Sun v Varmani Limited

[2024] NZHC 1386

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1958

[2024] NZHC 1386

UNDER

Section 143 of the Land Transfer Act 2017

BETWEEN

YIN SUN

Applicant

AND

VARMANI LIMITED

Respondent

Hearing:	13 May 2024
Appearances:	N G Lawrence and O E G Harding for Applicant A V Shinkarenko for Respondent
Judgment:	30 May 2024

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 30 May 2024 at 12:30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

………………………………..

SUN v VARMANI LIMITED [2024] NZHC 1386 [30 May 2024]

[1]    Ms Yin Sun (Ms Sun) who lives in China and who does not speak English, appointed her sister Nicole Varmani (Nicole), who has lived in New Zealand for many years, to be her attorney. That appointment is recorded in a formal power of attorney.

[2]    In 2014, Ms Sun purchased a property at St George Street, Papatoetoe (the property). In August 2020, using the power of attorney, Nicole signed a contract to sell the property to Armani Developments 1 Limited (ADL). Victor Armani (Victor) was the sole director of ADL, which is now removed from the Register.

[3]    Victor nominated another company of which he was the sole director, that company being NV Armani Limited (NVAL), to take title to the property. Settlement occurred in April 2022.

[4]    In July 2022, NVAL transferred the property to another company of which Victor was sole director — the respondent, Varmani Limited (Varmani).

[5]    Victor and Nicole were in a de facto relationship from 2013/2014 to November 2020. Victor and Nicole were involved in a number of business ventures together.

[6]    Ms Sun says she knew nothing about the sale of the property until mid-2023 when she lodged a caveat over the property on 12 July 2023. The caveat records the interest Ms Sun claims as follows:

The abovenamed Caveator claims a beneficial interest in the land contained in the above record of title as beneficiary of a constructive trust of which the Registered Owner is trustee.

[7]One of the issues I need to address is whether this description is adequate.

[8]    Ms Sun applies to sustain the caveat following Varmani’s application that it lapse.

[9]    Nicole has provided evidence in support of Ms Sun’s application. In Nicole’s affidavit (affirmed on 22 August 2023) at para (10) she says:

Mr Armani [Victor] forced me  to  use  my  power  of  attorney  to  sell  the St George Street Property to Armani Development 1 Limited, a company controlled by Mr Armani [Victor]. Mr Armani [Victor] promised that we should co-own and develop the St George Street Property together.

[10]   Mr Shinkarenko, counsel for Varmani, describes this evidence as a bare assertion without detail and that it can be discounted.

[11]   Nicole also says in her affidavit that she had a personal and business relationship with Victor and says at para (5):

… However, the relationship was very volatile and I was subject to abuse, threats and violence. I will not detail such abuse here …

[12]   Nicole notes she obtained a protection order against Victor in 2015 but that she and   Victor   reconciled.   (They   finally    separated    in    December 2022).    On 21 December 2020 (four months after the date of the contract), Nicole made a without notice application for a protection order against Victor resulting in a temporary protection order which became final on 22 March 2021. Mr Shinkarenko suggests the order became final because Victor took no steps to oppose the temporary order becoming final. So much is a reasonable supposition. Asking why Victor did not challenge the temporary order requires speculation. Victor does not say why he did not  take  that  step,  but  one  reason  could  be  Nicole’s  allegations   were  true.   Mr Shinkarenko suggests Nicole’s reference to a protection order in 2015 is an error because the correct date was 2020, however, that was a matter for Victor to cover in his affidavit, which is silent on this issue.

[13]   Victor accepts that he and Nicole were in a relationship for many years. He says they first met in July 2013 and remained living as a couple until November 2020. He says after separation he and Nicole had various disputes involving their personal and business interests resulting in High Court litigation but, after a reconciliation, the proceeding was settled and they separated in December 2022.

[14]   Victor rejects Nicole’s claim that she was subject to any form of abuse or pressure. He accepts they had disagreements in the course of their personal and business relationship but he says that  was  a  result  of  them  both  being  strong  and independent individuals. This conflict of evidence cannot be resolved in this context.

