Li v Xing HC Auckland CIV-2010-404-008005
[2011] NZHC 1553
•10 June 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-008005
UNDER The Land Transfer Act 1952
IN THE MATTER OF of an application by KEXING LI for an order that a Caveat shall not lapse under Section 145(1) for the caveat not to lapse
BETWEEN KEXING LI Applicant
ANDZHIWEI XING Respondent
Hearing: 18 March 2011
Counsel: D Smith for Applicant
T Ram for Respondent
Judgment: 10 June 2011 at 3:30 PM
RESERVED JUDGMENT OF ASSOCIATE JUDGE H SARGISSON (Application for caveat not lapse)
This judgment was delivered by me on 10 June 2011 at 3.30 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Baker Law, Private Bag 65 902, Mairangi Bay
Amicus Lawyers, PO Box 68 559, Auckland
LI V XING HC AK CIV-2010-404-008005 10 June 2011
[1] This is an application for an order that a caveat, registered as caveat number
8616380.1 against the titles to five properties, not lapse. The respondent is the registered proprietor of all five properties. The applicant is his stepfather.
[2] The application is made in reliance on s 145(1) of the Land Transfer Act
1952.
[3] Section 145(1) states:
145 Lapse of caveat against dealings
(1) Every caveat under section 137, upon the expiration of the first prescribed period after notice is given to the caveator that an application has been made for the registration of any instrument affecting the land, estate, or interest protected by the caveat, is deemed to have lapsed as to that land, estate, or interest, or so much of it as is referred to in the notice, unless -
(a) notice is, within the first prescribed period, given to the Registrar that an application for an order to the contrary has been made to the High Court; and
(b) such an order is made and served on the Registrar within the second prescribed period.
[4] The application is opposed. On 14 December 2010, Associate Judge Bell made an interim order that the caveat not lapse. The question that remains for determination on this application is whether the interim order should continue.
The interest claimed by the caveat
[5] The interest that the applicant claims as caveator is set out in the caveat as follows:
Estate or Interest claimed
The caveator advanced funds to the registered proprietor to obtain the land and holds the properties in part as the trustee for the caveator under a constructive trust.
[6] The applicant says the funds referred to in the caveat amounted to NZ$
878,504.00, including RMB 3,100,015. He says that some of the funds he advanced
were deposited into the respondent’s account via agents due to restrictions on bank transfers in China. His solicitor affirms this in an affidavit dated 6 December 2010.
[7] The respondent acknowledges that he received funds from the applicant and his mother who lives in China, but he disputes the amount he received. He also disputes that the funds were given to him to obtain land as claimed in the caveat.
Issues for determination
[8] The question whether the interim order should continue turns on whether it is arguable that:
a) The applicant did in fact send funds of over NZ$800,000 to the respondent in New Zealand as claimed;
b)Such funds were advanced, not as a gift or a simple loan, but on the respondent’s agreement to use them to purchase property in New Zealand in which the applicant was to have an interest;
c) Such an agreement may give rise to a constructive trust.
[9] There is no dispute that, if these questions raise genuine arguments, the applicant has made out a case for the continuation of the interim order subject to any discretionary factors that have been raised by the respondent.
Background
[10] The respondent has acquired a number of properties in Hamilton for property development purposes. He became the registered proprietor of Lot 68 DP 393908, CT reference SA 375821 on 7 August 2008. Since then he has acquired a number of other pieces of land for the purpose of property development. On 12 February 2010, he became the registered proprietor of the following properties:
a) Lot 75, DP 396907, CT reference SA 386386;
b) Lot 76, DP 396907, CT reference SA 38638; c) Lot 79, DP 396907, CT reference SA 386390; d) Lot 80, DP 396907, CT reference SA 386391.
[11] The respondent’s property development aspirations have not worked out quite as he hoped. He hired Constructive Innovation Limited to project manage and build a dwelling on Lot 68. He fell into arrears on repayments of sums owed for the building work and project management. On 31 August 2010, Constructive Innovation registered a caveat on Lot 68 to secure monies owing.
[12] In October 2010, the respondent entered into a sale and purchase agreement for the sale of Lot 68. This sale and purchase was to be settled on 13 December
2010. On 26 November, the lawyers for Construction Innovation wrote to the
respondent’s lawyers confirming that it will release its caveat once the outstanding
$71,000 is repaid. The respondent contends that he is able to make the necessary repayment.
[13] However, on 18 October 2010, the applicant lodged a caveat over all five properties. Once Construction Innovation’s caveat is released, the applicant’s caveat will prevent settlement of the sale of Lot 68.
