Hung v Hung
[2024] NZHC 1809
•24 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1173
[2024] NZHC 1809
BETWEEN PUI HUNG HUNG
Plaintiff
AND
FAN MING HUNG
Defendant
Hearing: 18 June 2024 at 9:30am Appearances:
A J Peat/M A Ashmore for the Plaintiff J C Suyker for the Defendant
Judgment:
24 July 2024
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application that caveat not lapse]
This judgment was delivered by me on 24 July 2024 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Elemental Legal (Alex Lee), Auckland, for the Applicant
Zhang Law (Xinan Zhang), Mt. Eden, Auckland, for the Respondent
Copy for:
Andrew J Peat, Shortland Chambers, Auckland, for the Applicant
Sam Lowery/Josh Suyker, Bankside Chambers, Auckland, for the Respondent
PUI HUNG HUNG v FAN MING HUNG [2024] NZHC 1809 [24 July 2024]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
Mrs Hung’s application for caveat to not lapse [10]
Affidavit of Pui Hung Hung dated 20 May 2024 [12]
Mr Hung’s opposition [17]
Affidavit of Fan Ming (Harry) Hung dated 27 May 2024 [18] Reply affidavit of Pui Hung Hung dated 13 June 2024 [24] Affidavit of Hing Mun Hung dated 13 June 2024 [34] Affidavit of Wai Kiu Crystal Hung dated 13 June 2024 [38]
Legal principles [44]
Analysis [50]
Basis of Mrs Hung’s caveatable interest [52]
Resulting trust [53]
Constructive trust [58]
(a) Contributions to the property [58]
(b) Expectation of interest in the property [58]
(c) The expectation was reasonable and Mr Hung
was expected to yield the interest to Mrs Hung [58]
(d) Mr Hung should have reasonably been expected to
yield the interest to Mrs Hung [58]
Were Mrs Hung’s funds used to purchase the property? [61]
Conclusion in respect of caveatable interest [67]
The OIA issue [68]
Conclusion in respect of OIA issue [72]
Result [73]
Undertaking as to damages [74]
Orders [78]
Introduction
[1] Pui Hung Hung (Mrs Hung) has applied for an order sustaining caveat number 12978236.1 (the caveat) lodged by her against record of title NA7B/738 being a property registered in the name of her son, Fan Ming Hung also known as Harry (Mr Hung), on 20 Treeway, Sunnyhills, Auckland (the property).
Background
[2] Mrs Hung and her husband, Mr Hing Mun Hung (Mr Hing Mun Hung) had a number of successful businesses in China. The family moved to New Zealand, with the parents joining later.
[3] In order to invest in the New Zealand property market, two companies were incorporated: ERA (Beach Road) Development Limited (Beach Road company) and ERA (Massey) Development Limited (Massey company) (together, the companies). Currently, Mr Hung is the sole director and shareholder of the Beach Road company. He is also one of the two directors and shareholders of the Massey company.
[4] Mrs Hung contributed $6 million initial capital to the Beach Road company and $4.81 million of initial capital for Massey company. She continued to fund the operation of the businesses. As Mrs Hung and her husband invested in the New Zealand property market, Mr Hung sometimes acted as a conduit for his parents.
[5] The property was identified by a family friend, Junwen Long, who had an agreement for sale and purchase to acquire the property from the vendor for
$2.74 million. Junwen Long nominated Mrs Hung’s daughter, Wai Kyu Crystal Hung (Ms Crystal Hung) to complete settlement which occurred on 9 December 2021. The property was temporarily held by Ms Crystal Hung before it was transferred to Mr Hung. On 21 June 2022, Mr Hung then entered into an agreement for sale and purchase with Ms Crystal Hung.
[6] On 9 September 2022, the settlement and payment of funds occurred. Consequently, Mr Hung became the registered owner of the property.
[7] Mrs Hung transferred $900,000 to Mr Hung on 6 June 2022. While Mr Hung claims that these funds were a loan that he eventually paid off, Mrs Hung claims that these funds were used in payment of the purchase price of the property, and they were never intended to be a gift or a loan.
[8] There was no express agreement that Mr Hung would hold the property on trust for his mother. Mrs Hung claims that while she never had an express trust arrangement for the property, it was to be an investment property with Mr Hung holding it on her behalf.
[9] On 15 April 2024, Mrs Hung lodged a caveat against dealings over the title of the property to protect her claimed interest.
Mrs Hung’s application for caveat to not lapse
[10]Mrs Hung seeks orders that the caveat not lapse and for costs.1
[11]The grounds on which the orders are sought are, in summary:2
(a)Mr Hung is recorded as the registered owner of the property.
(b)Mrs Hung claims a beneficial estate or interest in the land under an implied trust (arising by operation of a resulting and/or constructive trust).
