Low v Du
[2020] NZHC 513
•13 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1799
[2020] NZHC 513
BETWEEN GABRIEL LOW
Plaintiff
AND
XINGWEI DU
Defendant
Hearing: 3 March 2020 Appearances:
R O Parmenter for the Plaintiff
M P Cherrington for the Defendant
Judgment:
13 March 2020
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 13 March 2020 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Winston Wang & Associates, Remuera, Auckland, for the Plaintiff
M B C Law Ltd (Majka P Cherrington), Epsom, Auckland, for the Defendant
Copy for:
R O Parmenter, Auckland, for the Plaintiff
LOW v DU [2020] NZHC 513 [13 March 2020]
[1] Xingwei Du owns a residential property in Glen Innes, Auckland, subject to a registered first mortgage in favour of the New Zealand branch of a Chinese bank. He took title in early 2018. On 31 January 2018, he signed a declaration of trust in favour of Gabriel Low, the plaintiff. The declaration of trust allows Gabriel Low to call on Mr Du to transfer the property to him. Gabriel Low has made such a demand, but Mr Du has refused to transfer the property. Gabriel Low has applied for a vesting order under s 52(1)(g) of the Trustee Act 1956 and has sought summary judgment.
[2] Gabriel Low is a university student. His father, Lenotre Low, has a significant role in this case. Lenotre Low is a property developer and carries out some of his developments in the Glen Innes/Point England area. Mr Du’s evidence shows that Lenotre Low does not hold assets in his own name and is not shown as a shareholder or director of any companies carrying out developments with which he is associated. Mr Du gives as examples two developments in Point England. In one, the title is in the name of Gesa Holdings Ltd, the director of the company was a “Sullivan Low” and the shareholder is Gesa Investments Ltd. In another development at Point England, the title is in the name of New Estate Buildings Ltd and the directors of that company were Jianguo Yang and Ming Yang. Mr Du says he never encountered those gentlemen and dealt only with Lenotre Low.
[3] Mr Du is a builder and carries out foundation work. He worked on one of Lenotre Low’s Point England developments and got to know Lenotre Low reasonably well. He did not deal with Gabriel Low as a developer. Mr Du says that he first dealt with Lenotre Low in 2017. Mr Low told him about the Glen Innes property which would be a good buy and would be suitable for subdivision and development. Mr Low was not, however, able to get a mortgage. They made an arrangement that Mr Du would buy the Glen Innes property and raise a mortgage through the Chinese bank.
[4] There was a private sale. The property was not listed on the market. Mr Low told Mr Du what price to pay. Their plan was that they would co-operate in subdividing the property within a year. Mr Low promised to meet the mortgage payments. Mr Low introduced a lawyer to act for Mr Du on the transaction. Mr Du
bought the property from Xiaosong Cai for $1,200,000 and took out a loan from the Chinese bank for $745,000. Lenotre Low paid the rest of the purchase price.
[5] In conjunction with the purchase of the Glen Innes property, Mr Du signed a declaration of trust in favour of Gabriel Low as beneficiary. The declaration says:
Recitals:
The Beneficiary has paid for the purchase monies for 8 Epping Street, Glen Innes, Auckland, more particularly described in identifier NA28A/301 pursuant to an Agreement for sale and purchase of real estate dated 16 December 2017 (“the Asset”).
Operative Part:
1. The Trustee holds the Asset and all rights pertaining to the Asset and all income and proceeds of the Asset upon trust for the Beneficiary absolutely.
2. The Trustee shall deal with the asset and all such rights, privileges, benefits and income and proceeds in such manner as the Beneficiary may from time to time direct and not otherwise.
3. The Trustee shall furnish to the Beneficiary every notice or other written communication received by the Trustee in respect of the Asset immediately it is received by the Trustee.
4. The Beneficiary will punctually pay all calls, and other demands that the Trustee may become liable to pay in respect of the Assets, and all costs, expenses, claims, demands, actions, and proceedings incurred by the Trustee in the execution of the trusts for this deed (unless such costs, expenses, claims, demands, actions or proceedings are in respect of the criminal action of the Trustee).
5. The Trustee shall emphasise all rights attaching to the Asset in such manner as the Beneficiary may from time to time direct and not otherwise.
6. The Trustee shall on request by the Beneficiary execute and deliver any transfer or other instrument relating to the Asset as the Beneficiary shall require.
7. It is agreed between the parties that the trustee shall have the right to acquire at cost price one of the subdivided and developed Lot in 8 Epping Street, Glen Innes, to be undertaken by the Beneficiary.