[14] On 22 November 2010, the respondent applied to Land Information of New Zealand under s 145 to lapse the caveat and the applicant was given notice of the application. On 6 December 2010, the applicant filed an application for an order that the caveat shall not lapse and at the first call of the application on 14 December 2010 the interim order was made.
Relevant Legal Principles
[15] Under s 141, a caveat operates, with certain statutory exceptions, to prohibit the Registrar from registering any dealing that might have the effect of charging, transferring or otherwise affecting the claimed estate or interest of the caveator.
[16] An application under s 145 (and the former corresponding provisions)
essentially seeks that the prohibition continues.
[17] Ball v Fawcett summarised the key principles relevant to such an application. These are:[1]
[1] Ball v Fawcett [1997] 1 NZLR 743 at 746.
a) The courts have long held that the caveator must have a specific legal or equitable interest in the land caveated: Holt v Anchorage Management Ltd;[2]
[2] Holt v Anchorage Management Limited [1987] 1 NZLR 108 at 114 (CA).
b)The onus is on the caveator to show that it has an arguable case for the claimed interest in land. Once the onus is satisfied, in the normal course and in the absence of any special considerations, the balance of convenience will favour leaving the caveat in existence until proceedings to enforce the interest claimed are tried: see Castle Hill Run Ltd v NZI Finance;[3]
[3] Castle Hill Run Limited v NZI Finance Limited [1985] 2 NZLR 104 at 106.
c) An order for removal of a caveat will not be made unless it is particularly clear that the caveat cannot be maintained either because there is no valid ground for lodging it or because the valid ground for lodging it no longer exists: Sim v Lowe.[4]
[4] Sim v Lowe [1988] 1 NZLR 656 at 659-660.
[18] In Zhong v Wang, the Court of Appeal described the purpose of the caveat procedure as follows:[5]
[5] Zhong v Wang (2006) 5 NZConvC 194, 308 at [48].
The caveat procedure has been described as an interim measure, “designed to freeze the position until an opportunity has been given to a person claiming” a caveatable right to regularise the situation by registering the interest claimed: Miller v Minister of Mines [1963] NZLR 560 (PC) at 569. We agree with the view endorsed in Hinde, McMorland and Sim, Land Law in New Zealand (1997) at [2.145] that Miller should be regarded as authority for the proposition that the caveat should remain until the interest claimed becomes capable of registration.
[19] Arguably, caveats can also protect those equitable estates or interest that are not capable of being perfected in due course by the registration of instruments: see Hinde, McMorland & Sim, Land Law in New Zealand.[6]
[6] Hinde, McMorland & Sim Land Law in New Zealand at [10.006] 121-122
[20] Under s 137, the caveat must describe the interest claimed with sufficient certainty and explain how the caveator has derived the interest from the registered proprietor. Relevantly, it states:
(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 any 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) …
(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.
[21] In this case, there is no dispute that the caveat sufficiently describes the
applicant’s claimed interest to comply with s 137.
Discussion - The issues
Is it arguable that the applicant did in fact send funds of over $800,000 to the respondent in New Zealand as claimed?
[22] There is no dispute that the applicant did send some funds to the respondent. The applicant and the respondent dispute the amount.
[23] The applicant’s evidence is specific. He details the amount and the number of payments. He claims that between 4 April 2007 and 25 February 2010 he made
26 individual payments to the respondent amounting in total to around $878,504.00 including RMB 3,100,105 in Chinese currency. In his first affidavit, he deposes:
26 payments to the respondent
14.The funds that were provided to the respondent for the property development projects in Hamilton total $NZ285,500. The funds were made up of 26 payments of Chinese currency to the respondent from 4 April 2007 to 25 February 2010. These payments are summarised by the schedule annexed and marked “D”. My solicitor prepared this hand written schedule.
…
17.I believe the schedule of the 26 payments, being exhibit “D”, accurately records the total of the payments in $NZ. The translations and Chinese banking records attached as exhibits each have a handwritten number on the right hand side, in keeping with each of the 26 payments in the schedule.
…
21.I also understand that the paragraph 4 of the affidavit, the respondent has stated that my caveat is stopping him from settling a sale and purchase agreement that he entered into for the sale of Property A [Lot 68], that was to have settled on 13 December 2010. I do not accept this. First, it was agreed between the respondent and me that he would consult me before selling any of the properties. Second, there was already a caveat on Block A blocking that sale. The first caveat on Block A was lodged on 31 August 2010.
[24] In a further affidavit, the applicant retracts his statement as to amount in his first affidavit. He says there was an error, and that in his first affidavit he omitted to include the RMB 3,100,015 in addition to the NZ$ 285,500. He points to exhibit D to his first affidavit, which sets out sums totalling $285,500 plus RMB 3,100,015. This totals NZ$878,504.00 (the correct amount, according to the applicant).
