Wila Developments (Ormiston) LP v Lu

[2021] NZHC 3068

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2069

[2021] NZHC 3068

BETWEEN

WILA DEVELOPMENTS (ORMISTON) LP
Applicant

AND

HAO YUAN LU

Respondent

Hearing:	12 November 2021 (by telephone)
Appearances:	T Mullins and S Humphrey for Applicant Respondent in Person
Judgment:	12 November 2021

JUDGMENT OF VENNING J

This judgment was delivered by me on 12 November 2021 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Lee Salmon Long, Auckland Copy to:  Respondent

WILA DEVELOPMENTS (ORMISTON) LP v LU [2021] NZHC 3068 [12 November 2021]

Introduction

[1]                 Hao Lu has lodged a caveat over five titles to properties at 88 Argento Avenue, Flat Bush. The properties are identified by records of title, 962487, 962488, 962489, 962490, and 962493. Mr Lu claims a beneficial interest in the properties “pursuant to a constructive trust”.

[2]The caveat is the third caveat that Mr Lu has lodged against the properties.

[3]                 Wila Developments (Ormiston) LP (Wila) applies to the Court for removal of the caveat from all properties. The application is supported by an affidavit of Mr Li, the director of Wila.

[4]The application was made on a without notice but Pickwick basis.

[5]                 Unfortunately although the application was filed on 2 November 2021 it was not processed within the Registry and referred to me as duty Judge until this morning. I convened a telephone conference and heard from Mr Mullins and Mr Humphrey for the applicant, Wila, and Mr Lu this afternoon.

[6]                 Mr Lu sought an adjournment of the application to enable him to file a notice of opposition. Having considered the material before the Court and particularly the judgment of Associate Judge Bell1 I declined Mr Lu’s application for adjournment and made orders in terms of the application and a further order preventing Mr Lu from lodging any other caveat against the properties. These are the reasons.

Background

[7]                 The background to the matter is set out in a judgment of Associate Judge Bell delivered on 18 October 2021:

[10]      Wila Development (Ormiston) LP has carried out a residential subdivision at Argento Avenue, Flat Bush, Auckland. Its general partner is Wila Ormiston Ltd. Mr Guoxiong Li (also known as Kenny Li), is the director of Wila Ormiston Ltd. In July 2019, it entered into the five agreements in this case to sell lots in the subdivision. At the time of the agreements, title for the

1      Lu v Wila Development (Ormiston) LP [2021] NZHC 2772.

lots had still to issue. It had obtained land use and subdivision consents subject to conditions and had started work to meet those conditions.

[11]      Wila had standard agreements for sale of its lots. It used the REINZ/ADLS Agreement for the Sale and Purchase of Real Estate, Ninth Edition 2012 (8) with added terms. The added terms are those typically used by developers carrying out a subdivision where titles have still to issue. Under each agreement, the deposit was 10 per cent of the purchase price and was to be held in the vendor’s solicitor’s trust account. Under cl 20, settlement was due 10 working days after the vendor’s solicitor advised the purchaser that title had issued. Under cl 21 the vendor was to use all reasonable endeavours to complete the subdivision and enable the issue of an individual title for the lot. Under cl 26 the purchaser could not assign the benefit of the agreement without the consent of the vendor. Under cl 28 the purchaser could not caveat the vendor’s title. Clause 38, the sunset clause, allowed either party to cancel the agreement if title had not issued by 31 March 2021.

[12]      For all the agreements in this case, the purchase price was $360,000. The deposit was $36,000. Each agreement was made on 23 July 2019. The agreements were:

Lot	Purchaser	Purchaser’s solicitor
10	Chuan Sheng Ma and/or nominee	Peninsula Law Ltd
11	Hao Yuan Lu and/or nominee	Duthie Whyte
12	Jiaxi Xiong and/or nominee	Duthie Whyte
13	Yao Chen and/or nominee	Alice Lawyers Ltd
16	Hao Yuan Lu and Yao Chen and/or nominee	Alice Lawyers Ltd

[13]      Under three of the agreements, with Wila’s consent the purchasers nominated others to take title:

(a)on 21 July 2020, Mr Ma nominated Unicon Construction Ltd for lot 10;

(b)on 25 August 2020 Ms Chen nominated herself as trustee of the Victoria Chen Trust for lot 13; and

(c)on 8 September 2020, Mr Lu and Ms Chen nominated Ms Chen as trustee of the Victoria Chen Trust and He Xiang Zhang for lot 16.

