CHEN v AUCKLAND WEIHAO INVESTMENTS LTD [2020] NZHC 2450

CHEN v AUCKLAND WEIHAO INVESTMENTS LTD [2020] NZHC 2450 [18 September 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-001200[2020] NZHC 2450BETWEEN LIYUN CHENApplicantAND AUCKLAND WEIHAO INVESTMENTSLIMITEDRespondentHearing: 24 August 2020Appearances: Applicant in Person with A Lau as McKenzie FriendJ A Wickes for the RespondentJudgment: 18 September 2020JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 18 September 2020 at 3.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Loo & Koo, AucklandIntroduction[1] The applicant, Ms Chen, applies for an order under s 143 of the Land TransferAct 2017 (the LTA), that caveat 11786226.1 (the Caveat) not lapse. The Caveat islodged against land at 285 Murphys Road, Flat Bush (Lot 1, Deposited Plan 510556,Record of Title 782243) (the Property), which is owned by the respondent,Auckland Weihao Investment Ltd (AWIL).[2] AWIL opposes the order being made.[3] Ms Chen has filed a substantive proceeding in this Court which is in its earlystages: CIV-2020-404-001236. Ms Chen has two outstanding interlocutoryapplications in that proceeding:(a) An application to set aside AWIL's settlement notice; and(b) An application for particular discovery against AWIL and a non-party.[4] Both applications are opposed by AWIL.[5] At the hearing of this application, and on Ms Chen's request, I made an interimorder that the Caveat not lapse until my judgment was delivered.Factual background[6] On 16 October 2019, the parties agreed to the sale and purchase of theProperty, with AWIL as vendor and Ms Chen as purchaser (the SPA).Ms Chen was to pay a 10 per cent deposit. The SPA was not conditional on finance.The parties were legally represented. Settlement was to take place on 15 June 2020,but AWIL granted Ms Chen a one-week extension without penalty on 11 June 2020.[7] On 22 June 2020, AWIL, on Ms Chen's request, agreed to provide vendorfinance of $3 million on the condition that a second mortgage in its favour would besecured over the Property and other properties, and that the loan was to be repaidwithin three months. On that same date, Ms Chen agreed to AWIL's terms of vendorfinance. She nominated LC1521319 Development Co Ltd (the LC Company) topurchase the Property.[8] On 24 June 2020, Ms Chen's solicitor forwarded to AWIL's solicitor the termloan agreement signed by Ms Chen and the LC Company (the Loan Agreement). TheLoan Agreement specified a principal sum of $3 million, repayable in one sum on theexpiry date, three months from the date of drawdown (stated to be 23 September2020). Interest of $75,000 was to be capitalised and paid in advance on 24 June 2020.The loan was secured by second mortgages over the Property and three otherproperties set out in a schedule to the Loan Agreement. Ms Chen's solicitors alsoshowed their e-dealing number.[9] On 25 June 2020 at 11.41 am, AWIL's solicitor advised Ms Chen's solicitor ithad signed and certified its transfer on the e-dealing and gave undertakings toMs Chen's solicitor.[10] On 25 June 2020 at 3.23 pm, Ms Chen's solicitor forwarded a Deed of Priorityand Subordination (the Deed) to AWIL. The Deed prevented AWIL from being paidor enforcing its security until the first security-holder, Vincent Capital Ltd, was fullypaid. AWIL's solicitor responded by pointing out that AWIL's loan was to be repaidwithin three months, which was shorter than the term of the first mortgage.[11] AWIL refused to agree to postpone receiving payment until Vincent Capitalwas paid. Accordingly, AWIL requested an amendment to the Deed such that AWILwould be repaid by the due date or otherwise able to enforce its security prior toVincent Capital being fully repaid. Despite discussions from 25 to 26 June 2020, noagreement was reached between Ms Chen, AWIL and Vincent Capital.[12] On 26 June 2020, AWIL offered to defer settlement on certain terms.Discussions between AWIL and Ms Chen continued into July, but ultimately noagreement was reached.[13] On 26 June 2020, Ms Chen registered the Caveat.[14] On 1 July 2020, AWIL served Ms Chen with a settlement notice.[15] On 19 July 2020, Ms Chen served AWIL with a statement of claim seeking,first, a refund of the 10 per cent deposit she paid under the SPA, and secondly, damagesfor AWIL's wrongful repudiation of the Loan Agreement.[16] On 21 July 2020, AWIL cancelled the SPA without prejudice to its rights underthe SPA.