MA v Zhao
[2023] NZHC 2435
•31 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1771
[2023] NZHC 2435
IN THE MATTER of Property Agreement and Nominee Trusteeship over Bare Land at
10 Lavery Place, Sunnynook, Auckland 0632UNDER
the Land Transfer Act 2017
BETWEEN
HANGMING MA
Applicant
AND
XIAOYAN ZHAO
First Respondent
AND
CHONG FENG
Second Respondent
Hearing: 21 August 2023 Counsel:
M S P Pang and X Lin for Applicant D Liu and S Yang for Respondent
Judgment:
31 August 2023
JUDGMENT OF ISAC J
[Application for interim injunction]
Introduction
[1] On Monday, 21 August 2023 Hangming Ma filed an application for an urgent without notice interim injunction preventing the respondents, Ms Xiaoyan Zhao and Ms Chong Feng, from selling a property owned by the parties under a tender process expected to conclude the following day.
MA v ZHAO & ANOR [2023] NZHC 2435 [31 August 2023]
[2] Given the short timeframe, I directed provision of the application on the respondents by their solicitor, Mr Liu, on a Pickwick basis, and set it down for an urgent hearing commencing at 3.45 pm later the same day.
[3] At the conclusion of the hearing I dismissed the application for an interim injunction. My reasons follow.
Background
[4] In March 2015 the parties purchased a property in Lavery Place, Sunnynook, Auckland. The structure the parties chose to adopt to give effect to the purchase involved some complexity. First, the Agreement for Sale and Purchase identified Ms Zhao, the first respondent, as the purchaser. In a Deed of Nomination of 24 March 2015, she nominated herself together with Mr Ma and Ms Feng as purchasers
[5] The parties then entered into two further agreements. The first was a property agreement which provided that Ms Zhao would acquire title to the property in her sole name and also secure a mortgage to complete the purchase amounting to $860,640. The property agreement identified the “percentage share” that each party would enjoy in the property: Ms Feng and Ms Zhao were to each acquire 25 per cent while Mr Ma’s share was to be 50 per cent. The parties agreed to meet outgoings (including mortgage payments) and maintenance costs in accordance with their respective percentage shares.
[6]The property agreement included a provision relating to title in these terms:
XIAOYAN ZHAO will be registered on the title to the Property as the sole proprietor in trust for the parties. Despite registration in that manner, the parties’ rights relating to the Property are governed by this agreement.
[7] The agreement also required a party wishing to sell their interest in the property to give written notice to the other parties, who would then receive an option to purchase that interest. If the option was not exercised within one month, then:
…the property will be placed on the open market for sale at the best price and on the most favourable terms likely to result in the sale of the Property within
a reasonable time. All parties must take reasonable steps to facilitate the sale of the Property.
[8] The second agreement was a deed creating a nominee trust in respect of the property. Ms Zhao was by its terms made the trustee on behalf of the three parties as beneficiaries.
[9] Mr Ma’s contention is that while the property agreement and deed of trust contained no reference to subdivision and development, that was indeed one of the parties’ aims. A dwelling on the property appears to have been removed and, according to Mr Ma’s evidence, steps were taken in 2015 toward obtaining building and resource consents that would permit the construction of two newly constructed dwellings. The evidence provided by Mr Ma indicates that building and subdivision consents were obtained that year. However, the parties fell out over Mr Ma’s claims for reimbursement for the work he had undertaken on the subdivision. Further disputes also arose. The anticipated construction work did not occur, and the land remains a bare section.
[10] It is also clear from the evidence provided at short notice by the respondents that the parties have been unable to meet their mortgage obligations. However, it seems that Ms Zhao is the only party exposed directly to the risk as she is the only borrower. As Mr Ma frankly acknowledges in his affidavit in support:
I also acknowledge outright that the mortgagee bank who would have approved the loan might not be aware of the existence of our property sharing agreement. I must say I was not a participant in the loan approval process. I believe it would have been Xiaoyan who arranged all that.
[11] On 6 March 2023, Ms Zhao and Ms Feng by their solicitors gave written notice to Mr Ma that they wished to sell their interests in the property. The letter recorded that if Mr Ma did not exercise his option to purchase within one month, they would “place the property on the open market for sale in accordance with clause 9.1 of the Agreement”. The letter also stated:
In the meantime, we are instructed that you have failed to comply with your obligation to provide our client (Ms Zhao) with sufficient funds to meet outgoings as required by clause 3.1 of the Deed. As you will recall, a request was made by Ms Zhao in September 2022 for the parties to deposit a total sum of $40,000.00 into her ANZ bank account to enable her to meet the outgoings
for the Property, and that she and Ms Feng have each deposited $10,000.00 into the ANZ bank account on 26 September 2022 and 27 September 2022. More than 5 months have elapsed since the making of that request, but as of writing no payment has been received from you. It is therefore demanded that you immediately pay the sum of $20,000.00 into Ms Zhao’s ANZ bank account to enable her to pay the Property's outgoings on the parties' behalf.
