XIE v 126 WAIMUMU LIMITED [2020] NZHC 1109

XIE v 126 WAIMUMU LIMITED [2020] NZHC 1109 [25 May 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-449[2020] NZHC 1109UNDER the Land Transfer Act 2017, Section 143IN THE MATTER OF an application that a caveat 11675350.1do not lapseBETWEEN CHUNHONG XIEApplicantAND 126 WAIMUMU LIMITEDRespondentHearing: 25 May 2020Appearances: J Moss for the ApplicantT J Herbert for the RespondentJudgment: 25 May 2020ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLSolicitors:Righteous Law (Jared R Moss), Greenlane, Auckland, for the ApplicantForest Harrison Lawyers (Joy Luo), Auckland, for the RespondentCopy for:T J Herbert, Auckland, for the Respondent[1] Chunhong Xie, a businesswoman, applies under s 143 of the Land Transfer Act2017 for an order that caveat 11675350.1 registered against the title to the land at 126Waimumu Road, Massey, Auckland, not lapse. The respondent, 126 Waimumu Ltd,is the registered proprietor. The caveat says:The caveator claims an estate or interest in the land herein by virtue of abeneficial interest as a beneficiary under an implied trust, whereby theregistered proprietor has agreed to, in exchange of (sic) investments by thecaveator in the registered proprietor, develop the land herein for the mutualbenefit of the registered proprietor and the caveator and as a fiduciary of thecaveator.The basis for her claim is that she contributed funds towards the purchase of theproperty at 126 Waimumu Road and made later payments. The payments were not aloan but a capital contribution in that she was to have a property interest in return forher investment.[2] In opposition, 126 Waimumu Ltd accepts that she did contribute funds to buythe property, but it denies that she was to have a direct interest in the land itself. Itsays that her interest was a shareholding in the company, 126 Waimumu Ltd. Whilean interest in land may be protected by a caveat, a shareholding in a company whichowns land does not give a caveator an interest in the land itself. Amongst theauthorities it relies on are Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd1and Mahon v The Station at Waitiri Ltd.2[3] This is another case in which one person has provided funds to another to investin property where clear arrangements have not been recorded in writing as to the basison which the investment was made. The evidence suggests that the parties may nothave clearly turned their minds as to the nature of the claimant. Instead, the job of thecourt is to look at the arrangements and characterise the legal effect of what the partiesdid.1 Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd HC Christchurch, M655/89, 18 December1989.2 Mahon v The Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760.General principles on caveat applications[4] I am required only to establish whether the applicant has a clearly arguablecase for the interest she has claimed in her caveat. That comes from the generalprinciples on which the courts decide caveat applications. In Holt v AnchorageManagement Ltd, McMullin J stated the purpose of the caveat against dealings underthe Land Transfer Act 1952:3Once lodged, a caveat is notice to all who search the title to the land againstwhich it is registered and to the registered proprietor of the land (to whomnotice of its receipt is given pursuant to s 142) that the caveator claims theestate or interest the subject of the caveat. It is both a warning to the personsmentioned that the caveator asserts rights against the land and a protection ofthose rights. (Section 143(1) uses the phrase "protected by the caveat"). Oncethe caveat is lodged the Registrar is prohibited from making any entry on theregister which has the effect of charging or transferring or otherwise affectingthe estate or interest protected by the caveat (s 141).Although that case was decided under the Land Transfer Act 1952, his statementequally applies to caveats under the Land Transfer Act 2017. The 2017 Act, whichrepealed the 1952 Act, applies here. The 2017 Act came into force in November 2018,before Ms Xie lodged her caveat and filed her application (11 March 2020). Thejurisdiction of associate judges to decide caveat cases has been continued under the2017 Act.4[5] In caveat applications under ss 142 and 143 of the 2017 Act, the caveatorgenerally has the onus of showing a reasonably arguable case for the interest claimed.The interest must come within s 138(1):138 Caveats against dealings with land(1) A person may lodge a caveat against dealings with an estate or interestin land (a caveat against dealings) on the basis that the person—(a) claims an estate or interest in the land, whether capable ofregistration or not; or(b) has a beneficial estate or interest in the land under an express,implied, resulting, or constructive trust; or3 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 10–11.4 Land Transfer Act 2017, s 250 and Schedule 2, amending s 20(1)(e) of the Senior Courts Act 2016to refer to the 2017 Act.(c) is transferring the estate or interest in the land to anotherperson to be held on trust; or(d) is the registered owner of the estate or interest in the landand—(i) has an interest that is distinct from that of registeredowner; or(ii) establishes to the satisfaction of the Registrar that atthe time the caveat is lodged there is a risk that theestate or interest may be lost through fraud.