Zhao v MA
[2023] NZHC 3208
•14 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2170
[2023] NZHC 3208
UNDER Section 142 of the Land Transfer Act 2017 IN THE MATTER
of Caveat 12029786.1
BETWEEN
XIAOYAN ZHAO
Applicant
AND
HANGMING MA
Respondent
Hearing: 9 November 2023 Appearances:
D Liu and S Yang for Applicant
Z Chen and C Holland for Respondent
Judgment:
14 November 2023
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Tuesday, 14 November 2023 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors: Heritage Law (D Liu and S Yang), Auckland
Righteous Law (Z Chen and C Holland), Auckland
ZHAO v MA [2023] NZHC 3208 [14 November 2023]
[1] Xiaoyan Zhao applies for an order under s 142 of the Land Transfer Act 2017 (the Act) removing caveat 12029786.1 registered on 22 February 2021 (Caveat) against the land comprised in record of title NA30B/821, which is more particularly described as Lot 5, Deposited Plan 74353 (the Property) on the proviso that the applicant’s solicitors, Heritage Law, provide the respondent with an undertaking to hold the net sale proceeds in their trust account undisbursed pending the determination or resolution of the dispute between the parties.
Applicant’s case
[2] The applicant, respondent and the respondent’s wife, Chong Feng, are parties to a property agreement (Property Agreement) and a Deed Creating Nominee Trust in respect of Land (Trust Deed), both dated 24 March 2015.
[3] In pursuance to the terms of the Property Agreement and the Trust Deed, on 27 March 2015 the parties acquired the Property for $1,130,000. The property was registered in the sole name of the applicant, which she agreed to hold in trust for the parties on the following proportions:
(a)Respondent: 50 per cent
(b)Applicant: 25 per cent
(c)Ms Feng: 25 per cent
[4] The purchase price was funded by the applicant drawing down an ANZ Bank New Zealand Limited (ANZ) mortgage loan of $860,640 (ANZ mortgage) and the parties paying their respective percentage shares of the balance of the purchase price, totalling $271,629.74.
[5] To fund the holding costs of the Property, the Property Agreement and Trust Deed required the parties to pay their respective percentage shares of the outgoings, including any principal, interest and other payments due and payable under the ANZ mortgage.
[6] On 22 February 2021, the respondent registered the Caveat to protect his beneficial interest in the Property.1
[7] In September 2022, the applicant, in her capacity as trustee, requested the parties to deposit a total of $40,000 into her ANZ bank account to enable her to meet the ANZ mortgage loan repayments.
[8] In accordance with that request, on 26 September 2022 and 27 September 2022 the applicant and Ms Feng each paid $10,000 into the applicant’s ANZ bank account, being their respective portions, for the purpose of servicing the ANZ mortgage fund repayments.
[9] The applicant claims the respondent has failed, neglected and/or refused to pay his percentage share of the ANZ mortgage loan repayment.
[10] As a result of the respondent’s failure to contribute funds in accordance with the requirements of the Property Agreement and the Trust Deed, the applicant has not been able to comply with her repayment obligations under the ANZ mortgage, which has been in default since approximately March 2023.
[11] As a result of the default, ANZ as mortgagee has demanded that the applicant undertake a voluntary sale of the Property, backed by a threat of forced mortgagee sale.
[12] By their solicitors’ letter dated 6 March 2023, the applicant and Ms Feng gave written notice of their intention to sell their interest in the Property in accordance with cl 8.1 of the Property Agreement and notified the respondent of the fact that if he did not exercise his option to purchase the applicant and Ms Feng’s interest under cl 8.2, cl 9.1.2 of the Property Agreement required the Property to be placed on the open market for sale.
1 The applicant submits that the caveat is defective as the respondent describes his estate or interest as arising from an implied trust or a resulting trust rather than an express trust. I am of the view that the caveat describes the nature of respondent’s estate or interest with sufficient certainty and proceed on the basis the caveat is not defective.
[13] The option to purchase lapsed on 6 April 2023 and the respondent did not exercise his option to purchase under cl 8.2 of the Property Agreement.
[14] As the respondent did not exercise his option to purchase, and with the view to avoid a forced mortgagee sale by ANZ, the applicant listed the Property for sale on the open market on or about 31 July 2023.
[15] On 21 August 2023, the respondent applied without notice to restrain the applicant from selling the Property under High Court proceeding number CIV 2023 404-1771.
[16] The respondent’s application for an interim injunction was dismissed by Isac J on 21 August 2023 on the basis that there was no serious question to be tried, and that the balance of convenience did not favour any delay to the sale.2
[17] On 30 August 2023, the applicant entered into an agreement for sale and purchase of real estate to sell the Property to Tingting Wang for $1,577,000, with settlement scheduled to take place on 17 January 2024 (which has since been deferred to 23 January 2024). The agreement for sale and purchase is solely conditional upon the removal or withdrawal of the respondent’s Caveat.
