Luo v Jin
[2021] NZHC 709
•31 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-001906
[2021] NZHC 709
BETWEEN LIN LUO
Applicant
AND
QIAO JIN
Respondent
Hearing: 2 February 2021 Appearances:
G Kohler QC and A Cook for the Applicant H McKee for the Respondent
Judgment:
31 March 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 31 March 2021 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Meredith Connell, Auckland O’Sheas Solicitors, Hamilton
G Kohler QC, Auckland
LUO v JIN [2021] NZHC 709 [31 March 2021]
Introduction
[1] The applicant, Lin Luo, and the respondent, Qian Jin, were in business together. Their intention was to jointly invest in and develop properties and to share the profits equally. Several properties were purchased, some by a company they established, some by Ms Luo personally, and some by related companies. They did not record in writing the terms of the arrangement between them.
[2] Eventually the relationship broke down. Mr Jin has brought proceedings against Ms Luo concerning her withdrawal and use of company funds. Ms Luo has counterclaimed that Mr Jin breached his fiduciary obligations to her as a joint venture partner. She seeks an inquiry into the loss she says she has suffered. That proceeding, CIV-2019-419-000269 (the 269 proceeding) will be heard on 9 August 2021.
[3] This application relates to a property at 16 Farnworth Avenue, Rotorua (the Farnworth property). The property was purchased by Mr Jin and remains in his name. Ms Luo lodged a caveat against the title of the property. Mr Jin applied to the Registrar to have the caveat removed. Ms Luo applies to sustain the caveat pending the outcome of the 269 proceeding.
[4] Ms Luo says that the Farnworth property was one of those that they agreed to develop together. She says she worked on and expended significant sums to maintain and develop the property. Mr Jin maintains that the property was not part of the arrangement between them. He says he purchased it before he and Ms Luo agreed to go into business together. He says that most of the payments upon which Ms Luo relies were made by their company, not her personally.
Issues
[5]The issues for determination are:
(a)Has Ms Luo satisfied the Court that she has a reasonably arguable case for a beneficial interest in the Farnworth property, under an implied
(resulting and/or constructive) trust, based on contributions made to maintain and develop the property and/ or fiduciary obligations arising out of a joint venture arrangement between her and Mr Jin?
(b)If Ms Luo has established an arguable beneficial interest in the Farnworth property, should the Court exercise its discretion not to sustain the caveat because there is no practical advantage in maintaining it and Ms Luo’s interests can be reasonably accommodated another way?
Facts
[6] Before Mr Jin and Ms Luo agreed to buy and develop properties together, Mr Jin’s father, Mr Shanmei Jin (Mr Jin Senior) and a Mr David Lee were in business together. Mr Lee is Ms Luo’s former de facto partner. Mr Jin Senior and Mr Lee jointly invested in and developed properties and shared the development proceeds equally. The properties were registered in the names of third parties and companies they established together, including Create & Holding Ltd. Mr Lee was sole director of Create & Holding, and he and Mr Jin Senior were each 50 per cent shareholders.1
[7] Mr Jin purchased the Farnworth property on 24 April 2007. Shortly after that, Mr Jin agreed to work with Mr Lee to subdivide and build on the property. They agreed that Mr Lee would pay for the subdivision costs and the interest payments on the Farnworth mortgage and that they would share the profits of the development equally. Ultimately, Mr Lee did not make payments to Mr Jin for the interest; instead, he told Mr Jin to make the payments from Create & Holding’s bank account. Mr Lee said that the payments would be accounted for as between Create & Holding and himself. During this period, Create & Holding paid sums directly to Mr Jin’s personal account and also to the loan account. Mr Jin personally met the payments not covered by the Create & Holding deposits.
1 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [14].
[8] In or around 2010 the joint venture between Mr Jin Senior and Mr Lee came to an end.2 Most of the properties they, or their entities, had established were sold, except for a property at 8 Nicks Way. Create & Holding was placed in liquidation.
[9] Mr Lee, then in a relationship with Ms Luo, introduced her to Mr Jin. Given Mr Lee’s strained financial position, it was agreed that Ms Luo would become involved in the property development venture. Mr Jin and Ms Luo agreed to jointly invest in and develop properties through a company and share the proceeds of sale equally. Mr Lee remained involved, including in identifying the properties, arranging the transactions and undertaking development activities. In Mr Jin’s words:3
… my father was unwell and Mr Lee orally told me that Mr Lee was made a bankrupt. Mr Lee and I discussed that we would restructure or create a new joint venture for the property investments to continue using the sale proceeds and properties from his joint venture with my father. As Mr Lee could no longer conduct the joint venture, it was agreed that I would go into this new joint venture with the defendant, Mr Lee’s partner.
