CHIN-FU CHANG V HSING-EN LEE [2017] NZCA 308

CHIN-FU CHANG V HSING-EN LEE [2017] NZCA 308 [19 July 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA279/2016 [2017] NZCA 308BETWEEN CHIN-FU CHANGAppellantAND HSING-EN LEERespondentHearing: 1 June 2017Court: Harrison, Venning and Simon France JJCounsel: R Reed and A Manuson for AppellantG D Wiles for RespondentJudgment: 19 July 2017 at 2.15 pmJUDGMENT OF THE COURTA The appeal is allowed.B We declare that the respondent holds 48.6 per cent of the value of the Sunnynook property on trust for the appellant. The appellant'sequitable interest is to be secured by a notice of charge against the title.C We order that the property be sold on or before 1 January 2018 and the proceeds of sale after deduction of the associated costs be divided accordingly.D The respondent is ordered to pay the appellant costs on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] In 2011 Chin-Fu Chang advanced $275,000 to his niece, Hsing-En Lee, to buy a house in Auckland. The advance amounted to 48.6 per cent of the purchase price but its terms were never settled between Mr Chang and Ms Lee. Ms Lee took title solely in her own name but has since denied Mr Chang's right to repayment of the advance or interest in the property.[2] Mr Chang's appeal from the judgment of the High Court raises the issue of whether (a) Ms Lee holds the title to the property on a resulting or implied trust for Mr Chang proportionate to his contribution; or (b) as Fogarty J found, Ms Lee is subject to a fiduciary obligation arising on the expiry of a fixed term to repay thebalance of Mr Chang's advance then owing but without interest.1 While both alternatives benefit Mr Chang, the financial difference between the two is significant. If Mr Chang's contribution is held on a resulting trust he will be entitled to share pro rata in the proceeds of sale of the property with the accrued benefit of sustained inflation in the Auckland property market. If, however, the advance is an interest-free loan, its real value will have been steadily eroded over the same period.[3] Mr Chang commenced the proceeding in the High Court seeking declaratory relief and orders for sale of the property. Ms Lee's primary defences were that(a) Mr Chang's advance was a gift to satisfy a family debt; or (b) she was entitled to set off the advance against Mr Chang's prior indebtedness to her mother.2 Both parties led a good deal of evidence at a trial lasting six days. Ms Lee does not challenge Fogarty J's dismissal of her two defences.[4] The main contest at trial was on liability, with relief being of a consequential or subsidiary nature. Relief is now the only live issue between the parties and, given its narrow compass, it is unnecessary for us to examine the relevant facts in detail.1 Chang v Lee [2016] NZHC 1040.2 At [3].Background[5] Mr Chang is Ms Lee's uncle by marriage. The family is from Taiwan. Mr Chang's late wife and Ms Lee's mother, Ms Wang, were sisters.[6] In 1990 Mr Chang set up a company in Taiwan, Sheng Yi Enterprise Co Ltd (Sheng Yi). The shares were family-held: Mr Chang owned 37 per cent, his late wife and two children a further 46 per cent, and Ms Wang the remaining 17 per cent. Mr Chang and Ms Wang jointly guaranteed a substantial loan by Citibank to Sheng Yi.[7] In 1995 Mr Chang and his wife bought a home in Delamare Court, Mairangi Bay. The purchase price was funded largely by a loan from ANZ Bank.[8] In 1996 Sheng Yi failed, owing Citibank in excess of $500,000. Fogarty J found that Mr Chang and Ms Wang repaid this debt in about equal shares over some years.3 In the same year Mr Chang and his wife relocated from Taiwan to live in their Delamare Court property. Mrs Chang became ill and died in 1998.[9] In 2002 Mr Chang returned to live in Taiwan where he started working for Goal Co Ltd (Goal), a Taiwanese subsidiary of a Japanese company. Ms Wang was its chief executive officer. With her influence, Mr Chang was employed on a substantial salary; this enabled Mr Chang to pay Ms Wang monthly instalments which she then paid to Citibank toward retirement of Sheng Yi's debt.[10] Between 2002 and 2006 Mr Chang rented out Delamare Court at about $420 per week and from 2006 to 2011 Ms Lee lived there. Ms Wang indirectly paid rent for Ms Lee by increasing Mr Chang's salary, which was then applied in repaying his ANZ Bank mortgage. He repaid that debt and in March 2011 discharged the security. About this time the debt to Citibank was also repaid fully.