Li v Gao
[2017] NZHC 639
•4 April 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-29 [2017] NZHC 639
UNDER the Land Transfer Act 1952 IN THE MATTER OF
25 Pitfire Place, Blockhouse Bay, Auckland
BETWEEN
SIYU LI Applicant
AND
LIAN YUAN GAO Respondent
Hearing: 4 April 2017 Appearances:
R Reed for the Applicant
M Chen for the RespondentJudgment:
4 April 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Prestige Lawyers Ltd (R Reed), Auckland, for the Applicant
K3 Legal Limited (Margaret Chen), Auckland, for the Respondent
LI v GAO [2017] NZHC 639 [4 April 2017]
[1] Ms Siyu Li applies under s 145A of the Land Transfer Act 1952 to sustain notice of claim 9573360.1 lodged against the title to a property at 25 Pitfire Place, Blockhouse Bay, Auckland described in identifier NA139B/90. The respondent, Lian Yuan Gao, is the registered proprietor. He is the father of Kui Gao. Ms Li’s case is that she entered into a de facto relationship with Kui Gao in late 2003. They married in February 2008. There is one child of their marriage, Gloria, born in December 2009. They separated in 2010. In August/September 2007 the house at
25 Pitfire Place was purchased. From settlement of the purchase to separation when Ms Li returned to China Ms Li and Kui Gao lived there as if the property were their family home.
[2] Kui Gao lives in Auckland. Ms Li has lived in China since her return there in
2010. For most of the relevant times Lian Yuan Gao lived in China but he apparently presently lives in New Zealand. Lian Yuan Gao gave his evidence in Mandarin. Ms Li and Kui Gao have given their evidence in English.
[3] Ms Li lodged her notice of claim in November 2013. In it, she says that she is the spouse of Kui Gao and that he was “entitled to a beneficial interest in the land described below by virtue of an unregistered instrument or other instrument or transmission or an express or implied trust or by virtue of some other circumstances.” The notice goes on to record that she married Kui Gao in February
2008 and that she claims an interest in Kui Gao’s interest in the property by virtue of
the marriage.
[4] Ms Li has begun a proceeding under the Property (Relationships) Act 1976 against Kui Gao in the Family Court. Lian Yuan Gao is not named as a party to the proceeding. At the outset, her application sought simply a division of relationship assets between herself and Kui Gao. It is apparent from documents in the Family Court proceeding that she has pleaded the interest in the 25 Pitfire Place property as one of the assets to be divided between them.
[5] Ms Reed advises that Lian Yuan Gao was served with the proceeding. Apparently he was in China at the time. Service was carried out by substituted service on his lawyers in Auckland. While he has been given notice of the proceeding he has not taken any steps under s 37 of the Property (Relationships) Act proceeding. It was clearly appropriate to give him notice of the proceeding, given that Ms Li is claiming that his ownership of the property is subject to an interest held by herself and Kui Gao. However, neither Ms Li nor Kui Gao has begun any substantive proceeding against Lian Yuan Gao and they have not obtained any determinations against him as to any interest they claim in the Pitfire Place property.
[6] More recently Ms Li has amended her proceeding in the Family Court to add a claim under s 44 of the Property (Relationships) Act. Under that section, the court may set aside dispositions made to defeat the claim or rights of any person to property under the Act. Subsection (2) provides a range of remedies which that court may order. The remedies under s 44 are discretionary. I am uncertain whether the new application making the claim under s 44 of the Property (Relationships) Act has been served on Lian Yuan Gao. Apparently Kui Gao remains the sole respondent in the Family Court proceeding. On the face of it, if Ms Li intends to obtain orders against Lian Yuan Gao under s 44 of the Property (Relationships) Act she should join him to the Family Court proceeding and ensure that he is served so that he is on notice that orders may be made against him under s 44. That, however, is for the Family Court deal with.
[7] Lian Yuan Gao’s position in this proceeding is that he is the registered proprietor. He holds a legal freehold estate in the property. In addition, he holds all beneficial interests in the property. He does not recognise that either his son or Ms Li have any beneficial interest in the property.
