New World (New Zealand) Ltd v Zhang
[2021] NZHC 2899
•29 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2453
[2021] NZHC 2899
BETWEEN NEW WORLD (NEW ZEALAND) LIMITED
Plaintiff/First RespondentAND
QIAN ZHANG
Defendant/Second Respondent
AND
SHAOJUN WANG
Interested Third Party/Applicant
Hearing: 8 July 2021 Appearances:
A J B Holmes for Applicant J Ding for First Respondent
No appearance for Second Respondent
Judgment:
29 October 2021
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 29 October 2021 at 11.30 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Carter Atmore Law, Auckland
K3 Legal, Auckland
Counsel: A J B Holmes, Auckland
NEW WORLD (NEW ZEALAND) LTD v ZHANG [2021] NZHC 2899 [29 October 2021]
[1] This judgment determines an application by the applicant, Ms Wang, to vary or rescind a charging order and cancel its registration against Record of Title Identifier NA3A/205 (“title”).
[2] Amongst other things, the charging order charges the estate, right, title or interest of the second respondent, Ms Qian Zhang, in a residential property situated in Auckland (“property”).
[3] The charging order was made on the application of the first respondent, New World (New Zealand) Ltd (“New World”), a judgment creditor of Ms Zhang, and was registered against the title on 3 November 2020. New World has since sought an order that the property be sold.
[4] A charging order charges only the beneficial interest of the judgment debtor. Although Ms Zhang is the registered proprietor of the property, Ms Wang submits that Ms Zhang had no beneficial interest in the property at the date of registration of the charging order, and that she, Ms Wang, has held the entire beneficial interest in the property since November 2017, that is three years prior to registration of the charging order. Ms Wang thus submits that her application should be granted, as she is prejudicially affected by the charging order.1
[5] New World opposes Ms Wang’s application. New World’s case is that Ms Zhang retains a beneficial interest in the property and that the charging order should continue.
Background
[6] By agreement for sale and purchase of the property dated 19 April 2016, Ms Zhang or nominee agreed to purchase the property for $1,180,000.
[7] The purchase was settled on or about 20 May 2016. The purchase price was met by a loan from the ASB to Ms Zhang of $826,000 secured by a first mortgage,
$309,000 (including the deposit) paid by Ms Wang, and $45,000 paid by Ms Zhang. Ms Zhang became the registered proprietor on settlement.
1 High Court Rules 2016, r 17.44.
[8] Ms Wang and Ms Zhang agreed that the property would be tenanted and that Ms Zhang would meet any shortfall between the income derived from the property on the one hand, and outgoings, including sums due to the ASB, on the other. That shortfall, which Ms Zhang did pay until mid-September 2017, totalled $20,900.
[9] Ms Zhang was an employee of New World. She resigned from the company in April 2017. As appears below, New World subsequently came to realise that Ms Zhang had been stealing from them, hence the judgment referred to below, and the charging order. Ms Wang’s evidence is she knew nothing of this at the time, or indeed until January 2018.
[10] Ms Wang’s evidence is that, in about September 2017, Ms Zhang said she wished to return to China, and the two commenced discussions regarding Ms Wang purchasing Ms Zhang’s interest in the property. These discussions culminated in an agreement that Ms Wang would pay Ms Zhang $70,000 for her interest in the property and that thereafter Ms Wang would also be responsible for meeting the shortfall between incomings and outgoings to which I have referred, these including payments to the ASB.
[11] In October 2017, Ms Zhang instructed solicitors to prepare an agreement between the two recording this agreement; Ms Wang also instructed solicitors; and a Deed of Declaration of Trust and Transfer of Property (“deed”) was finalised. Ms Zhang executed the deed on 1 November 2017 and returned to China on 4 November 2017. Ms Wang then executed the deed on 10 November 2017.
