Wen v Qian
[2022] NZHC 1586
•5 July 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000634
[2022] NZHC 1586
UNDER Land Transfer Act 2017 IN THE MATTER OF
An application to remove caveat No. 12044428.1 pursuant to s 142 of the Land Transfer Act 2017
BETWEEN
YU WEN
Applicant
AND
DONG QIAN
Respondent
Hearing: 15 June 2022 Appearances:
T D Rea for Applicant
K D Puddle for Respondent
Judgment:
5 July 2022
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 5 July 2022 at 4.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………….
WEN v QIAN [2022] NZHC 1586 [5 July 2022]
Introduction
[1] The applicant, Mr Wen, applies to remove a caveat registered by the respondent, Mr Qian, over the title to Mr Wen’s property in Greenhithe, Auckland.1 Mr Wen seeks removal so that he can obtain titles to a subdivision of the Property and sell eight lots to Yu Homes Group Ltd.2
[2] These proceedings are an offshoot of substantive proceedings3 commenced by Mr Qian and his company, QRZ Properties Ltd,4 against four defendants, including Mr Wen.
[3] It is not in dispute that Mr Qian has an arguable caveatable interest in the Property. Mr Wen seeks removal of the caveat on conditions, including a re- imposition of the caveat after subdivision and sale of sections to Yu Homes. It is said that the conditions, together with the freezing orders obtained in the substantive proceedings, will protect the legitimate interests of Mr Qian, pending resolution of those substantive proceedings.
[4] The critical issue I must determine is whether there would be any practical advantage to the caveat remaining. Can I be completely satisfied that the legitimate interests of Mr Qian, as caveator, will not be prejudiced by the removal sought?
Factual background
[5] In the substantive proceedings, Mr Wen, as defendant, sought summary judgment. He failed.
[6] I adopt the following paragraphs from the summary judgment decision of AJ Taylor of 8 March 2022.5 The first defendant in those proceedings is Mr Dong:
[2] This proceeding concerns a dispute over a property at 39 Wicklam Lane, Greenhithe, Auckland. On 13 November 2020, Mr Wen purchased the property from the first defendant, Mr Jiaqing Dong, for its subsequent
1 The Property; 39 Wicklam Lane, Greenhithe, Auckland.
2 Yu Homes.
3 Substantive proceedings, namely Qian v Dong CIV-2021-404-132.
4 QRZ.
5 Qian v Dong [2022] NZHC 378.
development and subdivision. In December 2020, Mr Wen agreed to on-sell eight (not yet subdivided) sections of the property to the fourth defendant, Yu Homes Group Ltd.
[3] Mr Wen says the subdivision of the property is incomplete and the sale to Yu Homes Group Ltd remains unsettled. He wishes to complete the subdivision and settlement but is prevented from doing so by a caveat that the first plaintiff, Mr Dong Qian, has lodged over the property.
[4] Mr Qian and Mr Dong met in April 2017. They were neighbours on Wicklam Lane. Mr Qian alleges that when Mr Dong first purchased 39 Wicklam Lane in August 2019, he had an oral agreement with Mr Qian that the purchase would be for both their benefit. Mr Dong, meanwhile, says he purchased the property alone and that Mr Qian’s interest was only that of a lender. In mid-2020, the two men had a falling out. Mr Dong then sold the property to Mr Wen.
[5] Mr Qian has commenced the present proceeding, alleging that Mr Wen holds the property as a constructive trustee for him and that Mr Wen acquired the property from Mr Dong while knowing, or being wilfully blind to, the alleged fact that the transfer constituted a breach of Mr Dong’s fiduciary duty to Mr Qian.
[6] That breach is said to arise out of the alleged agreement between Mr Qian and Mr Dong that they would develop the property together and share in any profits arising from its development and sale.
[7] Mr Qian’s claim appears to be that Mr Wen and Mr Dong are associated, and that the two colluded to deprive Mr Qian of his interest in the property, or that Mr Wen knew or ought to have known of Mr Dong’s breaches of duties owed to Mr Qian or the second plaintiff, QRZ Properties Ltd. He says the property’s transfer was a device to that end.
[8] Mr Wen denies the allegations. He says he had no knowledge of Mr Qian before he bought the property and that he bought the property in good faith as a bona fide purchaser for value.
[7] There are three causes of action in the second amended statement of claim against Mr Wen. Two are for damages, namely knowing receipt and conspiracy, and a third claim is for the recovery of the property.
[8] In the recent and related discovery judgment,6 Gardiner AJ described the “essential allegation” common to the causes of action in the substantive proceedings as:
… Mr Dong’s transfer of ownership to Mr Wen was a fraudulent scheme to defeat Mr Qian’s unregistered interest in the property and deprive him of his entitlement to a profit share.
