Zeng v Cai
[2018] NZHC 2548
•28 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2014-404-002012
[2018] NZHC 2548
BETWEEN JIANQIANG ZENG
Plaintiff
AND
OU CAI
First Defendant
FANG LI
Second DefendantALEXANDER YUNXIAN CAI by his
litigation guardian PAUL JOHN DALE Third Defendant
Hearing: 3 – 5 and 14 September 2018 Appearances:
CJR Baird and AV Shinkarenko for Plaintiff
No appearance for First Defendant and Second Defendants PJ Dale and EA James for Third Defendant
Judgment:
28 September 2018
JUDGMENT OF DOWNS J
This judgment was delivered by me on Friday, 28 September 2018 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Quinn Law, Auckland.
Neilsons Lawyers Ltd, Auckland. CJR Baird, Auckland.
AV Shinkarenko, Auckland. PJ Dale, Auckland.
EA James, Auckland. Copy to: First Defendant.
ZENG v CAI [2018] NZHC 2548 [28 September 2018]
The case
[1] In March 2010 in Auckland, Mr Jianqiang Zeng met Ms Ou Cai. The pair commenced an affair after Mr Zeng’s wife, Ms Jennifer Zhang, returned to China. The relationship lasted until December 2012, when Ms Zhang learned of it.1 Mr Zeng transferred more than $2.4 million to Ms Cai. Ms Cai used the money to buy apartments along with funds of her own; and then a home in Epsom.
[2] In the middle of all this, Ms Cai became pregnant to Mr Zeng and had a baby— Dahai. With Mr Zeng’s agreement, all five properties were to be placed in the name of Ms Fang Li, Ms Cai’s mother.2 As will be apparent, Ms Li contributed nothing to the purchases. She is elderly and lives in China.3
[3] Mr Zeng now sues. He advances no fewer than eight causes of action, including resulting trust, constructive trust, breach of a contractual “joint venture”, Pallant v Morgan equity,4 and the tort of deceit. This multiplicity of pleading adds nothing, save complexity. However, the core contention of Mr Zeng’s suit is ultimately simple: the home is beneficially his. So too—to the extent of his contributions—the apartments. Mr Zeng also claims his share of associated rental profit and other matters too. Events before and during trial are important, as the case was ultimately heard by formal proof.
Absent parties, settlement and formal proof
[4] Mr Zeng commenced his suit in 2014. Despite being served, Ms Li never appeared. Dahai did, through a litigation guardian appointed 27 June 2017.5 So too Ms Cai, at least for a time.
[5] Ms Cai had the same lawyers until the middle of 2016. She then dispensed with their services and continued with a case they had prepared: she and Mr Zeng were
1 The relationship was not in the nature of marriage; see [5].
2 I say “were to be placed” as one was not, at least for a three-month period. And, Ms Cai later sold that apartment.
3 As title holder, Ms Li is presumed to own the properties because of ss 35, 41 and 62 of the Land Transfer Act 1952.
4 Pallant v Morgan [1953] Ch 43, [1952] 2 All ER 951.
5 Ms Grant was appointed litigation guardian on 27 June 2017; Mr Dale from 9 April 2018.
in a de facto relationship under the Property (Relationships) Act 1976. The issue attracted a separate trial. Hinton J presided. On day six of trial—and while under cross-examination—Ms Cai abandoned her claim of a de facto relationship. Unsurprisingly, Hinton J found Ms Cai was not in a de facto relationship under that Act, or in a like relationship of short duration.6
[6] Ms Cai was assisted by amicus curiae at that trial, but Hinton J directed this cease after a case management conference on 8 May 2017. The Judge thought Ms Cai’s English “reasonable”, and Ms Cai “a resourceful person” who could engage counsel if necessary. Hinton J also noted Ms Cai had not sought legal aid even though she had “ample time” to do so.7
[7] Ms Cai retained lawyers before the May 2017 conference. Associate Judge Bell’s Minute refers to them having been “recently instructed”, and “still getting to grips with the case”.8 But Ms Cai then dismissed them. On 21 June 2017, Duffy J recorded Ms Cai’s position no one may represent her. Her lawyers were given leave to withdraw. From then, Ms Cai has been self-represented.
[8] It is not clear when Ms Cai last attended this court. Minutes from conferences and hearings from May 2017 all refer to her absence. Indeed, it may be Ms Cai has not appeared here since late 2016. Ms Cai would file and serve documents by email, with a New Zealand address for service. Her case was simple. All the properties were hers, through combination of her own expenditure and Mr Zeng’s gifts. Mr Zeng intended to leave his wife for her and start a new life in New Zealand with their son, hence his (generous) gifts. But, when Mr Zeng’s wife discovered the affair, Mr Zeng ended it and brought this suit. His case was all “lies”.
[9] On day one of trial, Ms Cai filed and served, by email, her opening address. But that morning, Ms Cai also sent an email to Mr Dale, Dahai’s litigation guardian, saying she would not appear and instead, “await judgment”. Everyone agreed we should adjourn for a day while Mr Dale encouraged Ms Cai to come to court. Mr Dale
6 Zeng v Cai HC Auckland CIV-2014-404-002012, 16 December 2016.
7 At [14].
8 Zeng v Cai HC Auckland CIV-2014-404-002012, 8 May 2017, at [7].
did not then know where Ms Cai was, but had intended to call her as a witness to advance Dahai’s case if she did not testify in support of her own. Mr Dale and Ms Cai had a measure of rapport, as Mr Dale had “endeavoured to assist her as much as possible” since his appointment as Dahai’s litigation guardian.
[10] On day two, Mr Dale said Ms Cai had told him she was in China. Mr Dale said he had emailed her, encouraging her to return. Acknowledging that was unlikely, Mr Dale then applied to offer evidence of Ms Cai’s two affidavits from the trial before Hinton J. Each, he contended, contained admissible evidence in relation to Dahai’s case, which was that everything was held on trust for Dahai. This because Mr Zeng had given Ms Cai money to buy the apartments and the home for the duration of her life, intending everything be Dahai’s when she died. Mr Baird opposed the application on behalf of Mr Zeng. I heard related argument. Mr Baird then opened, which took until the afternoon adjournment.
