Lin v Jia

[2018] NZHC 1033

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-69

[2018] NZHC 1033

IN THE MATTER OF

Land Transfer Act 1952, section 137

BETWEEN

SHUN YI ZHU LIN

Applicant

AND

SHUNWEI JIA and XIAO XI ZHU

First Respondents

DE CHENG ZHU

Second Respondent

Hearing:

8 May 2018

Appearances:

R J Connell and J E M Connell for the Applicant D J Rooke for the Frist Respondents

No appearance for the Second Respondents

Judgment:

8 May 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Connell & Connell, Auckland, for the Applicant

David Rooke Law Office, Botany Town Centre, Auckland, for the First Respondents

LIN v JIA and ZHU [2018] NZHC 1033 [8 May 2018]

[1]    The applicant seeks to sustain caveat 10638598.1, which is lodged against identifier 742658 (North Auckland Registry) for a property at Hollowout Street, Takanini. The first respondents are the registered proprietors. The interest claimed in the caveat is:

The registered proprietors, namely Shunwei Jia and Xiao Xi Zhu, as trustees of the land on a constructive trust for the caveator Shun Yi Zhu Lin as beneficiary for an interest in the land subject to this caveat.

[2]    The applicant is the wife of De Cheng Zhu, the second respondent. They married in April 1993. There are three children of the marriage. They separated in September 2016. Xiao Xi Zhu is the sister of De Cheng Zhu. Shunwei Jia is the husband of Xiao Xi Zhu. They are the registered proprietors of the caveated property at 1/46 Hollowout Street, Takanini, Auckland. They bought it in November 2016.

[3]    Shun Yi Zhu Lin believes that funds of her husband, De Cheng Zhu, went into that property. That is the essential basis for her lodging a caveat against the title.

[4]    Xiao Xi Zhu has given affidavit evidence showing how the purchase of the property was financed. She has shown records from their solicitors’ trust account for the purchase that the purchase price came from a bank mortgage and from other funds. She has attached bank statements, which show a flow of funds into the solicitor’s trust account. The funds flowed through accounts in her own name, but appear ultimately to have been sourced from a family trust in the name De Qun Zhu, the brother of Xiao Xi Zhu and De Cheng Zhu.

[5]    The caveat application is to be heard on 15 May 2018. Shun Yi Zhu Lin wishes to probe the assertions of Xiao Xi Zhu that none of the funds that went into the purchase of the property came from De Cheng Zhu. To that end she has given notice requiring Xiao Xi Zhu to appear for cross-examination. She has also applied for discovery of bank accounts in the names of the first respondents and the family trust of the second respondent.

[6]    Originally the caveat application and the discovery application were set down to be heard on the same day, 15 May 2018. I was assigned the case. When I looked  at it, it appeared to me that there would be difficulties in deciding the caveat application and the discovery application at the same time. It would be inconvenient to decide discovery when the Court needs to decide at the same time whether a caveatable interest in the land has been shown. Discovery is an interlocutory step in  a proceeding. The party against whom discovery is ordered is required to make an affidavit. The documents need to be made available to the other side for inspection, and they need to decide to what extent they will use those documents for the substantive hearing. That cannot be done at the same time as the substantive hearing. Accordingly, I directed that the discovery application be heard today ahead of the caveat hearing.

[7]    The application to sustain the caveat has been brought by originating application. That is permitted under r 19.2(l). It is possible to apply to sustain a caveat by other procedures such as a statement of claim and notice of proceeding under Part 18 of the High Court Rules 2016, but the originating application is generally more convenient. Under the originating application procedure discovery is not available as of right. It is in the discretion of the Court. On this see the commentary in McGechan on the High Court Rules under r 19.10, and McCullagh v Robt Jones Holdings Ltd.1 Because the question is one of discretion rather than of right, the party applying for discovery needs to show that discovery is required for the just resolution of the substantive proceeding, while bearing in mind that the originating application procedure is designed for prompt disposal of the matters in issue without the need for detailed interlocutory steps such as pleadings and discovery.

[8]    In the context of a caveat application, the Court is required to decide whether a party has established an arguable case for the interest claimed, except of course when it is alleged that the respondent has obtained an interest in the property by fraud.

1      J R Wild and others McGechan on Procedure (online loose-leaf ed, Thompson Reuters New Zealand) at HR19.10.04A; McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615.

