Chen v Auckland Weihao Investment Ltd
[2021] NZHC 156
•10 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2370
[2021] NZHC 156
UNDER the Land Transfer Act 2017 section 143 IN THE MATTER OF
an application to sustain a caveat number 11868720.1
BETWEEN
LIYUN CHEN
Applicant
AND
AUCKLAND WEIHAO INVESTMENT LIMITED
Respondent
Hearing: 10 February 2021 Appearances:
Applicant in person (assisted by interpreter Mr George Chen and by a McKenzie friend, Mr Augustine Lau)
Jennifer Wickes for the Respondent
Judgment:
10 February 2021
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Loo & Koo (Jennifer Wickes/Bibiana Lee), Auckland, for the Defendant
Copy for:
Liyun Chen, Botany, Auckland (the plaintiff)
CHEN v AUCKLAND WEIHAO INVESTMENT LIMITED [2021] NZHC 156 [10 February 2021]
[1] Liyun Chen applies to sustain caveat 11868720.2 lodged against record of title 782243 for the land at 285 Murphy’s Road, Flat Bush, Auckland. The property is 1.3732 hectares in area and is suitable for development. Auckland Weihao Investment Ltd is the registered proprietor. The interest claimed under the caveat is:
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.
[2] The caveat was lodged on 19 September 2020. This is the second caveat Ms Chen has lodged against the title. In her earlier caveat, 11786226.1, she claimed this 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.
[3] On 18 September 2020, Associate Judge Gardiner ordered that the first caveat lapse.1 Ms Chen lodged the caveat in this case on the day after Judge Gardiner’s decision. The interest claimed in the second caveat, as beneficiary under a constructive trust, is different from the interest claimed in the first, as purchaser under an agreement for sale and purchase. Ms Chen did not obtain an order under s 146 of the Land Transfer Act 2017 allowing her to lodge a second caveat when a prior caveat alleging the same interest had been removed.
General principles on caveat applications
[4] In a Court of Appeal case, Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act 1952. He said:2
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the
1 Chen v Auckland Weihao Investment Ltd [2020] NZHC 2450, (2020) 21 NZCPR 409.
2 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat".) Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
[5] Although the Holt case was heard under the Land Transfer Act 1952, that statement equally applies to caveats under the Land Transfer Act 2017. The 2017 Act applies in this case, as the caveat in this case was lodged in 2020 after the 2017 Act had come into force in November 2018.3
[6] In caveat applications under ss 142 and 143 of the Land Transfer Act 2017, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 138(1):
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.
[7] A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.4 A claim for damages is a personal claim and does not give rise to an interest in land. Something more than
3 Land Transfer Act 2017 Commencement Order 2018, s 2.
4 Guardian, Trust, and Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025; Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190 (CA).
a potential or future interest is required. An interest in that would arise only upon the court making an order is not an existing interest in land.
[8]A caveat must contain the “prescribed information”, which includes:5
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty)…
Details of how the estate or interest claimed is derived from the registered owner.
[9] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable it may be. To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavits, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima facie case.6
[10] 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. The court has a residual discretion not to uphold a caveat, but that is exercised cautiously, as when the caveat could serve no useful purpose or alternative safeguards are available.7
5 Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, sch 2.
6 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].
7 See the principles stated in Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656 (and repeated in Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22]).
Facts
[11]Associate Judge Gardiner gave the factual background in her decision:8
[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).9 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.
[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.
8 Chen v Auckland Weihao Investment Ltd [2020] NZHC 2450, (2020) 21 NZCPR 409.
9 The purchase price was $10.8 million.
[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.
[12] The evidence filed in this case supports Associate Judge Gardiner’s findings of fact.
[13] Associate Judge Gardiner considered whether Ms Chen had a claim to an interest under the agreement for sale and purchase. At paragraph [31] she held that Ms Chen had not established or even asserted a reasonably arguable case that she remained a purchaser under the agreement for sale and purchase and could sustain the caveat on that basis. The Judge accepted that Auckland Weihao Investment Ltd had effectively cancelled the agreement for sale and purchase on 21 July 2020 after Ms Chen failed to settle on the extended settlement date and after the period in the settlement notice had expired. Ms Chen had not presented any credible arguments why the agreement was not at an end following cancellation by Auckland Weihao Investment Ltd.
