Li v RJT Limited
[2024] NZHC 3576
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-001882
[2024] NZHC 3576
UNDER the Land Transfer Act 2017 IN THE MATTER
of an application that caveat 13029637.1 not lapse
BETWEEN
GANG LI
Applicant
AND
RJT LIMITED
Respondent
Hearing: 18 November 2024 Appearances:
D Z Q Tan for the Applicant P Kim for the Respondent
Judgment:
27 November 2024
JUDGMENT OF GARDINER J
This judgment was delivered by me on 27 November 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Chen Sandhu Lawyers, Auckland Glaister Ennor, Auckland
LI v RJT LTD [2024] NZHC 3576 [27 November 2024]
Introduction
[1] The applicant, Gang Li, has applied for an order that the caveat lodged against a property at 25 Marae Street, Taumarunui, not lapse. Mr Li claims to have a beneficial interest in 25 Marae Street through an institutional constructive trust.
[2] The respondent, RJT Limited (RJT), is the registered owner of the property. RJT opposes the application on the grounds that Mr Li made no contribution towards 25 Marae Street and could not reasonably have had any expectation of an interest in the property.
[3] The issue to determine is whether Mr Li has established that he has a reasonably arguable beneficial interest in the property through an institutional constructive trust.
Background
[4] Roderick James Turner (Mr Turner) is the sole director and shareholder of RJT. He and his former wife, Sophia Mary Turner (Ms Turner) were friends with Mr Li and his wife Tao Peng (Ms Peng).
[5] Mr Li and Ms Peng were interested in buying a hotel. Ms Turner, a real estate agent, identified the Twin Rivers Motel in Taumaranui listed for sale for $998,000. The motel was being sold as a package comprising the motel business, the land containing the motel (21–23 Marae Street), a 1900’s residential villa across the road used for overflow of guests (37 Huia Street) and a residential villa next door to the motel that was occupied by the motel owner (25 Marae Street).
[6] A decision was made to purchase the motel business and properties. The parties give differing accounts of the arrangements they made for the purchase and ownership of the motel and properties.
[7] Mr Turner relies on a written document dated 2 February 2020 recording that he and Ms Turner agreed (amongst other things) that:
(a)Mr Turner would purchase the motel business and properties and oversee and revitalise the motel business over three years.
(b)Ms Turner would provide up to $800,000 for the purchase of the motel business, 21–23 Marae Street and 37 Huia Street.
(c)Mr Turner would purchase and own 25 Marae Street.
(d)After three years, Mr Turner would assist with selling the motel or transfer the company to Ms Turner.
(e)Mr Turner would own 37 Huia Street in lieu of any salary for his services over the three years.
(f)Mr Turner may rent 25 Marae Street and 37 Huia Street to the motel.
[8] Mr Li’s evidence is that he was not aware of the purported agreement between Mr and Ms Turner.
[9] Mr Li’s evidence is that the arrangement between he, Ms Peng, Mr Turner, and Ms Turner was recorded in two Letters of Undertaking and a Memorandum of Understanding (MOU) dated 23 February 2020. The Letters of Undertaking are signed by Mr Li. The MOU is unsigned. Mr Turner and Ms Turner deny ever seeing the MOU or agreeing to its terms.
[10] Under the Letters of Undertaking Mr Li undertakes to provide Mr Turner with funds to settle the purchase of the motel business, 21–23 Marae Street and 37 Huia Street on the agreed settlement date.
[11]The Memorandum of Understanding document provides that:
(a)Mr Turner would purchase the motel business, 21–23 Marae Street, 37 Huia Street and 25 Marae Street.
(b)Mr Li would provide the funds for 21–23 Marae Street and 37 Huia Street.
(c)Mr Turner would fund the purchase of 25 Marae Street and own that property personally.
(d)Mr Turner would establish a company, of which he would be the director, to operate the motel business, and to own 21–23 Marae Street and 37 Huia Street.
(e)Mr Turner’s salary would be $1,000 per month plus 10 per cent of the annual profit of the motel business.
(f)The motel company would rent 25 Marae Street from Mr Turner.
(g)“If circumstances permitted”, after three years, 37 Huia Street would be transferred to Mr Turner personally and 25 Marae Street would be transferred to the motel company. The company would then rent 37 Huia Street from Mr Turner.1
[12] Mr Turner’s evidence is that the only agreement he and Ms Turner had with Mr Li and Ms Peng was that they would be given first option to buy the Twin Rivers Motel; and that the motel would offer to employ their son Barney as a motel manager.