[25] The respondent, though denying receipt of payments of such magnitude from the applicant, does not say how much, or how little, he was given. He claims that in any event the payments he did receive were mainly from his mother, not the applicant. He also denies receiving funds from the applicant’s agents’ bank accounts. His counsel further argues the applicant’s evidence should be treated as unsound. He submits that bank documentation that the applicant has produced does
not support the latter’s claims. He argues the documentation amounts to mere unsubstantiated assertion or shows, if anything, that funds came from others who have no apparent connection to the applicant or whose accounts were used wrongfully to avoid restrictions on bank transfers. Counsel also submits that some documents appear to be fabricated.
[26] On the evidence before me, I am unable to resolve the question whether the applicant did advance funds to the respondent of the amount or magnitude claimed. I am however satisfied that there is sufficient evidence to raise a real possibility that he did. Materially:
a) The bank documentation, though not all in the applicant’s name, appears to show the transfer of sums of in excess of $800,000 to the respondent;
b)The appellant’s solicitor affirms that the funds were deposited in the respondent’s account via the applicant’s agents in China; and
c) The respondent’s mother supports the stepfather’s contributions.
[27] Conversely, on the evidence as it stands, I am not persuaded by counsel for the respondent’s submission that I should dismiss the applicant’s evidence as unsound. I am unable to conclude whether any of the bank records are fabricated. Nor can I treat as conclusive the respondent’s submission that the applicant’s evidence is to be accorded little or no weight on the basis that he has made deposits via agents to avoid banking restrictions. Even if such deposits were made to circumvent banking restrictions the submission would not advance the respondent’s case, as it essentially admits of the possibility that the respondent did receive funds indirectly from the applicant. This possibility tends to reinforce the applicant’s contentions as to the amount he advanced and is properly trial.
Is it arguable that such funds were advanced not as a gift or a simple loan but on the respondent’s agreement to use them to purchase property in New Zealand in which the applicant was to have an interest?
[28] The respondent claims such funds as the applicant advanced were a gift or a loan to support his welfare and future.
[29] The applicant contends otherwise. He says that the respondent could not have purchased the five properties without his assistance. He also contends this was not a case of a gift or a mere loan. He deposes in his first affidavit:
The funds
12.I always wanted the respondent to get ahead financially and to give him to the chance to undertake property development in New Zealand successfully. I thought it was in my family’s best interests if my stepson had some help from me to get his property development in Hamilton started.
13.But the funds were not a gift. The funds were to be repaid. I did not expect to gain from the repayment and I never discussed with the respondent that he had to pay back interest or the like, but it was agreed that the funds were to be repaid and that I was to be kept up to date as to the use of the funds and the progress of the development. The funds were for the start up of the property development business. I would not have advanced the funds otherwise.
Family arrangement
24.I understand that the respondent’s position is that the funds were a “loan”. I do not think this reflects the arrangement between me and the respondent.
25.I am distressed by the attitude of the respondent. I fear that now, having had the benefit of the funds, he has decided that has no obligation to me or his family. That was not what was agreed. It was because of my relationship with my stepson the arrangements were not fully documented.
27.I trusted the respondent with the funds. They were advanced as part of a family arrangement, to improve the family’s financial position. The intention to use the proceeds of sale without returning my contribution to the project is a complete breach of the trust upon which the funds were advanced to the respondent. I trusted that he would use the funds to develop the properties in Hamilton, as was agreed.
28.The whole manner in which the arrangements were entered into reflects this. Given my recent dealings with my stepson, I am afraid that the caveats must be sustained to protect the funds and my interest in those properties.
[emphasis added]
[30] The respondent does not refute the applicant’s contentions other than by broad denial and claiming that he used bank funding. Otherwise, his counsel submits that there is no evidence to support the applicant’s contentions.
[31] Again, on the evidence, I cannot properly determine whether such funds as were advanced, whatever their amount, were advanced as a gift, mere loan or a loan tagged for property development. There is no evidence that clearly demonstrates how the respondent acquired the funds to buy the five properties. He says that he borrowed the money from the bank but in the absence of adequate supporting material that is not dispositive. Discovery will assist to show whether his assertions are true or false. On the other hand, the chat room exchanges between the applicant and respondent from 2 November 2009 to 9 February 2009 include detailed discussion about matters relating to the development of the properties. This suggests that the applicant had a degree of involvement in the respondent’s property development activities which is not wholly consistent with the respondent’s contentions.
[32] Though it is plausible that the applicant was extraordinarily generous in contributing funds to the respondent’s welfare, so too is the applicant’s contention that there were indeed strings attached. If the advances were of the magnitude that the applicant claims, it seems odd to say the least that the applicant would advance such a large sum over a relatively short period of time simply for the respondent’s welfare and future without some agreement of the kind he alleges.
