Shiu v Franklin Law Trustee Limited
[2021] NZHC 1825
•19 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000392
[2021] NZHC 1825
UNDER Land Transfer Act 2017 IN THE MATTER OF
An application under s 143
BETWEEN
XIAOLING (ANNIE) SHIU
Applicant
AND
FRANKLIN LAW TRUSTEE LIMITED
First Respondent
BARRY ROBERT DUNSMUIR
Second RespondentKEVIN VICTOR WALDEN
Third Respondent
LISA ANNE WALDEN
Fourth RespondentVICTORIA ANNE DUNSMUIR
Fifth Respondent
Hearing: 30 June 2021 Appearances:
D Bigio QC and Y Mortimer-Wang for Applicant S Grant for Respondents
Judgment:
19 July 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 19 July 2021 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date ………………………..
SHIU v FRANKLIN LAW TRUSTEE LTD & ORS [2021] NZHC 1825 [19 July 2021]
Introduction
[1] Ms Annie Shiu1 seeks an order that a caveat registered over a multi-million- dollar property at Helenslee Road, Pokeno, not lapse (the Property).2 Ms Shiu contends that as the purchaser under an unconditional contract for the sale and purchase of the Property, she has an ongoing equitable interest in it and the caveat should remain on the title to protect that interest.
[2] Franklin Law Ltd and the other respondent trustees (together, Franklin Law) are the owners of the Property and the vendors.
[3] The parties did not settle and the Property is now the subject of a conditional agreement for sale and purchase to a third party. That third-party contract was entered into after Franklin Law had issued a settlement notice requiring Ms Shiu to settle. The notice was issued pursuant to cl 11.1(1) of the agreement for sale and purchase (the ASP).3
[4] The critical issue I must determine is whether Franklin Law was entitled to cancel the ASP: was Franklin Law “in all material respects”, ready, willing and able to settle, as provided in cl 11.1(1), at the time the settlement notice was issued?
[5] Ms Shiu contends that Franklin Law was not “in all material respects” ready, willing and able to settle because they did not provide vacant possession on the settlement date. She contends that Franklin Law failed to disclose the relevant tenancy documents for the Property and failed to comply with its obligations as a landlord under the Residential Tenancies Act 1986.
Factual Background
[6]The parties entered into the ASP on 30 December 2016.
1 As noted by Judge Rollo in the District Court in R v Xiaoling Chen [2020] NZDC 25807 [District Court judgment], discussed below, Ms Shiu also goes by the name of Ani or Annie Chen; “Shiu” is her maiden name.
2 Under s 143 of the Land Transfer Act 2017.
3 Standard ADLS 9th edition 2012(5).
[7] In January 2017, they agreed on a number of variations to the ASP, with the effect that the settlement date was some 48 months from the original signing on 23 December 2020.
[8] Caveats were lodged on the title to the Property by two third parties, AY on 28 May 2018 and by ZL on 24 February 2019. Those caveats are separate from the one at issue in this case. AY and ZL were the joint venture partners of Ms Shiu in the purchase of the property.
[9] Mr Tangri, the solicitor for Franklin Law, wrote to Ms Pidgeon, solicitor for Ms Shiu, by email on 17 November 2020. Mr Tangri sought Ms Pidgeon’s confirmation that she would be attending to the discharge of the caveats lodged by AY and ZL as part of the settlement. Mr Tangri also advised Ms Pidgeon that the “required notices” had been given to the tenants on the property. He also asked Ms Pidgeon to confirm whether her client would prefer for the tenants to remain so that there would be no requirement for vacant possession.
[10] Mr Tangri followed up on these matters with Ms Pidgeon via email just over a week later.
[11] On 1 December 2020, Mr Eric Chase, the real estate agent for Franklin Law, emailed Ms Pidgeon noting that he had made six attempts to contact her to seek confirmation as to whether Ms Shiu wished to continue to rent out the property once she became the new owner. Ms Pidgeon responded advising that she had not been able to get a response from the “joint venture partner”, so could not give him an answer.
[12] On 2 December 2020 and 16 December 2020, Ms Pidgeon emailed Mr Tangri, advising that her client, Ms Shiu, had no control over the caveats and that she had written to the lawyers who had lodged them but had received no response. Ms Pidgeon advised:
(a)The status of the caveats was a matter between Franklin Law and the caveators;
(b)Ms Shiu would agree to the current tenants remaining at $500 per week as a period tenancy; and
(c)Grazing to continue at a fee of $100 per week with the right to cancel by either party on one month’s notice;
(d)Ms Shiu was having difficulties with one of her joint venture parties, securing structuring and funding for settlement, and Ms Pidgeon would advise further following clarity.