This new joint venture would be conducted through a company, which was later called W & L Ltd.
My father and Mr Lee gave 8 Nicks Way to me and the defendant, to hold on behalf of the company which we would later establish for the purpose of our joint venture. Therefore, 8 Nicks Way was registered in my name (Kim Jin) on 8 April 2010. The property was then transferred to my ex-wife Lin Hui-Zheng.
[10] The parties established a company: W & L Limited (W & L) in March 2011. Ms Luo held 100 per cent of the shares although it is said that she held 50 per cent on trust for Mr Jin.4 It appears that the company was structured this way because Mr Jin was not a New Zealand resident at the time. In 2012, Mr Jin requested of Ms Luo that the W & L records be updated to reflect his shareholding. The parties sought to effect this by a “Declaration of Trust and Deed of Transfer of Company Shares”, a “Share Transfer” and various other documents in a meeting of shareholders and directors in 2012. In 2014, Mr Jin’s lawyers informed him that he had not been registered as a shareholder on the Companies Office Register. The parties disagree as to whether Ms Luo informed Mr Jin of her inability to formally register him before this time.
2 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [19].
3 Affidavit of Mr Qian Jin, affirmed 11 July 2019 at [8] and [9].
4 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [23].
Nonetheless, by settlement agreement recorded by Justice Duffy, in her minute dated 3 October 2019, Ms Luo agreed that Mr Jin had a 50 per cent shareholding in W & L. Ms Luo was always and remains the sole director of W & L. Ms Luo appears to have had responsibility for maintaining the company’s accounts and records.
[11] From 2011, several properties were purchased, two in the name of W & L (44 Peachgrove Road, Hamilton and 8 Chamberlain Road, Massey) and five in the name of Ms Luo personally or companies established by her (35 Seddon Road, 1A Radnor Street, 6 and 8 Knox Street, 91 – 95 Victoria Street and 12 Knox Road, Hamilton). The parties dispute which of these properties were part of their joint venture agreement. Mr Jin says they were all joint venture projects. Ms Luo says that only Peachgrove Road and Chamberlain Road were joint venture projects, as well as the Farnworth property, purchased previously.
[12] Mr Jin has sought a declaration that Seddon Road, Nicks Way and Ms Luo’s shares in the companies that hold the remaining properties, are held on constructive trust for W & L. He also says that because Radnor Street, Knox Street and Victoria Street were purchased using W & L funds, Ms Luo’s companies hold them on resulting trust for W & L.
[13] In 2014, resource consent was obtained for the subdivision and development of the Farnworth property.
[14] In early 2015, the relationship between Mr Jin and Ms Luo broke down. Ms Luo says that this was because Mr Jin failed to make the advances required of him under their joint venture agreement.
[15] Ms Luo lodged a caveat against the Farnworth property in February 2016. This was withdrawn late 2016, to allow Mr Jin to refinance the Farnworth mortgage with a new development at Wallace Road, Māngere through his new company, Wallace Homes Ltd. Ms Luo registered a new caveat against the Farnworth property in December 2018. The caveat reads:
Estate or interest claimed
The Caveator is beneficially interested in the land by virtue of an implied trust, resulting trust and/or constructive, the registered proprietor as trustee and the Caveator as beneficiary, the Caveator having made direct financial contributions to the acquisition and sustenance of the land.
[16] Mr Jin says that Wallace Homes effectively repaid the Farnworth mortgage on his behalf. The development was ultimately unsuccessful however, and Wallace Homes was placed into liquidation in October 2020. Consequently, Mr Jin wants to sell the Farnworth property to “reimburse the amount paid by Wallace Homes on [his] behalf to discharge the [Farnworth] mortgage”.5 He is currently inhibited by the caveat lodged in 2018.
Legal principles
[17] The purpose of a caveat against dealings was described by the Court of Appeal in Holt v Anchorage Management Ltd as follows:6
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land… that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights… Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat…
[18] The provisions of the Land Transfer Act 1952, under which Holt v Anchorage Management Ltd were decided, are echoed in the Land Transfer Act 2017 (LTA).7
[19] An application can be made to the Registrar under s 143(1) of the LTA for the lapse of a caveat. In response, an application can be made to the Court under s 142(3) for an order that the caveat not lapse.
5 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [52].