[13] On 22 February 2020, Mr Turner made an offer (later accepted by the vendor on 2 March 2020) to purchase the motel business, 21-23 Marae Street, 37 Huia Street, and 25 Marae Street.
1 There is a difference in the English translates of this clause provided by Mr Li, but that difference is not material to this judgment.
[14] On 23 March 2020, Mr Turner incorporated Twin Rivers Motel 2020 Limited (TRM2020) to settle the purchase of the motel business, 21–23 Marae Street and 37 Huia Street. He is the sole director and shareholder of TRM2020.
[15] Between March and May 2020, Mr Li and Ms Peng made payments to Ms Turner totalling $760,000 which were then subsequently transferred to TRM2020’s bank account. Mr Li’s evidence is that these payments were his investment in the motel business and properties according to the MOU. Ms Turner rejects that; and says that the funds were her agreed share of the profit from a property development project she undertook with Mr Li and Ms Peng.
[16] On 15 May 2020:
(a)The purchase of the motel business, 21–23 Marae Street and 37 Huia Street were settled by TRM2020 with the funds from Ms Turner.
(b)Separately, the purchase of 25 Marae Street was settled by RJT with its own funds.
[17] From October 2022, the motel business and 21–23 Marae Street were listed for sale (with an option to also purchase 25 Marae Street). Between late 2022 and February 2023, TRM2020 received two conditional offers that ultimately fell through.
[18] Mr Turner renovated 37 Huia Street and sold it to a third party in December 2023. Mr Turner says that, as agreed with Ms Turner, this was in lieu of any salary for the time and labour he committed to the motel business since 2020.
[19] In April 2024, TRM2020 received an offer of $860,000 for the motel business and 21–23 Marae Street. Mr Li and Ms Peng were interested in purchasing the motel and property, so the listing was withdrawn to enable them to make their offer.
[20] On or about 7 June 2024, Mr Li lodged caveats over both 21–23 Marae Street and 25 Marae Street. These proceedings concern the caveat lodged against 25 Marae Street only.
[21]The claimed estate or interest noted on the caveat is in these words:
The caveator is a beneficiary under a trust arrangement where Roderick James Turner will hold the property via the Company, RJT Limited, where Roderick James Turner is the sole shareholder and director, on trust for the caveator. Pursuant to the agreement dated 23 February 2020 between the caveator and Roderick James Turner, Roderick James Turner is to transfer the property hold under RJT Limited back to the caveator or the caveator’s company.
Legal principles
Application to sustain a caveat
[22] An application to sustain a caveat2 is determined on summary basis in which the Court has regard to the following principles:
(a)The applicant caveator bears the onus of demonstrating that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively. It is enough if they present a reasonably arguable case.
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patently clear it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour. However, the Court is not bound to uncritically accept statements in an affidavit that are equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable.
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat where it is satisfied that the caveator can have no reasonable expectation of obtaining a benefit from the continuance of the caveat or if the caveator’s interest can be
2 Land Transfer Act 2017, s 143.
reasonably accommodated in some other way. The Court will exercise this discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.
[23] To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or an affidavit, is not enough. If there is no evidence to prove the facts, the caveator will not have made out a reasonably arguable case for those facts.
The claimed beneficial interest
[24] Mr Li claims that RJT holds 25 Marae Street for his benefit under an institutional constructive trust arising out of contributions he made to the property.
[25] Mr Li submits that as he contributed the funds that enabled TRM2020 to purchase the motel business, 21–23 Marae Street, and 37 Huia Street, he contributed indirectly to the purchase of 25 Marae Street, because it was a requirement of the vendor that the motel business and the properties were purchased as a package. In other words, had he not contributed directly to the purchase of the motel business, 21-23 Marae Street and 37 Huia Street, it would not have been possible for RJT to purchase 25 Marae Street. Mr Li relies on the agreements for sale and purchase for the business and properties containing clauses which state that the agreements are conditional upon the contemporaneous execution, and confirmation as unconditional, of agreements for all the properties and the business.