[13] On 17 December 2020, Mr Chen, solicitor of Righteous Law, the solicitors for the caveators, AY and ZL, emailed Mr Tangri and advised that his clients’ interest arose under their agreements with Ms Shiu and because ZL had paid the $1.1m deposit under the ASP at issue in these proceedings. Mr Chen advised that his clients consented to the transfer of the property to Ms Shiu under the ASP provided the caveats remained on the Property following the transfer.
[14] On 21 December 2020, Mr Tangri emailed Ms Pidgeon and advised that the ASP was varied; the property was to be sold subject to the tenancies at the two dwellings. The tenants agreed the weekly rental would be increased to $500 but declined to accept the grazing offer. Mr Tangri also sought clarification from Ms Pidgeon as to whether Ms Shiu would be agreeable to taking title to the property subject to the caveats.
[15] In response, Ms Pidgeon advised that Ms Shiu did not agree to the proposal from Righteous Law that the caveats would remain on the Property following the transfer, and Mr Tangri should take the steps necessary to obtain clear title. She also provided update that she had no further certainty on the issue of funding “at this stage”.
[16] On 22 December 2020 at 3.14 pm, Mr Tangri sent a settlement statement to Ms Pidgeon. The settlement statement recorded the purchase price at $3,100,000 and the deposit that had been paid $1,100,000. The vendors’ allowance for the rental in respect of one of the tenanted houses was $450, paid weekly in advance. The balance required to settle by 23 December 2020 was $2,000,625.39.
[17] Ms Pidgeon again sought clarification from Mr Tangri on 22 December 2020 as to whether he had been able to get the caveats withdrawn. Mr Tangri replied advising he would provide undertakings to discharge the caveats “as per usual in our settlement undertakings, tomorrow”; his clients would be in a position to settle the following day; and the withdrawals had been added to the e-dealing.4
[18] On 23 December 2020, the parties’ nominated settlement day, the following communications unfolded:
(a)At 9.04 am, Mr Tangri provided undertakings to Ms Pidgeon that he had pre-validated, certified and signed the relevant withdrawal of caveats and discharge of mortgage and transfer.
(b)At 4.12 pm, Ms Pidgeon emailed Mr Tangri seeking advice on the status of the grazier and asking whether they had vacated the Property. She also stated that she had not received copies of the tenancy agreements, “Nor have there been arrangements made with the”.5
(c)Mr Tangri responded copies of the tenancy agreements were not a requirement for settlement. He noted that the ASP placed no obligations on its clients to provide them. In relation to the grazier, he advised that the four calves on the Property could be re-located within 24 hours.
(d)Ms Pidgeon responded at 4.45 pm stating that she disagreed on both points.
(e)Mr Tangri replied at 4.53 pm, stating that it was unclear which points Ms Pidgeon disagreed with. Mr Tangri advised that the grazier did not wish to continue the grazing arrangement upon settlement with the new owners.
4 The withdrawal of the caveats were added to the e-dealing at 10.38 am on 22 December 2020. They were certified and signed by Mr Tangri at 8.41 am on 23 December 2020.
5 The email in evidence before the Court appears to be incomplete but nothing turns on this.
[19]Settlement did not take place on 23 December 2020.
[20] At 5.12 pm on 23 December 2020, Mr Tangri served a settlement notice on Ms Pidgeon. The notice advised Ms Shiu that she was required to settle the purchase by Friday, 22 January 2021. The notice stated the vendors had been, and continued to be, in all material respects ready, willing and able to proceed to settle on the settlement date (in accordance with the undertakings provided earlier in the day).
[21]Ms Shiu lodged the caveat at issue in this proceeding on 18 January 2021.
[22] On 19 January, Mr Tangri advised Ms Pidgeon that Franklin Law were in the process of entering into another agreement for the re-sale of the Property to another party. Mr Tangri advised that if Ms Shiu did not settle by Friday, 22 January 2021, under cl 11.4(2) of the ASP Franklin Law’s entry into the re-sale agreement will effect cancellation of the ASP.
[23] On 20 January 2021 at 2.21 pm, Mr Tangri emailed Ms Pidgeon advising that Franklin Law had entered into the proposed re-sale agreement and repeated that the ASP would be cancelled if Ms Shiu failed to settle by 22 January 2021.
[24] Ms Pidgeon replied challenging Franklin Law’s ability to cancel the ASP and stated the settlement notice was issued in breach of the ASP.
[25] The next morning, on 21 January 2021, Mr Tangri again emailed Ms Pidgeon asking whether her client would be in a position to settle on 22 January 2021.