[18] Prior to accepting the offer from Ms Wang, the applicant sought the respondent’s view on the offer, but she did not receive any response from the respondent other than that he had changed legal representation.
[19] By her solicitor’s letter dated 6 September 2023, the applicant sought the respondent’s confirmation that, in order to facilitate the sale, he would withdraw his Caveat on or prior to the settlement date, on the basis that the applicant’s solicitor would provide him with an undertaking to hold the net sale proceeds undisbursed pending the determination or resolution of the dispute between the parties.
2 Ma v Zhao [2023] NZHC 2435 at [25] and [35].
[20] By his solicitor’s letter dated 11 September 2023, the respondent advised that he would only withdraw his Caveat if the applicant paid him $708,240.12 from the sale proceeds.
[21] By her solicitor’s letter dated 15 September 2023, the applicant informed the respondent that the sum sought by him ($708,240.12) not only exceeded his entitlement under the Property Agreement (being 50 percent of net sale proceeds), but it also exceeded the net proceeds of sale, which was estimated to be in the vicinity of
$666,000 (sale price of $1,577,000 less agent’s commission of approximately $46,000 less mortgage loan repayment of approximately $865,000).
[22] Given the matters set out above, the applicant invited the respondent to reconsider his position, and to confirm that he would withdraw his Caveat on the basis of the applicant’s solicitor providing an undertaking to hold the net sale proceeds undisbursed pending the determination or resolution of the parties’ dispute.
[23] As at the date of the application, the respondent had not responded to the applicant’s request for a withdrawal of his Caveat.
[24] The applicant submits that the matters set out above demonstrate that the respondent is using his Caveat for a collateral purpose and that his legitimate interests would not be prejudiced by the removal of the Caveat if the net sale proceeds were retained in the applicant solicitor’s trust account pending further orders of the Court.
Respondent’s opposition
[25] The respondent acknowledges that he is a party to the Property Agreement and the Trust Deed both dated 24 March 2015, whereby the applicant is to hold the Property as a bare trustee for all the parties as beneficial owners.
[26] In accordance with the Property Agreement and Trust Deed, the respondent has contributed financially to the Property and owns 50 percent of the property. He has accordingly registered the Caveat over the Property to protect his interests.
[27] The respondent points out that the applicant does not deny that the respondent has a caveatable interest in the Property. There were valid grounds for lodging the Caveat and those grounds remain valid.
[28] Removing the Caveat would prejudice the respondent’s legitimate interests in the Property. Significant disputed questions of fact render the summary procedure in s 142 of the Act unsuitable to resolve the parties’ dispute.
[29] In his affidavit in opposition to the application for an order removing the Caveat, the respondent has sections entitled: “The Work Carried Out and Value Added by Me”, “Further Fund Contributions by Me and Actions of the Applicant”, “The Act of Selling the Property by the Applicant”, “My Losses” and “Addressing the Judgment of Justice Isac”.
[30] In the first section, the respondent refers to the work he has done in order to sub-divide the Property and increase its value. He claims the applicant and Ms Feng agreed to pay him a management fee of $50,000 for the work on the sub-division of the Property. In the second section, the respondent refers to the cash contributions he made towards the Property and changes made to the mortgage structure by the applicant without his knowledge which caused him loss. He denies being obliged to contribute $20,000 as alleged by the applicant.
[31] As to the sale of the Property, the respondent claims he was never consulted by the applicant. He further claims that the Property Agreement has now been largely terminated due to the applicant and Ms Feng marrying in 2018 and, in any event, the applicant did not properly follow the procedures set out in the Property Agreement. The respondent notes that the rateable value of the Property is $1,925,000, yet the applicant has sold it for $1,577,000.
[32] In summary, the respondent claims that his losses are likely to be higher than what the agreement for sale and purchase is likely to return to him after deducting all the costs identified by the applicant.
[33] In addressing the judgment of Isac J, the respondent states that he did not oppose the sale of the Property, but has consistently opposed the manner and method adopted unilaterally by the applicant. The applicant has not, and should not, be allowed to benefit from her breaches, especially at his expense. The method adopted for her does not allow the full realisation of the value of the Property.
Section 142 of the Land Transfer Act 2017
[34] A person who has an interest affected by a caveat against dealings may apply under s 142 of the Act to the High Court for an order that the caveat be removed. The principles applied by the Court on applications for the removal of caveats are now reasonably well settled.
