General Finance Limited v Lau
[2023] NZHC 3417
•29 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001364
[2023] NZHC 3417
UNDER the Declaratory Judgments Act 1908 BETWEEN
GENERAL FINANCE LIMITED
Applicant
AND
EE KUOH (AUGUSTINE) LAU
First Respondent
LIYUN CHEN
Second Respondent
Hearing: 21 November 2023 Appearances:
M G P Martin for the Applicant E K Lau in person
Judgment:
29 November 2023
JUDGMENT OF WHATA J
This judgment was delivered by me on 29 November 2023 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors:
Martelli McKegg, Auckland Copy to: E Lau, L Chen
GENERAL FINANCE LIMITED v LAU [2023] NZHC 3417 [29 November 2023]
[1] This is an application by General Finance Limited (GFL) seeking a declaration that a document alleged by Mr Lau to be a residential tenancy agreement for 9 Sunderlands Road, Half Moon Bay (the Property) is invalid and unlawful with no effect.
Background
[2] The background to this matter is set out in a number of judgments of this Court.1 I adopt the shortened account given in General Finance Limited v Lau (GFL caveat judgment):2
[9] On 4 February 2022, Ms Chen, as Trustee for the Royall Family Trust, executed as borrower / mortgagor, and personally as a guarantor, a term loan agreement comprising a loan of $2.6m and a mortgage over the Property and other properties as collateral security in favour of GFL. The funds were advanced the same day. The loan was not repaid when it fell due on 4 February 2023. A default notice was issued by GFL on 7 February 2023, requiring the principal sum of $2.6m together with interest of $112,909.36. It also advised that default had to be remedied by 2 May 2023. It was not remedied.
[10] Shortly thereafter GFL issued notices under ss 119 and 122 of the Property Law Act 2007 (PLA) in respect of the Property and the other properties. Ms Chen then sought orders in this Court effectively to injunct these notices until her claim in separate proceedings were determined. In those separate proceedings she claimed among other things that GFL had acted oppressively and that GFL owes her $9,650,000. Ms Chen’s application was dismissed, the Court finding that the interests of justice did not favour an injunction and that in any event there was no serious issue to be tried.
[11] Still further proceedings were commenced by Ms Chen claiming, among other things, that GFL did not have a caveatable interest in the Property. That claim was rejected as untenable.
[12]Leave to appeal these matters has been declined.
[13] On 11 June 2023, Mr Lau served a trespass notice, claiming that he had an interest in the property under a tenancy agreement with Ms Chen, pursuant to a separation deed executed on 9 June 2021 (“Separation Agreement”). It relevantly records the following under clause 4:
By way of settlement under negotiation with the help of family member, the following agreements reach for the properties under Ms Chen;
1 Including Chen v General Finance Limited [2023] NZHC 1329, Chen v General Finance Limited
[2023] NZHC 178, General Finance Limited v Lau [2023] NZHC 2205.
2 General Finance Limited v Lau [2023] NZHC 2205 [GFL caveat judgment].
a)Mr Lau gave up all the equity of the properties owned by Ms Chen by way of cash settlement due to Mr Lau diagnosed to have problem of mental health issue of ADHD in 2018.
b)Mr Lau will be granted tenancy/lease of all the properties owned by Ms Chen either owned by personal, Family Trust, Company for minimum from 25 to 35 years depending on the nature of the properties and future prospect of the properties.
c)Mr Lau suggested in favour of the lease/tenancy of all properties to be sustain to his 83 years old as the medium of New Zealand manage to be 81 as of the statistic in year 2020.
d)Mr Lau can lodge notice of claim or caveat an all the properties owned by Ms Chen either currently or in future.
e)Mr Lau continue assist Ms Chen to manage all her properties with the credit to be credited into the lease/tenancy of the individual property.
f)Ms Chen will cooperate to sign any lease/tenancy documents in separate documents within 48 hours’ notice from Mr Lau.
g)If any party die during the any period, the Children listed above only can took equal share of the properties and automatically inherent from either Mr Lau or Ms Chen.
[14] The tenancy agreement records that the tenancy shall commence on the 19th day of June 2021, for a fixed term, ending on 19 June 2056. It also records:
4.The rental derived from the ½ share equity under property relationship act 1976 (approx. $1,000,000.00) and the contribution of tenant for as consultant of ongoing subdivision process and labour contribution to the renovation of the property that at the amount of say $100,000.00.
5.This tenancy cannot be terminated within the tenancy period without consent from tenant.
6.Tenant will pay all outgoings of the property. Power, water and land rates.