6 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
7 Subpart 7.
[20] The Court of Appeal in Botany Land Development Ltd v Auckland Council summarised the principles to be applied when considering an application for an order that a caveat not lapse.8 These are:
(a)The onus is on the applicants to demonstrate that they have an interest in the land that is enough to support a caveat, but they need not establish that definitively.
(b)The caveator must put before the Court a reasonably arguable case to support the interest they claim.
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there was no valid ground for lodging one in the first place or, alternatively, that such ground has now ceased to exist.
(d)Where the applicant has discharged the burden upon it, the Court retains a residual discretion to remove the caveat which it exercises cautiously. Before it does so, the Court must be satisfied that removal would not prejudice the caveator’s legitimate interest.
[21] Where there is a conflict between the affidavits, the Court will generally prefer the evidence of the caveator.9 However, the Court is not bound to accept uncritically 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.10
8 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
9 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
10 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175 citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341.
[22]As Associate Judge Bell observed in Xie v 126 Waimumu Ltd:11
[8] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, a court is not required to accept uncritically as raising a dispute of fact which calls for further investigation every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. To establish a reasonably arguable case, there must be some evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavits, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts.
[23] Even if a caveatable interest is established, the Court retains a residual discretion to decline to uphold a caveat, for example where there can be no practical benefit flowing to the caveator. In Pacific Homes Limited (in rec) v Consolidated Joineries Ltd the Court of Appeal said:12
… [Where] there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest … the Court retains a discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interest of the Caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the Caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator’s interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed notwithstanding that the right to the claimed interest is undoubted.
[24] The right to lodge a caveat is set out in s 138 of the LTA. The relevant part of the section reads:
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
11 Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
12 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
(c)is transferring the estate or interest in the land to another person to be held on trust; or
(d)is the registered owner of the estate or interest in the land and—
(i)has an interest that is distinct from that of registered owner; or
(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.
…
(3)A caveat against dealings document must contain the prescribed information.
[25] The prescribed information referred to at s 138(3) of the LTA is set out in sch 2 of the Land Transfer Regulations 2018. The caveat must, relevantly, include:
A description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) …
Details of how the estate or interest claimed is derived from the registered owner.
[26] The regulations are consistent with the courts’ long held view that the caveator must have a specific legal or equitable interest in the land caveated.13
[27] Two lines of authority have emerged in relation to the degree of detail required to describe the nature of the interest claimed in the caveat with the certainty prescribed by the legislation. On the one hand, it has been held that a caveator cannot argue or claim to retain the caveat on some ground other than that set out in the caveat itself. For example, in New Zealand Mortgage Guarantee Co Ltd v Pye, Vautier J followed an Australian line of authority,14 holding:15
[I]f by statute a person is given the right to take a step which will prevent someone dealing with [her or] his own land as [she or] he thinks fit the person seeking to avail [herself or] himself of this right must comply with the statutory requirements which are precisely laid down… Moreover, the inconvenience and injustice which is likely to arise from the upholding of
13 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.
14 Palmer v Wiley (1906) 23 WN (NSW) 90; Re Spencer; Hale (Caveator) (1904) 4 SR (NSW) 471;
Re Powell’s Caveat [1966] QWN 14; Vandyke v Vandyke (1976) 12 ALR 621.
New Zealand Mortgage Guarantee Ltd v Pye [1979] 2 NZLR 188 (SC) at 197.
caveats of this kind expressed in loose and general or inaccurate words is very obvious when one considers the scheme of the provisions as a whole.
The caveat in question in that case had described the caveators as:16
…claiming an estate or interest in the land hereinafter described by virtue of
an unregistered Deed of Second Mortgage dated the 17th day of March 1978…
Vautier J, sitting in the Supreme Court, as it then was, observed that not only was the caveat “entirely silent” as to the nature of what was claimed to be the estate or interest in the land, but the caveators were not even parties to the cited deed.17 The caveators had, in Vautier J’s view, “misdescribed the nature of the interest claimed…and…claimed a materially larger interest than that to which [they were] legally entitled.”18
[28] Two, more recent, cases of this stricter line are Ball v Fawcett and Westpac New Zealand Ltd v Nga Uri Whakatipurunga O Ngarae (Inc).19
[29]In Ball v Fawcett, the caveat described the interest claimed as:20
…an estate or interest in the land described in the schedule hereto as beneficiary by virtue of an agreement between me (the plaintiff) and …the registered proprietor of the land in the schedule under which she holds the land in the schedule as a trustee for her and for me.
