Chen v Auckland Weihao Investment Limited

[2021] NZHC 1240

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2370

[2021] NZHC 1240

UNDER

Section 143, Land Transfer Act 2017

BETWEEN

LIYUN CHEN

Applicant

AND

AUCKLAND WEIHAO INVESTMENT LIMITED

Respondent

Hearing:

28 May 2021

Appearances:

Applicant on own behalf (assisted by A Lao as a McKenzie friend)

D K Wilson for Respondent

Judgment:

31 May 2021

JUDGMENT OF GORDON J

This judgment was delivered by me on 31 May 2021 at 3.30 pm pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:           Raymond S Walker, Auckland Counsel:  D K Wilson, Auckland

CHEN v AUCKLAND WEIHAO INVESTMENT LTD [2021] NZHC 1240 [31 May 2021]

Introduction

[1]    On 9 March 2021, Gault J  made  an  interim  order1  that  the  applicant, Liyun Chen, not lodge any further caveat against the property at 285 Murphys Road, Flat Bush, Auckland (Lot 1, Deposited Plan 510556, Record of Title 782243) (the property). The respondent, Auckland Weihao Investment Ltd (Weihao) is the registered proprietor of the property. The interim order was made on an application by Weihao.2

[2]There are three applications before me, two of which are made by Ms Chen:

(a)Seeking an order “staying the judgment” of Gault J dated 9 March 2021; and

(b)For leave to lodge an additional caveat against the title to the property.

[3]    Weihao  opposes both applications and itself applies for orders restraining  Ms Chen and LC1521319 Development Co Ltd (the LC Company), of which Ms Chen is the director, from lodging any further caveats against the property without prior leave of the Court. Weihao’s application, as filed on 9 December 2020, sought an order just against Ms Chen. However a later affidavit of Renee-Louise Patrick,3 deposes that Weihao seeks orders against both Ms Chen and the LC Company. Additionally the minute of Gault J of 9 March 2021 refers to the application as seeking orders against both Ms Chen and the LC Company. At the hearing Mr Wilson, for Weihao, sought leave to formally amend the application to include the LC Company. I make the amendment.

[4]    Ms Chen appeared on her own behalf with the assistance of an interpreter and Mr Augustine Lao, as a McKenzie friend.

1      Minute of Gault J dated 9 March 2021.

2      Further referred to at [3] of this judgment.

3      Unsworn but filed with a memorandum of counsel dated 1 March 2021 under the High Court (Covid-19 Preparedness) Rules 2020. The sworn affidavit had not been filed. I made an order at the hearing that it be filed and served by 5 pm that day.

Factual background

[5]    There are two previous judgments of this Court making orders refusing an application that a caveat not lapse and removing a caveat respectively in relation to the property. It is necessary to refer to those judgments for the purpose of determining the applications before me. I can do no better than by commencing with the factual background as set out in the judgment of Associate Judge Gardiner, the first in time of the two judgments referred to. Ms Chen had sought an order under s 143 of the Land Transfer Act 2017 (LTA) that a caveat she had registered  not  lapse.  Associate Judge Gardiner stated:4

[6]    On 16 October 2019, the parties agreed to the sale and purchase of the Property, with AWIL as vendor  and  Ms  Chen  as  purchaser  (the  SPA).  Ms Chen was to pay a 10 per cent deposit. The SPA was not conditional on finance. The parties were legally represented. Settlement was to take place on 15 June 2020, but AWIL granted Ms Chen a one-week extension without penalty on 11 June 2020.

[7]    On 22 June 2020, AWIL, on Ms Chen’s request, agreed to provide vendor finance of $3 million on the condition that a second mortgage in its favour would be secured over the Property and other properties, and that the loan was to be repaid within three months. On that same date, Ms Chen agreed to AWIL’s terms of vendor finance. She nominated LC1521319 Development Co Ltd (the LC Company) to purchase the Property.