[11] After that adjournment, Mr Baird said he and Mr Dale were likely to settle matters between Mr Zeng and Dahai. We adjourned a little early to facilitate related discussion. I then released a ruling Dahai may offer Ms Cai’s affidavits but Ms Cai may not in absentia.
[12] Day three was like days one and two: Ms Cai did not appear. Mr Dale said he had earlier told Ms Cai she could not rely on her affidavits or otherwise defend the case from afar. But, Mr Dale said there was nothing to suggest Ms Cai would return for trial. In-principle settlement was confirmed as between Mr Zeng and Dahai, and given Ms Cai’s absence, Mr Zeng’s case adjourned for formal proof with affidavit evidence.
[13] Although the applicable rule simply says the plaintiff must prove the cause of action when the defendant does not appear,9 I was satisfied Ms Cai chose not to appear, having been informed she must to protect her position. A later event buttresses this conclusion.
9 High Court Rules 2016, r 10.7.
[14] On 6 September 2018, and hence what would have been day five of trial, Ms Cai filed and served a memorandum. Ms Cai said she and Dahai had been living in China for some time; settlement between Mr Zeng and Dahai was “unreasonable and unfair”;10 and the Court had ignored her “ironclad proof” of Mr Zeng’s “lies”. Ms Cai threatened to publish her evidence through “various social resources” to “let the world see how hooligans use money to succeed in this court”. Like sentiments need not be recorded. Materially, Ms Cai complained not that the case was proceeding in her absence. Rather, that her evidence had not been treated as interconvertible proof of Mr Zeng’s deceit, Mr Zeng being a “vicious sly villain” and “worse than a beast”.
[15] So, on what would have been day 10 of the trial, matters proceeded by formal proof, Mr Baird having converted briefs of evidence into affidavits.11
Mr Zeng’s case
[16] Mr Zeng’s case is most easily explained in two parts: that in relation to the apartments, and that in relation to the home. Dahai’s conception and birth separate the two, and forensic accounting evidence affects both. But first, some general background.
[17] Mr Zeng lives in China with his wife and their young daughter. Other members of Mr Zeng’s family live in New Zealand, including his parents. Mr Zeng and Ms Zhang own a successful company in Beijing. The company imports and sells scientific equipment, and designs and manufactures related instruments.
[18] In the middle of 2009, Mr Zeng and Ms Zhang came to Auckland to see Mr Zeng’s family, and with a view to moving here. In late February 2010, Ms Zhang returned to China to look after their company. But, Mr Zeng stayed on.
[19] Around this time, Mr Zeng registered with a website that translates as Fast Match. Mr Zeng says he ticked the “friendship” box, and discovered Ms Cai’s profile. The pair corresponded digitally. Mr Zeng told Ms Cai his wife was back in China;
10 Mr Dale said he would inform Ms Cai by email about settlement.
11 Rather than swearing an affidavit, Mr Zeng entered the witness box and confirmed the truthfulness of his brief of evidence.
Ms Cai told him her recently ended marriage had not been “real” as her husband was old.
[20] On 16 March 2010, Mr Zeng and Ms Cai met at a table tennis club. Present also was Ms Cai’s five-year-old son, Jonathan. After other meetings, a sexual relationship developed.
The apartments
[21] In about May 2010, Ms Cai suggested to Mr Zeng they buy an apartment together. The purchase would allow Ms Cai to live elsewhere from her former husband, and comprise a joint investment. Mr Zeng says he agreed, largely out of sympathy for Ms Cai’s then circumstances. The pair looked at apartments at Princes Wharf and at 135 Victoria Street, the latter during an open day in late May. 1J/135 Victoria Street caught their eye.
[22] Ms Cai suggested the purchase funds go through her mother’s bank account, and title be registered in Ms Li’s name too. Practises like the latter are not unusual in Chinese culture, and both aspects would help conceal the affair. Mr Zeng agreed. On 26 May 2010, he transferred approximately $105,000 to Ms Li’s account. Two days later, Ms Cai entered an agreement for the sale and purchase of apartment 1J. The price was $194,000. Mr Zeng helped Ms Cai move into the apartment on settlement: 2 July 2010.
[23] Ms Cai later said she could not afford her share of the bills in relation 1J, and suggested they buy a second apartment. 1J could then be tenanted, and related income used to meet costs of both apartments. Mr Zeng says he thought this sensible. On 11 August 2010, he and Ms Cai went to an auction for 3B/11 Howe Street, Freemans Bay. Ms Cai bid—successfully. She signed the agreement. The price was
$160,000. On 17 and 18 August, Mr Zeng transferred a total of $126,208.40 to Ms Li’s bank account. Settlement occurred on 10 September 2010, four days after Mr Zeng returned to China.
[24] In October and November 2010, Ms Cai went to China. There, she suggested to Mr Zeng they buy a third apartment as 1J was not providing sufficient income to
meet the costs of their portfolio. Mr Zeng agreed; he says he wanted to expand his interests. On 28 November 2010, Ms Cai came back to New Zealand.
[25]Between December 2010 and April 2011, Mr Zeng transferred a total of
$92,525.80 to Ms Li’s bank account for the anticipated purchase. Text messages from Ms Cai to Mr Zeng in February 2011 refer to the rental market “getting hotter”, and to Ms Cai’s apparent frustration on “losing a great opportunity at auction today, because last night you didn’t discuss with me and I hesitated”.
[26] On 21 April 2011, Ms Cai entered an agreement for the sale and purchase of another apartment at 135 Victoria Street: 9J. The price was $245,000. Settlement occurred on 5 May 2011.
[27] In April 2011, Ms Cai told Mr Zeng—who was still in China—12G of the same complex was also on the market, and an excellent investment because it was higher in the building. On 15 April 2011, Mr Zeng transferred to $112,197.60 to Ms Li’s bank account. On 16 May 2011, Ms Cai entered into an agreement for 12G’s sale and purchase. The price was $320,000. Settlement occurred a week later: 20 May 2011.