[14]      Mr Lu relies on further nominations – three on 19 March 2021 and one on 25 March 2021:

(a)on 25 March 2021 Unicon Construction Ltd nominated Mr Lu for lot 10;

(b)on 19 March 2021 Jiaxi Xiong nominated Mr Lu for lot 12;

(c)on 19 March 2021 Yao Chen nominated Mr Lu for lot 13; and

(d)on 19 March 2021, Yao Chen nominated Mr Lu to for lot 16.

[15]      Lawyers did not prepare these deeds of nomination. Wila did not consent to the nominations. In each the operative words are:

Party A [the purchaser] willing to nominate all the interest and rights of Lot…, 88 Argento Ave, under the sales and purchase agreement dated 23/07/2019 to Party B [Mr Lu].

The events leading up to cancellation

[16]      In early 2021, Mr Lu was in contact with Wila and its lawyers asking about progress on the issue of title. Wila’s general response was that it was waiting for the Auckland Council to issue a certificate under s 224(c) of the Resource Management Act 1991. On 17 March 2021, Wila’s solicitor wrote to the lawyers acting for the purchasers:

My client is experiencing serious delays at Council despite earnest efforts to progress the issue of the 224c certificate, but it is becoming more and more likely that we are not going to meet the sunset date of the agreement of 31/3/2021. I am instructed to inform your clients that in that event, my client intends to cancel the agreement, but will give to your clients the first opportunity to renegotiate a new agreement.

That led to Mr Lu taking the nominations on 19 March and 25 March. He also lodged the caveats. He took these steps without legal advice.

[17]      On 23 March 2021, he emailed Mr Li and copied other parties, advising that he had lodged the first caveat to protect his interest in lots 11, 12, 13 and 16. He enclosed with his email a draft statement of claim he intended to file. He wanted to find out who was responsible for the delay in title issuing, Wila or the Auckland Council. He suggested a without prejudice meeting.

[18]      On 1 April 2021, Wila’s conveyancing lawyers wrote to the lawyers acting for the purchasers:

Further to my letter of 17 March 2021, I am instructed that as titles have not issued by sunset date of 31 March 2021, clause 38.1 is not satisfied and the vendor now cancels the agreement.

We note that a caveat has been lodged and is in breach of clause 28.1 and as a result, this gives to our client a further right to cancel the agreement pursuant to clause 28.2(2) and we give notice of cancellation under that clause accordingly.

The last sentence was left out of the letter for the Lot 10 agreement. Wila was not aware of the second caveat at that time.

[19]      On 1 April 2021 the Auckland Council issued its certificate under s 224(c) of the Resource Management Act for Wila’s subdivision. Wila could not, however, apply for new titles immediately because of Mr Lu’s caveats. New titles issued on 27 April 2021, after Mr Lu consented. They are subject to his caveats.

[20]      On 7 April 2021, Mr Lu began a proceeding in this court, suing Wila as first defendant and the Auckland Council as second defendant. He sued as purchaser or nominated purchaser for each of the five lots. He pleaded that he had on-sold three lots to third party purchasers for $480,000, $495,000,

$520,000 respectively. The remaining two lots were considered to have a current market value of $600,000. He suspected that Wila had purposely delayed the subdivision so as to cancel under the sunset clause, allowing it to re-sell the lots at higher prices. He also sued the Auckland Council for the delay in giving its s 224(c) certificate. His intention was to hold at least one of them responsible for the delays in title issuing. He sought only monetary relief, including damages for commercial losses of $895,000. On 30 July 2021, Mr Lu filed an amended statement of claim in which he sought not only damages but also orders for specific performance.

