Xie v 126 Waimumu Ltd
[2020] NZHC 1109
•25 May 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-449
[2020] NZHC 1109
UNDER the Land Transfer Act 2017, Section 143 IN THE MATTER OF
an application that a caveat 11675350.1 do not lapse
BETWEEN
CHUNHONG XIE
Applicant
AND
126 WAIMUMU LIMITED
Respondent
Hearing: 25 May 2020 Appearances:
J Moss for the Applicant
T J Herbert for the Respondent
Judgment:
25 May 2020
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Righteous Law (Jared R Moss), Greenlane, Auckland, for the Applicant Forest Harrison Lawyers (Joy Luo), Auckland, for the Respondent Copy for:
T J Herbert, Auckland, for the Respondent
XIE v 126 WAIMUMU LIMITED [2020] NZHC 1109 [25 May 2020]
[1] Chunhong Xie, a businesswoman, applies under s 143 of the Land Transfer Act 2017 for an order that caveat 11675350.1 registered against the title to the land at 126 Waimumu Road, Massey, Auckland, not lapse. The respondent, 126 Waimumu Ltd, is the registered proprietor. The caveat says:
The caveator claims an estate or interest in the land herein by virtue of a beneficial interest as a beneficiary under an implied trust, whereby the registered proprietor has agreed to, in exchange of (sic) investments by the caveator in the registered proprietor, develop the land herein for the mutual benefit of the registered proprietor and the caveator and as a fiduciary of the caveator.
The basis for her claim is that she contributed funds towards the purchase of the property at 126 Waimumu Road and made later payments. The payments were not a loan but a capital contribution in that she was to have a property interest in return for her investment.
[2] In opposition, 126 Waimumu Ltd accepts that she did contribute funds to buy the property, but it denies that she was to have a direct interest in the land itself. It says that her interest was a shareholding in the company, 126 Waimumu Ltd. While an interest in land may be protected by a caveat, a shareholding in a company which owns land does not give a caveator an interest in the land itself. Amongst the authorities it relies on are Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd1 and Mahon v The Station at Waitiri Ltd.2
[3] This is another case in which one person has provided funds to another to invest in property where clear arrangements have not been recorded in writing as to the basis on which the investment was made. The evidence suggests that the parties may not have clearly turned their minds as to the nature of the claimant. Instead, the job of the court is to look at the arrangements and characterise the legal effect of what the parties did.
1 Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd HC Christchurch, M655/89, 18 December 1989.
2 Mahon v The Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760.
General principles on caveat applications
[4] I am required only to establish whether the applicant has a clearly arguable case for the interest she has claimed in her caveat. That comes from the general principles on which the courts decide caveat applications. In Holt v Anchorage Management Ltd, McMullin J stated the purpose of the caveat against dealings under the Land Transfer Act 1952:3
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat"). Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
Although that case was decided under the Land Transfer Act 1952, his statement equally applies to caveats under the Land Transfer Act 2017. The 2017 Act, which repealed the 1952 Act, applies here. The 2017 Act came into force in November 2018, before Ms Xie lodged her caveat and filed her application (11 March 2020). The jurisdiction of associate judges to decide caveat cases has been continued under the 2017 Act.4
[5] In caveat applications under ss 142 and 143 of the 2017 Act, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 138(1):
138 Caveats against dealings with land
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
3 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 10–11.
4 Land Transfer Act 2017, s 250 and Schedule 2, amending s 20(1)(e) of the Senior Courts Act 2016 to refer to the 2017 Act.
(c)is transferring the estate or interest in the land to another person to be held on trust; or
(d)is the registered owner of the estate or interest in the land and—
(i)has an interest that is distinct from that of registered owner; or
(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.
[6] The interest does not have to be registerable, but a personal or contractual right is not enough. Something more than a potential or future interest is required. An interest in the proceeds of sale of a property is not an interest in the property itself. It cannot be protected by a caveat.5 Similarly, a claim to a shareholding in a company that owns land is not without more a claim to an interest in the land itself.6 That is based on the principle that a shareholder does not have a beneficial interest in the assets of the company.
[7]A caveat must contain the “prescribed information” which includes: 7
a description of the nature of the estate or interest claimed by the caveator (which must be stated with sufficient certainty) …
Details of how the estate or interest claimed is derived from the registered owner.
[8] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, a court is not required to accept uncritically as raising a dispute of fact which calls for further investigation every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable it may be. To establish a reasonably arguable case, there must be some evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavits, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence
5 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA).
6 Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd, HC Christchurch, M655/89, 18 December 1989, and Mahon v Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760.
7 Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, Schedule 2.
to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts.
