Li v Formosa Auckland Country Club Ltd (in liq)

[2015] NZHC 2253

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1463 [2015] NZHC 2253

BETWEEN

JUN LI

Applicant

AND

FORMOSA AUCKLAND COUNTRY CLUB LIMITED (IN LIQUIDATION) First Respondent

TSIUN-YIH TSENG AND MEI-LI TSEN WANG

Second Respondents

110 FORMOSA (NZ) LIMITED Third Respondent

CIV-2015-404-1876

BETWEEN  TSIUN-YIH TSENG AND MEI-LI TSENG WANG

Applicants

ANDJUN LI Respondent

Hearing:

21 August 2015

Counsel:

P H Lowndes for Applicant (in 1463) and Respondent (in 1876) R Dillon for First Respondent

H Lim and K Moon for Second Respondents (in 1463) and
Applicants (in 1876)
D Bigio and Y Wang for Third Respondent

Judgment:

17 September 2015

JUDGMENT OF FOGARTY J

JUN LI v FORMOSA AUCKLAND COUNTRY CLUB LIMITED (IN LIQUIDATION) [2015] NZHC 2253 [17

September 2015]

This judgment was delivered by me on 17 September 2015 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Christopher Podwin, Auckland

Forest Harrison, Auckland

Introduction

[1]      As the intituling shows, there are two applications before the Court.  The first in  time is  an  application by Mr  Li  that  a caveat  not  lapse.   The second  is  an application by the second respondent (the mortgagees) in the first proceedings for removal of the caveat.

[2]      The subject of this litigation is a valuable property currently subject to a sale agreement due to settle on 30 September.  It is owned by the first respondent which is in liquidation (the liquidator).   The second  respondents, as  mortgagees, have exercised their power of sale, selling to the third respondent for $38m.

[3]      $14m of this sum has already been paid.   The balance of $28m is due on

30 September.  If the settlement fails, the $14m paid so far is forfeited.

[4]      Mr Li had originally intended to be the purchaser of the property via a limited liability company, in company with the current shareholders of 110 Formosa (NZ) Limited (the buyer).

[5]      It is reasonably arguable that $4.8m of that $14m deposit was drawn from a credit belonging to Mr Li from a solicitor’s trust account, without authority.   The liquidator  is  now  on  notice  that  part  of  the  monies  received  may  have  been transferred without authority.

[6]      Mr Li wants his money back.  He has lodged a caveat against the title to the land, claiming a registerable interest in the land.

[7]      Mr Li has reached a settlement with the buyer.  The settlement essentially is that Mr Li will agree to the transfer of the title to the buyer and the registration of any mortgage facilitating that transfer.  The intended effect of this settlement is to leave the caveat on the title preventing any further transactions against the title.

[8]      The liquidator and the mortgagees, however, do not agree to that settlement, to the caveat remaining.  Their concern is that the second agreement may not settle and they do not wish to be constrained with further dealing of the property.

[9]      The  liquidator  and  the  mortgagees  see  this  dispute  as  essentially  being between Mr Li and the shareholders of the buyer.

[10]     Mr Li’s concern is that if the caveat lapses before the settlement of the sale on

30 September, then the deposit will be forfeited to the mortgagees/liquidator, including his $4.8m.  That he will not be able to protect what he sees as a viable claim to an interest in the land.

[11]     The liquidator and the mortgagees argue that Mr Li cannot possibly have any claim to have a registered interest on the title against their interests because of use of his money by other persons to pay the deposit to the mortgagees.

[12]     The liquidator and the mortgagees say they lose all interest in the property if it settles on 30 September and thereafter say that they do not care if the applicant then lodges a caveat preventing further dealing.

[13]     In that context, the sale completed, Mr Li would be arguing that the buyer obtained the purchase by using $4.8m of the caveator’s money which, if not to be repaid, needs to be protected by way of a registered interest in the subject land for which the money was used to obtain title to.

[14]     The caveat claims:

By virtue of an express or implied trust between the Mortgagee Tsiun-Yih TSENG and Mei-Li TSENG WANG in exercise of a power of sale and the Caveator as cestui que trust and pursuant to a CoOperation Agreement dated

29 August 2014 to which the Caveator is a party with others and which provides for the parties to this agreement to be the nominated purchaser of

the  land  under  an Agreement  for  Sale  and  Purchase  dated  on  or  about

23 April 2014 between the Mortgagee in exercise of a power of sale and a party to the CoOperation Agreement.

[15]     The cooperation agreement referred to in the caveat provided for three parties

- A, B and C (Mr Li being B) - to jointly purchase the land for $38m.  Mr Li would hold 32 per cent ownership of the land, his first capital contribution being NZD4.2m, with another NZD7.96m to be raised within six months.  To carry out this venture, the three parties agreed to set up a company to carry out a joint investment and joint management and to share the risks as well as the profit and losses.  On 28 August,

Mr Li had deposited $4m into the trust account of Loo and Koo, followed by a further $800,000 by three payments.