(c)Mrs Hung contributed the majority, if not all, of the consideration for the purchase of the property. There was never any intention for Mrs Hung’s contribution to be a gift or loan to Mr Hung.
1 Originating application for order that caveat not lapse dated 20 May 2024 at [1].
2 At [2].
(d)Mrs Hung intended for the property to be held on her behalf as an investment and Mr Hung holds the property as bare trustee.
(e)The caveat is intended to protect, and is necessary to protect, Mrs Hung’s estate or interest arising as set out above.
Affidavit of Pui Hung Hung dated 20 May 2024
[12] Mrs Hung has made an affidavit in support of the application that the caveat not lapse.3 She deposes that she has a caveatable interest in the property in the form of an implied trust. She agrees that there was no express trust but believes it was implied.
[13] Mrs Hung deposes that Mr Hung holds his interest in both companies on trust for her and Mr Hing Mun Hung. She states that they wanted to regularise this but could not do so due to Mr Hing Mun Hung only becoming a tax resident in late August 2024. However, she notes that:
(a)Mr Hung entered into an express declaration of trust dated 28 January 2024 for the Beach Road company shares in favour of Mr Hing Mun Hung; and
(b)Mr Hung entered into an express declaration of trust dated 6 February 2024 for Massey company shares in favour of Mr Hing Mun Hung (which expressly recognised that all funding was from Mr Hung).
[14]In relation to the funds for the settlement of the property, Mrs Hung deposes:
(a)On 6 June 2022, she transferred $900,0000 from her bank account to Mr Hung for the purchase of the property.
(b)Mr Hung entered into a loan agreement with Westpac for around
$1.55 million and transferred money from the Massey company bank
3 Affidavit of Pui Hung Hung in support of application for order that caveat not lapse dated 20 May 2024.
account to his personal account to repay the monthly interest and principal payment to Westpac.
(c)Mr Hung took money from the Massey company bank account to pay for the remainder of the purchase price which was $290,000.
[15] Mrs Hung notes that Mr Hung holds share in the companies on her and Mr Hing Mun Hung’s behalf. She emphasizes that she never intended to gift any of the above for the purchase of the property to Mr Hung or make a loan to him. Instead, she states that the $900,000 she transferred was to be an investment in the property. She also adds that the money she has invested into the companies was also an investment.
[16] In conclusion, Mrs Hung asserts that while there was never an express trust arrangement, the property was to be an investment with Mr Hung holding it on her behalf.
Mr Hung’s opposition
[17]Mr Hung opposes the application on the following grounds:4
(a)Mrs Hung does not have a beneficial interest in the property; and
(b)any funds advanced from Mrs Hung to Mr Hung have been repaid.
Affidavit of Fan Ming (Harry) Hung dated 27 May 2024
[18] Mr Hung has made an affidavit in support of his opposition to Mrs Hung’s application.5 He acknowledges the $900,000 transfer made by Mrs Hung, but he states that he never had any agreement, written or oral with his parents that he would use the
$900,000 to buy an investment property to hold on trust for them. Instead, he deposes that the $900,000 was a loan given to him so that he could pay tax.
4 Notice of opposition to originating application that caveat not lapse dated 24 May 2024 at [3].
5 Affidavit of Fan Ming (Harry) Hung in support of notice of opposition dated 27 May 2024.
[19] Mr Hung deposes that since June 2022, he has repaid the $900,000 that Mrs Hung loaned to him by payments of:
(a) $500,000 in cash;
(b)$322,806.35 in mortgage payments for a property that his parents own; and
(c)$200,000 of unrefunded capital contributions to another property that his parents own.
[20] In relation to the purchase of the property, Mr Hung deposes that Ms Crystal Hung bought the property because he did not have the funds to buy it straight away. He needed to wait for a development to finish before he could pay for the property. He states that once the development was finished and he had the money to purchase the property, he bought the property from Ms Crystal Hung. He states that his parents had nothing to do with funding his purchase of the property.
[21]Mr Hung outlines the purchase price’s funding as follows:
(a)$1,550,000 as a loan from Westpac, secured by mortgage over the property; and
(b)$1,190,000 in cash, from his personal Westpac account.
[22] Mr Hung notes that Mrs Hung is incorrect in saying that he used $290,000 from the Massey company account to fund the property’s purchase. He further deposes that since 9 September 2022, he has paid the mortgage in respect of the property using his own funds and that he continues to do so.
[23] Mr Hung concludes his affidavit by stating that he brought the property to develop it and he entered into a loan agreement in order to fund the development. However, he states that due to the caveat, drawdown under the loan agreement could not proceed. As a result, he states that he is subject to the holding fee and the caveat is costing him a lot of money.
Reply affidavit of Pui Hung Hung dated 13 June 2024
[24] Mrs Hung has made an affidavit in reply to Mr Hung’s affidavit.6 At the outset, she records her concern about what Mr Hung has been doing. She says it appears that for some time Mr Hung has been transferring money from her bank account and the companies’ bank accounts for his own benefit.
