Ming Shan Holdings Limited v Ma HC Auckland CIV 2008-404-6692

[2009] NZHC 2602

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-006692

BETWEEN  MING SHAN HOLDINGS LIMITED Plaintiff

ANDYING MA (ALSO CALLED LINDA MA) AND SHUJUAN ZHANG AND TAI YUAN MA

Defendants

Hearing:         19 February 2009

Appearances: J G Ussher for Plaintiff

A D Banbrook for Defendants

Judgment:      18 December 2009 at 1.30 pm

JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on 18 December 2009 at 1.30 pm, Pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date…….

Solicitors:           J Ussher, Solicitor, PO Box 44 325, Pt Chevalier, Auckland

A D Banbrook, PO Box 3600, Auckland

MING SHAN HOLDINGS LIMITED V YING MA (ALSO CALLED LINDA MA) AND SHUJUAN ZHANG AND TAI YUAN MA HC AK CIV 2008-404-006692  18 December 2009

[1]      The plaintiff applies by way of summary judgment for an order declaring the equity in property at 15 Claremont Way, Howick registered in the defendants names as either the plaintiff’s property or held by the defendants in trust for the plaintiff.

Background

[2]      In 1999 William Ma also known as Weinam Ma who is the director of Ming Shan Holdings Limited, the plaintiff was imprisoned in Pudong Detention Centre, Shanghai, China on charges which were ultimately withdrawn. Whilst in prison William Ma arranged for his brother Tai Yuan Ma who is the third named defendant in  these  proceedings  to  represent  his  interests  and  the  interests  of  Ming  Shan Holdings Limited. The second named defendant Shujuan Zhang is Tai Yuan Ma’s wife and the third named defendant Ying Ma is their daughter. Instead of running William Ma’s companies and looking after his business affairs the three defendants and in particular Tai Yuan Ma applied substantial amounts of money belonging to Ming Shan Holdings Limited to their own benefit. Consequently, Ming Shan Holdings Limited issued proceedings for recovery of the money claimed to have been misappropriated by the defendants and their associated companies.

[3]      On 13 December 2005 on admissions by the defendants Ming Shan Holdings

Limited obtained judgment for the following amounts against the following parties:

a)        Against Tai Yuan Ma and Shujuan Zhang jointly and severally in the sum of $1,421,312.01.

b)        Against Ying Ma in the sum of $40,000.

c)        Against Ming Shan International Financial Services Limited in the sum of $350,000.

d)       Against Ming Shan International Publishing Limited in the sum of

$30,000.

[4]      A counter claim by the defendants which essentially claimed the money taken by  them  from  Ming  Shan  Holdings  Limited  was  theirs  in  the  first  place  was dismissed on 29 July 2008 by Lang J following a defended hearing. The judgment has been paid in part by the release to Ming Shan Holdings Limited of $575,000 which had been the subject of a preservation order since 2000.

[5]      On 18 September 2000 Ming Shan Holdings Limited lodged a caveat against the title to the property at 15 Claremont Way claiming an interest in that property under a resulting trust. An application by Ying Ma for removal of that caveat has been adjourned pending the outcome of this application by Ming Shan Holdings Limited for summary judgment.

[6]      The  property  at  15  Claremont  Way,  Howick  was  acquired  under  an agreement for sale and purchase dated 29 August 1999. The vendor was Spaceline, a subsidiary of Fletcher Residential Limited. The purchaser in the agreement for sale and  purchase  is  described  as  Ma  Ying  or  nominee.  The  purchase  price  was

$400,450,00. A deposit of $40,000 was paid. Settlement took place on 24 September

1999. To fund the purchase a mortgage of $320,000 was raised with the Bank of

New Zealand and the balance of just over $41,000 was paid in cash.

[7]      The transfer was to Ying Ma, the first named defendant in these proceedings and Shujuan Zhang, the second named defendant in these proceedings.

