Yang v DH and PM Ltd
[2019] NZHC 953
•2 May 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000506
[2019] NZHC 953
BETWEEN ZHE YANG and JACKSON ING WEI LAW
Plaintiffs
AND
DH and PM LTD First Defendant
QINGHUA MO and YU HUANG
Second Defendants
Hearing: 29 April 2019 Appearances:
I Hutcheson for Plaintiffs
G D Wiles and R Kaur for Defendants
Judgment:
2 May 2019
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 2 May 2019 at 10.00am
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Croftfield Law/I Hutcheson, Auckland DX Law Ltd/G D Wiles, Auckland
YANG v DH and PM LTD [2019] NZHC 953 [2 May 2019]
Introduction
[1] The plaintiffs, Zhe Yang (“Mr Yang”) and Jackson Ing Wei Law (“Mr Law”) have applied on notice for an interim mandatory injunction. They seek orders directing:
(a)the first defendant– DH and PM Ltd – to transfer title to a property at 47 Union Road, Howick, to them or their nominee, subject to them effecting repayment of an existing mortgage registered against the property;
(b)the second defendants – Ms Mo and Mr Huang – to transfer title to a property at 8 Taurima Avenue, Pt England, to them or their nominee, subject to them effecting repayment of an existing mortgage registered against the property, and subject to the registration of a caveat following registration of the transfer, such caveat to remain in place pending determination of such interest as Ms Mo and Mr Huang may have in the property; and
(c)Ms Mo and Mr Huang to desist from contacting or attempting to make contact with contractors, suppliers and commercial entities involved in the development projects at the Union Road and Taurima Avenue properties (including DBR Property Financiers – a prospective mortgagee) pending further order of the Court.
[2]The application is opposed by Ms Mo and Mr Huang.
[3] In the course of the hearing before me, there was some movement as between the parties in relation to the Taurima Avenue property. Messrs Yang and Law indicated that if they can obtain title to the property, they are prepared to offer a second mortgage over the property, to give Ms Mo and Mr Huang better security for the interest they claim in the property, until such time as that claim can be resolved. They were not however in a position to formalise that offer; it will need the consent of any first mortgagee and a priority figure for any first mortgage will have to be agreed. Mr Hutcheson however requested that I should adjourn the hearing in relation to the Taurima Avenue property, so that his clients can pursue this option. They also wish to
explore the possibility of a mediation. Mr Wiles, appearing for Ms Mo and Mr Huang, agreed that an adjournment is appropriate but requested that I should nevertheless deal with the application insofar as it relates to the Union Road property. Mr Hutcheson agreed that this is appropriate.
[4] By consent, the application, insofar as it relates to the Taurima Avenue property, is adjourned. The hearing in relation to the Taurima Avenue property will resume at 11.45am on 12 June 2019. If the parties can reach agreement in the interim, they are to file a joint memorandum and advise the Registrar. In that event, it is likely that the hearing on 12 June 2019 will be vacated.
Relevant background
[5] The parties have been involved in a number of development projects. Mr Yang and Mr Law act as the developers. Ms Mo and Mr Huang (who are husband and wife) act as financiers. Their joint development projects have included the development of properties in Wimbledon Crescent, Glen Innes, in Huxley Place, Glen Innes, and in Ropata Avenue, Pt England. The Ropata Avenue development is of some significance in the present context as will become clear below. Ms Mo estimates that she and Mr Huang have invested approximately $2.5 million in joint developments with Mr Yang and Mr Law. This figure is denied by Mr Yang however.
[6] The relationship between the parties has deteriorated in recent times. Ms Mo and Mr Huang have commenced proceedings against Mr Yang and Mr Law (or entities in which they are involved) in relation to both the Ropata Avenue development1 and the Huxley Place development.2 Mr Hutcheson told me from the bar that there is also a dispute in relation to the Wimbledon Crescent development but that no proceedings have yet been issued.