[25] In relation to Mr Hung’s claim that the $900,000 transfer was a loan, Mrs Hung rejects his claim and states that she never had any discussion or agreed to make a loan of $900,000 to Mr Hung to pay taxes.
[26] Mrs Hung deposes that before Ms Crystal Hung acquired the property, she discussed with both Mr Hung and Ms Crystal Hung the process that would be followed: Ms Crystal Hung would temporarily hold the property and then transfer it to Mr Hung, who would hold it on her behalf. She outlines the reasons as:
(a)She was overseas at the time and was not able to hold the property in her own name due to immigration and overseas investment rules.
(b)She wanted to leverage part of the purchase of the property from bank lending.
(c)Her intention was not to sell the property but rather create a number of houses on the property and rent those out long-term for a passive investment. That is the reason why the property was not held by one of the companies.
[27] Mrs Hung states that she has no idea why Mr Hung has $900,000 in tax to pay. She states that if the companies required funds and she was assisting with that, then she would pay those funds directly into the companies’ bank accounts. She recalls transferring a significant amount of funds directly to Mr Hung when he was helping with the purchase of their family home. While Mr Hung is the registered owner of the family home, she states that it was always to be held for her and Mr Hing Mun Hung.
6 Affidavit in reply of Pui Hung Hung dated 13 June 2024.
[28] Mrs Hung deposes that $900,000 is a specific amount and it was to go together with $1.55 million in lending from Westpac along with the $300,000 that came from her account. She states that those amounts together totalled $2.75 million which is the purchase price of the property. She also mentions her contribution to the construction work at the property including her two recent payments totalling $476,722.80. She states she has done this because it is her property, and the work is being carried out by two companies on her behalf. The two companies are ERA Development Limited (a construction company of which Mr Hung is the sole director and shareholder but held on Mrs Hung and her husband’s behalf) and ERA Homes Limited (an entity run by Mr Junwen Long).
[29] In relation to Mr Hung’s claim of repaying the loan, she deposes that her belief was always that the funds that she contributed to the purchase of the property meant that she owned it. She states that there was never any suggestion that Mr Hung could simply give some money back and take the property. However, in any event, she states that Mr Hung has not repaid money. She also refers to a number of transfers made by Mr Hung from her personal account and the companies’ accounts.
[30] Mrs Hung deposes that she believes Mr Hung has continued to pay the Westpac loan on the property with the funds he has either transferred from her bank account or the companies bank accounts.
[31] Mrs Hung refers to earlier this year when she arranged along with Mr Hing Mun Hung for the express deeds of trust to be entered into. She states that it was simplest to have Mr Hing Mun Hung as the beneficiary. Mr Hung signed the first set of deeds on 26 January 2024 and was to sign the second set of deeds on 6 February 2024. She states that as part of the second set, Mr Hung was meant to do the same for the property but got upset and left before doing so. As the only son, she deposes that Mr Hung felt it should be his property.
[32] Referring to the series of transactions mentioned in Mr Hung’s affidavit, Mrs Hung deposes that Mr Hung is cherry-picking the transactions and, in any case, he was dealing with the companies on trust. Mrs Hung also addresses the loan
agreement that Mr Hung has referred to in his affidavit and states that she has not been aware of the loan for $4.8 million at any stage.
[33] Mrs Hung concludes her affidavit by stating that Mr Hung has no ownership interest in the property, and he was always holding it for her.
Affidavit in reply of Hing Mun Hung dated 13 June 2024
[34] Mr Hing Mun Hung has made an affidavit in reply to Mr Hung’s affidavit.7 He confirms that what is set out in Mrs Hung’s affidavit reflects his understanding of the events and is correct.
[35] Mr Hing Mun Hung deposes that various bank transfers made in late January and early February 2024 that Mrs Hung has referred to were done without their permission. He states that Mr Hung had been helping them with their property investments.
[36] Mr Hing Mun Hung mentions that Mr Hung entered into express deeds of trust to cover most of what was going on but got angry and stormed out of a meeting when it came around to the property. He believes that because Mr Hung is their only son, he felt entitled to it.
[37] Mr Hing Mun Hung confirms that where Mr Hung has now entered into an express deed of trust where he is the beneficiary, those interests are also held on behalf of Mrs Hung.
Affidavit in reply of Wai Kiu Crystal Hung dated 13 June 2024
[38] Ms Crystal Hung has made an affidavit in reply to Mr Hung’s affidavit.8 She sets out that Mr Hung asked her to complete the settlement of the property on 9 December 2021. Before speaking to Mr Hung, she states that Mrs Hung contacted her to get in touch with Mr Hung.