Case for the Plaintiff

[8]      It is claimed on behalf of Ming Shan Holdings Limited that the funds used by the defendants to purchase 15 Claremont Way and to discharge the mortgage with the Bank of New Zealand used to finance the purchase  came from Ming Shan Holdings Limited. It is pointed out that when the property was purchased Ying Ma was then eighteen, a student with no assets and with limited or no income. Evidence adduced by Ying Ma as to her income shows that she has had insufficient to enable her to repay the mortgage to the Bank of New Zealand. Consequently, the only reasonable inference is that the funds which the defendants had improperly obtained from Ming Shan Holdings Limited were used to acquire the property and discharge

the mortgage. It must follow that as the property was acquired by the defendants with  funds  misappropriated  from  Ming  Shan  Holdings  Limited  any interest  the defendants have in that property must be held by them under a resulting trust in favour of Ming Shan Holdings Limited.

Case for Defendants

[9]      The defendants relying on an agreement dated 30 August 1999 between Ying Ma and Shujuan Zhang claim that the equity in the property at 15 Claremont Way belongs to Ying Ma and that Shujuan Zhang and Tai Yuan Ma have no interest in that property. Ying Ma accepts that $40,000 paid as a deposit came from a cheque she received from her father Tai Yuan Ma. That cheque was drawn on Ming Shan Holdings Limited and came from the funds of Ming Shan Holdings Limited. On discharging the caveat Ying Ma is prepared to pay $40,000 plus costs to Ming Shan Holdings Limited in satisfaction of the judgment obtained against her.

[10]     Ying  Ma  claims  that  all  other  funds  used  to  purchase  the  property  and discharge the mortgage to the Bank of New Zealand came from her own resources and not from Ming Shan Holdings Limited. In this respect she says the funds came from the following sources:

a)        Savings  she  had  accumulated  in  China  and  repatriated  to  New

Zealand in 1999 and 2000.

b)        Funds borrowed from family members in Tianjin, China. c)    Salary earned by Ying Ma in the period 2001 to 2009.

d)Rental of up to $200 per week received from Chinese students who rented rooms in the property at 15 Claremont Way, Howick.

e)        Rental of $200 per week received from Tai Yuan Ma and Shujuan

Zhang pursuant to the terms of a tenancy agreement dated 18 January

2004 and entered into between Tai Yuan Ma and Shujuan Zhang as tenants and Ying Ma as the landlord.

[11]     Based on Foskett v McKeown [2001] 1 AC 102, it is submitted on behalf of the defendants that where a constructive trustee has misappropriated trust money to provide part of the cost of acquiring an asset the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. In the present case it is submitted that Ming Shan Holdings Limited has exercised its option to pursue a claim in personam against Ying Ma and has obtained judgment for

$40,000. Having made that election Ming Shan Holdings Limited cannot bring a claim for a pro rata share in the assets on which the claimed funds were expended.

[12]     Finally, it is submitted that the defendants have produced credible evidence to establish that the source of the funds used to acquire the Claremont Way property did not come from Ming Shan Holdings Limited. As there is a conflict of evidence it is not appropriate for summary judgment to be entered in favour of the plaintiff against the defendants. The plaintiff relies upon the decision of Tipping J in Lindale Financial Services Limited v Colonial Mutual Life Insurance Society Ltd (1998) 12

PRNZ 320 where he states at page 324, line 4:

Summary judgment proceedings are designed for cases where it is clear there is no defence to the plaintiff’s claim. While it is entirely proper for the Court to take a robust approach when ascertaining whether proffered defences have any arguable validity or are simply a smoke screen, there are limits. Defendants should not be deprived of an opportunity of a full trial, unless the plaintiff clearly demonstrates that there is no reasonable possibility of the defence succeeding. While summary judgment proceedings are a valuable and  desirable  shortcut  in  clear  cases  care  must  be  taken  not  to  allow excessive robustness to work an injustice to the defendant.

Adjournment of Proceedings

[13]    At the conclusion of the hearing on 19 February 2009 I adjourned the proceedings. In doing so I made the following directions:

a)        That  on  or  before  6  March  2009  Mr  Ussher  was  to  submit  a memorandum as to:

i)The effect of the judgment of $40,000 against Linda Ma and an acknowledgment by her that the $40,000 that forms the basis of that judgment was applied by her to the purchase of the property.

ii)       Producing an affidavit of Tai Yuan Ma referred to in Cooper

J’s judgment paragraph 38, page 989.

iii)Producing  an  analysis  of  cash  payments  or  other  deposits through Linda Ma’s bank account.

b)Mr Banbrook would have until 20 March 2009 to file any submissions in answer.