[7] The business model seems to have been broadly similar in each case. Mr Yang and Mr Law identify a property suitable for redevelopment. They negotiate the sale and purchase agreement with the vendor and pay the deposit. Ms Mo and Mr Huang finance either in whole or in part the balance of the purchase price, through a financier,
1 Mo & Huang v Tamaki Homes Ltd HC Auckland CIV-2018-404-2019.
2 Mo & Huang v Yang & Law HC Auckland CIV-2018-404-1927. This matter went to a summary judgment hearing on 15 March 2019 before Sargisson AJ. The parties are awaiting judgment.
and take title to the property as nominees from Mr Yang and Mr Law. Ms Mo and Mr Huang become liable under the mortgage to the financier, but Mr Yang and Mr Law reimburse them for all mortgage repayments and other costs incidental to the ownership of the property, such as rates, insurance and the like. Mr Yang and Mr Law redevelop the property and they are responsible for all costs in this regard. There was generally a profit share arrangement. It differed from property to property and there are disputes between the parties as to the extent of profit sharing in relation to at least some of the developments. When the developments are sold, the mortgage given by Ms Mo and Mr Huang is repaid and the property is transferred either to Mr Yang and Mr Law or to any purchaser.
[8] The Union Road development generally followed this model. There is however considerable dispute as to the detail.
(a)Mr Yang and Mr Law say that they identified the property in early 2015, and that they agreed to purchase it for $1,240,000. They paid an initial deposit of $124,000. It was agreed in September 2015 that the first defendant company (incorporated by Ms Mo and Mr Huang and in which they were the sole shareholders and directors) would be nominated as the purchaser of the property, to hold the property on trust on their behalf. The company was to arrange a bank loan from the ASB of $850,000 and contribute that sum towards the purchase price of the property. Mr Yang and Mr Law were to pay the balance of the purchase price and they were to be responsible for the mortgage repayments, insurance costs and any other outgoings in respect of the property. The company was, from time to time, to advise them of any shortfall and they were to pay that shortfall. The company was to transfer the property to them, or to their nominee, when the ASB mortgage was refinanced.
(b)Ms Mo and Mr Huang say that in September 2015 they on behalf of the company agreed to provide mortgage finance of $850,000 to assist in settling the sale of the property, that Mr Yang and Mr Law were to pay all outgoings, and that the company was to retain title to secure the mortgage advance which the company was taking out and also to secure
a further sum of $400,000 Ms Mo and Mr Huang had made available in relation to the Ropata Avenue development, pending the provision by Mr Yang and Mr Law of an acceptable alternative mortgage security over that property. They say that within six months after settlement of the purchase of the Union Road property, Mr Yang and Mr Law were to obtain alternative finance to repay the ASB bank mortgage and any other costs and also provide alternative mortgage security over the Ropata Avenue property. When they had done so, the company was to transfer the title of the Union Road property to Mr Yang and Mr Law. They say that Mr Yang and Mr Law are and remain in breach of the agreement, because they have failed to refinance the ASB bank mortgage, to meet the mortgage repayments and other property related outgoings, and to provide alternative mortgage security over the Ropata Avenue property.
Neither party suggests that there was profit sharing arrangement in relation to the Union Road property. Further, it is common ground that the arrangements between the parties, not only in relation to Union Road, but in relation to all of the various developments, were never documented. Mr Yang and Mr Law do however dispute Ms Mo’s and Mr Huang’s assertion that they contributed $400,000 to the Ropata Avenue development. They say that the extent of the contribution is one of the matters in dispute in the proceedings issued over that development.
[9] Little development work has been undertaken on the Union Road property. The site has been cleared and excavation has commenced including into a bank on the property. Concrete piles have been put in place together with a “ring main footing”. A temporary structure has been constructed in an attempt to retain the bank created by the excavation. Nevertheless, the bank has partially collapsed onto the footings and damaged the temporary structure. There is water ponding around the various footings. There is concern that that water presents a hazard for any child or trespasser who may get onto the site and secondly, that the bank, which is between the property and an adjoining property, could collapse further. Any collapse might undermine a concrete driveway and fence on the neighbouring property.
[10] Ms Mo and Mr Huang say that they have been left to take personal liability for expenses incurred consequent upon the company’s ownership of the property, including insurance premiums, property and water rates, power and development costs. They say that, as at the end of March 2019, these costs amounted to
$178,131.62. Mr Yang and Mr Law say that mortgage payments, development costs and outgoings have been reimbursed by them. They point to a reconciliation statement prepared by Ms Mo and to an email they say she sent to them. They say these documents establish that they have paid the costs they were liable for. Ms Mo says these documents were prepared in an attempt to resolve matters without engaging in litigation, to try and preserve her and her husband’s investment in the development.