[9]    It is necessary to say something more about the background to the case. Shun Yi Zhu Lin and De Cheng Zhu appear to have agreed that they separated in September 2016 on the sale of a property that they owned in Beltany Drive. That property was sold. The husband proposed to buy the property at 1/46 Hollowout Street, but the wife did not agree. The proceeds of sale at Beltany Drive were frozen. I understand that following proceedings in the Family Court, there have been partial distributions of the proceeds of sale.

[10]   In recent years the husband has been running a business for the export of seafood products to China. There is a conflict in the evidence as to how successful he has been. The applicant portrays him as being successful, whereas the first respondents indicate that he has not been successful and that he relies on them for assistance.

[11]   De Cheng Zhu had contemplated the purchase of the Hollowout property, but the proceeds of sale of Beltany Drive did not go into that purchase. Shunwei Jia and Xiao Xi Zhu bought the property instead. De Cheng Zhu now lives in the property. Allegedly he pays rent to Shunwei Jia and Xiao Xi Zhu for occupying the property. Given his occupation of the property and his earlier interest in buying the property, Shun Yi Zhu Lin is suspicious that while Shunwei Jia and Xiao Xi Zhu appear on the title, they hold it beneficially for De Cheng Zhu.

[12]   At the start of the hearing I discussed with Mr Connell whether the caveat was the appropriate mechanism under which Shun Yi Zhu Lin could make a claim for an alleged interest of De Cheng Zhu in the Hollowout Street property. She claims an interest by way of constructive trust. That suggests that she has a direct claim against the first respondents’ which would be recognised at equity as an interest in the property. It does not need to be created by court order but could be declared by the Court in its equitable jurisdiction. Such interests arising under authorities such as Lankow v Rose can be the subject of constructive trust claims.2 In the typical case the person claiming to be the beneficiary under a constructive trust has made contributions by services, materials or money which has added value to the property in the

2      Lankow v Rose [1995] 1 NZLR 277 (CA).

reasonable expectation that they would take an interest in the property, and they obtain an interest in the property.

[13]   The circumstances of this case do not suggest that Shun Yi Zhu Lin claims that she has obtained such a beneficial interest in the property herself. Nowhere does she assert that she contributed any funds or materials or services which added value to the Hollowout Street property. Instead, her case is that funds of her husband, De Cheng Zhu (arguably relationship property) went into the property; through that De Cheng Zhu arguably acquired a beneficial interest in the property; and, that interest constitutes relationship property which can be subject to division under the Property (Relationships) Act 1976. If that is her case, it does not seem to me to give her a direct equitable interest in the property itself under s 137(1) of the Land Transfer 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.

[14]   It seems to me that under her case any interest that her husband holds in the property under a resulting or constructive trust binding Shunwei Jia and Xiao Xi Zhu, arising from the application of relationship property, might give her a claim that her husband’s beneficial interest could be the subject of a claim in relationship property proceedings. One way to protect that claim is to lodge a notice of claim under s 42  of the Property (Relationships) Act. Under such a notice, the claimant may allege that the other spouse or partner has an interest in a property not only as a registered proprietor, but also as a person who is:3

entitled to, or beneficially interested…in the land…by virtue of an unregistered agreement or other instrument or transmission, or an express or implied trust or by virtue of some other circumstances.

3      Form for a notice of claim to interest under the Property (Relationships) Forms Regulations 2001, Schedule 1.

[15]   Mr Connell indicated an interest in lodging a notice of claim under s 42 in addition to the existing caveat. While there is a bar on lodging a second caveat under s 148 of the Land Transfer Act, there is no bar on a caveator also lodging a notice of claim. Mr Rooke indicated that there would not be any difficulty in considering a notice of claim at the same time as the Court decides whether the caveat should be sustained. Accordingly, on the assumption that a notice of claim will be lodged before the hearing next week, the Court will decide both the caveat and the notice of claim.4

[16]   For the discovery application, Shun Yi Zhu Lin seeks an order for the first respondents to disclose statements from a number of bank accounts: accounts of the Jia Family Trust, account number 03-1390-0013417-00; accounts from the De Qun Family Trust, account number 12-3056-0785525-00; and Xiao Xi Zhu’s accounts, 12- 3044-0390737-01, 03-0206-0245484-00 and 12-3044-0390737-00. The account in the name of the De Qun Family Trust is arguably in the control of the brother rather than Xiao Xi Zhu. All the other accounts are in her control. Her access to the family trust account bank statements is at the discretion of her brother. I was told, however, that Xiao Xi Zhu would approach her brother to see if bank statements could be made available. Mr Connell accepted that arrangements could be made to ensure that any bank statements made available on discovery were used purely for the proceeding, would be disclosed to counsel only and would not be disclosed to Shun Yi Zhu Lin herself. At my prompting, he also indicated that the applicant would meet all the costs on the discovery application.

