Chen v Xi
[2019] NZHC 2509
•4 October 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-238
[2019] NZHC 2509
BETWEEN JIE CHEN
Applicant
AND
CHANG XI
Respondent
Hearing: 27 September 2019 Appearances:
V A Nichols for Applicant
J H M Eaton QC for Respondent
Judgment:
4 October 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 4 October 2019 at 11am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 4 October 2019
CHEN v XI [2019] NZHC 2509 [4 October 2019]
[1] The applicant, Jie Chen (“Mr Chen”) applies to sustain caveats registered against three properties in which the respondent, Chang Xi (“Mr Xi”), has an interest.
[2] One property has been sold and the caveat dealt with by agreement. The issues in relation to the remaining two properties are identical.
[3] Mr Chen claims a caveatable interest in the properties by virtue of a document called “Deed of Variation to Term Loan Agreement dated 28 October 2014” (“2018 Deed of Variation”). The Deed of Variation is dated 13 December 2018.
[4] Mr Eaton QC, counsel for Mr Xi, said one would not expect great controversy over caveats lodged in reliance on a written agreement which recorded under the heading “Security” that the respondent mortgaged all rights and interest in the three properties subject to the caveats:
To secure the moneys owed to the lender under the loan agreement in this Deed, in consideration of the further advances made.
[5] The loan agreement referred to is the original Term Loan Agreement said to have been entered into on 28 October 2014 (“2014 Term Loan Agreement”).
[6] The 2018 Deed of Variation which contains the mortgage granted by Mr Xi appears to have been prepared by Mr Chen’s then solicitors. The document appears to bear the signature of Mr Xi and appears to have been witnessed by a Mr Cai. Mr Cai is known to both parties.
[7]Mr Chen says that pursuant to the 2014 Term Loan Agreement, he advanced
$200,000 to Mr Xi, and between 14 May 2015 and 4 February 2016, by a series of further advances, he advanced approximately a further $2 million.
[8] Mr Xi’s response to the suggestion that he borrowed funds from Mr Chen and entered either the 2014 Term Loan Agreement or the 2018 Deed of Variation is to say that those allegations are false. He is unequivocal in describing both documents as forgeries and says he has referred the matter to the New Zealand Police.
[9] Accordingly, the dispute between the parties does not turn on the meaning of the 2014 Term Loan Agreement or the 2018 Deed of Variation. Whether they confer a caveatable interest or similar legal issues, the factual dispute between the parties could not be more stark.
[10] Running alongside the denial by Mr Xi that he signed either document relied on by Mr Chen, Mr Xi denies having borrowed any money from Mr Chen.
[11] Mr Chen says the funds that he advanced to Mr Xi were sourced from his mother. In relation to the advances said to have been made between May 2015 and February 2016, Mr Chen says that upon Mr Xi requesting an advance, he would arrange for his mother to make the funds available. Because of currency control rules in China, the funds had to be remitted through third parties.
[12] One of the documents relied on by Mr Chen is an electronic message sent by Mr Xi to Mr Chen on 5 February 2016 which lists advances between 15 May 2015 and 4 February 2016 and the names of people in China who remitted the funds. Mr Chen says that the persons named on this document prepared by Mr Xi as the source of the funds, are people in China utilised by Mr Chen’s mother as conduits for the funds. Mr Chen says the only reason for Mr Xi to send him this list was to record the funds received by Mr Xi from him via the various individuals used to forward the funds to Mr Xi.
[13] Mr Xi’s explanation is that while the list of names and payments do record funds remitted by friends, acquaintances and relatives of Mr Chen or his family, that is because Mr Chen had been requested to assist in the remittance of money from Mr Xi’s family. Accordingly, Mr Xi says the ultimate source of the funds was his family and Mr Chen’s involvement was only to find people in China who would act as the transferor of the funds out of China to New Zealand.
[14] Ms Nichols, counsel for Mr Chen, submits that while Mr Xi accepts having sent the list of names and amounts to Mr Chen, he provides no alternative explanation as to why he would be sending Mr Chen a record of money transfers if he was both the source and recipient of the funds. Ms Nichols submits the more plausible
explanation is that given by Mr Chen: that Mr Xi was accounting to him for the multiple loan advances received.