7.Tenant had the first right to purchase the property.
[15] On 12 July 2023, the Property was sold at auction with settlement due to take place on 10 August 2023. That date has been extended to 17 August 2023.
Mr Lau’s caveat
[16] Mr Lau notes he lodged a caveat of the Property on 19 May 2023, but it was registered on 21 July 2023. He has also issued a notice of claim in respect of the property pursuant to the Property (Relationships) Act 1976. The caveatable interest claim has four parts:
(a)an interest based on a tenancy agreement;
(b)an interest based on a lease;
(c)an interest based on a sale and purchase agreement; and
(d)the notice of claim.
[17]The tenancy agreement is described at [14].
[18] The lease was provided in Mr Lau’s second affidavit and was signed by Ms Chen as landlord and Mr Lau as lessee. This affidavit was filed with the Court on 15 August 2023. The lease is dated 19 June 2021 and includes the following background and terms:
(i)Following the separation agreement dated 9.6.2021, the parties agreed the following lease terms at 9 Sunderlands Rd, Half Moon Bay, Auckland.
(ii)Due to part of the property-lounge and master bedroom used for Robotic training, and another room on the North west corner may be using for Robotic.
(iii)This Lease will be taken out of the specific area of the Robotic and the other tenancy agreement will take out the remaining area of the property and both Deed of lease and Tenancy agreement are prepaid until year 2056. The area of both Deed and tenancy interchangeable and can be varied from time to time without any notice.
(iv)The actual possession of the premises at 1.6.2021 and both Deed and tenancy to be signed no later than 19.6.2021 in order to avoid the litigation at Family Court that may file by Mr Lau
(v)Tenant allowed the landlord to do any further subdivision for the property with the new plan changed expected to be operative in year end 2022 and mid-year 2023.
(vi)Tenant must be fully co-operative and tenant is the consultant of the subdivision and will be doing the Job in husbandship manner while the fees will be included in the prepaid lease of tenancy.
(vii)This agreement to be private and confidential and not allow to be disclosed without approval of the other party to 3rd parties.
(1) Both parties agreed;
(a)The lease is prepaid lease up to 1.6.2056 with the final term yet to determine depending on the consultant fees that contribution by tenant in future.
(b)The tenant had contributed to the work hours to renovate the property and contributed preliminary subdivision of the
property that worth say $50,000.00 and the tenant will start paying expenses after the credit used up.
(c)The property will be as is what it is.
(d)Tenant liable for all the maintenance of the property and the expenses of the property with rates payment after the contribution of renovation and subdivision used up.
(e)Tenant pay Charges for water, gas, electricity, telecommunications and other utilities or services, including line charges.
(f)Tenant pay Rubbish collection and recycling charges.
(g)Tenant pay New Zealand Fire Service charges and the maintenance charges in respect of all fire detection and firefighting equipment (if any)
(h)Tenant pay Any insurance excess (but not exceeding $2000) in respect of a claim and insurance premiums and related valuation fees.
(i)Tenant pay The cost of maintenance of lawns, gardens and planted areas including plant hire and replacement, and the cost of repair of fences.
(j)Tenant pay Yard and carparking area maintenance and repair charges but excluding charges for repaving or resealing.
…
(l) Any further terms in future can be negotiated thru both parties within 5 working days or mediation between both parties thru mediators within 10 working day notice from either party.
[19] The sales and purchase agreement dated 21 June 2021 in relation to the Property is signed by Ms Chen as vendor and Mr Lau as purchaser. The agreement addresses purchase price by way of special clause as follows:
Special clause between the vendor Liyun Chen as personal trustee and purchaser Ee Kuoh Lau – 9 Sunderlands Rd, Half Moon Bay.
(a)Both parties agreed the purchase price to be the cost 3.2million considering renovation minus down payment of
$800,000.00
(b)The deposit to be the remaining terms of prepaid lease being
$40,000.00 per annum of remaining terms left at the time of sales.
(c)All the terms of condition of the sales and purchase agreement must follow the separation agreement dated 9.6.2021
[20] The deposit for the agreement is recorded as “the remaining term of prepaid lease / tenancy 19.6.2021”. The date of settlement is said to be 120 days “after the agreement go unconditional”.
[21] Mr Lau explained that the agreements and lease were the outcome of a lengthy negotiation with Ms Chen who he says refused to let him take out his equity in the relationship property. He says the documents protect his interests in that property as:
(a)the tenancy enabled him to stay at the Property;
(b) the lease enabled future commercial use of the Property, including in association with the Robotics New Zealand (the association with robotics being a matter of considerable importance to Mr Lau and his children);
(c) the sale and purchase agreement enabled him to secure the property in the event that this became necessary in the future for whatever reason; and
(d) the notice of claim protected any claim he might have to any funds paid by GFL to Ms Chen.