[15] In relation to Nicole’s para (1) of her Affidavit (which is set out at [9] above), Victor says:

(20)I also categorically deny Nicole’s paragraph [10] where she claims   that I allegedly “forced” her to use the POA to sell the St George property. Nicole’s claim is false.

[16]   Victor does not dispute the other part of Nicole’s paragraph (10) that she and Victor would co-own and develop the property together.

[17]   No issue is taken with the contract to acquire the property being in the name of ADL, which nominated NVAL, which ultimately transferred the property to Varmani. Victor was the sole director of each of those companies. Mr Shinkarenko properly accepted it was reasonably arguable all three companies were fixed with Victor’s knowledge.

[18]Finally,  I  note  the  purchase  price  paid  by  Victor  for  the  property  was

$5.5 million, having obtained a registered valuation at $5.35 million. The evidence is that the purchase price was paid by Victor (or at least his company nominated to settle the purchase, NVAL), although it appears from Nicole’s evidence that she may, using her power of attorney, have advanced Ms Sun’s funds back to fund business opportunities being completed by her and Victor.

[19]   There is no evidence that Victor’s company did not pay market value for the property. All Ms Sun, or at least Nicole, can offer is the thinnest of hearsay evidence as follows:

(13) I was informed by a real estate agent at the time that the true market valuation of the property was $8,000,000. I was pressured by Victor into selling the property at well below market value.

“What Ms Sun must establish to sustain her caveat”

[20]   Both counsel referred to the Court of Appeal decision Philpott v Noble Investments Ltd.1 The relevant principles are:2

(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 ground for lodging it in the first place or because such a ground no longer exists; and

(d)When 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.

[21]   Mr Lawrence, counsel for Ms Sun, emphasised that the standard for Ms Sun’s application to succeed is not high. Mr Lawrence referred to the Court of Appeal decision Green McCahill Holdings Ltd v Ara Wheiti Development Ltd, where the Court maintained the caveat even though the Court was of the view the appellant’s arguments were weak and improbable, but not inarguable, impossible or inconceivable.3

1      Philpott v Noble Investments Ltd [2015] NZCA 342.

2 At [26].

3      Green McCahill Holdings  Ltd  v  Ara  Wheiti  Development  Ltd  [2022]  NZCA  218,  (2022) 23 NZCPR 259, at [108] and [120].

[22]   Mr Lawrence emphasised that this application is not the place to resolve bona fide issues of fact.

[23]   Mr Shinkarenko accepted that this application is not one where genuine or fundamental factual disputes can be resolved. However, a theme of his submission was that the evidence advanced on behalf of Ms Sun did not rise above bare assertion, that it lacked precision or was inconsistent with contemporary documents or events.

[24]   Mr Shinkarenko, while recognising the Court will accept the evidence advanced on behalf of the caveator as correct unless it is patently lacking in credibility, nonetheless submitted that principle did not prevent the Court from making an assessment of the strength of a party’s case.4

[25]   It is against these principles that I need to assess Ms Sun’s application along with Mr Shinkarenko’s criticisms of the description of her claimed interest in the caveat.

Nicole as fiduciary

[26]   It is not in dispute that the holder of a power of attorney is in a fiduciary position in respect of the grantor of the power. An attorney cannot utilise their power of attorney to obtain a personal advantage. To do so contravenes the fundamental nature of an agency or fiduciary relationship. Powers of attorney are specifically directed at the management of the principal’s affairs; it is not open to attorneys to either obtain an advantage for themselves or act in a way that is contrary to the interests of their principals.5

[27]   Mr Lawrence submits the issue here is not whether Victor’s company paid market value for the property. Mr Lawrence submits it is reasonably arguable on the facts that Nicole was forced to use the power of attorney to complete the sale. In addition, Nicole says it was agreed (and it is not specifically denied by Victor) that Nicole was to be a co-owner and co-developer in the development of the land. The property is a development block and Ms Sun wants the property to be returned to her,

4      JEB Management Ltd v Grubz United Whanau Trust [2015] NZHC 157, (2015) 15 NZCPR 705.

5      Powell v Thompson [1991] 1 NZLR 597 at 605, line 25.

saying in her affidavit that she would like the transaction undone and the title of the property returned to her.