[6] The interest does not have to be registerable, but a personal or contractual rightis not enough. Something more than a potential or future interest is required. Aninterest in the proceeds of sale of a property is not an interest in the property itself. Itcannot be protected by a caveat.5 Similarly, a claim to a shareholding in a companythat owns land is not without more a claim to an interest in the land itself.6 That isbased on the principle that a shareholder does not have a beneficial interest in theassets of the company.[7] A caveat must contain the "prescribed information" which includes: 7a description of the nature of the estate or interest claimed by the caveator(which must be stated with sufficient certainty) Details of how the estate or interest claimed is derived from the registeredowner.[8] Caveat applications are summary and are therefore not suitable for decidingdisputed questions of fact. On the other hand, a court is not required to acceptuncritically as raising a dispute of fact which calls for further investigation everystatement in an affidavit, however equivocal, lacking in precision, inconsistent withundisputed contemporary documents or other statements by the same deponent orinherently improbable it may be. To establish a reasonably arguable case, there mustbe some evidence tending to prove the facts relied on. Assertion, whether in pleadingsor affidavits, is not enough. The evidence need not be as extensive as that given in ahearing on the substantive merits. It may be circumstantial. But if there is no evidence5 Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA).6 Ten Pin Properties Ltd v Bowlarama (New Zealand) Ltd, HC Christchurch, M655/89, 18December 1989, and Mahon v Station at Waitiri Ltd [2017] NZCA 387, (2017) 18 NZCPR 760.7 Land Transfer Act 2017, s 138(3) and Land Transfer Regulations 2018, Schedule 2.to prove the facts contended for, the caveator will not have made out a reasonablyarguable case for those facts.[9] Where it is sought to remove a caveat protecting an interest under s 138(1), itmust be patently clear that the caveat cannot stand either because there was no groundfor lodging it at the outset or because any such ground no longer exists. The court hasa residual discretion not to uphold a caveat. But that is exercised cautiously, as whenthe caveat could serve no useful purpose or alternative safeguards are available. InPacific Homes Ltd (in rec) v Consolidated Joineries Ltd, the Court of Appeal said:8We are of the view that in the dictum in Sims v Low, Somers and Gallen JJwere concerned with the situation which was then before the Court and werenot putting their minds to a situation in which there is no practical advantagein maintaining a caveat lodged by someone who could properly claim acaveatable interest. In such circumstances, the Court retains a discretion tomake an order removing a caveat though it will be exercised cautiously. Anorder will be made for removal only where the Court is completely satisfiedthat the legitimate interests of the caveator will not thereby be prejudiced. If,on the facts of a case, it can be seen that the caveator can have no reasonableexpectation of obtaining benefit from continuance of the caveat in the form ofthe recovery of money secured over the land or specific performance of anagreement or if the caveator's interest can be reasonably accommodated insome other way, such as by substituting a fund of money under the control ofthe Court then it may be appropriate for the caveat to be removednotwithstanding that the right to a claimed interest is undoubted.The applicant's evidence[10] Ms Xie has sworn an affidavit, as has a director of 126 Waimumu Ltd, Mr LuyuJia. A difficulty with both witnesses is that they are working with limited information.[11] Ms Xie says that the property at 126 Waimumu Road, Massey is some 2,500square metres in area. It has a dilapidated house on it. She has a son, Nick. InNovember 2016, her son told her that his friend, Sky Shen, was looking to buy theproperty and subdivide it. She had dealt with Sky once before, on a propertydevelopment in Takanini, and she was happy with the way that had worked so she wasinterested in this project as well. She says that there were discussions about buyingthe property although she does not say whom she had the discussions with.8 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656; cited inStewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA) at [22].[12] On 15 November 2016, she paid $77,000 to 126 Waimumu Ltd. She was notprovided with any agreement for sale and purchase for the property but was simplyinformed that the property had been bought by 126 Waimumu Ltd. She says it wasagreed that 126 Waimumu Ltd was to develop the property and investors would putmoney in and would share profits from the development and any consequential sale.[13] She made other payments:29 November 2016 $2,000.0029 November 2016 $16,500.00 (paid to Junyi Zhang to payhim back for money paid onher behalf)12 January 2017 $900.007 February 2017 $500.009 February 2017 $500.006 March 2017 $1,300.00She says that the later payments were towards the upkeep of the property, insuranceand rates. Copies of her bank statements are in evidence.