7 Affidavit in reply of Hing Mun Hung dated 13 June 2024.
8 Affidavit in reply of Wai Kiu Crystal Hung dated 13 June 2024.
[39] Ms Crystal Hung states that she reached out to Mr Hung shortly afterwards and exchanged messages that show:
(a)She had a brief call with Mr Hung where he explained there was a property that Mrs Hung was buying that he was helping her with.
(b)She did not have the funds to purchase the property but felt relaxed to provide Mr Hung her bank account details because she knew the property was for Mrs Hung and she was behind the purchase.
[40] Ms Crystal Hung deposes that there was a transfer of $331,007.30 from Mrs Hung’s bank account to her bank account. She states that she then completed the purchase with this amount together with the balance that came from Massey company.
[41] On 9 December 2021, she mentions speaking to Mrs Hung who provided more details about the property. She states that Mrs Hung wanted Mr Hung to purchase the property on her behalf and intended to hold it long-term. Mr Hung was to organise the loan from the bank and acquire the property from Ms Crystal Hung and Mrs Hung would be responsible for paying for it.
[42] Ms Crystal Hung deposes that Mrs Hung had transferred $900,000 from her Hong Kong bank account to Mr Hung’s ANZ personal account for the purchase of the property.
[43] Ms Crystal Hung deposes that it was never the case that she would ever own the property outright while she briefly held it, or that Mr Hung would own it afterwards. She states it was always an internal family arrangement where Mrs Hung would acquire the property through Mr Hung and hold it long-term. She asserts that she only acquired the property in the first place and then entered into a sale and purchase agreement with Mr Hung because Mrs Hung wanted to buy the property.
Legal principles
[44]Section 138 of the Land Transfer Act 2017 provides, relevantly:
138 Caveats against dealings with land
(1)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 land under an express, implied, resulting or constructive trust[.]
…
[45]Schedule 2 of the Land Transfer Regulations 2018 provides:
Caveat against dealings document s 138 of the Act
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) or, for a caveat under section 138(1)(d)(ii) of the Act, the matters that establish that there is a risk that the estate of interest may be lost through fraud.
Details of how the estate or interest claimed is derived from the registered owner.
[46] The principles governing the determination of applications to sustain caveats are well-established.9 The onus is on the caveator to demonstrate an interest in the land that suffices to support the caveat, and the caveator must demonstrate a reasonably arguable case to support the claimed interest.10 This means the caveator need not definitively establish his or her right to the interest.
[47] The process by which applications to sustain a caveat are determined is ill- suited to resolving disputed factual questions. An order for removal will only be made if it is clear the caveat cannot be maintained — either because there was no valid ground for its lodging in the first place, or because the ground on which it was lodged has now ceased to exist.
[48] Although the onus of proof lies with the caveator, any conflict between affidavits will generally be resolved in the caveator’s favour.11 This is not to say that
9 See generally Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. And, for a general statement of the principles, see Wallace v Studio New Zealand Ltd [2021] NZCA 392 at [39]–[41].
10 Botany Land Development Ltd v Auckland Council [2014] NZCA 61 at [24].
11 Bethell v Richard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
the Court is bound to accept uncritically statements in an affidavit that lack precision, are equivocal, inconsistent with the documentary evidence or other statements of the same deponent, or inherently improbable.12
[49] While the Court retains a residual discretion to remove a caveat or allow it to lapse even if the caveator has a legitimate and caveatable interest, that discretion is to be exercised cautiously. The Court must be completely satisfied that removal would not prejudice the caveator’s legitimate interests.13
Analysis
[50]The issues to be determined in this judgment are:
(a)whether Mrs Hung has an arguable caveatable interest in the property? This issue breaks down into two sub-issues:
(i)whether Mrs Hung has established an arguable basis for a resulting trust or constructive trust in respect of the property? and
(ii)the effect of the position under the Overseas Investment Act 2005 (OIA) on Mrs Hung’s claim.
(b)if a caveatable interest is established by Mrs Hung, whether the Court should exercise its discretion to remove the caveat in any event.
[51]I deal with each of these issues in turn.
Basis of Mrs Hung’s caveatable interest
[52] Mr Peat, for Mrs Hung, submits that the basis of Mrs Hung’s interest is either a resulting trust or a constructive trust in respect of the property which gives rise to
12 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; and Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
13 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
her caveatable interest. He submits that it is well-established that a resulting trust or an institutional constructive trust will support a caveat.14
Resulting trust
[53] Mr Peat refers to the criteria for a resulting trust to arise as set out by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council, where:15
… A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested in either B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contribution.
[54] Mr Peat also refers to Mo v Yang where the Court of Appeal recently described when a resulting trust will arise:16
… the rationale for a resulting trust is that, absent evidence to the contrary, the law presumes a person intends to retain the beneficial ownership of funds which they advance towards the purchase price of a property. The legal owner holds title to the property subject to the payer’s equitable interest. In this way a trust results to the payer to the extent of his or her contribution. Evidence which might contradict or rebut the presumption is traditionally of an intention to gift. The countervailing presumption of advancement may also be in play, particularly in family cases.