[15] The reference to Mr Xi being both the “source and recipient” of the funds is that, on Mr Xi’s case, the funds were sourced from his family in China.
[16] To meet the argument that the ultimate source of the funds in China were interests associated with Mr Xi and not Mr Chen, Mr Chen’s solicitors have produced a bundle of material which is intended to be a payment by payment analysis of the source of the funds.
[17] Mr Eaton is critical of the lateness of this material, that it contains what is substantially hearsay material and critically the absence of an affidavit from Mr Chen’s mother confirming that she was the ultimate source of the funds that Mr Chen on-advanced to Mr Xi via the various intermediaries.
[18] As to the affidavit being filed late, the reality is that Mr Xi’s affidavit in opposition was due on 12 July 2019 but not filed until 4 September 2019. The affidavit producing the Chinese records was filed on 20 September 2019, effectively within the time period originally allocated for the applicant’s reply evidence in opposition. Given the lateness of the affidavit in opposition, it is not open to Mr Xi to complain that Mr Chen’s affidavit in reply came late in the piece.
[19] There is more merit in the submission as to absence of an affidavit from Mr Chen’s mother. No explanation is given as to why an affidavit from her was not available. Indeed, given she has made bank statements available which Mr Chen says shows she was the source of the funds, there is no reason to expect that an affidavit would not have been available.
[20] I do not intend to analyse each transaction. I will select one transaction by way of example.
[21] Mr Chen produces a bank statement from his mother showing 600,000 Chinese Yuan being taken from her account on 13 May 2015 and then transferred to Yi Tang.
Yi Tang, on the same day, split that payment transferring half to his wife, Huayan Fan. Yi Tang and Huayan Fan then each then transferred the New Zealand equivalent of 300,000 Chinese Yuan to a bank account operated by Mr Xi’s father with Westpac. The suggestion is, but it is not in the evidence, that Mr Xi had access to the Westpac account.
[22] Following the funds being transferred to New Zealand, Mr Xi sent a message to Mr Chen:
… darn. I just saw the second amount of money has been received. Sent by someone called Fan Huayan. 639,000. The same as the first amount of money, both are 639,000 …
[23] Thus, Mr Chen says this example shows the funds being supplied by his mother, passing through the conduit of people in China who then transferred the funds to Mr Xi’s father.
[24] Further, Mr Chen relies on the fact that the message quoted above suggests that Mr Xi did not know who Huayan Fan was. Mr Chen confirms that Huayan Fan is a friend of Mr Chen’s family.
[25] The difficulty for me in respect of this last point is that Mr Xi’s query about who Huayan Fan was is equally consistent with him checking who Mr Chen had found to remit funds from Mr Xi’s family back to New Zealand.
[26] The evidence (assuming it is admissible) in relation to the source of the funds as being from his mother is however consistent with Mr Chen’s case.
[27]I will return to the admissibility issues raised by Mr Eaton.
[28] Both parties accept that substantial amounts were remitted through different individuals in China to Mr Xi, so there is nothing inherently improbable in the mechanism Mr Chen says was adopted to make the advances. The issue is who was the ultimate source of the funds?
Witness to the December 2018 Deed of Variation
[29] As recorded above, Mr Xi’s signature on the 2018 Deed of Variation appears to be witnessed by Mr Cai.
[30]Mr Chen in his affidavit says that Mr Cai:
… has asked not to provide any evidence in this matter as he considers both [the applicant Mr Chen] and [the respondent Mr Xi] to be his friends. He does not want to be caught in the middle, which I understand.
[31] Mr Chen’s affidavit then goes on to say Mr Cai told him that when Mr Xi arrived at Mr Cai’s house, Mr Xi sent him a message saying that he had arrived, so Mr Cai could open the door. Mr Cai has provided a copy of his “WeChat” history showing the exchange with Mr Xi and that is produced. Those messages showing Mr Xi arranging to visit Mr Cai are timed at 6.24pm on 12 December 2018.
[32] That date is significant as it is the date that Mr Chen says the 2018 Deed of Variation was signed. The 2018 Deed of Variation itself is dated 13 December 2018, but Mr Chen has sworn an affidavit saying that it was signed by him and Mr Xi on 12 December 2018.
