Jin v Knox Property Investment Limited
[2016] NZCA 267
•17 June 2016 at 2.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA630/2015 [2016] NZCA 267 |
| BETWEEN | QIAN JIN |
| AND | KNOX PROPERTY INVESTMENT LIMITED |
| Court: | Stevens, Cooper and Winkelmann JJ |
Counsel: | R Reed and A Manuson for Applicant |
Judgment: (On the papers) | 17 June 2016 at 2.30 pm |
JUDGMENT OF THE COURT
AThe application for an extension of time to appeal under r 29A of the Court of Appeal (Civil) Rules 2005 is granted.
BThe applicant is directed to:
(a)file and serve the case on appeal no later than 15 July 2016; and
(b)pay security for costs and any filing fees, as well as apply for a fixture by no later than 29 July 2016.
CImmediately following 29 July 2016 the Registrar is to arrange a telephone conference with the Civil List Judge to discuss any outstanding timetabling or other issues and the urgent allocation of a fixture.
DThere is no order as to costs.
____________________________________________________________________
REASONS OF THE COURT
(Given by Stevens J)
Introduction
The applicant, Mr Jin, seeks an extension of time to bring an appeal against a judgment of Associate Judge Doogue in the High Court at Hamilton dated 17 September 2015.[1] Mr Jin had 20 working days within which to file an appeal. The last day for filing was 15 October 2015. It seems the appeal papers were sent by courier despatched that day but only received for filing in the Registry on 19 October 2015, two working days late.
[1]Jin v Knox Property Investment Ltd [2015] NZHC 2296 [High Court judgment].
Counsel for the respondent accepts the length of the delay is trivial. This Court has typically exercised its discretion under r 29A of the Court of Appeal (Civil) Rules 2005 to grant an extension of time to appeal where some of the following factors are present: a notice of appeal was filed two days late, an electronic version of the notice of appeal was provided to the respondent on the last day for filing the appeal, the delay is sufficiently explained and the prejudice to the respondent is limited.[2] However, we discuss later an important consideration concerning the merits of the proposed appeal.
Background
[2]See for example Wardell v ASB Bank Ltd [2015] NZCA 344 at [13].
The relevant factual background is conveniently set out in the High Court judgment. The following summary draws on that material. Mr Jin became involved in a property transaction with Ms Lin Luo whereby a property on Knox Street in Hamilton (the property) was to be acquired. Ms Luo was the shareholder and sole director in the corporate vehicle, W&L Ltd, to be used for the purchase. In the High Court, Mr Jin claimed that he is an “unregistered” shareholder in W&L.[3] Mr David Lee, although not a shareholder in W&L, was also involved in some of the activity leading up to the property transaction.
[3]It seems a separate proceeding has been commenced concerning Mr Jin’s shareholding in W&L Ltd.
In June 2013, Mr Jin, Ms Luo and Mr Lee inspected the property and attended the auction. A successful bid was placed and an agreement for sale and purchase was entered into showing W&L as the purchaser. The Associate Judge accepted Mr Jin knew that W&L was the purchaser of the property.[4] Mr Jin provided $50,000 as a deposit by way of a direct payment to the vendor’s solicitors. Mr Jin apparently paid this amount on behalf of the company and, in return, was to acquire a credit balance in his current account with W&L.[5]
[4]High Court judgment, above n 1, at [5].
[5]On the assumption that Mr Jin would be, as he claimed, a shareholder with W&L. Alternatively, he was simply a creditor of W&L for the amount he paid to discharge the company’s obligation.
The proposed settlement date was 11 July 2013. The transaction did not settle on that date and a default notice was received on 23 July 2013. According to Ms Luo, W&L was unable to raise sufficient finance to complete the purchase of the property. In July 2013, Mr Lee called Mr Jin to advise him that additional funding was going to be required. Mr Jin was not able to contribute further money. As a result, consideration was given to bringing in another investor, Mr Chung Jiang. That is what happened. Mr Jin says he, Ms Luo and Mr Jiang reached an agreement about ownership of the property with he and Ms Luo holding 25 per cent each and Mr Jiang holding 50 per cent. However, Mr Jin did not meet Mr Jiang before the transactions took place.
Following the involvement of Mr Jiang, the structure of the transaction changed. A new company, Knox Property Investment Ltd (Knox), was incorporated. The shareholders in that company were Mr Jiang and Ms Luo, each holding 50 per cent of the shares. Mr Jiang was the sole director. Mr Jin was not involved. Knox was incorporated in some haste, one day before the 11 July settlement date. In due course a deed of nomination, nominating Knox as the purchaser of the property, was executed by Ms Luo as the sole director of W&L. On 1 August 2013 Knox duly settled the transaction. Many months later, Mr Jin made inquiries, he said, to find out what had happened to his proposed investment of $50,000. A caveat was lodged against the property on 7 January 2015.