[26] Ms Pidgeon soon replied by letter and email. She contended that Franklin Law was not in all material respects ready, willing and able to proceed to settle in accordance with the ASP.6 Paragraph 2 of Ms Pidgeon’s letter read:
Originally the agreement was signed with vacant possession. At your request I confirmed on behalf of my client that the tenants could remain if they would pay new rentals being increased from $450 to $500 for each of the houses. The grazing tenant did not agree to the proposed increased rent and so was supposed to vacate the property. You agreed that on behalf of your client, however, when requested on the settlement date to provide tenancy
6 Clause 11.1(2).
agreements, bond transfers and letters to the tenants advising of the change of ownership you refused to do so. Given that rent has been apportioned on the settlement date at $450 rent amount not $500 there does not appear to be any agreement with the tenants to vary their tenancy agreements to increase rent, and that a credit has been given for the grazing property that they are still grazing and have not vacated the property. The NZLS PLS guidelines at cl 4.101 state that on settlement:
Documents: You should receive any paper documents (e.g. copies of leases) from the vendors’ lawyer by courier unless otherwise agreed. If these are not received within two working days, you should request an updated from the vendor’s lawyer.
It is industry practice for copies of leases (as title documents) bond transfer forms and letters to tenants to be provided on settlement and cl 3.8(c) requires the settlement documents to be provided on settlement and for an undertaking to be provided. It is industry practice for undertakings to be provided on providing these as a pre-condition to settlement, and no lawyer would settle without undertakings dealing with these matters.
As the tenancies were not, it would appear, varied to pay the agreed rent to enable them to stay vacant possession was required to be provided it was not able to be given on 23 December 2020. Your client was not ready willing and able to settle and was unable to provide vacant possession as per cl 3.1. While your client may have an obligation to mitigate losses, that does not overtake its obligation to be ready, willing and able to settle in terms of the contract which required vacant possession to be provided.
[27] In response, on the same day, Mr Tangri emailed Ms Pidgeon an amended settlement statement. By letter, he advised that he had accounted for the two errors in the original settlement statement, relating to the grazier and the weekly rental increasing to $500 in respect of each dwelling upon settlement. Mr Tangri referred back to his email of 21 December 2020, confirming that both tenants had agreed that upon settlement taking place, their weekly rental would increase to $500. Mr Tangri further noted that he was instructed to cancel the ASP and declare the re-sale agreement unconditional in the event that settlement did not take place the following day, namely 22 January 2021.
[28] At 1.57 pm on 22 January 2021, Mr Tangri emailed Ms Pidgeon a letter responding to the issues she had raised about the tenancies. He noted the discrepancy in his original settlement statement in respect of the tenancies amounted to $60.71. He also advised completed bond transfer forms would be provided to Ms Pidgeon upon settlement, (but they could not be completed until she was to confirm who the purchaser is/are and until settlement takes place). Attached to the letter were written
confirmations from both tenants recording their agreement, on 16 December 2020, to the increased rent of $500 per week, as well as copies of both tenancy agreements.
[29]On 27 January 2021, Franklin Law issued a notice of cancellation of the ASP.
[30] Also on 27 January 2021, Ms Shiu was convicted in the Papakura District Court of two charges of obtaining a valuable consideration by deception7 in relation to the sale of the Property now at issue in these caveat proceedings.8 Ms Shiu’s contended joint venture partners in the purchase of the Property, namely AY and ZL,9 were the complainants and victims of Ms Shiu’s offending. The issue in the criminal proceedings concerned the true recipient of cash payments made by ZL to Ms Shiu totalling $500,000, and an initial payment of $100,000 as an intended cash payment made by AY to Ms Shiu. Both complainants understood the payments they made were for the real estate agent acting for Franklin Law, vendors of the Property. The District Court Judge held both complainants were deliberately deceived by Ms Shiu, who told each of them they must make cash payments to the real estate agent as commission to ensure the land was sold to the joint venture partnership, and not to somebody else.10
Relevant legal principles
[31] The principles governing applications to sustain caveats were restated by the Court of Appeal in Philpott v Noble Investments Ltd:11
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward 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 is no valid
7 Crimes Act 1961, s 240(1)(a).
8 District Court judgment, above n 1.
9 “AY” and “ZL” are the names adopted in the District Court’s judgment, above n 1.
10 District Court judgment, above n 1, at [91]-[96].
11 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. I note that although that case was dealing with the Land Transfer Act 1952, the same approach applies in relation to the Land Transfer Act 2017.
ground for lodging it in the first place or, because such a ground no longer exists;12 and
(d)Where an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.13
[32] It is well-established that conditional agreements for the sale and purchase of land can create an equitable interest in the relevant property.14 In McDonald v Isaac Construction Co Ltd, Tipping J held:15
… in the usual case where the parties intend to be bound and to remain bound subject to the fulfilment of the condition, equitable interests in land can arise by means of such a conditional contract.