[33] For these reasons, I find that the applicant has established an arguable case that he advanced the funds on the respondent’s agreement to invest them in property in New Zealand and that he, the applicant, was to have an interest.
Is it arguable that such an agreement may give rise to a constructive trust?
[34] The applicant submits that the respondent holds the five properties on constructive trust for him. He says that this constructive trust arguably arises in one of two ways.
[35] First, the family relationship and the circumstances of the advances give rise to a constructive trust under the test coined by Tipping J in Lankow v Rose because: [7]
[7] Lankow v Rose [1995] 1 NZLR 277, Tipping J.
a) There were contributions to the property in question;
b) There was an expectation of an interest therein;
c) The expectation is a reasonable one within the family relationship;
d)The respondent should be reasonably expected to yield an interest to the applicant.
[36] Secondly, a debt arose in circumstances that give rise to fiduciary obligations under the tests set out in Zhong v Wang because:[8]
[8] Zhong, above n.5.
a) Though the funds advanced were to be repaid, in the meantime they were to be applied in terms of the applicant’s instructions. The instructions required the acquisition of properties in which the applicant was to have an interest and consultation with the applicant before the sale of any of the properties;
b)The respondent must be regarded as the applicant’s agent for the purpose of such instructions; and
c) The relationship of agent and principal is a fiduciary one.
[37] In Zhong, the Court of Appeal had this to say on whether the relationship of debtor and creditor can co-exist with a fiduciary relationship:[9]
In Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC) the long standing authority of Lister & Co v Stubbs (1890) 45 Ch D 1 (CA) was overruled, with the consequence that the existence of a relationship of debtor and creditor as between parties did not prevent a relationship of trustee and beneficiary from co-existing with it.
[9] At [94].
[38] The Court of Appeal also said, with particular reference to the relationship of agent and principal:[10]
[10] At [93]
There is no doubt that the relationship of agent and principal gives rise to a fiduciary obligation. We adopt what was said by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (HCA) at 96-97:
The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Boardman v Phipps [[1967] 2 AC 46 at 127; …] viz trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of”, and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility ...
[emphasis added]
[39] Applying these findings the Court went on to find:[11]
[11] At [97]-[98].
Once the problem of a co-existing relationship is removed, there is no basis on which to deny that a constructive trust could arise in this case.
We are satisfied that, in terms of Sims v Lowe, a reasonably arguable case to support a constructive trust on this basis has been made out. For those reasons, the caveats should remain pending determination of the new proceeding issued by Mr Zhong or earlier order of the High Court.
[emphasis added]
[40] Based on this authority, I accept the submission of counsel for the applicant that the same conclusion is apposite here. It is plainly arguable that the respondent was the applicant’s agent for the purpose of applying the funds advanced by the applicant in terms of the latter’s instructions. The claimed instructions were such that the applicant can arguably rely on both a loan and a constructive trust. The two are not necessarily mutually exclusive. On the facts, according to the applicant, the respondent agreed to purchase the properties for property development in which he was to have an interest, and it was agreed and understood that the funds were advanced on that basis. If this version of events is right, the Hospital Products test will be satisfied. A constructive trust is reasonably arguable.
Result
[41] The applicant has established an arguable case that he has a caveatable interest in respect of the five properties registered in the respondent’s name. Subject to any discretionary factors, the caveat should therefore remain in place in respect of all five titles.
[42] The respondent submits the caveat is causing hardship because it is stopping him from settling the sale of Lot 68. I discussed this situation with both counsel and invited them to agree on orders that would permit the sale to proceed, but on the basis that the net sale proceeds would be held in trust pending the resolution of the dispute. Agreement was not reached despite the indications from both sides at the hearing that an accommodation should be possible.
[43] In these circumstances I order that:
a) The interim order that the caveat shall not lapse is to continue pending further order;
b) Leave is reserved to either side to seek further orders. A
memorandum may be filed for that purpose on 3 days notice.
[44] I also order that:
a) The applicant is to confirm by memorandum within fifteen working days of the date of this judgment, that he has commenced or is to commence substantive proceedings seeking a declaration or other relief in respect of the alleged advances and constructive trust. If this condition is not satisfied or if the substantive proceeding is not pursued diligently the respondent has leave to seek the removal of the caveat by way of memorandum on 2 days notice;
b) Costs should follow the event. The applicant is the successful party.
He is entitled to costs on a 2B basis plus disbursements as fixed by the
Registrar. I order accordingly;
c) The proceeding is to be re-listed in the Caveat List on 7 July 2011 at
2.15 pm.
Associate Judge Sargisson
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