[12] Mr Ma’s counsel, Mr Pang, responded on 17 March 2023, and appeared to question the extent to which the property agreement, including the provisions relating to the option to purchase, continued to have effect. It seems the basis for this contention was an unusual term in the contract suggesting that in the event the parties married, the property agreement would come to an end.1
[13] Following further communication between the parties’ lawyers, on 7 May 2023, Mr Ma’s solicitors wrote to the respondents with a proposal that the Lavery Place be sold together with another property in which Mr Ma’s partner and Ms Zhao hold joint interests situated in Belmont Terrace, Auckland. The letter proposed reserving the parties’ rights in relation to their outstanding disputes, recording:
These disputes can be resolved by general proceedings and ought not to delay the sale of the captioned properties now that the parties are clearly at irreconcilable differences. However, it would be an exercise of unnecessary costs if your clients are to go through the originating application process to achieve the same if the parties are agreeable to the sale of the properties. The same applies to our clients.
[14] A month later, on 14 June 2023, a manager from the ANZ Bank, the registered mortgagee, sent an email to Ms Zhao recording:
Hi Xiaoyan,
I still haven’t received the marketing report valuation for your section. Part of the hardship approval was that you provided these within one month.
As you haven’t provided them it is deemed that you have failed hardship and that the hardship flag will be removed from your credit profile and the current arrears of $-22,446.90 will show.
Please make contact to discuss.
1 Although I cannot reach any final view, it seems fairly clear, given two of the parties were in a relationship, that the provision was intended to deal with the situation of their respective shares in the case of marriage. The argument advanced by Mr Ma in correspondence on this point seemed at first blush opportunistic and lacking any merit. Indeed, its weaknesses were highlighted by Mr Liu in a letter in reply to Mr Pang of 28 March 2023.
[15] No doubt in part spurred by the bank’s communication, the respondents’ solicitors wrote to Mr Pang on 23 June 2023. The letter recorded that the parties had previously agreed in principle to the sale of both the Lavery Place and Belmont Terrace properties. The letter is important, so I set it out in full:
HANGMING MA – JIEHONG CHEN – XIAOYAN ZHAO – CHONG FENG PROPERTIES AT 27 BELMONT TERRACE & 10 LAVERY PLACE
1. We refer to your letter dated 24 May 2023, in which you accused us of failing to respond to the proposal outlined in your letter of 7 May 2023.
2. In our email response of the same date (24 May 2023), we drew your attention to the fact that you had overlooked our “on the record” letter of 16 May 2023, which explicitly confirmed our clients’ agreement in principle to proceed with the proposed sales on the basis outlined in your 7 May 2023 letter, and within which we proposed further ground rules to ensure the successful marketing and sales of the two properties in question.
3. As of writing you have not responded to our 24 May 2023 email nor our letter of 16 May 2023, and the matter is becoming increasingly pressing, particularly given your clients’ failure to contribute funds towards the mortgage repayments for 10 Lavery Place. The mortgage loan secured over 10 Lavery Place is now in serious arrears, and the mortgagee has asked our clients to voluntarily sell 10 Lavery Place to avoid a forced mortgagee sale. An email from the mortgagee confirming the above advice is enclosed for your reference.
4. In light of the above, our clients will be listing the 10 Lavery Place property for sale by tender on the open market in accordance with clause 9.1 of the Property Agreement dated 24 March 2015. In the interest of transparency and with the view to avoid unnecessary disputes and/ or any second guessing by your clients, it is proposed that the 10 Lavery Place property be jointly listed with a real estate agent nominated by our clients and a separate real estate agent nominated by your clients. To this end, please advise whether your clients wish to nominate their own real estate agent to participate in the marketing process and to oversee the sale of 10 Lavery Place.
5. Please be advised that, given the urgency of the matter, if we do not receive your clients’ nomination on or before 3:00pm 28 June 2023, our clients will be listing the 10 Lavery Place property with Mr Frank Fan of Harcourts under a sole agency agreement.
6. In the meantime, please confirm that your clients will:
(a)account for all rental income received in respect of 27 Belmont Terrace and provide our clients with the information sought under paragraphs 5(a) and (b) of our letter dated 26 April 2023 (such request having been repeated in our letter dated 16 May 2023);
(b)list the property at 27 Belmont Terrace for sale on the open market under a joint listing arrangement involving both parties’ real estate agents.