[14] That finding was enough to dispose of the claim to the interest stated in the first caveat. No question of res judicata or issue estoppel arises.10 But under s 145 of the Land Transfer Act 2017, Ms Chen could not lodge a fresh caveat claiming the same interest, without first seeking an order of the court to allow her to do so. She did not seek such an order. The new caveat alleges a different interest, as beneficiary under a constructive trust. Accordingly, I do not treat Ms Chen’s new caveat as claiming the same interest as under her first caveat.
[15] Associate Judge Gardiner also considered whether Ms Chen could claim an interest based on an equitable lien for the deposit of $1,080,000 which Ms Chen had paid under the agreement. Judge Gardiner accepted that when a contract for the sale
10 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA).
and purchase of land is cancelled by the purchaser, or avoided for failure of a contingent condition, the purchaser may become entitled to recover from the vendor the amount of the deposit paid and perhaps other sums. In those circumstances a purchaser has an equitable lien on the land for those amounts and the lien will support a caveat. Judge Gardiner held that Ms Chen had not purported to cancel the agreement for sale and purchase and to recover the deposit. In paragraph [34] she said that Ms Chen’s case was that she is entitled to damages following Auckland Weihao Investment Ltd’s misrepresentation, breach and repudiation of the loan agreement. In her judgment, Ms Chen had not established a reasonably arguable case for an interest based on a purchaser’s equitable lien.
[16] That part of her judgment dealing with a claim to an equitable lien was not strictly necessary for her judgment because that was not an interest that Ms Chen had claimed in her caveat. Accordingly, I regard that part of Judge Gardiner’s decision as obiter. I agree with the conclusion of Judge Gardiner, both on the main point of her decision and the obiter aspects. I wish however to record my own reasons for supporting her decision.
[17] On 16 July 2020, the time for settlement had expired. That included the extended settlement date. Auckland Weihao Investment Ltd and Ms Chen, and the company she had nominated as the purchaser and another company, had entered into the vendor loan agreement for $3 million. A problem had, however, arisen. Ms Chen’s primary financier was Vincent Capital Ltd. The lawyers for Vincent Capital Ltd had drawn up a deed of priority and subordination. Under this deed, Auckland Weihao Investment Ltd as a junior creditor was not to be allowed to exercise its remedies under its loan agreement until the termination date under the loan by Vincent Capital Ltd. That termination date was after the three months under the loan agreement between Auckland Weihao Investment Ltd and Ms Chen’s purchaser company.
[18] Auckland Weihao Investment Ltd declined to amend the terms of the loan agreement. Vincent Capital Ltd was not prepared to advance sums to Ms Chen unless Auckland Weihao Investment Ltd agreed to the terms of the deed of priority and subordination. The parties tried to negotiate alternative arrangements but no
agreement was reached. That impasse meant that Ms Chen was no longer able to proceed with the purchase.
[19] Against that background, on 16 July 2020 Ms Chen’s conveyancing lawyers sent to the lawyers for Auckland Weihao Investment Ltd a letter by Ms Chen. The lawyers had not prepared the letter themselves. The letter alleged misrepresentation by Auckland Weihao Investment Ltd in respect of the loan contract. The letter referred to the right to claim damages for contractual misrepresentation under s 35 of the Contract and Commercial Law Act 2017, and the right to cancel for repudiation under s 36 of that Act. The letter gave an ultimatum to Auckland Weihao Investment Ltd, offering three options:
(i)to grant the vendor finance as agreed;
(ii)to extend the time for settlement of the agreement for sale and purchase by three months; and
(iii)to cancel the agreement for sale and purchase and refund the deposit.
The letter then said that if there was no reply by 5 pm that day, proceedings would be issued “to reflect the above situation”.
[20] The next day, on 17 July 2020, Ms Chen began a proceeding under CIV-2020- 404-1236. Ms Chen is the only plaintiff. She issued the proceeding herself. The statement of claim was not drawn up by a lawyer. She alleges misrepresentation in respect of the loan contract, claims damages, and the right to cancel for repudiation. She claims that as a result of Auckland Weihao Investment Ltd’s repudiation of the loan contract, she has the right to cancel both the loan agreement and the agreement for sale and purchase. She claims damages, including for the deposit she paid under the agreement for sale and purchase.