[14] Shares in 126 Waimumu Ltd were issued in 2016, but she says that she was notaware of this and she was not shown as a shareholder of the company. She hasprovided in her evidence a list of the shareholders at incorporation: Jigang Shen (Sky)25 shares, Luffy Homes Ltd 20 shares and others. None of the others held more sharesthan Sky Shen or Luffy Homes Ltd.[15] She says that since 2016 there has been no progress in developing the propertyand no resource consents were applied for. Luffy Homes Ltd began buying out theshares held by other investors, but she was not given any explanation for this. Shewas allocated a shareholding in July 2019, but she was not aware of this at the time.She never signed anything to become a shareholder in the company. She made afurther advance of $27,000 in June 2019 – $20,000 was to repay funds borrowed fromthe company and $7,000 was a contribution towards the development.[16] In December 2019 she was called to a meeting. She met with a Mr Lawson,directors of Luffy Homes Ltd, and a Mr Yang Zhang, another investor. She was toldthat the company required an injection of $300,000 and she would have to payaccording to the proportion of her shareholding, that is, another $30,000. She saysthat part of that fund was to be salaries for the directors of Luffy Homes Ltd, but sheobjected to that. Some of the funds were to be used for renovating the existing houseon the property. She considered that this had no commercial sense. Seeing that thenature of the project had changed she wanted her money out. The directors offeredher $68,000 but she rejected that offer.[17] Since then she has been entirely cut off from the affairs of the company. InFebruary of this year, one of Luffy Homes' directors contacted her and told her thatLuffy had bought the shares from Mr Zhang. The upshot of that was that Luffy HomesLtd is said to have all the shares in the company except those held by her. She lodgedthe caveat to protect her interest.The respondent's evidence[18] Luyu Jia, a director of 12 Waimumu Ltd has provided an affidavit. At presentthat affidavit has not been sworn because of the difficulties in administering oathsduring the COVID-19 pandemic. I was advised that he would in due course swear hisaffidavit. I deal with his affidavit on the assumption that it will be sworn and acceptit accordingly.[19] He explains that he is now the sole director of 126 Waimumu Ltd and has beensince October 2019. He is also one of two directors of Luffy Homes Ltd, which owns90 per cent of the shares in 126 Waimumu Ltd. Ms Xie holds the remaining 10 sharesin the company.[20] In mid-2016, Luffy Homes Ltd was approached by Sky Shen who was puttingtogether a joint venture to buy 126 Waimumu Road. The plan was that a resourceconsent to allow subdivision would be obtained, then the property would be put on themarket and sold to a developer, hopefully at a profit. Luffy Homes Ltd agreed to putin 25 per cent for the purchase. There would be a vehicle for the joint venture and 126Waimumu Ltd was incorporated in September 2016 as the joint venture vehicle. LuffyHomes would, in turn, receive 25 per cent of the shareholding. Mr Jia says that he wasnot made aware of the other initial shareholders but has since found out who they were.He has set them out in a table. Relevantly, Ms Xie is not shown as one of theshareholders. He refers to various changes in shareholding during 2016. These werechanged so that Luffy Homes Ltd was a 20 per cent shareholder, a Mr Chen a 70 percent shareholder and a Mr Chengyu Chang a 10 per cent shareholder. The explanationgiven for these changes was to ensure that there was a majority shareholder. Thatwould assist with raising finance. It was understood that those shares would notrepresent the actual contributions made by the various investors towards the purchase.To that extent, that mean that the shares were held on trust for others. Mr Jia says thatthat was recognised in a shareholders' agreement. The shareholdings shown in thatagreement were:Sky 10 percentLuffy Homes 25 per centNick 10 per centPat 10 percentJack 20 per centLeo 5 per centZhang Yang 10 per centJason 10 per cent[21] The agreement is mainly in Chinese, although the names are given in Europeanscript. The agreement is not, however, signed. I was told that it had been circulatedamongst those whose names are set out. The "Nick" appears to refer to the applicant'sson but there is no reference in the agreement to the applicant being a party to theagreement or being a shareholder.[22] Mr Jia says that from November 2016 he was jointly in charge of therespondent's day-to-day accounts. In carrying out his work he was assisted by Nick.He understood that Nick was an investor recruited by Sky. Only later did he learn thatNick was the son of the applicant. Nick has since returned to China. Nick was fullyaware of the activities of the respondent and had access to the bank account. Nickwould have been aware of the changes in shareholding.[23] The purchase price of the property was $1.6 million which was in part fundedby a loan secured by mortgage from FM Custodians Ltd for $666,000. The remainderwas contributed by investors. He refers to the applicant having paid $79,000 in twoinstalments. That appears to be information he has learned since 2016.