[33] The WeChat message is produced in response to Mr Xi in his affidavit in opposition saying that on 12 December 2018:
… I spent most of the day in Auckland. Annexed marked “B” is a document CX2 which is a copy of my Jet Star itinerary for 12 December 2018. This itinerary records that I departed from Christchurch Airport on a flight to Auckland at 11.12am. I returned from Auckland on a flight that same day which departed at 8pm and which arrived in Christchurch at 9.25pm. I certainly did not go to the applicant’s home on 12 December as he alleges. I was not shown any agreement. I did not sign any agreement. I did not go to the home of [the witness] on that day.
[34] Mr Xi’s evidence that he did not go to Mr Cai’s home on 12 December 2018 is at odds with the WeChat message recording him arranging to visit the house and advising Mr Cai he had arrived.
[35] I accept Mr Eaton’s submission that the WeChat message does not refer to Mr Xi going to Mr Cai’s home for the purpose of having his signature witnessed.
Mr Chen says that Mr Xi had in fact signed the document at Mr Chen’s home and was going to take the document around to Mr Cai’s home.
[36] However, the message does appear to show that Mr Cai and Mr Xi met on the day Mr Chen says the witnessing occurred and when Mr Xi’s unequivocal evidence is that he did not go to the Mr Cai’s house.
[37] There may be something in what Mr Eaton says that it is surprising that Mr Cai should on the one hand be reluctant to get involved and not want to give evidence, but on the other hand makes available copies of his WeChat communications with Mr Xi, but ultimately that is an issue for another day.
Legal principles
[38] Ms Nichols for Mr Chen acknowledges that the onus is on her client to show a reasonably arguable case in support of the interest claimed. Ms Nichols notes in circumstances where there is a conflict between the affidavits, the Court will generally prefer the evidence of the caveator:1
This Court has held that in order to sustain a caveat, the caveator must show a reasonably arguable case in support of the interest claimed. An order for removal will not be made unless it is “patently clear” that the caveat cannot be maintained either because there was no valid ground for lodging it or because the ground upon which it was lodged no longer applies. In circumstances where there is conflict between the affidavits, the Court will generally prefer the evidence of the caveator.
(footnotes omitted)
[39] Ms Nichols also took me to the following passage in Blundell Concrete Ltd v Hodgins:2
To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial.
1 Bethell v Rickard [2013] NZCA 68 at [22].
2 Blundell Concrete Ltd v Hodgins [2017] NZHC 2359 at [12].
[40]Ms Nichols also emphasised the well-known passage from Sims v Lowe:3
It is clear that the summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of act.
Discussion
[41] Mr Eaton in his submissions realistically recognises that the Court is ordinarily reluctant to resolve such substantial factual conflicts as exist in this case in a summary context. That this is a summary hearing does not prevent the Court determining a credibility issue if a position adopted by a party is untenable, but the material establishing that one of the parties’ sworn evidence can be discounted must be compelling.
[42] I do not consider this to be such a case. This is not a case where Mr Chen’s evidence is inconsistent with contemporary documents. It is not a case where there are significant internal inconsistencies in Mr Chen’s position or he has over time adopted inconsistent positions.
[43] In terms of the test from Sims v Lowe, it is not patently clear to me on the material that has been provided that Mr Chen’s version of events is untrue, that is I can be clear that he has forged the documents on which he relies.
Orders
[44] Having reached that point, it follows that the caveats should be sustained. There are accordingly orders as follows:
(1)That caveat number 11385691.1 lodged against Certificate of Title Identifier 448564 Canterbury Land Registry, being Lot 10 Deposited Plan 402805, not lapse.
3 Sims v Lowe [1988] 1 NZLR 656 (CA).
(2)That caveat number 11385691.2 lodged against Certificate of Title Identifier 122801 Canterbury Land Registry, being Lot 2 Deposited Plan 330031, not lapse.
(3)The above orders are conditional upon the applicant filing and serving proceedings to enforce his claim to an interest in the above properties within 15 working days of the date of this judgment and that he pursue those proceedings expeditiously.