[9] Where it is sought to remove a caveat protecting an interest under s 138(1), it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. The court has a residual discretion not to uphold a caveat. But that is exercised cautiously, as when the caveat could serve no useful purpose or alternative safeguards are available. In Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd, the Court of Appeal said:8
We are of the view that in the dictum in Sims v Low, 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 a discretion to make an order removing a 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 interest 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 notwithstanding that the right to a claimed interest is undoubted.
The applicant’s evidence
[10] Ms Xie has sworn an affidavit, as has a director of 126 Waimumu Ltd, Mr Luyu Jia. A difficulty with both witnesses is that they are working with limited information.
[11] Ms Xie says that the property at 126 Waimumu Road, Massey is some 2,500 square metres in area. It has a dilapidated house on it. She has a son, Nick. In November 2016, her son told her that his friend, Sky Shen, was looking to buy the property and subdivide it. She had dealt with Sky once before, on a property development in Takanini, and she was happy with the way that had worked so she was interested in this project as well. She says that there were discussions about buying the property although she does not say whom she had the discussions with.
8 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656; cited in
Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22].
[12] On 15 November 2016, she paid $77,000 to 126 Waimumu Ltd. She was not provided with any agreement for sale and purchase for the property but was simply informed that the property had been bought by 126 Waimumu Ltd. She says it was agreed that 126 Waimumu Ltd was to develop the property and investors would put money in and would share profits from the development and any consequential sale.
[13]She made other payments:
29 November 2016 $2,000.00
29 November 2016 $16,500.00 (paid to Junyi Zhang to pay
him back for money paid on her behalf)
12 January 2017 $900.00
7 February 2017 $500.00
9 February 2017 $500.00
6 March 2017 $1,300.00
She says that the later payments were towards the upkeep of the property, insurance and rates. Copies of her bank statements are in evidence.
[14] Shares in 126 Waimumu Ltd were issued in 2016, but she says that she was not aware of this and she was not shown as a shareholder of the company. She has provided in her evidence a list of the shareholders at incorporation: Jigang Shen (Sky) 25 shares, Luffy Homes Ltd 20 shares and others. None of the others held more shares than Sky Shen or Luffy Homes Ltd.
[15] She says that since 2016 there has been no progress in developing the property and no resource consents were applied for. Luffy Homes Ltd began buying out the shares held by other investors, but she was not given any explanation for this. She was allocated a shareholding in July 2019, but she was not aware of this at the time. She never signed anything to become a shareholder in the company. She made a further advance of $27,000 in June 2019 – $20,000 was to repay funds borrowed from the company and $7,000 was a contribution towards the development.
[16] In December 2019 she was called to a meeting. She met with a Mr Lawson, directors of Luffy Homes Ltd, and a Mr Yang Zhang, another investor. She was told
that the company required an injection of $300,000 and she would have to pay according to the proportion of her shareholding, that is, another $30,000. She says that part of that fund was to be salaries for the directors of Luffy Homes Ltd, but she objected to that. Some of the funds were to be used for renovating the existing house on the property. She considered that this had no commercial sense. Seeing that the nature of the project had changed she wanted her money out. The directors offered her $68,000 but she rejected that offer.
[17] Since then she has been entirely cut off from the affairs of the company. In February of this year, one of Luffy Homes’ directors contacted her and told her that Luffy had bought the shares from Mr Zhang. The upshot of that was that Luffy Homes Ltd is said to have all the shares in the company except those held by her. She lodged the caveat to protect her interest.
The respondent’s evidence
[18] Luyu Jia, a director of 12 Waimumu Ltd has provided an affidavit. At present that affidavit has not been sworn because of the difficulties in administering oaths during the COVID-19 pandemic. I was advised that he would in due course swear his affidavit. I deal with his affidavit on the assumption that it will be sworn and accept it accordingly.
[19] He explains that he is now the sole director of 126 Waimumu Ltd and has been since October 2019. He is also one of two directors of Luffy Homes Ltd, which owns 90 per cent of the shares in 126 Waimumu Ltd. Ms Xie holds the remaining 10 shares in the company.