[17] On 21 July 2020, AWIL applied to the Registrar for the Caveat to lapse.Legal frameworkApplications that caveats not lapse[18] The right to lodge a caveat is set out in s 138(1) of the LTA. The relevant partof the section reads:A person may lodge a caveat against dealings with an estate or interest in land(a caveat against dealings) on the basis that the person—(a) claims an estate or interest in the land, whether capable of registrationor not; or(b) has a beneficial estate or interest in the land under an express, implied,resulting, or constructive trust; or(c) is transferring the estate or interest in the land to another person to beheld on trust; or(d) is the registered owner of the estate or interest in the land and—(i) has an interest that is distinct from that of registered owner;or(ii) establishes to the satisfaction of the Registrar that at the timethe caveat is lodged there is a risk that the estate or interestmay be lost through fraud.[19] The courts have long held that the caveator must have a specific legal orequitable interest in the land caveated.11 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 114.[20] By s 141 of the LTA, the effect of a caveat is that, while it remains in force, theRegistrar shall not make any entry in the register having the effect of charging ortransferring, or otherwise effecting, the estate or interest protected by the caveat.[21] The Court of Appeal in Botany Land Development Ltd v Auckland Councilsummarised the principles to be applied when considering an application for an orderthat a caveat not lapse.2 These are:(a) The onus is on the caveator/applicant to demonstrate that they have aninterest in the land that is sufficient to support a caveat, but they neednot establish that definitively.(b) The caveator/applicant must put before the Court a reasonably arguablecase to support the interest they claim.(c) The summary procedures involved in applications of this nature are notsuited to the determination of disputed questions of fact. An order forthe removal of a caveat will only be made if it is patently clear that thecaveat cannot be maintained — either because there was no validground for lodging one in the first place or, alternatively, that suchground has now ceased to exist.(d) Where the caveator/applicant has discharged the burden upon them, theCourt retains a residual discretion to remove the caveat which itexercises cautiously. Before it does so, the Court must be satisfied thatremoval would not prejudice the caveator's legitimate interest.[22] Where there is a conflict between the affidavits, the Court will generally preferthe evidence of the caveator.3 However, the Court is not bound to accept uncriticallystatements in an affidavit that are equivocal, lacking in precision, inconsistent with2 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. Seealso Philpott v Noble Investments Ltd [2015] NZCA 342.3 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94,17 June 1994.undisputed contemporary documents or other statements by the same deponent, orinherently improbable.4Issue[23] The issue in this application is whether Ms Chen has an estate or interest in theProperty sufficient to support the Caveat.Discussion[24] On the Caveat itself, Ms Chen claims an estate or interest as purchaser of theProperty under the SPA dated 16 October 2019.[25] It is settled law that if a purchaser of land is entitled to the equitable remedy ofspecific performance on entry into a binding contract, that purchaser obtains animmediate equitable interest in the land.5 The purchaser is therefore entitled to lodgea caveat against the title to protect that interest.6[26] If that was the interest claimed by Ms Chen when she lodged the Caveat, it isnot the interest she relies on to sustain the Caveat now. The case Ms Chen advancesin this application and her substantive proceeding is focused on the Loan Agreement.[27] In her application and affidavit in support, Ms Chen contends that:(a) AWIL unequivocally represented to her that it would provide thevendor finance of $3 million, and entered into a binding agreement withher to that effect; and(b) AWIL breached and repudiated that agreement by not providing thevendor finance as promised and agreed.4 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong vLetchumanan s/o Velayutham [1980] AC 331 (PC) at 341.5 DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed,LexisNexis) at [10.009(e)], citing Foreman v Hazard [1984] 1 NZLR 586 (CA) at 594.6 Holt v Anchorage Management Ltd, above n 1.[28] Ms Chen repeats these claims in the statement of claim in her substantiveproceeding. As relief, she claims: refund of the 10 per cent deposit she paid under theSPA; $50,000 for her deposit on a relocatable site office; general damages of $100,000for pain and suffering, humiliation, loss of enjoyment of life and distress; exemplarydamages of $50,000; interest and costs.