[11] In February 2011 Mr Chang and Ms Wang arrived in New Zealand to stay with Ms Lee at Delamere Court. Mr Chang's purpose was to transfer title into his3 At [14] and [20].sole name as survivor. He was then aged 63 years. What happened next was described by Fogarty J as follows:[26] During this visit Ms Wang and Ms Lee decided to buy a house for Ms Lee. They looked at two houses and bought one, Sunnynook. Before they had settled on Sunnynook Ms Wang asked Mr Chang to borrow NZ$75,000 to be a deposit on a Takapuna house about to be auctioned. Ms Wang also asked that Mr Chang borrow $200,000 against the security of Delamere Court, the money to be used in the purchase of Sunnynook, having lost interest in the Takapuna property. There is a dispute as to the context of the understanding that followed.[27] It is agreed that Mr Chang said he was prepared to contribute the $275,000, provided that he could work for ten more years. Ten more years at Goal was the core of the agreement. He would raise a mortgage on Delamere Court, borrowing $275,000 which would be put to the new purchase and Ms Wang, as CEO of Goal would arrange for Mr Chang to work for her for ten more years on a generous income.[28] It is common ground that the arrangement in New Zealand was incomplete, and that Ms Wang had said that they would settle the financial details upon their return to Taiwan. They never discussed further the details.[12] In May 2011 Ms Lee purchased the Sunnynook property for $566,000 including Mr Chang's contribution of $275,000, which he borrowed under a new facility with ANZ Bank. Later that year Mr Chang signed a limited power of attorney to Ms Lee to manage the rental arrangements for both the Delamere Court and Sunnynook properties. Mr Chang continued to work for Goal, initially with an increased income. But then in 2012 his income fell to just 40 per cent of the previous year, and in 2013 it was down to about 25 per cent of his gross income in 2011. Mr Chang's departure from the company's employment that year coincided with an increase in tensions with Ms Wang, which is reflected in Mr Chang's letterof 4 June 2012.4 As Fogarty J found, Mr Chang would not have agreed to borrow his $275,000 contribution against the security of Delamere Court without the assurance of a further decade of employment at Goal, enabling him to earn a sufficiently high income to meet his new mortgage obligations.5[13] Sometime in 2012 Mr Chang asked Ms Lee to sell Sunnynook to enable him to repay his ANZ debt. She refused, and also refused to acknowledge his right to the money or any liability to repay the advance. In response Mr Chang revoked the4 See [35].5 At [54]–[55].power of attorney he had granted to Ms Lee and shortly afterwards issued this proceeding.High Court[14] Fogarty J's finding that Mr Chang and Ms Lee did not enter into a binding contract of loan for the $275,000 is not in contest.6 He found "[t]he terms of theadvance had been partly worked out"; that Mr Chang transferred the money to Ms Lee "in the expectation that the funds would be used to purchase a house"; andthat "the funds could only be used for that purpose".7 He was satisfied, however, that the financial details of the transaction were never resolved, consistent with an informal family arrangement underpinned by mutual trust rather than commercial imperatives.8[15] In this respect the Judge found that Mr Chang advanced the money at Ms Wang's instigation and request, intending it to be an interest-free loan for 10 years which also gave him the satisfaction of contributing to Ms Wang's family inrecognition of her assistance to his own.9 The concept of using one property to obtain another was of central importance, as was the prospect of Mr Chang having the security of 10 years' employment with Goal to repay his new ANZ loan. All the financing to purchase Sunnynook was provided by ANZ Bank — $275,000 to Mr Chang and $300,000 to Ms Lee. The Judge found, however, that Mr Chang had no expectation of co-ownership of Sunnynook and apparently concluded that Ms Lee cannot be said to hold Mr Chang's contribution on a resulting trust.10[16] On the basis of his finding of Mr Chang's intention to lend the funds, Fogarty J held that both Ms Lee and Ms Wang had "a fiduciary obligation to recognise that the $275,000 was a loan for a period of no more than 