[3] In the same judgment, Mr Lau’s caveat was removed. However, even though the Court had serious doubt about the tenancy, it remained arguable that the residential tenancy conferred a right to a fixed tenancy.
Process
[4] This matter was put on hold pending resolution of the caveat proceedings. Even though those proceedings were resolved in GFL’s favour, and GFL assumed control of the property, it seeks that this application be resolved because it anticipates Mr Lau may wish to sue GFL as landlord. A hearing date was obtained and notice to cross-examine was served on Mr Lau.
[5] On the morning of the hearing Mr Lau sought an adjournment or that the matter be heard by way of VMR. He said he was sick. The application was opposed. I convened the hearing by way of VMR to assess the position. While Mr Lau was coughing I quickly formed the view that an adjournment was not necessary but that we should proceed by VMR. Mr Martin while registering concern, did not press with any opposition.
[6] During the hearing Mr Lau’s phone cut off on two occasions. Mr Lau advised his phone became overheated because of the video function. I then decided to proceed
by way of phone call only. Again, Mr Martin was not happy, but did not press with any opposition. In reality, assessment of demeanour was not an important factor.
GFL’s case
[7] Mr Martin submits that the residential tenancy agreement is a sham. In particular:
(a)The residential tenancy agreement had not previously been referred to in correspondence between GFL and Ms Chen and has only arisen in circumstances where GFL has taken possession of the Property and was preparing the mortgagee sale of the Property.
(b)Ms Chen did not declare the fact of the alleged residential tenancy at the time that she entered into loan arrangements for GFL.
(c)The residential tenancy agreement alleges terms of residential tenancy which are highly unusual (including a 35-year fixed term, no bond and no rental payments).
(d)The residential tenancy agreement alleges that Ms Chen is the landlord under the agreement, apparently in her personal capacity, although Ms Chen is the registered owner of the property in her capacity as trustee of the Royall Family Trust and not in her personal capacity.
(e)The Property itself does not exhibit signs of having been occupied for the purposes of a residential tenancy.
(f)The residential tenancy agreement purports to rely on terms of the deed of separation (Separation Agreement) that is invalid and was not provided until proceedings were issued.
(g)The residential tenancy agreement is internally inconsistent in so far as it provides a 35-year period for tenancy, but at the same time indicating that the property is to be subdivided (though presumably sold).
(h)As Ms Chen owns the Property as a trustee and Mr Lau is not a beneficiary of the relevant trust any purported vesting of the property in Mr Lau was likely to have breached her obligations as trustee.
(i)The consideration for the tenancy was fanciful;
(i)an unproven pre-payment of $1 million; and
(ii)prepaid rent for services to be rendered.
(j)There are multiple residential properties owned by Ms Chen with similar tenancy arrangements — plainly not all can be used by Mr Lau for residential purposes.
[8] Overall, Mr Martin contends that given the impending mortgagee sale, the implausible nature of the tenancy, the unproven consideration, internal inconsistencies, and the number of similar alleged tenancies, the residential tenancy agreement is plainly a sham.
Mr Lau’s case
[9] Mr Lau maintains that the tenancy is a legitimate part of his separation package with his former wife, Ms Chen. He says he wanted to secure a long-term tenancy because of his ADHD illness. He took a careful and comprehensive approach to protect himself from future claims by Ms Chen and to save legal fees, hence the dual lease and residential tenancy arrangements, the 35-year term and consideration in the form of the value of his interest in the relationship property together with the value of services provided by him in terms of the renovation and development of the property. He says there is nothing implausible about this. They were put in place to provide surety for his position after the separation. He also says the Separation Agreement was valid, offering evidence to show that Ms Chen in fact obtained independent legal advice. He also says that all related agreements pre-date the loan agreements with GFL and should take priority. He added that the residential tenancy agreement also had tax benefits to him and Ms Chen and that with the agreements in place he did not need to take formal steps at the time of their creation, like registering caveats to protect
his interests. Mr Lau says that the complexity of the agreements themselves show he would have had assistance from lawyers. Finally, he says that the entire purpose of these proceedings is to improperly defeat his legitimate claims against GFL as landlord. These claims include a claim for losses incurred by him when GFL destroyed his personal effects located at the Property.
Assessment
[10] With the benefit of full argument and evidence, I am now in a position to assess the substantive merits of the application. I do not consider Mr Lau or his account to be credible.