[6] Gabriel Low signed the declaration too. The recital is not strictly correct because Gabriel Low did not pay the full purchase price. Mr Du says that clause 7 of the declaration was inserted at his insistence to show that there was a joint venture, and that he was to receive a subdivided lot for taking part in the joint venture.
[7] Lenotre Low asked Mr Du to engage an architect to be involved in the Glen Innes development. Mr Du introduced an architect. Mr Du says the architect came on site and provided some ideas about houses, development possibilities and likely costs. Mr Low asked the architect to design a firewall for another development. The architect did but has not been paid. Mr Du says that he made mortgage payments on the property amounting to $14,485.00. While he has put in evidence a bank statement, it is hard to see how he reaches the figure of $14,485. There was a residential tenancy. The rent payments were intended to cover the mortgage payments.
[8] The proposed joint venture between Mr Du and Lenotre Low did not go ahead. Mr Du says that Lenotre Low abruptly cancelled the arrangements and required Mr Du to transfer the title to Gabriel Low. That was formalised. On 1 August 2019, Mr Du was served with a formal letter from the Low’s solicitors requesting Mr Du to transfer the property to Gabriel Low in accordance with clause 6 of the declaration of trust. The letter indicated that Gabriel Low would meet Mr Du’s costs on the transfer.
[9] Gabriel Low allowed 28 days after serving that letter on Mr Du to bring his case within s 52(1)(g) of the Trustee Act 1956:
52 Vesting orders of land
(1) Subject to the provisions of subsections (2) and (3), in any of the following cases, namely—
…
(g) where a trustee jointly or solely entitled to or possessed of any interest in land, or entitled to a contingent right therein, has been required, by or on behalf of a person entitled to require a conveyance of the land or interest or a release of the right, to convey the land or interest or to release the right, and has wilfully refused or neglected to convey the land or interest or release the right for 28 days after the date of the requirement:
(h) where land or any interest therein is vested in a trustee whether by way of mortgage or otherwise, and it appears to the court to be expedient—
…
the court may make an order (in this Act called a vesting order) vesting the land or interest therein in any such person in any such manner and for any such estate or interest as the court may direct, or releasing or disposing of the contingent right to such person as the court may direct.
[10] There are no disputes as to the principles the court applies on plaintiff’s applications for summary judgment. The Court of Appeal summarised them in Krukziener v Hanover Finance Ltd:1
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. … The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. … The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: … In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it. …
[27] Under r 141A, the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
(Citations omitted)
[11] In his notice of opposition, Mr Du says that he had no dealings with Gabriel Low whom he believes to be a nominee of Lenotre Low. He claims to be not only legally but also beneficially interested in developing this property under his oral joint venture agreement with Lenotre Low under which he was entitled to acquire at cost one of the developed sites. Lenotre Low breached that agreement by refusing to carry out the subdivision and development, and Mr Du is entitled to compensation for the loss of opportunity. Alternatively, he says that he is entitled to remuneration for acting as a trustee and cites s 72 of the Trustee Act 1956.
[12] In response to Mr Du’s assertion that he had a joint venture agreement with Lenotre Low, Mr Pamenter submits:
(a)The parol evidence rule applies. Mr Du cannot use evidence that the arrangements with Gabriel Low are different from those set out in the declaration of trust.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
(b)Gabriel Low as beneficiary under the declaration of trust is not bound by any joint venture agreement.
(c)Clause 6 of the declaration of trust prevails and allows Gabriel Low to call for a transfer, notwithstanding any arrangements for a joint venture.
(d)Clause 7 which provides for Mr Du to be able to buy a lot at cost price, is uncertain and unenforceable.
[13] Not all these matters get rid of Mr Du’s opposition. The parol evidence rule does not bar evidence of binding arrangements that Gabriel Low as beneficiary made with Mr Du as trustee. The declaration of trust established a relationship between them under which they could make further binding arrangements. It is plausible for Mr Du that Lenotre Low had authority from Gabriel as beneficiary to make binding arrangements on his behalf with Mr Du. In cases where one person acts as a front for another, as here, the other has an interest in making sure that arrangements he makes in the name of the front do stick. Here there is no suggestion that Gabriel Low was operating independently of his father or that he would refute any suggestion that his father did not have his authority to make arrangements binding on him as beneficiary.