[14]     The time table set forth in my directions on 19 February 2009 was by consent extended on two occasions. Further affidavits and memoranda have been filed by counsel in terms of the time table as amended.

Further evidence following adjournment

[15]     In terms of the directions I have made the plaintiff has produced a copy of the affidavit  of  Tai  Yuan  Ma  sworn  on  8  February  2005  which  is  referred  to  in paragraph 38 of Cooper J’s judgment of 4 August 2005. In that affidavit at paragraph

28 Tai Yuan Ma states on oath as follows:

In 1999 I made a conscious decision to retrieve some of my money from Ming  Shan  Holdings  Limited  in  Auckland.  The  money  was  transferred openly over a period of time and was spent or invested in the following way:

Purchase of Howick property	$400,000.00
Funds injected into Ming Shan International
Finance Services Limited (Third Defendant)	$350,000.00
Funds placed in term deposit with ANZ Bank	$400,000.00
Funds injected into Ming Shan International
Publishing Limited	$30,000.00
Investment and Foreign Exchange trading	$93,000.00
Investment in shares	$12,000.00
Deposit in bank	$50,000.00

[16]     Counsel for the plaintiff has analysed the financial evidence produced by Ying Ma. According to his analysis there are the following unusual or unexplained deposits:

a)        Cash deposits  $161,380.

b)        Transfer from Wai Ma  $228,835.29. c) Unidentified direct credits  $7,700.01

d)Direct credits suffix KVB, likely transfers from China

$117,122.01. Total  $515,037.31

During that period there have been deposits of wages of $136,830.88, money from

WINZ $519.80, cheque deposits $8,269.10.

[17]     The financial records cover the period 12 March 2003 to 1 December 2008. No bank statements have been produced for earlier periods. No information is available as to the extent of deposits in the period 1999 up to March 2003. There are also records of other bank accounts which have not been disclosed. It is therefore submitted on behalf of the plaintiff that based on the evidence of Tai Yuan Ma that

$400,000 of the plaintiff’s money was used to purchase the Howick property there can be no defence to these proceedings. Furthermore, the evidence of Ying Ma claiming she provided from her own resources all but $40,000 to acquire her interest in the property at Claremont Way is not supported by evidence of her income and resources and is therefore inconsistent with the evidence of Tai Yuan Ma. Such evidence therefore is unreliable and should be disregarded.

a)       Further  evidence  has  now  been  supplied  by  the  defendants.  In particular there is an affidavit by Tai Yuan Ma claiming there is a misprint in paragraph 28 of the affidavit he swore and filed dated 18

February 2005. He claims that reference to $400,000 for the purchase of the Howick property should have been $40,000. In this respect he refers to the evidence of Ying Ma who produces the requisition for a cheque on Ming Shan Holdings Limited dated 9 September 1999 for

$40,000. He denies that there was ever a payment of $400,000 to purchase the property at 15 Claremont Road, Howick. In her affidavit sworn on 10 June 2009 Ying Ma deposes she has had the following funds to finance the purchase of the property at Claremont Way and provide living expenses and other outgoings:

i)        KVB Foreign Exchange (NZD)  $117,000

ii)       Total USD cash bought from China (NZD)   $273,000

iii)	Total salaries	$181,390
iv)	Total rentals at 15 Claremont Way (approximately)	$142,500
Total cash and income for period	$713,890

[18]     To support her contention that $117,000 was transferred using KVB Kunlun Foreign Exchange she has produced a copy of the schematic of the KVB system taken from the internet. That schematic of the KVB system is dated 26 March 2006. She also claims that between 1999 and 2000 a total of $150,000 US dollars cash was bought from China.

[19]     She claims that between the period 30 September 1999 to 14 December 2001 the  mortgage  principal  had  been  reduced  from  $320,000  to  $99,683  being  a reduction in principal of $220,320. She has also paid $314,065 towards legal cost of

Tai Yuan Ma. When those two amounts are deducted from the funds available to her totalling $713,890 there is a balance of $179,505.

