Zhang v Li

[2017] NZHC 129

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2015-485-998 [2017] NZHC 129

BETWEEN

ZHANSHU ZHANG AND

RONGSHENG LI Plaintiffs

AND

MENG LI
First Defendant

AND

YI MING ZHAO Second Defendant

CIV 2015-485-1077

BETWEEN  MENG LI Applicant

ANDYI MING ZHAO Respondent

Hearing:

7-8 February 2017

Counsel:

F M Gush for Plaintiffs and first defendant in proceeding 998 and for Applicant in proceeding 1077

P Chan for second defendant in proceeding 998 and respondent in proceeding 1077

Judgment:

10 February 2017

JUDGMENT OF SIMON FRANCE J

[1]      Ms Li came to New Zealand in 2001 to study.   She was supported by her parents.  In 2007 she married and later that year became pregnant.  In 2008 she and her husband purchased a home for $427,500.  The money came from the following

sources:

ZHANG AND LI v LI [2017] NZHC 129 [10 February 2017]

(a)       $52,500 from their savings; (b) $40,000 by way of bank loan; (c)           $335,500 from Ms Li’s parents.

[2]      In February 2012 the couple separated.  It is now agreed the family home is to be sold.  At issue in these proceedings is the character of the $335,500 from the parents – was it a gift or a loan?  If neither is established, did the couple hold the money on trust for the parents?

[3]      Each of the four participants gave evidence along with an expert on Chinese culture.   The evidence left me sure that the parents, at the time of advancement, never intended to confer the beneficial interest on the couple.  The money was not a gift.  On balance I conclude it was a loan, although if not satisfied as to that I would have found a resulting trust.

[4]      The important facts are narrow in scope.  It is accepted the parents transferred the money to an account in their daughter’s name in the period prior to the purchase. The reason for these transfers was mixed.

[5]      Ms Meng Li is the only daughter of Mr Li and Madame Zhang.   When Meng Li married in New Zealand and then became pregnant, it became obvious to the parents that New Zealand would be her permanent home.   They decided they would need to emigrate to New Zealand, in the expectation they would live with the couple who would care for them as they aged.   It was also clear that the couple would need a home, and arguably one big enough for the parents.

[6]      Mr Li and Madame Zhang have savings they intended to use to assist in their retirement.  It was this money they transferred to New Zealand both before and after the couple purchased their home.  The money, other than that used to help buy the house, was placed on term deposit for them by their daughter.   The evidence suggested the available interest rate was somewhat better than that which could be had in China.

[7]      There is no doubt that Mr Li and Madame Zhang saw it as their obligation to assist their daughter and her husband into a home, especially as she was expecting. Their daughter, in turn, wished for her parents to be able eventually to live with her so she pushed for the couple to buy a larger, four bedroom house.  The parents were no doubt primarily motivated by their sense of obligation to their daughter – at this stage they had only met her husband, Mr Yi Ming Zhao, twice and there appears to have been no particular bond between them.

[8]      Mr Yi Ming Zhao contends the money was a gift by the parents to their daughter and that it became relationship property.  The evidence, however, suggests otherwise.  First, no-one said it was a gift.  At best Mr Zhao assumed it to be so as his wife told him she had funds available from her parents.   Second, I accept the evidence of the parents that they made it plain it was a loan, and think it likely that Ms Li told her husband this.   (I am less sure of her credibility for reasons to be explained, but accept the credibility of the parents.)  I consider Mr Zhao mistaken in his recollection he was told it was a gift; I do not accept Ms Li would have said that.

[9]      Third, the parents’ circumstances make it inherently unlikely they would give away such a large percentage of their retirement savings.  Rather, it is much more likely to be a temporary transfer of the use of the money to help the couple get into a home. That is not to say the circumstances of repayment were agreed or identified at the time, but the evidence establishes it was at the least a making available of money to be used for a specific purpose, with such money to be repaid at some point.

[10]     These conclusions reflect acceptance of the parents’ evidence, and a more lukewarm acceptance of the daughter’s.  They do not represent wholesale rejection of  Mr Yi Ming  Zhao  as  a  witness  because  his  evidence  was  that  he  was  not particularly  involved  in  the  discussions.    It  is  necessary  to  address  the  points Mr Chan  makes  on  his  behalf  as  to  why the  evidence  of the parents  and  their daughter should not be accepted.

[11]     Mr Chan first identifies some inconsistencies in the parents’ evidence as to why money was initially transferred.  Mr Li said he first discussed lending money to his daughter to buy the house when she returned to China for a wedding ceremony in February 2008. At that time he learned she was pregnant.

[12]     Madam Zhang says the house discussions occurred earlier, around the time they learned their daughter was pregnant, namely October 2007.   She believes her husband does not focus on these types of things, such as when they knew Ms Li was pregnant and had forgotten.  I accept that evidence.  It is inconceivable that Ms Li would not tell her parents as soon as she was aware of the pregnancy.  It is equally inconceivable Madame Zhang and not her husband would know.  This news, in turn, made it plain to the parents where their daughter’s future lay, and I accept they thereafter saw their own future as also being in New Zealand.  So whilst there is an inconsistency,  I  consider  it  is  an  error  in  recollection  in  Mr Li’s  memory,  and Madame Zhang’s recollection is to be preferred, which is also consistent with other evidence.