[8] It is for Ms Li to show an arguable case that while he may be the registered proprietor of the property, he holds it subject to certain beneficial interests. Ms Li has not lodged a caveat against the Pitfire Place property. She does not rely on any interest of her own under s 137(1) of the Land Transfer Act 1952. Instead, through her notice of claim, she says that Kui Gao has an interest in the property and she relies on that in lodging her notice of claim. Under s 42 of the Property
(Relationships) Act, a spouse or partner need not be the registered proprietor of the land against which the notice of interest is lodged. He or she may instead have some lesser interest. That is apparent from the prescribed form for the notice of claim.1
That provides that the spouse, civil union partner or de facto partner may be registered as proprietor of an interest in the land, or be entitled to a beneficial interest in the land “by virtue of an unregistered instrument or the instrument or transmission or express or “implied trust by virtue of some other circumstances”. Those last words follow s 137(1) of the Land Transfer Act very closely. If the spouse, civil union partner or de facto partners has an interest in land that would support a caveat, that interest may be the subject of a notice of claim under s 42 of the Property (Relationships) Act.
[9] There are therefore two parts to Ms Li’s application:
(a) She needs to show that Kui Gao has an interest in the land, not necessarily as a registered proprietor but an interest that would support a caveat; and
(b)She has to show a claim to an interest under the Property (Relationships) Act, meaning that the interest of Kui Gao in the land could be the subject of division orders under Part 7 of the Property (Relationships) Act. That normally requires her to show that his interest is relationship property within s 8 of the Property (Relationships) Act, unless she has one of the exceptional claims under which separate property may be the subject of division orders, as under s 15A of the Property (Relationships) Act.
[10] To be able to lodge a caveat against land under s 137 of the Land Transfer Act, the caveator must show a current interest in the land. It is not sufficient to claim a potential interest, or one that comes into being only as a result of a court order. The court must be able to declare the interest, not create it. On the other hand, notices under s 42 of the Property (Relationships) Act are for inchoate claims, not for
immediate interests in property. Only on division do claims yield property interests. Division can take place:
(a) by agreement under Part 6 of the Act;
(b)by court order under the circumstances in s 25 of the Act (such as living apart, dissolution, bankruptcy or serious diminution in value of relationship property); and
(c) by court order after death under Part 8 of the Act.
When a court orders division, it creates interests in property.2 It does not declare interests in the property.
[11] Insofar as Ms Li is claiming an interest under the Property (Relationships) Act, she needs to show an arguable case that any interest in the Pitfire Place property may be subject to division under the Act. For that part of her case she does not have to have an actual interest in the property. On the other hand, where she relies on her Kui Gao’s interest in the property, she needs to show an arguable case that he has an interest in the property.
[12] The relationship property proceeding now pending in the Family Court is a suitable vehicle under which Ms Li can seek a determination of her relationship property entitlements against Kui Gao. For a proceeding against Lian Yuan Gao under s 44 the High Court, the District Court and the Family Court all have jurisdiction. For the reasons already explained, I am not confident that she has properly met the procedural requirements for a claim under s 44 against Lian Yuan Gao.
[13] As noted, s 44 confers a power on a court to set aside dispositions that made to defeat the rights of any claimant under the Act. That power is discretionary. The court has a range of remedies. Any proprietary relief under s 44 results in a claimant receiving property by the court creating an interest in the property. This power to
create interests in property is comparable to vesting orders made on division of property under ss 25 and 33 of the Act. As relief under s 44 is creative rather than declaratory, a claim for relief under the section cannot support a caveat. That is because a caveat can only support an existing interest in property, not a future or potential interest or one created by court order. Any claim by Kui Gao under s 44 is not a beneficial interest in land under s 137 of the Land Transfer Act or a beneficial interest in land of the sort claimed in her notice of claim in this proceeding. She may, of course, have independent rights in her relationship property proceeding in the Family Court but I do not have to address those.
The purchase of 25 Pitfire Place, Blockhouse Bay, Auckland
[14] I consider whether Kui Gao obtained a beneficial interest in the property on its purchase. Later, I deal with events after the purchase.
[15] Lian Yuan Gao says that he came to New Zealand in 2001. He deposited
$500,000 in a bank account in New Zealand and returned to live in China. He left the funds in the New Zealand bank account because of the higher interest rates available here. His son, Kui Gao, was studying in New Zealand. He gave his son a power of attorney in 2004. That was to allow his son to draw on funds held on deposit. He says that his intention was to allow his son to draw on interest on the funds on deposit.