However, the pleadings described the interest in the land arising pursuant to a constructive trust by virtue of the plaintiff’s contributions to the property, the fact that he had an expectation of obtaining an interest in the property and such expectation was reasonable.21 The application that the caveat not lapse was declined due to the discrepancy between the bases for the interest claimed in the caveat and the pleadings. The High Court observed:22
16 At 192.
17 At 193.
18 At 194.
19 Westpac New Zealand Ltd v Nga Uri Whakatipurunga O Ngarae (Inc) HC Auckland CIV-2008- 404-7298, 24 November 2008; Ball v Fawcett [1997] 1 NZLR 743 (HC).
20 Ball v Fawcett [1997] 1 NZLR 743 (HC) at 746 [emphasis added].
21 At 747.
22 At 747.
The change is from an allegation in the caveat to the plaintiff claiming an interest as beneficiary by virtue of an agreement between himself and the defendant from that which is now advanced in the proceedings which is a claim based on a constructive trust arising out of the de facto relationship of the parties and the reasonable expectation test referred to in Lankow v Rose.
[30] The High Court affirmed New Zealand Mortgage Guarantee Ltd and Ball v Fawcett in Westpac New Zealand Ltd.23
[31] The more flexible approach appears in Buddle v Russell, Norrie v The Registrar-General of Land, and Zhong v Wang.24 In Buddle v Russell, Casey J said:25
…a danger in following the line adopted by the Australian Courts, is that we will lose the simplicity and speedy protection afforded by this procedure, which would be contrary to the whole philosophy of the [Land Transfer] Act [1952].
[32] Similarly, in Zhong v Wang the Court of Appeal cautioned against too strict an approach saying:26
[53] What is important is that the registered proprietor and the Court understand the nature of the interest claimed and the basis of that claim.
…
[58] The purpose of the caveat procedure is to enable those with proper claims to proprietary interests to protect themselves against loss by forbidding dealing with the land pending resolution of substantive claims. The underlying purpose of the caveat regime could be undermined if too strict an approach were taken to the detail required to describe the interest claimed and its derivation from the registered proprietor.
Mr Zhong had claimed an interest in two titles of land as beneficiary under a constructive trust. The caveats described the interest claimed as follows:27
[Cheng Rong Zhong] claims a beneficial interest in the land contained in the above Certificate of Title as cestui que trust of which the registered proprietor, Jia Yi Wang is trustee.
23 At [6].
24 Buddle v Russell [1984] 1 NZLR 537 (HC); Norrie v The Registrar-General of Land (2005) 6 NZCPR 94 (HC); and Zhong v Wang (2006) 7 NZCPR 488 (CA).
25 At 539.
26 Zhong v Wang, above n 24.
27 Zhong, above n 24, at [21].
Has Ms Luo established a reasonably arguable case that she has a beneficial interest?
Ms Luo’s case
[33] Ms Luo says that the Farnworth property was part of the joint venture arrangement between her and Mr Jin.28 Pursuant to that joint venture arrangement, Ms Luo worked on developing the property and spent significant funds, a total of
$236,993.10, on its sustenance and development. Specifically, she claims that she advanced $75,414.16 from her own personal account between 5 September 2011 – 30 October 2013 to pay interest on the mortgage Mr Jin had over the property, council rates, water bills, and consultants and design costs. She says she advanced
$161,578.94 from W & L between 1 August 2011 – 19 January 2015 to pay interest, rates and water charges, resource consent and design costs, geotechnical engineers and rubbish removal. Ms Luo says that she and Mr Lee together worked on the resource consent for the subdivision29 and that she assumed increasing responsibility for the development.30 She has provided a summary of the money she and W & L spent on Farnworth as a schedule to her affidavit. She says that Mr Jin was aware of these payments and most were specifically requested by him. She says that she carried out the work and advanced these sums in the context of the joint venture and in the expectation of deriving a benefit, being a 50 per cent share of the proceeds of the development.
[34] Mr Kohler QC, for Ms Luo, submits that these circumstances give rise to an implied trust, being an institutional constructive trust. The trust arises out of the joint venture relationship between the parties. At the hearing Mr Kohler QC submitted that the interest might also be characterised as a resulting trust, or a Quistclose trust, although he did not develop this submission much further.31 Mr Kohler QC submits that Ms Luo spent the money described in the context of her working on the subdivision pursuant to the joint venture.
28 Affidavit of Ms Lin Luo, sworn 12 October 2020 at [18]–[21]; and Statement of Defence and Counterclaim, dated 27 November 2019 at [69].