[11] First, the timing of the appearance of these documents is remarkable — only appearing after the commencement of proceedings by GFL.
[12] Second, there is no independent evidence to corroborate the timing of the execution of the Separation Agreement, lease or residential tenancy agreement. Only Mr Lau and his mother offered evidence as to the timing of their creation. Independent persons who might have been able to confirm the timing of those agreements, including various lawyers allegedly involved in their drafting were not called to give evidence.
[13] Third, steps that could have been taken at the time of the execution of the agreements which could have verified the existence of those agreements as at July 2021 were not taken, including for example the lodging of a bond, registration of the lease, or registration of caveats.
[14] Fourth, Ms Chen did not appear and was not called to give evidence to corroborate Mr Lau’s account. Given the significance of the claims, she could have been expected to give evidence on these key matters.3 Mr Lau’s response that Ms Chen had signed a declaration as to the validity of the Separation Agreement, and that this was witnessed by lawyers, is simply inadmissible hearsay evidence given that there is nothing before the Court to suggest she was not available to give evidence.4
3 Ithaca (Custodians) Ltd v Perry Corporation [2004] 1 NZLR 731 (CA) at [153].
4 Evidence Act 2006, s 18; Anderson v R [2020] NZCA 106 at [31].
[15] Fifth, the scheme put in place by the Separation Agreement is both contrived and fundamentally flawed. The effect of this scheme is to purportedly confer on Mr Lau a range of interests, including a long-term fixed tenancy, a leasehold, and a right to purchase the Property. As noted in the GFL caveat judgment,5 that scheme of arrangements is very poorly documented, and the Separation Agreement is void on its face because it is not witnessed by solicitors as required by s 21A of the Property (Relationships) Act 1976. It is also manifestly uncertain. It states for example:
(i)“Mr Lau will be granted tenancy / lease”;
(ii)“owned by Ms Chen, either owned by personal, Family Trust, Company”;
(iii)“for minimum from 25-35 years”; and
(iv)“depending on the nature of the properties and future prospect of the properties”.
[16] The residential tenancy agreement, sale and purchase agreement, and lease are all based on the agreements reached under the Separation Agreement. Their terms are equally uncertain. The residential tenancy agreement refers to “a future lease agreement … if the property allowed to subdivide for 9 lots after 1.1.2022 under new proposed plan”, while the lease also refers to “the final term yet to [be] determine[d]”. The residential tenancy agreement also purports to be irrevocable without consent of the tenant. Given the rights, though limited, of landlords to terminate under the Residential Tenancies Act 1986 (RTA) that clause is unenforceable. On this, the Property’s status as a residential tenancy is inconsistent with the proposed commercial lease of the premises. It is also not clear whether and when Ms Chen is purporting to bind herself as a trustee or personally in respect of these arrangements. Furthermore, the so-called consideration for the residential tenancy is based on an unsubstantiated relationship property claim and future unquantifiable work. Compounding the improbability of these arrangements, it is likely, as Mr Martin submits, that the purported conferral by Ms Chen of the beneficial interests in the property (in addition
5 GFL caveat judgment, above n 2 at [31].
to several other properties) to Mr Lau breached her fiduciary obligations as trustee of those properties.
[17] Overall, as stated in the GFL caveat judgment, an irrevocable fixed residential tenancy of 35 years duration, combined with a lease for the same duration and a contingent sale and purchase agreement concerning the same land, all immediately executed only months prior to the loan agreement, has all the hallmarks of a scheme designed to prevent future adverse dealings with the property. The fact that no notice was given by Ms Chen to GFL of these arrangements raises very serious doubts about the bona fides of these arrangements. I repeat, as a minimum, Ms Chen misled GFL as to the nature of her interests in the property.
[18] Finally, Mr Lau was afforded the benefit of the doubt in the GFL caveat judgment. He has now been given the opportunity to substantiate his claim. Despite his protestation to the contrary, there was nothing in his evidence to convince me that the alleged residential tenancy agreement has any credible basis.
[19] For completeness, Mr Martin addressed potential issues as to jurisdiction noting s 77 of the RTA which provides that the tribunal has jurisdiction to determine any dispute that exists between a landlord and a tenant. However, Mr Martin submits that GFL is not seeking a determination of whether or not there was a residential tenancy but rather whether or not the document itself is a valid residential tenancy document at all. I therefore see no bar to jurisdiction of this Court to make this determination.
Result
[20]The residential tenancy agreement is invalid and void.
[21]GFL shall have their costs on a 2B basis.
Whata J
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