[28]   The evidence that the transaction was the result of Nicole being forced to use the power of attorney is disputed. At one level, Nicole’s claim that the sale resulted from threats sits uneasily with her claim she was to be co-owner and co-developer, but threats and pressure in domestic relationships can take many forms.

[29]   The ultimate  issue  for  me  is  whether  these  circumstances  give  Ms Sun  a caveatable interest in the property (leaving to one side the adequacy of the description of the caveatable interest).

Does the caveat contain an adequate description of the claimed interest?

[30]   The particulars of what a caveat must state are discussed in  Land Law in  New Zealand at [10.013].6 There is a distinction between whether there is an adequate description of the interest claimed and the requirement of showing how the interest claimed is derived from the registered owner.

[31]   Here, the interest claimed is that of a constructive trust. In Buddle v Russell, the interest claimed was “by virtue of a constructive trust”.7 The Court held the caveat stated with sufficient certainty the nature of the interest claimed.

[32]The authors of Land Law in New Zealand note that the Court of Appeal in

Zhong v Wang approved the approach in Buddle v Russell.8

[33]However, the authors of Land Law in New Zealand note that Buddle v Russell,

“should not be construed as a careless conveyancer’s charter”.9 The authors note:10

Where a registered owner complains that a caveator has not stated the nature of the claimed estate or interest with sufficient certainty, frequently the real complaint is that the caveator has not satisfied the requirement of showing

6      Hinde McMorland & Sim Land Law in New Zealand (looseleaf ed, LexisNexis).

7      Buddle v Russell [1984] 1 NZLR 537, [1983] 2 NZFLR 190.

8      Zhong v Wang (2006) 5 NZ ConvC 194, 308, (2006) 7 NZCPR 488.

9      Buddle v Russell (1983) 2 BCB 25 at [26].

10     Hinde McMorland and Sim, above n 6, at [10.013].

how the claimed estate or interest is derived from the registered owner. That requirement, which is considered below, is strictly applied by the Courts.

Does the caveat show how the claimed interest is derived from Varmani?

[34]   At [10.013(c)] of Land Law in New Zealand, the authors note that in most cases the Court strictly applies the requirement that the caveat must show how the claimed interest is derived from the registered owner. The authors note that a less strict approach has been taken where the caveator has claimed a constructive trust arising in a de facto relationship. The authors note this lenient approach is not applied to claims for constructive trusts in commercial contexts.11

[35]In Allen v Hogan Developments Ltd, Master Faire said:12

Whilst a general description of constructive trust may be appropriate as the parties claim by virtue of a de facto relationship, it is an entirely different matter where the parties, as they are in this case, are in an arms-length commercial transaction. The basis of any alleged trust is not self-apparent. The party whose title is caveated will simply not know what the basis for the alleged claim of trust is, if simply a bald statement to that effect is made in the caveat.

[36]   In Zhong v  Wang,  the  Court  of  Appeal  upheld  a  caveat  that  claimed  in a commercial context:13

a beneficial interest as “cestui que trust which the registered proprietor… is trustee”. The caveat did not provide particulars of the form of the trust, or of dates or circumstances.

[37]   The Court said in that case, the basis on which the claimed interest was derived would have been self-evident to the registered owner, but that the derivation of interest “may need greater explanation in some cases than in others”.14

11 Citing, Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA); Creighton v Collier (High Court, Christchurch M 21/89, 21 February 1989, Master Hansen); Xharra v Vania Holdings Ltd (High Court, Auckland M 893/98, 25,June 1998, (Master Faire); Robinson v Williams (High Court, Auckland M 143-IM/00, 21 March 2000, Master Faire) and Allen v Hogan Developments Ltd (2001) 4 NZ ConvC 193,420.

12 Allen v Hogan Developments Ltd, above n 11, at [39].

13 Zhong v Wang, above n 8, at [55]-[57].

14 At [55]-[57].

[38] The land in question here is a development block. Such is consistent with its sale price of $5.5 million. Nicole, in the passage quoted at [9] above, refers to her belief she would be a co-owner and developer of the property.

[39]   I am satisfied that Varmani reading the caveat would “… simply not know what the basis for the alleged claim of trust is…”.