[26] Second, Mr Li claims that he had a reasonable expectation of an interest in 25 Marae Street, and that RJT should yield to that interest. Mr Li relies on the MOU. He says that he had an expectation of acquiring an interest in 25 Marae Street when after three years the “property swap” took place by which Mr Turner would take ownership of 37 Huia Street and TRM2020 would take ownership of 25 Marae Street. Mr Li’s evidence is that it was the parties’ common intention that Mr Turner would hold the shares of TRM2020 on trust for him, and that TRM2020 would hold 21 Marae Street and 37 Huia Street on trust for him.
[27] Mr Li says that Mr Turner has given effect to the MOU by selling 37 Huia Street and retaining the proceeds of sale himself. Mr Li says that the MOU envisaged that in that event TRM2020 would take ownership of 25 Marae Street. He says that it is unconscionable for Mr Turner to assert an equitable interest in 37 Huia Street according to the MOU whilst simultaneously denying Mr Li’s equitable interest in 25 Marae Street.
Analysis
[28] Mr Li relies on the type of institutional constructive trust recognised in Lankow v Rose.3 Where the plaintiff has contributed in more than minor way to the acquisition, maintenance, or improvement of the defendant’s assets, in circumstances where the parties must be taken reasonably to have expected that the plaintiff would share in the assets because of that contribution, it is unconscionable for the defendant to deny them that interest. In these circumstances the Court will declare that an institutional constructive trust exists.
[29] In my assessment, Mr Li has failed to establish an arguable case for a beneficial interest in the property pursuant to an institutional constructive trust.
[30] Mr Li has not shown that he arguably made direct or indirect contributions to the acquisition, improvement, or maintenance of 25 Marae Street. On his own evidence, he did not contribute financially to RJT’s acquisition of the property. It is not disputed that RJT purchased the property using funds provided by Mr Turner. Nor does Mr Li claim to have contributed financially to the improvement or maintenance of 25 Marae Street.
[31] Mr Li argues that he contributed indirectly to the acquisition of 25 Marae Street because it was acquired as a package with the motel and the other properties, and he funded their purchase. For an institutional constructive trust to be made out, the plaintiff’s contribution to the defendant’s assets must be more than minor and there must be a causal connection between the contribution and the acquisition,
3 Lankow v Rose [1995] 1 NZLR 277 (CA).
maintenance, or improvement of the assets.4 In my view, The causal connection between Mr Li’s alleged financial contribution to TRM2020’s acquisition of the motel business, 21–23 Marae Street and 37 Huia Street and RJT’s acquisition of 25 Marae Street is too tenuous to provide a sound basis for an equitable interest in the latter property.
[32] Furthermore, on Mr Li’s own evidence, the purchase of the motel business was the predominant transaction. I refer to para 5 and 6 of his affidavit in reply, in which he describes his and Ms Peng’s interest in purchasing a hotel. 25 Marae Street was the villa next door, not part of the motel facility, but had to be purchased to satisfy the vendor’s terms. If anything, it was RJT’s acquisition of 25 Marae Street that enabled TRM2020 to acquire the motel business, 21–23 Marae Street and 37 Huia Street (not the other way around).
[33] Even if Mr Li arguably contributed indirectly to the purchase of 25 Marae Street in the way he contends, it is not arguable that he reasonably expected to have an interest in 25 Marae Street because of that contribution.
[34] Even if the disputed MOU is taken at face value, the parties acknowledge in para 1 that Mr Turner will purchase 25 Marae Street as an investment property, and that he will own the property personally. On Mr Li’s own evidence, he did not expect to have an interest in 25 Marae Street.
[35] Mr Li’s claim to a beneficial interest depends on para 4 of the MOU. But para 4 simply records an agreement that TRM2020 may become the legal owner of 25 Marae Street in three years’ time if certain circumstances permit. The alleged property swap was a future possibility that depended on unspecified factors. Moreover, even if the transaction did eventuate, the recipient of the legal interest in 25 Marae Street was to be TRM2020, not Mr Li personally.
[36] In these circumstances, I do not consider it arguable that Mr Li reasonably expected to acquire a legal interest in 25 Marae Street through his alleged financial
4 Lankow v Rose, above n 2, at 282.
contribution to the purchase of the motel business, 21–23 Marae Street, and 37 Huia Street.
Result
[37]Mr Li’s application that the caveat not lapse is dismissed.
[38] Mr Li is ordered to pay RJT Limited’s costs on a standard 2B basis, and reasonable disbursements.
Gardiner J
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