[11] During the course of the hearing, Mr Yang and Mr Law altered their position slightly. They indicated that they were prepared to pay, on a without prejudice basis, the amount Ms Mo and Mr Huang allege is outstanding and owing to them into an independent solicitor’s trust account, to be held by that solicitor, pending final resolution of the dispute between the parties as to how much, if anything, is owing between them. Ms Mo’s and Mr Huang’s response was that the sum proposed to be paid into the solicitor’s trust account only covers the expenses they have incurred up to 29 March 2019 and that there have been further expenses incurred since. They also say that the offer does not take into account their assertion that the company took title to the Union Road property, not only to secure the borrowing they arranged to assist in the purchase of that property, but also to secure the advance of $400,000 they say they had made earlier to Mr Yang and Mr Law in relation to the Ropata Avenue development.
Submissions
[12] Mr Hutcheson submitted that the factual dispute between the parties is relatively narrow, that Ms Mo and Mr Huang have a caveat over the Ropata Avenue property, and that that caveat and the proceedings already filed in this Court in regard to Ropata Avenue, adequately protect such interest as Ms Mo and Mr Huang may have in that property. He submitted that the company was never entitled to any legal interest in the Union Road property and that it holds the property as trustee. He argued that the orders sought do no more than implement the agreement the parties made and that there is no detriment to Ms Mo and Mr Huang. In this regard, he argued that Mr Yang
and Mr Law’s offer to place monies in a solicitor’s trust account suffices to protect the defendants. He put it to me that the property is intended to be developed to provide residential homes for both Mr Yang and Mr Law, that development has stalled because they are unable to raise funds to continue with the development, and that in order to secure construction funding, they need the property to be in their own names. He argued that there are health and safety issues and that it is possible that children or other trespassers might scale security gates around the property and gain entry to the site. He pointed to the risk to the neighbouring property, and noted that there is also direct personal inconvenience to Mr Yang who is currently residing in a four-bedroom home with five adults and two children. He argued that the delays are causing financial strain for Mr Yang and Mr Law and further that they have impacted on their business reputation. He referred to relevant authorities, and argued that Mr Yang and Mr Law have a strong case, that damages are not an adequate alternative remedy, and that the balance of convenience favours them. He also submitted that there is no disadvantage to Ms Mo and Mr Huang in granting the orders sought.
[13] Mr Wiles argued that the monies Mr Yang and Mr Law now suggest should be placed in a solicitor’s trust account do not fully protect Ms Mo and Mr Huang for the costs they have incurred and that the caveat over the Ropata Avenue property does not secure the additional funds advanced by Ms Mo and Mr Huang in regard to that development. He argued that the caveat is simply notice, that it provides no priority to Ms Mo and Mr Huang and that it cannot survive a mortgagee’s sale in the event that this were to occur. He argued that development work on the Union Road property ceased in mid-2018, that the evidence put forward by the plaintiffs in support of their application does not suggest that there is any urgency to the matter, and that there is little or no evidence of Mr Yang’s and Mr Law’s assets and liquidity to support the undertaking as to damages they have given. He accepted that there are serious questions to be determined as to the rights and obligation of the parties in relation to the Union Road property, but argued that the balance of convenience and the overall justice of the case strongly favour Ms Mo and Mr Huang.
Analysis
[14] There was no significant dispute between counsel as to the relevant principles applicable to the grant of interim injunctions. There are three matters which fall for consideration:3
(a)the applicant must establish that there is a serious question to be tried;
(b)the balance of convenience must be considered;
(c)the Court should then stand back and make an assessment of the overall justice of the case.
[15] Interim mandatory injunctions are subject to broadly the same test, but in such cases, it will be a rare set of facts that will stand the scrutiny required.4 The overriding consideration will be which course is likely to involve the least risk of injustice if it is wrong. An order requiring a party to take a positive step at an interlocutory stage can carry a greater risk of injustice if wrong, than one that merely preserves the status quo. Accordingly, the Court is entitled to seek a high degree of assurance that the plaintiff will be able to establish the right to such a positive step at trial, as part of minimising the risk of injustice if the injunction is granted.5 It has been observed that mandatory injunctions are relatively uncommon, that interim mandatory injunctions are rare indeed and that interim mandatory injunctions, having the effect of a final order and involving the payment of a sum of money which normally would be described as a debt are completely novel.6 When considering a mandatory injunction, the Court must be careful to ensure that it is not creating rights to which the plaintiff may be found ultimately not to be entitled.7
3 American Cyanamid Co v Ethicon Ltd [1975] AC 396, [1975] 1 All ER 504 (HL); Eng Mee Yong v Letchumanan [1980] AC 331 (PC); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA); NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531.
