Gao v Cao

[2015] NZHC 1609

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-003080 [2015] NZHC 1609

BETWEEN

JING GAO

Plaintiff

AND

YANG CAO First Defendant

FENG QIANG CAO Second Defendant

YAN HUA LI Third Defendant

Hearing:	9 July 2015
Appearances:	A Manuson for Plaintiff G Collecutt for Defendants
Judgment:	9 July 2015

ORAL JUDGMENT OF VENNING J

Solicitors:           Prestige Lawyers Limited, Auckland

Simpson Dowsett Mackie, Auckland

Copy to:            D G Collecutt, Auckland

GAO v CAO [2015] NZHC 1609 [9 July 2015]

[1]      There are two applications before the Court.   The first, an application for judgment by formal proof by the plaintiff and the second, a very late application by the first defendant for leave to file a statement of defence out of time.

[2]      The plaintiff is the former mother-in-law of the first defendant.   The first defendant was married to the plaintiff’s daughter.  The second and third defendants are the parents of the first defendant.  All parties to the proceeding are of Chinese origin.

[3]      The plaintiff alleges that after the first defendant and her daughter, Ms Lu, married the first defendant proposed that she purchase an investment property in New Zealand.   There was an initial agreement that the plaintiff and the first defendant’s parents, the second and third defendants, would together fund the purchase of an investment property in New Zealand with the intention that the first defendant and Ms Lu would be able to reside in the property rent free as long as they remained in New Zealand.   The first defendant and Ms Lu identified a suitable property  and  entered  an  agreement  for  the  purchase  of  a  property  at  343

Hillsborough Road in Auckland. The purchase price was $585,000.

[4]      The plaintiff alleges that after the purchase agreement was signed the second and third defendants indicated they could not afford to provide their share of 50 per cent of the purchase price.  The plaintiff says she agreed to provide additional funds to the purchase on condition that her interest in the property would be represented by her greater contribution.  She says she transferred $436,900 to the bank account of the first defendant and Ms Lu to enable the purchase of the property to be settled. The property was purchased in the name of the defendant and Ms Lu.

[5]      Unfortunately the relationship between the defendant and Ms Lu came to an end and the plaintiff now wishes her interest in the property to be recorded and for the property to be sold.

[6]      The plaintiff also seeks the rental income, which since the first defendant and

Ms Lu left the property, has been received into their joint account between April

2012 and May 2013.  Since May 2013 the plaintiff says she is unaware of whether the property is tenanted.

[7]      Finally the plaintiff alleges that she advanced moneys to the first defendant for him to invest on her behalf.  She says that he has failed to account fully to her following the termination of that investment.  While she acknowledges the return of the principal of $500,000 she claims a further $41,247 which apparently represents accrued interest on certain deposits made by the first defendant and Ms Lu on her behalf.

[8]      The formal orders sought by the plaintiff against the first defendant are:

(a)      orders declaring that she owns the property held in the name of the first defendant and Ms Lu as to 84 per cent;

(b)      an order for sale of the property;

(c)      an order for taking of accounts in relation to the rental income and judgment for such sum as may be payable as found to be due and owing;

(d)judgment for the $41,247 on the basis of a breach of fiduciary duty and failure to account.

[9]      The plaintiff is supported in her application by her daughter Ms Lu.   Both have sworn affidavits for the formal proof application.

[10]     The proceedings were issued on 18 November 2014.  They were served on the  first  defendant  on  21  November  2014  and  on  the  second  defendant  on  10

December 2014.  By order for substituted service, service on the third defendant was dispensed with on 3 February 2015.

[11]     As  the  first  defendant  failed  to  take  any  steps  the  plaintiff  filed  a memorandum on 26 February 2015 seeking to have the matter listed for formal proof to enable the plaintiff to obtain judgment.   As a matter of courtesy copies of the

documents were made available to the solicitor who had formerly represented or written letters on behalf of the first defendant.  As a result, on 8 July, the day before the formal proof hearing, the first defendant made application for leave to file a statement of defence out of time.  There were some brief communications between the  solicitor  for  the  first  defendant  and  the  plaintiff’s  solicitor  prior  to  that application being filed by counsel Mr Collecutt.

[12]     The first issue for the Court is whether the first defendant’s application for leave to file and statement of defence out of time ought to be granted.  If leave is granted then obviously the application for formal proof cannot proceed.  If leave is not granted then the Court would be required to consider the application for formal proof on its merits on the information and evidence before the Court.