6 Qian v Dong [2022] NZHC 744 at [27].
[9] Her Honour held that there was enough of a factual foundation to conclude that this “essential allegation is not baseless or speculative”.7
[10] Upon commencement of the substantive proceedings, Mr Qian applied for freezing orders against Mr Dong. The current status is as follows:
(a)Mr Qian retains the sum of $800,000 paid to him by Mr Dong, on a without prejudice basis, on 1 April 2021. This payment has been accounted for in Mr Qian’s claim;
(b)$150,000 paid by Mr Dong to an independent stakeholder, Pidgeon Law, on 1 April 2021. This fund is to be held pending resolution of the substantive dispute or further order of the Court;8
(c)The sum of $2,967,460.55 is held by Essence Law, as a stakeholder. This fund remains subject to the order of Venning J of 26 March 2021, that it be held pending resolution of the substantive dispute or further order of the Court;
(d)The property at 940A Dominion Road, Mount Roskill, Auckland, remains held subject to freezing orders pending resolution of the substantive dispute or further orders of the Court. The current equity in this property is approximately $522,210.62;9
(e)The property at 13 St Benedicts Street, Eden Terrace, Auckland, remains held subject to freezing orders pending resolution of the substantive dispute or further orders of the Court. The current equity in this property is approximately $703,152.71.
7 Qian v Dong, above n 6, at [28].
8 Order of Venning J of 26 March 2021.
9 This figure and the equity in the property at 13 St Benedicts Street (referred to [17](e)) has been updated in the affidavit of Mr Dong sworn 14 June 2022. However, the small changes are not significant.
Relevant legal principles
[11]Section 142 of the Land Transfer At 2017 reads:
Removal of caveat against dealings
The court may, on application by a person who has an estate or interest affected by a caveat against dealings, order that the caveat is removed.
[12] The predecessor of s 142 of the 2017 Act was s 143 of the Land Transfer Act 1952. There is no real difference in how the courts have applied ss 142 and 143. I accept that the case law under the old s 143 is still applicable to the interpretation of the current section, 142.10
[13] In Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd,11 the Court of Appeal referred to the residual discretion to remove a caveat once a reasonably arguable case has been established:
We are of the view that in dictum in Sims v Lowe, Somers and Gallen JJ were concerned with the situation which was then before the Court and were not putting their minds to a situation in which there is no practical advantage in maintaining a caveat lodged by someone who could properly claim a caveatable interest. In such circumstances the Court retains the discretion to make an order removing the caveat, though it will be exercised cautiously. An order will be made for removal only where the Court is completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced. If, on the facts of a case, it can be seen that the caveator can have no reasonable expectation of obtaining benefit from continuance of the caveat in the form of the recovery of money secured over the land or specific performance of an agreement or if the caveator’s interests can be reasonably accommodated in some other way, such as by substituting a fund of money under the control of the Court, then it may be appropriate for the caveat to be removed and notwithstanding that the right to the claimed interest is undoubted.
In the present case the appellant has not put before the Court information on the basis of which the Court can be sure that there will in the end result be no legitimate benefit to the respondent from maintaining its caveat. It is simply insufficient for the receivers to say that they hold valuations and think it likely that there will be a shortfall for the bank and no funds available for other creditors. For that reason, if an arguable case for a caveatable interest can be shown, it would not be appropriate to order removal of the caveat.
10 Chinappa v Narain [2020] NZHC 978 at [7].
11 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
[14] In another Court of Appeal case, Botany Land Development Ltd v Auckland Council,12 the Court held:
There is a residual discretion, once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example, where the Court finds there is no practical advantage to maintaining a caveat and the caveator would not be prejudiced.
Analysis and decision
[15] Mr Wen says that the cumulative effect of the significant conditions he has offered mean that there is no practical advantage in maintaining the caveat. Mr Wen contends that Mr Qian’s interests in the Property and development are purely financial, that he does not seek specific performance by way of remedy, and that the proposed stage 1 of the development that he intends to undertake (i.e. the sale of an initial eight sections to Yu Homes) is precisely the same development that Mr Qian claims he intended to carry out.
[16] Mr Wen further notes that Mr Qian’s total claim in the substantive proceedings is $4,607,586.23. He submits that Mr Qian already has the benefit of a fund of
$3,117,460.55 currently held by independent stakeholder solicitors, in accordance with orders of this Court, and freezing orders over property with combined equity of
$1,225,363.33. It is contended that the fund alone is more than sufficient to satisfy any realistic best-case judgment of Mr Qian in the substantive proceedings.