[16]     The purchase did not settle on 29 August and ultimately, this first contract was cancelled on 10 September,

[17]     Mr Li contends that on 29 September he instructed the solicitors, Loo and Koo, not to disburse the funds that he had deposited with them without his express consent.

[18]     After the collapse of the first sale agreement, Emon and Jenny, the other two parties to the cooperation agreement, formed another company, Golden Beachland Holdings Limited, to purchase the property again, the shareholding not including Mr Li. This is the current sale agreement.

[19]     This second agreement was entered into on 30 September 2014.   The first deposit payment was $5m made on 1 October 2014, by Loo and Koo.  It is alleged that Loo and Koo used the $4.8m provided by Mr Li.  Mr Li says this was in breach of his  specific instructions  that  the funds were not  to  be disbursed without  his express agreement.  Mr Li says that the mortgagees received this sum in breach of the express terms of trust.  Mr Li was and is not party to this sale agreement.  There is no evidence that the mortgagees knew that the $5m that had been paid to them included $4.8m disbursed in breach of trust by the solicitors, and perhaps by Emon and Jenny.   But now the mortgagees have actual knowledge of the contention of breach of trust by Loo and Koo.

[20]     Mr  Li  argues  that  the  mortgagees  have  the  ability to  cancel  the  second agreement with the buyer (who has been nominated as the purchaser) if it does not settle on 30 September 2015 and keep the deposit.  I have not heard argument on this submission.   There is, however, a contrary argument that the mortgagees, and the liquidator, being on notice of breach of trust would have an obligation to hold the

$4.8m in a trust account pending resolution of the dispute between Mr Li, and Loo and Koo, and others over the use of these funds.

[21]     There may be a claim by Mr Li for return of that money from the mortgagee vendors and/or the liquidator on the grounds of want of consideration, he not being a party to the agreement, but, rather, a victim of breach of trust.  But I can see no basis whereby such a claim can give him now a registerable interest in the land.

[22]     On the other hand, if the sale goes ahead and settles and the title is obtained by reason of using $4.8m of Mr Li’s money without his consent, then there is an argument it would be unconscionable for the buyer, now registered proprietor, knowing that it has obtained title by way of a breach of trust, not to either refund the money or, in the alternative, accept that there should be a charge over the land until the money is repaid.

[23]     It follows, the caveat cannot be sustained at the present time.

[24]     Section 137 of the Land Transfer Act 1952 provides:

137     Caveat against dealings with land under Act

(1)       Any person may lodge with the Registrar a caveat [[in the prescribed form]] against dealings in any land or estate or interest under this Act if the person—

(a)       claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or

(b)       is  transferring the  land  or estate  or  interest  to  any other person to be held in trust.

(2)      A caveat under this section must contain the following information: (a)     the name of the caveator; and

(b)       the nature of the land or estate or interest claimed by the caveator, which must be stated with sufficient certainty; and

(c)       how the land or estate or interest claimed is derived from the registered proprietor; and

(d)       whether or not it is intended to forbid the making of all entries that would be prevented by section 141 or a specified subset of them; and

(e)       the land subject to the claim, which must be stated with sufficient certainty; and

(f)       an address for service for the caveator.

(3)      Caveats under this section must be executed by the caveator or the caveator's attorney or agent.

(4)      Caveats under this section must be entered on the register as of the day and hour of their receipt by the Registrar.

Note the present tense of s 137(1)(a).  See Philpott v NZI Bank Ltd:1

Counsel for the respondent sought to maintain the caveats by various arguments, all of which come to substantially the same. It was said for instance that in s 137(a) the words “beneficial interest” have a wider scope than equitable interest; that a caveat is supportable if the caveator has some “potentially” enforceable right; and again that, although the respondent had to accept that this was not an equitable charge, nevertheless it was an equitable interest. No authority was cited supporting any of these interpretations of s 137(a). In my opinion, for all purposes material to the present case the words “beneficial interest” refer to equitable interests and the section cannot be stretched to include mere potentialities which have not ripened into interests in any particular properties.

[25]     It is likely, however, that the applicant will have a caveatable interest in the land if the settlement proceeds on 30 September and from the moment that the title is transferred to the third respondent.

[26]     I can see no reason why the parties to this litigation cannot agree now, and do so prudently protecting their respective exposures, to a new caveat by the applicant being registered against the title immediately after the title is transferred to the third respondent,  the  buyer.    The  terms  of  this  new  caveat  could  be  agreed  and  be registered in the same suite of registrations upon the settlement of the purchase.

[27]     I am reserving the question of costs.   This is a dispute which could have settled and, in my view, should have settled.  It rather has only partially settled. As a result, I have no view as to whether any of the parties is entitled to costs.

Result

(a)      The caveat is removed.  An order for sealing to be presented to the

Registry.

1      Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA) per Cooke P at 190,248.

(b)      Costs are reserved.