The home
[28] Ms Cai went to China between June and November 2011. She and Mr Zeng spent time together. Ms Cai became pregnant with Dahai about August 2011. On 8 September, Ms Cai told Mr Zeng as much. Mr Zeng said this was an unanticipated development even though Ms Cai had frequently said she wanted to become pregnant, and bemoaned an alleged earlier miscarriage to him. Mr Zeng reacted by transferring—the same day—a total of USD150,000 to Ms Li’s bank account.
[29] Mr Zeng says he was contemplating buying a home in a good school zone, into which Dahai and Ms Cai could move. Between September 2011 and 13 February 2012, Mr Zeng made further transfers to Ms Li’s account of USD200,000 and almost
$164,000. Again, Mr Zeng says these funds were for a possible home.
[30] Correspondence implies the relationship between Mr Zeng and Ms Cai was by now fraught. There were frequent arguments about houses. And money. An email exchange on 31 March 2012 is illustrative:
Ms Cai:
... I also transferred my life savings to Auckland to buy apartments with you, in order to find a place to live in Auckland and allow me and my son – who had no way of making a living – to keep living and to let my son continue to be educated, we continued to actively invest ...
In 2011 I became pregnant with our son Dahai, I started to seriously worry about this child’s life and future, I had painstaking discussions with you about investing in a school zone property and allowing my two sons to receive good education, and carry out our duties as parents. Even when I was going through the toughest time during my pregnancy, I did not touch the $600,000. Because I knew this is my two sons’ future!!! Now I have used all the properties and my mother and younger brother’s properties as security for the bank and got the $600,000 mortgage, I then borrowed another $200,000 from my mother to buy the only school zone property on the market, it’s not for me, all this is for my two sons! I am still willing to borrow from my own family, and to use
the current rent income to pay back the mortgage as soon as possible, am I not doing all this because I am the child’s biological mother? So you pay back the $600,000 bank mortgage, I will pay back the $200,000 which was not easy to borrow. Of course things have not been settled yet, if the purchase actually goes through, I am prepared to sign an agreement with you, one can never talk to a businessman about feelings like a normal person, the message wouldn’t get through….
...
Mr Zeng:
Since I met you until now I have provided more than NZD$1 million, I have not said anything before. Now you say you want more than one million to buy a house, I have never bought anything that expensive in my life. I want us to be clear about money, there is more than $600,000, as for the rest, how much will you be responsible for, how much will I be responsible for. I will do my best, but we must reach an understanding in advance then everyone can relax in the future this is good for the child’s growth.
[31]Dahai was born on 30 April 2012.
[32]On 1 June 2012 Mr Zeng transferred another $100,000 to Ms Li’s account.
[33] Ten days later, Mr Zeng came to New Zealand. He and Ms Cai looked at several homes, including 10 King Edward Avenue, Epsom. Mr Zeng says he and Ms Cai argued about the basis on which a home would be bought. Ms Cai expected
one as a gift, whereas Mr Zeng anticipated retaining ownership. However, Mr Zeng agreed to fund 10 King Edward Avenue’s purchase.
[34] On 18 June 2012, Ms Cai entered a sale and purchase agreement in relation to the home. The price was $1,955,000; the deposit $100,000.
[35]The next day, Mr Zeng transferred another $300,000 towards the purchase.
[36] On 24 June 2012, Ms Cai arranged two loans totalling $600,000 in her mother’s name to meet the balance of the purchase price.
[37] On 6 July, settlement occurred as anticipated. Mr Zeng had, two days earlier, transferred another $100,000. Before returning to China on 10 July, Mr Zeng helped clean the home and select furniture and appliances.
[38] Between July 2012 and May 2013, Mr Zeng fully repaid the loans described above.
[39] Ms Cai went to China between 14 August 2013 and 10 January 2014. She and Mr Zeng spent time together, but their relationship ended on 26 December 2013 when Ms Zhang discovered it.
[40] On 21 January 2014 Mr Zeng registered caveats over the properties, save for 1J. Mr Zeng learnt Ms Cai and her mother had sold 1J in 2012 for $269,000.
[41] Mr Zeng alleges Ms Cai made a scene at his parents’ home on 3 February 2014. It is unnecessary to say more about this. So too the considerable evidence offered by Mr Zeng about Ms Cai’s veracity vis-à-vis her dealings with, representations to, and benefits obtained from Work & Income New Zealand; her allegedly suspicious money transfers; and alleged “tip-offs” by Ms Cai to Chinese authorities in relation to Mr Zeng.12 As Ms Cai was not a witness and her account not before me, this evidence has little, if any, relevance.13 Moreover, fairness of any conclusions in relation to these
12 Evidence Act 2006, s 37.
13 Section 7.
topics would be compromised by Ms Cai’s absence, even though she chose not to appear.
Forensic accounting evidence
[42] Mr Andrew McKay is an experienced forensic accountant. He examined Mr Zeng’s money transfers and all five property transactions. Mr McKay also examined related flows of funds; rent derived from letting the properties; and other property transactions by Ms Cai.
[43] Mr McKay concludes Mr Zeng transferred more than $2.4 million to Ms Cai, but not all funds were used as Mr Zeng anticipated. Mr McKay completed two analyses: scenario A and scenario B. Scenario A traces how Mr Zeng’s funds were actually used. Scenario B identifies what the position would have been had the funds been used as Mr Zeng intended.
[44] The position in relation to 10 King Edward Avenue is the same in each scenario because Ms Cai applied the funds as Mr Zeng intended. Mr Zeng funded approximately $1.1 million of the purchase price of $1,955,000. Between August and September 2012, Mr Zeng repaid what appears to have been a bridging loan of
$280,000 from Ms Cai’s brother. And, between July 2012 and May 2013, Mr Zeng also repaid the entirety of the two ANZ bank loans obtained by Ms Cai. Mr McKay considers Mr Zeng “has a 100 per cent equity interest in King Edward Avenue under both scenarios A and B”.
