Bei v B & Z Trades Company Limited
[2024] NZHC 20
•31 January 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001112
[2024] NZHC 20
BETWEEN YONG SHENG BEI
Applicant
AND
B & Z TRADES COMPANY LIMITED
Respondent
Hearing: 18 September 2023 Appearances:
M S P Pang for the Applicant E St John for the Respondent
Judgment:
31 January 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 31 January 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Heritage Law, Auckland
Integritas Law Firm, Auckland
BEI v B & Z TRADES COMPANY LTD [2024] NZHC 20 [31 January 2024]
Introduction
[1] Yong Sheng Bei claims to have been an equal business partner with his son, Yaoping Bei, in a car importation business. He claims that they agreed that B & Z Trades Company Ltd (B & Z) would be the corporate vehicle for the partnership and that properties owned by B & Z are partnership property. On that basis, Yong Sheng Bei has lodged caveats over the properties.
[2] B & Z (controlled by Yaoping Bei) denies that a partnership existed and that the properties are partnership property. Yaoping Bei says that the car importation business was his alone which he ran through B & Z. B & Z also denies that a partner in a partnership which owns land has an interest in that land that can support a caveat.
[3]The issues to determine are:
(a)Does a partner have an interest in partnership property that can support a caveat?
(b)Are the caveated properties arguably partnership property?
(c)Nevertheless, should the caveats be removed pursuant to the Court’s residual discretion?
Legal principles
[4] An application to sustain a caveat is determined on summary basis in which the Court has regard to the following principles:1
(a)The applicant caveator bears the onus of demonstrating that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively. It is enough if they present a reasonably arguable case.
1 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813 at [23]-[24]; Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patently clear it cannot be maintained — either because there was no valid ground for lodging it in the first place; or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour.2 However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.3
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat. The Court will exercise this discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.4
[5] I will consider first, as a matter of law, whether a partner with a share in a partnership, the assets of which include land, has an interest in that land sufficient to support a caveat. If so, I will consider whether Yong Sheng Bei has shown, through evidence, that arguably the caveated properties are partnership property.
Does a partner have an interest in partnership property that can support a caveat?
[6] Mr Pang submits, relying on the Western Australian case of Connell v Bond Corp Pty Ltd5 and commentary in Campbell on Caveats, that Yong Sheng Bei, as a partner in the car importation partnership, has a beneficial interest in properties owned by the partnership that can support a caveat. Mr Pang submits that this beneficial interest was enlivened when the partnership dissolved in 2021.
2 Bethell v Rickard [2013] NZCA 68 at [22]. See also Macrae v Rapana HC Auckland M633/94, 17 June 1994 at 3–4.
3 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341; and Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
4 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
5 Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352 at 373.
[7] Mr St John submits that a partner who has a share in a partnership that owns land does not have a caveatable interest in the partnership land, relying on a decision of this Court, Aegean Developments Ltd v Love,6 and of the Victorian Court of Appeal,
Commissioner of State Revenue (Vic) v Danvest Pty Ltd.7
[8] The Supreme Court of Western Australia in Connell v Bond Corp Pty Ltd found, after detailed consideration of caselaw, that the beneficial or equitable interest of a partner in each and every asset of the partnership is in the nature of a proprietary interest that is capable of supporting a caveat.8
[9] However, the Supreme Court of Brisbane in Chettle v Brown concluded that a partner’s interest is merely in the nature of a future interest in the distribution of any potential proceeds from the sale of partnership land, and is unable to support a caveat.9
[10] The Chettle approach was followed in New Zealand in Aegean Developments Ltd v Love.10 Robertson J stated that he was persuaded by the reasoning in an earlier decision of the Privy Council, Hadlee v Commissioner of Inland Revenue, that described a partner’s interest as follows:11
First of all as a matter of general law … he "does not have title to specific partnership property but has a beneficial interest in the entirety of the partnership assets and in each and every particular asset of the partnership …” He can enforce this interest against his co-partners to the extent of seeing that the partnership assets are used for the benefit of the partnership but he cannot assign it to a non-partner. This beneficial interest, expressed in terms of its realisability, is in the nature of a future interest taking effect in possession on (and not before) the determination of the partnership.
(Citations omitted)
[11]Robertson J’s reliance on and interpretation of Hadlee has been criticised.12
Campbell on Caveats emphasises that Hadlee describes a partner’s interest as a future
6 Aegean Developments Ltd v Love HC Auckland M1620-IM99, 17 March 2000.
7 Commissioner of State Revenue (Vic) v Danvest Pty Ltd [2017] VSCA 382, (2017) ATC 20-642.
8 Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352 at 373.