29 Brief of Evidence of Ms Lin Luo, dated 29 August 2019, filed in CIV-2015-419-258 at [111].
30 Affidavit of Ms Lin Luo, sworn 12 October 2020 at [18].
31 A trust which arises to the benefit of the creditor when property is advanced for a specific purpose and that purpose fails; Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567.
[35] Further, Mr Kohler QC submits that it is relevant that Mr Jin himself has placed caveats on eight properties which he says were part of the joint venture between him and Ms Luo. Mr Kohler QC took me to one caveat which describes the interest as “a beneficial interest in the property by virtue of an implied trust, which arose by the Caveator and the registered proprietor agreeing to jointly develop the property and for both to have a beneficial interest in it… .”32 Mr Kohler QC places weight on the fact that in his statement of claim, Mr Jin pleads the existence of fiduciary obligations between the parties.33
Mr Jin’s case
[36] Mr Jin does not dispute that he and Ms Luo entered into a joint venture arrangement which involved them purchasing and developing properties for an equal share of the proceeds. But he maintains that the Farnworth property was not one of their joint venture projects. The caveat highlighted by Mr Kohler QC as being expressly based on a joint venture arrangement (against 12 Nicks Way) is the only caveat which explicitly describes the protected interest as deriving from a joint venture. For example, the interest protected by the caveat Mr Jin registered against Peachgrove Road34 is simply couched as: “The caveator QIAN JIN has paid money towards the purchase price of the property. The registered proprietor W & L Limited holds the property on implied trust for the caveator QIAN JIN.”35
[37] Mr Jin says that he had an arrangement with Mr Lee concerning the Farnworth property that predated Ms Luo’s involvement. He purchased the property in 2007 and Ms Luo did not become involved until 2011. He says that the payments made by Ms Luo and W & L and the work Ms Luo did was in furtherance of his joint venture with Mr Lee. In relation to the payments he received from Ms Luo’s personal bank account, he says that he understood them to be Mr Lee’s portion of the Farnworth agreement.36 Mr Jin says that the resource consent for the property was obtained by Mr Lee and that he did not agree to Mr Lee’s subdivision plan as he believed the
32 Caveat 9961318.1 registered against 12 Nicks Way.
33 Statement of Claim, dated 11 October 2019 at [51]–[52].
34 Caveat 11099736.1.
35 Similar language describes the interests Mr Jin has claimed in caveats 9940070.1 and 10998195.1 registered respectively against 35 Seddon Road and 12 Knox Street.
36 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [30].
property could be divided into more lots.37 Mr Jin considers Mr Lee failed to abide his obligations to meet interest payments on the Farnworth mortgage and subdivision costs. Mr Jin says that none of these matters involve Ms Luo as she “has no interest in the Farnworth property.”38 Further, while Mr Jin has pleaded the existence of fiduciary obligations between the parties, these obligations are pleaded as arising out of obligations stemming from the Companies Act 1993, rather than as between fiduciaries.39
[38] Ms Morrison, for Mr Jin, made four primary submissions regarding Ms Luo’s position. First, she says that Ms Luo contradicts evidence she has given and the approach she has taken in other proceedings between her and Mr Jin where she has described the payments as “advances” or “borrowings” made to Mr Jin. Relevant extracts include:40
In relation to advances or borrowings between us and the company W & L Ltd things were very casual and unstructured. Both of us made advances to the company and both of us withdrew money from it… Over the years I made large advances to Jin or for Jin at his request – either from my own money or from W & L funds.
…
The advances to Jin started very early.
…
I made many of the payments utilising whatever funds I could obtain W & L funds and my own funds. I have prepared a summary of the moneys paid to or on behalf of Jin…
…
I continued making the payments to Jin because I was expecting that all of these issues would be resolved when the property purchasing became successful.
[39] Ms Morrison also points to Ms Luo’s statement of defence filed in the 269 proceeding. In response to Mr Jin’s claim that she withdrew and transferred company funds without explanation and/ or for her own purposes, she again describes
37 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [32].
38 Affidavit of Mr Qian Jin, affirmed 12 November 2020 at [38].
39 Statement of Claim, dated 11 October 2019 at [51]–[52].
40 Brief of Evidence of Ms Lin Luo, dated 29 August 2019, filed in CIV-2015-419-258 at [56]–[59].
the payments as “Advances to Qian Jin” and says “W & L Limited and Lin Luo personally made the following payments to or on behalf of and at the request of Qian Jin and his family”.41 Ms Morrison asks: why would Ms Luo plead these payments “to Qian Jin” in her defence, if she was in fact making those payments as part of her obligation under a joint venture agreement and in the expectation of securing an interest in the property?