[45] The position in relation to the apartments differs under each. In scenario A, Mr Zeng contributed 100 percent of 1J and 83.1 percent of 9J, but nothing in relation to 3B/11 Howe Street and 12G. In scenario B, Mr Zeng contributed between 34.9 and
77.4 percent to each of the four apartments. In other words, something to all. The difference between scenarios A and B arises because of:
(a)The sale of 1J in August 2010, about which Mr Zeng says he was ignorant.
(b)The effect of that sale on the flow of funds in relation to 3B/11 Howe Street.
(c)Application of funds to 9J intended for 12G.
[46] Mr McKay says 1J was registered to Ms Cai’s brother on 6 July 2010, not her mother (the sale and purchase agreement identified Ms Cai or nominee as purchaser). But, on 26 August 2010, Ms Cai’s brother entered a private sale and purchase agreement with their mother, resulting in 1J’s transfer to Ms Li on 6 September 2010. Oddly, even though the agreement was between family members, the sale price was
$26,000 more than that paid by Ms Cai (and Mr Zeng) three months earlier. Mr McKay says $121,379 of Mr Zeng’s funds were applied to this sale, in addition to the $105,000 of Mr Zeng for the earlier purchase of 1J in May. So, more than $226,000 of Mr Zeng’s funds were used to buy 1J, giving him 100 percent beneficial ownership. Mr McKay says if the purchase of 1J had been funded as Mr Zeng intended— scenario B—Mr Zeng’s equity would be 47.3 percent.
[47] Mr McKay says deployment of $121,379 to the second purchase of 1J diverted funds of Mr Zeng that would otherwise have gone to help buy 3B/11 Howe Street. It follows Mr Zeng has no equity in 3B/11 Howe Street. In scenario B, Mr Zeng would have 77.4 percent equity.
[48] As will be recalled, Ms Cai entered a sale and purchase agreement for 9J on 21 April 2011. The price was $245,000. Mr Zeng says he transferred more than
$92,000 in relation to the anticipated purchase, albeit 9J had not then been identified. This would have given Mr Zeng an equitable interest of 37.5 percent: scenario B. However, Mr McKay says more than $204,000 of Mr Zeng’s funds were in fact used to buy 9J. So, Mr Zeng has an equitable interest of 83.1 percent.
[49] Mr McKay says it does not appear any of Mr Zeng’s funds were used to buy 12G, as those intended for it were applied towards 9J. Under scenario B, Mr Zeng would have had a 34.9 percent interest in 12G.
[50]Overall, the position is this:
Properties in Issue
Scenario A
Scenario B
$
%
$
%
1J / 135 Victoria Street
226,372.00
100
105,000.00
47.3
3B / 11 Howe Street
0.00
0.0
126,208.40
77.4
9J / 135 Victoria Street
205,025.80
83.1
92,525.80
37.5
12G / 135 Victoria Street
0.00
0.0
112,197.60
34.9
10 King Edward Avenue
*1,960,304.27
100
*1,960,304.27
100
Interest paid on mortgage
16,829.00
16,829.00
Total
$2,408,531.07
$2,413,065.07
* Total purchase costs only, interest paid on mortgages is shown on the line above
[51] Before turning to rent, something more about 1J. Mr McKay says on 10 July 2012, Ms Cai entered an agreement on behalf of her mother for 1J’s sale to a third party. The price was $269,000. Settlement occurred on 10 August 2012. Mr Zeng says he learned this only when he brought this suit, and the defendants have not accounted to him for any of the proceeds even though he had been in New Zealand a month earlier (to see Dahai and purchase 10 King Edward Avenue). Mr McKay said the proceeds went into Ms Li’s bank account on 10 August, and then to Ms Cai’s foreign exchange account on 23 August 2010. Mr McKay cannot say with confidence what then happened to them, other than Mr Zeng has not seen them.
[52] All five properties were rented. The rental picture is incomplete as the defendants have not provided full discovery of all tenancy agreements and related income. Mr McKay has traced rental income of $554,883.60 from the properties into the defendants’ bank accounts. As will be apparent from the table below, Mr McKay considers likely rental income to be much higher because of the incomplete picture, and because the defendants acknowledge receiving some rent in cash:14
14 Mr McKay’s estimate is based on assumptions, including 95 percent occupancy, and fair market rent. Mr Peter Bates, a valuer, gave evidence about the latter in relation to the properties.
Property
Received in bank
Estimated rental income
1J / 135 Victoria Street
35,245.00
43,132.71
9J / 135 Victoria Street
153,750.00
182,450.21
12G / 135 Victoria Street
125,936.60
201,775.52
3B / 11 Howe Street
165,307.00
201,324.00
10 King Edward Avenue
74,645.00
251,185.71
Total
$554,883.60
$879,868.16
[53] Mr McKay also estimated likely expenditure in relation to the properties. Mr McKay had to estimate as Ms Cai did not discover her tax returns. In this table, OPEX means operating expenditure:
Property
Estimated rental income
Net rental income $
(30% OPEX)
Net rental income $
(40% OPEX)
Scenario A
Scenario B
JZ’s
share
%Net rental income share (30% OPEX)
Net rental income share (40% OPEX)
JZ’s
share
%Net rental income share (30% OPEX)
Net rental income share (40% OPEX)
1J/135 Victoria St
43,132.71
30,192.90
25,879.63
100
30,192.90
25,879.63
47.3
14,286.60
12,245.66
9J/135 Victoria St
182,450.21
127,715.15
109,470.13
83.1
106,091.21
90,935.32
37.5
47,877.75
41,038.07
12G /135 Victoria
201,775.52
141,242.87
121,065.31
0.0
0.00
0.00
34.9
49,304.38
42,260.90
3B / 11 Howe St
201,324.00
140,926.80
120,794.40
0.0
0.00
0.00
77.4
109,056.19
93,476.73
10 King Edward
251,185.71
175,830.00
150,711.43
100
175,830.00
150,711.43
100
175,830.00
150,711.43
Total
879,868.16
615,907.72
527,920.90
312,114.11
267,526.38
396,354.92
339,732.79
[54] Mr McKay considers Ms Cai has not accounted for likely rental profit of between $267,526.38 and $396,354.92. This range reflects four variables: scenario A; scenario B; 30 percent operating expenditure; and 40 percent such expenditure.