[12]Clauses 2.1 and 2.2 of the deed provide:
2.Transfer of Property
2.1The parties have agreed to transfer the property from [Ms Zhang] to [Ms Wang] once [Ms Wang] pays the sum of $70,000.00 NZD to [Ms Zhang]. However, the title of the property is to remain under [Ms Zhang’s] name unless and until [Ms Wang] requests to transfer the title to her name. Upon the Settlement Date, once [Ms Wang’s] payment of $70,000.00 is made to [Ms Zhang], [Ms Wang] will be fully and solely liable for the property and all expenses in relation to the property (i.e., mortgage, tax, insurance etc). [Ms Wang] will be solely entitled to any benefit and interest arising from the property which shall include and not limited to rental income, capital gains and
so forth. [Ms Zhang] will meet all payment and expenses required in relation to the property until the Settlement Date.
2.2The parties agree that, once the payment of $70,000.00 has been made by [Ms Wang], [Ms Zhang] will be holding the property on trust as trustee of this constructive trust under her name purely for the benefit of [Ms Wang] and shall transfer the title of the property back [sic] to [Ms Wang] upon her request at any time.
[13] The deed also includes provision for Ms Zhang to transfer title to Ms Wang within five working days of a request by the latter, including to execute all associated documents such as an Authority & Instruction form, and that Ms Wang was permitted to lodge a caveat against the property.
[14] Ms Wang transferred $70,000 to Ms Zhang’s bank account on 10 November 2017; lodged a caveat against the title on 13 November 2017; and has met all outgoings, including mortgage payments, in fact since September 2017.
[15] Ms Wang did not take a transfer of title at the time. In her affidavit of 25 February 2021, Ms Wang says this is because she wished to arrange a mortgage and loan in her own name and, in any event, matters were overtaken by events, as follows.
[16] New World had commenced proceedings against Ms Zhang on or about 6 November 2017, and it obtained freezing orders against Ms Zhang’s assets, which affected the property, on 17 November 2017. It served those proceedings on Ms Wang’s solicitors on 22 December 2017 and Ms Wang’s evidence is that she learned of them on 18 January 2018. By then, the Registrar-General of Land had lodged a caveat against the title.
[17] It appears from Ms Wang’s affidavits that she endeavoured to persuade New World that Ms Zhang no longer had a beneficial interest in the property, but was unsuccessful in doing so. Her evidence is that she has been in a position to take a transfer of title, and has arranged finance to discharge the liability to the ASB, but she has not been able to implement these arrangements. This is because, although the freezing orders lapsed some time ago, the Registrar-General’s caveat remains, and in addition and more recently, the charging order has been registered.
[18] New World obtained the charging order on or about 27 October 2020 (so almost three years after it commenced proceedings), having obtained judgment by default against Ms Zhang for $329,675.87.
Application
[19] Ms Wang’s application is made pursuant to r 17.44 High Court Rules 2016. It is for Ms Wang to persuade me that the charging order should be varied or rescinded and its registration cancelled.2
[20] The bare legal estate of a trustee cannot be subject to a charging order.3 It is common ground that I should grant the application if I find that Ms Zhang had no beneficial interest in the property at the date the charging order was made.4
Submissions
[21] The gist of Ms Wang’s submission is that, by her payment of $70,000 to Ms Zhang, she acquired Ms Zhang’s beneficial interest in the property subject to the mortgage. Ms Wang also submits this payment was sufficient to account both for Ms Zhang’s contributions to the property and her share of the increase in the property’s value to that time. On the evidence before me, that submission is largely correct, any increase in value having been relatively modest.
[22] New World submits that these submissions fail to account for Ms Zhang’s liability to the ASB, and that this needs to be taken into account in determining her share of the beneficial interest. I do not have the remaining principal due on the ASB loan as at 10 November 2017, but certainly it exceeded $725,000.
[23] New World referred me to Cowcher v Cowcher in support of this submission.5 There Bagnall J suggested that, if 70 per cent of the cost of a property is funded by a loan secured by mortgage, the party liable to repay the loan will have a 70 per cent beneficial interest in the property:6
2 Isolare Investments Ltd v Fetherston (2006) 1 NZTR 16-013 (HC) at [11].
3 Motor Vehicle Dealers Institute Inc v UDC Finance (1991) Ltd [1994] 1 NZLR 659 (CA); citing
Re Beattie (1887) NZLR 5 SC 342 at 342-343.