[14] While clause 6 of the declaration provides that Gabriel may call for a transfer of title at any time, other considerations may bar him from exercising that power, for example, making a binding contract with the trustee or making representations giving rise to equitable estoppel. The requirements for that are:2
(a)A belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged;
(b)The belief or expectation has been reasonably relied on by the party alleging the estoppel;
2 Equity and Trusts in New Zealand, 2nd ed, Butler and others, 19.2.
(c)Detriment will be suffered if the belief or expectation is departed from; and
(d)It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[15] On the other hand, I accept Mr Parmenter’s submission that clause 7 is too uncertain to be enforceable. Mr Du interprets clause 7 as meaning that he is entitled to a subdivided lot with a house erected on it. While that is one potential meaning, the subdivided and developed lot may be one for which a separate title has been issued and the land has been developed to the stage where a house can be built. There are arguments going both ways. It is uncertain how the subdivision would be carried out, how many lots would be created, and which one Mr Du would be able to take. Working out a notional cost price is notoriously difficult. Clause 7 can be read as showing an intention that Mr Du should have some reward for acting as trustee and for taking part in the joint venture, but it is not possible to work out the value of that reward. There is no machinery to resolve the uncertainty.
[16] In addition to arguing for a joint venture agreement, Ms Cherrington also submitted that the doctrine of part-performance applied. That doctrine allows the courts to enforce unwritten agreements when the requirements of s 24 of the Property Law Act 2007 are not met – the contract to sell land must be in writing or its terms are recorded in writing and the party to be bound has signed. The doctrine is a procedural device to allow enforcement, even if the formal requirements have not been satisfied. But the substantive requirements for a binding contract must still be established. Here, the proposed joint venture agreement is substantively defective because of the uncertainty in clause 7 of the declaration of trust. The part-performance argument does not assist Mr Du.
[17] That does not, however, mean that Mr Du is left without any defence. Gabriel Low has not shown that a defence of equitable estoppel is bound to fail. It is arguable for Mr Du that Lenotre Low, Gabriel’s agent, led him to believe reasonably that the property was to be subdivided and developed under a joint venture, he took title and incurred expenses in reliance on that, he will be adversely affected if he is made to
transfer the title to Gabriel without his detriment being addressed and in those circumstances it is unconscionable for Gabriel to call for the title. There is the matter of remedy. Even on his best case, it is not arguable for Mr Du that he should have an expectation-based remedy under the principles stated by the Court of Appeal in Wilson Parking NZ Ltd v Fanshawe 136 Ltd.3 A beneficial interest in the land would not be a proportionate response, given that Mr Du was trustee for a relatively short period and his detriment is purely financial, namely the expenses he incurred. The remedy lies in setting conditions on the court’s orders to address his detriment.
[18] In addition to any estoppel argument, Mr Du can say that he took on the trusteeship on the basis that he was to be kept indemnified for any costs and expenses he would incur (cl 4 of the declaration of trust), and that he would receive some reward for acting as trustee (cl 7). He claims to be out of pocket to the sum of $14,485.00 (even though his proof of that sum is not adequate). The general rule is that a trustee acts gratuitously, but there are exceptions. The court has the power to authorise payment of remuneration in its inherent jurisdiction and under s 72 of the Trusts Act 1956:
Commission
(1)The court may, out of the property subject to any trust, allow to any person who is or has been a trustee thereof or to that person’s personal representative such commission or percentage for that person’s services as is just and reasonable.
(1A) In considering under subsection (1) what commission or percentage is just and reasonable the court shall have regard to the following circumstances, namely:
(a)the total amount that has already been paid to any trustee of the trust, whether pursuant to the trust instrument or to any earlier order of the court or to any agreement or otherwise;
(b)the amount and difficulty of the services rendered by the trustee;
(c)the liabilities to which the trustee is or has been exposed, and the responsibilities imposed on him;
(d)the skill and success of the trustee in administering the trust;
3 Wilson Parking NZ Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [113]— [120].
(e)the value of the trust property;
(f)the time and services reasonably required of the trustee;
(g)whether any commission or percentage that might otherwise have been allowed should be refused or reduced by reason of delays in the administration of the trust that were occasioned, or that could reasonably have been prevented, by the trustee; and
(h)all other circumstances that the court considers relevant.
(2) The court may make any such allowance at any time, and from time to time, before or during the administration of the trust, or on the termination of the trust, and may, subject to such terms and conditions as the court thinks fit, make any such allowance in respect of services to be rendered by the trustee during any specified period subsequent to the date of the order.