[16] In 2005 he found out that his son was in a relationship with Ms Li. In 2006 and 2007 he found that the principal amounts in his bank account were going down, apparently because his son was making liberal use of his power of attorney. Lian Yuan Gao blames Ms Li for having an expensive lifestyle at his expense. But that had probably best be put in context. I am not in a position to assess whether Kui Gao or Ms Li was more responsible for “high living”.
[17] Lian Yuan Gao says that he decided to buy a house in New Zealand. He thought that would be a form of security, a way of preserving his capital, and might be a place where he and his wife could live when they possibly retired to New Zealand. By this stage Kui Gao had permanent New Zealand residence. He asked
his son to buy a property. He intended to pay for it with the funds on term deposit. A property was found. His son told him that a loan of $100,000 would be required to complete the purchase, and he agreed to take out the loan. That was in light of his son’s assurance that he would repay the loan within a year, although the father was not confident that his son would do so.
[18] The purchase was completed with title to the property going to Lian Yuan Gao. He took out a loan for $100,000 with the National Bank. The borrowers are shown as his son and himself. The loan was secured by a mortgage over the property. He agreed to his son and Ms Li living rent-free in the property on the basis that they would be responsible for outgoings and would meet the mortgage payments.
[19] Ms Li adds to that. She has included in her materials for this proceeding an affidavit she swore in the Family Court proceeding. She has also sworn a separate affidavit for this proceeding. She says that she met Kui Gao in 2003. At that time he lived in a property at New Windsor, Auckland. That property was owned by Kui Gao and his parents. She says that the father had bank accounts in the National Bank into which he transferred money sent from China. The New Windsor property sold for over $400,000. The proceeds of sale were put into a term deposit in the name of Lian Yuan Gao. She confirms that Kui Gao used the power of attorney to draw funds for day-to-day expenses.
[20] The purchase of the Pitfire Place property took place in August/September
2007. At that time, Kui Gao was working as a real estate agent. His agency had the listing for the Pitfire Place property. At auction, Ms Li bid successfully. The purchase price was $535,000. Ms Li signed the agreement as purchaser. The agreement described the purchaser as Ms Li “or nominee”. The agreement settled, with Lian Yuan Gao taking title as registered proprietor. The funds for the purchase came from three sources. There was the deposit of $50,000 paid on signing the agreement. That $50,000 came from the bank account of Lian Yuan Gao. Bank records show that that was transferred into an account in the joint names of Kui Gao and Ms Li. There was the $100,000 from the National Bank loan. The balance of the purchase price came from funds held in the term deposit of Lian Yuan Gao, and
was paid shortly before settlement. Lian Yuan Gao and Kui Gao were the borrowers under the mortgage. Documentation from the National Bank refers to the loan being for purchase of an “owner-occupied” property.
[21] On the face of it, Lian Yuan Gao financed the purchase of the property. He took title in his own name, although funds used for the deposit passed through the joint account of Ms Li and Kui Gao. Ms Li, however, says that there was a clear understanding that the Pitfire Place property was to be the home of herself and Kui Gao. She says that Lian Yuan Gao gave assurances that he would provide a house for them. She points to the fact that she bid for the property, and she was therefore the purchaser. While the solicitors who acted on the purchase sent a letter advising that title would be taken in the name of Lian Yuan Gao, no one has so far produced any deed under which Ms Li nominated Lian Yuan Gao as the purchaser to take title.
[22] She also relies on a document signed by Lian Yuan Gao, written in English, in which he indicated his consent to Ms Li and Kui Gao living in the property on the basis that they would pay the mortgage on the property and rates, property insurance, contents insurance, water, power, phone and internet. The document is in English. Lian Yuan Gao has signed the document in Chinese characters. He has given his affidavit in Mandarin. The text of the document does not expressly state that he is conferring a property interest on Kui Gao or on Ms Li. The English text does no more than indicate his acknowledgment that they were living in the property with his consent, on the basis that they would pay the outgoings. It does not expressly say that they were to have an interest in the property.