4 Firth Concrete Industries Ltd v Duncan [1973] 1 NZLR 188 (SC) at 190.
5 Cowcher v Cowcher [1972] 1 WLR 425 (Fam).
6 At 431.
Suppose a conveyance to A for £24,000 with A admittedly providing £8,000 out of his own free available moneys. The remaining £16,000 may be provided by B… by a loan secured by a mortgage on the freehold of the property… In my judgment in such a case, prima facie B will also have a two-thirds interest because he or his obligation to repay a loan has been the source of £16,000 of the purchase money.
Alternative argument under the Property Law Act 2007
[24] New World makes a second argument under subpart 6 of part 6 of the Property Law Act 2007 (“PLA”).
[25] Subpart 6 permits the Court to reverse a disposition of property to a third party, made with intent to prejudice a creditor, and by a debtor who was either insolvent at the time of the making the disposition, or who became insolvent as a result.7
[26] It is a defence to such a claim that the third party received the disposition in good faith, for valuable consideration, and without knowing that it had been the subject of a disposition to which the subpart applies.8
[27] New World does not contend that Ms Wang acted in bad faith or with knowledge of New World’s claim against Ms Zhang. Rather it relies on the same fundamental premise, that is that Ms Wang acquired Ms Zhang’s beneficial interest in the property for significantly less than its true value, due to Ms Zhang’s debt to the ASB.
[28] I record that in its submissions, New World sought an order pursuant to s 348 PLA setting aside the deed. It does not appear that this application was signalled prior to the hearing and, in any event, I would have declined to make such an order on the merits.
[29] New World also makes various submissions as to what it considers to be inconsistencies in Ms Wang’s evidence and what the parties advised the ASB at the time of the purchase. I do not consider it necessary to address these submissions to determine the issue before me.
7 Property Law Act 2007, s 346.
8 Section 349.
Discussion
[30] I accept Ms Wang’s evidence that she would have wished to take a transfer of title by now, and would have been able to do so, but for the Registrar-General’s caveat and the charging order. Indeed, there was no impediment to Ms Wang taking a transfer of title, subject to the mortgage, as of 10 November 2017. By s 203 PLA, she would then have assumed a direct liability to the ASB. Of course, Ms Zhang would have continued to be liable to the ASB and, indeed, her entry into the deed, and a subsequent transfer to Ms Wang, may have put her in breach of her personal covenants to the ASB.
[31] However, the important point is whether I am satisfied that Ms Wang acquired Ms Zhang’s entire beneficial interest on 10 November 2017 subject to the mortgage. In my view, Ms Wang did acquire that interest upon her payment of $70,000 to Ms Zhang in accordance with clauses 2.1 and 2.2 of the deed. That is the effect of those clauses.
[32] I am not persuaded by the submission of New World in [22] and [23] above, because the scenario referred to by Bagnall J in Cowcher v Cowcher is different from the present case. In that scenario, A has a one third interest consistent with A’s contribution to the purchase price. B, however, is obliged to repay a loan equivalent to two thirds of the purchase price and has a two thirds’ interest accordingly.
[33] This case is different because, as between Ms Wang and Ms Zhang, Ms Wang has assumed liability under the deed to repay the ASB loan. As Mr Holmes, counsel for Ms Wang, submitted, Bagnall J anticipated this distinction. The Judge went on to address the situation that pertains in this case, in which two parties reach agreement as to how, between themselves, they will apportion liability to a mortgagee:9
But suppose that at the time A [Ms Wang] says that as between himself and B [Ms Zhang] he, A, will be responsible for half of the mortgage repayments, a different result ensues. Although as between A and B and the vendor A has provided £8,000 and B £16,000, as between A and B themselves A has provided £8,000 and made himself liable for the repayment of half the £16,000 mortgage namely a further £8,000, a total of £16,000; the resulting trust will therefore be as to two-thirds for A and one-third for B—the reverse of the former situation.
9 Cowcher v Cowcher, above n 5, at 431.
Result
[34] I make orders varying the charging order, so as to exclude 50 Moore Street, Hillcrest, Auckland, from its ambit and cancelling the registration of charging order 11914547.1 against NA3A/205.
[35]I reserve leave to apply.
[36] Mr Holmes asked that I defer any order as to costs and disbursements. If the parties are unable to agree on those matters, Mr Holmes should file and serve his submissions by 19 November 2021, and New World should do likewise by 3 December 2021.
Peters J
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