7. Please note that, unless you provide us with a satisfactory response to the matters raised in paragraph 6 above before 5:00pm Friday 30 June 2023, we have instructions to issue legal proceedings against your clients without any further warning or notice. We trust the taking of these steps will not be necessary.
[16] At that point the relevant paper trail in terms of the evidence runs out. I was advised by Mr Liu that while Mr Pang responded to the letter, his clients did not indicate that they wished to involve themselves in the proposal “to participate in the marketing process and to oversee the sale of 10 Lavery Place”. Nevertheless, it is evident that since 23 June 2023, Mr Ma and his counsel have been on clear notice that the respondents were taking steps to market and sell Lavery Place (and have been aware of their intention to sell from at least 6 March 2023).
[17] Fast forward to 3 August 2023, and Mr Ma suggests in his affidavit that he became aware that Ms Zhao had placed 10 Lavery Place on the market for sale. He said he was “completely shocked” and did not consent to the sale. While he acknowledged receiving the 23 June letter putting him on notice that the respondents would be listing Lavery Place for sale by tender, he did not address in his evidence why he had failed to take steps at that time to prevent any sale. Mr Ma went on to depose that the principal reason for the application was his dissatisfaction with the sale process, and the absence of information that has been made available to prospective purchasers about “the partially completed subdivision work” that had been done on the property:
In fact, from the looks of the marketing material, no reference to the partially completed subdivision work is included. Without disclosing these information, potential purchasers will not be able to gauge the actual value of the property, thus reducing the market value due to non-provision of what is clearly positive information in favour of us. The documents concerning my partially completed subdivision work is nowhere to be found in the marketing advertisement for the sale of 10 Lavery Place. Had the real estate agents knew about it, there would be a significant market campaign including these details in the advertisement. None can be found.
[18] Mr Ma concluded his affidavit by expressing his concern that if an interim injunction was not granted “on or prior to 22 August 2023” a sale and purchase
agreement “will be entered into behind my back of a significantly lower value than what it actually could be”, by which time “everything will be too late”.
[19] While the application and evidence in support appeared to be framed as an allegation of breach of trust by Ms Zhao, having considered the respondents’ evidence and Mr Pang’s submissions in support of the application, it became evident that all parties are agreed the property must be sold. The dispute is simply in relation to the process that has been followed to date and the information made available by the respondents and their agent to the market.
[20] Mr Ma’s argument reduces to a simple proposition: unless the sale is delayed and further information is provided about the partially completed subdivision work that has been done, the sale of Lavery Place will not result in a “true” market value. Further, he says, on the information available a sale under value may mean that Ms Zhao has insufficient equity to make good any judgment in his favour should she ultimately be found to have a liability in relation to the sale process.
Jurisdiction
[21] The principles are well settled. On an application for an interim injunction, the Court will generally address itself to three issues:2
(a)Is there a serious issue to be tried?
(b)Where does the balance of convenience lie?
(c)What is the overall justice of the case?
[22] The last two issues require the Court to consider the adequacy of damages, preservation of the status quo, disadvantages to either party and the relative strengths of their cases.3 At the interlocutory stage the Court is not required to resolve conflicts
2 Klissers Farmhouse Bakeries v Harvest Bakereies Ltd [1985] 2 NZLR 129 (HC); and NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
3 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1476, 30 July 2008 at [6]–[14].
of evidence or resolve difficult questions of law requiring detailed argument and mature considerations.4
Consideration
[23] Having considered the evidence and submissions from both sides, I concluded it was appropriate to dismiss the application for six reasons.
No evidence that sale will result in loss to Mr Ma
[24] At the hearing, Mr Pang was obliged to concede that given the building and subdivision consents appear to have been granted in 2015, they are likely to have lapsed by operation of law.5 He was unable to point to any evidence or provision in the relevant legislation that might suggest a different conclusion. With that concession, the information Mr Ma considers important for purchasers in order to realise the property’s full market value would appear to be worthless. It also seems unlikely that the respondents, who will lose equally if the best price is not realised, would fail to pass on any relevant material about the property to prospective purchasers.
[25] The lack of any evidence indicating Mr Ma will suffer loss if the sale process is concluded tends to suggest there is no serious question to be tried, and that the balance of convenience does not favour any delay to the sale.
Mr Ma’s position is already protected by a caveat
[26] While Mr Ma failed to clearly raise or address the issue in his evidence and written submissions, he currently has a caveat registered over the title of the Lavery Place property.