9 Chettle v Brown [1993] 2 Qd R 604 at 607–608.
10 Aegean Developments Ltd v Love, above n 6, at [34]–[35]. See also [27].
11 Connell, above n 8, at [35]; and Hadlee v Commissioner of Inland Revenue [1993] AC 524, [1993] 2 NZLR 385 at 388.
12 Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at [10.009(w)]; and DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009(w)].
interest “in terms of its realisability”, which is only one aspect of a proprietary interest. It is contended that in the penultimate sentence of the quoted passage, the Privy Council recognised another aspect of a partner’s proprietary interest, by affirming that partners have a present right to see that partnership property is used for the benefit of the partnership. Campbell on Caveats purports that the penultimate sentence encapsulates an equitable proprietary interest that can support a caveat, and that the decision in Connell is to be preferred.
[12] This Court recently encountered this issue in Powell v K 2 Investment Group Ltd.13 Osborne J, regarding the academic criticism of Aegean Developments, reiterated that the Privy Council in Hadlee had noted that “a partner was entitled to enforce his interest against his co-partners to the extent of seeing partnership assets were used for the benefit of the partnership”.14
[13] His Honour distinguished Aegean Developments on the facts, finding that the decision in that case (that the partner had no beneficial interest in the land) flowed from the finding that there was no evidence that there had been a clear and unequivocal representation that he would own part of the land.15 In contrast, in Powell v K 2, there had been an intention on the part of both the parties that each partner would hold a beneficial interest in the properties.16
[14] Osborne J continued that had the issue arisen, he would have adopted the decision in Connell, rather than the analysis in Aegean Developments, saying:17
How the interest of the two partnerships would have been held and treated in the event that it was the partnerships as a whole which were to have the beneficial interests in each property, in my judgement does not arise in these circumstances. Had it done so, I would have found that K2 New Zealand and K2 Australia each held an equitable proprietary interest sufficient to support a caveat, adopting in that regard the analysis in Laws of New Zealand (above at [204]) and the decision of Malcolm CJ in Connell v Bond Corp Pty Ltd (above at [205]).
(Footnote omitted)
13 Powell v K 2 Investment Group Ltd [2021] NZHC 2253.
14 At [204].
15 At [221].
16 At [223].
17 At [224].
[15] In Commissioner of State Revenue (Vic) v Danvest Pty Ltd the Court of Appeal of Victoria found that a partner has a presently existing equitable chose in action which protects their future entitlement to a proportion of the partnership’s surplus assets upon dissolution but does not, prior to dissolution, have a proprietary interest in the partnership’s assets, including land.18 While this conclusion appears to run counter to Connell, I am mindful that it was not a caveat case. The context and issue for determination was quite different: whether a partner’s interest in a land-owning partnership is “an estate in fee simple” in the land owned by the partnership, and therefore “dutiable property” within the meaning of the Duties Act 2000.
[16] In the present context, and in the absence of authority from the New Zealand Court of Appeal, I prefer Connell, and the interpretation of Hadlee advanced by Campbell on Caveats and favoured in Powell v K 2 Investment Group Ltd. Namely, that a partner with a share in a partnership, the assets of which include land, has an equitable proprietary interest in that land sufficient to support a caveat.
Are the properties arguably partnership property?
[17] To establish that the properties are arguably partnership property (and therefore that he has an equitable proprietary interest in them), Yong Sheng Bei must be able to point to evidence tending to prove that first, a partnership relationship existed; and second, that B & Z held the properties on trust for the partnership.
[18] I will now consider the evidence on which Yong Sheng Bei relies and Yaoping Bei’s reply evidence.
B & Z is incorporated
[19] Yong Sheng Bei’s evidence is that he purchased a property at Great South Road, Otahuhu, in the 1990s. He lived on the second floor and ran a shop that sold clothes and general goods imported from China and provided tailoring and bespoke services from the ground floor. He returned to China some time around the year 2000 due to visa issues and his sister, Hui Ming Bei, continued to run the Auckland business.
18 At [2], [83] and [164].
[20] Yong Sheng Bei says that his sister incorporated B & Z on or about 23 May 2000 to enable her to readily import goods from China, manage customs and tax matters and run his business. On incorporation, Hui Ming Bei was the sole shareholder and director. Yong Sheng Bei says that she held the shares on his behalf until he could return to New Zealand.