[55] As observed, Mr McKay also examined other property transactions by Ms Cai. Mr McKay says discovery reveals:
(a)On 29 January 2010, Ms Cai entered an agreement to buy 1D Albury Avenue, Epsom. The price was $438,000. Settlement occurred on 5 March 2010. Ms Cai sold the property for $425,000 on 16 April 2012. There is no evidence Mr Zeng’s funds were used.
(b)On 8 June 2014, Ms Cai entered an agreement to buy 2A Goldsmith Road, Epsom. The price was $1,505,000. Settlement occurred on 29 August 2014. On 9 June 2015, Ms Li, who had been nominated as purchaser, gifted the property to the Cai family trust. On 14 April 2016, the trust sold it for $1,910,000. The transaction generated a profit of approximately $359,000.15
Analysis
Approach
[56] In formal proof, a plaintiff must establish his, her or its case in the usual way, but need not address affirmative defences.16 Courts must be “careful” in this setting as the plaintiff’s evidence is untested.17 Eight causes of action are advanced:
(a)Resulting trusts over the apartments; sale proceeds; home; and rental profit.
(b)Constructive trusts over the same subject matter as (a).
(c)Breach of fiduciary duty in relation to the same subject matter as (a) and (b).
(d)Breach of a contractual “joint venture” in relation to the apartments; sale proceeds; and rental profit from the apartments.
15 Mr McKay said there is evidence $30,000 of Mr Zeng’s funds were used in this purchase. However, no claim is made over 2A Goldsmith Road or any part of its proceeds.
16 Neumayer v Kapiti Coast District Council [2013] NZHC 1106 at [8]; Ferreira v Stockinger [2015] NZHC 2916 at [36]; and Kim v Cho [2016] NZHC 1771, [2016] NZAR 1134 at [4].
17 Tech Voice Data Ltd (in liq) v Ovenden [2015] NZHC 2766 at [2]; and Kaikoura Freight Ltd (in liq) v Collins [2017] NZHC 1490 at [6].
(e)Pallant v Morgan equity in relation to the home; and associated rental profit.
(f)Tort of deceit vis-à-vis repayment of the home loans.
(g)Contractual misrepresentation in relation to the same subject matter as (f).
As will be apparent, all involve closely pleaded alternatives. Duplication is evident.
[57] Ms Cai’s absence precludes her from advancing her defence Mr Zeng gifted everything. However, Mr Zeng’s evidence comprehensively addresses gifting, in part because of the possible application of the presumption of advancement. This presumption holds:18
In certain circumstances the relationship between A and B is such that there is a natural obligation for A to provide for B. The law presumes that this is indeed what A is doing.
[58] Consequently, I address gifting to the extent raised by Mr Zeng’s evidence or potential engagement of the presumption of advancement. Because of the multiplicity of pleadings, I first identify my key factual determinations. Only then do I address the causes of action—and swiftly. It is unnecessary to go beyond the two primary claims, resulting trust and constructive trust. The others add nothing. Mr Zeng’s contention of a contractual joint venture is illustrative. The evidence does not imply a mutual intention to enter binding legal relations, and the nature of the relationship, while not determinative, counts against that.19 Mr Zeng’s recitation of Ms Cai’s communications implies she did not see their property dealings as contractual in nature. And, once pregnant, Ms Cai appears to have believed Mr Zeng had a moral duty to provide for Dahai. This case is about trusts, not more.
18 Andrew Butler, Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 12.5.4.
19 Fleming v Beevers [1994] 1 NZLR 385 (CA) at 391.
Factual findings
[59]I find:
(a)Mr Zeng made all the advances he said he made, through the medium of Ms Cai’s mother, Ms Li.
(b)Mr Zeng’s funds were used to (ultimately) acquire 100 percent of 1J; and 83.1 percent of 9J. But, Mr Zeng’s funds did not reach 12G and 3B/11 Howe Street, as Ms Cai applied them otherwise.
(c)Ms Cai and Ms Li sold 1J. And gave Mr Zeng nothing.
(d)Mr Zeng has a 100 per cent interest in King Edward Avenue through combination of pre-purchase and post-settlement contributions.
(e)Mr Zeng intended to retain beneficial ownership in realty. Corresponding advances were not gifts.
(f)Mr Zeng was content for Ms Cai to apply rental profit as she wished, save in relation to King Edward Avenue, about which he was ignorant.
[60] Findings (a)–(d) reflect the evidence of Mr McKay, which materially supports Mr Zeng’s testimony. The balance require elaboration.
[61] Finding (e) is consistent with the presumption of a resulting trust described by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council,20 but not dependent on that presumption. This because Mr Zeng’s evidence is supported by contemporaneous communications between Ms Cai and Mr Zeng, which confirm her appreciation of his intention. A handful of examples will suffice.
[62] On 24 February 2011, Ms Cai sent Mr Zeng a text message encouraging him to buy another apartment with her:
20 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961.
… We need to hurry up and grab this opportunity, I regret losing a great opportunity today, because last night you didn’t discuss with me and I hesitated. …
[63]On 31 March 2012, Ms Cai referred to her investments with Mr Zeng:
… I also transferred my life savings to Auckland to buy apartments with you, in order to find a place to live in Auckland and allow me and my son – who had no way of making a living – to keep living and to let my son continue to be educated, we continued to actively invest.…
In the same message, Ms Cai referred to “painstaking discussions with you about investing in a school zone property…”.
[64] On 16 April 2012, Ms Cai sent Mr Zeng a message in which she referred to Mr Zeng feeling “uncomfortable about buying a house for [her] and the children to live in”. That day, Ms Cai sent Mr Zeng a message in which she complained he was “still negotiating conditions” in relation to buying a home.