10 years".11 He emphasised that the dispute must be resolved by reference to the maxims of equity because essentially the relationship was one of trust;12 and granted a declaration in6 At [88].7 At [92].8 At [92]–[93].9 At [61]–[62].10 At [97].11 At [117(a)].12 At [88]–[90] and [92]–[96].Mr Chang's favour that Ms Lee was required to pay him the balance of the ANZ loan then owing (assuming there would be reductions in the interim) in 10 years' time.13He also explained that the declaration would give rise to an equitable charge over Sunnynook in Mr Chang's favour in order to ensure that Ms Lee discharged her obligation to repay.14Appeal[17] Ms Reed submits that Fogarty J erred in finding that Mr Chang intended the advance to be a loan. However, even if Mr Chang did intend to provide a loan to Ms Lee, she submits that Ms Lee holds the property on a resulting trust for Mr Chang in shares proportionate to their contributions to the purchase price. In this respect proof of a positive intention to obtain a beneficial interest in Sunnynook was not required — in accordance with settled principles, all that was necessary was proof of an intention not to benefit Ms Lee. Therefore, Ms Reed submits, Fogarty J erred in imposing a formal loan arrangement through a hybrid of contractual and equitable concepts.DecisionResulting trust[18] Our starting point is with the principle explained by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council.15A resulting trust arises in circumstances where:16 A makes a voluntary payment to B or pays (wholly or in part) for the purchase of a property which is vested in either B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of the joint purchase by A and B in shares proportionate to their contribution. It is important to stress that this is only apresumption, which presumption can be easily rebutted either by the13 At [109]–[110] and [118(a)].14 At [111]–[112] and [118(b)].15 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL).16 At 708 (emphasis in original) applied in Crampton-Smith v Crampton-Smith [2011] NZCA 308, [2012] 1 NZLR 5 at [35].counter-presumption of advancement or by direct evidence of A's intentionto make an outright transfer [19] Lord Browne-Wilkinson went on to state that:17 resulting trust[s] are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention. If the settlor hasexpressly, or by necessary implication, abandoned any beneficial interest in the trust property, there is no resulting trust [20] The rationale for a resulting trust is that, absent evidence to the contrary, the law presumes a person intends to retain the beneficial ownership of funds which he or she advances towards the purchase price of a property. The legal owner holds title to the property subject to the payer's equitable interest. In this way a trust results tothe payer to the extent of his or her contribution. Evidence which might contradict or rebut the presumption is traditionally of an intention to gift or of consideration in the nature of satisfaction of independent indebtedness, both of which Fogarty J rejected here.[21] In the absence of an agreement on terms, the Court's inquiry into Mr Chang'sintention as settlor must be confined in its scope to the question only of whether he intended to part with beneficial ownership through payment of the funds. We agree with Ms Reed that this is the starting point and end point of the Court's inquiry. The status of the payment determines whether the presumption applies.[22] However, a finding that Mr Chang did not intend to transfer ownership of his advance to Ms Lee but instead acted with the intention of lending the money for a certain term cannot justify the Court constructing an agreement where one was never reached. Lord Browne-Wilkinson's reference to the parties' common intention is to their respective intentions about beneficial ownership of the advance. While this language resembles that of contract, we are not here concerned with whether the parties agreed to be bound by a mutually beneficial bargain — it is accepted they did not. The question is whether their common intention was for Mr Chang to transfer the money for a specific purpose rather than to effect an17 At 708.outright transfer of ownership through which Ms Lee can now treat the property as her exclusive asset.18 In the former case equity fastens on Ms Lee's conscience and presumes a common intention for Mr Chang to