[55] Mr Peat submits that Mrs Hung directly contributed and transferred to Mr Hung $900,000 for the purchase of the property and contributed further funding for construction on the property including approximately $476,000. He submits that it is reasonably arguable that a resulting trust arises at least in respect of the $900,000 contribution to the purchase of the property.
[56] Mr Peat submits that Mrs Hung rejects the argument advanced by Mr Hung that the $900,000 was a loan which was repaid, and that Mr Hung funded the balance of the purchase price. He submits these issues will require an examination of factual
14 Neil Campbell Campbell on Caveats (3rd ed, LexisNexis, Wellington, 2019) at [10.00.9(b) and (d)] and Klimenko v Goncharenko [2021] NZHC 2592.
15 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 WLR 802.
16 Mo v Yang [2022] NZCA 573 at [59].
matters to be preceded by discovery and followed by examination at trial. He submits these matters are not issues that can be determined in the caveat proceeding. In support of the requirement for a trial, he points to the following issues which Mr Hung would need to overcome in the substantive proceeding:
(a)Mrs Hung’s sworn affidavit evidence together with that of Mr Hing Mun Hung (her husband) and her daughter, Ms Crystal Hung.
(b)The arrangements described by Mrs Hung are consistent with how the family arrangements were structured. This includes:
(i)projects for development and sale being dealt with by the companies, but personal acquisitions being dealt with through Mr Hung; and
(ii)funds for the companies were transferred directly to the companies.
(c)Further direct evidence from Mrs Hung and Ms Crystal Hung of their conversations on 9 December 2021, before and after Ms Crystal Hung spoke with Mr Hung, and on 6 June 2022 when the $900,000 transfer was made;
(d)While Mr Hung disputes the advance was for the purchase of the property, it was for a significant and specific amount, timed with the intended transfer from Ms Crystal Hung to Mr Hung. There is no indication that it was intended to be applied to undefined taxes.
(e)There were a number of other transfers from Mrs Hung’s bank account around the time of the purchase of the property, which are unexplained.
(f)Mr Hung will need to establish the funds he withdrew from the Massey company bank account were his own, as were all the funds used to service the loan (despite the company not being his nor the developments it carried out).
(g)The suggested repayments coincide with Mrs Hung and Mr Hing Mun Hung regularising their affairs. They are taken out of context, involve bank transfers that are curious at best, and arise in circumstances where there is no evidence that he had the means otherwise to do so.
[57] Mr Peat submits that the counterfactual put forward by Mr Hung that he was loaned $900,000 on 6 June 2022 in order to pay taxes, but made no written record of any kind, cannot be conclusive and certainly not in the context of caveat proceedings.
Constructive trust
[58] Mr Peat submits that a constructive trust arises in favour of Mrs Hung for the beneficial ownership of the property. He submits an institutional constructive trust arises when the plaintiff contributes in more than a minor way to the acquisition, preservation, or enhancement of a property, whether directly or indirectly. Furthermore, in all the circumstances the parties must reasonably have expected that the plaintiff would share in the relevant property as a result.17 He refers to the four elements that must be satisfied to establish an institutional constructive trust as:18
(a)the applicant made contributions, direct or indirect, to the property in question;
(b)the applicant has an expectation of an interest in the property;
(c)that expectation was a reasonable one; and
(d)the respondent should reasonably expect to yield the interest to the applicant.
[59] Mr Peat applies these criteria to a constructive trust arising in favour of Mrs Hung as follows:
17 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294 per Tipping J.
18 Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [10.0009(d)].
(a)Contributions to the property: Mrs Hung has made significant contributions to the property, including for its purchase and subsequent development. Mrs Hung deposes to specific payments of $900,000 and
$300,000, with further contributions either through her personal bank account or the development company she has an interest in. The sworn affidavit evidence in respect of these contributions is substantiated by contemporaneous documents and the evidence of Mr Hing Mun Hung and Ms Crystal Hung.
(b)Expectation of interest in the property: From the affidavit evidence and contemporaneous documents, an expectation is demonstrated by MrsHung, and the family, that she would have an interest in the property. The application of this aspect is similar to that in Almond v Read19 where the Court of Appeal confirmed a reasonable expectation would be satisfied where there are contributions made on the basis of a pre-existing intention of a proprietary interest.
(c)The expectation was reasonable and the respondent was expected to yield the interest: Mrs Hung’s contribution to the property go, in essence, to the entire value of the property and potential uplift. These two further elements would be plainly satisfied. This is particularly so when compared with inconclusive evidence of any material contribution by Mr Hung.
(d)The respondent should have reasonably been expected to yield the interest to the applicant: This naturally flows from the elements above. In circumstances where much of the purchase price was provided by Mrs Hung, Mr Hung could not reasonably expect to retain all of the interest in the property.