4 Pilkington v Fidelity Life Assurance Co Ltd HC Wellington CIV-2007-485-2270, 14 April 2010; Approved In Fidelity Life Assurance Co Ltd v Pilkington [2010] NZCA 424.
5 Zockoll Group Ltd v Mercury Communications Ltd [1997] EWCA Civ 2317, [1998] 1 FSR 354; And see generally, Andrew Beck and others McGechan on Procedure (loose-leaf ed, Thomson Reuters, 2018)at [HR 7.53.16(2)].
6 Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC) at 684.
7 McDonald Motors Ltd v Christchurch International Airport Ltd (1991) 4 TCLR 407 at 415.
[16] I am not persuaded that it is appropriate to make the order sought by Mr Yang and Mr Law in relation to the Union Road property. I have reached that conclusion for the following reasons.
[17] First, it does not suffice in a case of this kind for an applicant just to say that there is a tenable cause of action from a legal point of view, but there is a conflict of evidence on the facts.8 Rather, applicants must adduce sufficiently precise evidence from which the Court can be satisfied that there is a real prospect that they will succeed in their claims at trial.9
[18] Here, the plaintiffs in their statement of claim allege three causes of action in relation to the Union Road property – breach of contract, an express/implied/resulting trust, and breach of fiduciary duty. Although Mr Hutcheson initially suggested that the first defendant company holds the property as a bare trustee, he resiled from that assertion and responsibly accepted that the fact the first defendant is liable under the mortgage, and that it has met the mortgage repayments and paid other outgoings in relation to the property, precludes it being a bare trustee. This aside, whether or not there is a breach of contract depends upon the agreement entered into between the parties. There is a conflict of evidence on that point and I cannot resolve that conflict on the affidavits which have been filed. That conflict can only be dealt with at trial. It may be that the first defendant holds the property on trust for the plaintiffs, but the claim is not particularised. Even if the property is held on trust, that does not compel the conclusion that the company must, without more, transfer the property to the plaintiffs. The terms of any trust, and the basis on which any transfer of the property was to be made, are again very much in dispute. Nor does the allegation of breach of fiduciary duty assist in this regard.
[19] I accept that the plaintiffs’ claims are not frivolous or vexatious. There are clearly a number of matters which need to be determined as between the parties. I do not however consider that the plaintiffs, as the parties seeking a mandatory interim injunction, have adduced sufficiently precise factual evidence to justify the conclusion that there is a real prospect that they will succeed in their claims at trial.
8 Ansell v New Zealand Insurance Finance Ltd HC Wellington A434/83, 30 November 1983.
9 Re Lord Cable (dec’d) [1976] 3 All ER 417 (Ch) at 431.
[20] Nor does the balance of convenience favour the plaintiffs. If the Union Road property was to be transferred to the plaintiffs, and it were later to be found that the property was placed in the company’s name to secure not only the mortgage taken out to permit its purchase, but also to secure the monies Ms Mo and Mr Huang say they advanced to the plaintiffs for the Ropata Avenue development, then the defendants’ rights would be adversely affected. They currently have a caveat over the Ropata Avenue property, and they have consented to the caveat being lifted to allow separate titles to issue for the Ropata Avenue property, with the caveat then being registered only over one of the titles. However, their consent was given when, on their version of events, they understood that they, through the company, had title to Union Road. In any event, a caveat does not provide the same protection as ownership of the Union Road property. As Mr Wiles noted, the caveat does not permit them to sell the property to recoup monies owing to them. It would not survive a mortgagee’s sale. An application could be made to remove it. Altering the rights of the parties by way of an interim mandatory injunction, requiring that the company transfer title to the property to Mr Yang and Mr Law, would expose the defendants to significant risk in relation to their investment not only the Union Road property, but also, assuming they can prove the same, the Ropata Avenue development. It would potentially give rights to the plaintiffs which the Court may ultimately find they are not entitled to.