[21] In October 2000, Yong Sheng Bei was granted a permanent resident visa, allowing him to return to New Zealand. His evidence is that he agreed with his sister that she would “return” the company to him. However, that did not happen. Yong Sheng Bei’s evidence is that he was unaware that only the directorship of the company, and not the shareholding, was transferred to him.
[22] In 2001, Yaoping Bei arrived in New Zealand and became involved in B & Z’s business. Yong Sheng Bei says that unbeknownst to him, Yaoping Bei removed him as a director of B & Z and made himself a director on 2 August 2001. He has provided a copy of a “Change of Directors and Particulars of Directors” form filed with the Companies Office, recording that he ceased to be a director and that Yaoping Bei was appointed the sole director. This, and the associated consent form, appear to have been signed by Yaoping Bei and filed by Great Wall Consulting, Māngere.
[23] Yong Sheng Bei’s evidence is that also, unbeknownst to him, Yaoping Bei made himself sole shareholder of the company. He has provided an annual return filed with the Companies Office dated 28 October 2001 which records Yaoping Bei as sole shareholder, with Hui Ming Bei’s name crossed out. This document also appears to have been signed by Yaoping Bei.
[24] Yaoping Bei gives a very different account. His evidence is that Hui Ming Bei incorporated B & Z for her and her husband’s own business purposes. Yaoping Bei says that Hui Ming Bei “gifted” B & Z to him when she emigrated to Australia. He says that he was told in late 2001 by his aunt and the company’s accountant, Mr Fu of Great Wall Consulting, that he was now sole shareholder and director of the company. He says that his signature on the “Change of Directors and Particulars of Directors” form was forged, but he accepts that he signed the 2001 Annual Return which recorded that he was the sole director and shareholder.
Agreement to form a partnership
[25] Yong Sheng Bei says that in around 2005 he agreed with Yaoping Bei that they would begin a motor car business together which would involve importing cars from Japan and elsewhere and repairing and selling them. Yong Sheng Bei says that his son wanted to go into partnership with him because he was able to provide startup capital and had general business experience. His evidence is that he and Yaoping Bei agreed to run their motor vehicle business through B & Z and that they were to consider each other equal partners.
[26] Yong Sheng Bei’s evidence is that he was heavily involved in the business: fixing, changing, and maintaining engines, wheels, and tyres, and changing engine oils and gear boxes.
[27] Yaoping Bei’s evidence is that there was no partnership business between he and his father, and the business was his alone. He says that while working as a car groomer he learnt about car importation, and he began privately importing vehicles from Japan for friends and family members. He says that on 13 May 2006, he reopened B & Z’s bank account, which he had closed in May 2005, to operate as the account for his car importation business. The reopening form is in evidence. His evidence is that he continued to work as a service groomer and outside of normal work hours he grew the car importation business. In August 2007 he left his grooming role and focused solely on the business. He says that by 2009 the business had grown to the point that it needed additional employees. He says that his father helped with odd job tasks such as oil changes, tyre changes, vehicle maintenance, vehicle grooming and office cleaning. He says that Yong Sheng Bei retired around 2018.
Advances to buy properties
[28] Yong Sheng Bei deposes that on or about 17 August 2006, he and his wife, Yan Xian Zhong, sold the Great South Road property for around NZD330,000 and applied the net sale proceeds to the business partnership, B & Z. He does not provide any evidence to corroborate this assertion.
[29] He says that in around 2010, he and Yaoping Bei came across a mixed-use industrial/residential property at Galway Street, Onehunga that was for sale. Yong Sheng Bei says that they agreed that B & Z would purchase the Galway Street property to be a garage base for the partnership business, albeit that both Yong Sheng Bei, his wife and child and Yaoping Bei would also reside there.
[30] On or about 18 February 2010, B & Z purchased the Galway Street property for around NZD680,000. Yong Sheng Bei says that NZD100,000 of the purchase price came from him through the account of his wife, Yan Xian Zhong, and the balance was paid from funds within B & Z, which included the net sale proceeds of the Great South Road property. He has put in evidence B & Z’s bank statement for its business cheque account which shows a transfer of NZD100,000 into the account on 18 February 2010, and a duplicate statement for his wife’s bank account which shows a transfer into that account of NZD100,180.86 on 16 February 2010 and a transfer out of NZD100,000 on 18 February 2010. The statement does not show the details of the recipient bank account.