…
The section allows the court to fix remuneration, even if it is not calculated as a commission or percentage of the trust estate.4
[19] It is arguable for Mr Du that in the circumstances of this case he is entitled to remuneration under the section. Working out how much he should be paid is not something I can do on this summary judgment application. Reasonable people could come to different amounts. The parties offered no evidence how a trustee’s remuneration should be measured in a case where a tradesman acts as trustee for a developer wanting to keep a low profile. It is arguable for Mr Du that his role was more than a bare trustee because he was exposed to the risk of liabilities from ownership of the property. Many developers who use trusts appoint professionals, lawyers or accountants, as trustees. The professionals are familiar with the responsibilities of trusteeship and charge for their services. They are aware of and manage the risks of trusteeship. Often the professionals provide their services as trustees through trustee companies. In contrast, Lenotre Low used a tradesman unfamiliar with trust law as the trustee. That added to the risks of the trusteeship.
4 Ngāi Tāi ki Tāmaki v Karaka [2012] NZCA 268, [2015] NZAR 266 at [40].
Saheb v Ismail is an example of the risks when unsophisticated people take title as trustees for developers and investors who wish to keep a low profile.5
[20] Initially I considered that Mr Du had exposed himself to serious risks under the mortgage to the Chinese bank, but that was reduced by a provision in the loan agreement under which the bank could only have recourse to the property, but not against Mr Du personally as trustee. Nevertheless, he did make some mortgage payments and is out of pocket for other property expenses.
[21] For Gabriel, Mr Parmenter accepted that any vesting order should be conditional on Mr Du being indemnified for his expenses incurred as trustee and on receiving some remuneration. The suggested amount of remuneration was relatively modest. Because the amount of remuneration could not be fixed, Mr Parmenter proposed as a condition of a vesting order that a sum should be set aside to cover all claims that Mr Du might have for acting as a trustee. He also accepted that Mr Du should be given a deed of indemnity for liabilities incurred in his trusteeship.
[22] A trustee has a right of indemnity for expenses incurred as trustee. That is secured by an equitable lien over trust assets. The right of indemnity allows the trustee to exonerate himself from the trust assets, reimburse himself from trust assets for expenses incurred, to realise the assets to meet expenses incurred and to retain the assets. When a trustee distributes a trust asset to a beneficiary, the lien is extinguished. Accordingly, the court ought not to order the transfer of the sole trust asset to the beneficiary without at the same time protecting the trustee under his rights of indemnity.
[23] While a trustee’s equitable lien for indemnity for liabilities incurred is well recognised, it is less certain whether a trustee has a lien over trust assets for his claim to remuneration. The matter was not explored in the hearing. In principle, it seems appropriate that a trustee entitled to remuneration should not be divested of his trust assets without his remuneration claim being met. There is one area where those
5 Saheb v Ismail [2018] NZHC 1953. An unsophisticated couple was persuaded to own an investment property as trustees for an investor who was meant to pay the mortgage but went into serious default.
realising trust assets recover their remuneration out of trust assets ahead of any distributions to beneficiaries: remuneration of liquidators on the liquidation of insolvent corporate trustees.6 That offers some support for trustees not being left unsecured for their remuneration.
[24] Even if Mr Du as trustee does not have a lien over the trust asset for his remuneration, the court may still protect his claim. A plaintiff seeking equity should also do equity. Any vesting order should be subject to conditions to protect the remuneration claim.
[25] The amount to set aside for Mr Du’s remuneration claim should be liberal to avoid any risk of his not being adequately remunerated after his claim has been heard. He was trustee for about eighteen months until he was served with the notice requiring him transfer the property to Gabriel. He did some work towards the proposed development of the property, but the evidence does not suggest that it was extensive. He incurred expenses for which he has not yet been reimbursed, although I do not know the exact amount. I cannot see that his claim to remuneration could be for more than $75,000. I suspect it could be for much less. His right to be indemnified for expenses he incurred is in addition. The amounts to be set aside are also enough to cover any claim based on equitable estoppel.
[26] Accordingly, a vesting order will be made once the following arrangements are put in place:
(a)There is an appropriate deed of indemnity in favour of Mr Du covering all liabilities he incurred as trustee.
(b)The sum of $14,485 is set aside to cover expenses for which Mr Du says that he is out of pocket. That is not a decision that he has incurred those expenses. He will still be required to prove them.
(c)The sum of $75,000 is set aside to cover his remuneration claim.
6 Re Secureland Mortgage Investments Ltd (No.2) (1988) 4 NZCLC 64,266, Re Francis James Nominees Ltd (in liq) (1988) 4 NZCLC 64,279.
(d)The sums set aside under (b) and (c) will be held and not paid out except by agreement of the parties or an order of a court of competent jurisdiction.
[27] I adjourn the matter to 7 April 2020 to the chambers list at 2:15pm to see whether these conditions have been met. If the parties cannot agree costs, I will hear argument as to costs at the chambers call.
…..……………………….
Associate Judge R M Bell
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