[65] On 17 April 2012, Ms Cai sent Mr Zeng a long message about “our properties”. Ms Cai complained the yet to be purchased house “may just be a commodity or a hen that lays eggs” to Mr Zeng, but to her and Dahai “it is our home”.
[66] Similar messages can be found from Mr Zeng to Ms Cai. On 30 March 2013— and so after all five properties had been acquired—Mr Zeng wrote:
Ou CAI, Dahai’s mother,
....
We have been through a lot since we met three years ago in 2009, I met you in Auckland, I watched you and Yonggan live on the bread line and your painful relationship with Mr CHIN, I understood you were at the end of your ropes but were still looking for extracurricular tuition classes for Yonggan. I understood the hardship you suffered ten years ago due to a mistaken diagnosis, I was very sympathetic. I wanted to help you and rescue you from poverty.
Since then I had a new experience almost daily, we bought 3 apartments during that time, we had Dahai and bought a house etc. looking back, I have made a lot of mistakes in Auckland, including the great pain I have caused my family due to my immigration matters.
…
Ever since we fought a couple of days ago, I have been thinking, the main cause was the fact that you and I don't trust each other.
I feel you have always viewed me as being very rich, you have always had high expectations, higher than what I can give. You have a female friend who had a baby with a petroleum tycoon, I feel you have had discussions with each other and you have been comparing yourselves with each other.
As for money, I know better than you how my money has come about, it has come as the result of blood and sweat. I also want to pay back the mortgage as soon as possible. Ever since the KING EDWARD AVE was purchased less than 10 months ago, I have raised NZD$1.8 million from various sources, you don’t understand how my company operates, you think I have money in my pocket at any given time.
[67]Like sentiment is apparent from Mr Zeng’s long email of 11 July 2013:
I called you using QQ several times yesterday and today and you did not answer. Every time I call you I feel unease, because I do not hope to fight anymore, I especially do not want us to swear at each other.
All the talk has been about money, you insisted on me buying 10 KING EDWARD, you said it was so that Dahai and Yonggan can go to good schools from Kindergarten, primary to college, there will be no worries with schooling in the future. In the end I gritted my teeth and bought it.
Ever since I met you, you kept talking about your pain and misfortune; Later on it was basically you making demands and hoping others will co-operate with you. Including what you said about not being able to live in North East China due to health reasons, all that hindered my determination to buy you a house.
I am an ordinary person, apart from my instincts regarding technology, my other quality is persistence. Due to my past experiences, I just want to do my job well in a stable way, I opened the company to make money which requires huge efforts, a lot of people in my industry have fallen, luckily I am still surviving. You say I am living a life of “drinking and feasting”, when all said and done even if you try your hardest you might not make money, but if you don’t work hard you definitely cannot make money.
When you have a problem you can yell at me, as for me, I can yell about other problems. When it comes to problems related to you, maybe at first I will yell once or twice, then there is no room for me to yell, I have to endure. Some of my friends know I am not happy, but how can I tell them? Of course I have other responsibilities such as my parents, you don’t care about that, so I won't talk to you about that.
You said your mother wants to immigrate, and insisted that I raise the money to pay off the mortgage. So I had no choice but to look everywhere for money. Even though I knew your mother might not qualify for immigration I still raised enough money to pay off the mortgage. You said Dahai needed to get a visa to come to China, and required a photocopy of my passport when his birth certificate was amended, I felt that was not necessary, for Dahai’s sake, I decided to change my information, even though that is risky for me. If this
is exposed, then that’s what the heavens have arranged. I won’t think too much anymore. But that won’t be good for Dahai. At least while he is little.
Before Dahai turned one you said he kept wanting you to hold him, it was very hard, I took the initiative to suggest that you get a nanny. Even though it was very expensive, I thought it was six months, it was expensive but so be it.
Earlier on you suddenly said Dahai needed to go to a private school, if it is helpful for Dahai's future, I will support it; As long as I am able.
But I think after Dahai turns two there is no longer a need for a nanny.
I am not a rich man like you think, I can’t just get money whenever I want like you think. It’s not that I really care about money, but every time I raise money it is difficult.
I don’t want to talk about how hard I work, or how much pressure I am under; I also don't want to talk about how smart or capable I am, I am in fact an ordinary person. I just want to do my best to persist without collapsing. I also want to watch Dahai grow up, even though I may not be able to be with him for long periods of time.
I hope that in the future Dahai will see this world with the heart of a peaceful and ordinary person.
[68] Finding (e) is also consistent with Ms Cai’s statements to WINZ. A WINZ file note of 17 October 2016 records Ms Cai asked to cancel her benefit, as she was staying at a home owned by her former partner and mother. Ms Cai made a related statutory declaration: “The property was bought by my ex-partner. He requested it be registered under my mother’s name”. This declaration is consistent with an earlier declaration made by Ms Cai on 1 August 2012. Ms Cai then said she did not own the home and had been paying rent since she moved in.
[69] This finding is not affected by a document described as “Party A, Party B”, which Mr Zeng sent to Ms Cai on 29 May 2012. Under Party A, Party B, Mr Zeng implied he was prepared to buy Ms Cai a home that would become Dahai’s when Ms Cai died. However, Party A, Party B was quickly overtaken by events, including adoption of financial arrangements materially different to those contemplated in the document. Mr Zeng contributed much more capital than that anticipated under Party A, Party B, and King Edward Avenue cost half a million dollars more than that contemplated by Party A, Party B.
[70] Nor is finding (e) affected by the presumption of advancement. The presumption could not be engaged in relation to the apartments because all were bought before Dahai was conceived. And, the relationship between Mr Zeng and Ms Cai was not one in which she was then dependent on him.21 At the trial before Hinton J, Ms Cai accepted:
(a)She has an undergraduate degree, with a major in English.
(b)She has a Master’s degree in business administration, again majoring in English, from the University of Wisconsin.
(c)She had taught as an English language teacher in China.
And, Ms Cai was the likely beneficial owner of two other properties; see [55].