[21] She served the proceeding on Auckland Weihao Investment Ltd on 19 July 2020. It is arguable for her that the service of the proceeding was Ms Chen’s way of
making known to Auckland Weihao Investment Ltd that she was cancelling the contract under s 41 of the Contract and Commercial Law Act 2017:
(1)The cancellation of a contract by a party does not take effect—
(a)before the time at which the cancellation is made known to the other party; or
(b)before the time at which the party cancelling the contract shows, by some clear means that is reasonable in the circumstances, an intention to cancel the contract, if—
(i)it is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii)the other party cannot reasonably expect to receive notice of the cancellation because of that other party’s conduct in relation to the contract.
(2)The cancellation may be made known by words or by conduct showing an intention to cancel, or both. It is not necessary to use any particular form of words, so long as the intention to cancel is made known.
[22] I take that to be a cancellation of both the loan agreement and the agreement for sale and purchase. Ms Chen was the purchaser under the agreement for sale and purchase. She was also a party to the loan agreement as a guarantor. The borrower under the loan agreement is LC1521319 Development Co Ltd. A company under her control was another guarantor. By serving the proceeding, Ms Chen showed that she no longer intended to perform both agreements. For the agreement for sale and purchase, she is seeking damages for the deposit she had paid and also other costs she had incurred in giving effect to the agreement which would no longer be able to proceed. She would not have been able to have sued for those other costs incurred if the agreement was to go ahead.
[23] Ms Chen has not, however, shown an arguable case for being able to cancel either agreement. Auckland Weihao Investment Ltd was within its rights in refusing to sign the deed of priority and subordination in the terms drafted by the lawyers for Vincent Capital Ltd. Auckland Weihao Investment Ltd could not be compelled to surrender its rights under the loan agreement. There is nothing in Ms Chen’s case to show an arguable case for either breach of contract by Auckland Weihao Investment Ltd or any claim for misrepresentation. The email correspondence between the
lawyers, under which the loan agreement was offered and accepted is in evidence. There is nothing in the nature of a representation by Auckland Weihao Investment Ltd other than to set out the terms on which it would offer finance. Those were given effect to in the loan agreement and the associated guarantee. I note that with the loan agreement the solicitors acting for Ms Chen gave a certificate. One of the matters they certified was that they had explained the effect of the agreement to Ms Chen. While Ms Chen was understandably upset that her financing arrangements could not be finally agreed, the conduct of Auckland Weihao Investment Ltd is not actionable.
[24] The loan agreement is a different agreement from the agreement for sale and purchase of land. It was made at a different time and involved different parties. Even if Auckland Weihao Investment Ltd had breached the loan contract - or made any misrepresentation about it - that does not mean that Ms Chen was entitled to cancel the agreement for sale and purchase of the land.
[25] If the service of the proceeding on Auckland Weihao Investment Ltd on 19 July 2020 is to be taken as showing Ms Chen’s intention no longer to perform either the loan agreement or the agreement for sale and purchase, that would be repudiation by her. And that would give Auckland Weihao Investment Ltd grounds on which to cancel. That would be in addition to the ground that it did rely on, namely, failure to settle the agreement for sale and purchase within the time given under the settlement notice.
[26] Associate Judge Gardiner considered the matter as though there had not been a purported cancellation by Ms Chen. On that basis the agreement for sale and purchase remained on foot until Auckland Weihao Investment Ltd gave its notice cancelling the agreement. Under either scenario - cancellation by Ms Chen or she did not give notice cancelling - it remained open to Auckland Weihao Investment Ltd to terminate the contract. Either way, Ms Chen has not shown an arguable basis that she was entitled to a refund of the deposit.
[27] With the agreement for sale and purchase cancelled, and without a purchaser’s equitable lien to secure repayment of the deposit, there is no remaining basis on which she can claim an interest in the property. She has alleged constructive trust but, in the
context of this case, that claim is amorphous and meaningless. I can see no basis in which equity would say that a trust is imposed by operation of law when Auckland Weihao Investment Ltd was entitled in law to cancel the contract and entitled to forfeit the deposit under the terms of the agreement for sale and purchase.