[13]     The principles to apply on an application for leave to file a statement of defence out of time were discussed in the case of Shoye Venture Ltd v Wilson & Anor1 and more recently in the case of Neumayer v Kapiti Coast District Council &

Ors.2   The three considerations relevant to the Court’s decision as to whether to grant

leave to defend out of time are:

(a)       whether the defendant has a substantial ground of defence; (b)          whether the delay is reasonably explained;  and

(c)       whether the plaintiff will suffer irreparable injury if leave to defend is belatedly granted.

[14]     The overall assessment of those factors must be informed by the interests of justice in each individual case.

[15]     The first issue is whether the first defendant has an arguable defence to the plaintiff’s claim.  The plaintiff’s claim is that she contributed the major proportion of the funds for the purchase of the property on the understanding that the property was

to be held in trust for her and for the first defendant’s parents in the proportion that

1      Shoye Venture Ltd v Wilson & Anor [2013] NZHC 2339.

2      Neumayer v Kapiti Coast District Council & Ors [2014] NZHC 417.

they  contributed  funds  to  the  purchase  of  the  property.    There  is  no  written declaration of trust to that effect.  The title of the property is held in the name of the first defendant and Ms Lu.  It is not held in the name of the plaintiff and the second and third defendants.  Nor, as noted, is there any separate independent declaration of trust by the first defendant and Ms Lu.  Despite that the plaintiff’s case is that the first defendant and Ms Lu hold the property in trust for her and the second and third defendants.

[16]     In response, and apart from making the point that the documentation does not support the plaintiff’s case, the first defendant submits that there is evidence of his contributions to the property and that the intention was the plaintiff and his parents would assist him and Ms Lu to purchase the property by gifting the property to him and Ms Lu.  He refers to a letter Ms Lu wrote to New Zealand Immigration shortly after the property had been purchased to the effect that:

[W]e purchase the house with cash (343 Hillsborough Road, Auckland, New

Zealand). We want to live together in New Zealand for ever.

[17]     Mr Collecutt submitted that that statement by Ms  Lu supported the first defendant’s argument that the house was always intended to be his and Ms Lu’s and that there was no trust in favour of the plaintiff.  It was also consistent with the title itself.   He noted that that statement of Ms Lu’s in her letter to New Zealand Immigration  was  contrary  to  the  evidence  that  Ms  Lu  gave  in  support  of  the plaintiff’s application for formal proof in the present case.

[18]     Ms Manuson referred to the documents assembled by the plaintiff to support the application for formal proof and noted that those documents supported the fact that funding came from the plaintiff to purchase the property.   Unfortunately the material before the Court is somewhat confusing in that in her affidavit the plaintiff at one stage refers to a balance of NZ$436,000 being needed to complete the purchase. The plaintiff says in her affidavit:

I did not have enough money at the time, so I asked my nephew to lend me CNY 2,200,000.   In May 2008, my nephew said that he had organised to have the amount of CNY 2,200,000 remitted to the joint account of my daughter and the first defendant.

[19]     I understand that that is a substantial part of the contribution relied on by the plaintiff to support her claim for a trust but even on the plaintiff ’s own evidence it would appear that that money went from the nephew to the first defendant and Ms Lu.

[20]     As Mr Collecutt submitted there are really three possible outcomes here. The first is that as the title discloses that the property is owned by Ms  Lu and the defendant with no interest by the plaintiff on the basis that the contributions the plaintiff and the second and third defendants may have made were by way of gift to the first defendant and Ms Lu.  The second is that there was no gift and that there is a trust established in favour of the plaintiff.  The third possibility is that even though the property is held in the names of Ms Lu and the defendant, there has been some loan arrangement with some amount repayable by the first defendant and Ms Lu to the plaintiff (and possibly the second and third defendant).

[21]     Which  is  the  correct  position  is  impossible  to  resolve  on  the  material currently before the Court.  At the very least the material put before the Court and submissions made on behalf of the first defendant raise an arguable defence to the plaintiff’s claim as it currently stands.  I do not accept Ms Manuson’s argument that the first defendant has not previously raised the defence he now seeks to raise. There is correspondence from the solicitors on behalf of the first defendant going back to April 2014 recording the first defendant’s position and indeed reference is made in that correspondence to contributions made to the property by the first defendant himself, although the plaintiff does not accept that.