[13]     The evidence of Ms Li is compromised by something that occurred in 2012. Asked by her lawyers for any documentary evidence of the loans, Ms Li proffered to her lawyers an unsigned piece of paper called “a promissory note” which recorded a debt from her to her parents.  It purports on its face to have been drafted in 2008 at the time of the house purchase, but in fact she drafted it using an internet precedent in 2012.  The lawyers provided it to the other side, saying their advice was that it was a contemporaneous (ie 2008) document.

[14]     Of this it can be said it was at best a clumsy attempt to record the true situation.  At worst it was fraudulent.  I do not need to reach a firm conclusion, but neither  explanation  is  particularly  satisfactory  and  backdated  documents  always cause alarm.  The willingness to create such a document lessens to a marked degree the confidence I am willing to place in her evidence.  However, I note the document was  not  submitted or relied  on  by Ms Li  in  the proceedings,  and  was  filed by

Mr Zhao.  I do not as a consequence put to one side all her evidence, but look much more carefully for corroborating testimony.1

[15]     A particularly valid point made by Mr Chan in support of the money being a gift is that there is a pattern of gifting by the parents to their daughter dating back to

2001.  The parents paid for her tuition in New Zealand and helped her with living expenses.  She lives with them in China when she returns, sometimes for extended periods.  However, as Mr Chen properly accepted, assistance with living and tuition through periodic payments is significantly different from gifting such a large sum of retirement savings.

[16]     It is next suggested the parents were experienced business people who would know the importance of proper documentation if it were indeed a loan.  Whilst the label of experienced businesspeople is fair enough, the other proposition is less compelling.  Intra family money matters are often done informally.  Evidence was led that this is particularly so in China where to do otherwise could be seen as disrespectful.   I accept the evidence, but do not think it needed for the same conclusion to be reached.   It is not uncommon in family settings for money to be advanced without any clear or settled plan as to when and how it will be dealt with in the future – when do payments start, what if the house is sold, what if we come to live with you, what if you split up?  Often the implicit answer to any of these is “let’s see what happens in the next few years”.  I consider there are clear aspects of that thinking here, while having no doubt that the core contention of Mr Zhao that it was a gift is wrong.

[17]     The final matter raised is the significance of the fact that the parents’ money continued to come into New Zealand quite steadily for a period even after the house was bought.  I do not see this as being of particular significance.  Mr Zhao contends it was because the parents were going to buy their own place, and asked him to look for them.  The parents deny this and say it was just further relocation of funds for the

future.  There is evidence capable of supporting both positions, but in the end little

1      For the record I note that the parents and Ms Li, with legal assistance, also around that time had a repayment agreement drafted and signed.  It records Ms Li as owning the money and sets a repayment date.  The timing of its preparation means it is of no probative value to the trial issue, and I do not consider it further.

turns on it.  I do not consider its resolution says anything about the character of the initial advances.

[18]     These conclusions are enough to resolve the case.  Mr Yi Ming Zhao accepts that if the money were not a gift, it is to be repaid out of the proceeds of the sale.  I find it was an interest free loan to be repaid on demand, with the parties not anticipating that such demand would happen soon, or what form repayments would take.  Since by agreement the house is to be sold and the parents seek repayment, the loan is to be repaid out of the proceeds.

[19]     Submissions were addressed on the position if I was not satisfied either side had established it was a gift or a loan.   Had that been so, Mr Chan relied on the presumption of advancement to say it should be treated as a gift, being an advance by  parents  to  their  daughter.2    Mr Gush  contended  that  this  presumption  was outdated and there should be recognised a resulting trust.

[20]     Given  my factual  findings  it  would  be  a somewhat  artificial  exercise  to analyse this topic.  Rather, I confirm that the evidence satisfied me the parents never intended to confer the beneficial ownership of the money on the couple.   That conclusion would displace the presumption of advancement.  I have gone further and concluded it was intended as, and was, a loan.

Conclusion

[21]     The proceedings involve both transferred Family Court proceedings between the couple seeking to resolve relationship property issues, and original High Court proceedings in which the parents claimed against the couple that the funds were held either on a resulting trust or a constructive trust.  By the time of hearing many of the

disputes had been resolved.

2      Some of the money was advanced by the mother and some by the father. There are debates as to whether the presumption of advancement extends to mothers.  It is unnecessary in this case to consider that.  Further, it is preferable to treat the money as “the parents” rather than being an advance from one or the other.  Identifying a particular parent as the source was due to currency rules in China controlling the amount of money an individual could send overseas.

[22]     Concerning the orders still needed:

(a)      pursuant to s 33(3)(a) of the Property (Relationships Act) 1976 I order that the house is to be sold.  From the proceeds, the parents are to be repaid their capital advance (without interest).  It is agreed the balance be split 50/50, subject to minor adjustments;

(b)      Mr Zhao is to account for half of the balance in the ANZ account.

The balance was $8,856.06;

(c)      Ms Li is to account for half of the balance in  the National  Bank account. The balance was $4,438;

(d)the couple are each to retain the chattels and furniture they presently possess.

[23]     I see no reason costs should not follow the event in the normal way but memoranda  may  be  filed  if  necessary.  Leave  is  reserved  to  return  for  orders

concerning the house sale if that is necessary.

Simon France J