[40] Ms Morrison submits that this pleading and evidence is inconsistent with what Ms Luo now says, which is that all the payments were made pursuant to a joint venture agreement. Nowhere in this evidence does she say that she made these payments because she expected to get an interest in the property; or that she made them pursuant to an existing joint venture agreement. Ms Morrison also relies on the summary of payments Ms Luo has attached to her brief of evidence. Under the heading “Advances to Qian Jin” is the entry “W & L Ltd and Lin Luo advances for 16 Farnworth”, with
$161,578.94 from W & L and $75,414.16 from Lin Luo.
[41] Further, Ms Luo has, in her counterclaim sought to recover those sums as “repayable on demand.”42 Ms Morrison says that Ms Luo cannot say both “I made these payments and I expected to get them back” and at the same time “I made these payments and I never expected to get them back, because what I was getting was an interest in the property.” As a matter of evidence, the two propositions cannot be made simultaneously. Ms Morrison relies on a Court of Appeal decision where the Court said:43
At the outset it has to be said that the appellant could logically seek to rely upon a resulting trust, or a loan, but not both simultaneously. The object of a resulting trust is to preserve for the settlor a beneficial interest which he or she had retained in the original trust property or its proceeds. The point of a resulting trust is to preserve for the settlor a proprietary interest, or right in rem. A loan, on the other hand is an advance of money coupled with a contract for its repayment, with or without interest and other ancillary obligations. Even if the money is used to purchase property, and subject to the distinct question of mortgages, the lender acquires no interest in the property acquired. The right to repayment is a purely contractual one operating in personam…
41 Statement of Defence and Counterclaim, dated 27 November 2019 at [40](2).
42 Statement of Defence and Counterclaim, dated 27 November 2019 at [88].
43 Potter v Potter [2003] 3 NZLR 145 (CA) at [13]. Mr Kohler QC referred to statement by the Court of Appeal in the Zhong case to the effect that a creditor and debtor relationship can co-exist with an equitable interest. Ms Morrison effectively distinguished that case from the present.
[42] Second, Ms Morrison points to the fact that most of the payments relied on by Ms Luo were in fact made by W & L, not Ms Luo personally. Furthermore, W & L made payments of $128,554.92 in respect of the Farnworth property, not $161,578.94 as alleged. Only $20,552 (and not $75,414.16 as claimed) was expended by Ms Luo. Ms Luo has not asserted or established any basis for attributing the expenditure by W & L to her personally for the purposes of establishing a constructive trust giving rise to a beneficial interest.
[43] Third, Ms Luo does not describe anywhere in her evidence how this property came to be a joint venture project between her and Mr Jin. She does not describe any conversation or provide and written evidence. She has not discharged the onus of establishing a reasonably arguable case. A bald assertion is not enough.
[44] Four, there is an inherent improbability to her account. It is accepted that there was already a joint venture between Mr Jin and Mr Lee concerning the property. There is evidence of payments by Mr Lee’s company to Mr Jin’s mortgage account, before Ms Luo’s involvement. Clearly there was some sort of arrangement with Mr Lee. If Mr Jin agreed to give half of the proceeds to Mr Lee, he cannot then have agreed to give half to Ms Luo.
My assessment
[45] I accept that Ms Luo has not previously described the payments upon which she now relies as being further to a joint venture agreement with Mr Jin and on the understanding that she would share equally in the profits. Ms Luo has variously used the terms “advances” or “borrowings” and “payments.” But I do not think the use of these terms necessarily excludes the possibility that they were “payments” or “advances” made to Mr Jin or third parties to pay for outgoings or development costs relating to the property, made by Ms Luo or caused to be made by Ms Luo pursuant to their joint venture agreement.
[46] In terms of her counterclaim, I accept that as a matter of law Ms Luo cannot have both: she cannot have an equitable interest in the property based on her contributions and at the same time demand their repayment. But this cause of action is stated to be in the alternative to Ms Luo’s claims that Mr Jin breached the joint
venture agreement between them and his fiduciary obligations, and a claim for an enquiry into Ms Luo’s losses.
[47] To Ms Morrison’s second point, it does appear, based on Ms Luo’s summaries, that most of the payments made towards the Farnworth property, upon which Ms Luo relies, were made by W & L, not Ms Luo personally. However, it also appears that Ms Luo drew little distinction between the company’s account and her own. As the excerpts from her brief of evidence dated 29 August 2019 illustrate, it appears that money was moved freely between Ms Luo, W & L, Mr Jin and quite possibly other related entities. As Ms Luo said: “The whole situation was very fluid.”44
[48] Indeed, the very basis for the proceedings Mr Jin has brought against Ms Luo as shareholder of W & L (the 269 proceeding) is that she withdrew and used funds from the company bank account for her own purposes and not those of W & L. In that respect it could be said that there is an inherent contradiction between the position taken by Mr Jin in this proceeding and the claim he advances in that proceeding.
