Li v Yan

[2016] NZHC 657

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2015-419-126 [2016] NZHC 657

UNDER	Section 145A Land Transfer Act 1952
AND IN THE MATTER	of an application for an order that Caveat 10005838 not lapse
BETWEEN	WEINA LI Applicant
AND	SHIFENG YAN Respondent

Hearing:	7 April 2016
Appearances:	Mr R Hollyman for Applicant Mr M Talbot for Respondent
Judgment:	14 April 2016

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

14.04.16 at 10.30 am, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

LI v YAN [2016] NZHC 657 [14 April 2016]

[1]      This case is concerned with an application pursuant to s 145A of the Land Transfer Act 1952.  The applicant has lodged a caveat against the title to a residential property in Hamilton.  The brief background to the proceeding is as follows.

[2]      Messrs Xudong Ping and Zhou Yan commenced working together as builders and property developers in 2009.  The former calls himself Fred Ping and the latter Joe Yan.   I shall use the same names in describing them in the course of this judgment.  I shall also collectively refer to them as “the partners” even though there is some doubt about whether or not they were part of a partnership strictly so called.

[3]      In 2009 the partners incorporated a company, Horizon Developments Limited

(‘Horizon”).  Joe Yan owned 49% of the shares and Fred Ping 51%.

[4]      In 2010 Joe Yan’s father (the respondent) granted a power of attorney to his son.   It was pursuant to that power of attorney that the agreement for sale and purchase which will be the central subject of this judgment was executed on behalf of the respondent as the purchaser.  The exact nature of the agreement and whether it was what it appeared to be has been the subject of close attention in the skilful submissions that both counsel, Mr Hollyman for the applicant and Mr Talbot for the respondent, have placed before the court.

[5]      In  due  course  the  partners  identified  a  property  in  a  subdivision  at  238

Borman Road, Hamilton to acquire.   It was acquired in the name of the applicant who is the wife of Fred Ping.  It is not clear why the property was purchased in this way.  An explanation which Fred Ping put forward was that the developer had placed a limit of two sections on each individual purchaser and because they wanted to acquire  other  sections  possibly  the  partners  did  not  want  to  run  afoul  of  this condition.   However, it is also established that they never in fact acquired more than two sections in the subdivision.   Mr Hollyman, though, correctly observes that it may have been the case that at the time when they were buying the property they could not have foreseen that matters would turn out that way and could not therefore have predicted that using the applicant’s trustee was not, after all, necessary.

[6]      The broad intention apparently was that the partners would use the house as an office and also for the purpose of promoting the company.   The property was acquired on 27 January 2012.  It is also arguable on the basis of the evidence before the court that in due course the property would be sold and any gain that had been made would be shared between the partners.  The property was purchased as a bare section but Horizon built a house on it.  The trustee, the applicant, as owner, let the property to the company to occupy.  The company paid rent and outgoings.  Little information has been placed before the court about the circumstances of the purchase of the property.  What is known is that as part of the purchase arrangements a loan was taken out on a short-term basis from a lender called DSR Limited.  That loan was for $200,000.

[7]      The applicant is the trustee of a trust called the Ping Trust.   While she purchased the property it does not seem to be clear as to whether she was purchasing it for the Ping Trust.  The beneficiaries of that trust seem to have been restricted to members of Fred Ping’s family.  However, it is common ground that the applicant acquired the property when it was purchased for either the partners or their company, Horizon.   On the basis of the evidence before me it is impossible to come to any clear view which entity/ies were the beneficiaries.

[8]      Approximately three months later the partners agreed to sell the property.  It is the exact nature of this transaction which is disputed as will become clear in the course of this judgment.

[9]      In April 2012, the applicant entered into an agreement for sale and purchase with Joe Yan’s father, the respondent.   The father resided in China and Joe Yan executed the agreement on his behalf pursuant to a power of attorney which his father had given him.

[10]     As a result of that transaction, the applicant has lodged a caveat against the title to the property claiming an estate or interest of the following kind:

An interest in the property as beneficiary under a cestui que trust [sic] of which the registered proprietor Shifeng Yan is trustee.

[11]     In  broad  terms,  the  respondent  says  that  he  purchased  the  property beneficially in accordance with the terms of the standard agreement for sale and purchase which he entered into with the applicant.   The applicant claims that the position   was   otherwise   and   Mr   Hollyman   summarised   the   position   in   his submissions as follows:

4At the time of transfer the agreement between Mr Ping and Mr Joe Yan was that the property (which had equity of $190,000) would be held for the joint benefit of the Ping Trust and Mr Joe Yan, subject to the mortgage; the mortgage would be paid by Horizon (which would in return occupy the land); and that when they agreed to sell the property, they would share in the proceeds of sale.