[8]    On 24 June 2020, Ms Chen’s solicitor forwarded to AWIL’s solicitor the term loan agreement signed by Ms Chen and the LC Company (the Loan Agreement). The Loan Agreement specified a principal sum of $3 million, repayable in one sum on the expiry date, three months from the date of drawdown (stated to be 23 September 2020). Interest of $75,000 was to be capitalised and paid in advance on 24 June 2020. The loan was secured by second mortgages over the Property and three other properties set out in a schedule to the Loan Agreement. Ms Chen’s solicitors also showed their e- dealing number.

[9]    On 25 June 2020 at 11.41 am, AWIL’s solicitor advised Ms Chen’s solicitor it had signed and certified its transfer on the e-dealing and gave undertakings to Ms Chen’s solicitor.

[10]    On 25 June 2020 at 3.23 pm, Ms Chen’s solicitor forwarded a Deed of Priority and Subordination (the Deed) to AWIL. The Deed prevented AWIL from being paid or enforcing its security until the first security-holder, Vincent Capital Ltd, was fully paid. AWIL’s solicitor responded by pointing out that AWIL’s loan was to be repaid within three months, which was shorter than the term of the first mortgage.

4      Chen v Auckland Weihao Investment Ltd [2020] NZHC 2450, (2020) 21 NZCPR 409.

[11]    AWIL refused to agree to postpone receiving payment until Vincent Capital was paid. Accordingly, AWIL requested an amendment to the Deed such that AWIL would be repaid by the due date or otherwise able to enforce its security prior to Vincent Capital being fully repaid. Despite discussions from 25 to 26 June 2020, no agreement was reached between Ms Chen, AWIL and Vincent Capital.

[12]    On 26 June 2020, AWIL offered to defer settlement on certain terms. Discussions between AWIL and Ms Chen continued into July, but ultimately no agreement was reached.

[13]On 26 June 2020, Ms Chen registered the Caveat.

[14]On 1 July 2020, AWIL served Ms Chen with a settlement notice.

[15]    On 19 July 2020, Ms Chen served AWIL with a statement of claim seeking, first, a refund of the 10 per cent deposit she paid under the SPA, and secondly, damages for AWIL’s wrongful repudiation of the Loan Agreement.

[16]    On 21 July 2020, AWIL cancelled the SPA without prejudice to its rights under the SPA.

[6]                 The 26 June 2020 caveat, number 11786226.1 (first caveat), claimed the following interest:

Agreement for sale and purchase dated 16 October 2019 between the registered proprietor Auckland Weihao Investment Ltd as vendor and the caveator Liyun Chen as purchaser.

[7]                 However before Associate Judge Gardiner the case Ms Chen advanced was focused on the loan agreement referred to in [8] of the judgment set out above. It was Ms Chen’s case that the Court should order that the caveat not lapse until her substantive proceeding, and her claims of misrepresentation and repudiation with respect to the loan agreement had been heard and determined.5

[8]                 Associate Judge Gardiner held that Ms Chen had not established, or even asserted, a reasonably arguable case that she remained the purchaser under a sale and purchase agreement (SPA) and accordingly that she could sustain the caveat on that basis.6 She considered Ms Chen had not advanced any credible argument as to why the SPA was not at an end following Weihao’s cancellation.7 Associate Judge Gardiner also noted that Ms Chen did not assert, nor had she established, a reasonable argument

5      Chen v Auckland Weihao Investment Ltd, above n 4, at [30].

6 At [31].

7 At [31].

that she was entitled to the refund of her deposit as a purchaser who had validly cancelled the agreement and that she had an equitable lien over the property for that amount which would support a caveat.8

[9]                 Associate Judge Gardiner concluded that Ms Chen had not demonstrated that she had an equitable interest in the property sufficient to support the caveat either as a purchaser under the SPA or alternatively on the basis of an equitable lien over the property in the amount of her deposit. Ms Chen’s application was therefore dismissed.