[31] Yaoping Bei does not dispute that Yong Sheng Bei, through his wife’s account, advanced NZD100,000 to assist with the purchase of the Galway Street property, but he says this was a loan. He provides a heavily redacted bank statement for B & Z’s bank account which records a debit of NZD50,000 to a Y Bei on 14 June 2010 and a further debit on the same day of NZD50,000 for which the narration is blank. In reply, Yong Sheng Bei denies that these were loan repayments but also says that because of the extent of the fund movements between he and his wife’s joint bank account and B & Z’s bank account, and because he cannot access bank records back to 2010, he cannot ascertain the reason for the transfer.
[32] Further, Yong Sheng Bei says that on or about 7 July 2011, he transferred NZD120,000 to B & Z to contribute to purchasing a second garage and on or about 18 September 2012 he transferred a further NZD100,000. He says that Yaoping Bei instructed him to make these payments intended for B & Z to the bank account of KVB Kunlun, a global financial services company. As evidence, he has provided “Deposit Receipts” from the National Bank of New Zealand for deposits into an unnamed corporate cheque account. The bank account number corresponds to the
account number of KVB FX Limited appearing in a document marked ‘C’ annexed to the reply affidavit of Yaoping Bei. But there is no evidence of these funds being transmitted to B & Z.
[33] On or about 27 March 2013, B & Z purchased 32 Cartwright Road, Kelston, for around NZD975,000 for the expanding car dealership business. Yong Sheng Bei says that the source of the purchase price was the NZD120,000 he advanced on 7 July 2011, the NZD100,000 he transferred on 18 September 2012, and the business’s retained earnings.
[34] Yaoping Bei denies that Yong Sheng Bei made the alleged transfers of NZD120,000 and NZD100,000 to B & Z. He denies that Yong Sheng Bei contributed any money towards the purchase of 32 Cartwright Road.
[35] Yong Sheng Bei states that on or about 13 August 2014, he transferred a further NZD100,000 to B & Z to contribute to the company buying a branch location outside of Auckland. As evidence of this he provides an ASB withdrawal receipt, which records a transfer of NZD100,000 to a bank account that corresponds to the business cheque account for B & Z and a deposit receipt from the B & Z account.
[36] On or about 3 March 2017, B & Z purchased a property at Duke Street, Frankton, for around NZD900,000. Yong Sheng Bei says that the source of the funds for the purchase was his NZD100,000 transfer on 13 August 2014, a loan from ASB and retained earnings.
[37] Yaoping Bei denies that Yong Sheng Bei contributed to the purchase of this property. He says that the NZD100,000 transfer was Yong Sheng Bei repaying a loan B & Z had made to him on 19 and 20 October 2013 to enable him to purchase a unit in China. His evidence is that on his father’s instructions B & Z remitted NZD100,000 to KVB Kunlun to be converted to Chinese yuan and paid to a Zuliang Xu to hold on trust for Yong Sheng Bei. He provides a redacted bank statement which shows debits of NZD50,040 and NZD50,000 on 19 and 20 October 2013 from B & Z’s account, and a confirmation from KVB Kunlun for the exchange of NZD100,000 to CNY518,000 and payment into a bank account, the details of which are in Chinese.
[38] Yong Sheng Bei states that on or about 26 April 2017, B & Z purchased a further property at Wordsworth Street, Sydenham, Christchurch. Yong Sheng Bei says that this is also partnership property, although he has not lodged a caveat over it.
[39] In his reply affidavit, Yong Sheng Bei alleges that he made a number of further payments into B & Z’s bank account consistent with the partnership arrangement:
(a)On 11 July 2006, USD9,150.00, converted to NZD14,357.45. Yong Sheng Bei has provided a bank record for this transaction. Yaoping Bei says in reply that the US dollars were a cash payment from a purchaser of a motor vehicle.
(b)NZD10,000 on 15 August 2006. In support of this assertion, Yong Sheng Bei provides a copy of the B & Z cheque account bank statement which shows a deposit of NZD10,000 on 15 August 2006, and a copy of a cheque stub for an account in his and his wife’s name with the following details written: 15 August 2006, (payee) B & Z, amount NZD10,000. Yaoping Bei says that the cheque stub is fake and has provided an email from ASB in response to a trace request confirming that the NZD10,000 deposit on 15 August 2006 was a cash deposit, not a cheque deposit.