[12]     The case for the applicant, therefore, is that the respondent acquired the property as a trustee and was to hold it for the benefit of The Ping Trust and Joe Yan. The case for the respondent is that he bought the property outright.

[13]     The applicant’s husband, Fred Ping, explains the transaction in the following terms:

5.  The loan [to DSR Limited] was for $200,000.  Due to the high cost of the loan and short term we decided to refinance through a regular bank to obtain a lower interest rate and longer term.  However Mr [Joe] Yan and I were not then, in early-mid 2012, in a position financially to borrow $260,000 to refinance and leave a small surplus.  Mr Joe Yan’s father was able to do so. For that reason the property was purchased by [the respondent].

6.  From our knowledge of the market at that time Joe Yan agreed that the value of this property was $460,000-$480,000 with a real estate agent.  As our transaction did not involve an agent, we fixed $450,000 as the price. This meant that there was a gap of $190,000 between the sale price of

$450,000 and the ANZ bank loan of $260,000.  This figure of $190,000 was the equity in the property.  Joe Yan and I agreed that this equity would be

distributed equally between the Ping Trust and him when the property was

resold.  This agreement was made orally.  The respondent knew of it, as did my wife[.]

[14]     Joe Yan on the other hand says that when Fred Ping attended the former’s wedding in China in January 2011 his father agreed to advance the amount of the cash gifts that had been made to the family on that occasion to Fred Ping.  It was a personal loan, he said, by which I understand him to be saying that it was not a loan to the partners but to Horizon.  In return for this loan Joe Yan says that Fred Ping promised his father some part of the profits that he would make from developing

sections by way of repayment.  All of these alleged arrangements were oral.  Later in the  year however,  Joe  Yan  says,  his  father  got  nervous  about  the prospects  of repayment and asked Fred Ping to repay the loan but he didn’t have the money to pay it back and offered to pay the respondent back by arranging for him to purchase the property from the applicant.   The amount of the alleged loan is apparently NZ$140,000.

[15]     In any event, the parties entered into the agreement for sale and purchase between the Ping Trust as vendor and the respondent as purchaser with the purchase price being $450,000.

[16]     The way in which the applicant analyses the transaction is that, as I have said, it was intended to enable the refinancing of the DRS Limited mortgage and provide an  amount  which  was  left  over,  intended  to  be used as  working capital  in  the property development business.  Even though the legal title to the property would be transferred to the respondent, he would be a trustee only and the partners would continue to own the beneficial interest in the property.   The necessity for the agreement that was entered into to sell the property to the respondent in April 2012 is said to lie in the fact that the respondent was the only party who would be able to raise replacement finance to enable repayment of the DRS Limited mortgage and that therefore he would need to be on the title so that he could grant a mortgage over the property to the proposed replacement mortgagee, ANZ Bank.   While the arrangement was allegedly open-ended as to how long it would continue, in due course, the applicant contended, the partners would want to liquidate the investment in the property at Borman Road and distribute between themselves any equity that there was in the property.  In the meantime their business would continue to occupy the property and pay rent to the respondent which would be used to pay the mortgage and outgoings over the property.

[17]     The case for the applicant, further, was that the partners considered that the current value of the property was $450,000 with the liability to DRS Limited being about $200,000 resulting in an approximate equity of $250,000.  They proposed that the respondent would borrow approximately $260,000 which would be sufficient to pay out DRS Limited and to provide an additional $60,000 which was to be used in

the business.  When those amounts are taken away from the value of the property, it can  be  calculated  that  the  remaining  equity  is  $190,000  approximately.    The applicant avers that the agreement would be structured to show the $190,000 as a deposit.   The respondent would acquire the property without paying this deposit which was notional only.  In due course, the equity in the property should increase and the two partners would in due course share the equity, whatever it was.

[18]     I should interpolate that the agreement for sale and purchase contained the following provision relating to a deposit:

Deposit…: $190,000 paid to the Vendor receipt of which is acknowledged.