[20]     Ying Ma relies upon evidence contained in an affidavit sworn by Xiuying Wang to the effect that Xiuying Wang lent Ying Ma $100,000 US in 1999. Counsel for the plaintiff objected to the filing of the affidavit of Xiuying Wang because:

a)       The affidavit was filed after the hearing. There is no reason advanced for the late filing of the affidavit. The evidence should have been available in time for the hearing.

b)        The swearing of the affidavit does not comply with the High Court

Rules.

c)       The affidavit was sworn outside New Zealand and in accordance with the rules should have been sworn before a Commissioner of the High Court of New Zealand with authority in the place where the affidavit is sworn, a person authorised by the laws of that place to administer oaths, or a person authorised by a Judge to administer the oath required.

d)The witness to the affidavit does not state his or her qualification to administer the oath other than to state that he or she is a Commonwealth representative.

[21]     Counsel for the plaintiff concedes that notwithstanding failure to comply the Court may still receive the affidavit. If the Court decides to receive the affidavit it is submitted that the evidence contained is of little probative value. In particular emphasis is placed on the fact that there is no written evidence to verify the substantial loan of US $100,000. The only evidence is a letter written by Xiuying Wang after the summary judgment hearing purporting to confirm the loan.

[22]     It is submitted on behalf of the plaintiff that it defies logic for such a large loan even between family members to have been made without documentation. It is

also surprising that in the intervening ten years since the loan was made there is no correspondence between Xiuying Wang and Ying Ma relating to the loan.

Decision

[23]     The  proceedings  issued  by  Ming  Shan  Holdings  Limited  in  which  the defendants consented to judgment being entered against them on 13 December 2006 for a total sum of $1,421,312.01 were for recovery of money wrongfully converted by the defendants to their own use. The judgments entered against the defendants on their admissions at that time were for recovery of specific amounts and did not accept any claims by Ming Shan Holdings Limited to an interest in property acquired with the misappropriated funds as beneficiary under a constructive trust. Nor did the judgment relate to a claim by Ming Shan Holdings Limited to an equitable lien arising out of the funds misappropriated by the defendants being used to purchase the property at Claremont Way.

[24]     In Foskett v McEwan & Ors the House of Lords was concerned with monies that had been misappropriated and used to purchase a life policy. The Court had to determine the interest of the investors whose money had been misappropriated in the proceeds available from the life policy. At page 130 Lord Millett stated as follows:

The  simplest  case  is  where  a  trustee  wrongfully  misappropriates  trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself. There is nothing unfair in this. The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself, and his donees cannot obtain a better title than their donor. If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis on which the claim succeeded in some of the cases.

[25]     Consequently, in the circumstances of this case it cannot be claimed that

Ming Shan Holdings Limited by accepting the defendants’ confessions for judgment

has elected to limit its claim to a lien on the property acquired with those misappropriated funds. The basis of Ming Shan Holdings Limited’s claim in the proceedings before me is for declarations as to the ownership of the property at Claremont Way claiming a beneficial interest in the equity because the funds used were its funds that had been misappropriated by the defendants and invested in that property.

[26]     The defendants acknowledge that $40,000 of the amount required to purchase the property at Claremont Way came from money belonging to Ming Shan Holdings Limited. They have endeavoured to establish a case to support their contention that the balance of the funds used to acquire that property did not come from Ming Shan Holdings Limited.

[27]     If the defendants are correct then the statement made by Tai Yuan Ma in paragraph 28 of his affidavit sworn on 8 February 2005 to the effect that of the money received from Ming Shan Holdings Limited he used $400,000 to purchase the property  at   Howick   is   incorrect.   He  ultimately  confessed   to   judgment   for

$1,421,312.01. The total of the amounts referred to in paragraph 28 of his affidavit of 8 February 2005 is $1,335,000 which is approximately $86,000 less than the amount of the judgment entered against him. However, if the amount he invested in the  Howick  property is  reduced  to  $40,000  and  not  $400,000  the  difference  is

$446,000. It is therefore surprising that he confessed to judgment for $1,421,312 when evidence of the money he received from Ming Shan Holdings Limited amounted to just under $1 million.