[20] In mid-2016, Luffy Homes Ltd was approached by Sky Shen who was putting together a joint venture to buy 126 Waimumu Road. The plan was that a resource consent to allow subdivision would be obtained, then the property would be put on the market and sold to a developer, hopefully at a profit. Luffy Homes Ltd agreed to put in 25 per cent for the purchase. There would be a vehicle for the joint venture and 126 Waimumu Ltd was incorporated in September 2016 as the joint venture vehicle. Luffy Homes would, in turn, receive 25 per cent of the shareholding. Mr Jia says that he was
not made aware of the other initial shareholders but has since found out who they were. He has set them out in a table. Relevantly, Ms Xie is not shown as one of the shareholders. He refers to various changes in shareholding during 2016. These were changed so that Luffy Homes Ltd was a 20 per cent shareholder, a Mr Chen a 70 per cent shareholder and a Mr Chengyu Chang a 10 per cent shareholder. The explanation given for these changes was to ensure that there was a majority shareholder. That would assist with raising finance. It was understood that those shares would not represent the actual contributions made by the various investors towards the purchase. To that extent, that mean that the shares were held on trust for others. Mr Jia says that that was recognised in a shareholders’ agreement. The shareholdings shown in that agreement were:
Sky 10 percent
Luffy Homes 25 per cent
Nick 10 per cent
Pat 10 percent
Jack 20 per cent
Leo 5 per cent
Zhang Yang 10 per cent
Jason 10 per cent
[21] The agreement is mainly in Chinese, although the names are given in European script. The agreement is not, however, signed. I was told that it had been circulated amongst those whose names are set out. The “Nick” appears to refer to the applicant’s son but there is no reference in the agreement to the applicant being a party to the agreement or being a shareholder.
[22] Mr Jia says that from November 2016 he was jointly in charge of the respondent’s day-to-day accounts. In carrying out his work he was assisted by Nick. He understood that Nick was an investor recruited by Sky. Only later did he learn that Nick was the son of the applicant. Nick has since returned to China. Nick was fully aware of the activities of the respondent and had access to the bank account. Nick would have been aware of the changes in shareholding.
[23] The purchase price of the property was $1.6 million which was in part funded by a loan secured by mortgage from FM Custodians Ltd for $666,000. The remainder was contributed by investors. He refers to the applicant having paid $79,000 in two instalments. That appears to be information he has learned since 2016.
[24] Nick organised a residential tenancy of the property. The property was rented out from April 2017 until December 2017. A resource consent to allow the subdivision of the property was granted in April 2017. The investors had a celebratory dinner at a restaurant. Nick attended but there is no reference to the applicant attending the dinner. The property has been unoccupied since December 2017.
[25] In 2019, 126 Waimumu Ltd was considering refinancing the property and was looking to arrange finance with the Kookmin Bank. The refinancing occurred in June 2019. Ms Xie was aware of the refinancing and made some payments for the costs of refinancing.
[26] Following that refinancing, there was a reorganisation of the shareholding. He acknowledged that this was the first time that the applicant was shown legally as a shareholder of 126 Waimumu Ltd. Later, Luffy Homes bought out other shareholders, eventually holding 90 of the 100 shares in the company. He contacted Nick about this but found out that Nick was in China. Nick told him that he should deal with his mother.
[27] He confirms that there was a meeting in late December 2019. His account of the meeting differs somewhat from that of the applicant. The upshot is that the parties remained apart and were unable to resolve matters. Luffy Homes called a shareholders’ meeting on 19 December 2019 but Ms Xie did not attend. Mr Jia contends that Ms Xie is a minority shareholder who is refusing to sell her shares, refusing to take part as a shareholder in the company, refusing to contribute to the ongoing expenses of 126 Waimumu Ltd and is refusing to commit any further funds for the development of the property. He contends that her caveat is vexatious and is calculated to stymie the company in its proposed development.
[28] There is no reply evidence from Ms Xie. I do not regard the evidence of the applicant or Mr Jia as giving a complete account of what has happened. Other people were involved at the outset and have not so far given any evidence. Mr Sky Shen put the project together but so far he has not given any evidence. The applicant’s son, Nick, now in China, might be able to provide more useful information as well. I have to deal with the case on the basis of limited information. I accept that both the applicant and Mr Jia have tried to put before the court what information they have, but that information is limited. Caveat applications are brought on at fairly short notice. I do not criticise the applicant because she did not obtain evidence from her son in China. Trying to obtain evidence from someone overseas at short notice is usually very difficult. There are legal and logistic difficulties. There will also be difficulties arising from the recent pandemic. Equally, I accept that Mr Jia has tried to put before the court what he can, even though at the outset he had limited information also. Accordingly, I bear in mind that if there were a full hearing, there is likely to be more extensive evidence than what has been provided today.
Ms Xie’s interest
[29] Ms Xie has to show a reasonably arguable case for an unregistered interest in the land. It must be an interest claimed in the caveat. When she made the payment in 2016 towards the purchase of the property, she was clearly not making a gratuitous payment, a gift. She put money in on the basis that she would get something back. The payment was made in conjunction with a proposed joint venture. It was clearly a commercial context where she hoped to receive some return for her payment. One explanation might be that she lent money to 126 Waimumu Ltd. Indeed, later on she when she wanted her money out, she asked to be repaid with interest. But for the caveat application, it is reasonably arguable for her that she was putting money in by way of capital – that is, taking an equity interest in the joint venture and was not merely advancing funds by way of loan. If there had been a loan, one might expect to see evidence as to an agreement for interest but at present there is nothing in the case to suggest that. She made further payments which are consistent with her having an equity interest in the property: payments for outgoings, and contributions to the costs of refinancing. Certainly, a lender might advance funds to a borrower but that seems less likely in this case. If she were only a lender, and there were no security for the
loan, she would not have a caveatable interest in the property. But at this stage, it is arguable for her that she did more than lend her money to the company. So it is arguable for her that that she was making a capital contribution and would have some equity interest in the project.