[40]   Recall in this case Ms Sun was paid what, on the evidence, was full market value for the property. Prior to the lodging of the caveat, Ms Sun had taken no steps to avoid the contract  made  by  her  attorney  with ADL.  The  caveat  was  lodged 15 months after the sale settled. Nicole and Victor settled their differences in December 2022 by way of a contracting out agreement which I am told did not refer to the property.

[41]   I have not overlooked the disputed evidence that the contract was brought about by Nicole being forced to use the power of attorney. A threat of unlawful conduct is likely to be regarded as illegitimate pressure to make a contract and so the argument would be that the sale was brought about by duress. However, “the effect of duress is to render an agreement voidable rather than void. The agreement is valid until avoided”.15

[42]   Here, the contract was not avoided prior to the lodging of the caveat. Ms Sun, in her affidavit sworn 24 August 2023, says:

Now that I have been made aware of the sale and the circumstances surrounding the transaction I would like the transaction undone. Expressly put, I would like the title of the property returned to my name.

This was the first indication Ms Sun gave of the constructive trust.

[43]   There having been no challenge to the contract until the pleadings in this application, the only information Victor had to go on was that contained in the caveat which gave no explanation as to the basis of the constructive trust.

15     Burrows, Finn and Todd Law of Contract in New Zealand (7th ed), LexisNexis, Wellington 2022), at [12.3.5].

[44]   I conclude that the caveat does not meet the requirement of showing how the claimed interest derives from the registered proprietor.

Effect of that non-compliance

[45]   Normally,  a  non-compliant  caveat  must   be  removed.   However,  here  Mr Lawrence made an oral application for leave to lodge a second caveat under s 146 of the Land Transfer Act 2017. Mr Shinkarenko did not oppose that application being made orally or oppose the application itself rather, his primary submission was that even on the basis of the material produced in this application, Ms Sun does not have a caveatable interest.

[46]   ADL , as registered proprietor, is entitled to the benefit of indefeasibility.   Mr Lawrence argued that ADL held the property as constructive trustee because of its knowing receipt, that is knowing that it received the property as a result of Nicole’s misuse of her power of attorney — she alleging she was forced to use it.

[47]   A helpful authority in this context is JEB Management Ltd v Grubz United Whanau Trust which involved an application for removal of a caveat based on knowing receipt of trust property.16 The caveat was described by Toogood J as follows:17

The caveat includes a claim by the Caveator that the [Caveator] has an interest in the Otara Property under a constructive trust, on the basis that the persons who sold the property to [Registered Proprietor/applicant] were not authorised to do so; that the Otara property was purchased for substantially less than the market value; and that “[a]ccordingly the [Registered Proprietor/applicant] was not a bona fide purchaser for value” of the property.

[48]   Accordingly, this is a similar situation as Ms Sun says Nicole was not authorised to sell the property, or at least Nicole using the power of attorney was because she was forced to do so.

16     JEB Management Ltd v Grubz United Whanau Trust, above n 4.

17 At [11].

[49]   Toogood J in JEB Management Ltd noted that the caveator’s submissions regarding strangers to a trust:18

…boil down to an assertion that, where trust property is involved, the equitable principles of knowing receipt can override the normal test of land transfer fraud.

[50]   Toogood J held that the caveator could not establish the registered owner had been fraudulent.

[51]   The discussion in Land Law in New Zealand at [9.071] shows that whether Ms Sun’s claim is based on knowing receipt or knowing assistance/dishonest assistance (that is, accessory liability), Ms Sun must still establish Land Transfer Act fraud. Ms Sun must demonstrate that Varmani has been guilty of “actual fraud, personal dishonesty or moral turpitude”.19

[52]   If Nicole’s allegation that she was forced to use the power of attorney is established then there is an arguable case that there has been Land Transfer Act fraud. The Land Transfer Act 2017 in s 6 defines “fraud” as “dishonest conduct”.

[53]   Hinde  McMorland  &  Sim  at  [9.018]  under  the  heading  “Fraud  against  a registered owner” says there are two ways in which fraud can be perpetuated against a registered owner. The first being transfer to the fraudster or the fraudster’s principal. In terms of transfer to the fraudster it says:

The registered owner will usually have been deprived of the registered title, by registration through the forgery of a transfer, or by duress, undue influence, or some form of deception.