Analysis and decision
[33] As noted, the issue is whether Franklin Law was “in all material respects” ready, willing and able to settle, and therefore was entitled to cancel the ASP.
[34] It is settled principle that in the context of a sale of land contract, the right of one party to cancel for failure to settle is dependent on the readiness, ability and willingness of the counter-party to settle.16 The issuer of a settlement notice must be ready, able and willing to perform.17
[35]These principles are contained in the following clauses of the ASP:
11.0 Notice to complete and remedies on default 11.1
(1)If the sale is not settled on the settlement date, either party may at any time thereafter serve on the other party a settlement notice.
(2)The settlement notice shall be effective only if the party serving it is a the time of service either in all material respects
12 Sims v Lowe [1988] 1 NZLR 656 at 660 (CA); Zwarst v Saxton [2012] NZHC 448 at [12].
13 Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23].
14 Neil Campbell “Caveats” in Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009].
15 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC) at 619.
16 Property Ventures Investment Ltd v Regalwood Holdings Ltd [2010] NZSC 47, (2010) 3 NZLR 231, at [82]; D W McMorland Sale of Land (3rd ed, Carthcart Trust, Auckland, 2011) at [12.02](g).
17 D W McMorland Sale of Land, above n 17, at [12.19](d).
ready, able and willing to proceed to settle in accordance with this agreement or is not so ready, able, and willing to settle only by reason of the default or omission of the other party.
(3)If the purchaser is in possession, the vendor’s right to cancel this agreement will be subject to sections 28 to 36 of the Property Law Act 2007 and the settlement notice may incorporate or be given with a notice under section 28 of that Act complying with section 29 of that Act.
11.2Subject to subclause 11.1(3), upon service of the settlement notice the party on whom the notice is served shall settle:
(1)on or before the twelfth working day after the date of service of the notice; or
(2)on the first working day after the 13th day of January if the period of twelve working days expires during the period commencing on the 6ath day of January and ending on the 13th day of January, both days inclusive.
time being of the essence, but without prejudice to any intermediate right of cancellation by either party.
….
11.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to subclause 11.1(3):
(1)Without prejudice to any other rights or remedies available to the vendor at law or in equity, the vendor may:
(a)sue the purchaser for specific performance; or
(b)cancel this agreement by notice and pursue either or both of the following remedies namely:
(i)forfeit and retain for the vendor’s own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii)sue the purchaser for damages.
(2)Where the vendor is entitled to cancel this agreement, the entry by the vendor into a conditional or unconditional agreement for the resale of the property or any part thereof shall take effect as a cancellation of this agreement by the vendor if this agreement has not previously been cancelled and such resale shall be deemed to have occurred after cancellation.
[36] The essence of a settlement notice is the call to settle or to face the consequences.18 That includes, in the case of a defaulting purchaser, the right of the vendor to cancel.
[37] In Howe v Dempsey, Miller J held that the Courts characterised the question whether a party was ready, able and willing to settle, and so entitled to enforce the contract, as one of fact and substance, not to be resolved in any technical or narrow sense.19 His Honour held that the party might be ready, able and willing if anything material that remained to be done lay within its control and would be done at the appropriate time should the other party settle before the notice expired.20
[38] The fundamental problem for Ms Shiu in this case is that she seeks to have the critical issue of whether the parties were “ready, able and willing” resolved in a technical or narrow sense and contrary to the approach in Howe v Dempsey and other authorities.
[39] I agree with the submission of Ms Grant, for Franklin Law, that this is a case where I should follow the approach of the Privy Council in Eng Mee Yong v Letchumanan21 and look critically at the various assertions made by Ms Shiu, as the caveator. It is clear on the evidence before me that the real reason why Ms Shiu failed to complete the purchase is because she was unable to access the necessary funds. Her inability to do so had, no doubt, some connection to the circumstances of criminal prosecution. Ms Pidgeon, on her behalf, was clearly doing her professional best to try and save the purchase, but the various excuses and arguments put up in relation to the tenancy agreements and vacant possession are of a highly technical nature and very much makeweight.
[40] I find Franklin Law was in all material respects ready, willing and able to settle. The parties had reached agreement to vary the ASP to provide the Property would be sold subject to the existing periodic tenancies at the increased weekly rate. Franklin
18 Howe v Dempsey (2013) 15 NZCPR 682 at [58]. See also Westpac Banking Corporation v Bhana
(2003) 5 NZCPR 73 at [27]-[30].