[23] Ms Li’s case is that Lian Yuan Gao made a gift of the purchase price of the property to herself and Kui Gao. The funds used to purchase the property belonged in equity to herself and Kui Gao. She and Kui Gao have a claim in equity to a beneficial interest in the property. I find that a contrived explanation of the transaction. There is, in my view, a very simple and clear explanation for what happened. The father intended to buy property in Auckland, in which his son and his partner could live, giving them some security but on the basis that they were to meet the outgoings on the property. Ms Li’s participation in the transaction was no more than to act as an agent at the auction. It was convenient at that time to have her bid
at the sale, to avoid any difficulties over Kui Gao bidding, given that the real estate agency where he worked had the listing from the vendors. That was to avoid any difficulties if the agent were to buy the property himself without having made complete disclosure to the vendors. Ms Li’s role in the matter is nothing more than an agent for Kui Gao’s father. That readily explains the absence of any deed of nomination, given that she was simply his agent.
[24] The loan documents and the correspondence from the National Bank referring to the property as an owner-occupier property do not advance matters for Ms Li. They are not, after all, statements made on behalf of Lian Yuan Gao. He was in China and is unlikely to have understood or accepted any finer nuances of the English language used by the National Bank.
[25] A problem facing Ms Li’s claim of gifting is that even if she were able to show an intention to make a gift, it was not carried into effect. The funds for the purchase were never put into the beneficial ownership or effective control of herself and Kui Gao, her partner. The use of their joint account for the $50,000 is nothing more than a convenient conduit so that they could sign a cheque for the deposit if they were successful bidders at the auction. Ms Li cannot show an actual gift in the sense that the property was transferred into the names of herself and Kui Gao. She is instead in effect asking the court to perfect a gift for them. As to that, Ms Chen cited well-established authorities to show that equity will not perfect an imperfect gift. Relevantly, she referred to Snell’s Equity, Mascall v Mascall and Pennington v
Waine (No.1).3 In short, there was no gift, and there is nothing in the circumstances
of the case that would make it unconscionable for Lian Yuan Gao to assert that there was not a gift so as to trigger the intervention of equity.
[26] For completeness, Ms Li cannot say that Lian Yuan Gao held the property under an express trust. Any express trust has to be evidenced in writing.4 There are no written documents evidencing a declaration of trust for the Pitfire Place property.
In particular the letter signed by Lian Yuan Gao consenting to his son and Ms Li
3 John McGhee and others Snell’s Equity (31st ed, Sweet & Maxwell, London, 2005) at 546-547; Mascall v Mascall [1984] EWCA Civ 10, (1985) 50 P & CR 119; Pennington v Waine (No 1) [2002] EWCA Civ 227, [2002] 1 WLR 2075.
4 Property Law Act 1952, s 49A and Property Law Act 2007, s 25.
living in the property and paying all outgoings is not a declaration of trust in their favour.
[27] On completion of the purchase, the father in China owned the property but allowed his son and his son’s partner to live in the property and for them to pay the outgoings on it. That does not, by itself, generate any equity in the property. It did not give Kui Gao a beneficial interest in the property of the sort recognised by s
137(1) of the Land Transfer Act.
Events after purchase
[28] Ms Li says that following the purchase and up until the time when she returned to China in 2010, she and Kui Gao paid the outgoings on the property including the mortgage, insurance and rates. She emphasises that this was not a case of a residential tenancy and that is shown by the fact that she and Kui Gao were responsible for meeting the mortgage obligations.
[29] Fairly extensive bank records have been put in evidence. These show that Kui Gao made free use of the power of attorney for his father’s funds held in the National Bank. After the purchase of the Pitfire Place property, there was about
$50,000 left in the account. There were drawings and those funds were depleted. Bank statements show transactions on a National Bank flexible home loan. The drawings from that account were used to pay living expenses for Kui Gao and Ms Li. By May 2009 that account in the name of Lian Yuan Gao was in debt to the bank for
$71,720. Kui Gao used his father’s power of attorney to arrange a new term loan of
$50,000 to reduce the debt to $21,720. By November 2009 the balance owing under the flexible home loan had gone up to $49,549. Kui Gao arranged another term loan of $50,000. The couple had borrowed another $100,000 using the father’s facilities at the National Bank.
[30] For Ms Li, Ms Reed did not take issue with these transactions shown in the bank statements. She contended, however, that the couple’s use of the facility must show that Ms Li and Kui Gao had an interest in the property. The argument, as I understand it, is that by making free use of the facilities which were secured against
the property, they were showing their genuine belief that they had an interest in the property because they would not have run up that debt against somebody else’s property.