[49] As to Ms Morrison’s third point, I accept that a bald assertion by Ms Luo is not enough to establish a reasonably arguable case for the caveatable interest claimed. But Ms Luo has gone further than that; and furnished evidence of payments made towards the maintenance and development of the property from her own bank account and from the company account which was formed for the purposes of the joint venture and which she controlled.
[50] Finally, to the submission that Ms Luo’s story is implausible. It is difficult to believe in some respects. But Mr Jin’s explanation is equally problematic. He says that the payments regarding the property by Ms Luo and W & L were in fact payments by Mr Lee further to the pre-existing and continuing joint venture agreement between Mr Jin and Mr Lee. If that is true, there is a further level of entanglement, between the interests and money of Mr Lee, Ms Luo, W & L and Mr Jin. I note that Ms Luo does not dispute that the arrangement originally existed between Mr Jin and Mr Lee,
44 Brief of Evidence of Ms Lin Luo, dated 29 August 2019, filed in CIV-2015-419-258 at [56].
but she says essentially that the arrangement evolved with time, with her assuming more responsibility for the development of the property from Mr Lee.45
[51] At the heart of this application is a factual dispute, namely whether the Farnworth property was intended by the parties to be their joint venture project, or not. It is impossible to discern what the parties’ intentions were in a summary proceeding, where there is no written record of the arrangements and neither party has advanced a wholly coherent explanation. As the Court of Appeal has made clear, a summary procedure is not designed to resolve disputed questions of fact. There needs to be a full trial, with cross-examination of Ms Luo, Mr Jin and possibly Mr Lee.
[52] The immediate question here is: despite the problems with Ms Luo’s explanation highlighted by Ms Morrison, has Ms Luo still met the threshold and established a reasonable argument for a caveatable interest? My assessment is that she has, because of the cumulative effect of the following undisputed facts:
(a)Mr Jin and Ms Luo entered into a joint venture agreement to acquire and develop properties with the intention that they would share the proceeds 50:50;
(b)They established a company, W & L, to carry out the venture;
(c)The joint venture got underway and properties were purchased (how many is disputed);
(d)Ms Luo was sole director and shareholder and had control of W & L’s bank account;
(e)W & L made payments to Mr Jin and to third parties to cover the outgoings and development costs associated with the Farnworth property;
45 Affidavit of Ms Lin Luo, sworn 12 October 2020 at [18].
(f)Ms Luo also made some payments from her own bank account towards the Farnworth property.
[53] An order to remove a caveat should only be made if it is patently clear that it cannot be sustained.46 In view of the above facts I cannot be sure that Ms Luo does not have the interest she asserts. I conclude that she has met the threshold of establishing a reasonable argument that the Farnworth property became part of the joint venture arrangement between her and Mr Jin, that she made and caused to be made from W & L payments towards the property in furtherance of that joint venture, and that she has a caveatable interest for that reason.
Should the Court exercise its residual discretion?
Submissions
[54] Ms Morrison proposed an alternative solution which would, she says, reasonably protect Ms Luo’s claimed interest (if accepted by the Court) and allow Mr Jin to sell the Farnworth property which he says he needs to do to refinance his affairs. This would involve the caveat being removed on the condition that Mr Jin’s solicitors would retain from the net sale proceeds a sum equivalent to the quantum of Ms Luo’s potential interest in the property. Ms Morrison submits that for the purposes of that quantification, Ms Luo should be held to the wording of the caveat. The caveat makes no mention of an express agreement to share 50:50 based on a joint venture. Ms Morrison says that the interest is stated in classic Lankow v Rose constructive trust terms,47 based on contributions to the improvement and maintenance of the property by a party other than the registered proprietor.
[55] Ms Morrison relies on this Court’s decisions of Westpac New Zealand and Ball v Fawcett.48 She distinguishes Zhong, where the Court of Appeal was concerned, she says, with a caveat which said very little about the basis for the interest claimed.49
46 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813.
47 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294.
48 Westpac New Zealand Ltd v Nga Uri Whakatipurunga O Ngarae (Inc) HC Auckland CIV-2008- 404-7298, 24 November 2008; Ball v Fawcett [1997] 1 NZLR 743 (HC).
