage the party’s credit rating or that party’s general commercial reputation. Furthermore, if litigation does ensue, it often results in strains on the parties which go beyond the costs of conducting it. For these reasons, I thought the Court should be slow to countenance an interlocutory regime in one piece of litigation which would encourage further dispute and potential litigation about the subject matter of the dispute.

  6. Most importantly, the question was not merely one of the balance of convenience between Ms Pang and Mr Cao. Extension of the caveat would defeat, or at least defer, Mr Zheng’s right under the contract he had made with Mr Cao. No-one suggested that Mr Zheng was aware, or ought to have been aware, before he entered into the contract, of the potential dispute between Mr Cao and Ms Pang about the unit.

  7. In this context, I was not impressed by the point that Mr Zheng had not involved himself in the proceedings or provided any evidence about his intentions. No doubt he could have done so. I saw no reason why he should have.

  8. So far as the evidence went, Mr Zheng had entered into a purchase contract in perfect good faith. I did not see why he should be obliged to incur additional legal costs (even if he might ultimately have recouped them by way of a costs order against whichever party is unsuccessful) of involving himself in these proceedings. Nor did I see why he should be obliged to go to the trouble of giving an affidavit to Mr Cao’s solicitors about his intentions in the event that Mr Cao did not complete. Mr Zheng had made a contract, which, on the face of it, he was entitled to have performed. In my view he was not obliged to explain himself any further.

Conclusion

  1. For these reasons, I thought Mr Zheng’s rights as an innocent third party were of much greater significance than the asserted prejudice to Ms Pang. When coupled with her delay, and the weakness of her case, I concluded that the extension application should be refused.

Compulsory withdrawal of caveat

  1. The same considerations resulted in the conclusion that, as the extension of the caveat is to be refused, it should be compulsorily withdrawn to allow the sale to Mr Zheng to take place. The undertaking given by Mr Cao of course remained in force.

Orders

  1. The parties agreed that if the caveat were removed and the sale went ahead then all that would remain in the case would be the taking of accounts. They also agreed that the District Court would have jurisdiction to take the necessary accounts and enter judgment for the amount owing, and the proceedings should be transferred to that Court.

  2. In the light of my conclusion that the caveat should not be extended, the orders I made on 1 May were:

  1. Dismiss the plaintiff’s application for interlocutory relief (claims 5-7 in the Summons).

  2. On the defendant’s motion filed 24 April 2023, and on the undertaking of the defendant recorded in the attached document, order that the plaintiff forthwith, and no later than 9am 2 May 2023, remove Caveat AS976659 from the folio of Lot 251 in SP93826.

  3. Order that the plaintiff pay the costs of the plaintiff’s application for interlocutory relief and of the defendant’s motion.

  4. Order that the proceedings continue on pleadings.

  5. Order that the proceedings be transferred to the District Court.

**********

Decision last updated: 05 July 2023

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Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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Brose v Slade [2022] NSWSC 1785
Hanson Construction Materials Pty Ltd v Roberts [2016] NSWCA 240
Hanson Construction Materials Pty Ltd v Roberts [2016] NSWCA 240