Evidence
[45] I need to address the submissions made about evidence. Mr Eaton said that the absence of evidence from the person alleged to have witnessed the December 2018 Deed of Variation is of such significance that it was determinative of the application. That is, such an adverse inference could be drawn from Mr Chen’s failure to call evidence from Mr Cai that I could safely conclude that Mr Chen was lying.
[46] While the Court is entitled to take a robust view when the circumstances call for it, the fact is Mr Chen has offered an explanation as to why he does not have evidence from Mr Cai.
[47] There is something in Ms Nichols’ point that given Mr Cai is also a friend of Mr Xi, that it was open to Mr Xi to get an affidavit from Mr Cai.
[48] Obtaining affidavit evidence from a reluctant witness under r 9.75 is not straightforward. It is by no means certain that an order under r 9.75 requiring Mr Cai to attend and give oral evidence would have been made. In the summary judgment context, McGechan on Procedure notes in relation to whether an order under r 9.75 would be made as follows:4
… such orders are generally inappropriate in summary judgment because they are likely to give rise to contentious evidence, not readily resolved at a summary judgment hearing: Host Catering Ltd v Air NZ Ltd (1989) 2 PRNZ 126.
4 McGechan on Procedure (online ed, Thomson Reuters) at [HR9.75.05].
[49] That comment is apposite in this case. To require the person said to have witnessed the 2018 Deed of Variation document to attend and potentially be cross-examined would come close to converting this hearing to a substantive hearing.
[50] Mr Eaton was critical of the hearsay evidence produced in the reply affidavit of Mr Chen. Many of those criticisms are well made. Aspects of the written accounts that purport to be from various individuals in China have the hallmarks of being written by the same person with most containing almost identical phrases. That is also explicable by someone wanting to facilitate the production of statements by writing them out and tendering them for approval but is not ideal.
[51] In relation to Ms Nichols’ point that the bank statements are business records, while the translations of the bank statements are untested, equally there is nothing that obviously suggests the translations are unreliable.
[52] At the end of the day, this is a credibility contest between the parties. There is no contemporary document which is inconsistent with Mr Chen’s position to such an extent that Mr Chen’s evidence could be discounted.5 On the other hand, there is some evidence, albeit limited, consistent with Mr Chen’s case and I here refer to the apparent error, and I put it no higher than that, made by Mr Xi when he deposed that he did not visit Mr Cai on 12 December 2018. Mr Eaton suggested that the WeChat message between Mr Xi and Mr Cai was hearsay. However, Mr Cai was not available to give an affidavit – he was unwilling to do so and there is no reason to think the WeChat record is not reliable. Mr Xi did not claim the WeChat record was not accurate.
[53] In Trustees Executors Ltd v Eden Holdings (2010) Ltd, Associate Judge Bell discussed the admissibility of hearsay in an application to sustain a caveat as follows:6
[32] The applicable rule under s 20(2) [of the Evidence Act 2006] is r 7.30 of the High Court Rules. In the context of an application to sustain a caveat where the caveator has limited time in which to file evidence and the caveator
5 This is not a case as it was put in Eng Nee Yong v Letchumanan [1980] AC 331, that the Court is being asked “to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with an disputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be”.
6 Trustees Executors Ltd v Eden Holdings (2010) Ltd HC Wanganui CIV-2010-483-101, 12 August 2010.
has a low threshold only to establish that there is an arguable case for an interest under s 137, the interests of justice include allowing for the efficient despatch of proceedings. An over-rigorous insistence on compliance with the rule against hearsay would stand in the way of the efficient and just determination of a caveat proceeding. …
[54] Given the issues deposed to by Mr Chen in getting direct evidence from the alleged witness to the Deed, the potential issues arising from an application under r 9.75 and the above observation by Associate Judge Bell with which I agree, I have had regard to the evidence of the WeChat exchange between Mr Xi and Mr Cai.
[55] The list of names and amounts sent by Mr Xi to Mr Chen is also consistent with Mr Chen’s position. In the absence of a “king hit” on credibility, this is a case where a credibility finding cannot be made, even if the records from China are not read.
Associate Judge Lester
Solicitors:
Saunders & Co., Christchurch Linwood Law, Christchurch
Copy to counsel:
J H M Eaton QC
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