[8]In summary, Associate Judge Bell concluded:

(a)Mr Lu had a caveatable equitable interest in lot 11 (962488) but when he lodged the caveats he was not a purchaser of the other lots and could not lodge a caveat claiming to be a purchaser of those lots;

(b)Wila was entitled to cancel the agreement for sale and purchase with Mr Lu in relation to lot 11 because he had breached cl 28.1 of the agreement for sale and purchase by lodging the caveat; and

(c)further, following cancellation Mr Lu had issued proceedings which initially claimed monetary relief rather than specific performance. That was itself a repudiation which supported cancellation.

[9]                 In addition, Associate Judge Bell considered that, if necessary, he would have exercised his discretion to remove the caveats even if Mr Lu had established a caveatable interest.

[10]              For those reasons Associate Judge Bell ordered the caveats were to lapse on delivery of the judgment.

Post judgment developments

[11]              It seems that immediately following delivery of the judgment on 18 October 2021 Mr Lu then lodged the third caveat, the subject of this current application.

[12]              On 28 October Wila entered agreements for sale and purchase in relation to the five properties. Two of those agreements for sale and purchase were due to settle on 1 November, one on 5 November and two on 8 November 2021.

[13]              Mr Lu’s new caveat only came to the attention of Wila on 29 October 2021. Wila’s solicitors immediately wrote to Mr Lu, requiring him to remove the caveat.

[14]              Wila has been unable to settle because of the caveat lodged by Mr Lu and is now in default of the agreements for sale and purchase. It is incurring penalty interest and will be at risk of cancellation by the purchasers. The third party purchasers are also affected by the caveat.

Mr Lu’s position

[15]              Mr Mullins confirmed that the application and affidavit were sent by email to Mr Lu on 2 November 2021. Mr Lu said he had not received the documents and they were in his junk email box. Nevertheless he was able to retrieve them for the purposes of this afternoon’s hearing.

[16]              Wila’s solicitors have previously sent other documents to Mr Lu’s email. First, there was an email letter on 22 October 2021 following the judgment. Then, once Wila became aware the third caveat had been registered, its solicitors sent an email to Mr Lu on 29 October 2021 pointing out there was no basis for the new caveat and advising that Wila reserved its rights including the right to apply urgently to have the new caveat removed and to claim indemnity costs. There was no explanation by Mr Lu for his lack of response to those communications.

[17]              Mr Lu confirmed the basis for the caveat was that he wanted security for the deposits paid under agreements for sale and purchase which had been cancelled.

[18]              It is debatable whether or not a purchaser in Mr Lu’s position can rely on a purchaser’s lien to sustain a caveat where the agreement has been cancelled by the vendor.2 But in any event, even if that were arguable, it could not apply to any more

2      Cassiny Ltd v Hounslow Holdings Ltd [2021] NZHC 3039.

than the one property which Mr Lu was the purchaser of. The purchaser’s lien could not apply to support a caveat over the other four properties for the reasons given in Associate Judge Bells’ judgment.

[19]              More fundamentally, the present caveat does not claim a lien. The basis for the caveat claimed is a constructive trust. There is no basis for a constructive trust given Mr Lu’s statement that he seeks a lien for the deposit. The caveat cannot be supported on the ground claimed.

[20]              Further, Mr Mullins confirmed the deposit is held by Wila’s solicitors. Mr Li has also deposed that:

During the hearing Associate Judge Bell inquired of my solicitors whether Mr Lu might have an interest in Lot 11 because Wila retained his deposit for the purchase of that Lot. I confirmed for the Court that Wila held that deposit safely in its conveyancing solicitors’ trust account and was not intending to deal with it until Mr Lu’s separate proceedings claiming damages from Wila had been determined. I confirm this remains the case.

[21]              Mr Lu can pursue his claim against Wila for the return of the deposits but that does not give him a right to caveat the properties. If necessary, in the exercise of the Court’s discretion, in this case I would have directed the removal in any event.

Result/orders

[22]              For those reasons the Court granted the application and made the following orders:

(a)caveat 12280558.1 is to be removed from the titles of the properties referred to above;

(b)Mr Lu is not to lodge any further caveat against the said properties;

(c)Wila  is  to  have  costs  against  Mr  Lu.    Wila is to file and serve submissions on costs by Friday, 26 November 2021;

(d)Mr Lu is to file and serve memoranda in relation to costs by

3 December 2021;

(e)I will then fix costs on the basis of the memoranda filed.

Venning J