[35] First, it is clear that on an application under s 142 to Court ought not to determine the rights of the parties unless both parties consent or unless the facts are not in dispute and the law has been fully argued.3
[36] Secondly, the caveator must show a reasonably arguable case for the claim. If the caveator does not establish an arguable case, the caveat will be removed. There is no discretion to sustain a caveat if the caveator has not established an arguable case.4
[37] Thirdly, there is a residual discretion to remove a caveat notwithstanding that the caveator has established an arguable case.5 The residual discretion was recognised by the Court of Appeal in Pacific Homes Ltd v Consolidated Joineries Ltd.6 In that case, it was argued that where a caveator had demonstrated an arguable case for the claimed estate or interest, the caveat could not be removed. The statement of Somers and Gallen JJ in Sims v Lowe was cited in support.7 Rejecting the argument, Blanchard J for the Court of Appeal said:8
We are of the view that in the dictum in Sims v Lowe Somers and Gallen JJ were concerned with the situation which was then before the Court and were
3 Neil Campbell and others Principles of Land Law in New Zealand (3rd ed, LexisNexis, Wellington, 2020) at [10.020(a)].
4 At [10.020(b)].
5 At [10.020(c)].
6 Pacific Homes Ltd v Consolidated Joineries Ltd [1996] 2 NZLR 652.
7 Sims v Lowe [1998] 1 NZLR 656 (CA) at 659–660.
8 Pacific Homes Ltd v Consolidated Joineries Ltd, above n 6, at 656.
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 the 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 the 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 interests 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 the claimed interest is undoubted.
Discussion
[38] For the purposes of this application, I accept that the respondent has a caveatable interest in the Property. Nonetheless, I am of the view that his interests can reasonably be accommodated by substituting a fund for the Property, to be held by the applicant’s solicitors on their undertaking not to disburse any sum unless or until the parties reach an agreement or a Court so orders.
[39] It seems to me that the respondent’s interests will not be compromised by sale of the Property. In his judgment dated 31 August 2023, Isac J was satisfied that there was no serious issue to be tried and the balance of convenience clearly favoured declining the respondent’s application for an interim injunction restraining the sale of the Property. Isac J stated that standing back he was also satisfied that delaying the sale of the Property was not in the best interests of justice. That was because delay was likely to prejudice all of the co-owners.
[40] The respondent submits that the Caveat cannot be removed using the summary procedure under s 142 of the Act because there are a large number of disputed facts not suitable for resolution through the present application. Counsel lists the disputed facts as:
(a)whether the Property Agreement had been terminated through the operation of cl 13 by the subsequent marriage of Ms Zhao and Ms Feng;
(b)whether the preliminary subdivision work adds value to the property;
(c)whether the applicant and Ms Feng agreed to pay a $50,000 management fee to the respondent and whether the $20,000 paid by Ms Feng into the property account contains a contribution from the respondent;
(d)whether certain payments made by the applicant from the property account were legitimately made;
(e)whether rental income has been properly accounted for; and
(f)whether the sale process has been conducted properly either in terms of the Property Agreement or otherwise.
[41] I agree with the respondent that s 142 is a summary procedure not suited to the resolution of disputed facts. However, I need not resolve any of these disputed facts in the present application. Counsel advised me during the course of the hearing that the respondent had filed substantive proceedings against the applicant two days previously and was awaiting service copies from the Court.9 I anticipate these proceedings will resolve the disputed facts.
[42] Although the respondent submits that his beneficial interest extends beyond the proceeds available under the agreement for sale and purchase, damages will be an adequate remedy if the applicant is found to have sold the Property without authority or at an undervalue. The respondent appears to accept that the Property should be sold. In his affidavit dated 10 October 2023, he states:
I repeat that I do not oppose the sale of the Property. I, however, consistently opposed the manner and method adopted unilaterally by the applicant and the repeated tactic of ultimatum imposed on me to either agree to her ways or else.
[43] The sale of the Property is estimated to result in net proceeds of $666,000, of which the respondent’s share will be $333,000. He claims $708,240.12. If the respondent proves his claim in its entirety in the recently filed substantive proceeding
9 Ma v Zhao and Feng CIV 2023-404-2170.
there is no suggestion the applicant would be unable to pay damages of $375,240.12, the difference between his net sale proceeds and his claim.
[44] I agree with Isac J that delaying the sale of the Property is not in the best interests of justice. Delay is likely to prejudice all of the co-owners.
Result
[45] The application is granted. There will be an order removing Caveat 12029786.1 registered on 22 February 2021 against the land comprised in Record of Title NA30B/821, which is more particularly described as Lot 5 Deposited Plan 74353 on the proviso that the applicant’s solicitors, Heritage Law, provide an undertaking to hold the net sale proceeds of the sale of the property to Tingting Wang for
$1,577,000.00 (settlement scheduled to take place on 23 January 2024) in their trust account undisbursed pending the determination or resolution of the dispute between the parties or further order of the Court.
[46] Indemnity costs are payable by Mr Ma to Ms Zhao in terms of cl 5.1 of the Trust Deed.
Woolford J
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