[10]            Ms Chen then lodged a second caveat on the day after the decision of Associate Judge Gardiner. The interest claimed in the second caveat, number 11868720.02 (second caveat) was:

The abovenamed caveator claims a beneficial interest (damages under paragraph [36] of judgment under CIV-2020-404-1200 dated 18 September 2020/ daily penalty interest of $3,419.18 from 24 June 2020) in the land contained in the CT 782243 pursuant to a constructive trust of which the registered owner as trustee.

[11]            As is apparent, the interest claimed in the second caveat, as a beneficiary under a constructive trust, was different from the interest claimed in the first caveat, as a purchaser under an agreement for sale and purchase (although as noted the argument in relation to the first caveat proceeded on the basis of the loan agreement).

[12]            Ms Chen’s application to sustain the second caveat came before Associate Judge Bell on 10 February 2021. The Associate Judge noted that the evidence filed in the case before him supported the findings of fact made by Associate Judge Gardiner.9 But because the second caveat alleged a different interest, as beneficiary under constructive trust, Associate Judge Bell did not treat Ms Chen’s new caveat as claiming the same interest as under her first caveat.10 After a thorough discussion of the facts, Associate Judge Bell found that the claim to an interest in the property under a constructive trust was entirely speculative and he could see no basis for it. Accordingly, he made an order removing the second caveat from the record of title of the property.

8      Chen v Auckland Weihao Investment Ltd, above n 4, at [35].

9      Chen v Auckland Weihao Investment Ltd [2021] NZHC 156 at [12].

10 At [14].

[13]            Associate Judge Bell noted that Weihao also sought an order barring Ms Chen from lodging any further caveats against the title to its property. He considered it was understandable that Weihao would seek such an order because the caveat he was considering was the second caveat lodged by Ms Chen and there had not been any merit in either caveat.11 However, Associate Judge Bell noted there was a jurisdictional problem, in that s 143 of the LTA does not expressly provide that the Court may make orders barring future caveats. Any power to bar a caveator from lodging further caveats can arise only as part of the Court’s ancillary powers, and there is a limit on the ancillary powers of an Associate Judge.12

[14]            Weihao’s application was therefore called before Gault J who made the interim order on 9 March 2021. The application is now before me.

[15]            By way of further background, on 12 February 2021, two days after the judgment of Associate Judge Bell, Ms Chen  and  the  LC  Company,  which  was Ms Chen’s nominee in the SPA, each lodged with Land Information New Zealand (LINZ) a further caveat against the property for registration. Mr Wilson advised the Court from the bar that LINZ had not accepted the caveats for registration and also that it had not been possible to obtain copies of the two caveats for which registration was sought. Counsel, and the Court, are therefore not aware of what the caveatable interest(s) was/were said to be.

[16]            Then on 28 April 2021, the LC Company again attempted to register a caveat against the property. An affidavit of Elizabeth Harmer, sworn 20 May 2021, filed in support of Weihao’s application records her understanding that this caveat was rejected by LINZ. Ms Palmer further states that the interest claimed in the caveat had not been disclosed to her law firm, Loo & Koo which acts for Weihao in conveyancing (but not litigation) matters.

[17]            To complete the picture on the procedural background, Ms Chen has filed an appeal in the Court of Appeal against the decision of Associate Judge Bell. She says if she is successful in her application in this Court and is able to register a caveat then

11     Chen v Auckland Weihao Investment Ltd, above n 9, at [33].

12 At [34].

there will be no need for her to prosecute her appeal. Ms Chen also seeks to appeal the decision of Associate Judge Gardiner. The Court was advised that Ms Chen (incorrectly) applied for leave from this Court to appeal that decision.13 Any appeal to the Court of Appeal is now out of time but the Court understands from Mr Wilson that Ms Chen has recently been granted leave by the Court of Appeal to apply to extend time for filing an appeal.