[17]   The question remains whether discovery is required for the application to sustain the caveat and to sustain any notice of a claim lodged before the hearing.

[18]   When a caveat is lodged there are formal requirements to be met under s 137(2) of the Land Transfer Act: the caveator must state the nature of the interest claimed with sufficient certainty and state how that interest is derived from the registered proprietor.5 Case law in recent years has, to a certain extent, taken a liberal approach on the drafting of caveats. Economy in drafting is not always fatal to the validity of a

4      Huang v Chung [2015] NZHC 686, (2015) 30 FRNZ 188—a similar approach taken in an earlier case with respect to caveats and notices of claim.

5      Land Transfer Act 1952, ss 137(2)(b) and (c).

caveat.6 Nevertheless the formal requirements of the Land Transfer Act s 137(2) have a serious purpose. As a caveator must state in the caveat the interest that they claim in the property, they must be able to identify what their interest is at the time they lodge it. The interest must exist at that time. They must have information on hand then to be able to identify the interest.

[19]   The effect of the requirements to give the information under s 137(2) is to focus on identifying the interest claimed in the caveat. It is more than a drafting nicety to articulate clearly the interest that is being claimed. While the drafting requirements are not rigidly insisted on under current case law, the caveator must nevertheless, at the time of lodging the caveat, be able to identify the interest, if the caveat is later challenged.

[20]   When the Court considers whether to sustain a notice of claim of claim, it follows the same approach as when it considers whether to sustain a caveat. Because of the approach to caveats, it follows also that when a spouse or partner lodges a notice of claim of interest, he or she must be able to identify what is to be claimed under the notice of claim. That is, they must also be able to identify that the other spouse or partner holds either a registered interest in the land, or that the spouse or partner is entitled to a beneficial interest in the land under some unregistered agreement or instrument. This means that, in the general run of cases of caveats and notices of claim, the caveator or claimant should not lodge their document in the hope that something will turn up later. They are required to articulate the matter at the time of lodging. In this case that means that when Shun Yi Zhu Lin lodged her caveat, and when she lodges her notice of claim, she must be able to state how the caveat or notice of claim can protect a valid interest on her part (the valid interest in the notice of claim being a claim that her husband has an interest which may constitute relationship property in the Property (Relationships) Act).

[21]   Shun Yi Zhu Lin appears to have lodged the notice of claim out of suspicion that her husband has hidden assets, but without any apparent firm evidential foundation. She has inferred from the fact that he lives in the property that he must

6      Zhong v Wang (2006) 5 NZ ConvC 194,308 (CA) at [21] and [54]–[55].

have some interest in it, notwithstanding that other people are the registered proprietors. She points to the fact that her husband and his sister have made payments to each other, and that funds he has remitted from China have passed through bank accounts in the name of the sister.

[22]   Those may be matters for suspicion, but suspicion is not by itself enough to give good reason for lodging a caveat or for lodging a notice of claim. At the time that she lodged it, she needed an arguable basis on which to lodge the documents. Her discovery seems to be an attempt to look for a basis for her caveat or notice of interest when she did not have one at the outset. Essentially what I am saying is that her claim to have an interest must be judged on the basis of the information that she already has. Discovery should not be required to allow her to fish around to see if she can find something more.

[23]   In the general run of caveat cases discovery is not required because caveators already have the information they require to show their caveatable interest. In this case the caveat appears to have been lodged based only on suspicion. In those circumstances, it would to be a mistake to require discovery in the hope that something might turn up. It is a misuse of the caveat procedure, in my view, to allow caveats to be put on the title in the hope that something might turn up later.

[24]   Accordingly, I do not regard it as appropriate to order discovery in this case. The matter will have to be argued on the existing information disclosed so far. That of course does mean that Xiao Xi Zhu will be required to attend for cross-examination. This decision is not intended to state what the outcome of the case might be, particularly after Xiao Xi Zhu has been cross-examined.

[25]The application for discovery is dismissed.

……………………………….

Associate Judge R M Bell