First Choice Property Investment Limited v MA
[2022] NZHC 1413
•16 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001819
[2022] NZHC 1413
UNDER Land Transfer Act 2017 BETWEEN
FIRST CHOICE PROPERTY INVESTMENT LIMITED
PlaintiffAND
WEI (VIVIAN) MA
First Defendant
WILLIAM GONG LAWYERS LIMITED
Second Defendant
Hearing: 9 June 2022 Counsel:
N H Malarao and T Y Yao for Plaintiff
Judgment:
16 June 2022
JUDGMENT OF DOWNS J
This judgment was delivered by me on Thursday, 16 June 2022 at 11.30 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland.
FIRST CHOICE PROPERTY INVESTMENT LTD v MA [2022] NZHC 1413 [16 June 2022]
The case
[1] Section 148 of the Land Transfer Act 2017 empowers a Court to order compensation to a person who suffers loss or damage as a result of a caveat being lodged without reasonable cause. This case is brought under s 148.
[2] The defendants did not file anything in response to the plaintiff’s case or attend court. I heard the case by formal proof as Duty Judge, the defendants having been served.
Personnel
[3] First Choice Property Investment Ltd1 develops residential property. Qian Du is First Choice’s sole director and shareholder. Wei Ma is a lawyer. Her employer was William Gong Lawyers Ltd.2
Background
[4]What follows is based on Ms Du’s affidavit (and annexures).
[5] On 27 October 2020, First Choice purchased 47 Kea Road, Silverdale, Auckland.3 The property was bare. First Choice planned to build a home on the property.
[6] In December 2020, First Choice began building that home. The same month, Ms Du began an intimate relationship with Suxuan Li. Ms Du and Mr Li discussed property development. Mr Li paid some money to First Choice.
[7]In early March 2021, Ms Du’s and Mr Li’s relationship ended.
[8] On 17 May 2021, First Choice sought further finance in relation to the home. Two days later, DBR Ltd4 offered to lend First Choice $475,000. DBR required a
1 First Choice.
2 William Gong Lawyers.
3 The property.
4 DBR.
registered mortgage over the property with an associated condition that it hold the only registered mortgage.
[9] On 24 May 2021, First Choice discovered a caveat had been lodged against the property on 12 March 2021 by Mr Li. Under the heading “Estate or Interest Claimed”, the caveat recorded: “agreement to mortgage dated 12 March 2021 between the registered owner First Choice Property Investment Ltd and the caveator Suxuan Li”. The caveat identified William Gong Lawyers as the address for service.
[10] Beginning 25 May 2021 and through lawyers, First Choice asked Ms Ma and William Gong Lawyers to withdraw the caveat on the bases:
(a)First Choice never signed an agreement to mortgage with Mr Li.
(b)No such agreement existed.
(c)First Choice had not been given a copy of the alleged agreement.
(d)First Choice was developing the property, and a caveat may cause it expense or loss.
[11] On 27 May 2021, Ms Ma responded by seeking time to confirm William Gong Lawyers acted for Mr Li. Ms Ma did not provide a copy of the alleged agreement to mortgage, despite First Choice having requested it.
[12] On 1 June 2021, Ms Ma provided First Choice a statutory declaration signed by Mr Li. This reads:
STATUTORY DECLARATION OF XIAOYU SU
Dated this 12 day of March 2021
I, Suxuan Li of Auckland, company direct, solemnly and sincerely declare that:
1. I am in business partnership with Ms Qian Du, I have interest in Ms Du’s company FIRST CHOICE PROPERTY INVESTMENT LIMITED (the company).
2. I invested $150,000.00 in FIRST CHOICE PROPERTY INVESTMENT LIMITED for purchasing and developing the property at Lot 24 Kea Road, Auckland; certificate title: 943898 Legal Description Lot 24 Deposited Plan 549200.
3. I had a verbal agreement with Ms Du for the above arrangement, Ms Du agreed to sign a legal agreement to record this joint venture, however, she refused to pursue the agreement as we agreed.
4. I transferred $70,000.00 to the company’s business account on 27/10/2020 through my ASB joint account with my wife. And I transferred twice $5,000.00 to the company’s business account on 15/02/2021 and 22/02/2021 through this same account.
5. I transferred $7,500.00, $5,000.00 and $12,000.00 to the company’s business account on 27/10/2020, 04/02/2021 and 15/02/2021 and 22/02/2021 through my Westpac account.
6. As a source of debt repayment, my debtor Zhipeng Xu transferred
$10,000.00 to the company account for one of my investment funds.