[27] When I asked Mr Pang why Mr Ma considered it necessary to obtain an injunction preventing a sale given that his interests were protected by a caveat,
4 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 407; Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 4 22 (CA) at 425; and Health Club Brands Ltd v Colven [2013] NZHC 428 at [9].
5 Section 125 of the Resource Management Act 1991 provides that most resource consents lapse on the date specified in the consent or, if no date is specified, five years after it commences, unless the consent is given effect or an extension is granted by the consent authority.
Mr Pang suggested that should a contract be concluded over the property, Mr Ma’s position would be prejudiced in any subsequent proceedings concerning a challenge to the caveat. Prejudice would arise at that stage because the balance of convenience might tend to favour removal of the caveat so that the differences between the parties could be resolved by reference to the proceeds of sale.
[28] I cannot accept this submission. First, interim injunctions are not a vehicle for parties to gain tactical advantages in litigation over the other. They are an order made by a court of equity. Second, any prospective purchasers contemplating acquisition of the title are on notice of the caveat and will be aware it is a complete impediment to transfer of title on settlement of a purchase. It is therefore highly unlikely that a purchaser would be so foolish as to enter into anything other than a conditional contract for sale and purchase. It follows that there is no legitimate prejudice caused to Mr Ma should the sale process proceed.
A voluntary sale is in the parties’ interests
[29] The evidence clearly indicates, as Mr Pang was inclined to accept, that a mortgagee sale is becoming increasingly likely. The parties have not met their mortgage obligations on the property for some time and are at odds about who should be responsible for them. The correspondence between the parties indicates that Mr Ma does not consider he is obliged to make contributions towards the mortgage because he claims to be owed a significant amount by the respondents. While the merits of this contention cannot be resolved at this point, given the position between the parties the only realistic way forward is a sale, whether voluntarily or as a result of action by the mortgagee.
[30] A mortgagee sale increases the risk of a lower net return for the parties, including Mr Ma. The obvious benefit in avoiding a forced sale is another factor I find informing the balance of convenience.
Not seriously arguable that Ms Zhao is in breach of trust
[31] The available evidence does not satisfy me that it is seriously arguable that Ms Zhao has acted in breach of trust. The evidence confirms a precarious financial
position and real risk of mortgagee sale. Ms Zhao as the sole registered proprietor and sole mortgagee carries the principal risk in relation to a forced sale based on her personal covenant. She has clearly communicated the respondents’ intention to sell the property for some time, a course of action which Mr Ma accepts is necessary. His only concern relates to the information that has been made available to prospective purchasers which, as Mr Pang accepted, cannot have any effect on the property’s value. If anything, I am inclined to consider that Ms Zhao’s actions are in the best interests of all of the beneficiaries, including Mr Ma.
Damages are an adequate remedy
[32] While Mr Pang argued that sale of Lavery Place might deprive Mr Ma of the fruits of judgment should he ultimately be successful in a claim relating to the sale, as Mr Liu pointed out, Ms Zhao has a 25 per cent interest in another property worth approximately $2.4 million. I am not persuaded that damages would not, therefore, be an adequate remedy.
Inexplicable and inexcusable delay in taking steps to prevent sale
[33] Mr Ma has not provided an explanation for his failure to take any steps to prevent the sale of the property until the last moment.6 While Mr Pang pointed to his own professional commitments and ill-health as the cause of the relevant delay, that could only explain, if supported by some evidence, the two-week delay following 3 August 2023. However, Mr Ma has been on notice that a sale would be proceeding since 23 June.
[34] Accordingly, I am satisfied there has been unexplained and material delay by the applicant in pursuing the application. Any urgency that exists is of Mr Ma’s own making. In those circumstances, I consider it would be inappropriate to grant relief even if I was satisfied there was a serious issue to be tried.
6 The applicant has provided no evidence to indicate that he has communicated with the respondents after supposedly learning about the sale on 3 August 2023 to request that it be delayed.
Conclusion
[35] For these reasons, I am satisfied there is no serious issue to be tried and that the balance of convenience clearly favours declining the application for relief. Standing back, I am also satisfied that delaying sale of the property is not in the interests of justice. That is because delay is likely to prejudice all of the co-owners.
Result
[36]The application for an interim injunction is dismissed.
[37] In light of the imposition on the respondents and their solicitors to attend an urgent hearing at short notice and who were able to provide helpful submissions and evidence in opposition, there will be costs for the respondents on a 2B basis.
Isac J
Solicitors:
Integritas Law, Auckland for Applicant Heritage Law, Auckland for Respondents
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