[28]     Cooper J in his judgment specifically referred to $400,000 being used to purchase the Howick property. Cooper J’s judgment is dated 4 August 2005 and therefore predates the date of the entry of judgment against the defendants. If the evidence of $400,000 being used for the purchase of the Claremont Way property was incorrect it was surprising that there was no evidence of any attempt by the defendants to correct that mistake.

[29]     The defendants claim that payment of $40,000 towards the purchase of the

Claremont  Way  property  is  consistent  with  the  evidence  of  Ying  Ma  who  has

produced the requisition for a cheque for that amount from Ming Shan Holdings Limited which she acknowledges was used to pay the deposit for the purchase of that property. However, the evidence that $400,000 was applied to the purchase is also consistent with the claim on behalf of Ming Shan Holdings Limited that the total amount required to purchase the property which was just over $400,000 came from its funds.

[30]     Ying Ma claims that between the date of purchase in September 1999 and

14 December 2001 the loan from the Bank of New Zealand had been reduced from

$320,000 to just on $100,000. However, a statement produced from the Bank of New

Zealand relating to this loan dated 8 September 2008 refers to term loan history from

9 September 2005 to 31 March 2006. That term loan history commences with a statement that the total amount drawn was $100,000. During that period interest of

$3,262.72  was  paid  together  with  principal  of  $8,796.06  leaving  a  balance  of

$91,203. It is significant that in a period of just over two years Ying Ma was able to reduce her loan by $220,000 yet for the period 9 September 2005 to 31 March 2007 the loan had reduced from $100,000 to just on $89,000. This occurred at a time when she was earning much more income than she was earning in 1999.

[31]     As stated by Lord Diplock in Eng Mee Young v Letchumanan [1980] AC 331 at 341e I am not bound:

to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with the undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself it may be.

[32]   On the one hand I have reliable evidence that the defendants have misappropriated funds in excess of $1,400,000 belonging to Ming Shan Holdings Limited. Against that evidence the defendants claim that Ying Ma who was born on

14 April 1981 and consequently at the time of purchase was just on eighteen and a half years of age, had accumulated $40,000 which she applied towards the $80,000 cash required to the purchase of this property and in the following two years from date of purchase was able to reduce the mortgage from her own funds by a further

$220,000. Although she claims to have used funds advanced from family members to  finance  the  purchase  there  is  a  complete  lack  of  any  supporting  evidence.

Although the defendants acknowledge that at least $40,000 came from Tai Yuan Ma when  he  misappropriated  that  amount  from  the  funds  of  Ming  Shan  Holdings Limited there is no explanation as to why they decided the property should be owned by Ying Ma and that Shujuan Zhang’s interest in the property should be held in trust for Ying Ma.

[33]     If as she claims she received remittance from overseas of $117,000 NZD and

$100,000 USD it is surprising that she has been unable to produce any documentary evidence establishing such sums were applied in reduction of the mortgage to the Bank of New Zealand. Even if the remittances were received in cash which is most unlikely the cash would have been banked into the bank account to be credited in reduction of the mortgage. No such evidence has been produced.

[34]     The lack of any independent documentary evidence confirming Ying Ma’s claim as to the source of the funds used to discharge the mortgage makes her claim as to the source of the funds she used inherently improbable. The only reliable evidence is that her family had access to the funds of Ming Shan Holdings Limited which were applied to making repayment of the mortgage to the Bank of New Zealand and to the purchase of the property at Claremont Way.

[35]     It must follow therefore that as the funds used to acquire the defendants equity in this property came from funds they misappropriated belonging to Ming Shan Holdings Limited they clearly have no defence to Ming Shan Holdings Limited’s claim to a beneficial interest in the equity of this property. Accordingly Ming  Shan  Holdings  Limited  is  entitled  to  summary  judgment  and  to  the declarations it seeks together with costs on a 2B basis with disbursements as fixed by

the Registrar.

Associate Judge Robinson