benefit from the application of the funds. There can be no presumed intention of a contractual nature about the terms and conditions on which the money was received if one never existed.Analysis[23] Mr Chang's appeal must be addressed within that legal framework.On Fogarty J's findings, Ms Lee wished to select and purchase in her own name a home in Auckland. She also wanted a substantial contribution towards the purchase price from Mr Chang with the necessary inference that the transaction could not proceed without it. Ms Wang on her daughter's behalf proposed that he use Delamere Court as the security for his contribution. It was understood that Mr Chang would work for 10 years or so at Goal to repay the mortgage. Otherwise there was no agreement on the terms of his advance. An arrangement for an informal allocation of funds and responsibilities across an extended family is not beyond the reach of equity.19[24] Fogarty J's uncontested findings establish that Mr Chang did not advance the funds for Ms Lee's beneficial ownership, whether as an outright gift or to settle related familial indebtedness. The Judge found that Mr Chang did not intend to part with ownership of the advance. It followed that the classical elements of a resulting trust existed. That should have been the end of the inquiry and, in the absence of an agreement about the terms of his advance, Mr Chang must be entitled to an equitable interest in the property. There is nothing in the nature of the relationship between Mr Chang and Ms Lee giving rise to the counter-presumption of advancement.20[25] In adopting a different course, Fogarty J relied on his findings that Mr Chang intended the advance to be by way of loan; that he had no expectation of an ownership interest in the property; and that Ms Lee had to accept Mr Chang'sintention, despite the absence of a contract binding in law, and deal with the money18 Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1984] 3 WLR 1016 (Ch) at 1025.19 Re Muller [1953] NZLR 879 (SC); Re Vinogradoff [1935] WN 68.20 See Jessica Palmer "Resulting Trusts" in Andrew Butler (ed) Equity and Trusts in New Zealand(2nd ed, Thomson Reuters, Wellington, 2009) 307 at [12.5.4].accordingly.21 The Judge accepted Mr Wiles' submission, which he repeated beforeus, relying on a statement from Hudson's Equity and Trusts that a prerequisite for a resulting trust is the settlor's demonstration that he contributed to the purchase pricesolely for the purpose of acquiring an interest in the property.22 Hudson gave the example of a contributor of funds who intended only to make a loan to another person for the purpose of buying a house. In Hudson's view that is insufficient for the lender to acquire any rights in the property. Similarly Pettit on Equity and the Law of Trusts notes that the evidence must show the person alleging a resulting trust had advanced the money in the character of a purchaser.23[26] We accept that those statements of principle would apply if, for example, Mr Chang's advance was made pursuant to a loan agreement and the parties'intentions were clear. That is because a lender cannot lever off the contractual arrangement to acquire an additional proprietary interest beyond any security pledged by the borrower. But this case is different. While Mr Chang may have proceeded on the unilateral intention of lending the money, the parties never agreed to that effect and there is no finding that Ms Lee received the funds on that condition. Equity cannot create consensus. If viewed through the lens of orthodox contract law, there was no consideration for the advance and that crucial element cannot be satisfied retrospectively by judicial construction of terms and conditions on which the parties never agreed. As the Judge himself found, neither party wasable "to reduce what happened to a bargain enforceable under the law of contract".24[27] All that is required, where the terms of the advance are not agreed, is to apply the presumption of equitable ownership in the acquired property. The settled principle applies that where the money to purchase a property has been provided by two persons for that very purpose the property is held in proportion to the funds provided.25 The principle does not require a further gloss in the circumstances of this case by refining the purpose of advancing the money to acquisition of a21 Chang v Lee, above n 1, at [88].22 Alastair Hudson