[60] Mr Peat submits that a constructive trust arising in respect of the property in favour of Mrs Hung would also be supported by any funds applied by Mr Hung towards the purchase of the property—either from Mrs Hung’s bank account or
19 Almond v Read [2019] NZCA 26 at [69].
Mrs Hung’s interest in the development companies. He submits the consequential breach of trust and fiduciary duty arguably gives rise in these circumstances to a constructive trust.
Were Mrs Hung’s funds used to purchase the property?
[61] Mr Suyker, for Mr Hung, submits that Mrs Hung has not discharged her burden of proving she has an arguable interest in the property sufficient to support a caveat. He refers to the decision in Xie v 126 Waimumu Ltd where the Court said:20
To establish a reasonably arguable case, there must be some evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavits, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. [Emphasis added].
[62] Mr Suyker submits that Mrs Hung’s case rests on the bare assertion that the true intention of the parties was for Mr Hung to hold an investment on trust for Mrs Hung because the advance was used to purchase the property. Mr Suyker submits that Mrs Hung’s funds were not used to purchase the property and he points to the following evidence:
(a)There is no dispute that Mrs Hung made the advance of $900,000 to Mr Hung on 6 June 2022. However, Mr Hung provides unchallenged evidence of how these funds were used.
(b)The purchase price of the property was $2,740,000 and the purchase price was funded by way of a loan for $1,550,000 from Westpac (an arm’s length commercial transaction) and $1,190,000 in cash from Mr Hung’s Westpac personal account.
(c)A mortgage broker’s email to Westpac confirms the position as does the solicitor’s settlement statement which records the receipt of additional funds from Mr Hung. Mr Hung has documentary evidence of the payment of his own funds to the solicitor.
20 Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
(d)These funds for the purchase were transferred approximately three months after the advance of the $900,000 to Mr Hung and after the funds advanced by Mrs Hung had been used to pay tax, the purpose for which Mr Hung says they were advanced.
[63] Mr Suyker points to the documentary evidence of transfers between the various bank accounts attached to Mr Hung’s affidavit.21 Mr Suyker submits that Mrs Hung’s evidence does not stand scrutiny, and points to the following:
(a)Mrs Hung expressly disavows any express agreement the property would be held on trust for her.
(b)Mrs Hung says she paid the entirety of the purchase price including
$290,000 taken from the Massey company, but does not provide any evidence of that transfer.
(c)Mrs Hung need to advance a further $900,000 to Mr Hung in June 2022 to purchase the property in September 2022 from Ms Crystal Hung, when Mrs Hung had funded the purchase of the property by her daughter, Ms Crystal Hung, in December 2021. On Ms Hung’s account she has paid twice for the property. This does not make sense.
(d)There was no need for Mr Hung to hold the property. Mr Hung could have assisted in the development without the need to transfer the property from Ms Crystal Hung to Mr Hung.
(e)The timing of the transactions do not make sense:
(i)Ms Crystal Hung was the nominee under the sale and purchase agreement that settled on 9 December 2021.
(ii)The $900,000 was an advance to Mr Hung on 6 June 2022.
21 Affidavit of Mr Hung, dated 27 May 2024.
(iii)Mr Hung settled the purchase of the property from his sister on 9 September 2022, approximately three months later.
(f)If the advance of the $900,000 was made for the purpose of settling the property, the delay would never have been necessary.
(g)The messages between Mr Hung and his sister do not advance matters as they are equally consistent with Ms Crystal Hung holding the property on behalf of either Mr Hung or Mrs Hung.
[64] Mr Suyker submits that the presumption of a resulting trust is different where the property is advanced to a child by its parents. He submits that where there is no evidence of the true intent (as is the case here), and Mrs Hung has disavowed any express agreement with Mr Hung, the presumption of advancement will apply. This means that matters are presumed to be as Mr Hung has averred, with the funds being advanced as a loan in the absence of contrary evidence.
[65] Mr Peat, in response to these submissions, points to the decision in Read v Almond22 as authority for the proposition that the tracing of payments was not an issue of isolating particular payments. Rather it was to assess the totality of funds being transferred in and out of the relevant accounts. He points to the statements by the Court in that case as follows:
[188] I am also satisfied on the balance of probabilities that Chris Reid contributed a further $5,000 towards the purchase of the Property. While this amount might not have been paid in one lump sum, does not change the intention and that this was part of his contribution to the Property. The fact that Ms Almond might have directed those funds for some other purpose, for example payment of her rent while a new house was being built, does not alter the agreement.
[200] The point was explained by the plaintiff’s accounting expert, Mr Hussey. He said it was not simply a matter of equating payments made close in time. The correct approach is to consider the total payments in and the total payments out of the account and, on that approach, there was still considerably more money which was debited from Chris Read’s account and credited to that of Ms Almond. I agree this is the correct approach.