[19]     The respondent says that the parties did come to an agreement but it was different from that which the applicant alleges.  There was a sale to the respondent: the property was valued at $450,000 which became the price on the agreement for sale and purchase.  As well the respondent would be paying off the loan from DRS Limited.  As to the $190,000 the respondent takes a fundamentally different position. The respondent says that after the applicant attended his son’s wedding in China, he lent to her the sum of $140,000 which had been donated in gifts.  He further says that a further objective of the sale was to make arrangements for the repayment of that loan together with interest or reasonable charges for the advance.  Consistent with this approach, the respondent says that it was agreed that a sum of $190,000 should be repaid by Fred Ping and that the structure adopted reflects that that was what was agreed because the deposit of $190,000 was actually paid.

Principles

[20]     In his judgment in Cantab Management Ltd v Greagh Investments Ltd Faire

AJ stated the principles relevant to removal and sustaining of caveats as follows:1

1      Cantab Management Ltd v Greagh Investments Ltd HC Hamilton M95/02, 20 November 2002.

a)[Section] 143 of the Land Transfer Act 1952 gives no guide as to the circumstances in which the Court may make an order that a caveat be removed.  Catchpole v Burke [1974] 1 NZLR 620 at 623

b)If it is clear that there was no valid ground for lodging a caveat, or that the interest which in the first place justified the lodging of the caveat no longer exists, such a caveat should be removed.   Sims v Lowe [1988] 1 NZLR 656, 659

c)The onus under s 143 of the Land Transfer Act 1952 lies on the caveator to show that he has a reasonably arguable case for the interest he claims.  Castlehill Run Ltd v NZI Finance Ltd [1985] 2

NZLR 104-106

d)The caveat, being a creature of statute, may be lodged only by a person upon whom a right to lodge it has been conferred by statute. It is not enough to show that the lodging and continued existence of the caveat would be in some way advantageous to the caveator. Guardian Trust & Executor Co of New Zealand Ltd v Hall [1938] NZLR 1020 at 1025

e)For the purpose of this application, the caveator therefore must show that it is entitled to, or to be beneficially interested in, the estate referred to in the caveat by virtue of an unregistered agreement or an instrument or transmission or of any trust expressed or implied. Section 137, Land Transfer Act 1952

f)         What the caveator must establish is an arguable case for claiming an interest of the kind in s 137 of the Land Transfer Act 1952[.]

g)        Even if the caveator establishes an arguable case for the interest in the land claimed, the Court retains a discretion to make an order removing the caveat although it will be exercised cautiously. Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 at 656

h)Delay is a relevant factor to be weighed in the exercise of the Court’s wide discretion under s 143.  Delay is more important where there is specific prejudice.   What is required is a consideration of all the circumstances.  Varney v Anderson [1988] 1 NZLR 478, 480;

i)         The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:

. . . that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground  for  lodging  it  or  that  such  valid  ground  as  then existed no longer does so. Sims v Lowe [1988] 1 NZLR 656 at pp 659-660.

[21]     I agree that the above statement correctly states the applicable principles.

Discussion

[22]     The  question  is  whether  Ms  Li  has  a  reasonably  arguable  claim  to  a caveatable interest in the land.2

[23]     The applicant alleges that in addition to the agreement for sale and purchase an additional agreement was entered into.  The court must assess therefore whether it is reasonably arguable that the alleged additional agreement was actually entered into.

[24]      The words of the Privy Council in EngMee Yong v Letchumanan provide guidance to the correct approach that the court ought to take:3

Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.

[25]     The question of whether it is reasonably arguable that an agreement of the kind which the applicant alleges was entered into is to be assessed by considering the agreement in the context of the background including matters such as contemporaneous documents that were entered into and whether the propounded arrangement is one that is reasonably arguable having regard to the factual position that the parties found themselves in at the relevant time.   It is also relevant to consider the extent to which the circumstances in which the proposed arrangement was entered into have been particularised in the evidence of the applicant.

[26]     The first consideration that seems to be relevant to me is that the court should enquire why, if the parties had agreed to a different transaction than a simple agreement for sale and purchase, they did not actually record that in writing.  That is to say, the agreement for sale and purchase which the applicant and respondent

entered into on its face is inconsistent with the vendors retaining the beneficial

2      Holt v Anchorage Management Ltd [1987] 1 NZLR 108.

3    Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).

interest in the property.   The applicant would need to show that a quite different outcome was agreed to and yet not documented.  While these litigants clearly have a background in the Chinese culture, and some allowance should sensibly be made for the possibility that might have influenced them to enter into an arrangement which is different from the one actually documented, that on its own does not wholly dispose of the difficulties which lie in the applicant’s path.  The applicant after all had some familiarity with trusts, she being the trustee of the Ping Trust which was an express trust which had been drawn up by a Hamilton solicitor.   Both sides have the assistance of lawyers on the present transaction and had they wished to they could have asked the solicitors to draft an appropriate structure to achieve their objectives. They did not do so.