7. There were also $40,000.00 Australia dollar I managed to pay to Ms Du’s account for the same investment purpose.
And I make this solemn declaration conscientiously believing the same to be true and by virtue of the Oaths and Declarations Act 1957.
Declared at Auckland )
This 3 day of March )..................................................... (signed)
2021 ) Suxuan Li
beforeme: (signed) Wei (Vivian) Ma Barrister and Solicitor
of the High Court of New Zealand Auckland
[13] Again, Ms Ma did not provide First Choice a copy of the alleged agreement to mortgage.
[14] On 3 June 2021, Ms Du entered a deed of acknowledgement of debt and deed of settlement with Mr Li. Ms Du says she entered both to resolve her difficulties with Mr Li, thereby allowing First Choice to continue to develop the property. The deed of acknowledgement gave Mr Li an explicit right to caveat the property.
[15] On 4 June 2021, several things happened. First, Mr Li withdrew the caveat. Second, DBR provided finance to First Choice and registered an associated mortgage.
Finally, Mr Li lodged a second caveat against the property. This was not removed until after 21 October 2021. To avoid confusion, I call this the second caveat.
The statement of claim
[16] The statement of claim, or claim, identifies the background from [5] through [13]. The claim does not refer to either deed, or the second caveat. The significance of this I return to. The claim then adds:
No caveatable interest
24 There is no “[a]greement to mortgage dated 12/03/2021” between the plaintiff and Mr Li”.
25 As a provider of regulated services, the first and second defendants had an obligation to only lodge a caveat against dealings only if they had reasonable cause.
26 The Caveat was lodged without reasonable cause.
Loss to plaintiff
27 As a result of the Caveat, the plaintiff suffered loss, the quantum of which is yet to be fully realised and therefore can only be partially demonstrated at this stage.
28 The loss suffered by the plaintiff has not, at the date of this statement of claim, fully accrued. To date, the loss suffered includes:
(a)Penalties incurred in refinancing the borrowing for the Kea Road project caused by the Caveat;
(b)Additional expenses incurred as a direct result of the delay caused by the imposition of the Caveat; and
(c)Legal fees incurred in dealing with the Caveat.
29 Further particulars of loss (accrued and yet to accrue) will be provided.
Wherefore the plaintiff claims
A A declaration that the Caveat was lodged without reasonable cause.
B Compensation in a sum to be determined by the Court pursuant to s 148 of the Land Transfer Act 2007 ordered against the first and second defendants on a joint and several basis.
C Costs and disbursements.
Law
[17] Section 148 of the Land Transfer Act reads:
148 Compensation for lodging of improper caveat against dealings
(1) A person, including the agent of a person, who lodges a caveat against dealings without reasonable cause is liable to pay compensation to a person who suffers loss or damage as a result.
(2) A claim for compensation must be heard and determined by the court.
(3) A caveat against dealings lodged in contravention of section 146 is lodged without reasonable cause.
[18] The leading case is that of the Court of Appeal in Gordon v Treadwell Stacey Smith.5 Gordon concerns the predecessor to s 148 and holds lawyers responsible for lodging a caveat without cause (on behalf of a client) may be liable for compensation:6
The matter will be judged by the standards of a reasonable conveyancing practitioner possessed of the factual material available to the solicitor whose action in lodging a caveat is under scrutiny and advising and acting in the same circumstances. Would such a practitioner have thought in those circumstances that there was a proper basis upon which a claim could be asserted by the client?
[19] The Court also said:7
There are claims for general, aggravated and exemplary damages. Compensation can be awarded under s 146 for expenditure for loss actually incurred and is not restricted to the expense of obtaining removal of the caveat (e.g it extends to interest paid to a mortgagee during a period of delay caused by the lodging of the caveat). In some circumstances an award may include some element of general (even aggravated) damages. But exemplary damages, which are non-compensatory, are plainly not claimable under the section.
[20] It follows s 148 means what it says.
5 Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281 (CA) at 289.
6 At 289.
7 At 290.
Analysis
Liability
[21] Ms Du says First Choice never signed an agreement to mortgage with Mr Li, and no such agreement existed. I accept this evidence. Had there been such an agreement, Mr Li or his advisors would have provided it to justify the caveat when the caveat was challenged, or at least done so now. That they have not permits the obvious inference.
[22] On behalf of First Choice, Ms Yao contends a reasonable conveyancing practitioner would not have lodged the caveat because absent the existence of an agreement to mortgage with Mr Li:
(a)A caveat alleging the contrary would be inaccurate.