[30] The question then is whether that was an interest in the company under which she was to have a shareholding, or whether she took an interest in the land itself. Under Mr Jia’s evidence, there was an investment on the basis that 126 Waimumu Ltd was to be a joint venture vehicle through which various investors contributed and through whom the investment in the land was to take place. While that represents his understanding, there is a difficulty for 126 Waimumu Ltd because Ms Xie was not recorded as a shareholder at the outset when she put her money in. An explanation has been given for juggling the shareholdings so as to set up a significant majority shareholder to raise finance. The shareholders’ agreement was relied on. But Ms Xie is not a party to that shareholders’ agreement. This was apparently all done without her knowledge.
[31] It was submitted that she is bound by that because her son was acting as her agent. But it is not clear that her son was her agent, although he made the introduction and proposed the investment. The evidence is also consistent with his acting as an agent of the company, as in his management role. It is not clear that his name on the shareholders’ agreement necessarily binds his mother. It is at least arguable for her that that arrangement was made without her knowledge and consent. Whether she is bound by it is an issue for trial.
[32] Mr Herbert pointed to weaknesses in the evidence for Ms Xie. The caveat refers to an agreement, but he submitted that the evidence as to the agreement is sparse. While Ms Xie said that she was told of some things, her evidence is uninformative as to her being told of those things. He also points to the general circumstances where all the other investors took a shareholding, and there would have been an odd arrangement if she were not treated in the same way as the other investors.
[33] I accept that those matters point to weaknesses in her case. Mr Herbert urged me to take a robust approach on this. While I bear that in mind, I also take account of
the Court of Appeal’s decision in Mahon v The Station at Waitiri Ltd.9 In that case, I had held that there was not a caveatable interest in land. I gave a range of reasons including a finding that the applicant’s case was implausible. On appeal, the Court of Appeal rejected most of my grounds and upheld my decision on a narrow basis, namely that the interest claimed by the applicant was an interest in shares in a company, not an interest in land. That is a warning against taking too robust an approach. In this case, people have gone into a property project, jointly, without taking a lot of care in recording their arrangements. To a large extent, they have relied on trust and hope that matters will all work out without bothering too much with the paperwork and getting the details right. Against that background, I need to be cautious about being dismissive of the applicant’s case. I am satisfied that she has an argument for an interest in the property as opposed to an interest in the company owning the land.
[34] There is a question how that interest is to be categorised. The caveat refers to an implied trust without being more specific whether it is a resulting trust or a constructive trust. Mr Moss argued for a constructive trust, but it occurred to me that it could equally well be explained as a resulting trust, on the basis described by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council:10
Under existing law a resulting trust arises in two sets of circumstances;
(A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held in trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption can be easily rebutted either by the counter presumption of advancement or by direct evidence of A’s intention to make an outright transfer …
It is arguable for Ms Xie that there was a joint purchase by herself and by 126 Waimumu Ltd in which they owned the property in shares proportionate to their contributions.
9 Mahon v The Station at Waitiri Ltd [2017] NZCA 387.
10 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 708.
[35]Accordingly, I find that she does have a caveatable interest.
[36] There are, however, conditions to my order sustaining the caveat. The first is that Ms Xie must begin a proceeding to obtain an order upholding the interest which she claims in her caveat. She is to file that proceeding by 22 June 2020 in the District Court. Counsel agreed that the District Court has jurisdiction, as the amount in issue is well within the $350,000 limit.
[37] The other condition is to ensure that Ms Xie does not use her caveat to harass or stymie 126 Waimumu Ltd. The company wants to get on with the development proposals. It may need to refinance and it may find a purchaser for the property. Those plans could be thwarted if Ms Xie were to refuse consent to further dealings with the property. It will be a condition of the order sustaining her caveat that she is to consent to any reasonable third party arm’s length transactions with the property, including by way of refinancing or sale. In the event of sale, her interest in the proceeds of sale is to be protected, for example, by the proceeds being set aside to await any determination. I have expressed this condition in general terms. I ask counsel to confer and fine-tune those terms. I reserve leave to come back for further orders if there is difficulty in reaching agreement on the terms of that condition.
[38] Ms Xie is entitled to costs on the application. This is a category 2 proceeding. For the hearing today, the costs will be for one half day. If counsel cannot agree costs, leave is reserved to file memoranda and I will decide costs on the papers.
………………………………….
Associate Judge R M Bell
36