Discussion

[18]            There is a full and helpful discussion in the judgment of Associate Judge Bell on the general principles in caveat applications.14 I mention the following points. In caveat applications under ss 142 and 143 of the LTA, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 138(1) which provides:

138     Caveats against dealings with land

(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—

(a)claims an estate or interest in the land, whether capable of registration or not; or

(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or

(c)is transferring the estate or interest in the land to another person to be held on trust; or

(d)is the registered owner of the estate or interest in the land and—

(i)has an interest that is distinct from that of registered owner; or

(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.

13     An appeal may be filed directly without the need for leave.

14     Chen v Auckland Weihao Investment Ltd, above n 9, at [4]–[10].

[19]            The caveator must show an entitlement to a beneficial interest in the land under the caveat. A personal or contractual right is not enough.15 For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists.16

[20]Section 146 of the LTA provides:

146     Second caveat against dealings may not be lodged

Unless the court orders otherwise, a caveat against dealings must not be lodged by or on behalf of the same person to protect the same estate or interest as a caveat against dealings that has been removed under section 142 or lapsed under section 141(2)(a) or 143.

[21]            With that factual and legal background I turn to the applications before the Court. I first dispose of Ms Chen’s application for what she describes as a “stay of the judgment” of Gault J of 9 March 2021. The application is misconceived. The order was made on an interim basis pending a defended hearing of Weihao’s application. That application is now before me. In my decision I will either grant Weihao’s application which will in effect “replace” the order made by Gault J in relation to  Ms Chen, or if I refuse Weihao’s application I would discharge Gault J’s order (it not being expressed in a way that was time limited). The application for a “stay” is therefore refused.

[22]            Turning to Ms Chen’s application for leave to lodge an additional caveat, she has filed detailed evidence by way of affidavits and two memoranda of submissions. Her position summarised is essentially that Mr Chen, the director of Weihao, has not complied with s 10 of the Companies Act 1993 as he has never been to New Zealand. Related to that point, Ms Chen submits that two solicitors acting for Weihao provided misleading information to the Court in relation to Mr Chen’s residency status in the previous hearings. Ms Chen also  alleges  other  breaches  of  the  Companies Act. Ms Chen submits that Associate Judge Bell ignored these matters.

15 Chen v Auckland Weihao Investment Ltd, above n 9, at t [7] citing Guardian, Trust, and Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025; and Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA), [1990] ANZ ConvR 242.

16 At [10].

[23]            She submits, as a consequence of these alleged breaches, the settlement notice was “illegitimate” and that gives rise to a caveatable interest in the property.

[24]            She also submits it was unlawful for the loan agreement to be cancelled immediately after the SPA became unconditional. She says she seeks the protection of a caveat to protect her interest and the LC Company’s interest from Weihao disposing of the property until the resolution of the substantive proceeding in which she seeks a refund of her 10 per cent deposit paid under the SPA and damages for Weihao’s alleged wrongful repudiation of the loan agreement.

[25]            Contrary to Ms Chen’s submission, Associate Judge Bell did consider Ms Chen’s argument in relation to s 10 of the Companies Act, but held that the company remained in existence and could appoint agents to carry on business on its behalf, including entering into contracts to sell property.17 But in any event the decision is under appeal. That is where she should raise those arguments.

[26]            Despite the Court’s questions of Ms Chen, it was not made completely clear exactly what she says is any new caveatable interest. Ms Chen refers to both the SPA and the loan agreement. As far as the SPA is concerned, s 146 of the LTA prevents Ms Chen from registering a caveat which would be the same as the first caveat (without a court order). Further, the interest she appears to claim is not an interest in land. In relation to the loan agreement, Ms Chen’s argument failed before Associate Judge Gardiner. I do not see any merit in it either.

[27]            In the absence of  evidence  which  would  support  a  caveatable  interest,  Ms Chen’s application for leave to lodge a caveat is refused.