(b)An unsecured debt does not create an interest in land.8
(c)A mortgage over land must be in writing.9
(d)The statutory declaration did not evidence Mr Li having an interest in the property.
[23] Ms Yao therefore contends Ms Ma and William Gong Lawyers fell below the required standard in lodging the caveat.
[24]I agree. No other conclusion is reasonably available.
Compensation
[25] The written submissions on behalf of First Choice helpfully identify what compensation it seeks:
(a) Legal fees paid to Focus Law totalling $13,625.91 to remove the caveat that was lodged by Ms Ma without reasonable cause;
8 See Potter v Potter [2003] 3 NZLR 145 (CA) at [13].
9 Property Law Act 2007, s 25.
(b) DBR holding fees of $667.52, which was incurred as a result of the delay in drawing down the loan with DBR;
(c) Legal fees paid to Meredith Connell for the plaintiff to obtain advice before commencing this proceeding, as set out a paragraph 4.8. The fees total $18,856.91.
[Para 4.8 reads: In August 2021, the plaintiff engaged Meredith Connell to obtain legal advice about the defendant’s conduct, the Deed of Settlement, Deed of Acknowledgement of Debt, compensation as a result of the Caveat, and to assist with the law society complaint and correspond with the defendants. It incurred fees totalling $18,856.91 before this proceeding was prepared and filed.]
(d) Legal fees paid to Meredith Connell relating to the removal of the second caveat of $2,138.73.
(e) The difference in the sale price of Kea Rd of $25,000, if construction had been completed two weeks earlier and an open home could have been held for the sale. [sic]
[26]Items (a) and (b) are unremarkable. I award them.
[27] Items (c) and (d) extend to the second caveat even though the claim is silent about it. Ms Yao contends this ought not be a barrier to compensation because on the evidence of Ms Du, she entered the deeds to allow First Choice to continue to develop the property. On this analysis, the second caveat is so closely related to the claim that compensation should extend to it. Or, as Ms Yao puts it, the second caveat is the immediate progeny of the caveat governed by the claim.
[28] This analysis is supported by Ms Du’s affidavit. However, it is not supported by the claim. The claim does not allege the second caveat was lodged without reasonable cause. Again, the claim says nothing about the second caveat. Pleadings are critical. They inform litigants and the Court of the material facts and associated causes of action or defences. In short, pleadings delimit a case. To allow compensation in relation to the second caveat would be to allow compensation beyond the claim. Moreover, for all I know, the defendants might have elected not to defend the case on the basis the claim did not seek compensation for the second caveat. So, I confine (c) to $10,000—a reasonable sum in relation to the caveat only—and I disallow (d).
[29]In relation to (e), Ms Du says:
Due to the delay in obtaining the finance from DBR, the construction at Kea Road was completed approximately two weeks after the expected completion date on 16 August 2021.
Kea Road was listed for sale with Barfoot & Thompson while it was still under consideration, however no open home was able to be held until construction had been completed.
On 17 August 2021, the Government announced that all of New Zealand would enter Alert Level 4 and the country went into a complete lockdown effective from 23.59 that night. Due to the sudden lockdown, no open home was able to proceed for the sale of Kea Road.
I was expecting to sell Kea Road for at least $1,265,000 because the property situated at 29 Kea Road sold for that price on 27 July 2021.
29 Kea Road was under construction at the same time as when Kea Road was under construction. I know the two properties have the same floor size, land area and floor plan. 29 Kea Road was also marketed for sale by Barfoot & Thompson. Barfoot & Thompson’s listings of 29 Kea Road and Kea Road confirms that the two properties are the same in all material respects.
On 18 August 2021, I received an offer to purchase Kea Road of $1,240,000. As I did not know how long the lockdown will be and when open homes would be permitted again, I felt I had no choice but to accept this offer at a price lower than I had expected.
I believe that if FCPIL had been able to complete the construction at Kea Road two weeks earlier, a purchase price of at least $1,265,000 would have been attainable. However, the delay in obtaining finance from DBR due to the Caveat meant FCPIL lost out on selling Kea Road at a higher price. The price difference is $25,000.
[30] This is speculation. I disallow (e) for this reason.
[31]This means compensation comes to $24,293.43.
Result
[32]The claim is established:
(a)The defendants lodged a caveat without reasonable cause.
(b)They must pay the plaintiff compensation totalling $24,293.43.
(c)The defendants must also pay the plaintiff 2B scale costs of $22,189.50 in relation to the claim.
……………………………..
Downs J
0
0
1