19 Howe v Dempsey, above n 19, at [46]. See also Plowman v Dillon [1985] 2 NZLR 312 (HC) at 321 and Mehmet v Benson (1965) 113 CLR 295 at 307.
20 Howe v Dempsey, above n 18, at [46].
21 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
Law had, in reality, made the necessary arrangements to deliver the Property to Ms Shiu as purchaser, with the continuing tenancies.
[41] Mr Bigio, for Ms Shiu, submitted it was reasonable for Ms Pidgeon to conclude from the incorrect settlement statement (recording the apportionment of rent at $450 per week, not the increased rate of $500 per week) that the agreed increase in rent had not been implemented between Franklin Law and the tenants. I reject that submission. Ms Pidgeon does not make such an assertion in her evidence and there was a clear, unambiguous variation to the ASP.
[42] In any event, any error in the settlement notice could not affect the validity of the entire notice.22 The amount that the purchaser is required to pay is governed by the agreement itself, not by the settlement notice.23
[43] It is likewise no answer to the issue of whether Franklin Law was ready, able and willing to settle to contend that this is an issue in contract rather than one going to the validity of the settlement notice. There is, in substance, no issue about any breach of contract by Franklin Law. At no time has Franklin Law suggested it was not contractually obliged to deliver up the Property subject to ongoing periodic tenancies at the increased rate of $500 per week. At all material times it was in a position to meet that contractual obligation.
[44] I accept that there is some merit to the criticisms Mr Bigio made of Franklin Law failing to provide copies of the tenancy agreements prior to settlement on 23 December 2020, and proof to the purchaser, Ms Shiu, that it had complied with its obligations under s 13(b) of the Residential Tenancies Act 1986 in respect of tenancy variations. As a matter of good practice, it would have been prudent to do so.
[45] However, those complaints are of no legal consequence and provide no basis for reaching a conclusion that Franklin Law was not “in all material respects” ready, willing and able to settle. There was no breach of any vendor’s duty of disclosure such that there was a defect extending to the title.24
22 Westpac Banking Corporation v Bhana, above n 19, at [28].
23 Westpac Banking Corporation v Bhana, above n 19, at [28].
24 D W McMorland Sale of Land, above n 18, at [8.05].
[46] Mr Bigio submitted that there was no written variation for the amended rental and no evidence provided to the vendor of the variation having been perfected. He contended that in those circumstances there was a reversion back to the default position of vacant possession. However, I reject those contentions; they make no sense in the circumstances here.
[47] As I have noted, there has never been a real dispute that the tenants would pay the increase in rent and continue lawful tenancies. The parties reached agreement on those matters and Franklin Law provided the relevant information to Ms Pidgeon. There were no outstanding details of unusual or onerous terms of the tenancies that were not disclosed, and no fatal absence of any binding variation agreement.
[48] Furthermore, in January 2021, Franklin Law provided copies of the tenancy agreements together with the tenants’ written confirmation they would pay the increase in rent. All necessary matters were ultimately attended to by Franklin Law and, had Ms Shiu settled and paid the outstanding balance of the purchase price, she would have taken possession subject to the existing tenancies at the agreed increased rate of
$500, as contracted.25
[49] For all these reasons, I conclude Franklin Law lawfully cancelled the contract when Ms Shiu failed to settle in accordance with the settlement notice. The settlement notice and the cancellation notice were not improperly issued. There is no contractual or other basis for the caveat and Ms Shiu’s application must therefore fail.
[50] I record that at the hearing Mr Bigio abandoned the argument that Franklin Law, as vendor, failed to provide clear legal title by lapsing the caveats lodged by AY and ZL. He also accepted that there was no real merit to the contention in the written submissions that the settlement statement was not provided within a “reasonable time” before the settlement date,26 or that there was an issue of the grazier’s occupation. I have accordingly not addressed those issues.
25 As to the bond transfer, that could not have been attended to until such time as the identity of the purchaser had been confirmed by Ms Shiu.
26 As provided in cl 3.6 of the ASP.
Result
[51] The application by Ms Shiu for an order that the caveat 11992338.1, against the title of 133 Helenslee Road, Pokeno, Waikato District, not lapse, is dismissed. Accordingly, the caveat lapses.
[52] As to costs, I am of the preliminary view that having succeeded, the respondent, Franklin Law Trustee Ltd and the other respondents, are entitled to costs on a 2B basis plus disbursements. If the parties cannot agree on costs, then memoranda (no more than three pages’ length) are to be filed and served within 14 days.
Associate Judge P J Andrew
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