[29] Ms Chen explained at the hearing that it is her case that AWIL had alreadyagreed on 24 June 2020 to provide vendor finance based on "an unconsented secondmortgage". She says that AWIL "changed its mind" and required a "consented secondmortgage". As evidence, Ms Chen points to an email between Vincent Capital and itssolicitor, where the solicitor says, "the vendor's solicitor has said that the vendorrequires the right to exercise any right of Enforcement if the Borrower fails to makepayment in full on the expiry of their loan" (emphasis added). She contends thatAWIL changed its mind and of its own volition contacted Vincent Capital's solicitor.[30] This series of events forms the crux of her substantive proceeding and thecurrent application. Ms Chen submits that the Court should order that the Caveat notlapse until the substantive proceeding, and her claims of misrepresentation andrepudiation with respect to the Loan Agreement, have been heard and determined.[31] Ms Chen has not established or even asserted a reasonably arguable case thatshe remains the purchaser under the SPA and can sustain the Caveat on that basis.AWIL cancelled the SPA on 21 July 2020 after Ms Chen failed to settle both on theextended settlement date and within the period of the Property Law Act notice issuedon 1 July 2020. Ms Chen has not advanced any credible argument as to why the SPAis not at an end following AWIL's cancellation. Her argument is with AWIL's failureto deliver on the Loan Agreement. The Loan Agreement was made some months afterthe SPA and the parties' performance of their obligations under the SPA is notdependent on performance of the Loan Agreement. Whatever the case with the LoanAgreement, Ms Chen has not made out a reasonable argument that the SPA was notvalidly cancelled by AWIL following her failure to settle. She has, therefore, notestablished a reasonably arguable case that she has an equitable interest in the Propertyas purchaser. The Caveat cannot be maintained on that basis.[32] That is enough to dispose of the application because if the original basis forclaiming a Caveat no longer exists, it cannot be maintained.7[33] However, AWIL also made submissions on whether Ms Chen could sustain acaveat based on an equitable lien for the deposit paid. When a contract for the sale ofland is cancelled by the purchaser, or avoided by failure of a contingent condition, thepurchaser may become entitled to recover from the vendor the amount of the depositpaid and, perhaps, other sums. In such circumstances, the purchaser has an equitablelien on the land for such amounts, and that lien will support a caveat.8[34] This is not a situation where a purchaser has purported to cancel the agreementfor sale and purchase and is seeking recovery of the deposit paid under the agreement.Ms Chen confirmed at the hearing that she does not contend that she has cancelled theSPA (although she considers herself entitled to do so based on AWIL's repudiation ofthe Loan Agreement). Her case is that she is entitled to damages following AWIL'smisrepresentation, breach and repudiation of the Loan Agreement.[35] Ms Chen does not assert, nor has she established, a reasonable argument thatshe is entitled to the refund of her deposit as a purchaser who has validly cancelled theSPA and that she has an equitable lien over the Property for that amount, which wouldsupport a caveat.[36] I will briefly address a side issue. Ms Chen submitted that AWIL and theirsolicitors acted improperly by applying to have the Caveat lapse on 16 July 2020,before the settlement notice had expired on 21 July 2020. Ms Chaoqun Chen, GeneralManager of AWIL, attested in her affidavit in opposition dated 28 July 2020 that theapplication was made on 21 July 2020. The application was not put in evidence, soI make no finding on this point, but it is not relevant to the issue of whether Ms Chencan sustain the Caveat in any case.7 Francis v Taradale West End Ltd (1998) 3 NZ ConvC 192,762 at 192,766.8 DW McMorland and others, above n 5, at [10.009(p)].Result[37] Ms Chen has not demonstrated that she has an equitable interest in the Propertysufficient to support the Caveat, either as purchaser under the SPA or, alternatively, onthe basis of an equitable lien over the Property in the amount of her deposit.[38] The application is dismissed. I hereby order that caveat 11786226.1 lodged bythe applicant against 285 Murphys Road (Lot 1 Deposited Plan 510556, Record ofTitle 782243) shall lapse.[39] AWIL is entitled to costs on a 2B basis. I will receive submissions bymemoranda within 14 days from AWIL and from Ms Chen seven days thereafter._____________________Associate Judge Gardiner