(c)NZD250,000 on 17 July 2017 to be used by B & Z to pay its creditors. Yong Sheng Bei has provided a copy of his and his wife’s joint bank account statement which shows a transfer (with no narration) of that amount on 7 July 2017, and a copy of B & Z’s bank statement which records a deposit by transfer of that amount on that date (again with no narration). Yaoping Bei does not dispute that this advance was made but says that it was a loan which was repaid in four tranches over January and February 2018. He has attached an ASB transaction record which shows three payments totalling NZD239,500 from B & Z to Yong Sheng Bei and Yan Xian Zhong’s bank account on 3 January,
20 January, and 14 February 2018 with the annotation “loan
repayment”. Yaoping Bei’s evidence is that the final repayment of NZD23,000 was made in cash in February 2018.
Relationship ends
[40] In around mid-2021 the relationship between father and son deteriorated. Some time around September 2022, Yaoping Bei informed Yong Sheng Bei that he was putting the Galway Street property, where Yong Sheng Bei, his wife and child still lived, onto the market for sale. On 10 October 2022, B & Z unsuccessfully applied to the Tenancy Tribunal to remove Yong Sheng Bei as tenant from the Galway Street property.
Assessment
[41] In my assessment Yong Sheng Bei has not discharged the onus on him of showing that he has a reasonably arguable case that there existed a partnership between him and Yaoping Bei, and that B & Z held the caveated properties on trust for the partnership.
[42] Yong Sheng Bei has not pointed to any clear evidence to show that there was a partnership arrangement. There is no partnership agreement or other form of document recording that he and Yaoping Bei agreed to form a business partnership to import and sell cars. That is perhaps not surprising given their familial relationship. However, one would expect there to have been some communications between them, such as emails or text messages, or other business records, pointing to there being a partnership relationship. Yong Sheng Bei has not provided any evidence of this sort.
[43] Furthermore, Yong Sheng Bei has not provided any evidence to show that he received a share of the profits of the alleged partnership. His own evidence is that the car importation business was a successful, profitable, growing venture. If there was a partnership arrangement, he would have been receiving a share of the profits. Yet he has not provided bank statements or any other financial documents that suggest he was a partner. His own bank statements would be readily available to him.
[44] There is evidence to suggest that B & Z was originally incorporated by his sister for his retail business and that it was used initially for that purpose. But that does not on its own tend to prove that the company later became the corporate vehicle for a car importation partnership between Yong Sheng Bei and his son.
[45] Further, Yong Sheng Bei’s description of his role in the business does not tend to suggest a financial partnership arrangement.
[46] Putting to one side the advances, Yong Sheng Bei’s case that there existed a partnership arrangement and that B & Z was the corporate vehicle for the partnership comes down to bare assertions that are not supported by any tangible evidence.
[47] Nor is there any evidence to suggest that it was agreed that B & Z would acquire and hold the caveated properties on trust for the alleged partnership. This again is a bare assertion unsupported by evidence.
[48] I note that in his originating application and written submissions, Yong Sheng Bei proposes that B & Z holds the properties on trust for him pursuant to an institutional constructive trust as an alternative to an express trust for the alleged partnership. But there is no evidence to support his assertion that the properties were acquired using funds he advanced to B & Z.
[49] That leaves the advances to B & Z as the only possible fact tending to show a partnership arrangement. Yet there is no evidence to show that these advances were made pursuant to a partnership venture. Yaoping Bei has provided evidence that points to some of these payments being loans to B & Z (the 2010 payment of NZD100,000 and the 2017 payment of NZD250,000), and that the 2014 payment of NZD100,000 was a repayment of a loan by B & Z. There is no evidence to corroborate the alleged advance of the unquantified net sale proceeds of the Great South Road property to B & Z. There is also no evidence that the NZD120,000 and NZD100,000 payments went to B & Z in 2011 and 2012, respectively. Yong Sheng Bei’s evidence of a cheque deposit of NZD10,000 in 2006 is contradicted by the outcome of Yaoping Bei’s trace request.
[50] At this stage Yong Sheng Bei is not required to prove his case on the balance of probabilities, but he must be able to point to evidence tending to prove the facts relied on to make out a reasonably arguable case. The evidence he has put forward does not meet this threshold.
[51] Yong Sheng Bei has not demonstrated that he has a reasonably arguable case that there existed a partnership; or that B & Z acquired and holds the caveated properties on trust for that partnership.
Result
[52] I order that Yong Sheng Bei’s application that caveats 12584682.1, 12584682.2 and 12584682.3 not lapse is dismissed.
[53] As to costs, I am of the preliminary view, that having succeeded B & Z is entitled to costs from Yong Sheng Bei, and on a 2B basis plus reasonable disbursements. If the parties cannot agree costs, the memoranda (no more than three pages) are to be filed within 14 days.
Associate Judge Gardiner
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