Chen v Auckland Weihao Investments Ltd

[2020] NZHC 2450

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-001200

[2020] NZHC 2450

BETWEEN

LIYUN CHEN

Applicant

AND

AUCKLAND WEIHAO INVESTMENTS LIMITED

Respondent

Hearing:	24 August 2020
Appearances:	Applicant in Person with A Lau as McKenzie Friend J A Wickes for the Respondent
Judgment:	18 September 2020

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 18 September 2020 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Loo & Koo, Auckland

CHEN v AUCKLAND WEIHAO INVESTMENTS LTD [2020] NZHC 2450 [18 September 2020]

Introduction

[1]    The applicant, Ms Chen, applies for an order under s 143 of the Land Transfer Act 2017 (the LTA), that caveat 11786226.1 (the Caveat) not lapse. The Caveat is lodged against land at 285 Murphys Road, Flat Bush (Lot 1, Deposited Plan 510556, Record of Title 782243) (the Property), which is owned by the respondent,  Auckland Weihao Investment Ltd (AWIL).

[2]AWIL opposes the order being made.

[3]    Ms Chen has filed a substantive proceeding in this Court which is in its early stages: CIV-2020-404-001236. Ms Chen has two outstanding interlocutory applications in that proceeding:

(a)An application to set aside AWIL’s settlement notice; and

(b)An application for particular discovery against AWIL and a non-party.

[4]Both applications are opposed by AWIL.

[5]    At the hearing of this application, and on Ms Chen’s request, I made an interim order that the Caveat not lapse until my judgment was delivered.

Factual background

[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.

[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.

[17]On 21 July 2020, AWIL applied to the Registrar for the Caveat to lapse.

Legal framework

Applications that caveats not lapse

[18]   The right to lodge a caveat is set out in s 138(1) of the LTA. The relevant part of the section reads:

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.

[19]   The courts have long held that the caveator must have a specific legal or equitable interest in the land caveated.1

1      Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.

[20]   By s 141 of the LTA, the effect of a caveat is that, while it remains in force, the Registrar shall not make any entry in the register having the effect of charging or transferring, or otherwise effecting, the estate or interest protected by the caveat.

[21]   The Court of Appeal in Botany Land Development Ltd v Auckland Council summarised the principles to be applied when considering an application for an order that a caveat not lapse.2 These are:

(a)The onus is on the caveator/applicant to demonstrate that they have an interest in the land that is sufficient to support a caveat, but they need not establish that definitively.

(b)The caveator/applicant must put before the Court 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 was no valid ground for lodging one in the first place or, alternatively, that such ground has now ceased to exist.

(d)Where the caveator/applicant has discharged the burden upon them, the Court retains a residual discretion to remove the caveat which it exercises cautiously. Before it does so, the Court must be satisfied that removal would not prejudice the caveator’s legitimate interest.

[22]   Where there is a conflict between the affidavits, the Court will generally prefer the evidence of the caveator.3 However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with

2      Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.

3      Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.

undisputed contemporary documents or other statements by the same deponent, or inherently improbable.4

Issue

[23]   The issue in this application is whether Ms Chen has an estate or interest in the Property sufficient to support the Caveat.

Discussion

[24]   On the Caveat itself, Ms Chen claims an estate or interest as purchaser of the Property under the SPA dated 16 October 2019.

[25]   It is settled law that if a purchaser of land is entitled to the equitable remedy of specific performance on entry into a binding contract, that purchaser obtains an immediate equitable interest in the land.5 The purchaser is therefore entitled to lodge a caveat against the title to protect that interest.6

[26]   If that was the interest claimed by Ms Chen when she lodged the Caveat, it is not the interest she relies on to sustain the Caveat now. The case Ms Chen advances in this application and her substantive proceeding is focused on the Loan Agreement.

[27]In her application and affidavit in support, Ms Chen contends that:

(a)AWIL unequivocally represented to her that it would provide the vendor finance of $3 million, and entered into a binding agreement with her to that effect; and

(b)AWIL breached and repudiated that agreement by not providing the vendor finance as promised and agreed.

4      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.

5      DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009(e)], citing Foreman v Hazard [1984] 1 NZLR 586 (CA) at 594.