In written submissions filed by Mr Jin in the High Court the estate or interest claimed in the caveat was as follows:
The caveator is beneficially interested in the property by virtue of an implied trust, which arose by the caveator providing funds towards the purchase of the property. The caveator provided the funds both directly himself and through the company W&L Limited of which he is an unregistered shareholder. The property was registered in the sole name of the registered proprietor, who holds the property as a trustee.
The proceeding before the Associate Judge was an application seeking to sustain the caveat lodged against the property under s 145A of the Land Transfer Act 1952. The application was dismissed.[6] Mr Jin seeks to appeal against the High Court judgment.
High Court judgment
[6]High Court judgment, above n 1, at [20].
The Associate Judge found that a resulting trust (advanced by Mr Jin as supporting the caveat) could not be established on the facts. Mr Jin claimed he provided funds through W&L, but it was Knox that became the purchaser of the property.[7] The Associate Judge then considered whether Mr Jin had any other equity in the property. This turned on what reasonable expectations Mr Jin had which were known to Knox as the purchaser of the property.[8] The issue was whether it was fair and reasonable for Knox, as proprietor, to be “fixed with the knowledge of the events which give rise to the expectation on the part of the caveator that he would have an interest in the property, the circumstances of his payment of the funds and other matters”.[9]
[7]At [9]–[10].
[8]At [11].
[9]At [11].
The Associate Judge found Mr Jin had no equitable interest in the property.[10] We set out the relevant portions of the Associate Judge’s reasoning:[11]
[10]At [17].
[11]At [14]–[20].
[14] It is necessary to also keep in mind that the applicant cannot simply ignore the different legal entities that are involved in this series of transactions. The parties, when they set out initially to acquire 12 Knox Street, were Ms Luo, the applicant and their company. It was expected that the company would complete the transaction. Thereafter, presently, the payment which the applicant had made direct to the vendor would be credited against the debt owed to the vendor and would be taken into account when calculating the extent of the beneficial interest which the applicant had in the property.
[15] But the purchase of W&L did not go ahead and could not have gone ahead. It could not have gone ahead because W&L, or more accurately, the applicant and Ms Luo, did not have the necessary financial resources to complete it. What then happened was that the nomination was carried out to a company which did have the resources to complete the transaction.
…
[16] Initially the expectation of the applicant, as I understand his case to be, is that he would receive a 50 per cent interest in the property once acquired whether directly by himself and Ms Luo or by their company. This was replaced, he alleges, by the arrangement where he was to receive 25 per cent of the equity in the property and the other party 75 per cent. There is however no basis put forward to justify that expectation. The applicant did not contribute any further money to the respondent to use for the purpose of buying the property. Even the amount that he had originally provided as a proportion of the purchase price of the property does not arithmetically add up the 25 per cent of the purchase price. He had never met with Mr Chiang Jiang with whom he claims this partnership arrangement was made.
[17] In my view, this is not a case where the Court could reasonably conclude on any view of it that the applicant had an equitable interest in the property which was acquired by the respondent. The important factor is not the change of the corporate vehicles. I agree with Mr Hesketh that legitimate expectations cannot be defeated by switching contracts to new companies in an effort to cut out someone who has a legitimate expectation. The view I have come to, rather, is based on the fact that the whole outline of the transaction had changed and the transaction for which the applicant had contributed money was no longer going to go ahead. The position was in substance that an ineffective transaction had resulted and, at most, the applicant had an entitlement to get his money back or to have his interest in the $50,000 recognised in the accounts of W&L on whose behalf he had made the payment.
[18] Mr Hesketh submitted that [it] was possible for the circumstances that gave rise to the applicant having expectations of an interest in the property to be attributed to the respondent which eventually became the registered proprietor. He referred to a Privy Council case of Lebon v Aqua Salt Co Ltd.[12]What that case and another Privy Council case, originating from New Zealand, Meridian Global Funds Management Asia Ltd v Securities Commission,[13] make clear is that, in some circumstances, the Court has to be able to attribute knowledge of relevant circumstances to a company and that it will do so by equating the knowledge of the director of the company with that of the company.
[19] However, that is not this case. It is true Ms Luo was involved in the initial transaction involving the applicant however she is not a director of the respondent company and, on conventional principles of attribution, what she knew about the first transaction could not reasonably be considered to be the state of knowledge and affecting the equitable duty of the company.