49 Zhong, above n 24.
The present case involves a different set of circumstances, where the caveat says one thing and the caveator now seeks to assert a different ground.
[56] Ms Morrison submits, per Lankow v Rose, that quantification of the claimant’s interest by the Court will be based on the claimant’s contributions, relative to the contributions of the other party.50
[57] Using Ms Luo’s evidence of the amount of her contributions, and including the W & L contributions, her claimed contributions amount at best to 19.89 per cent of the total contributions to the property. On that basis, Ms Morrison proposes that her interest would be reasonably protected if 19.89 per cent of the sale proceeds are held in a solicitor’s trust account until the substantive 269 proceeding is determined (or the parties otherwise agree).
[58] Mr Kohler QC for Ms Luo says that this proposal would not adequately protect Ms Luo’s interest, which is for 50 per cent of the joint venture proceeds. He says that even if the Court were to take such a narrow view and hold Ms Luo to the precise words of the caveat (which he says is contrary to spirit of Zhong) there is an assertion of a beneficial interest based on an implied trust (whether constructive or resulting). And this financial contribution was part and parcel of a more general picture which was the joint venture arrangement between Mr Jin and Ms Luo. It would be wrong to carve off this one property from the Court’s overall inquiry in the 269 proceeding into the arrangements between the parties.
My assessment
[59] It is well established that a caveator cannot rely on an interest to sustain a caveat which differs from that stated in the caveat. However, that is not exactly what Ms Luo is seeking to do here. Recall the terms of the caveat:51
The Caveator is beneficially interested in the land by virtue of an implied trust, resulting trust and/or constructive, the registered proprietor as trustee and the Caveator as beneficiary, the Caveator having made direct financial contributions to the acquisition and sustenance of the land.
50 Lankow v Rose [1995] 1 NZLR 277 (CA) at 286 and 290.
51 Emphasis added.
[60] To sustain the caveat, Mr Kohler QC for Ms Luo contends that there exists an implied trust, best described as an institutional constructive trust, but possibly also a resulting or Quistclose trust. This trust arises in the context of a joint venture agreement between Ms Luo and Mr Jin, pursuant to which Ms Luo made financial contributions to the sustenance of the property.
[61] I am bound to follow the Court of Appeal’s more flexible approach.52 In any event, I find that the High Court cases upon which Mr Jin relies can be distinguished. In New Zealand Mortgage Guarantee, Ball v Fawcett and Westpac New Zealand, the respective descriptions of the caveators’ interests specified that they each arose by virtue of written agreements. The caveators in those cases could not therefore plead the existence of interests arising on different bases.
[62] Here, the interest claimed to sustain the caveat is not inconsistent with the interest recorded in the caveat. Yes, the caveat refers to contributions made to the acquisition and sustenance of the land which typically suggests a Lankow v Rose constructive trust. But I do not see that as inconsistent with the proposition now advanced that those contributions were made in the context of and further to a joint venture between Ms Luo and Mr Jin. To fully express the interest Ms Luo now advances, the caveat could have continued and said: “These contributions were made further to a joint venture agreement between the caveator and the registered proprietor”. But I do not consider the absence of those words to be fatal.
[63] I have accepted that, based on undisputed facts, there is an arguable case for a beneficial interest in the form of an implied trust arising out of contributions made and work done further to a 50:50 joint venture arrangement between Mr Jin and Ms Luo. On that basis, I am not “completely satisfied” that the arrangement proposed by Ms Morrison will adequately protect Ms Luo’s arguable interest.
[64] I also have reservations about “carving out” Ms Luo’s potential interest in this property from the Court’s inquiry into the arrangements between her and Mr Jin. As this discussion has highlighted, there is considerable complexity and uncertainty, multiple properties and transactions involved, and I consider there to be unacceptable
52 Zhong, above n 24.
risk involved in separating out one property from that overall examination in a summary application.
Result
[65] Ms Luo has established a reasonably arguable case for a beneficial interest that can sustain the caveat. I decline to exercise my residual discretion to discharge the caveat.
[66] I order that caveat 11309800.1, registered against title SA32B/802 at 16 Farnworth Avenue, Rotorua, is sustained.
[67] Ms Luo has been successful in her application. I see no reason why Mr Jin should not pay her costs on a 2B basis and her disbursements. If either of the parties do not agree they may file short memoranda (or not more than five pages) by these dates:
(a)Mr Jin by 16 April 2021;
(b)Ms Luo by 30 April 2021.
Associate Judge Gardiner
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