(emphasis added)

[54]   There is evidence the relationship between Nicole and Victor was at times difficult. Nicole says she obtained a protection order against Victor in around 2015 — that evidence is not directly disputed. This background provides some context to Nicole’s evidence that she was forced to use the power of attorney. There is a straight conflict between the evidence of Nicole and Victor which I cannot resolve in this

18 At [25].

19     Hinde McMorland & Sim, above n 6, at [ 9.071(b)].

context. While many of Mr Shinkarenko’s criticisms of the evidence filed in support of the application have merit, they do not get to the level where I can safely conclude that Nicole’s evidence can be entirely discounted. The circumstances in which Nicole “reintroduced” the purchase price paid for the property back into business ventures with Victor, depending on the circumstances, can be seen as consistent with Nicole’s account. What Victor describes as a purchase for full value takes on a different complexion if the net proceeds were returned to Victor for his and Nicole’s business activities. Nicole, in her reply affidavit, says that Ms Sun did not receive any of the sale proceeds, as all the sale proceeds were used by her and Victor.

[55]   Mr Shinkarenko submitted Nicole and Victor’s breakup was acrimonious which could lend support to Nicole’s description of aspects of their relationship while they were together. Mr Shinkarenko’s analysis of the facts to some extent assumes Nicole was frank in her dealings with her sister and the solicitors who acted on the sale. I cannot assume the December 2020 temporary protection noted at [12] above, had no foundation —the Family Court considered the evidence filed warranted the making of a protection order — albeit I accept on a without notice basis, but again, why the temporary order was not challenged by Victor is not explained by him. The protection order being made four months after the contract lends some support to Nicole’s evidence.

[56]   Again, Mr Shinkarenko’s analysis of the timing of events makes valid points as to the merits of Ms Sun’s claims but given the evidence that does exist in support of Nicole’s allegation that she was forced to use the power of attorney, I cannot conclude that Nicole’s account of how the sale came about is not inconceivable or impossible.

[57]   As noted above, the threshold to establish a caveatable interest is relatively low.  Ms Sun, to  obtain leave  to  file  a  second  caveat,  need  only  show  she  has a reasonably arguable case.20 If Nicole’s evidence that she was forced to use the power of attorney is accepted then Ms Sun has a reasonable argument of duress amounting

20     Hinde McMorland & Sim, above n 6, at [10.021(d)].

to Land Transfer Act fraud. Ms Sun arguably avoided the contract through the notice in her affidavit set out at [42] above.

[58]   If duress is arguable, then the interests of justice require that Ms Sun has leave to file a second caveat. The grant of leave is discretionary.21 As noted, no submissions in opposition to the oral application to lodge a caveat were advanced. Leave to grant a second caveat has been granted where the earlier caveat was defective in form — as here.22

[59]Accordingly, there are the following orders:

(1)Caveat 12779831.1 will lapse 20 working days from the date of this judgment.

(2)There is leave pursuant  to s 146 of the Land Transfer Act 2017 to  Ms Sun to lodge a second caveat.

(3)It is a condition of the leave and of the second caveat that Ms Sun issue proceedings to establish her entitlement to a return of the property, those proceedings to be issued within 20 working days of the date of this judgment.

Costs

[60]   Counsel were not heard in respect of costs. My initial inclination is that costs should lie where they fall. Ms Sun’s original caveat was invalid. Ms Sun has had an

21     Hinde McMorland & Sim, above n 6, at [10.021(e)].

22     At [10.021(h)].

indulgence in terms of the leave to issue a second caveat. That costs are to lie where they fell will be the order of the Court if no memoranda as to costs are filed within five working days of the date of this judgment, such to be no more than three pages.

Associate Judge Lester

Solicitors:

Tompkins Wake, Auckland (for Applicant)

Douglas M A Buress, Solicitor, Auckland (for Respondent)

Copy to counsel:

J Johnson, Barrister, Auckland (for Applicant)

A V Shinkarenko, Barrister, Auckland (for Respondent)