Chang v Wang

[2021] NZHC 1134

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2020-419-000320

[2021] NZHC 1134

BETWEEN

YUFEN CHANG

Applicant

AND

ZHONGCHUN WANG

Respondent

Hearing:	12 May 2021
Appearances:	B Wong for Applicant D Delic for Respondent
Judgment:	21 May 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 21 May 2021 at 4.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ……………………….

CHANG v WANG [2021] NZHC 1134 [21 May 2021]

Introduction

[1]    The applicant, Ms Chang, seeks an order pursuant to s 143 of the Land Transfer Act 2017 (LTA) that a caveat1 over two properties in Tupelo Street, Hamilton (the Properties) not lapse.2

[2]    The respondent, Mr Wang, is one of two registered proprietors (as trustees) of the Properties.

[3]    The proceedings arise out of various family arrangements between the parties. Ms Chang’s former son-in-law, Kelvin Wang, is the son of Mr Wang. Kelvin was married to Ms Chang’s daughter, Kimi.

[4]    At issue is whether an advance of $300,000 made by Ms Chang to Mr Wang pursuant to a deed of acknowledgement of debt gives rise to a beneficial interest in the property.

[5]    In opposition, Mr Wang contends that the $300,000 advance was a mere loan, payable upon demand, and does not give rise to a beneficial interest in the properties. Mr Wang further says that the loan was forgiven pursuant to a tripartite forgiveness arrangement which involved a sum of $300,000 owed by Ms Chang to Kelvin for the building of a house for her.

Factual background

[6]    In addition to being one of the two registered proprietors, as trustees, Mr Wang is also one of the two trustees of the Wang Family Trust.

[7]    Mr Ling Gao, chartered accountant, is the other trustee and registered proprietor of the Properties.

[8]    In support of her application, Ms Chang filed two relatively short affidavits; she did  not  file any  evidence in  reply.  In their more comprehensive  affidavits,  Mr Wang and Kelvin contend:

1      Caveat 11778256.1.

2      Described in records of title 664629 and 664630.

(a)In July 2014, Ms Chang entered into an agreement for sale and purchase of a property at 20 Arista Way, Hamilton, with REI Design Homes Ltd, a company operated by Kelvin, her son-in-law. The agreement was for the purchase of bare land.

(b)Kelvin and REI agreed to construct a dwelling on the bare land for  Ms Chang for a price of $380,000.

(c)Kelvin says that by way of progress payments, Ms Chang paid approximately $80,000 to Kelvin. As of May 2015, $300,000 was outstanding to REI Design Homes Ltd and himself. Ms Chang promised Kelvin that she would make the final payment of $300,000 once she obtained finance from her bank, which was subject to code compliance certification being issued by the Hamilton City Council.

(d)In March 2015, Mr Wang signed agreements to purchase the properties. In order to fund the purchase of the properties he called in loans to his son, Kelvin. However, because of the construction of the dwelling at 20 Arista Way, Kelvin was not able to meet the request for payment from his father although he indicated that he was expecting to receive such payment from Ms Chang, once the code compliance certificate was issued.

(e)Kelvin then suggested to the parties that Ms Chang pay Mr Wang the

$300,000 that Ms Chang owed to Kelvin and REI Design Homes Ltd, thereby satisfying the debt owed to  Kelvin  and  the  company  by  Ms Chang and the debt that Kelvin owed to his father, Mr Wang.

(f)That Ms Chang agreed to that arrangement but on the basis that the parties enter into a deed of acknowledgement of debt. The stated reason for Ms Chang adopting that course was her wish that no-one could later allege that she still owed Kelvin money for the construction of the dwelling.

[9]    On 7 May 2015 the Council issued a code compliance certificate for 20 Arista Way.

[10]   On 8 May 2015, Ms Chang and Mr Wang entered into a deed of acknowledgement of debt recording a loan advance of $300,000 (the May 2015 Deed). Kimi, Ms Chang’s daughter and her attorney, signed on her mother’s behalf.

[11]The background to the May 2015 Deed records as follows:

Background

A.The creditor has advanced to the debtor $300,000 (the Principal Sum) to enable the debtor to purchase sections at Lot 32 and 33 Church Road [the properties], Hamilton, and Lot 185 and Lot 186 Teafields subdivision.

Matters agreed

1.The debtor acknowledges that the debtor owes the Principal Sum to the creditor as at the date of this deed.

2.The Principal Sum is interest free.

3.The debtor will pay the Principal Sum to the creditor upon demand.