[28]            Although I have refused Ms Chen’s application there may be another means of applying to protect her position. The Court was provided with a copy of a minute of Goddard J dated 24 March 2021 in Ms Chen’s appeal to the Court of Appeal against the decision of Associate Judge Bell. Ms Chen had applied for a stay of the judgment. Goddard J noted:

17     Chen v Auckland Weihao Investment Ltd, above n 9, at [29] citing YL NZ Investment Ltd v Ling

[2017] NZHC 1793, (2017) 28 NZTC 23-026.

[2]        The difficulty with Ms Chen’s application for a stay is that the High Court ordered that the caveat be removed, and it appears that the order has been sealed and lodged with LINZ. If that is right, then the caveat has lapsed, and a stay cannot revive it.

[3]        There are other forms of interim relief that Ms Chen could apply for pending appeal. She could seek leave to lodge a further caveat pending appeal. Or she could seek an interim injunction restraining dealings in the land pending appeal. Any application for interim relief will need to be supported by relevant evidence, and an undertakings as to damages.

[29]            It is still open to Ms Chen to apply for an interim injunction, as noted by Goddard J, pending the appeal.

[30]            Turning to Weihao’s application, this Court has power to make orders restraining a person from lodging any further caveats over land without prior leave of the Court.18 In this case I consider it is appropriate to make such an order:

(a)Ms Chen has lodged two caveats against the property. This Court has made an order directing that the first caveat lapse and an order removing the second caveat from the title of the property; and

(b)Ms Chen has since attempted to lodge further caveats, both in her name and the name of her company. She has not filed any evidence to support any new interest on her part to support a caveat or any interest on the part of the LC Company which would support a caveat.

[31]            Mr Wilson notes it has not sought an absolute bar on there being further caveats. It is simply Weihao’s position, in view of the caveat history, if Ms Chen or her company wish to register a caveat, she or the company should first seek leave of the Court to do so. In order to seek leave, the applicant would need to provide evidence to support a caveatable interest that is, at least, reasonably claimable.

[32]            In all the circumstances, given the caveat history and the lack of evidence before me to support a new caveatable interest, I will make the orders sought by Weihao.

18     GLW Group Ltd v Lepionka & Co Investments Ltd [2018] NZHC 1658 at [62], citing ASB Bank Ltd v Lambert [2013] NZHC 2135.

Orders

[33]I make the following orders on Ms Chen’s applications:

(a)The application by Ms Chen to “stay the judgment of Gault J” dated  9 March 2021 is refused; and

(b)Ms Chen’s application for leave to lodge an additional caveat against the property is refused.

[34]            On Weihao’s application, I make an order preventing Ms Chen and LC1521319 Development Co Ltd and any person or company on behalf of Ms Chen or LC16521319 Development Co Ltd from lodging any further caveats over the property at 285 Murphy’s Road, Flatbush, Auckland (Lot 1, Deposited Plan 510556, Record of Title 782243) (the property) without prior leave of the Court and that LINZ may not accept for lodgement any further caveat lodged by or on behalf of Ms Chen or LC1521319 Development Co Ltd against the property without the leave of the Court.

[35]            The order in [34] above replaces the interim order made by Gault J on 9 March 2021 in relation to Ms Chen. The interim order is discharged.

Costs

[36]            Following the primary principle that the unsuccessful party should pay costs,19 my preliminary view is that Weihao is entitled to costs against Ms Chen. Category 2, band B would be appropriate. However in the absence of submissions on costs the parties may file memoranda.

[37]            In the first instance, if agreement can be reached a joint memorandum is to be filed within 20 working days of the date of this judgment. If agreement cannot be reached then Weihao is to file and serve its memorandum within five working days of the date for the joint memorandum. Ms Chen is to file and serve her memorandum within five days of service of Weihao’s memorandum.

19     High Court Rules 2016, r 14.2(1)(a).

[38]Memoranda should not exceed four pages. I will determine costs on the papers.

Gordon J