[22]     It follows that I accept there is at least for present purposes an arguable

defence to the plaintiff’s claim.

[23]     The next issue is whether the delay has been reasonably explained.  In this regard Ms Manuson drew my attention to a judgment in the Chinese Court of a civil court verdict obtained against the first defendant on the basis of the first defendant’s failure to take any steps to defend.  I am not quite sure what the relevance of that particular decision is.   What is relevant for present purposes is that after the proceedings were served on the first defendant in November 2014 he failed to take

any proper steps to defend the matter until 8 July 2015.  The explanation offered that English is his second language and he did not effectively understand the significance of the proceedings is not at all convincing. The delay in filing a statement of defence and seeking to take steps in this proceeding is extremely unsatisfactory and counts against the first defendant’s position and application.

[24]     The last issue for consideration is whether the plaintiff will be prejudiced if leave is granted to the defendant to defend the matter and the matter has to proceed to a full substantive hearing.  In relation to that, to the extent the plaintiff’s claim is for an interest in the property, the property cannot be sold without Ms Lu’s consent. The clear inference is  that  she supports  the plaintiff.   Further,  the plaintiff has registered a caveat against the property.  To that extent her interest in the property is protected.  It should not be possible for the first defendant to raise any money on the security of the property without Ms Lu’s consent.  The caveat protects the plaintiff’s position as well.  There is no suggestion of a falling property market.   Rather the reverse is the position at present.

[25]     Ms  Manuson  submitted  that  the  plaintiff  required  her  interest  to  be crystallised and the property sold to enable the plaintiff to meet commitments that she undertook in relation to borrowing the money herself to make it available to the first defendant and Ms Lu to purchase the property.   However, the only apparent reference to that on the evidence currently before the Court is the reference I have referred to of funding being provided by a nephew. The difficulty with that is that on the evidence relating to that it seems the nephew provided the money directly and if indeed the plaintiff is responsible for repayment of the nephew there is no reference in the affidavit to the terms upon which the money was advanced to her.

[26]     I am not satisfied on the evidence before the Court that there is any particular prejudice to the plaintiff if leave is granted to defend.

[27]     I then stand back and look at the matter overall considering the interests of justice.  There is an arguable defence disclosed to the current claim by the plaintiff. The  prejudice  to  the  plaintiff  will  be  in  the  delay associated  with  the  ultimate resolution of the proceedings but her position is protected in the interim.  The factor

that counts most against the first defendant being granted leave to defend is the failure of any good explanation or reason for him not to have taken steps to defend this proceeding earlier.   However, I am satisfied that that can be addressed by an order for costs against the first defendant for the wasted steps the plaintiff has been put to, to the present time.

[28]     For those reasons I am satisfied the interests of justice support the application for leave to file and an extension of time for filing a statement of defence.  There will be an order accordingly granting leave to the first defendant to file a statement of defence.  It however is conditional upon the following orders being complied with:

(a)      the defendant is to file and serve a fully particularised statement of defence by 4.00 pm, Friday, 24 July 2015;

(b)by the same date and time the defendant is to pay to the plaintiff ’s solicitors the wasted costs incurred by the plaintiff of $8,318.50 for the following matters:

(i)       filing of the memorandum for case management purposes –

0.4 of a day;

(ii)preparing  submissions  and  affidavits  for  the  hearing  this morning – 2.5 days;  and

(iii)     an assessment for other general wasted costs of 1 day;

(iv)together with an appearance this morning measure on a ¼ day at .25 of a day (at the new rate, applied since 1 July 2015).

That sum of $8,318.50 is to be paid to the solicitors for the plaintiff by

4.00 pm on 24 July 2015.

[29]     In the event that either of the above orders are not complied with by 4.00 pm on 24 July 2015, then the first defendant will be debarred from defending this

proceeding and taking any further steps in the proceeding and the matter will be reallocated for a formal proof hearing at the plaintiff’s request.

[30]     In the event that the statement of defence is filed and the costs are paid the parties are to complete discovery by 14 August 2015 and the case is to be allocated a case management conference for the purposes of making directions for a full substantive hearing.  That case management conference is to be convened on the first

available date after 24 August 2015 as allocated by the Registrar.

Venning J