[17] Mr Wen proposes a removal of the caveat for stage 1 of the development (i.e. the sale of the eight sections to Yu Homes) and then a re-imposition of the caveat for the proposed stage 2 of the development. That would leave a substantial portion of the land (approximately 50 per cent) still subject to the caveat. It is then claimed that with a fund of $3,117,460.55, the value of the equity in the two properties still under freezing orders of $1,225,363.33 and Mr Qian’s anticipated value of the profit for stage 2 of $3,967,992.85, then Mr Qian would have protection in respect of his alleged interest to the value of $8,310,816.73.
12 Botany Land Development Ltd v Auckland Council [2014] NZCA 61 at [24].
[18] I reject the fundamental premise of Mr Wen’s submissions that Mr Qian’s interest is purely financial. I accept that he has significant financial interests, but his interests cannot be confined in the manner contended. Mr Qian’s chosen remedy is recovery of the land and that remedy would be defeated if the caveat was removed. A caveat-lapsing procedure is not the context in which to determine the answer to the caveator’s choice of remedy.13 I acknowledge that Mr Qian is not seeking specific performance, but that is not determinative. Mr Qian claims, as Associate Judge Gardiner noted, that Mr Dong’s transfer of ownership to Mr Wen was a fraudulent scheme intended to defeat his unregistered interest in the Property. The claim is not baseless or speculative and there is an arguable case for the proprietary remedy sought.
[19] Furthermore, there is evidence supporting Mr Qian’s contention that his legitimate interests are not purely financial. Mr Qian lives on Wicklam Lane and had the foresight to extend a wastewater pipe down Wicklam Lane and to use that connection to subdivide other properties on the lane. He invested some $900,000 to create the connection. I cannot conclude that his claim that he wishes to develop the Property on his own terms is without merit. In addition, there is evidence from third- party friends of Mr Qian confirming that they have reached agreement with Mr Qian to purchase lots in the subdivision, and that the intention of at least two of these friends was to use the properties as their residences. Albeit informal, Mr Qian did agree to sell three properties to these friends at a discount. There is a proper arguable basis for the proprietary remedy sought.
[20] I acknowledge the significant value and benefit of the freezing orders that Mr Qian has obtained. However, those orders were made against Mr Dong, not a party to the caveat proceedings, and there is some evidence that Mr Dong may seek to have those freezing orders rescinded. In any event, the freezing orders do not provide any protection in relation to the land itself; they provide purely financial protection.
13 Williams v Cazemier (2009) 11 NZCPR 79 at [80].
[21] Mr Wen, mindful of Mr Qian’s concerns about the freezing orders, has proposed a further condition/mechanism. That further mechanism is set out in detail in a memorandum of counsel for Mr Wen dated 17 June 2022.14 It adds as follows:
Mr Wen agrees that he will give an undertaking in respect of sale proceeds to be received from settlement of the sale of Lots 1 to 8 to Yu Homes, so that a specified amount will be available, under the control of the Court, and will not be used to reduce debt, to guard against the possibility that the freezing orders currently held by the plaintiffs in the substantive proceedings may be set aside. The specified amount imposed is $639,593.38, which represents the difference between the full amount of the plaintiff’s claim in the substantive proceedings of $4,607.586.23 and the plaintiff’s calculation of $3,967,992.85, being their anticipated profit for stage 2.
[22] I accept that Mr Wen and his legal advisers have made considerable efforts to try and accommodate the concerns of Mr Qian. I also accept that Mr Qian’s pleading in the substantive proceedings is focused on subdivision of the property and sale of subdivided sections as bare land. However, this further proposal/mechanism again fails adequately to address Mr Qian’s claim and his preferred remedy, namely a proprietary one.15 It likewise does not remedy the issue that Mr Qian had agreed to sell three sections to friends and that will not be possible if they are sold to Yu Homes Group. Furthermore, the question of whether the proposed joint development involved subdivision of the property and sale of subdivided sections as bare land is a trial issue.
[23] I find that I am not completely satisfied that the legitimate interests of Mr Qian, as caveator, will not be prejudiced by the removal order sought. Any discretion to do so is of course to be exercised cautiously; the threshold here has not been met.
Result
[24] The application by Mr Wen for removal of the caveat is declined. The caveat remains in place pending the substantive proceedings or further order of the Court.
14 The Court has also received further memoranda from the respondent (21 June 2022) and the applicant in reply (dated 23 June 2022).
15 As the respondent notes in his memorandum of 21 June 2022: “The sole reason for the caveat being lodged against the Property is to protect the Property from being sold to Yu Homes (or other third parties), so the respondent’s proprietary remedy in the seventh cause of action in the substantive proceedings can be given effect to”.
[25] As to costs, I am of the preliminary view that, having succeeded, the respondent, Mr Qian, is entitled to costs and on a 2B basis plus disbursements. If agreement cannot be reached on costs, then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
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