[24] Nick organised a residential tenancy of the property. The property was rentedout from April 2017 until December 2017. A resource consent to allow the subdivisionof the property was granted in April 2017. The investors had a celebratory dinner at arestaurant. Nick attended but there is no reference to the applicant attending thedinner. The property has been unoccupied since December 2017.[25] In 2019, 126 Waimumu Ltd was considering refinancing the property and waslooking to arrange finance with the Kookmin Bank. The refinancing occurred in June2019. Ms Xie was aware of the refinancing and made some payments for the costs ofrefinancing.[26] Following that refinancing, there was a reorganisation of the shareholding. Heacknowledged that this was the first time that the applicant was shown legally as ashareholder of 126 Waimumu Ltd. Later, Luffy Homes bought out other shareholders,eventually holding 90 of the 100 shares in the company. He contacted Nick about thisbut found out that Nick was in China. Nick told him that he should deal with hismother.[27] He confirms that there was a meeting in late December 2019. His account ofthe meeting differs somewhat from that of the applicant. The upshot is that the partiesremained apart and were unable to resolve matters. Luffy Homes called ashareholders' meeting on 19 December 2019 but Ms Xie did not attend. Mr Jiacontends that Ms Xie is a minority shareholder who is refusing to sell her shares,refusing to take part as a shareholder in the company, refusing to contribute to theongoing expenses of 126 Waimumu Ltd and is refusing to commit any further fundsfor the development of the property. He contends that her caveat is vexatious and iscalculated to stymie the company in its proposed development.[28] There is no reply evidence from Ms Xie. I do not regard the evidence of theapplicant or Mr Jia as giving a complete account of what has happened. Other peoplewere involved at the outset and have not so far given any evidence. Mr Sky Shen putthe project together but so far he has not given any evidence. The applicant's son,Nick, now in China, might be able to provide more useful information as well. I haveto deal with the case on the basis of limited information. I accept that both theapplicant and Mr Jia have tried to put before the court what information they have, butthat information is limited. Caveat applications are brought on at fairly short notice.I do not criticise the applicant because she did not obtain evidence from her son inChina. Trying to obtain evidence from someone overseas at short notice is usuallyvery difficult. There are legal and logistic difficulties. There will also be difficultiesarising from the recent pandemic. Equally, I accept that Mr Jia has tried to put beforethe court what he can, even though at the outset he had limited information also.Accordingly, I bear in mind that if there were a full hearing, there is likely to be moreextensive evidence than what has been provided today.Ms Xie's interest[29] Ms Xie has to show a reasonably arguable case for an unregistered interest inthe land. It must be an interest claimed in the caveat. When she made the payment in2016 towards the purchase of the property, she was clearly not making a gratuitouspayment, a gift. She put money in on the basis that she would get something back.The payment was made in conjunction with a proposed joint venture. It was clearly acommercial context where she hoped to receive some return for her payment. Oneexplanation might be that she lent money to 126 Waimumu Ltd. Indeed, later on shewhen she wanted her money out, she asked to be repaid with interest. But for thecaveat application, it is reasonably arguable for her that she was putting money in byway of capital – that is, taking an equity interest in the joint venture and was not merelyadvancing funds by way of loan. If there had been a loan, one might expect to seeevidence as to an agreement for interest but at present there is nothing in the case tosuggest that. She made further payments which are consistent with her having anequity interest in the property: payments for outgoings, and contributions to the costsof refinancing. Certainly, a lender might advance funds to a borrower but that seemsless likely in this case. If she were only a lender, and there were no security for theloan, she would not have a caveatable interest in the property. But at this stage, it isarguable for her that she did more than lend her money to the company. So it isarguable for her that that she was making a capital contribution and would have someequity interest in the project.[30] The question then is whether that was an interest in the company under whichshe was to have a shareholding, or whether she took an interest in the land itself. UnderMr Jia's evidence, there was an investment on the basis that 126 Waimumu Ltd wasto be a joint venture vehicle through which various investors contributed and throughwhom the investment in the land was to take place. While that represents hisunderstanding, there is a difficulty for 126 Waimumu Ltd because Ms Xie was notrecorded as a shareholder at the outset when she put her money in. An explanationhas been given for juggling the shareholdings so as to set up a significant majorityshareholder to raise finance. The shareholders' agreement was relied on. But Ms Xieis not a party to that shareholders' agreement. This was apparently all done withouther knowledge.