[31] With respect, I am unable to accept that argument. There might be an argument the other way, if Ms Li and Kui Gao had added value to the property. Then there might be some argument based on proprietary estoppel and acquiescence by Lian Yuan Gao. But this is the opposite. They have run up debt at the expense of Lian Yuan Gao. Any claim that they might make to the property would have to take into account relative benefits and detriments. Here, Ms Li and Kui Gao have clearly benefited far more from living in the property than any value they might have added. I accept that it is not possible to come to an exact figure for the debt to the National Bank at the date of separation. The initial loan of $100,000 taken out on the purchase may have been reduced, but that amount was not put in evidence. All the same, the two term loans of $50,000 each is an increase in debt which they have incurred to the detriment of Lian Yuan Gao. Ms Li made some play of Lian Yuan Gao’s inaction while an account was overdrawn of funds, but I am unable to derive any argument from his inactivity that he has allowed any beneficial interest in the property to be generated by allowing his property to be used to subsidise a lifestyle where expenses exceeded income. There is nothing in these circumstances that shows that events since the purchase have given Kui Gao any equitable interest in the property.
[32] In short, Ms Li has failed to show an arguable case for Kui Gao having any beneficial interest in the property of the sort claimed in her notice of claim.
Does Ms Li have a relationship property claim to any interest of Kui Gao in the
Pitfire Place property?
[33] The point I have reached is that Ms Li has not shown an arguable case for Kui Gao to have an equitable interest in the Pitfire Place property. If he did have such an interest, it would be necessary to consider whether that interest could be subject to a claim under the Property (Relationships) Act.
[34] Lian Yuan Gao remained owner of the property. His increased debt to the National Bank under the various term loans is a liability of the couple that would wipe out any equity in the property available for division between Ms Li and Kui Gao. If they did acquire an interest in the Pitfire Place property, that would be an interest in a family home and an asset they acquired during their relationship. It would, accordingly, be relationship property under s 8 of the Property (Relationships) Act. The only other relationship assets Ms Li has identified are motor vehicles said to be worth $26,000, family chattels worth $26,000 and some small sums in bank accounts. There are also minor credit card debts. The term loans of $50,000 each incurred by Kui Gao are relationship debts under s 20 of the Property (Relationships) Act. They are secured against the Pitfire Place property. Under s 20D of the Property (Relationships) Act, those debts are to be taken into account in calculating the value of relationship property. Once they are taken into account, the liabilities exceed the assets. Kui Gao is entitled to raise his liability under the term loans to resist any claim that he share any relationship assets in his name with Ms Li. Because the debt is secured against the family home, if any, Ms Li cannot have a claim to a protected interest under s 20B.
[35] Accordingly Ms Li has not shown an arguable claim that she has a relationship property claim to any beneficial interest of Kui Gao in the Pitfire Place property.
Outcome
[36] I find that Ms Li does not have an arguable claim that Kui Gao had an interest in the Pitfire Place property and that she has any relationship claim to any such interest if it were proved.
[37] I give Ms Li time to consider her options. The notice of claim will lapse with effect from 28 April 2017.
Costs
[38] Ms Chen seeks costs for Lian Yuan Gao. Ms Reed resists costs. She raises discretionary factors indicating, for example, that in the Family Court Ms Li has not been required to pay costs. The usual practice of this court is that costs follow the event.5 As Ms Li has failed in her application, she is required to pay costs. There is nothing in the conduct of the case on either side that warrants any adjustments either way under rr 14.6 and 14.7 of the High Court Rules. Costs are to be calculated
under category 2. I record that the hearing has taken from 10:00am to 4:05pm including giving my judgment. I encourage the parties to confer as to costs. If they cannot agree costs, memoranda may be filed and I will decide costs on the papers.
[39] Mr Gao is also entitled to disbursements – except for one matter. He requested that the court provide an interpreter for him for the hearing. The court duly arranged an interpreter. In the end, the interpreter was not required. That is not an expense which Ms Li should have to pay. Mr Gao is to meet that cost.
……………………………….
Associate Judge R M Bell
5 High Court Rules, r 14.2(a).
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