22 Read v Almond [2015] NZHC 2797.
[66] Mr Peat also points to the various transactions involving sums debited from Mrs Hung’s account, accounts of companies Mrs Hung has an interest in, and the various transactions in and out of Mr Hung’s account. He submits the tracing of these amounts is necessary to establish the situation in terms of funds used to purchase the property. Mr Peat relies on Fish Man Ltd (In Liq) v Hadfield23 and Read v Almond24 as authority for the approach of looking at the totality of payments in and out of the relevant accounts and the proposition that the Court should look at the substance of the transaction rather than the strict order in which events occurred.
Conclusion in respect of caveatable interest
[67] I am of the view that Mrs Hung has an arguable caveatable interest in the property arising from a resulting trust or a constructive trust in her favour. The reasons for this view are:
(a)It is clear that Mrs Hung contributed $900,000 to Mr Hung and has made further expenditure on the development of the property. On the evidence of Mrs Hung, her daughter, Ms Crystal Hung, and her husband, Mr Hing Mun Hung, there is an arguable case that these funds were advanced for the purposes of purchasing the property. As to Mr Hung’s contention that the $900,000 was advanced as a loan for the purposes of paying taxes, there is no direct evidence before the Court that this was the intention of Mrs Hung in transferring the funds to Mr Hung.
(b)Mrs Hung’s version of the events is consistent with how she had dealt with properties for development and properties to be held personally. The properties for development and sale were dealt with through the companies and the funds were injected directly into the companies, whereas properties for personal investment were dealt with directly with Mr Hung.
23 Fish Man Ltd (in liq) v Hadfield [2017] NZCA 589 at [69].
24 Read v Almond, above n 22 at [273].
(c)Mr Hung has presented evidence showing the amounts of money in and out of his accounts. It is argued by Mrs Hung that her funds can be traced into the property despite the strict order of the payments. She relies on the authorities of Fish Man Ltd25 and Read v Almond26 for the propositions that the totality of funds in and out of the various accounts need to be examined, and that the Court should look at the substance of the transactions rather than the strict order of the payments. Clearly, an analysis of payments in and out of the various accounts needs to be carried out. This cannot be done in the context of caveat proceedings but requires discovery and examination at trial.
The OIA issue
[68] Mr Suyker submits that even if Mrs Hung’s evidence is accepted on its face, and there is arguable caveatable interest based on a resulting or constructive trust, the caveatable interest must be defeated because her acquisition and ownership interests in the property would appear to be in breach of the OIA.
[69]Mr Suyker submits:
(a)The property is residential land and accordingly is “sensitive land” under the terms of the OIA.
(b)Mrs Hung appears to admit in her evidence that she has breached the OIA as she stated that she had her daughter and then her son hold the property because holding it herself would have been a breach of the OIA. She stated: “I was overseas at the time and not able to hold the Property in my own name (because of immigration and overseas investment rules)”.
(c)Mrs Hung was in breach of the OIA to enter into an arrangement whereby an “associate” (which includes a trustee) acquires or holds the
25 Fish Man Ltd (in liq) v Hadfield, above n 23.
26 Read v Almond, above n 22.
property on behalf of another person who would otherwise not be entitled to hold the property).27
(d)On Mrs Hung’s case, she has breached the OIA but nevertheless asks the Court to recognise a caveat to protect an alleged interest acquired in breach of the OIA. In Mrs Hung’s evidence, it appears that she thought having others hold the property on her behalf was a way to avoid the OIA.
(e)At the time Mrs Hung purportedly acquired the claimed interest in the property and at the time she lodged the caveat she appears to have been ineligible under the OIA to acquire the property. In those circumstances she cannot have a legitimate caveatable interest because her claimed interest in the property is unlawful.
(f)Garrow & Kelly suggests there cannot be a resulting trust, or, in Mr Suyker’s submission a constructive trust, that would be in breach of an Act of Parliament, in this case in breach of the OIA. 28
(g)While Mrs Hung now has a consent to acquire a residential property (as annexed to her supplementary affidavit),29 that consent is prospective only and cannot apply to the purchase of the property.
[70] In support for the proposition that a trust cannot be recognised if the claimed interest in the property is unlawful, Mr Suyker refers to the decisions of Banks v Downing30 and Angell v Morresey31. He submits that these authorities stand for the proposition that if the trust crystallises a transaction that was obtained unlawfully, then the Court will not declare a trust.
[71]Mr Peat, in response, submits:
27 Overseas Investment Act 2005, s 8.
28 Garrow & Kelly Law of Trusts and Trustees (online ed, LexisNexis) at [14.36].
29 Supplementary affidavit of Mrs Hung, dated 17 June 2024.
30 Banks v Downing HC Hamilton, CP36/89, 30 May 1990.
31 Angell v Morresey HC New Plymouth, A33/83, 1 April 1986.
(a)It is unclear whether Mrs Hung would have required OIA consent when the property was acquired by her daughter in December 2021. This will depend on whether Mrs Hung was at the time “ordinarily resident in New Zealand” or not, within the test set out in the OIA. That matter requires detailed evidence to be dealt with at trial, if required.