[20] However, my main ground for concluding that the applicant does not have an equitable interest is that if the original transaction that the parties contemplated had gone ahead, he may well have had an interest in the property once acquired by W&L. That transaction however did not go ahead because the company could not complete it. A new company came into the picture of which the applicant is not a part. For all intents and purposes, W&L dropped out of the picture except for the fact that the deposit money which they had contributed was relied upon by the respondent, as I have noted, to make part payment of the purchase price. But that in my view does not mean that the applicant by indirect means acquired a 25 per cent beneficial interest in the property. …
(Footnotes as per High Court judgment).
Decision
[12]Lebon v Aqua Salt Co Ltd [2009] UKPC 2.
[13]Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.
The principles applicable to our power to grant an extension of time to file a notice of appeal are well settled. The overarching consideration is the interests of justice.[14] The factors relevant to that inquiry are: the length of the delay and its reasons, the parties’ conduct, the extent of prejudice caused by the delay, the prospective merits of the appeal, and whether the appeal raises any issue of public importance.[15] The first three factors favour Mr Jin. The merits require further analysis. The last does not seem applicable to this case. Our function is to determine which factors, in the interests of justice, should be given predominant weight.
[14]My Noodle Ltd v Queenstown-Lakes District Council [2009] NZCA 224, (2009) 19 PRNZ 518 at [19].
[15]Wardell v ASB Bank Ltd, above n 2, at [12].
As Mr Jin is seeking to sustain a caveat against the property owned by Knox, he is required to establish an arguable case for a caveatable interest in the property.[16] Mr Jin seeks to challenge the key findings that there was no resulting trust affecting the property acquired by Knox and that Mr Jin otherwise had no equitable interest in the property.
[16]Sims v Lowe [1988] 1 NZLR 656 (CA) at 660.
The essential factual aspects of the transaction are not in dispute. When Mr Jin contributed $50,000 it was paid to W&L. The purchase of the property initiated by W&L could not, and did not, proceed. W&L then nominated Knox, a new corporate entity, to become the purchaser of the property. Mr Jin had no shareholding in, or involvement with, Knox. It was Knox, not W&L, that completed the purchase of the property.
Ms Reed seeks to mount an argument to support the existence of an equitable interest in the property through the involvement of Ms Luo with Knox. She submits that the knowledge of Ms Luo ought to be attributable to Knox. This submission challenges the conclusion of the Associate Judge that on conventional principles of attribution, it is usually only the knowledge of directors that is equated with the knowledge of the company.[17] As Ms Luo is only a shareholder of Knox, and Mr Jiang is sole director, her knowledge of the first transaction cannot be attributed to Knox.
[17]High Court judgment, above n 1, at [18], citing Meridian Global Funds Management Asia Ltd v Securities Commission, above n 13.
There are potentially two grounds on which it might be arguable that Ms Luo’s knowledge can be attributed to Knox:
(a)Upon a comprehensive inquiry into the company law rules of attribution, whether in the present circumstances Ms Luo’s knowledge can be considered that of Knox’s; and
(b)Whether Mr Jiang had knowledge of Mr Jin’s interest.
The question is whether one or both of these grounds is arguable. We focus on whether there is an arguable case as to (b).
If it is accepted that Mr Jin’s characterisation of the $50,000 as being payment for an interest in the property is correct, it seems most unlikely that his interest would not have been mentioned in discussions between Ms Luo and Mr Jiang. As Ms Reed submits, in circumstances where Ms Luo was one of only two people who set up Knox to purchase the property, where she was a 50 per cent shareholder in Knox and where she had full knowledge of Mr Jin’s interest, it would be surprising if she had not informed Mr Jiang of such an interest when they “discussed forming a company to purchase the property”.[18]
[18]Affidavit of Chuan Jiang dated 24 March 2015 at [5].
On balance, such an argument is not meritless. It could form the basis of a potentially arguable case for the purposes of sustaining the caveat. Given such a conclusion, we do not need to consider any other basis upon which Mr Jin might be able to establish an arguable case.
While the merits of the appeal may not appear strong, we cannot conclude at this stage that it must be characterised as hopeless. On that basis, the balance of factors favours the grant of an extension of time to appeal.
Result
The application for an extension of time to appeal under r 29A of the Court of Appeal (Civil) Rules 2005 is granted.
The applicant is directed to:
(a)file and serve the case on appeal no later than 15 July 2016; and
(b)pay security for costs and any filing fees, as well as apply for a fixture by no later than 29 July 2016.
Immediately following 29 July 2016 the Registrar is to arrange a telephone conference with the Civil List Judge to discuss any outstanding timetabling or other issues and the urgent allocation of a fixture.
There is no order as to costs.
Solicitors:
Prestige Lawyers Limited, Auckland for Applicant
Foster & Milroy, Hamilton for Respondent
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