6      Holt v Anchorage Management Ltd, above n 1.

[28]   Ms Chen repeats these claims in the statement of claim in her substantive proceeding. As relief, she claims: refund of the 10 per cent deposit she paid under the SPA; $50,000 for her deposit on a relocatable site office; general damages of $100,000 for pain and suffering, humiliation, loss of enjoyment of life and distress; exemplary damages of $50,000; interest and costs.

[29]   Ms Chen explained at the hearing that it is her case that AWIL had already agreed on 24 June 2020 to provide vendor finance based on “an unconsented second mortgage”. She says that AWIL “changed its mind” and required a “consented second mortgage”. As evidence, Ms Chen points to an email between Vincent Capital and its solicitor, where the solicitor says, “the vendor’s solicitor has said that the vendor requires the right to exercise any right of Enforcement if the Borrower fails to make payment in full on the expiry of their loan” (emphasis added). She contends that AWIL changed its mind and of its own volition contacted Vincent Capital’s solicitor.

[30]   This series of events forms the crux of her substantive proceeding and the current application. Ms Chen submits that the Court should order that the Caveat not lapse until the substantive proceeding, and her claims of misrepresentation and repudiation with respect to the Loan Agreement, have been heard and determined.

[31]   Ms Chen has not established or even asserted a reasonably arguable case that she remains the purchaser under the SPA and can sustain the Caveat on that basis. AWIL cancelled the SPA on 21 July 2020 after Ms Chen failed to settle both on the extended settlement date and within the period of the Property Law Act notice issued on 1 July 2020. Ms Chen has not advanced any credible argument as to why the SPA is not at an end following AWIL’s cancellation. Her argument is with AWIL’s failure to deliver on the Loan Agreement. The Loan Agreement was made some months after the SPA and the parties’ performance of their obligations under the SPA is not dependent on performance of the Loan Agreement. Whatever the case with the Loan Agreement, Ms Chen has not made out a reasonable argument that the SPA was not validly cancelled by AWIL following her failure to settle. She has, therefore, not established a reasonably arguable case that she has an equitable interest in the Property as purchaser. The Caveat cannot be maintained on that basis.

[32]   That is enough to dispose of the application because if the original basis for claiming a Caveat no longer exists, it cannot be maintained.7

[33]   However, AWIL also made submissions on whether Ms Chen could sustain a caveat based on an equitable lien for the deposit paid. When a contract for the sale of land is cancelled by the purchaser, or avoided by 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 such circumstances, the purchaser has an equitable lien on the land for such amounts, and that lien will support a caveat.8

[34]    This is not a situation where a purchaser has purported to cancel the agreement for sale and purchase and is seeking recovery of the deposit paid under the agreement. Ms Chen confirmed at the hearing that she does not contend that she has cancelled the SPA (although she considers herself entitled to do so based on AWIL’s repudiation of the Loan Agreement). Her case is that she is entitled to damages following AWIL’s misrepresentation, breach and repudiation of the Loan Agreement.

[35]   Ms Chen does not assert, nor has she established, a reasonable argument that she is entitled to the refund of her deposit as a purchaser who has validly cancelled the SPA and that she has an equitable lien over the Property for that amount, which would support a caveat.

[36]   I will briefly address a side issue. Ms Chen submitted that AWIL and their solicitors acted improperly by applying to have the Caveat lapse on 16 July 2020, before the settlement notice had expired on 21 July 2020. Ms Chaoqun Chen, General Manager of AWIL, attested in her affidavit in opposition dated 28 July 2020 that the application was made on 21 July 2020.  The application was not put in evidence, so  I make no finding on this point, but it is not relevant to the issue of whether Ms Chen can sustain the Caveat in any case.

7      Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762 at 192,766.

8      DW McMorland and others, above n 5, at [10.009(p)].

Result

[37]   Ms Chen has not demonstrated that she has an equitable interest in the Property sufficient to support the Caveat, either as purchaser under the SPA or, alternatively, on the basis of an equitable lien over the Property in the amount of her deposit.

[38]   The application is dismissed. I hereby order that caveat 11786226.1 lodged by the applicant against 285 Murphys Road (Lot 1 Deposited Plan 510556, Record of Title 782243) shall lapse.

[39]   AWIL is entitled to costs on a 2B basis. I will receive submissions by memoranda within 14 days from AWIL and from Ms Chen seven days thereafter.

Associate Judge Gardiner