[12]   The same day, Ms Chang paid the sum of $300,000 to Mr Wang. The journal entry in the solicitor’s trust account reads as follows:

Transfer from CHA147/2 to WAN092/1 to fund purchase of Lots 32 and 33 Church Road and 185 and 186 Teafields subdvn.

[13]   The properties were transferred into the names of Mr Wang and Mr Gao, as trustees, in 2017.

[14]Kelvin and Kimi separated in about July 2016.

[15]   Mr Wang and Kelvin say that Ms Chang became the owner and took possession of 20 Arista Way without ever paying Kelvin or REI Design Homes Ltd, the final instalment of $300,000.

[16]   On 6 March 2020, Ms Chang issued a demand to Mr Wang for the repayment of the $300,000. On 19 June 2020, she registered a caveat over the property. The estate or interest claimed is described in the caveat as follows:

Estate or interest claimed

The caveator claims a beneficial interest in the land pursuant to a deed dated 8 May 2015 between the caveator and the registered proprietor Zhongchun Wang.

[17]   Mr Wang and Kelvin say that the loan of $300,000 has been completely satisfied by the three-way set-off and  forgiveness  of  debt  arrangement  between Ms Chang, Mr Wang and Kelvin.

Relevant legal principles

[18]Section 143 of the LTA provides:

Lapse of caveat against dealings

(1)        The following persons may apply to the Registrar for the lapse of a caveat against dealings affecting an estate or interest in land:

(a)a person who wishes to register an instrument affecting the estate or interest protected by the caveat; or

(b)the registered owner or a person acting for or on behalf of the registered owner of the estate or interest affected by the caveat.

(2)        The Registrar must give notice of an application under subsection (1) to the caveator.

(3)A caveat to which an application relates lapses unless, –

(a)within 10 working days after the date on which the Registrar gives notice of an application under subsection (1) to the caveator, the caveator gives notice to the Registrar that an application has been made to the court for an order that the caveat not lapse; and

(b)within 20 working days after the date on which the caveator gives a notice to the Registrar under paragraph (a) (the relevant period), an order of the kind referred to in subsection (4) is served on the Registrar.

(4)The orders are –

(a)an order that the caveat not lapse:

(b)an interim order that the caveat not lapse:

(c)an order adjourning the application.

(5)        The caveat lapses if the court makes an order to that effect before the close of the relevant period.

(6)        If the court makes an order under subsection (4)(b) or (c), the caveat will not lapse if, after the close of the relevant period, –

(a)the court makes a final order that the caveat not lapse; and

(b)the order is served on the Registrar.

(7)        If the court makes an order under subsection (4)(b) or (c), the caveat will lapse if, after the close of the relevant period, –

(a)the court makes a final order that the caveat lapse; and

(b)the order is served on the Registrar.

[19]   The principles governing applications to sustain caveats were restated by the Court of Appeal in Philpott v Noble Investments Ltd:3

(a)        The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;

(b)        It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;

(c)        The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained – either because there is no valid ground for lodging it in the first place or, because such a ground no longer exists;4 and

(d)        Where an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.5

Analysis and decision

[20]   It is in dispute that the Properties, now 43 and 45 Tupelo Street, Pukete, are those that were referred to previously as Lots 32 and 33 Church Road. Those are the same two properties that are expressly mentioned in the background section to the May 2015 Deed.

[21]   Ms Chang says that the caveat is required to protect her “equitable interests under the deed”. She says that Mr Wang has already sold two of the properties for which she advanced the funds (Lots 185 and Lot 186 Teafields subdivision) and the properties now at issue have been transferred out of his sole name and into a trust. She

3      Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. I note that although that case was dealing with the Land Transfer Act 1952, the same approach applies in relation to the LTA 2017.

4      Sims v Lowe [1988] 1 NZLR 656 at 660 (CA); Zwarst v Saxton [2012] NZHC 448 at [12].

5      Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23].

says that the loan remains outstanding and she is concerned that there may be a further alienation of the Properties.

[22]   It is apparent from Ms Chang’s evidence and submissions that her claim to a beneficial interest in the properties is based on the May 2015 Deed. The critical issue I must determine is whether she has established a reasonably arguable basis for a beneficial interest in the Properties on that basis.

[23]   In his submissions, Mr Wong,  on  behalf  of  Ms  Chang,  contended  that  Ms Chang had provided Mr Wang with the means to purchase four sections of land and that this gives rise to a resulting trust. He relied upon the Court of Appeal decision Chang v Lee,6 and contended that the circumstances here give rise to a presumption of equitable ownership by Ms Chang in the acquired properties.