[71] Second, even if the presumption were then engaged, as explained above, I am satisfied Mr Zeng intended to retain beneficial ownership to the extent of his contributions.
[72] The presumption of advancement may attach to Dahai—and hence to King Edward Avenue—bought shortly after his birth. But if so, circumstance displaces it. Mr Zeng and Dahai settled on day three of trial. Terms were placed before me at the formal proof hearing. Mr Zeng will create a trust for Dahai, into which he will soon transfer $975,000 for Dahai’s “education, maintenance and support”. Mr Dale is to be an advisory trustee. Trust property will become Dahai’s when he turns 30.
[73] It might have been open to Ms Cai to contend she was dependent on Mr Zeng because of Dahai. But, this argument could not have succeeded as Dahai has been provided for. In any event, I am satisfied Mr Zeng did not intend King Edward Avenue to be a gift.
21 Neither was her son, Jonathan.
[74] These conclusions establish the first cause of action of a resulting trust in relation to:
(a)A 100 percent beneficial interest of 1J, and hence the entire proceeds of its sale.
(b)An 83.1 percent beneficial interest of 9J.
[75] However, no resulting trust arises in relation to the other two apartments for the simple reason Mr Zeng’s funds never reached them. To this extent, the first cause of action fails.
[76] Mr Baird submitted the better analysis is through the second cause of action, which alleges a constructive trust over the four apartments on scenario B. I accept the case could be analysed this way, and if it were, Mr Zeng would have a beneficial interest in each apartment to the extent of his contributions as identified by Mr McKay. A constructive trust would arise because Mr Zeng has made contributions, direct or otherwise, to each apartment on the expectation he had an interest to the extent of his contributions; that expectation would be reasonable; and, Ms Cai should reasonably expect to yield Mr Zeng his interest.22
[77] However, Mr Baird properly accepted both scenarios could not apply, otherwise Mr Zeng’s contributions would be double-counted. I consider a resulting trust is the better analysis in relation to the apartments for two reasons. First, it reflects what happened to Mr Zeng’s funds. Second, Mr Zeng suffers no prejudice. His contributions under each scenario are the same. There is no evidence some apartments have appreciated significantly more than others.23
[78] The position in relation to King Edward Avenue is a little more complex. While it is clear Mr Zeng ultimately paid for the home in its entirety, some of his contributions were made after settlement. Post-acquisition contributions are
22 Mr Baird also advanced a common intention constructive trust.
23 There is confined evidence 9J and 12G leak, leaked or might have leaked. But, there is no evidence either apartment has fallen in value, or if so, by how much.
conventionally analysed as a constructive trust, not a resulting trust.24 So, Mr Zeng’s pre-settlement contributions constitute a resulting trust; the balance a constructive trust. To this extent, the first and second causes of action both succeed.
[79] This brings me to rent: finding (f). I am not satisfied Ms Cai should account for rental profit in relation to 1J and 9J on any cause of action. Even on Mr Zeng’s own evidence, no clear intention emerges in relation to profit. And, the apartments were purchased in an evolving situation. Mr Zeng was initially content for Ms Cai to treat any profit as her own, and when she had Dahai, to benefit him and defray cost in relation to King Edward Avenue.
[80] While Mr Zeng questioned Ms Cai about the apartments’ rental returns, he did so only to assess the financing of King Edward Avenue. Messages and email around the time of the home’s purchase make this clear.25 Materially, Mr Zeng never said to Ms Cai she had failed to share rental profit or misapplied it. This aspect of the claim presents as afterthought. All causes of action in relation to apartmental rental profit fail.
[81] The position is different in relation to King Edward Avenue. Mr Zeng purchased the home so Ms Cai and Dahai would have somewhere to live in a good school zone; not as a rental property. This usage was unanticipated—and unauthorised. Mr Zeng has not received any profit from rent on King Edward Avenue. He should have.
[82] Mr McKay’s assessment of rental profit presupposes Ms Cai paid rent to her mother, as did boarders. Ms Cai accepted both before Hinton J. Mr McKay also assumes the home was rented at a market rental from 1 June 2017. I find it likely this occurred:
24 Mamat v Mamat [2018] NZHC 639.
25 For example, on 28 June 2012 Mr Zeng sent Ms Cai an email containing a spreadsheet. The spreadsheet referred to rent from the apartments servicing, in part, the loan for King Edward Avenue.
(a)A process server attempted to serve Ms Cai on 22 December 2017. Ms Cai was not there. An occupant said Ms Cai was in China. The occupant described herself as a “tenant”.
(b)Ms Cai’s lawyers told the Court at a case management conference in mid-2017 Ms Cai was in China.
(c)Ms Cai has not appeared since at least May 2017. Her recent memorandum confirms she has been living with Dahai in China.
(d)Property in this area can command a rental premium.
[83] It follows Ms Cai and Ms Li must account to Mr Zeng for $175,830.26 The first and second causes of action here succeed.
[84] Mr Zeng seeks compensation of more than $66,000 in relation to things he bought for Ms Cai’s use: a car, whiteware and furniture for King Edward Avenue. I consider these gifts. All were made around the time of Dahai’s birth, and with a view to making life as comfortable as possible for Dahai by his absent father. The contemporaneous communications do not support the proposition Mr Zeng intended to remain the beneficial owner of these things. The Westdeutsche presumption of a resulting trust is displaced by Mr Zeng’s apparent intent to gift. This part of the claim fails.
[85] Mr Zeng also seeks compensation of almost $8,000 for what he contends is his share of “leaky building” compensation in relation to 9J and 12G. But, Mr Zeng’s funds never reached 12G. And, on-point evidence in relation to 9J is scant. For this reason, this part of the claim also fails.
Tort of deceit
[86] The tort of deceit is the sixth cause of action. Mr Zeng alleges he repaid all loans in relation to King Edward Avenue because Ms Cai represented—falsely—this
26 I accept Mr McKay’s evidence operating expenditure of 30 percent should be adopted because Ms Cai and her mother appear to have let property without using agents, thereby reducing cost.
was necessary for her mother to move to New Zealand (to help with Dahai’s upbringing). Mr Baird urged me to address this cause of action as an obvious example of Ms Cai’s “serial deceit”, and as the primary basis for substantial equitable exemplary damages (of $60,000).