[31] It was submitted that she is bound by that because her son was acting as heragent. But it is not clear that her son was her agent, although he made the introductionand proposed the investment. The evidence is also consistent with his acting as anagent of the company, as in his management role. It is not clear that his name on theshareholders' agreement necessarily binds his mother. It is at least arguable for herthat that arrangement was made without her knowledge and consent. Whether she isbound by it is an issue for trial.[32] Mr Herbert pointed to weaknesses in the evidence for Ms Xie. The caveatrefers to an agreement, but he submitted that the evidence as to the agreement is sparse.While Ms Xie said that she was told of some things, her evidence is uninformative asto her being told of those things. He also points to the general circumstances whereall the other investors took a shareholding, and there would have been an oddarrangement if she were not treated in the same way as the other investors.[33] I accept that those matters point to weaknesses in her case. Mr Herbert urgedme to take a robust approach on this. While I bear that in mind, I also take account ofthe Court of Appeal's decision in Mahon v The Station at Waitiri Ltd.9 In that case, Ihad held that there was not a caveatable interest in land. I gave a range of reasonsincluding a finding that the applicant's case was implausible. On appeal, the Court ofAppeal rejected most of my grounds and upheld my decision on a narrow basis,namely that the interest claimed by the applicant was an interest in shares in acompany, not an interest in land. That is a warning against taking too robust anapproach. In this case, people have gone into a property project, jointly, without takinga lot of care in recording their arrangements. To a large extent, they have relied ontrust and hope that matters will all work out without bothering too much with thepaperwork and getting the details right. Against that background, I need to be cautiousabout being dismissive of the applicant's case. I am satisfied that she has an argumentfor an interest in the property as opposed to an interest in the company owning theland.[34] There is a question how that interest is to be categorised. The caveat refers toan implied trust without being more specific whether it is a resulting trust or aconstructive trust. Mr Moss argued for a constructive trust, but it occurred to me thatit could equally well be explained as a resulting trust, on the basis described by LordBrowne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LondonBorough Council:10Under existing law a resulting trust arises in two sets of circumstances;(A) where A makes a voluntary payment to B or pays (wholly or in part) forthe purchase of property which is vested either in B alone or in the jointnames of A and B, there is a presumption that A did not intend to make agift to B: the money or property is held in trust for A (if he is the soleprovider of the money) or in the case of a joint purchase by A and B inshares proportionate to their contributions. It is important to stress thatthis is only a presumption, which presumption can be easily rebutted eitherby the counter presumption of advancement or by direct evidence of A'sintention to make an outright transfer It is arguable for Ms Xie that there was a joint purchase by herself and by 126Waimumu Ltd in which they owned the property in shares proportionate to theircontributions.9 Mahon v The Station at Waitiri Ltd [2017] NZCA 387.10 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at708.[35] Accordingly, I find that she does have a caveatable interest.[36] There are, however, conditions to my order sustaining the caveat. The first isthat Ms Xie must begin a proceeding to obtain an order upholding the interest whichshe claims in her caveat. She is to file that proceeding by 22 June 2020 in the DistrictCourt. Counsel agreed that the District Court has jurisdiction, as the amount in issueis well within the $350,000 limit.[37] The other condition is to ensure that Ms Xie does not use her caveat to harassor stymie 126 Waimumu Ltd. The company wants to get on with the developmentproposals. It may need to refinance and it may find a purchaser for the property. Thoseplans could be thwarted if Ms Xie were to refuse consent to further dealings with theproperty. It will be a condition of the order sustaining her caveat that she is to consentto any reasonable third party arm's length transactions with the property, including byway of refinancing or sale. In the event of sale, her interest in the proceeds of sale isto be protected, for example, by the proceeds being set aside to await anydetermination. I have expressed this condition in general terms. I ask counsel toconfer and fine-tune those terms. I reserve leave to come back for further orders ifthere is difficulty in reaching agreement on the terms of that condition.[38] Ms Xie is entitled to costs on the application. This is a category 2 proceeding.For the hearing today, the costs will be for one half day. If counsel cannot agree costs,leave is reserved to file memoranda and I will decide costs on the papers..Associate Judge R M Bell