[24]   The fundamental problem with that submission and Ms Chang’s claims is that the evidence falls well short of establishing a resulting trust; in substance, Ms Chang’s claim is based on a loan and the fact that the advance may have been made for the express purpose of purchasing the Properties is immaterial. I find that she has failed to establish a reasonably arguable basis for a beneficial interest in the properties.

[25]   The law is clear that an unsecured creditor has only personal rights against a debt and therefore has no right to lodge a caveat against the title to the debtor’s land.7 This is so even if the unsecured creditor has lent money to the debtor for the express purpose of buying the land or paying off a mortgage on the land or if a secured creditor has provided goods and services that have been used to improve the land.8

[26]   As Fisher J held in Potter v Potter,9 an applicant to sustain a caveat cannot simultaneously rely upon both a resulting trust and a loan. His Honour further held:

The point of a resulting trust is to establish a proprietary interest, or right in rem. A loan, on the other hand, is an advance of money coupled with a contract for its repayment, with or without interest and other ancillary obligations. Even if the money is used to purchase property, and subject to the distinct question of mortgages, the lender acquires no interest in

6      Chang v Lee [2017] NZCA 308.

7      Neil R Campbell Campbell on Caveats (3rd edition, LexisNexis, Wellington, 2019) at [10.010]; see also Rayner v Kilburn (1981) 1 NZCPR 395 (HC).

8      Campbell on Caveats, above n 7, at [10.010].

9      Potter v Potter [2003] 3 NZLR 145 (CA) at [13].

the property acquired. The right to repayment is a purely contractual one operating in personam. …

(emphasis added)

[27]   There is nothing on the face of the May 2015 Deed that provides any support for Ms Chang’s contention there is a resulting trust. The Deed was drafted by solicitors and properly executed. Ms Chang’s subsequent conduct is entirely consistent with the

$300,000 advance being simply a loan and not giving rise to any beneficial interest in the property. Kimi, who executed the Deed, on Ms Chang’s behalf also refers to the

$300,000 as a loan.

[28]   Ms Chang recently made a demand for repayment of the loan and at no time appears to have claimed that she is entitled to some proportionate share in the increased value of the properties. The demand was not made until some five years after the advance and no explanation has been provided for that. I note that she also does not appear to have made any demand for interest on the loan. All of the evidence is entirely consistent with the notion that Ms Chang is simply an unsecured creditor. The application to sustain the caveat must accordingly be dismissed.

[29]   In the circumstances, I find that it is not necessary for me to address the issue of whether, as alleged by Mr Wang, the “tripartite” set-off and forgiveness of debt arrangement means that Ms Chang no longer has any claims to the property. Absent a reasonably arguable claim to a beneficial interest in the properties, that issue is simply irrelevant for the purposes of these caveat proceedings.

[30]   I agree with Mr Wong’s submission that the circumstances surrounding the tripartite set-off and forgiveness of debt arrangement are “murky”. Kelvin’s explanation as to why that arrangement was entered into at the same time Ms Chang executed the May 2015 Deed is also difficult to understand. Furthermore, it was not recorded in writing (as the May 2015 Deed was) and there is no identity of parties as Mr Wong contended. However, none of those factors assist Ms Chang’s claim for a caveat; the status of the tripartite set-off and forgiveness of debt arrangement is irrelevant. Ms Chang may have established a reasonably arguable case that the loan has not been repaid, but again that is not relevant. Her fundamental problem is that she is simply an unsecured creditor.

[31]   It is not necessary for me to address the question of whether, as a matter of discretion, the caveat could be sustained. There is no discretion unless the caveator has firstly established that she has a reasonably arguable beneficial interest in the land.10 That threshold has not been met.

[32]   I also reject Mr Wong’s submissions that I should grant an alternative remedy such as an equitable charge over the properties or an interim injunction to prevent  Mr Wang from dealing with the properties. There are no formal applications before the Court and, in any event, no evidential basis before me to make such orders.

[33]For all of these reasons, I dismiss all of Ms Chang’s applications.

Result

[34]   Ms Chang’s application pursuant to s 143 of the Land Transfer Act 2017, that the caveat not lapse, is dismissed. Accordingly, the caveat lapses.

[35]   As to costs, I find that the applicant, Ms Chang, should pay costs to the respondent, Mr Wang, on a 2B basis plus disbursements. I reject Mr Wang’s application for increased or indemnity costs. The threshold in r 14.6 of the High Court Rules 2016 has not been made out.

Associate Judge P J Andrew

10     Stewart v Kaipara Consultants Ltd, above n 5, at [22].