[28] There are some miscellaneous matters. Ms Chen’s submissions referred to some decisions of high authority. 127 Hobson Street Ltd v Honey Bees Preschool Ltd and Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Ltd usefully state general principles of contract law but they do not apply in the circumstances of this case.11
[29] Ms Chen stated that Auckland Weihao Investment Ltd at relevant times had only one director and that director was in China, not in New Zealand. She said that that amounted to non-compliance with the requirement under s 10 of the Companies Act 1993 for the director to live in New Zealand. For Auckland Weihao Investment Ltd, Ms Wickes accepted that the director was in China. He had returned to China before the COVID-19 pandemic and has stayed there since. It was pointed out that towards the end of 2020 the company appointed an additional director. Notwithstanding that a company’s sole director was outside New Zealand, the company remained in existence and could appoint agents to carry on business on its behalf, including entering into contracts to sell property.12
[30] Ms Chen also alleged breach of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. There is no evidence to support those allegations, and I can see no basis for them. Those allegations would not support an interest in the land even if they were made out.
[31] Ms Chen objected to the firm Loo & Koo acting for Auckland Weihao Investment Ltd. That firm has acted for Auckland Weihao Investment Ltd throughout. There is no evidence that it has ever acted for Ms Chen or any company associated with her. Auckland Weihao Investment Ltd is entitled to the lawyer of its choice. In
11 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53, (2020) 20 NZCPR 840 and Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Ltd [2020] NZCA 102, (2020) 20 NZCPR 939, leave to appeal refused, [2020] NZSC 78.
12 YL NZ Investment Ltd v Ling [2017] NZHC 1793, (2017) 28 NZTC 23-026.
an amended statement of claim in her proceeding, Ms Chen has named as one of the defendants the conveyancing lawyer who acted on the transaction. That is not enough to disqualify Loo & Koo from acting for Auckland Weihao Investment Ltd. The lawyer was acting in the interests of her client and I can see nothing in the case that suggests that she is in breach of any duty to any other person.
Outcome
[32] The claim to an interest in the property under a constructive trust is entirely speculative, and I can see no basis for it. Accordingly, I make an order removing caveat 11868720.1 from the record of title.
[33] Auckland Weihao Investment Ltd also seeks an order barring Ms Chen from lodging any further caveats against its title. It is understandable that it would seek such an order because this is the second caveat of Ms Chen it has had to deal with. There has not been any merit in either caveat. The second caveat has failed for reasons which applied to the first caveat. New matters raised by Ms Chen have not improved her case. Auckland Weihao Investment Ltd cites GLW Group Ltd v Lepionka & Company Investments Ltd as an example where the court made an order barring caveators from lodging any further caveats.13
[34] There is, however, a jurisdiction problem. I am hearing this application under s 143 of the Land Transfer Act 2017, which is within an associate judge’s court jurisdiction under s 20(1)(e) of the Senior Courts Act 2016. Section 143 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. There is a limit on the ancillary powers of an associate judge under s 21 of the Senior Courts Act 2016. It does not extend to ordering injunctions – see s 21(2). As the order sought is in the nature of an injunction, I do not consider that I have jurisdiction to make that order. Instead, I direct that this case is to be listed before the justice who deals with caveat applications so that he may consider whether to make such an order against Ms Chen.
13 GLW Group Ltd v Lepionka & Company Investments Ltd [2018] NZHC 1658.
Costs
[35] Auckland Weihao Investment Ltd seeks indemnity costs under r 14.6(4) of the High Court Rules 2016. It contends that the caveat was lodged vexatiously. Normally ordinary costs are awarded against an unsuccessful caveator. But when that caveator lodges a second caveat after the first decision has made it clear that there is no caveatable interest, lodging a second caveat is truly vexatious. In those circumstances, Auckland Weihao Investment Ltd is entitled to full solicitor-client costs.
[36] I direct Auckland Weihao Investment Ltd to file submissions in support of its claim for indemnity costs. It should address the question of GST registration. It should provide full records of its invoices and time records of its solicitors so as to show the reasonableness of its charges. Ms Chen is to file and serve submissions in response within 10 working days of Auckland Weihao Investment Ltd’s providing its submissions.
…………………………………….
Associate Judge R M Bell
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