[87] I decline to do so. This cause of action is an alternative only to the primary ones, and well down the list. Mr Zeng suffers no prejudice from this approach as his repayment of the home loans is recognised in his 100 percent beneficial ownership of King Edward Avenue. Moreover, there are obvious dangers in attempting to adjudicate on the tort of deceit in the absence of the defendant. It is unnecessary— and undesirable—to address exemplary damages for the same reasons.27
Compound interest
[88] Mr Baird submitted Mr Zeng should be awarded compound interest on the proceeds of sale of 1J, and in relation to rental profit on King Edward Avenue. Duffy J helpfully summarised applicable principle in Eden Refuge Trust v Hohepa:28
[28] An award of compound interest is not imposed for the purpose of punishment: see Equiticorp (No 51) at 696-697. However, Chancery Courts have awarded compound interest when they thought justice so demanded; that is, where money had been obtained or retained by fraud, or where it had been withheld or misapplied by a trustee or anyone else in a fiduciary position: see President of India v In Pintada Compania Navigacion SA [1985] AC 104 at
116. Both defendants satisfy this requirement as each of them has knowingly breached his fiduciary duties: the first defendant as trustee of the PWFM trust; and the second defendant as solicitor for the trust. The alternative finding that the second defendant wilfully closed his eyes to the obvious would also satisfy this requirement.
[29] Where it has been established that defaulting trustees/fiduciaries have used trust moneys in trade, they may be charged compound interest. The justification for doing so lies in the fact that profits earned in trade are seen to be likely to be used as working capital for earning further profits. Moreover, compound interest has also been awarded in cases where the defendant has wrongfully profited, or is presumed to have so profited from having the use of another person’s money: see Wallersteiner v Moir (No 2) [1975] QB 373 at 397 (emphasis added):
It is well established in equity that a trustee who in breach of trust misapplies trust funds will be liable not only to replace the misapplied
27 Mr Baird urged me to award additional equitable compensation too. I am not satisfied any is necessary given recognition of Mr Zeng’s proprietary interests and compensation in relation to the proceeds of 1J’s sale and rental profit on the home.
28 Eden Refuge Trust v Hohepa [2011] 3 NZLR 273 at [28]–[30].
principal fund but to do so with interest from the date of the misapplication. This is on the notional ground that the money so applied was in fact the trustee’s own money and that he has retained the misapplied trust money in his own hands and used it for his own purposes. Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which he is assumed to have made from the use of the money. In Attorney General v Alford, No 4 DeG.M.&G. 843 at 851 Lord Cranworth LC said:
What the Court ought to do, I think, is to charge him only with the interest which he has received, or which it is justly entitled to say he ought to have received, or which it is so fairly to be presumed that he did receive that he is estopped from saying that he did not receive it.
This is an amplification of the doctrine that the Court will not allow a trustee to make any profit from his trust.
[30] In Westdeutsche Landesbank Girozentrale v Islington Borough Council [1996] AC 669 at 702, Lord Browne-Wilkinson stated that in the absence of fraud, equity only allowed awards of compound interest where a defendant had acted in breach of his duties as a trustee or other fiduciary duties. His Lordship did not consider that the award of compound interest should be confined to cases where the defaulting fiduciary had used trust moneys in his own trade and that it was enough if he had improperly profited from his breach of duty.
[89] I am not persuaded compound interest is appropriate. My limited findings fall short of fraudulent conduct. There is no evidence sale proceeds or rental profit were used in trade. Misuse of funds by a fiduciary is perhaps available, but neither defendant appeared. Fairness is a dual-edged sword. In any event, Mr Zeng will be compensated for loss of use of money by a conventional award of interest.
Summary
[90] Mr Zeng is largely but not wholly successful on formal proof. He is the beneficial owner of the home and 83.1 percent of 9J. Mr Zeng was the beneficial owner of 1J, and is entitled to its proceeds of sale on that basis. Mr Zeng is also entitled to rental profit on the home but not the apartments. Mr Zeng was ignorant about the former, but sanguine about the latter. The car, whiteware and chattels were gifts. Not enough is known about the modest leaky building payment to entitle Mr Zeng to a share of it. Equitable exemplary damages do not arise. Compound interest is inappropriate for the reasons above.
[91]Settlement with Dahai means he has been provided for too.
Declarations and orders
[92] To the extent identified, Ms Li holds these properties on trust for the benefit of Mr Zeng:
(a)Apartment 9J: Mr Zeng has an 83.1 percent beneficial interest.
(b)10 King Edward Avenue: Mr Zeng has a 100 percent beneficial interest.
[93] Under s 89 of the Land Transfer Act 2017, the declared beneficial interests at [92] are vested in Mr Zeng. Mr Zeng is:
(a)A tenant in common with Ms Li in respect of 9J.
(b)The sole registered proprietor of 10 King Edward Avenue.
[94]Orders:
(a)Ms Li and Ms Cai must account to Mr Zeng for the proceeds of sale of 1J in the sum of $255,468.69, plus interest at the rate of five percent per annum from the date of 1J’s sale.
(b)Ms Li and Ms Cai must account for rental profit in relation to 10 King Edward Avenue in the sum of $175,830, plus interest at the rate of five percent per annum from when this suit was commenced.29
(c)Substituted service against Ms Li and Ms Cai is ordered under r 6.8 of the High Court Rules 2016. As each is China, service may be made by email to Ms Cai—for both defendants—at her usual email address of [email protected].
29 Some profit accrued before the claim was filed; some after. The claim date provides a convenient and fair mid-point—13 August 2014.
Costs
[95] Mr Baird foreshadowed a costs application. He is to file a memorandum on or before 19 October 2018 of not more than eight pages.
[96] By the same date, Mr Baird may also raise any matters arising—or missing— from the declarations and orders above.
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Downs J
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