(b)Mrs Hung has obtained consent for a residential property as set out in her supplementary affidavit. As such, she has not called for the property, so arguably consent is obtained prior to giving effect to the transaction under s 11(1) of the OIA.
(c)Breach of the OIA does not render the transaction illegal or void under s 72 of the Contracts and Commercial Law Act 2017 (the CCLA) as:
(i)Section 29 of the OIA declares that a contract being given effect to, without consent, is not an illegal contract for the purposes of part 2, subpart 5 of the CCLA. It is not void only because the transaction has been given effect to without the requisite consent being obtained.
(ii)Under section 72 of the CCLA: a contract lawfully entered into does not become illegal nor unenforceable by any party because its performance is in breach of an enactment, unless the enactment expressly so provides or its object clearly so requires. In this instance, quite to the contrary, the OIA expressly provides the contract is not illegal or void.
(d)Despite section 29 of the OIA and section 72 of the CCLA, the caveat would still remain and the Court has a discretion to grant relief under section 76 of the CCLA. In the decision of Far East Consultants Limited v Bond32 the court decided whether or not the contract was void under the predecessor of the CCLA, the Illegal Contracts Act 1970, and whether relief should be granted under the Illegal Contracts Act, are not
32 Far East Consultants Ltd v Bond HC Auckland M1477/94 17 March 1995.
questions to be decided in caveat proceedings. In that instance the caveat was sustained.
(e)The Court is likely to grant relief in respect of Mrs Hung’s equitable interest under ss 76 and 78 of the CCLA as the OIA is not intended to have the consequences of making the contract void or illegal and the OIA allows for retrospective consent (under s 25) and allows for new consents (ss 27 and 27A).
Conclusion in respect of OIA issue
[72] I am of the view that any prospective breach of the OIA by Mrs Hung when acquiring her equitable interest in the property is not sufficient to defeat an arguable resulting trust or a constructive trust in the property. Consequently, it does not defeat the caveatable interest. My reasons for this are:
(a)In the context of these caveat proceedings, it is unclear whether consent may have been required at the time Mrs Hung’s daughter first acquired the property in December 2021. It would require evidence as to Mrs Hung’s status or otherwise as “ordinarily resident in New Zealand” or not. This needs to be elucidated at trial, if necessary.
(b)It is reasonably arguable that even if there was a breach of the OIA, Mrs Hung’s interest in the property by virtue of s 29 of the OIA is not illegal or void. There is potential for Mrs Hung to obtain either a retrospective consent or relief in accordance with ss 76 and 78 of the CCLA. The decisions relied upon by Mr Suyker of Angell v Morresey and Banks v Downing are not relevant to the present situation and Mrs Hung’s equitable interest is not defeated by there being a potential breach of the OIA.
Result
[73] As a result of these conclusions, I have reached at [67] and [72], I am of the view that the caveat should be sustained.
Undertaking as to damages
[74] Mr Suyker has submitted that if the Court does order the caveat not lapse, then an undertaking as to damages should be given by Mrs Hung in favour of Mr Hung and conditions should be imposed on the order preventing the caveat from lapsing, requiring the substantive proceedings to be commenced by Mrs Hung within 28 days of this judgment and those proceedings prosecuted diligently.
[75] Mr Suyker also seeks an order that leave be reserved to Mr Hung to apply for an order that the caveat to be removed should the substantive proceedings not be prosecuted diligently. He refers to a similar approach taken by the Court in Hu v Zeng.33
[76] Mr Peat submits in response that an undertaking as to damages is inappropriate as s 148 of the LTA already provides a mechanism for compensation should a person have lodged a caveat without reasonable cause.
[77] My view on this issue is that an undertaking as to damages is not appropriate as this is dealt with under s 148 of the LTA but a condition requiring Mrs Hung to commence and diligently prosecute the substantive proceedings is justified. This is included in the orders below accordingly.
Orders
[78]I make the following orders:
33 Hu v Zeng, HC Auckland, CIV-2007-404-1895. 12 June 2007.
(a)Caveat 12978236.1 lodged against the title to the property (record of title NA7B/738) not lapse until further order of the Court, but subject to the following conditions:
(i)Mrs Hung is to commence the substantive proceedings against Mr Hung in respect of establishing the interest claimed in the property which the caveat has been lodged to protect within 25 working days of the date of this judgment and diligently prosecute those proceedings;
(ii)Mr Hung has leave to apply for rescission of this order if the proceedings are not prosecuted with reasonable diligence.
(b)Costs are reserved, pending the outcome of the substantive proceedings.
…………………………….. Associate Judge Taylor
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