[21] On the other hand, it is difficult to see that there is any significant impact on the plaintiffs. The first defendant company has owned the Union Road property since it took title to it in September 2015. Relatively little development has taken place on the property since that time. Such work as has occurred on the property ceased in about May 2018. The application for the interim orders was not filed with the Court until late March 2019. It was supported by a number of affidavits, sworn in December 2018. There is no obvious need for urgency. I accept that there is a potential risk, were a child or trespasser to obtain access to the property. As I understand it, the property is currently surrounded by security fencing. There must nevertheless be the risk that somebody could gain access to the property, albeit unlawfully. However, that risk has existed for some time, and it can be readily remedied by filling in any holes on the property. There is a risk that there could be further subsidence, perhaps causing damage to the drive and fence of the neighbouring property, but it is noteworthy that the neighbours have not taken any steps in this regard. Further, it is a risk which prima
facia would seem to be borne by the company (and by Ms Mo and Mr Huang as its directors and shareholders) because it owns the property. I am not persuaded that there is any risk of damage to the plaintiffs’ reputations. Further, and if there is such risk, it is a risk which the plaintiffs have brought on themselves by entering into the arrangements in issue, without properly documenting the same.
[22] Importantly, there is nothing to suggest that damages would not be an adequate remedy in the event that relief is declined in regard to Union Road and the plaintiffs ultimately succeed at trial. There may be some further deterioration of the footings and steelwork which has been put in place, but the resulting damage is likely to be minimal. There is nothing to suggest that the defendants will not be able to meet any award of damages, in the event that one is ultimately made against them. As I have noted, they have, on their account, advanced significant monies to the plaintiffs over the years, and even if an award of damages were ultimately to be made against them, it may be that they would be entitled to a set off.
[23] In contrast, the risk of financial loss to the defendants, in the event they can establish that they took ownership of the property in part as security for the claimed advance in respect of Ropata Avenue, is more significant. The plaintiffs have given an undertaking as to damages. As the parties seeking the injunction, they were under an obligation to provide the Court with sufficient information to enable it to assess the worth of their undertaking.10 There is however virtually no evidence as to the plaintiffs’ financial ability to meet the undertaking for damages they have offered. Such evidence as there is suggests that the undertaking is of little value. Mr Yang and Mr Law say that they are incurring ongoing loss because they cannot get title to the property. They say that they need to obtain title, so that they can raise further funds to pay off existing debt and to fund future developments. They accept that they will have to incur further debt to clear the ASB mortgage, probably from a second-tier financier, and at a higher interest rate, in order to pay off the existing mortgage. The position of the plaintiffs is likely to deteriorate, rather than improve.
[24]Finally, I turn to the overall justice of the case.
10 Jireh Holdings Ltd v Porchester Ltd HC Auckland M1466/02, 18 December 2002.
[25] The grant of an interim mandatory injunction on the terms sought could well preempt any judgment delivered following the substantive hearing. There are issues of fact that require testing by cross-examination, and which will likely be determinative of the overall outcome of the case. If the plaintiffs were to take title to the Union Road property at this early stage, they would be free to sell the property, or to encumber it, in a way that could defeat the defendants’ claims.
[26] In my judgment, what is required is a prompt determination of the parties’ respective claims – preferably heard at the same time as, or in conjunction with, the other claims outstanding between these parties. Otherwise there is likely to be a plethora of issues, all of which will fall to be decided on a piece-meal basis.
Result
[27] The plaintiffs’ application for an interim mandatory injunction in relation to the Union Road property is declined.
[28] The balance of the application, namely the orders sought in relation to the Taurima Avenue development, and requiring Ms Mo and Mr Huang to desist from contacting contractors, suppliers and the like, are adjourned for further hearing as noted above at [4].
Costs
[29] The defendants, as the successful parties, are entitled to their costs and reasonable disbursements.
[30] It is my preliminary view that costs should be fixed on a 2B basis. They will have to be apportioned as between the application in relation to the Union Road property and the balance of the application. If there is any dispute, then I direct as follows:
(a)any memorandum in support of an application for costs and disbursements by the defendants is to be filed and served within 10 working days of the date of this judgment;
(b)any memorandum in reply is to be filed within a further 10 working days;
(c)memoranda are not to exceed five pages.
I will then deal with costs and disbursements on the papers, unless I require the assistance of counsel.
Wylie J
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