[27]     The second point is that there is a dearth of particulars of the agreement that the parties entered into on the account of matters which the applicant puts forward.

[28]     A  further  and  very  significant  issue  concerns  the  matter  of  whether  the deposit was actually paid in this case.  It is the contention of the applicant that it was not.   There are however contemporary documents which state that it was.   The arrangements as to the deposit which were contained in the agreement for sale and purchase itself I have set out above.  There is an expressed acknowledgement that the deposit has been paid.  Further, the amended statement which Clyde Law, who acted for the lenders, issued makes reference to the deposit.  The first reference in the settlement statement (which is dated 19 April 2012) states:

BY:  Deposit (if paid)  $190,000

[29]     On its face that reference would seem to be conditional.   However, at the penultimate line of the settlement statement there appears the following item:

BY:  Amount to settle as at 4 May 2012           $260,303.76

[30]     The amount of $260,303.76 is next referred to in the settlement statement which the solicitors acting for the vendor sent to the Ping Trust and which recorded that amount had been received into the trust account of the solicitors.  The $260,000 was made up of, amongst other things, payment of the deposit of $190,000.  This is contemporaneous evidence which shows that the deposit was actually paid.

[31]  Further,  the  solicitor  acting  for  the  respondent  requested  an acknowledgement from the solicitor acting for the vendor that a deposit had been paid.  The latter wrote on 12 April 2012:

This  is  to  confirm  that  we  received  the  deposit  of  $190,000  from  the purchaser for 238 Borman Road, Hamilton.

[32]     I note that rather than the solicitor providing confirmation that it had been paid, the reply appears to have been sent by the applicant.   She, in other words, personally certified that the amount of the deposit had been paid.   It has not been suggested in the evidence that the confirmation that she provided in writing was other than a bona fides document in her own hand.

[33]     Given the ethical obligations of the solicitor not to make a false statement or to associate himself with one that his client puts forward, this confirmation must be regarded as cogent evidence.

[34]     The  point  of  this  discussion  may  now  be  summarised.    The  applicant contends that the respondent acquired the property as a trustee for the applicant and Joe Yan.  It is a central part of the evidence put forward by the applicant in support of the explanation that the partners continued to have equity in the property which would ultimately be shared out but in the meantime would remain latent in the property, which would be in the legal ownership of the respondent.  However, given that the contemporaneous documents appear to establish that the respondent paid in full the value of the property, such an explanation has to be viewed as untenable.

[35]     I appreciate that the same criticism can also be made of the version of events which the respondent puts forward but it is the applicant who has to show a reasonably arguable case, not the respondent.

[36]     I am of the view that the explanation which the respondent has put forward is not without its difficulties either when it comes to explaining the point of the transaction that the parties entered into.  As I understand it, the respondent explains the transaction as being designed to ensure that the partners should be freed from the obligations under the mortgage over the property.  They would continue to operate

their  business  from  the  address  but  as  tenants  of  the  respondent.    The  second objective that Joe Yan alleges was accomplished was that his father was repaid a debt owed by Fred Ping.  This debt was apparently to be extinguished by setting off the amount owed against the deposit under the agreement.  I say apparently, because there is no specific evidence about the matter.   The evidence which Joe Yan has given does not expressly spell out this consequence but it seems to be a necessary inference to be drawn from the explanation which he puts forward.   Such an explanation would seem to be at odds with the settlement statement to which reference has already been made and the entries in the applicant’s solicitor ’s trust account  which  acknowledged  the  receipt  of  payments  including  an  amount  of

$190,000 which was the deposit agreed to in the agreement for sale and purchase. However, if the respondent did in fact pay the deposit in cash (rather than taking a set off) the transaction would not have the effect of Fred Ping paying off the debt because the cash would be moving the other way, from the respondent and to Fred Ping and Joe Yan.

[37]     It is my view that because of these unsatisfactory aspects of the evidence, it is not reasonably arguable that the respondent is holding the property as a trustee for the applicant.   For those reasons, I am of the view that the application for orders sustaining the caveat claimed in the originating application dated 4 May 2015 ought to be dismissed and I order accordingly.

[38]     The applicant having been unsuccessful in her application is to pay costs to the  respondent  on  a  2B  basis  together  with  disbursements  to  be  fixed  by  the

Registrar.

J.P. Doogue

Associate Judge