Equity and Trusts (9th ed, Routledge, London, 2017) at [11.4.4]. Mr Wiles and Fogarty J referred to the fifth edition of the text, which has undergone no material changes.23 Philip H Pettit Equity and the Law of Trusts (11th ed, Oxford University Press, Oxford, 2009) at 117.24 Chang v Lee, above n 1, at [56].25 Pettitt v Pettitt [1970] AC 777 (HL) at 814 per Lord Upjohn.proprietorial interest. We repeat that a resulting trust takes effect once it is established that the settlor did not intend to part with beneficial ownership of the contribution. By using as its reference point the property acquired with that contribution (to which the funds can be traced directly and without controversy) equity recognises that any benefits attaching to its acquisition should be sharedaccording to the parties' respective contributions. Whether conceptualised as a presumption of non-beneficial transfer26 or as a response to an absence of consideration,27 the law of resulting trusts provides an equitable remedy where an injustice would otherwise result.[28] In our judgment the law does not require the settlor to prove a positive intention to own of the scope proposed by Hudson. Here a resulting trust serves the purpose of filling a lacuna in the parties' legal relationship by operating on therecipient's conscience. Fogarty J found that Ms Lee was not entitled to retain Mr Chang's contribution. But we are not satisfied that his construction of a hybrid equitable loan — thereby excluding Mr Chang from an equitable interest in Sunnynook except insofar as a charge might be said to arise — did equity between the parties. Instead his declaration has by its terms bestowed an unfair advantage on Ms Lee, allowing her to obtain the share of the inflated value of the property attributable to Mr Chang's contribution in circumstances where (a) she will have the use of the money for 10 years interest-free; and (b) the agreed proposal for Mr Chang to work at Goal for 10 years failed. It is unclear on what legal basis she would be absolutely entitled to use of the funds but subject to a contingent or suspended obligation in equity to repay.[29] It has not been necessary for us to address Ms Reed's alternative submissionthat Fogarty J erred in finding that Mr Chang's advance was intended to be a loan. However, we acknowledge the force of her submission that the Judge's loan findingappears to run directly counter to his finding that the parties agreed Mr Chang should enjoy 10 years of employment at Goal to enable repayment of the loan. That26 Peter BH Birks "Restitution and Resulting Trusts" in Stephen R Goldstein (ed) Equity and Contemporary Legal Developments (Hebrew University of Jerusalem, Jerusalem, 1992) 335 at 346.27 Robert Chambers "Is There a Presumption of Resulting Trust?" in Charles Mitchell (ed)Constructive and Resulting Trusts (Hart Publishing, Oregon, 2010) 267 at 283.arrangement would make no sense if the same amount which he repaid to ANZ Bank was to be repaid to him by Ms Lee. Its existence is consistent with a direct contribution to the purchase price and, in the absence of an intention to gift outright or to contract on certain terms, we must recognise an enforceable equitable interest.[30] In our judgment equity will be done in this case if an order is made pursuant to s 339(1) of the Property Law Act 2007 for sale of the property and division of the proceeds between Ms Lee and Mr Chang according to their respective shares. In coming to this conclusion we have taken into account the specific factors mandated by s 342. In particular, we are satisfied that the hardship caused to Mr Chang by refusing to make an order for sale would be greater than any hardship caused to Ms Lee by making an order. It would be open to Ms Lee in the six months before our order for sale takes effect to buy Mr Chang's share at a fair price to be agreed between them.Result[31] The appeal is allowed.[32] We declare that Ms Lee holds 48.6 per cent of the value of the Sunnynook property on trust for Mr Chang to be secured by a notice of charge against the title; and order that the property be sold on or before 1 January 2018 and the proceeds of sale after deduction of the associated costs be divided accordingly.[33] Ms Lee is ordered to pay Mr Chang costs on a band A basis together with usual disbursements.Solicitors:Prestige Lawyers Ltd, Auckland for AppellantMurdoch Price Ltd, Manukau for Respondent